Pmp Exam Preparation Study Guide - Project Procurement Management

PROJECT PROCUREMENTMANAGEMENT

STUDY NOTES

In Preparation ForPMP® Certification Exam

IBM Education and TrainingWorldwide Certified Material

This publication has been produced using Lotus Word Pro 96.

Publishing Information

Trademarks

The following are trademarks of International Business Machines Corporation in the UnitedStates, or other countries, or both: IBM

Lotus, Lotus Notes, Lotus Word Pro, and Notes are trademarks of Lotus DevelopmentCorporation in the United States, or other countries, or both. Microsoft, Windows, Windows NT, and the Windows logo are trademarks of MicrosoftCorporation of the United States, or other countries, or both.

The following are certification, service, and/or trademarks of the Project ManagementInstitute, Inc. which is registered in the United States and other nations: “PMI” is aservice and trademark, PMI® Logo and "PMBOK", are trademarks, “PMP” and thePMP® logo are certification marks.

Other company, product, and service names may be trademarks or service marks ofothers.

DisclaimerPMI makes no warranty, guarantee, or representation, express or implied, that the successfulcompletion of any activity or program, or the use of any product or publication, designed to preparecandidates for the PMP® Certification Examination, will result in the completion or satisfaction of any PMP® Certification eligibility requirement or standard., service, activity, and has not contributed anyfinancial resources.

Initially Prepared By: Kim Ulmer

Edited By: Peter Dapremont

October 2000 Edition

The information contained in this document has not been submitted to any formal IBM test and isdistributed on an “as is” basis without any warranty either express or implied. The use of this informationor the implementation of any of these techniques is a customer responsibility and depends on thecustomer’s ability to evaluate and integrate them into the customer’s operational environment. Whileeach item may have been reviewed by IBM for accuracy in a specific situation, there is no guarantee thatthe same or similar results will result elsewhere. Customers attempting to adapt these techniques to theirown environments do so at their own risk.

© Copyright International Business Machines Corporation 1999. All rights reserved. IBM and itslogo are trademarks of IBM Corporation. This document may not be reproduced in whole or inpart without the prior written permission of IBM.Note to U.S. Government Users--Documentation related to restricted rights--Use, duplication ordisclosure is subject to restrictions set forth in GSA ADP Schedule Contract with IBM Corp.

Project Procurement ManagementStudy Notes

Reference Material to study:

ü A Guide to the Project Management Body of Knowledge (PMBOK Guide), Chapter 12(1996 edition)

ü Principles of Project Management, John Adams, pgs. 213-280ü The New Project Management, Frame, J. Davidson, Chapter 10ü PMP Challenge!, ESI International, Procurement Management Sectionü PMBOK Q&A, PMI, Procurement

What to Study?

ü The PMBOK phases of Project Procurement Management: Procurement Planning,Solicitation Planning, Solicitation, Source Selection, Contract Administration, andContract Close-out(Be familiar with Inputs, Tools and Techniques, and Outputs for each phase)ü VERY IMPORTANT: Understand the viewpoint of the PMBOK. Project

Procurement Management is discussed from the perspective of the buyer in thebuyer-seller relationship. The buyer is the organization seeking the service or product.The seller is the provider of the service or contract and is referred to as the vendor, thesupplier, or the contractor. Project Management should be done by both the buyerand the seller.

ü Understand the definitions and terms. (buyer, seller, express and implied warranties,“fitness for a particular use”, invitation to bid, request for proposal, etc.)

ü Understand the viewpoint of the reading material. Is procurement management discussedfrom the viewpoint of the buyer (the organization or person seeking to outsource) or theseller (the person or organization selling their services/products)?

ü Understand the different types of contracts: fixed price, cost plus percentage, cost plusfixed fee, cost plus incentive fee, and fixed price plus incentive fee. Know who assumesthe most risk (buyer or seller) in each type of contract. Study examples of each type ofcontract so that you are comfortable with the different types and can adequatelydistinguish between each type of contract (especially the various shades of cost pluscontracts!).

ü Know the elements of a legally enforceable contract: Mutual assent, consideration mustbe provided to both parties (sufficient cause to contract), signing parties must have legalright to contract, the contract must have a legal purpose, and the contract must notviolate public policy.

