Agreements and Contracts Flashcards
What is an Agreement?
An agreement is any document or communication that defines the intentions of the parties.
Define agreements in regard to projects.
In projects, agreements take the form of contracts or other defined understandings. A contract is a mutually binding agreement that obligates the seller to provide the specified product, service, or result and obligates the buyer to pay for it. There are different types of contracts, some of which fall within a category of fixed-price or cost-reimbursable contracts.
Fixed-price contracts
Fixed-price contracts involve setting a fixed price for a well-defined product, service, or result. Fixed-price contracts include firm fixed price (FFP), fixed-price incentive fee (FPIF), and fixed price with economic price adjustment (FP-EPA), among others
Cost-reimbursable contracts (cost plus)
Cost-reimbursable contracts involve payments to the seller for actual costs incurred for completing the work plus a fee representing seller profit. These contracts are often used when the project scope is not well defined or is subject to frequent change. Cost-reimbursable contracts include cost plus award fee (CAF), cost plus fixed fee (CPFF), and cost plus incentive fee (CPIF).
Time and materials (T&M)
Time and materials (T&M) contracts establish a fixed rate, but not a precise statement of work. It can be used for staff augmentation, subject matter expertise, or other outside support. One variation is graduated time and materials contract which allows the supplier a higher hourly rate when the delivery is early but penalizes the supplier with a lower hourly rate when the delivery is late.
Indefinite delivery indefinite quantity (IDIQ).
An Indefinite delivery indefinite quantity (IDIQ) contract provides for an indefinite quantity of goods or services, with a stated lower and upper limit, and within a fixed time period. These contracts can be used for architectural, engineering, or information technology engagements.
What other agreements are used in project management?
Other types of agreements include memorandum of understanding (MOU), memorandum of agreement (MOA), service level agreement (SLA), basic ordering agreement (BOA), among others.
Pull Communications
Messages that require the interested people to access the information based on their own initiative.
Push Communications
Messages that are sent out to people who need to receive the information.
What contract model will transfer risk to the seller?
Fixed price contract
A fixed-price contract enables the buyer to transfer risk to the seller. [PMBOK7 p191] (Domain: Process, Task 11)
You are managing a complex project that requires a lot of knowledge work. The project’s objectives are known but the scope cannot be articulated in great detail. You need to hire some experts from a consulting firm to help you with some of the knowledge work. Which contracting approach would you recommend if the customer wants to have full control over scope variation and cost without exposing the supplier to any financial risk?
Team augmentation arrangement with the consulting firm.
NOT Early cancellation option in a fixed-price arrangement.
The fixed-price arrangement, with or without the early cancellation option will introduce financial risk for the supplier. The cost plus arrangement will introduce financial risk for the customer. A team augmentation arrangement with the consulting firm will be the most collaborative contracting approach in this case. [Agile Practice Guide, 1st edition, Page 78] (Domain: Process, Task 11)
What is meant by being a selected seller?
A selected seller is one whose proposal has been judged to be in the competitive range based on bid evaluation. It does not mean they have the work.
The seller would have negotiated a draft contract that could become the actual contract when the award is made. [PMI Code of Ethics and Professional Conduct] (Domain: Business Environment, Task 3)
What similarity exists between a cost-reimbursable contract and a time-and-materials contract?
Time-and-materials contracts resemble cost-reimbursable contracts in that both are open-ended.
An Agile team wishes to subcontract some of the project work. Rather than formalizing an entire contracting relationship in a single contract, the team wishes to describe different aspects of the relationship in different documents. Mostly fixed items such was warranties and arbitration have been recommended to be locked in the master agreement. However, other items subject to change, series rates and product descriptions, for example, should be listed in a separate:
Schedule of services
NOT Memorandum of Understanding or project schedule.
Listing these items in a separate contract or MOU doesn’t make sense. Further, a project schedule has a specific objective which is not in line with the situation at hand. Items subject to change are recommended to be listed separately in a schedule of services. [Agile Practice Guide, 1st edition, Page 77] (Domain: Process, Task 6)
Which of the following contract types allows the supplier a higher hourly rate when the delivery is early but penalizes the supplier with a lower hourly rate when the delivery is late?
Graduated time and materials
NOT Fixed price
A graduated time and materials contract allows the supplier a higher hourly rate when the delivery is early but penalizes the supplier with a lower hourly rate when the delivery is late. [Agile Practice Guide, 1st edition, Page 78] (Domain: Process, Task 11)
You are managing a project. Due to the nature of the project, you feel that the project scope will continue to change throughout project execution. You need to outsource the technology provision component to an outside vendor. If you are working on a project with constantly changing scope, which type of contract would work best when hiring an outside vendor to complete a portion of the work?
Cost-reimbursable
NOT Time and material
Cost plus contracts are suitable when the work is evolving, likely to change, or not well-defined. [PMBOK7 p191] (Domain: Process, Task 11)
To assist with the selection of a supplier for a large procurement on your project, you have hired a consultant. The consultant has prepared an independent estimate to be used as a benchmark while reviewing bids on the RFP. The independent estimate is confidential and is not shared with any bidders. When the sealed bids are opened, you discover that only one supplier has submitted a quote lower than the independent estimate. All other quotes are 45 percent to 70 percent higher than the benchmark. While discussing this development with members of the project team, you learn a distant relative of the consultant owns the company with the lowest bids. What is the best course of action?
Review the RFP specifications and requirements
NOT Disqualify the lowest bidder
Review the RFP requirements and specifications. Such a wide range of quotes indicates that there may be elements that are not stated clearly or correctly. Because there is no evidence of collusion between the consultant and the lowest bidder, the RFP review is the best choice. [PMI Ethics] (Domain: Business Environment, Task 1)
Explain Bid document terms such as bid, tender, quotation, or proposal.
Bid documents are used to solicit proposals from prospective sellers. Terms such as bid, tender, or quotation are generally used when the seller selection decision is based on price (as when buying commercial or standard items), while a term such as proposal is generally used when other considerations such as technical capability or technical approach are the most important.
Specific procurement terminology used may vary by industry and location of the procurement.
Request for information (RFI)
A type of procurement document whereby the buyer requests a potential seller to provide various pieces of information related to a product or service or seller capability. An RFI is typically sent during the initial stage of the procurement process. At this stage, the buyer is still in the process of gathering information and researching potential suppliers, products, or services that may be available in the market. An RFI will typically be followed by an
RFQ or RFP.
Request for Quotation (RFQ)
An RFQ is a type of procurement document used to request price quotations from prospective sellers of common or standard products or services when buyers know exactly what product or service they need and are primarily focused on obtaining the best price from potential vendors.
Sometimes used in place of request for proposal and, in some application areas, it may have a narrower or more specific meaning.
Request for Proposal (RFP)
An RFP is a type of procurement document used to request proposals from prospective sellers of products or services especially when the project is complex or requires specialized knowledge, or when price isn’t the only deciding factor.
This is the most formal of the “request for” documents and has strict procurement rules for content, time line, and seller responses. In some application areas, it may have a narrower or more specific meaning.
How are bid documents structured?
The buyer structures bid documents to facilitate both an accurate and complete response from each prospective seller and an easy evaluation of the responses. These documents include a description of the desired form of the response, the relevant procurement statement of work (SOW), and any required contractual provisions.
Explain considerations regarding the complexity and level of detail of bid documents.
The complexity and level of detail of the bid documents should be consistent with the value of, and risks associated with, the planned procurement. Bid documents are required to be sufficiently detailed to ensure consistent, appropriate responses, but flexible enough to allow consideration of any seller suggestions for better ways to satisfy the same requirements.
