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Procurement Flashcards

1
Q

Who incurs the greatest financial risk in the Fixed Price Category

A

Seller

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2
Q

How much fee does a seller make on a Firm Fixed Price Contract

A

Only what’s built into the contract

If the seller has a cost overrun he takes a loss

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3
Q

What is lowest risk contract to buyer

A

FFP is lowest risk for buyer

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4
Q

Is a Cost Price Incentive Fee (CPIF) a fixed price contract?

A

No.

The final price of the contract is not fixed unless the seller’s cost reaches the price ceiling.

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5
Q

What are the elements of a FPIF contract?

A

CST3

Target cost

Target Fee

Target Price = target cost + target profit

Ceiling Price: Max amount buyer will pay
(protects the buyer)

Share Ratio: e.g.

70/30

Underrun
buyer gets 70% of the underrun

Overrun
Seller profit reduced by 30%

Profit = Target Profit + 30% underrun OR
Target Profit - 30% of overrun

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6
Q

What is the point of total assumption for a FPIF contract?

A

Point at which the seller assumes all the cost risk

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7
Q

How do you calculate PTA?

A

PTA =
Remember use the “P” in PMP to think Price although the “P” actually means “Point”

🎯Target COST+(Ceiling Price-🎯 Target Price)/ Buyer’s Share

  1. So you don’t need Actual Cost
  2. . PTA only works with FPIF contracts
  3. There is no PTA for CPIF contracts because there is no ceiling price
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8
Q

What is a Fixed Price with economic price Adjustment (FP-EPA

A

Some items are out of control of the seller (e.g. inflation, currency adjustments)

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9
Q

Who has more financial risk in the Cost Reimbursable CATEGORY

A

Buyer

Buyer pays for all legitimate costs + a fee

Not guaranteed a product

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10
Q

What is the Point of Total Assumption in a Cost Plus Incentive Fee (CPIF)

A

There is none.

There is no ceiling price thus no PTA

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11
Q

What are the elements of a CPIF contract

A

SM2T2

Target Cost

Target Fee

Minimum Fee

Maximum Fee

Share Ratio

No PTA (No Ceiling Price)

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12
Q

What is the Maximum Fee in a Cost Plus Award Fee (CPAF) contract?

A

Max Fee = Base Fee + 100% Award Fee

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13
Q

What are the key components of a CPAF contract?

A 
Estimated Costs
Base Fee
Award Fee
Fee determination period
Fee criteria
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14
Q

What is the primary reason a buyer would use a CPAF contract

A

ensure the seller’s objective align with buyer’s objectives

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15
Q

What are the elements of a Cost + Fixed Fee Contract?

A

Target Cost

Fixed Fee

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16
Q

What is the Fee on a Cost Plus Fixed Fee contract?

A

% of ESTIMATED costs

(therefore a fixed #)

It Does not change regardless of seller’s legitimate costs

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17
Q

What are the elements of a Cost + Percentage Cost contract?

A

Estimated Costs
Fee: % of ACTUAL costs (not target costs)

Thus seller motivated to drive up costs

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18
Q

A TM contract is a hybrid of a fixed price and CR contract. What is the fixed price element?

A

Buyer will pay a fixed price/hr for labor

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19
Q

A TM contract is a hybrid of a fixed price and CR contract. What is the CR element?

A

Buyer pays for all material costs at cost even though total material cost is not known.

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20
Q

Buyer Risk from Low to High

A 
CPCC
CPAF
CPIF
CPFF
FP-EPA
FPIF
FFP
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21
Q

What is seller risk from Low to High

A 
CPPC
CPAF
CPFF
CPIF
FP-EPA
FPIF
FFP
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22
Q

Calculation for Rent versus Buy

A

Rental Cost * #Days =
Investment Costs +((cost to operate* #Days))

You can also solve for #Days with algebra

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23
Q

What are the two contract categories?

