12. Project 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 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 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 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 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 cost-effectiveness, 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.