A formal contract is a legal document that defines the terms and conditions of the agreement between the project parties, such as the scope, schedule, budget, quality, deliverables, roles and responsibilities, payment methods, and dispute resolution mechanisms. A formal contract is essential for external projects, especially when there is an exchange of money involved, to protect the interests and rights of both parties and to ensure mutual understanding and compliance. A formal contract is different from a business requirement, which is a statement of the needs and expectations of the customer or stakeholder for the project outcome. A formal contract is also different from a client statement of work, which is a document that describes the work to be performed, the deliverables to be provided, and the acceptance criteria to be met by the project vendor or contractor. A formal contract is also different from a project charter, which is a document that authorizes the project and provides the high-level information about the project objectives, scope, stakeholders, and project manager. References = CompTIA Project+ Study Guide: Exam PK0-005, 3rd Edition, Chapter 4: Project Integration Management1; CompTIA Project+ Certification Study Guide, 3rd Edition, Chapter 4: Project Integration Management2; 11 Essential Documents To Use as a Project Manager3