Manage Procurement Flashcards
Your project requires a team member with a specific skill set, but there is no person in your organization who possesses such skills and you realize that you will have to procure this skill set from outside your organization. Which of the following should you employ in this circumstance?
A. Acquisition
B. Procurement Management
C. Management details
D. Pre-assignment
Answer: A
Process - Task 11 - Manage Procurement
Acquisition is the act of acquiring from outside the organization those people possessing the skills needed to complete a project.
Generally, a bid differs from a proposal in which of the following ways?
A. A proposal is used when source selection will be based only on price.
B. A proposal is used when the project time frame is limited.
C. A bid is used when source selection will be based on price alone.
D. A proposal disregards price considerations.
Answer: C
Process - Task 11 - Manage Procurement
A term such as bid, tender, or quotation is generally used when the seller selection decision will be based only on price (as when buying commercial or standard items), while the term proposal is generally used when other considerations, such as technical skills or technical approach, are more important. A proposal usually requires a unique approach to a problem and the seller documents how they would tackle it.
ou have multiple potential sellers for a particular procurement. You want to ensure you get the best price and the best seller, and you know you will have to answer many questions from the prospective sellers with respect to the procurement. To help expedite this process, you should use which of the following?
A. Bidders’ conference
B. Personal meetings with sellers’ representatives
C. Advertisements
D. Requests for Proposal
Answer: A
Process - Task 11 - Manage Procurement
Bidders’ conferences are meetings where all the prospective sellers are present. This ensures that all questions on the scope of work are clarified, and the answers are distributed to all the sellers in the same fashion. This facilitates a common understanding of the scope amongst all potential sellers, and prevents misinterpretation of scope (which can result in padded prices to cover risk contingencies).
A project team is administering a CPIF (Cost plus incentive fee) contract with a fixed fee of $10,000 and an incentive fee of $500 for each week of advancement in the completion schedule. If the seller completes the project deliverables 3 weeks in advance, at a cost of $100,000, what should be the total value of the contract?
A. $110,000
B. $100,000
C. $111,500
D. $108,500
Answer: C
Process - Task 11 - Manage Procurement
CPIF contract refers to "Cost plus incentive" type contract. This provides an incentive fee for improvement in schedule, in addition to the cost reimbursement and fees agreed to in the contract. Therefore, the total value of the contract = $100,000 (cost) + $10,000 (fixed fee) + $500*3 (incentive for 3 weeks advancement in schedule) = $111,500
You are planning your procurements for a project and have found that, due to company policy, you are very limited in the sellers you can consider. Which of the following is most likely restricting your options?
A. Source Selection Criteria
B. Risk Tolerance
C. Qualified Seller Lists
D. Enterprise Environmental Factors
Answer: C
Process - Task 11 - Manage Procurement
Qualified Seller Lists, which are Organizational Process Assets, show pre-approved sellers and often require members of the organization to use only sellers from the list when making procurements.
At an ERP Software convention, you are given tickets to a free lunch in an expensive restaurant by one of the vendors. The ticket states that the lunch is a courtesy and that during it, you will see a demo of the latest version of their software. Should you go?
A. No. This violates the appearance of impropriety.
B. No. The lunch is a gift, and therefore should not be accepted.
C. No. You do not want to see the demo.
D. Yes. This is a typical custom at conventions, and there is no impropriety in attending the event since there is a legitimate business purpose for attending.
Answer: D
Process - Task 11 - Manage Procurement
Conventions are venues for sharing information. Because the lunch is not specific to you individually, and you will be seeing a demo, there is no ethics violation. Answer C might be true, but it is not the best answer. Answers A and B are incorrect because there is no impropriety in attending events like this when attending a convention.
You are comparing the cost of purchasing a software product to the cost of your company programmers writing a custom software program. You are engaged in which of the following?
A. Procurement planning
B. Using expert judgment
C. Creating the procurement management plan
D. Make-or-buy analysis
Answer: D
Process - Task 11 - Manage Procurement
Make-or-buy analysis involves determining whether it’s more cost effective to purchase the goods or services needed for the project versus producing them or performing them internally.
You are the project manager for a large health care company. You are currently managing a project to purchase facilities in a new geographical region. You intend to use the current staff so you need to have the proper documentation reviewed and signed. Which of the following are outputs of Plan Procurement Management?
A. Make-or-buy analysis, expert judgment, contract type selection, contract
B. Scope statement, correspondence, contract file, contract
C. Procurement management plan, procurement statement of work, make-or-buy decisions
D. Procurement management plan and contract changes
Answer: C
Process - Task 11 - Manage Procurement
Procurement management plan, procurement statement of work, make-or-buy decisions, bid documents, source selection criteria, project documents updates, and change requests are the outputs of the Plan Procurement process.
What is the objective of auditing procurements?
A. Review for compliance to procurement norms of the organization
B. To determine whether a seller is meeting its contractual obligations
C. Review for compliance to statutory laws as described in the contract
D. Identify lessons learned from the entire procurements process
Answer: D
Process - Task 11 - Manage Procurement
The objective of a procurement audit is to identify what worked and what didn’t (from Plan Procurements Management onward, across the procurements spectrum). This will be useful for future projects. Answer B describes Inspections, which should not be mistaken for Audits.