A

Fixed Fee

Cost Reimbursable

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24
Q

When is a Fixed Fee Contract used

A

Rqmts are well defined

No significant changes to scope expected

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25
When is a Cost Reimbursable contract used?
When scope of work is expected to change significantly
26
5 types of Intent to Buy Documentation
``` C-SUMP Contract SLA Understanding MoA Purchase Order ```
27
What Knowledge area includes the processes to purchase or acquire products
Procurement Management
28
What are the 3 Processes of Procurement Mgmt
Plan Procurement Mgmt Conduct Procurements Control Procurements
29
What are the 5 TnTs for Plan Procurement Mgmt
``` SMED2 Source Selection Analysis (Planning how to conduct Source Selection) Meetings Expert Judgement Data Analysis (Make/Buy) Data Gathering ```
30
What are the 5 TnTs for Conduct Procurements
``` B-IDEA Bidders Conference Interpersonal Skills Data Analysis (Source Selection) Expert Judgement Advertising ```
31
What are the 5 TnTs for Control Procurements
``` C-IDEA Claims Inspections Data Analysis Expert Judgement Audits ```
32
Emerging Practices in Procurement Mgmt
``` Advances in Tools to manage contracts More advanced Risk Mgmt Changing Contracting Processes Logistics and Supply Chain Mgmt Technology and stakeholder relations Trial Engagements (Like a fly off) ```
33
What are the Inputs to Plan Procurement Mgmt
``` BEO-P3 Business Documents EEFs OPAs Project Charter Project Mgmt Plan Project Documents ```
34
Plan Procurement Mgmt Outputs
``` I-COMBSP4 *Independent Cost Estimates Change Requests OPAs *Make or Buy Decisions Bid Documents *Source Selection Criteria Procurement Mgmt Plan *Procurement Strategy *Procurement SoW Project Document Updates ```
35
Why is a Fixed Price contract the most commonly used contract type
Price of goods set at outset | Not subject to change (Unless scope changes)
36
Who is responsible for all costs above the price ceiling in a Fixed Price Incentive Fee contract
Seller
37
Why would you use a Fixed Price Incentive Fee Contract
Gives buyer and seller some flexibility | When you want financial incentives tied to Cost/ Schedule/Performance
38
When do you use a "Least Cost" Source Selection method
Procurements are of a standard or routine nature Well-established practices and standards exist
39
PTA Calculation
PTA= | Total Cost+ (Ceiling PRICE-Target PRICE)/(Buyer' s Share)
40
Total Fee
Total Fee=Target Fee+ | (Target Cost-Actual Cost)*Seller' s Share
41
What procurement process is EV analysis part of
Control Procurements (It's the Data Analysis part)
42
Audit is a TnT of what process a. Plan Procurement b. Conduct Procurements c. Control Procurements d. Validate Procurements
Control Procurements
43
Tools and Techniques of Control Procurements
``` C-IDEA Claims Administration Inspection Data Analysis (EVM)? Expert Judgement Audits ```
44
Does seller start losing OWN $$ at TPA?
No.
45
Does seller START losing Profit at TPA?
Yes. | Remember the 183K TPA at $200K Ceiling Price---still made $17K Profit at TPA
46
What do we follow in In CONDUCT PROCUREMENTS
PMP
47
Inputs to CONDUCT PROCUREMENTS
PMP Procurement Documents *Seller's Proposals Project Documents
48
What is the term for something that represents bids, quotes and proposals
Seller's Proposals
49
In CONDUCT PROCUREMENTS, what is an important project document
Updated risk register
50
Independent Estimates
3rd Party
51
When do we want an independent estimate
When we get only a few proposals
52
What is the term for when a bidder low-balls the price?
Buy In
53
Negotiations
Not just cost; e.g. Responsibility
54
Centralized Contracting
Procurement executed by corporate group Volume Discounts Better able to specialize
55
Decentralized Contracting
Procurement executed by team More loyal to team and project Quicker response to project requests
56
5 Elements of a Contract
C-COAL 1. Consideration (exchange something of value) Other 2. Competent parties (2 legal entities) 3. Offer 4. Acceptance 5. Legality of Purpose (no illegal purchases) If it's in the contract, it needs to be completed If it's not in the contract, it should not be accomplished
57
What is Force majeure
Act of God or Environment
58
What is Fait accompli
Item is closed to further negotiation
59
Letter of Intent
If I buy, I buy from you Not a commitment Not a contract