ü Be familiar with the reasons for contracting and subcontracting and the risks associatedwith procurement

Project Procurement Management

Project Procurement Management 9-3© Copyright IBM Corp. 2000 Course materials may not be reproduced in whole or in part

without the prior written permission of IBM.

"PMBOK" is a trademark of the Project Management Institute, Inc. which is registered in the United States and other nations. “PMI” is a service and trademark of the Project Management Institute, Inc. which is registered in the United States and other nations.“PMP” and the PMP logo are certification marks of the Project Management Institute which are registered in the United States and other nations.


© Copyright IBM Corp. 20009-4 Project Pprocurement ManagementCourse materials may not be reproduced in whole or in part


Key Definitions

A type of bid document used to solicit proposals from prospectivesellers of products or services. In some application areas, it mayhave a more specific meaning. (appropriate for high dollar,non-standard items).

Request for Proposal(RFP)

A judicial remedy by which a court interprets the contract so as toexpress the real intention of the parties (this is different fromchanges to the contract).

Reformation

Once the proposal is in draft form, it passes through a red teamwhich again looks at the proposal through the buyer’s perspective.

Red Team Review

The legal relationship that exist between the parties to a contractthat allows either party to enforce contractual rights against theother party and seek remedy directly from the other party.

Privity of Contract

Based on information gathered and analyzed about demand andsupply. This forecast provides a prediction of short and long termprices and the underlying reasons for those trends.

Price Forecast

A seller responds to an RFP by developing a proposal. For sanitypurposes, the proposal is passed through the pink team once theoutline is completed. The pink team looks at the outline throughthe perspective of the buyer. The purpose of the team is to catchproblems with the proposal in the early stages.

Pink Team Review

In order to get an award, a contractor may submit at bid that’sunrealistically low.

Lowball

PMBOK equates this with Request for Proposal and recognizesthat it may have a more specific meaning in certain applicationareas. (appropriate for high dollar, standard items.)

Invitation for Bid (IFB)

A legal document of purchase or sale which is binding on bothparties. When entering into a contract, the people involved musthave legal capacity to do so. (the definition of legal capacityvaries from state to state). Consideration must be provided toboth parties (in other words, there must be sufficient cause tocontract). There must be mutual assent.

Contract

Occurs when the PM’s conduct enables performance differing fromthat prescribed by the contract. The PM’s conduct in effectingconstructive change may either be affirmative or a failure to act.Not part of change control of contract: For instance, if finalproduct performs better than standard specified in contract, or ifthe PM increases the quality over and beyond what’s stated in thecontract.

Constructive change

A receipt issued by a carrier for merchandise to be delivered to aparty at some destination.

Bill of Lading

Allows an unsuccessful supplier an opportunity to protest theaward of a government contract to another supplier.

Bid Protest

Cost of corrective action by purchaser and chargeable to thesupplier under terms of the contract.

Back Charge




Key Definitions,, continuedcontinued

Describes the portion of the product to be contracted. In general,this is different from the product description (which tends to bemore broader). Under the circumstance where the seller isproducing the entire product, the distinction between SOW and theproduct description becomes moot. Government terms: SOW isreserved for a procurement item that is a clearly specified productor service, and Statement of Requirements (SOR) is used forprocuring an item that is presented as a problem to be solved.

Statement of Work(SOW)

Precise description of a physical item, procedure, service, or resultfor the purpose of purchase and/or implementation of an item orservice.

Specification

PMBOK does not distinguish between RFQ and RFP. , PMBOK

does recognize that some application areas have a more specificmeaning for RFQ (appropriate for low dollar items such as suppliesand materials).

Request forQuotation (RFQ)





Procurement Planning (12.1): (Process Group: Planning)

� Process of identifying which project needs can be best met by procuring products orservices outside the project organization.

� Involves knowing whether to procure, how to procure, what to procure, how much toprocure, and when to procure.

� Inputs include:� Scope statement� Product description� Procurement resources� Market conditions� Other planning outputs � Constraints � Assumptions

� Methods include: make-or-buy analysis, expert judgment, and contract type selection(fixed, cost reimbursable, etc.).