You are sitting down with your team to map out a strategy for handling procurements. Your organization is very cost conscious and also risk averse. You know that this project will require a great deal of procurements, but you haven’t nailed down the exact scope of the procurements. Which of the following exercises will you need to perform at this stage?
A. Make or buy analysis
B. Risk re-assessment
C. Risk identification
D. Analogous estimating
Answer: A
Process - Task 11 - Manage Procurement
Make or buy analysis involves determining what work needs to be outsourced and what can be done in house. A tool and technique of plan procurement management, it results in make or buy decisions, which are an output of plan procurement management.
You are in the process of reviewing procurements. You have had some problems with the project, but it appears to be back on track. Which of the following is not a valid reason for awarding a procurement without opening up the bidding process?
A. There is only one seller
B. The project has a tight schedule
C. Only one seller exists in the customer’s approved list of vendors
D. The performing organization has existing mechanisms for maintaining the price schedule you are seeking
Answer: B
Process - Task 11 - Manage Procurement
Non-competitive bids involve inviting only one seller to bid on the scope of work for a procurement. A tight timeline is generally not a valid reason to not solicit competitive bids. All other answer choices are valid reasons to not have competing bids.
Because an organization has little experience with undersea construction work, the project manager has engaged with a seller for the build of bridge pillars to be installed in the sea-bed of the bay for the future highway in the area. As such this project includes a sub-contract for a section of the project scope being performed on a cost-reimbursable basis. Which of the following is the project manager most concerned about during contract administration?
A. Schedule performance
B. Cost performance
C. Scope validation
D. Securing tangible deliverables
Answer: B
Process - Task 11 - Manage Procurement
A cost-reimbursable contract involves actual costs being reimbursed by the buyer. Hence, the seller has no cost risk and is not necessarily concerned about cost performance. Therefore, the buyer needs to drive productivity by closely monitoring the costs and the progress toward completion.
Your project team has collected several seller responses. Your project is looking to buy from a seller for their global project computer support needs and you are shocked and surprised by the high price tags on the responses. They appear to be as much as 50% over your expected spending cap. As such, you want to make sure that the proposals you have received from various sellers are in line with a reasonable industry benchmark approach and price. Which of the following techniques would be useful for validating proposal prices to ensure adequacy of the procurement SOW and sellers’ understanding of the same?
A. Independent cost estimates
B. Delphi technique
C. Screening system
D. Weighting system
Answer: A
Process - Task 11 - Manage Procurement
The buyer organization may develop independent cost estimates on its own (or with data available from elsewhere) to check correct pricing levels of the proposals. This helps in evaluating seller’s understanding of the SOW and may point towards deficiencies in the SOW or sellers’ experience with the SOW.
Your organization is extremely cost-sensitive and there is no room in the budget to absorb cost overruns. You must engage a contractor to perform a portion of the project work, as your project team lacks the capacity/resources to do the work. In order to protect yourself against cost overruns on the part of the contractor, you should utilize which type of contract?
A. Cost-reimbursable
B. Time and Materials
C. Firm fixed price
D. Incremental Delivery
Answer: C
Process - Task 11 - Manage Procurement
Firm fixed price contracts provide a fixed fee to complete the contract. The seller keeps any profits from efficiencies, but also absorbs any cost overruns.
You are running an adaptive project on contract with the Department of State. It appears as though you will be able to complete the project much earlier than the contracted deadline. What contract option will allow the buyer to reward the seller with an increased hourly rate if the delivery is earlier than the contracted deadline?
A. MSA or Master Sevices Agreement
B. FFP
C. Graduated time and materials
D. Point of Total Assumption
Answer: C
Process - Task 11 - Manage Procurement
Graduated time and materials is the most correct. If you answered A you are right. Sometimes just not all the time. Contracting is discussed in the Agile Practice Guide on p. 78.
Your project has signed a cost plus incentive fee contract. The contract has a target cost of $130,000, a target profit of $15,000, a target price of $145,000, a ceiling price of $159,000 and a buyer’s share ratio of 80/20. The actual cost of the project was $150,000. How much profit does the seller make?
A. $5,000
B. $15,000
C. $0
D. $9,000
Answer: D
Process - Task 11 - Manage Procurement
The planned amount to be paid to the contractor is targeted cost plus targeted profit, which means $130,000 plus $15,000 = $145,000. However, actual cost incurred was $150,000 instead of planned cost of $130,000. Hence, the actual amount to be paid = Actual Cost plus targeted profit minus 20% share of cost increase = $150,000 + $15,000 - 20% of $20,000 = $161,000. Since maximum amount to be paid can not exceed $159,000, only $159,000 will be paid. Thus, profit made by the contractor = Amount paid minus cost incurred ($159,000 - $150,000 = $9000).
Ann informs you the proposals you requested came back from the sellers and were awarded, but there is an issue. The ACME Widget Production company is your former employer with whom you have maintained healthy relationships. There is a concern you may have given them an unfair advantage in the negotiation process. If asked by the procurement manager, what would be the best response?
