Procurement

Question 1

A contract is when the buyer pays one flat price (lump sum) for all work in the contract. This would include all labor and materials. To use this contract you would have to ensure the scope is well-defined and understood.

Answer 1

Fixed Price (Lump Sum)

Question 2

This contract is when the price is fixed and cannot be changed.

Answer 2

Firm Fixed Price (FFP)

Question 3

This contract is when the fixed price includes an additional fee for meeting a target set forth in the contract

Answer 3

Fixed Price Incentive Fee (FPIF)

Question 4

This contract is used to adjust the fixed cost over the life of the contract because of economic conditions.

Answer 4

Fixed Price Economic Price Adjustment (FP-EPA)

Question 5

A contract is when the buyer pays for the work expenses and then pays the seller a fee for his profit.

Answer 5

Cost Reimbursable

Question 6

This contract is when the buyer pays the work expense and then a fixed fee to the seller for profit.

Answer 6

Cost Plus Fixed Fee (CPFF)

Question 7

This contract is when the buyer pays the work expense and an additional fee, if a target is met, such as, finishing two weeks earlier.

Answer 7

Cost Plus Incentive Fee (CPIF)

Question 8

A contract is when the buyer pays for both labor and material

Answer 8

Time and Material

Question 9

Select a seller and award the contract is a part of which process?

Answer 9

Conduct procurement - in executing process

Question 10

To ensure the contractor is doing the work in the contract in a part of which process?

Answer 10

control procurement - Monitoring and Controlling

Question 11

1. You are working on a construction project and successfully completed all the work. Your stakeholders were very pleased and recently communicated their final acceptance of the project. You are now meeting with your team to update the organizational process
   assets with a record of knowledge gained about the project to help future project
   managers with their projects. Once the lessons learned are completed, what should you
   do NEXT?
   A. Release the team
   B. Close the contract
   C. Get formal acceptance
   D. Write lessons learned

Answer 11

1. A: You should release the team once the lessons learned are documented and added to the organizational process assets. Most contracts have payment terms that allow for some period of time before full payment is required; thus, the last thing you do on the project is close the contract. The order should be: get formal acceptance, write lessons learned, release the team, and close the contract.

Question 12

2. You are in charge of the bidding process for a government railway project. You are trying to come up with a set of minimum criteria sellers must meet to be considered. Which of the following are you working on?
A. Source selection analysis
B. Proposal evaluation technique
C. A weighting system
D. An independent or in-house estimate

Answer 12

2. A: A Source selection analysis is a set of minimum criteria a seller must meet to be
   considered, such as proficiency with certain products or techniques, safety record,
   number of years of relevant experience, etc. Prior to reviewing the detailed proposals,
   a buyer may review the qualifications of sellers who have indicated an interest to bid. A
   weighting system is generally utilized to score qualified sellers after proposals have been submitted. The procuring organization can prepare its own independent estimate to judge whether the statement of work was adequate in its description or that the seller
   fully understood or responded fully to the statement of work. This estimate also helps
   the organization check the reasonableness of the seller’s response and proposed pricing.

Question 13

3. You are working on a software development project to automate an accounting process. You, your team, and your senior manager all feel that the work is complete. However, one of your important clients disagrees and feels that one of the deliverables is not acceptable, as it does not meet the requirements specification. What is the BEST way to handle this conflict?
   A. Issue a change order.
   B. Renegotiate the contract.
   C. File a lawsuit to force the stakeholder to accept the deliverable.
   D. Meet with the responsible team member to review the WBS dictionary.

Answer 13

3. D: The very first thing we should do is to find out the details of the issue by reviewing the requirements and meeting with the responsible team member to review the WBS dictionary. We need to find out if there is something wrong in the details of the work package or in how the team member completed the work. If needed, we can then issue a change order. When there’s a dispute between a buyer and a seller, it’s called a claim.
   Most contracts have some language that explains exactly how claims should be resolved— and since it’s in the contract, it’s legally binding, and both the buyer and seller
   need to follow it. Usually, it’s not an option to renegotiate a contract, especially at the
   end of the project after the work is completed. Lawsuits should only be filed if there are
   absolutely, positively no other options.

