Procurement Management

Question 1

Define:

Alternative Dispute Resolution

Answer 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.

Question 2

Define:

Bid

Answer 2

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

Question 3

Define:

Bidder Conference

Answer 3

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

Bidder conferences enable sellers to query the buyer on the details of the project statement of work to help ensure that their proposals are adequate and appropriate for the proposed agreement.

Question 4

Define:

Centralized Contracting

Answer 4

This requires all contracts for all projects to be approved through a central unit within the performing organization.

This approach assigns a contract administrator or contract officer to the project.

Question 5

Define:

Claims

Answer 5

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.

Question 6

Define:

Claims Administration

Answer 6

This is the process through which claims, also called disputes and appeals, are monitored and controlled through the project in accordance with the contract terms.

Question 7

Define:

Contract

Answer 7

A formal agreement between the buyer and the seller.

These can be oral or written—though written is preferred.

Question 8

Define:

Contract Change Control System

Answer 8

This defines the procedures for how the contract may be changed.

The process for changing the contract includes the forms, documented communications, dispute resolution procedures, tracking methods, the procedures for getting the changes approved within the performing organization, and the conditions within the project, business, or marketplace that justify the need for the change.

Question 9

Define:

Contract File

Answer 9

This is a complete indexed set of records of the procurement process and is incorporated into the administrative closure process.

These records include financial information as well as information on the performance and acceptance of the procured work.

Question 10

Define:

Contract Negotiation

Answer 10

This process is an activity to create a fair price for the work the seller is to complete.

The performing organization and the seller must agree on the expectations, requirements, authorities, terms, technical and business management approaches, price, and any other pertinent factors covered within and by the contract prior to signing the contract.

Question 11

Define:

Contract Statement of Work

(SOW)

Answer 11

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.

Question 12

Define:

Controlling Procurements

Answer 12

This is the process of ensuring that both the buyer and the seller live up to the agreements in the contract.

The project manager and the contract administrator must work together to ensure the seller meets its obligations, and the vendor will ensure that the buyer lives up to its agreements as well.

Legal remedies may ultimately be pursued if either party does not fulfill its contractual requirements.

Question 13

Define:

Cost-Plus-Award-Fee Contract

(CPAF)

Answer 13

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

A contract that requires the buyer to pay for the cost of the goods and services procured plus a fixed fee for the contracted work. The buyer assumes the risk of a cost overrun.

Question 14

Define:

Cost-Plus-Fixed-Fee Contract

(CPFF)

Answer 14

A contract that requires the buyer to pay for the cost of the goods and services procured plus a fixed fee for the contracted work. The buyer assumes the risk of a cost overrun.

Question 15

Define:

Cost-Plus-Incentive-Fee

(CPIF)

Answer 15

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.

Question 16

Define:

Cost-Plus Percentage of Costs

Answer 16

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.

Question 17

Define:

Cost-Reimbursable Contracts

Answer 17

This is a contract type that pays the seller for the product, this payment to the seller includes a profit margin.

Question 18

Define:

Delegation of Procurement Authority

Answer 18

This is the signing of a contract by a person with the power to authorize the requirements and payment specified in the contract.

Whether this person is the project manager depends on the procurement policies of the performing organization.

Question 19

Define:

Direct Costs

Answer 19

These are costs incurred by the project for the project to exist.

Costs are attributed directly to the project work and cannot be shared among projects (for example, airfare, hotels, long-distance phone charges, and so on).

Examples include the equipment needed to complete the project work, the salaries of the project team, and other expenses tied directly to the project’s existence.

Question 20

Define:

Distributive Negotiation

Answer 20

To reach a deal through tactics so both parties receive the highest amount of value possible.

Question 21

Define:

Fixed-Price Contracts

Answer 21

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

They may also provide incentives for meeting or exceeding contract requirements such as meeting deadlines and require the seller to assume the risk of cost overruns,

Question 22

Define:

Fixed-Price Incentive Fee Contract

(FPIP)

Answer 22

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.

Question 23

Define:

Fixed-Price Increments

Answer 23

This agreement approach assigns value to user stories, which means the contract can be priced by the number of user story points completed.

This allows the customer more control over where the procurement funds are spent and allows the vendor flexibility to avoid the risk of quoting a fixed fee for the entire project, which is likely to change.

Question 24

Define:

Fixed-Price with Economic Price Adjustments

(FPEPA)

Answer 24

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

Question 25

# Define: Independent Estimates

Answer 25

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. ## Footnote If there is a significant difference between what the organization has predicted and what the sellers have proposed, either the statement of work was inadequate or the sellers have misunderstood the requirements.

Question 26

# Define: Integrative Negotiation

Answer 26

To reach a collaborative agreement that creates more value for both parties by a win-win solution.