A. Inform the procurement office you only offered project requirements to the vendor
B. Explain you informed the procurement office of the prior relationship
C. Inform the procurement officer you only provided information to the contract specialist as requested prior to negotiations
D. Admit you gave insider knowledge and submit your letter of resignation
Answer: C
Process - Task 11 - Manage Procurement
The question and answer allude to being in a centralized organization. In a centralized organization, the PM does not lead negotiations. There primary concern is providing requirement and information about the project. Informing the procurement office about relationships, but it is not the best answer.
You are the project manager of a project that is under a CPIF contract. You are reviewing the following data: BAC = 37,500, EAC = 35,000, AC =25,000, EV = 27,500, and PV = 27,500. Which of the following statements is true at this time?
A. The project should come in under budget and you would therefore be reimbursed for all costs, plus receive a percentage of the cost savings as per the contract.
B. The project should come in over budget and you will therefore not be reimbursed for all costs.
C. The project should come in on budget and therefore you will only be reimbursed for costs, with no additional commission or penalty.
D. The project should come in on budget and you would therefore be reimbursed for all costs, and receive a fixed sum as a reward
Answer: A
Process - Task 11 - Manage Procurement
The contract is a Cost Plus Incentive Fee and the Estimate at Completion is $2,500 less than the Budget at Completion. The project should therefore finish under budget, so A is the correct answer because it allows for the savings to be shared (which is what the CPIF contract provides for).
You are the Project Manager on a project where $14M will be spent on procuring telecom switching equipment. As negotiations begin between your company and the vendor, you are approached by the vendor’s sales representative who offers you and your family a fully-paid trip to Miami if you can aid them” by ensuring that the contract has accelerated payment terms compared to other typical contracts. What is your professional and social responsibility?
A. Decline the trip until after the contract has been signed
B. Take the trip, because you work hard and you deserve it
C. Decline the trip and have it offered to your manager instead
D. Decline the trip because it is not in the best interest of the company, and report the offer to the project sponsor or the procurements lead.
Answer: D
Process - Task 11 - Manage Procurement
The only acceptable answer is choice D. According to professional and social responsibility, a Project Manager must refrain from offering or accepting inappropriate payments, gifts, or other forms of compensation. Since this could be considered attempted bribery, you should report the matter up the chain as well.
Your project management team is reviewing the scope baseline and documenting the detailed work and activities that will be performed by a seller. Which of the following processes are you performing?
A. Plan Procurement Management
B. Control Procurements
C. Conduct Procurements
D. Control Money
Answer: A
Process - Task 11 - Manage Procurement
The Procurement Statement of Work (SOW) defines the portion of the scope baseline that will be included in a contract. It is developed in sufficient detail to enable prospective sellers to determine if they are capable of providing the product or service. It is an output of Plan Procurement Management, along with the Procurement Management Plan, Make or buy Decisions, Bid Documents, Procurement Strategy and Change Requests (if needed).
You are planning your procurements and must find a seller that has a unique skill set, but who can also perform the work within the budget you have established. Unfortunately, there seems to be rather few sellers in your immediate area who are capable of performing the work, and thus your options seem somewhat limited. Which of the following should you use to help ensure you get the maximum number of responses to your invitation for bid?
A. Bidders conference
B. Advertising
C. Letter of intent
D. Single source order
Answer: B
Process - Task 11 - Manage Procurement
You may employ advertisements in newspapers, magazines, trade journals or other mediums to help reach a broader group of potential sellers.
You are the project manager for a construction company. A contract is signed with a vendor and work has begun. Halfway through the project, the customer decides to add features to the workflow software. This addition of features will require changes to the signed contract. Who has the authority to change the contract?
A. Sponsor
B. Project Manager
C. Customer
D. Contract Administrator
Answer: D
Process - Task 11 - Manage Procurement
A contract administrator’s main responsibility is to protect the integrity and purpose of the contract. The contract administrator has the authority to change the contract.
Which of the following is not done when conducting contract closure?
A. Ensuring there are no outstanding claims regarding the contract
B. Ensuring invoices have been paid
C. Review of the seller’s current progress compared to the contract
D. Ensuring all contractual obligations have been met
Answer: C
Process - Task 11 - Manage Procurement
Choices A, B and D all occur during the contract closure exercise. Choice C refers to the Tool and Technique called Data Analysis (Performance Reviews), which could effect better seller performance while the procurement is ongoing but would not be helpful after the work is completed.
You are in need of a new computer and on a very restrictive budget. You have shopped around and considered your options but cannot determine whether to buy or lease a computer. Rent-A-Computer Inc. will rent you a computer for $200 per day. Best Buy will lease it to you for a $750 down payment and $50 per day. When do the cost of renting and leasing become the same?
A. 9 Days
B. 8 Days
C. 12 Days
D. 5 Days
Answer: D
Process - Task 11 - Manage Procurement
If it takes x days, then the formula to use is (200 * x) = (750 + 50 * x). Solved, x = 5 days.
You are the project manager for a large consumer goods company. You are currently managing a project to expand into the farm to fork area. You are working with local farmers and realize that you will need to shift your business model and include vendors to assist with immediate delivery. Inputs to Control Procurements include which of the following?
A. Procurement Documents, Agreements, Work Performance Data, Approved change request
B. Agreements, work results, scope request and seller invoices
C. Agreements, work results, contract change control system
D. Agreements, work breakdown structure, change request and seller invoices
Answer: A
Process - Task 11 - Manage Procurement
Inputs to the Control Procurements process are procurement documents, project management plan, agreements, work performance data and approved changes request.
