12 Procurement Management Terms Flashcards
Alternative dispute resolution
When there is an issue or claim that must
be settled before the contract can be
closed, the parties involved in the issue
or claim will try to reach a settlement
through mediation or arbitration.
Bid
From seller to buyer. Price is the
determining factor in the decision-making
process.
Bidder conference
A meeting of all the project’s potential
vendors to clarify the contract statement
of work and the details of the contracted
work.
Claims
These are disagreements between the
buyer and the seller, usually centering on
a change, who did the change, and even
whether a change has occurred. Claims
are also called disputes and appeals, and
are monitored and controlled through the
project in accordance with the contract
terms.
Contract
A contract is a formal agreement
between the buyer and the seller.
Contracts can be oral or written—though
written is preferred.
Contract change control system
This defines the procedures for how the
contract may be changed. The process
for changing the contract includes the
forms; documented communications;
tracking; conditions within the project,
business, or marketplace that justify the
needed change; dispute resolution
procedures; and the procedures for
getting the changes approved within the
performing organization.
Contract statement of work (SOW also
CSOW)
This document requires that the seller
fully describe the work to be completed
and/or the product to be supplied. The
SOW becomes part of the contract
between the buyer and the seller.
Cost plus award fee contract
A contract that pays the vendor all costs
for the project, but also includes a buyerdetermined award fee for the project
work.
Cost plus fixed fee contract
A contract that requires the buyer to pay
for the cost of the goods and services
procured plus a fixed fee for the
contracted work. The buyer assumes the
risk of a cost overrun.
Cost plus incentive fee
A contract type that requires the buyer to
pay a cost for the procured work, plus an
incentive fee, or a bonus, for the work if
terms and conditions are met.
Cost plus percentage of costs
A contract that requires the buyer to pay
for the costs of the goods and services
procured plus a percentage of the costs.
The buyer assumes all of the risks for
cost overruns.
Direct costs
These are costs incurred by the project in
order for the project to exist. Examples
include the equipment needed to
complete the project work, salaries of the
project team, and other expenses tied
directly to the project’s existence.
Fixed-price contracts
Also known as firm fixed-price and lumpsum contracts, these are agreements that
define a total price for the product the
seller is to provide.
Fixed-price incentive fee
A fixed-price contract with opportunities
for bonuses for meeting goals on costs,
schedule, and other objectives. These
contracts usually have a price ceiling for
costs and associated bonuses.
Fixed-price with economic price
adjustments
A fixed-price contract with a special
allowance for price increases based on
economic reasons such as inflation or the
cost of raw materials.
Force majeure
An “act of God” that may have a negative
impact on the project. Examples include
fire, hurricanes, tornadoes, and
earthquakes.
Independent estimates
These estimates are often referred to as
“should cost” estimates. They are created
by the performing organization or outside
experts to predict what the cost of the
procured product should be.
Indirect costs
These are costs attributed to the cost of
doing business. Examples include
utilities, office space, and other overhead
costs.
Invitation for Bid (IFB)
From buyer to seller. Requests the seller
to provide a price for the procured
product or service.
Letter contract
A letter contract allows the vendor to
begin working on the project immediately.
It is often used as a stopgap solution.
Letter of intent
A letter of intent is not a contract, but a
letter stating that the buyer is intending to
create a contractual relationship with the
seller.
Make-or-buy decision
A process in which the project
management team determines the costeffectiveness, benefits, and feasibility of
making a product or buying it from a
vendor.
Privity
The contractual relationship between the
buyer and the seller is often considered
confidential and secret.
Procurement management plan
A project management subsidiary plan
that documents the decisions made in the
procurement planning processes.
