Procurement Management Flashcards
Sole Source
Only one unique source
Single Source
Lots of options, but have one preference that you want to work with
Oligopoly
One vendor’s price has an effect on all the other vendors.
Most commonly used contract type. Favored by most buying organizations because the price for goods is set at the outset and not subject to change unless the scope of work changes.
Firm Fixed Price
This contract arrangement gives the buyer and seller some flexibility in that it allows for deviation from performance, with financial incentives tied to achieving agreed upon metrics. Typically such incentives are related to cost, schedule, or technical performance of the seller. A price ceiling is set and all costs above the price ceiling are the responsibility of the seller.
Fixed Price Incentive Fee
This contract type is used whenever the seller’s performance period spans a considerable period of years or if the payments are made in a different currency. It is a fixed price contract but with a special provision allowing for predefined final adjustments to the contract price due to changed conditions, such as inflation changes or cost increases (or decreases) for specific commodities.
Fixed Price with Economic Price Adjustments
In this contract the seller is reimbursed for all allowable costs for performing the contract work and receives a fixed fee payment calculated as a percentage of the initial estimated project costs. Fee amounts do not change unless scope changes.
Cost Plus Fixed Fee
In this contract the seller is reimbursed for all allowable costs for performing the contract work and receives a predetermined incentive fee based on achieving certain performance objectives as set forth in the contract. If the final costs are less or greater than the original estimated costs, then both the buyer and seller share costs from the departures based upon a pre-negotiated cost sharing formula. (80/20 split over/under target costs based on actual performance of the seller)
Cost Plus Incentive Fee
In this contract the seller is reimbursed for all legitimate costs, but the majority of the fee is earned based on the satisfaction of certain broad subjective performance criteria that are defined and incorporated into the contract. The determination of fee is based solely on the subjective determination of seller performance by the buyer and is generally not subject to appeals.
Cost Plus Award Fee
A hybrid type of contract with aspects of both cost reimbursable and fixed price contracts. Often used for staff augmentation, acquisition of experts, and any outside support when a precise statement of work cannot be quickly prescribed.
Time and Material Contracts
Least Cost Method
This method may be appropriate for procurements of a standard or routine nature where well established practices and standards exist and from which a specific and well defined outcome is expected, which can be executed at different costs.
Qualifications Only Method
This method applies when the time and cost of a full selection process would not make sense because the value of the procurement is relatively small. The buyer establishes a short list and selects the bidder with the best credibility, qualifications, experience, expertise, areas of specialization, and references.
Quality Based/Highest Technical Proposal Method
The selected firm is asked to submit a proposal with both technical and cost details and is then invited to negotiate the contract if the technical proposal proves acceptable. Technical proposals are first evaluated based on the quality of the technical solution offered.
Quality and Cost Based Method
Allows cost to be included as a factor in the seller selection process. In general, when risk and/or uncertainty are greater for the project, quality should be a key element when compared to cost.
Sole Source Method
The buyer asks a specific seller to prepare technical and financial proposals, which are then negotiated. Since there is no competition, this method is acceptable only when properly justified and should be viewed as an exception.