You have just finished creating an RFP and are now required to secure quotations. There are several sellers capable of performing the work, but the project has limited time and resources available. How should you proceed, in light of these constraints?
A. Choose the prospective sellers recommended by another colleague
B. Consult the senior management and leave it to them to prepare the list
C. Refer to the qualified seller list and source selection criteria to limit the scope of potential bidders and expedite your decision
D. Put an advertisement in a local newspaper
Answer: C
Process - Task 11 - Manage Procurement
Limited time and resources imply constraints in inviting and evaluating several quotations / bids. By limiting the process to those sellers on the qualified sellers list, you can make a decision quickly and objectively.
You are fortunate enough to have a dedicated contract management group in your corporate organization. You have gathered their organizational process assets and placed relevant instructions and recommendations for conducting procurements into the Project Management Plan. Which of the following is obtained via the Conduct Procurements process?
A. preparing procurement documents
B. selected seller
C. make or buy decisions
D. performance reporting
Answer: B
Process - Task 11 - Manage Procurement
Selected Sellers are chosen and become an output of this process. Procurement documents are prepared during the Plan Procurement Management process and updated during Conduct Procurements. Make or buy decisions are done during Plan Procurement Management, and performance reporting is done during the Control Procurements process.
Your project needs contract management software but the budget on the project doesn’t include the cost of this software. You meet a friend from your old job and he suggests that he can make you a copy of this software that you need since you don’t have the money. He says it’s one version old, so it’s not that big of a deal. What is the best way to acquire the software?
A. Take his copy and use it.
B. Order a copy from the company or an authorized reseller
C. Download a copy from a file sharing system
D. Use a demo copy
Answer: B
Process - Task 11 - Manage Procurement
Software created by someone else should be purchased and the license terms and conditions followed. That often includes defining how copies, demo copies, and file sharing systems are to be used with the software.
Which of the following is true about bid documents?
A. They offer no room for bidders to suggest changes
B. They ensure receipt of complete proposals
C. They inform the performing organization why the bid is being created
D. They quote prices as well as the time in which the work can be done
Answer: B
Process - Task 11 - Manage Procurement
Bid documents ensure receipt of complete proposals by outlining the complete scope of the work at issue and outlining a format to be followed in submitting responses.
You are the project manager for a large window manufacturing company. You are currently managing a project to expand your geographical reach beyond the local area and include a facility in Canada. Since you are not familiar with Canada you need to hire vendors to do much of the work. All of the following are inputs to the Plan Procurement Management process except which one?
A. Stakeholder register
B. Requirements documentation
C. Scope Baseline
D. Procurement Statement of Work
Answer: D
Process - Task 11 - Manage Procurement
In this process, you will determine what work needs to be procured, and will thereby create a Procurement SOW.
Your project team is in the middle of selecting one of 10 sellers for use of their consulting staff for the Product Release phase of your healthcare online website launch. As you read through the various seller proposals, you want to select the best fit for your project needs based on multiple criteria; but you want to make sure you leverage a consistent and fair manner of scoring so each vendor is measured the same way. Which of the following would not be considered a proposal evaluation technique?
A. Independent cost estimates
B. Screening system
C. Weighting system
D. Bidders’ conferences
Answer: D
Process - Task 11 - Manage Procurement
Bidders’ conferences are meetings with prospective sellers occurring before the completion of proposals which are used to achieve a clear and common understanding of the procurement requirements amongst all bidders.
Because a deliverable does not meet the agreed-upon quality specifications, it is rejected by the customer. Team members find that the deliverable does not meet expectations because there is a problem with vendor-provided parts. The vendor says that they will not correct the problem. Before deciding on next steps, what should the project manager do?
A. Check the service level agreement (SLA) established with the vendor.
B. Review the procurement management plan and contract agreements.
C. Check the internal quality assurance reports.
D. Review the resource management plan and document lessons learned.
Answer: A
Process - Task 11 - Manage Procurement
A contract is a mutually binding agreement that obligates the seller to provide the specified products, services, or results; obligates the buyer to compensate the seller; and represents a legal relationship that is subject to remedy in the courts. Project Manager Portable Handbook, 3rd Ed (2015), Section 6 Project Initiation and Execution / 6.8 Contract Negotiations and Administration
Your company specializes in the manufacturing of a unique medical device in a niche market. As the project manager, your team has been chartered to upgrade the manufacturing equipment to improve output, safety, and performance. However, you do not have all the specialty materials you need in-house. As such, you and your subject matter experts have decided to evaluate outside sellers to assist with assembly. You contact your procurement department to help with the vendor selection process and are promptly informed that for this project you must single-source your provider. What does a single-source seller mean?
A. There is only one qualified seller
B. There is only one seller the company wants to do business with for a given procurement
C. There is a seller that can provide all aspects of the project procurement needs
D. There is only one seller in the market
Answer: B
Process - Task 11 - Manage Procurement
A single-source seller means there is only one seller the company wants to do business with for that type of procurement.
You are in the process of identifying and documenting project roles and responsibilities and creating a staffing management plan. Which of the following are you least likely to consider?
