12 Procurement Management Terms

Question 1

Alternative dispute resolution

Answer 1

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.

Question 2

Bid

Answer 2

From seller to buyer. Price is the
determining factor in the decision-making
process.

Question 3

Bidder conference

Answer 3

A meeting of all the project’s potential
vendors to clarify the contract statement
of work and the details of the contracted
work.

Question 4

Claims

Answer 4

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.

Question 5

Contract

Answer 5

A contract is a formal agreement
between the buyer and the seller.
Contracts can be oral or written—though
written is preferred.

Question 6

Contract change control system

Answer 6

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.

Question 7

Contract statement of work (SOW also
CSOW)

Answer 7

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.

Question 8

Cost plus award fee contract

Answer 8

A contract that pays the vendor all costs
for the project, but also includes a buyerdetermined award fee for the project
work.

Question 9

Cost plus fixed fee contract

Answer 9

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.

Question 10

Cost plus incentive fee

Answer 10

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.

Question 11

Cost plus percentage of costs

Answer 11

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.

Question 12

Direct costs

Answer 12

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.

Question 13

Fixed-price contracts

Answer 13

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.

Question 14

Fixed-price incentive fee

Answer 14

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.

Question 15

Fixed-price with economic price
adjustments

Answer 15

A fixed-price contract with a special
allowance for price increases based on
economic reasons such as inflation or the
cost of raw materials.

Question 16

Force majeure

Answer 16

An “act of God” that may have a negative
impact on the project. Examples include
fire, hurricanes, tornadoes, and
earthquakes.

Question 17

Independent estimates

Answer 17

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.

Question 18

Indirect costs

Answer 18

These are costs attributed to the cost of
doing business. Examples include
utilities, office space, and other overhead
costs.

Question 19

Invitation for Bid (IFB)

Answer 19

From buyer to seller. Requests the seller
to provide a price for the procured
product or service.

Question 20

Letter contract

Answer 20

A letter contract allows the vendor to
begin working on the project immediately.
It is often used as a stopgap solution.

Question 21

Letter of intent

Answer 21

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.

Question 22

Make-or-buy decision

Answer 22

A process in which the project
management team determines the costeffectiveness, benefits, and feasibility of
making a product or buying it from a
vendor.

Question 23

Privity

Answer 23

The contractual relationship between the
buyer and the seller is often considered
confidential and secret.

Question 24

Procurement management plan

Answer 24

A project management subsidiary plan
that documents the decisions made in the
procurement planning processes.

Question 25

Procurement planning

Answer 25

A process to identify which parts of the
project warrant procurement from a
vendor by the buyer.

Question 26

Proposal

Answer 26

A document the seller provides to the
buyer. The proposal includes more than
just a fee for the proposed work. It also
includes information on the vendor’s
skills, the vendor’s reputation, and ideas
on how the vendor can complete the
contracted work for the buyer.

Question 27

Purchase order (PO)

Answer 27

A purchase order is a form of unilateral
contract that the buyer provides to the
vendor showing that the purchase has
been approved by the buyer’s
organization.

Question 28

Quotation

Answer 28

From seller to buyer. Price is the
determining factor in the decision-making
process.

Question 29

Request for Proposal (RFP)

Answer 29

From buyer to seller. Requests the seller
to provide a proposal to complete the
procured work or to provide the procured
product.

Question 30

Request for Quote (RFQ)

Answer 30

From buyer to seller. Requests the seller
to provide a price for the procured
product or service.

Question 31

Risk-related contractual agreements

Answer 31

When the project management team
decides to use transference to respond to
a risk, a risk-related contractual
agreement is created between the buyer
and the seller.

Question 32

Screening system

Answer 32

A tool that filters or screens out vendors
that don’t qualify for the contract.

Question 33

Seller rating systems

Answer 33

These are used by organizations to rate
prior experience with each vendor that
they have worked with in the past. The
seller rating system can track
performance, quality ratings, delivery,
and even contract compliance.

Question 34

Terms of Reference

Answer 34

Defines the obligations for the seller,
what the seller will provide, and all of the
particulars of the contracted work. Terms
of reference is similar to the statement of
work.

Question 35

Time and materials contract

Answer 35

A contract type in which the buyer pays
for the time and materials for the
procured work. This is a simple contract,
usually for smaller procurement
conditions. These contract types require
a not-to-exceed clause, or the buyer
assumes the risk for cost overruns.

Question 36

Weighting system

Answer 36

This takes out the personal preferences
of the decision maker in the organization
to ensure that the best seller is awarded
the contract. Weights are assigned to the
values of the proposals, and each
proposal is scored.