Question 14

4. While in the Control Procurements process, you are meeting with your seller to check on the product itself and its conformance to specification. Which one of the following are
you performing?
A. Performance reporting
B. Procurement performance reviews
C. Inspections
D. Claims administration

Answer 14

4. C: Inspections are activities mainly focused on the product itself and its conformance to specification. Performance reporting is an excellent tool that provides management with information about how effectively the seller is meeting contractual objectives. This report can produce earned values, schedule and cost performance index, trend analysis, etc. Procurement performance review is a structured review that consists of seller-prepared documentation, buyer inspection, and a quality audit of the seller’s progress to deliver project scope and quality within cost and on schedule as compared to the contract. The objective is to identify performance progress or failures, non-compliances, and areas where performance is a problem. Claims handling is one of the most frequent activities in the Control Procurements process. Claims, disputes, or appeals are requested when the buyer and seller disagree on scope, the impact of changes, or the interpretation of some terms and conditions in the contract.

Question 15

5. You requested your experts to prepare an independent estimate, or in-house estimate, for your contract to help judge whether the Statement of Work (SOW) was adequate in its description or that the seller understood or responded fully to it. You also want to check the reasonableness of the seller’s response and proposed pricing. Which of the following BEST describes what you are doing?
A. Plan Procurement Management
B. Conduct Procurements
C. Control Procurements
D. Close Project

Answer 15

5. B: We use independent estimates as a tool & technique in the Conduct Procurements
   process.

Question 16

6. You are asked by management to select a contract type that will obligate the seller
   to accept all liability for poor workmanship, engineering errors, and consequential
   damages in the project. Which of the following contract types will you select?
   A. Fixed price
   B. Time & material
   C. Cost plus incentive fee
   D. Purchase order

Answer 16

6. A: The fixed price or lump sum contract, which usually pays a lump sum amount for all the work, places the risk on the seller. The seller may include a contingency in the contract to assist in minimizing the risk of reduced profits.

Question 17

7. After reviewing your project schedule and resource calendars, you realize that your
   resources are 100 percent occupied and will have no time to work on a new component. So, you decide to outsource the component and start negotiating with a couple of potential vendors. While outsourcing, which of the following should you be MOST concerned about?
   A. The technical background of the vendor
   B. The financial capability of the vendor
   C. The relevant experience of the vendor
   D. Proprietary data of your organization

Answer 17

7. D: The technical background, financial capability, and relevant experience of the vendor are all very important factors while outsourcing, but we should be very concerned about the sensitive and confidential proprietary data of our organization that we may need to turn over to the vendor.

Question 18

8. Sabrina, a project manager for ITPro Consultancy, LLC, is overseeing the design and development of an indoor room temperature and humidity controlling device. While working on the procurement plan, she compared the cost of an off-the-shelf product to the cost of her programmers’ design to develop the custom device. Sabrina is engaged in which of the following?
   A. Using expert judgment
   B. Coming up with source selection criteria
   C. Performing a Make-or-buy analysis
   D. Working on the procurement statement of work

Answer 18

8. C: Make-or-buy analysis is concerned with determining whether a product can be cost effectively produced in-house or whether it should be purchased, leased, or rented. While performing this analysis, we must consider indirect as well as direct costs, availability in addition to related risk, schedule, etc. Source selection criteria is developed and used to selecting a contractor. Later on, it also helps to evaluate sellers by rating or scoring them. The procurement Statement of Work (SOW) describes the subject item in sufficient detail to allow prospective sellers to determine offerings (bids, proposals, etc.). It documents details of the work to be performed by the seller under a contract.

Question 19

9. While working on a data mining project, you realize that you need a data validation tool that was never thought of earlier. After reviewing your project schedule and resource calendars, you realize that your resources are 100 percent occupied and will have no time to work on this new component. So, you decide to outsource the component and start negotiating with a couple of potential vendors. You quickly realize that you do not have a clear definition of the scope, but the vendor agrees with you that the project will be relatively small and you have an urgent need. Which contract type is MOST appropriate in this kind of situation?
   A. Cost Plus Fixed Fee (CPFF)
   B. Cost Plus Award Fee (CPAF)
   C. Fixed Price Economic Price Adjustment (FPEPA)
   D. Time and Materials (T & M)

Answer 19

9. D: This time-based fee plus cost of materials contract is used for smaller amounts and shorter times and requires little or no defined scope of work. In a T & M contract, the seller pays a rate for each of the people working on the team plus their material costs. The “time” part means that the buyer pays a fixed rate for labor, usually a certain number
   of dollars per hour. And the “materials” part means that the buyer also pays for materials,
   equipment, office space, administrative overhead costs, and anything else that has to be
   paid for.

Question 20

10. You are in the Control Procurements process and are ensuring that the seller’s
    performance meets contractual requirements by monitoring contract performance and
    making appropriate changes and corrections. Which of the following will you most likely NOT use as an input in this process?
    A. Procurement documents
    B. Work performance information
    C. Contract
    D. Seller proposals

Answer 20

10. D: Seller proposals are inputs to the Conduct Procurements process for obtaining seller responses, selecting a seller, and awarding the procurement, usually in the form of a contract. This is an official response to the buyer’s procurement document, including the details the buyer is looking for, how the work will be performed, and pricing. Procurement documents, work performance information, and contracts all are used as inputs for administering procurements in the monitoring & controlling process group.

