---
title: "Contract and contract negotiation"
subject: "ICT Project Management"
chapter: 13
key: "semester_7/ict_project_management:contract-negotiation"
source: https://www.bctengineer.com/q/semester_7/ict_project_management/contract-negotiation
site: BCT Engineering
---

# Contract and contract negotiation

ICT Project Management · Chapter 13: Project Procurement Management

- Asked in: year not given
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_7/ict_project_management/contract-negotiation
- Whole chapter: https://www.bctengineer.com/md/semester_7/ict_project_management/chapter-13

## Question

What do you mean by contract? Explain it with contract negotiation.

## Short answer

A contract is a binding legal agreement specifying scope, price, and terms. Negotiation clarifies requirements, responsibilities, and risks between buyer and seller, following preparation, bargaining, agreement, documentation, and signing to reach mutual consent.

## Answer

A **contract** is a mutually binding legal agreement that obligates the seller to provide the specified products, services or results and obligates the buyer to pay for them. It includes terms and conditions, and may include other items the buyer specifies. A valid contract needs offer, acceptance, consideration, capacity of the parties, free consent and a lawful object. In Nepal, contracts are governed by the National Civil Code 2074 (Muluki Civil Code), which replaced the Contract Act 2056; public bodies must also follow the Public Procurement Act 2063.

#### Contents of a contract
Scope of work/SOW, price and payment terms, schedule/delivery, acceptance criteria, quality and warranty, change control, roles and responsibilities, penalties (liquidated damages), termination, dispute resolution (arbitration), confidentiality, intellectual property and insurance.

#### Types of contracts
| Type | Risk |
|---|---|
| Fixed price (lump sum) | Seller bears cost risk |
| Cost reimbursable (cost plus) | Buyer bears cost risk |
| Time and material | Shared |

#### Contract negotiation
**Contract negotiation** is the process of discussion between buyer and seller to clarify the structure, requirements and other terms of the purchase, so that mutual agreement can be reached before the contract is signed. The final document language reflects all agreements reached.

Key points:
- Covers responsibilities, authority, applicable terms and law, technical and business management approaches, financing and price.
- Done by the project manager together with procurement and legal experts.

#### Steps
```text
Prepare -> Define objectives -> Open
  -> Discuss/bargain -> Agree -> Document -> Sign
```
1. Prepare: study proposals, set priorities, limits and alternatives (BATNA).
2. Exchange positions and clarify terms.
3. Bargain on price, schedule and risk allocation.
4. Reach agreement and record it in writing.
5. Carry out a legal review and sign.

#### Tips
Focus on interests rather than positions, be ready to compromise, keep records, aim for a win-win result, and do not neglect the long-term relationship.

**Example:** A university negotiates with an ERP vendor and agrees on a fixed price with milestone payments, 10% retention and a 1-year free support period.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. What is a contract?
   A. A non-binding promise
   B. A mutually binding legal agreement obligating the seller to provide and the buyer to pay
   C. A list of bidders
   D. A project schedule
   Answer: B. A contract is a binding legal agreement with obligations on both seller and buyer. (Key point: Contract definition)

2. In which contract type does the buyer bear the cost risk?
   A. Fixed price
   B. Cost reimbursable (cost plus)
   C. Lump sum
   D. None of them
   Answer: B. In cost-plus the buyer pays actual costs, so the buyer bears cost risk; in fixed price the seller bears it. (Key point: Contract risk)

3. What is contract negotiation?
   A. Discussion to clarify structure, requirements and terms so mutual agreement is reached before signing
   B. Awarding the contract without discussion
   C. Closing a contract after delivery
   D. Auditing the seller
   Answer: A. Negotiation clarifies terms so the final document reflects all agreements before signing. (Key point: Negotiation purpose)

4. Which is a good negotiation approach?
   A. Focus on positions, never compromise
   B. Focus on interests and aim for win-win
   C. Avoid keeping records
   D. Ignore the long-term relationship
   Answer: B. Focus on interests, be ready to compromise, keep records and seek win-win. (Key point: Negotiation tips)

## Related in ICT Project Management

- [Contract closure process](https://www.bctengineer.com/question.md?key=semester_7%2Fict_project_management%3Acontract-closure-process) — ICT Project Management, chapter 13
- [Contract administration process](https://www.bctengineer.com/question.md?key=semester_7%2Fict_project_management%3Acontract-administration) — ICT Project Management, chapter 13
- [Contract procurement performance review](https://www.bctengineer.com/question.md?key=semester_7%2Fict_project_management%3Aprocurement-performance-review) — ICT Project Management, chapter 13