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Contract

A legally binding agreement in which the seller is required to deliver the agreed product, service, or result, and the buyer is required to provide payment.

Key Points

  • Creates enforceable obligations for both buyer and seller.
  • Defines scope, deliverables, price, schedule, and terms and conditions.
  • Changes typically require formal change control and mutual agreement.
  • Common types include fixed-price, cost-reimbursable, and time-and-materials.

Example

A company hires a vendor under a time-and-materials contract at USD 120/hour, not to exceed USD 150,000, to configure an ERP module. The vendor provides qualified consultants and invoices monthly based on approved timesheets, while any scope additions require a signed change order.

PMP Example Question

Which statement best describes a contract in a project context?

  1. An internal document that lists the project's cost baselines.
  2. A legal agreement where the seller must deliver defined work and the buyer must provide payment.
  3. A risk response plan created by the procurement department.
  4. A nonbinding memorandum used to explore potential partnerships.

Correct Answer: B — A legal agreement where the seller delivers defined work and the buyer pays for it

Explanation: A contract creates enforceable obligations for delivery and payment, unlike internal plans or nonbinding documents.

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