Question 27

# Define: Invitation For Bid | (IFB)

Answer 27

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

Question 28

# Define: Letter Contract

Answer 28

Allows the vendor to begin working on the project immediately. ## Footnote It is often used as a stopgap solution.

Question 29

# Define: Letter of Intent

Answer 29

Not a contract, but a letter stating that the buyer is intending to create a contractual relationship with the seller.

Question 30

# Define: Make-or-Buy Analysis

Answer 30

This is made in the initial scope definition to determine whether the entire project should be completed in-house or procured. ## Footnote In some conditions, it is more cost-effective to buy; in others, it makes more sense to create an in-house solution.

Question 31

# Define: Multitiered Agreement Structure

Answer 31

This agreement approach gives flexibility for both parties and sets some boundaries for the project. It allows things such as warranties, arbitration, and claim resolution to be put into a master agreement for the project. ## Footnote Items that may change due to the changing project, such as service rates and resources needed, can be detailed in a schedule of services. Finally, the Agile components, such as the project scope of work, schedule, and budget, can be entered into a statement of work.

Question 32

# Define: Not-to-Exceed Clause | (NTE)

Answer 32

This states the maximum amount of monies the vendor can bill for the contracted work. ## Footnote It helps reduce contractual threat to the Buyer in a Time and Materials Contract.

Question 33

# Define: Performance Reporting

Answer 33

This is the communication between the project manager and management on how the seller is performing under the guidelines in the contract. ## Footnote This is part of communications and should be documented within the communications management plan. The buyer has to confirm that the vendor is living up to the terms of the contract.

Question 34

# Define: Privity

Answer 34

The contractual relationship between the buyer and the seller is often considered confidential and secret. ## Footnote This defines the terms, conditions, and private nature of a contractual relationship

Question 35

# Define: Procurement Document Package

Answer 35

It is a collection of documents prepared by the buyer and sent to each vendor that may participate in the procurement process. ## Footnote The procurement document package defines the requirements of the purchase, specifies the needs, and describes how the vendor should respond.

Question 36

# Define: Procurement Planning

Answer 36

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

Question 37

# Define: Procurement Statement of Work | (SOW)

Answer 37

In this document, the seller fully describes the work to be completed and/or the product to be supplied. ## Footnote The SOW becomes part of the contract between the buyer and the seller. It is typically created as part of the procurement planning process, and it enables the seller to determine whether they can meet the written requirements of the SOW.

Question 38

# Define: Proposal

Answer 38

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.

Question 39

# Define: Purchase Order | (PO)

Answer 39

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

Question 40

# Define: Quotation

Answer 40

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

Question 41

# Define: Request for Information | (RFI)

Answer 41

From buyer to seller. Requests that the seller provide more information about the seller’s products and/or services.

Question 42

# Define: Request for Proposal | (RFP)

Answer 42

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

Question 43

# Define: Request for Quote | (RFQ)

Answer 43

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

Question 44

# Define: Screening System

Answer 44

A tool that filters or screens out vendors that don’t qualify for the contract. ## Footnote For example, the project manager could say that only vendors that have built eight bridges in Utah can qualify for the contract. Sellers that don’t meet the requirements are removed from the selection process, and their proposals are not considered.

Question 45

# Define: Seller Rating Systems

Answer 45

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. ## Footnote The project manager of the current project can reference this internal seller rating system to determine the expectations of working with a vendor based on the vendor’s past performance.

Question 46

# Define: Statement of Objectives | (SOO)

Answer 46

This is a document describing a problem to be solved by the seller.

Question 47

# Define: System Metaphor

Answer 47

Used in XP, it describes how the solution will work, the solution architecture, and the naming conventions of the project work.

Question 48

# Define: Team

Answer 48

A group of individuals charged with the responsibility of delivery and value of a project.

Question 49

# Define: Terms of Reference

Answer 49

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

Question 50

# Define: Time and Materials Contract | (T&M)

Answer 50

A contract type in which the buyer pays for the time and materials for the procured work. ## Footnote 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. Sometimes called unit price contracts, they are ideal when an organization contracts out a small project or when smaller amounts of work within a larger project are to be completed by a vendor.

Question 51

# List: Types of Cost-Reimbursable Contracts

Answer 51

* Cost-Plus Fixed Fee (CPFF) * Cost-Plus Percentage of Costs (CPCC) * Cost-Plus Incentive Fee (CPIF)

Question 52

# Define: Value Delivered Agreement Structure

Answer 52

Rather than structuring contracts on specific milestones and deliverables that could change in the project, the negotiation can center on value-driven items in the spirit of Agile.

Question 53

# Define: Weighting System

Answer 53

This takes out the personal preferences of the decision maker in the organization to ensure that the best seller is awarded the contract. ## Footnote Weights are assigned to the values of the proposals, and each proposal is scored. Because the weights are determined before reviewing the proposals, the process is guaranteed to be free of personal preferences and bias. The seller with the highest score is awarded the contract.