A. Human resource policies set by your organization
B. The availability of skilled labor in your area
C. Activity duration estimates
D. Requirements documentation
Answer: C
Process - Task 11 - Manage Procurement
From the description in the question, we are in the Plan Resource Management process. The inputs to Plan Resource Management are Project Management Plan, Requirements Documentation (answer D), EEFs (reflected in answer B) and OPAs (reflected in answer A).
You have been asked to submit a proposal for a project that has been put out for bid. First, you attend the bidder conference to ask questions of the buyers and then clarify questions some of the other bidders asked. Which of the following statements is true?
A. Bidder conferences are a tool and technique of the Plan procurement management process.
B. Bidder conferences are an input of the Conduct procurements process.
C. Bidder conferences are an output of the Conduct procurements process.
D. Bidder conferences are a tool and technique of the Conduct procurements process.
Answer: D
Process - Task 11 - Manage Procurement
Bidder conferences are a tool and technique of the Conduct procurements process. They are used to ensure that all prospective sellers have a clear and common understanding of the procurement (both technical and contractual requirements), and that no bidders receive preferential treatment
A contractor is late with a critical project deliverable due to resource challenges. There is a 22% buffer in the budget for cost overruns. What is the first thing a project manager should do to mitigate this issue?
A. Look into alternative vendors that can assist with project deliverables despite resource constraints.
B. Hire a new vendor to replace the current vendor; ask the new vendor to send a contract.
C. Hold a discussion with the vendor regarding the legal implications of this slippage.
D. Update the project schedule after first accepting the cost overrun.
Answer: A
Process - Task 11 - Manage Procurement
Realizing that project delivery is the prime focus, the project manager needs to assess alternatives without concern for the potential budget impact. Once a viable alternative is identified, they can present their case to the sponsor for a decision. PMBOK Guide Sixth Edition (2017), 12. Project Procurement Management / Tailoring Considerations, p465. The Project Management Tool Kit: 100 Tips and Techniques for Getting the Job Done Right (2010), 26. Human Resource Planning
What is the best approach for handling changes to contracts with sellers involving projects that utilize adaptive methods?
A. Ensure all work is completely specified in the master agreement/contract.
B. Place all adaptive work that may be subject to frequent changes into appendices or supplements.
C. Use a Time and Materials contract for all adaptive work.
D. For projects that utilize hybrid approaches, place all adaptive work into a separate agreement/contract.
Answer: B
Process - Task 11 - Manage Procurement
Since adaptive/Agile work by its very nature is subject to frequent changes, specify that work within appendices or supplements that can be more easily updated without having to change the overall master contract or services agreement. This applies to any contract type. Page 465, PMBOK Guide
Which of the following best describes independent cost estimates?
A. Checking the reasonableness of the proposed pricing for a procurement
B. Project budget for the project statement of work
C. Range of estimates as derived by rough order magnitude techniques
D. Analysis of what the project should cost
Answer: A
Process - Task 11 - Manage Procurement
Independent cost estimates derived by the buyer are often referred to as “should cost” estimates for the procurement. This is done to ensure correct pricing levels on the procurement, and to ensure the seller has a full understanding of the scope of work involved.
A seller has e-mailed you asking about the processes for bidding on a contract your company is about to advertise. Based on lessons learned from other projects you know improper communication with vendors can lead to law suits. As the project manager, how should you proceed?
A. Send them the RFI and an independent estimate to build their bid
B. Perform a quality audit of the vendor
C. E-mail them a copy of the procurement management plan
D. Inform them of the date of the bidder conference after it has been advertised
Answer: D
Process - Task 11 - Manage Procurement
A bidder conference is a meeting between buyer and prospective sellers to ensure all parties have a clear and common understanding of the procurement. In an organization with centralized procurement, the project manager should refer the vendor to the procurement department to ensure they do not violate any ethical policies. They must also ensure they do not give any particular vendor an unfair advantage in the procurement process.
One of your sellers has over 50% of the total project scope within their area of responsibility. As such, there is a lot to be done to properly engage this vendor and to monitor and control their work habits and work product. All of the following would be done during the Control Procurements process except?
A. Receiving and evaluating seller’s responses to a RFP
B. Meeting regularly to discuss progress, performance, and any issues
C. Including the seller’s project team members to a project team picnic
D. Performing a process improvement with the seller
Answer: A
Process - Task 11 - Manage Procurement
B, C, and D would all be done during the Control Procurements process to monitor seller’s performance, build seller relationships, and improve processes and outcomes involving sellers. A is done during Conduct Procurements.
You need two SQL developers and an Oracle database administrator on your Agile project to supplement your staff for four weeks on a sprint. Which type of contract will be best suited in this situation?
A. T&M
B. CPIF
C. CPPC
D. FFP
Answer: A
Process - Task 11 - Manage Procurement
The above scenario describes a short-term staff augmentation project, and therefore, the best form of contract would be a T&M contract.
You are the project manager for a large construction project. You are managing to a tight schedule and know that you will be awarded a bonus for early delivery. In your project you do not have enough time or information to develop a detailed statement of work, but this effort is likely to be very large. In this situation, what is the best type of contract?