Question 21

11. You are the project manager of a data center construction project. Your company made it mandatory to solicit quotes from three separate vendors before submitting the
    purchase request to the finance department for buying switches, routers, firewalls, PCs, servers, etc., for the data center. What type of input is this policy to the procurement process?
    A. Make-or-buy decision
    B. Procurement document
    C. Source selection criteria
    D. Organizational process asset

Answer 21

11. D: Any type of corporate policy or formal and official procurement procedure is an organizational process asset.

Question 22

12. Which of the following is the process of documenting project purchasing decisions,
    specifying the approach, defining selection criteria to identify potential sellers, and
    putting together a procurement management plan?
    A. Conduct Procurements process
    B. Plan Procurements process
    C. Close Project process
    D. Control Procurements process

Answer 22

12. B: Plan Procurement Management is the process of documenting project purchasing decisions, specifying the approach, defining selection criteria to identify potential sellers, and putting together a procurement management plan.

Question 23

13. Steve is a program manager overseeing an ERP implementation project where the
    team has already completed the finance, sales, and admin modules out of seven total
    modules. Steve was informed that the client has terminated the project as they found a cheaper and faster off-the-shelf solution for their need and no longer want the project to continue. Which of the following is TRUE?
    A. The team must keep working on the project to give senior management time to
    discuss with the client.
    B. Steve must stop all work and release the team immediately.
    C. Steve must work with the team to document the lessons learned.
    D. Steve must close the contract.

Answer 23

13. C: A project can be terminated any time for a certain cause or simply for convenience of the buyer. If a project is terminated before the work is completed, you still need to document the lessons learned and add them to the organizational process assets. There are always important lessons that you can learn when a project goes seriously wrong even when you did nothing to contribute to the disaster.

Question 24

14. In which procurement management process will you ensure that the seller’s
    performance meets contractual requirements, that both the buyer and seller meet
    their contractual obligations, and that the legal rights of both the buyer and seller are
    protected?
    A. Procurement performance reviews
    B. Inspections and audits
    C. Performance reporting
    D. Control Procurements.

Answer 24

14. D: Control Procurements is the process of ensuring the seller’s performance meets
    contractual requirements, ensuring that both seller and buyer meet their contractual
    obligations, and ensuring that legal rights of both seller and buyer are protected. The
    focus here is to manage the relationship between buyer and seller, monitor contract performance, and make appropriate changes and corrections. Procurement performance reviews, inspections and audits, and performance reporting are tools & techniques used in the Control Procurements process.

Question 25

15. You are in charge of the bidding process for a government solar power plant project. You are trying to make sure that no seller receives preferential treatment and that all sellers have a clear, common understanding of the procurement (technical requirements, contractual requirements, etc.). Your key objective is to provide all potential contractors with the information they need to determine if they would like to continue with the contracting process. Which one of the following will assist you with your goal?
A. Source selection criteria
B. Bidder conference
C. Independent estimate
D. Procurement negotiation

Answer 25

15. B: A bidder conference is intended to assure that no seller receives preferential treatment and that all sellers have a clear, common understanding of the procurement (technical requirements, contractual requirements, etc.). The goal of the bidder conference is to make sure that all questions are submitted in writing and issued to sellers as an addendum to the procurement document so that all sellers respond to the same scope of work, there is no collusion among sellers and/or buying agents, and sellers do not save questions for later private meetings in order to gain competitive advantage. Independent estimates are often prepared by the procuring organization to judge whether the statement of work was adequate in its description or that the seller fully understood or responded fully to the statement of work; these estimates also help the organization check the reasonableness of the seller’s response or cost proposal and proposed pricing. The goal of procurement negotiation is to achieve clarification and agreement on the structure and requirements of the contract prior to signing.

Question 26

16. During the Plan Procurement Management process, your team developed the
    procurement document to solicit proposals from prospective sellers and to easily
    compare their responses. All of the following statements are true about the procurement document EXCEPT:
    A. It may include the procurement statement of work and evaluation criteria.
    B. It should not be too rigorous to allow any flexibility for the sellers to be innovative.
    C. It contains clear, complete, and concise descriptions of performance, design,
    functionality, reporting, format, and support requirements.
    D. It may contain a Request For Proposal (RFP), an Invitation For Bid (IFB) or Request For Bid (RFB), and a Request For Quotation (RFQ)

Answer 26

16. C: Usually a Statement of Work (SOW) document contains a clear, complete, and concise description of performance, design, functional, reporting, format and support requirements, not a procurement document. Well-designed procurement documents help in easier comparison of seller responses, more complete proposals, more accurate pricing, and decrease in the amount of changes in the project. Procurement documents may contain all the work that is to be completed, as well as terms, conditions, and evaluation criteria. You want the seller to be as innovative as possible when they come up with the design and methods for completing your project. It may contain a Request for Proposal (RFP), Invitation for Bid (IFB), or Request for Bid (RFB), and Request for Quotation (RFQ).