� Outputs include: Procurement management plan and statement of work (SOW) foreach planned contract.

Solicitation Planning (12.2): (Process Group: Planning)

� Process of preparing documents needed to support solicitation.� Inputs include: procurement management plan, SOW’s, and other planning outputs.� Methods include: standard forms and expert judgment.� Outputs include:

� Procurement documents such as IFB’s, RFQ’s, and RFP’s.� Evaluation criteria: the criteria that will be used to rate or score proposals. The

criteria may be subjective or objective.� Statement of work updates.

Solicitation (12.3): (Process Group: Executing)

� The process of obtaining information (bids and proposals) from prospective sellers onhow project needs can be met.

� Most of the actual effort in this process is expended by the prospective sellers, normallyat little or no cost to the project.

� Inputs include: procurement documents and qualified seller lists.� Methods include: bidders conferences and advertising.� Outputs include: Proposals prepared by the sellers explaining how the seller can

provide the requested product or service.




Project Procurement Management, continued

Source Selection (12.4): (Process Group: Executing)

� The process of receiving the bids and proposals from the sellers and applying theevaluation criteria to select a provider.

� Inputs include: proposals, evaluation criteria, and organizational policies.� Methods include:

� Contract negotiation: Involves clarification and mutual agreement on thestructure and requirements. Final contract language should reflect allagreements reached. Subjects covered generally include, but are not limited to:

� Responsibilities and authorities, � Applicable terms and law, � Technical and business management approaches, � Contract financing, and � Price.

� Weighting system: A method for quantifying qualitative data in order tominimize personal prejudice on source selection.

� Screening system: Involves establishing minimum requirements ofperformance for one or more of the evaluation criteria. For example, the sellerproject manager must be certified before the remainder of the proposal wouldbe considered.

� Independent estimates: The procuring organization may prepare its ownestimates as a check on proposed pricing. These estimates are generallyreferred to as should cost estimates.

� Outputs include: Contract.

Contract Administration (12.5): (Process Group: Executing)

� The process of ensuring that the seller’s performance meets contractual requirements. � Inputs include: contract, work results, change requests, and seller invoices.� Methods include: contract change control system, performance reporting, and payment

system.� Outputs include: correspondence, contract changes, and payment requests.

Contract Close-out (12.6): (Process Group: Controlling)

� The process of completing and settling the contract including any resolution of openitems.

� Inputs include: contract documentation.� Methods include: procurement audits.� Outputs include: contract file and formal acceptance and closure.




Contract Origination

Two ways in which a contract can originate: unilaterally or bilaterally

Unilaterally:

� Common form for contract is a relatively simple type of document called a purchaseorder.

� A purchase order is used when routine, standard cost items are needed.

� A purchase order is legally binding and should be specific.

Bilaterally:

Procurement documents are used to solicit proposals from prospective sellers. Theprocurement document then becomes the basis for the seller’s proposal. The following areexamples of procurement documents:

1. Request for quotation (RFQ) from different suppliers� Items are of relatively low dollar value such as supplies and materials� A survey of potential suppliers is completed.� The quotation request informing suppliers of the goods or services needed is

sent to a scaled-down number of possible suppliers.

2. Request for proposal (RFP):� Items or services are usually high dollar and non-standard.� Examples: construction project, a research and development project; a

made-to-order, highly complex piece of machinery.� Blueprints, drawings, specifications, and other appropriate data should be

included with proposal.




Contract Origination (continued)

3. Invitation for bid (IFB):� Appropriate for high dollar, standard items.� A prerequisite to this process is a clear and accurate description of the supplies,

equipment, and services required.� Includes specifications, drawings, industry standards, performance

requirements, etc.� Must ensure fair competition among all bidders.� Provisions should be stated in such a manner to avoid misinterpretation.� Formal bids are submitted to the contracting department in sealed envelopes.

All bids are opened at a specific time. � In most cases, the contract award goes to the lowest responsible bidder. If not

awarded to the lowest bidder, must document reasons carefully.� Type of contract is open to fraud, collusion, and other dishonest conduct.

Hence, PM and contracting personnel must practice defined ethical businessprocedures.