A. FP (Fixed price)
B. CPPC (Cost plus percentage of costs)
C. CPIF (Cost plus incentive fee)
D. T&M (Time and materials)
Answer: C
Process - Task 11 - Manage Procurement
Cost Plus Incentive Fee Contracts (CPIF) are where the seller is reimbursed for all allowable costs for performing the contract work and receives a predetermined incentive fee based upon achieving certain performance objectives in the contract. You might have also chosen Time and Materials, but the questions states that the work is expected to be very large, which makes T&M too risky.
According the to Agile Practice Guide, which of the following contracting techniques is arguably the most collaborative?
A. Dynamic scope option
B. Graduated time and materials
C. Multi-tiered structure
D. Team augmentation
Answer: D
Process - Task 11 - Manage Procurement
Option D is correct. Team augmentation is a contracting technique that embeds the vendor’s services directly into the customer organization. Please see page 78 of the Agile Practice Guide for more information.
To fulfill a portion of your project scope, you engaged a seller who agreed to a cost plus incentive fee (CPIF) contract, with incentive measured against cost. The negotiated target cost was $200,000 plus a target fee of $20,000. The price ceiling was $250,000 and the share ratio was 80:20. Upon completion, the final seller’s cost was $220,000. What should be the total payout to the seller?
A. $220,000
B. $236,000
C. $200,000
D. $250,000
Answer: B
Process - Task 11 - Manage Procurement
The correct answer is choice B, $236,000. The seller exceeded the target cost by $20,000 (200K- 220K), reducing the seller’s fee by $4,000 (20% of the $20,000 overrun). The adjusted fee is $16,000 (20K-4K), which when added to the final seller’s cost ($220,000) results in a total payout of $236,000. Note that this value is under the price ceiling of $250,000, which is the upper limit of your payout.
Which member of the project team would have responsibility for administratively managing the contract of a vendor?
A. The project manager since they are most keenly aware of what the vendor is doing.
B. In large projects, a member of the project management team.
C. In smaller companies, the owner of the company since they are making the payments.
D. The procurement administrator, who may also report to the procurement department supervisor.
Answer: D
Process - Task 11 - Manage Procurement
One of the assumptions taken into the PMP exam is: the project manager has a procurement administrator to manage the administrative side of the contract. While choices A, B, and C all sound viable, the PMBOK Guide states the procurement administrator performs the administrative functions. While they may be a member of the project team, they typically also report to a supervisor in another department. (PMBOK Guide, Page 494).
A stakeholder has come to you for advice. He has asked you to look over a contract that a seller has delivered, because he is unsure whether this contract would be legal. Which one of these items would not be required to form a contract?
A. Consideration
B. Acceptance
C. Capacity
D. Quality
Answer: D
Process - Task 11 - Manage Procurement
Elements of a contract are: Offer, Acceptance, Capacity, Consideration, and Legal Purpose
You are running an adaptive project and are looking to outsource a portion of the work that requires specialized technical skillsets. What governing agreement can be used for the overall engagement with a vendor where the adaptive work is placed in an appendix or supplement and will allow changes to occur without impacting the overall contract?
A. MSA or Master Services Agreement
B. FFP
C. Project Charter
D. Indemnification clauses
Answer: A
Process - Task 11 - Manage Procurement
Indemnification clauses are one of many possible legal terms for procurement you may see on the exam. Indemnification is, roughly, who pays when there is a problem on the contract. Firm fixed price contracts work best when the buyer (you) are very explicit about your requirements and those requirements do not change during the contract. Make sure to read and understand the 10 “Considerations for Agile” paragraphs in the PMBOK Guide. See p 465
You in the middle of executing a well-managed project, but you have habitual issues with your contractor delivering on time. After a meeting with your project management team, it has been determined a new vendor must be sourced. What is the best way to describe this situation?
A. A product decision was made to use management reserves according to the Risk Management Plan
B. A project decision was made to utilize a new vendor based non-conformance
C. Conduct a root cause analysis, determine trends and pursue contract termination according to the Sensitivity Analysis
D. A risk response strategy was implemented in accordance with the Risk Response Plan
Answer: B
Process - Task 11 - Manage Procurement
A project decision can include choosing among different implementation scenarios or suppliers, while a product decision can include evaluating the life cycle cost, schedule, stakeholder satisfaction, and risks associated with resolving product defects. The key difference is project decisions are based on the project and product decisions are based on the products.
A team member reports to the project manager that the scope of work delivered by a vendor is not complete. What is the best option for the project manager amongst the following?
A. Go ahead with contract closure, as the work was delivered
B. Ask the supplier to complete the deliverable in the next phase
C. Ask the supplier to complete the deliverable as defined in the contract
D. Evaluate the impact and seek management advice
Answer: C
Process - Task 11 - Manage Procurement
Since the contract is still in force, the best option would be to pursue the completion of the deliverable. You should never close a contract that is not completed, as suggested in option A. Option B is also wrong – the deliverable should be completed in the current phase according to the contract. Choice D is wrong as you shouldn’t take the problem to management but should try to resolve it with the vendor first.
You are a new project manager for a very small start-up company. Previously you worked for a large firm with a robust Procurement organization. This start-up does not have a procurement professional so you must fill this role for your project. Which of the following is not an element of Project Procurement Management?
