12 - Project Procurement Management Terms

Question 1

Alternative dispute resolution

Answer 1

Trying to reach a settlement through mediation or arbitration, for an issue or claim.

Question 2

Bid

Answer 2

Issued from seller to buyer. Provides a price for the work in question. Determining factor in the decision making process.

Question 3

Bidder conference

Answer 3

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

Question 4

Claims

Answer 4

Disagreements between vendor and buyer, usually about a change (who did it? did it really happen?).
Also called disputes/appeals, monitored and controlled throughout the project in accordance with the contract terms.

Question 5

Contract

Answer 5

Formal agreement between the vendor and buyer. Can be oral or written (written is preferred).

Question 6

Contract change control system

Answer 6

Defines the procedures for how the contract may be changed.
The process includes forms, documented communications, conditions within the project, business or marketplace that justify the need for change, dispute resolution procedures, and the procedures for getting the changes approved within the performing organization.

Question 7

Contract statement of work (SOW or CSOW)

Answer 7

This document requires the seller to fully describe the work to be completed and/or the product to be supplied. The SOW becomes part of the contract.

Question 8

Cost plus award fee contract

Answer 8

A contract that pays the vendor all costs for the project, but also includes a buyer-determined 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 & services procured plus a fixed fee for the contracted work.
The buyer assumes the risk of cost overruns.

Question 10

Cost plus incentive fee

Answer 10

A contract that requires the buyer to pay a cost for the procured work, plus an incentive fee (bonus) if the terms & 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 & services procured plus a percentage of the costs.
The buyer assumes all of the risks for cost overruns.

Question 12

Direct costs

Answer 12

Costs incurred that are necessary for the project to exist. (e.g. equipment, salaries etc…)

Question 13

Fixed price contracts

Answer 13

AKA firm fixed-price and lump-sum 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 criteria.
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 a project.

Question 17

Independent estimates

Answer 17

Referred as “should cost” estimates. Created by the performing organization or external 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.

Question 19

Invitation for Bid (IFB)

Answer 19

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

Question 20

Letter contract

Answer 20

Allows the vendor to begin working on the project immediately. 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 cost-effectiveness, benefits, and feasibility of making a product or buying it from a vendor.

Question 23

Privity

Answer 23

Contractual relationship between the buyer and the seller is considered to be confidential and secret.

Question 24

Procurement management plan

Answer 24

A project management subsidiary plan that documents the decision 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

Question 26

Proposal

Answer 26

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

Question 27

Purchase order (PO)

Answer 27

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 vendor. Requests the vendor 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 vendor. Requests the vendor to provide a price fr the procured product/service.

Question 31

Request for Info (RFI)

Answer 31

Asking for additional information about the vendor’s products and/or services.

Question 32

Risk-related contractual agreements

Answer 32

When using transference, a risk related contractual agreement is created between the buyer and vendor.

Question 33

Screening system

Answer 33

A tool that filters or screens out vendors that do not qualify for the contract.

Question 34

Seller rating system

Answer 34

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 35

Terms of reference

Answer 35

Defines the obligations for the vendor, what it will provide, and all of the particulars of the contracted work.
It is similar to statement of work

Question 36

Time and materials contract

Answer 36

A contract type in which the buyer pays for the time and materials for the procured work.
Used for simple contracts, needs to have a not-to-exceed clause, or the buyer assumes the risk for cost overruns.

Question 37

Weighting system

Answer 37

Weights are assigned to the values of the proposals, and each proposal is scored. Prevents the personal preference of the decision maker.