60
What type of contract are used for purchase orders
FFP ??
61
Calculation for Total Fee
Total Fee = Target Fee + | (Target Cost - Actual Cost)*Seller's Ratio
62
What contract poses the highest risk to the seller
Firm Fixed Price
63
In a FPIF contract, when do buyer and seller share the risk
When costs are below the PTA
64
In a FPIF contract, when does the share ratio become 0%/100%
At PTA
65
What contract types can't be used if the contractor does not have an adequate cost accounting system
fixed price incentive contract any cost reimbursable contract because they require the seller to accurately report on costs
66
Ceiling Price vs. Total Price
Total Price must be <= Ceiling Price | That's why it's called a CEILING
67
Watch out for Acronyms
Difference between FFP and FPIF | Difference between CPAF and CPIF
68
Watch Out for "Seller" versus "Buyer"
You're reading into the question!
69
What are the components of Total Fee
1. Target Fee 2. Adjustment based on how well the seller did wrt cost (Target Cost-Actual Cost) * %Seller % If the seller spent more than planned, the adjustment is negative but regulated by the Seller %
70
Can the equation for Total Fee be used for both a FPIF and CPIF?
Yes. But there are 2 caveats 1. With a FPIF, you have a ceiling PRICE PRICE = Actual Cost + Total Fee PRICE <= Ceiling PRICE 2. With a CPIF, you have a Max And a Min Total Fee >= Min Fee OR Total Fee >= Max Fee
71
What characteristics do FPIF and CPIF contracts share
When the seller overruns, the seller's profit is decreased When the seller underruns, the seller's profit is increased There is a share ratio that represents how the buyer and seller will share cost overruns and underruns
72
What is the key differentiaters between CPIF contracts and FPIF contracts
In a CPIF contract, there is price ceiling to protect the buyer In a Fixed Price Incentive Fee contract, there is a maximum fee the buyer will pay
73
Describe how the Fixed Fee in a Cost + FIXED Fee contract is determined
Buyer and Seller agree on ESTIMATED costs Buyer and Seller agree on a reasonable fee Fee is a % of ESTIMATED Costs so it become a number Fixed Fee does not change, regardless of the seller's actual costs
74
In Questions 11-20 you got 3x you should have gotten right if it was not for math or speeding through questions
#13: Wrong because you added a fee based on an overrun instead of subtracting #19: You forgot to consider cost ceiling #20 You didn't read all the answers; right answer was obvious
75
What does PTA tell you
Are Seller's COSTS on TARGET?
76
Buyer Risk Low to High
``` FFP FPIF FP-EPA TandM? CPAF CPIF CPFF CPCC ```
77
``` Need contract for R and D and don't want seller to be concerned about incentives: Which contract type FFP CPAF CPFF TandM ```
CPFF Not FFP because scope changing Not T&M because it's long term work, not short term plug Not CPAF because of focus on incentives
78
What is the point where the actual cost plus the resulting profit is greater than or equal to the price ceiling?
``` PTA Remember zenBridge example; AC was 183 Target Fee = 30K So Actual PRICE = 213K Since Ceiling = 200K, payout was only 200K, so profit was 17K ``` AC+Profit = 183K+17K=200K ergo the Ceiling
79
Contract where buyer is not allowed to see seller's accounting records
Firm Fixed Price
80
Why is buyer allowed to audit the seller's accounting records on a FPIF, CPAF, and CPIF contract
Seller is reimbursed for actual legitimate costs
81
CPFF CPIF FPIF FFP
Contract vehicles in INCREASING order of risk to SELLER "Risky" means potential for overrun. Not "potential for profit." CPFF: ktr gets legitimate costs + Fixed fee CPIF: ktr gets legitimate costs + a fee that may be higher or LOWER than the fixed fee Fixed Price Incentive Fee: Gets legitimate costs + Incentive Fee that could be higher or lower than the fixed fee but also must DELIVER On a FFP, the seller may take a loss if he miscalculated.
82
Least overall risk to Seller
Cost Plus Percentage Cost Contract | Fee based on % Actual, not estimated costs.
83
T or False. On a T and M contract, the seller is reimbursed for actual legitimate labor costs.
False. The seller is reimbursed for the agreed-to labor RATE, not COSTS.
84
Seller's Risk from Low to High
CPCC CPFF CPIF CPAF TandM? FP-EPA FPIF FFP

PMP (16 decks)

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