A. Inspections and Audits
B. Bidder conferences
C. Make or buy analysis
D. Decomposition
Answer: D
Process - Task 11 - Manage Procurement
Decomposition is a tool and technique used in Scope and Schedule Management.
Unfortunately, one of the sellers in a multi-year global project has failed to meet contractual objectives. After arbitration, the contract is now ready to close properly as a legal settlement was achieved. Which tool and technique should be employed now to ensure these kinds of vendor performance concerns do not happen in the future?
A. Audit
B. Procurement Management plan
C. Project Performance Appraisal
D. Contract Documentation
Answer: A
Process - Task 11 - Manage Procurement
An Audit is a structured review of the entire procurement process, and its objective is to identify successes and failures. Don’t confuse this with Inspections, which look at the deliverable or work being done.
You are the project manager for a large transportation project. You have been tasked with managing the seller responses to a request for proposal issued by your company. The seller responses were numerous, and now you have been asked to rank the proposals from highest to lowest in terms of their response. What are you going to use as a means to rank the sellers?
A. Expert Judgment
B. Request for quotation
C. Seller response guidelines
D. Seller selection matrix
Answer: A
Process - Task 11 - Manage Procurement
Here you are performing the Conduct Procurements process. Expert judgment is the only tool/technique among the potential answers that is used in this process.
The project team is arguing about the prospective sellers who have submitted proposals. One team member argues for a certain seller, while another team member wants the project to be awarded to a different seller. The project manager should focus the team on which of the following?
A. Bid documents
B. Procurement audits
C. Source selection criteria
D. Procurement management plan
Answer: C
Process - Task 11 - Manage Procurement
Source selection criteria are the primary tools for evaluating proposals. If used properly, all team members should come to the same conclusion, because the criteria should be objective.
You are in the process of managing procurement relationships, monitoring contract performance, and making changes/corrections to your contracts. What process are you performing?
A. Plan procurements
B. Monitor procurements
C. Control procurements
D. Conduct procurements
Answer: C
Process - Task 11 - Manage Procurement
During control procurements you manage procurement relationships, monitor contract performance, and make changes/corrections to your contracts. Your goal is to ensure that your vendors meet their contractual obligations.
A seller completes work as specified, but the buyer is not pleased with the results. The contract is considered to be which of the following?
A. Null and void
B. Incomplete
C. Complete
D. Closed
Answer: C
Process - Task 11 - Manage Procurement
If the seller completes the work specified in the statement of work, the contract is considered complete. It does not mean the contract is closed yet, however, as payment needs to be made.
Your hybrid project requires part of the work to be outsourced to a vendor. You are told that you need to select the lowest cost qualified vendor who must provide at least three references, be no larger than a medium-sized company and must include at a minimum a two-year warranty. What do these requirements refer to?
A. Source Selection Criteria
B. Qualified Vendors
C. Procurement Requirements
D. Procurement Strategy
Answer: A
Process - Task 11 - Manage Procurement
Source selection criteria is the minimum set of attributes that the vendor must meet in order to be selected for a contract. Qualified vendors are a list of vendors who meet this minimum criteria and Procurement Strategy determines the overall approach to procurement. There is no document called Procurement Requirements.
You are a project manager looking to outsource some of the hi-tech work on a project where your internal team has no expertise. You will need to create a procurement statement of work (SOW) to accompany the bid documents that will be sent to each prospective seller. Which of the following would be least helpful as an input to compete this task?
A. Scope Statement
B. Work breakdown Structure
C. Product Backlog
D. Project Charter
Answer: D
Process - Task 11 - Manage Procurement
The Procurement SOW is derived from the scope baseline, which includes the Scope Statement, WBS and WBS Dictionary for non-agile projects, and the Product Backlog for agile projects. The Project Charter is not part of the scope baseline, and is at a high or rough order of magnitude level, whereas the scope baseline is at a detailed level, which is necessary for producing a procurement SOW.
One of your sellers has over 50% of the total project scope within their area of responsibility. As such, there is a lot to be done to properly engage this vendor using the Conduct Procurements process. All of the following would be done during the Conduct Procurements process except?
A. Identifying a deliverable to be thoroughly reviewed as soon as possible in the project to assess the accuracy and effectiveness of the seller’s work
B. Establishing the virtual and co-location requirements
C. Paying invoices after the seller’s deliverables have been accepted by the buyer
D. Agreeing on how often status reports and meetings will take place
Answer: C
Process - Task 11 - Manage Procurement
A, B, and D would all be done during the Conduct Procurements process as the agreements are put together and finalized. C is done during Control Procurements.
To have a legally binding contract, which of the following items must be present?
A. Offer and Consideration
B. Offer and Acceptance
C. Offer, acceptance, consideration, capacity by both parties to contract, and a legal purpose
D. A meeting of the minds
nswer: C
Process - Task 11 - Manage Procurement
The elements of a binding contract are an offer, acceptance of the offer, consideration (exchange of value, i.e. money, goods or services), capacity by both parties to contract, and a legal purpose.
Procurement items are outlined in great detail using which of the following?
A. WBS
B. Procurement statement of work
C. Charter
D. Project Schedule
Answer: B
Process - Task 11 - Manage Procurement
A procurement statement of work is the document that will give bidders the detail they need to compile their bids for the scope of work in question.