Question 27

17. While managing a nanotechnology project to build an elevator/tunnel from the ground to the space station, you need to procure a new material called carbon nanotube, which is extremely strong and resistant to heavy air pressure. Due to patent constraints, there is only one supplier in a different state who can provide you with this material. You checked the supplier’s website and realized that the price listed for the material on the site would be within your approved limit. What should you do in this situation?
    A. Consider purchasing the material from the source even though it is a sole source.
    B. Keep exploring the option to use some other material to build the tunnel.
    C. Notify management that there is only one source; thus, you cannot purchase the
    material from the single source.
    D. Ask the procurement department to take care of this situation.

Answer 27

17. A: In noncompetitive forms of procurement, usually a seller is selected from a list of
    qualified sellers interested in and capable of doing the job. Even though competition
    can result in the selection of a better seller and decreased price, there is no reason for
    going through the entire procurement process unless law requires it. Two types of noncompetitive forms of procurement are described below: Single source (preferred seller): In this case, the buyer has worked with the seller before, and due to good experience and other convenience with the seller, the buyer does not want to look for another seller. Sole source (only seller): In this case, the seller may be the only one in the market or may have a patent, thus limiting the option of selecting other sellers.

Question 28

18. As a buyer’s project manager, you always try to bring the seller’s objectives in line with those of yours. You also understand that for the sellers, the focus is on the profit. Your project has an emergency and needs contracted work to be completed as soon as possible. Which one of the following would be most helpful to add to the contract under this crucial situation?
    A. A Time is of the Essence clause
    B. A robust procurement statement of work
    C. A retainage clause
    D. Incentives

Answer 28

18. D: Under normal circumstances, if you follow the proper project management processes, you should have good definition of scope. In this situation, you should have a quality procurement statement of work. You need good scope definition as well as incentives as you need the seller to share your need for speed. A quality procurement document alone will not ensure speed. Incentives will bring the seller’s objectives in line with the buyer’s and would be most useful in this case. The “Time is of the Essence” clause states that any delay will be considered as a material breach as delivery dates are extremely important. The “Retainage” clause states that in order to ensure full completion, an amount of money, usually 5 to 10 percent, is withheld from each payment and paid in full once the final work is completed. These two clauses may help, but would not be as effective as incentives.

Question 29

19. Lars is a project manager overseeing an online age verification application for one of the very important clients for his organization. Three months into the project, Lars got a call from the client who informed him that they would not be able to make the partial payment for the design work due to a financial crisis. The client also mentioned that they were very unsatisfied with the quality of the requirement document that the seller submitted. The client’s organization also thinks that the contract is no longer valid and needs to be terminated. Lars realizes that once signed, a contract is legally binding unless:
    A. The contract is in violation of applicable laws.
    B. The buyer’s legal counsel considers the contract to be null and void.
    C. The seller fails to perform.
    D. The buyer fails to pay for the work.

Answer 29

19. A: It is important to understand that once signed, a contract is legally binding unless
    it is in violation of any applicable law. The failure to perform or make payment usually
    does not alter the fact that the contract is binding. The contract will remain in binding
    if only one party considers that the contract is no longer valid. However, if both parties
    negotiate and agree to terminate the contract, the contract should move into the Close
    Procurements process.

Question 30

20. As a buyer’s project manager, what is the BEST way for you to ensure that the seller is not making extra profits in a Cost Plus Fixed Fee (CPFF) contract?
    A. You only pay the fee when the project is completed.
    B. You do not authorize any unexpected cost overrun.
    C. You audit all invoices and make sure that you are not charged for items not
    chargeable to the project.
    D. You ensure that the sellers are not cutting scope.

Answer 30

20. C: In a Cost Plus Fixed Fee (CPFF) contract, the fee is usually paid on a continuous basis during the life of the project. It is unreasonable and unrealistic not to authorize any unexpected cost overrun. Cutting scope would not be a way for sellers to make additional profits as it decreases the profit for this type of contract. The best way is to audit all invoices and make sure that you are not charged for items not chargeable to the project.