Types of Contracts With Suppliers

A fixed-price contract is such a contract in which the size of payments does not depend on the time or resources that were spent for the completion of the assigned task. Therefore, the price of the services is specified in advance. According to Polinsky, the parties that sign this type of contract are insured against uncertainties, demand-side and supply-side. A fixed-price contract is used when there are straightforward tasks, deadlines, and evaluation criteria for each task, as in the case of the cleaning service mentioned above.

A time and materials contract is the opposite of a fixed-price contract because the customer’s payments depend on the time and material that the supplier used. The study conducted by Gopal and Sivaramakrishnan reveals that time and materials contracts are used primarily for “riskier projects with longer durations and larger teams.” From this, it could be inferred that this type of contract should be used when by the time of making a deal, it is impossible to accurately estimate how much time and materials the completion of the project will take.

A unilateral contract is the one according to which a client will pay the service provider only after the complete performance of discussed tasks. This contract is commonly used when the client requests a specific task, and the payment is received by a firm or an individual who accomplished the task. Unilateral contracts are hazardous and have always caused debates on whether they should be used or not. Nonetheless, unilateral contracts, as well as time and materials contracts, are used when the client has a request for some particular task and is willing to pay someone who completes it.

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