You are a project manager that must procure services from outside your project team to complete the project. You have made the appropriate make-buy decisions and are currently actively engaging with vendors. Which of the following must be present to have a contract?
A. Detailed scope of work
B. Acceptance
C. Address of the seller
D. Company signatures
Answer: B
Process - Task 11 - Manage Procurement
Of the choices listed, only acceptance is a requirement of a contract. Remember, not all contracts need to be in writing/signed. The detailed scope of the work would not always be needed in order to create the legal obligations, though as a matter of practice, contracts should contain this.
A buy decision has been made for human resources for a portion of your project. Which process are you performing if you are working with the seller to: establish a plan with acceptance criteria, acceptable variance ranges, and frequent milestones; finalize the format of a historical trend chart of defects against deliverables to be produced on a monthly basis; and create a travel and on-site schedule of these human resources?
A. Plan Procurement Management
B. Conduct Procurements
C. Control Procurements
D. Close Project
Answer: B
Process - Task 11 - Manage Procurement
Conduct Procurements (B) would include these actions as the buyer and seller work through creating the agreements. These steps might be identified as needing to be done during Plan Procurement Management (A) as part of the Procurement Statement of Work, but the actual execution of doing these would be done in Conduct Procurements.
After realizing that there are insufficient resources on a project that has an increasingly high workload, management outsources some major tasks to keep the project on schedule. What should the project manager do in this scenario?
A. Review the communications management plan
B. Revise the procurement management plan
C. Escalate to the project sponsor
D. Prepare an organizational chart
Answer: B
Process - Task 11 - Manage Procurement
This situation calls for a new procurement decision. Plan Procurement Management is the process of documenting project procurement decisions, specifying the approach and identifying potential sellers is captured. The key benefit of this process is that it determines whether to acquire goods and services from outside the project and, if so, what to acquire as well as how and when to acquire it. PMBOK Guide Sixth Edition (2017) PMI/PMI/12.1/p468
You are managing a large software project when the need for a new series of database tables is discovered. The need was previously unplanned, and your organization’s staff is 100% utilized, so you decide to go outside the company to procure this piece of work. When you meet with prospective sellers, you realize that the scope of work is not completely defined, but everyone agrees that the project is relatively small, and your need is urgent. Which type of contract makes the most sense?
A. Fixed price
B. Time and materials
C. Open ended
D. Cost plus incentive fee
Answer: B
Process - Task 11 - Manage Procurement
Time and Materials, also called Time and Means, contracts are typically used in this circumstance, because the scope of work is not readily defined, and thus, it is difficult to estimate what it will or should cost. Choice ‘A’ is incorrect because the scope is not defined enough to establish a fair fixed price. Choice ‘C’ is a made-up type of contract. Choice ‘D’ would not make sense in this case since the seller’s costs are not abundantly clear, and this type of contract would create too much risk.
You are in the process of evaluating bids on a scope of work that neither the team nor others in the organization are familiar with. Which of the following would be examined to ensure that the prices being quoted are reasonable?
A. Weighting system
B. Screening system
C. Expected value
D. Independent cost estimates
Answer: D
Process - Task 11 - Manage Procurement
Independent cost estimates are prepared to help analyze bids received from potential sellers, which can help to uncover any significant misinterpretations of the scope by the seller. If you receive a bid that is far above or below what the independent cost estimate shows, then the seller likely misunderstood the precise nature of the work in question. Independent cost estimates come from firms who are not bidding. So there is no bias.
Your project will require the use of a high-pressure punch press for five months. You can rent the press for $10,000 payable at the end of each month. You may also choose to make a lump sum payment on the day the press is delivered. Using a discount rate of 1% per month, the maximum lump sum payment you should choose to make is:
A. $50,000
B. $51,500
C. $48,500
D. $45,250
Answer: C
Process - Task 11 - Manage Procurement
Since you are paying at the months’ end the calculation will go like this: 10,000/1.01 + 10,000/1.01^2 + 10,000/1.01^3 + 10,000/1.01^4 + 10,000/1.01^5, which equals $48,534. Thus, choice C is the correct answer.
You are the project manager for a construction company and management has promised to provide you part of the incentive fee from the customer if you are able to complete the project early. You are looking at lessons learned from previous projects to help identity viable vendor options to see which suppliers are most likely to deliver on time. From previous lessons learned, it appears one of the vendors you were considering often delivers late. What would be the best action for you to take?
A. Add this to your risk register
B. Keep this vendor as a viable option to prove there is no favoritism
C. Take the vendor off your list of potential suppliers for this project as the initial criteria for timeliness would counter-indicate using this vendor
D. Add the criteria of on-time delivery to your source selection criteria
Answer: C
Process - Task 11 - Manage Procurement
You are developing a list of potential suppliers, based on past experience and other qualifications. Since you have determined this vendor has a history of not delivering on time, you take them off your short list of potential suppliers for your project. You could add this to your risk register (Choice A), but that would not be your first option. You do not have to keep the vendor on the list (Choice B) if you can show they were eliminated due to past performance issues. This vendor would not make the short list of those to be considered for this project. Adding the criteria of on time delivery (Choice D) to your source selection criteria is not a bad idea, but it is not the best option to do next.
