12 Project Procurement Management Terms

Question 1

When there is an issue or claim that must
be settled before the contract can be
closed, the parties involved in the issue
or claim will try to reach a settlement
through mediation or arbitration.

Answer 1

Alternative dispute resolution

Question 2

From seller to buyer. Price is the
determining factor in the decision-making
process.

Answer 2

Bid

Question 3

A meeting of all the project’s potential
vendors to clarify the contract statement
of work and the details of the contracted
work.

Answer 3

Bidder conference

Question 4

These are disagreements between the
buyer and the seller, usually centering on
a change, who did the change, and even
whether a change has occurred. Claims
are also called disputes and appeals, and
are monitored and controlled through the
project in accordance with the contract
terms.

Answer 4

Claims

Question 5

A contract is a formal agreement
between the buyer and the seller.
Contracts can be oral or written—though
written is preferred.

Answer 5

Contract

Question 6

This defines the procedures for how the
contract may be changed. The process
for changing the contract includes the
forms; documented communications;
tracking; conditions within the project,
business, or marketplace that justify the
needed change; dispute resolution
procedures; and the procedures for
getting the changes approved within the
performing organization.

Answer 6

Contract change control system

Question 7

This document requires that the seller
fully describe the work to be completed
and/or the product to be supplied. The
SOW becomes part of the contract
between the buyer and the seller.

Answer 7

Contract statement of work (SOW also

CSOW)

Question 8

A contract that pays the vendor all costs
for the project, but also includes a buyer determined award fee for the project
work.

Answer 8

Cost plus award fee contract

Question 9

A contract type that requires the buyer to
pay a cost for the procured work, plus an
incentive fee, or a bonus, for the work if
terms and conditions are met.

Answer 9

Cost plus incentive fee

Question 10

A contract that requires the buyer to pay
for the costs of the goods and services
procured plus a percentage of the costs.
The buyer assumes all of the risks for
cost overruns.

Answer 10

Cost plus percentage of costs

Question 11

These are costs incurred by the project in
order for the project to exist. Examples
include the equipment needed to
complete the project work, salaries of the
project team, and other expenses tied
directly to the project’s existence.

Answer 11

Direct costs

Question 12

Also known as firm fixed-price and lumpsum contracts, these are agreements that
define a total price for the product the
seller is to provide.

Answer 12

Fixed-price contracts

Question 13

A fixed-price contract with opportunities
for bonuses for meeting goals on costs,
schedule, and other objectives. These
contracts usually have a price ceiling for
costs and associated bonuses.

Answer 13

Fixed-price incentive fee

Question 14

A fixed-price contract with a special
allowance for price increases based on
economic reasons such as inflation or the
cost of raw materials.

Answer 14

Fixed-price with economic price

adjustments

Question 15

An “act of God” that may have a negative
impact on the project. Examples include
fire, hurricanes, tornadoes, and
earthquakes.

Answer 15

Force majeure

Question 16

These estimates are often referred to as
“should cost” estimates. They are created
by the performing organization or outside
experts to predict what the cost of the
procured product should be.

Answer 16

Independent estimates

Question 17

These are costs attributed to the cost of
doing business. Examples include
utilities, office space, and other overhead
costs.

Answer 17

Indirect costs

Question 18

From buyer to seller. Requests the seller
to provide a price for the procured
product or service.

Answer 18

Invitation for Bid (IFB)

Question 19

A letter contract allows the vendor to
begin working on the project immediately.
It is often used as a stopgap solution.

Answer 19

Letter contract

Question 20

A letter of intent is not a contract, but a
letter stating that the buyer is intending to
create a contractual relationship with the
seller.

Answer 20

Letter of intent

Question 21

A process in which the project
management team determines the cost-effectiveness, benefits, and feasibility of
making a product or buying it from a
vendor.

Answer 21

Make-or-buy decision

Question 22

The contractual relationship between the
buyer and the seller is often considered
confidential and secret.

Answer 22

Privity

Question 23

A project management subsidiary plan
that documents the decisions made in the
procurement planning processes.

Answer 23

Procurement management plan

Question 24

A process to identify which parts of the
project warrant procurement from a
vendor by the buyer.

Answer 24

Procurement planning

Question 25

A document the seller provides to the buyer. The proposal includes more than just a fee for the proposed work. It also includes information on the vendor’s skills, the vendor’s reputation, and ideas on how the vendor can complete the contracted work for the buyer.

Answer 25

Proposal

Question 26

``` A purchase order is a form of unilateral contract that the buyer provides to the vendor showing that the purchase has been approved by the buyer’s organization. ```

Answer 26

Purchase order (PO)

Question 27

From seller to buyer. Price is the determining factor in the decision-making process.

Answer 27

Quotation

Question 28

From buyer to seller. Requests the seller to provide a proposal to complete the procured work or to provide the procured product.

Answer 28

Request for Proposal (RFP)

Question 29

From buyer to seller. Requests the seller to provide a price for the procured product or service.

Answer 29

Request for Quote (RFQ)

Question 30

``` When the project management team decides to use transference to respond to a risk, a risk-related contractual agreement is created between the buyer and the seller. ```

Answer 30

Risk-related contractual agreements

Question 31

A tool that filters or screens out vendors | that don’t qualify for the contract.

Answer 31

Screening system

Question 32

``` These are used by organizations to rate prior experience with each vendor that they have worked with in the past. The seller rating system can track performance, quality ratings, delivery, and even contract compliance. ```

Answer 32

Seller rating systems

Question 33

Defines the obligations for the seller, what the seller will provide, and all of the particulars of the contracted work. Terms of reference is similar to the statement of work.

Answer 33

Terms of Reference

Question 34

``` A contract type in which the buyer pays for the time and materials for the procured work. This is a simple contract, usually for smaller procurement conditions. These contract types require a not-to-exceed clause, or the buyer assumes the risk for cost overruns. ```

Answer 34

Time and materials contract

Question 35

This takes out the personal preferences of the decision maker in the organization to ensure that the best seller is awarded the contract. Weights are assigned to the values of the proposals, and each proposal is scored.

Answer 35

Weighting system