Contract Types and Risks

ContractContract Type Type

In negotiating a contract it is the buyer's objective to maintain an incentive for efficient andeconomical performance while placing maximum risk on the seller. The objective of the selleris to maximize the profit potential while minimizing the risk. Contracts generally fall into one ofthree broad categories.� Fixed price or lump sum contracts� Fixed total price for a well-defined product� If the product is not well-defined, both the buyer and seller are at risk� Fixed price contracts may also include incentives

� Cost reimbursable contracts� Payment (reimbursement) to the seller for actual costs� Costs are classified as direct costs or indirect costs� Direct costs are costs incurred for the exclusive benefit of the project � Indirect costs, (overhead costs) are costs allocated to the project by the performing

organization � May include incentives for meeting or exceeding selected project objectives

� Unit price contracts� Preset amount per unit of goods or service � Total value of the contract is a function of the quantities needed

The following contracts are ordered in increasing risk to the seller and decreasing risk

to the buyer:

Cost-Plus-a-Percentage-of-Cost (CPPC):

� Seller is reimbursed for allowable costs of performing the contract and receives asprofit (a fee) an agreed upon percentage of the costs.

� No limit on the seller’s profit. If the seller’s cost increases, so does the profit.

� Most undesirable type of contract from buyer’s standpoint.� Prohibited for federal government use. Used in private industry, particularly

construction projects.� Susceptible to abuse. No motivation for seller to decrease costs.

� The buyer bears 100% of the risk.� The buyer project manager must pay particular attention to the control of the labor and

material costs so that the seller does not purposely increase these costs.� Bottom line: no limit on seller’s profit!




Contract Types and Risks, continued

Cost-Plus-Fixed Fee (CPFF):

� Seller is reimbursed for allowable costs of performing the contract and receives asprofit a fixed fee payment based on the percentage of the estimated costs.

� The fixed fee does not vary with actual costs unless the scope of work changes.� Susceptible to abuse in that there is a ceiling on profit, but no motivation to decrease

costs.� Primarily used in research projects where the effort required to achieve success is

uncertain until well after the contract is signed. � Bottom line: limit on profit but no incentive to control costs.

Cost-Plus-Incentive Fee (CPIF):� Seller is paid for allowable performance costs along with a predetermined fee and an

incentive bonus.� If the final costs are less than the expected costs, both the buyer and seller benefit by

the cost savings based on a pre-negotiated sharing formula.� The sharing formula reflects the degree of uncertainty faced by each party.� Primarily used when contracts involve a long performance period with a substantial

amount of hardware development and test requirements.

� Risk is shared by both buyer and seller.

� Bottom line: provides incentive to seller to reduce costs by increasing profit potential.

Fixed Price-Plus-Incentive Fee (FPI):

� Most complex type of contract. � Consists of target cost, target profit, target price, ceiling price, and share ratio.� For every dollar the seller can reduce costs below the target cost, the savings will be

shared by the seller and buyer based on the share ratio.� The share ratio is a negotiated formula which reflects the degree of uncertainty faced

by each party.� If the costs exceed the ceiling price, the seller receives no profit. Regardless of the

actual costs, the buyer pays no more than the ceiling price. � Risk is shared by both buyer and seller, but risk is usually higher for seller.� Usually used when contracts are for a substantial sum and involve a long production

time.� Bottom line: provides incentive to decrease costs which in turn increases profits. If

costs exceed a ceiling, then contractor is penalized.




Contract Types and Risks, continued

Firm-Fixed Price (FFP):

� Seller agrees to perform a service or furnish supplies at the established contract price.� Will also be called lump sum.� Seller bears the greatest degree of risk. � Seller is motivated to decrease costs by producing efficiently.� Best specifications are available and costs are relatively certain.� Common type of contract.

Buyer RiskLOW--------------------------<-----------HIGHFFPFPICPIFCPFFCPPC

HIGH---------->---------->------------------------------------------------LOWSeller Risk

Cost-Plus-Award-Fee (CPAF): (from the Frame Book)

� An award pool is created. The level of award is determined by an award committee.� Buyers have more flexibility with CPIF. Subjective judgments can be used to determine

rewards (such as a contractor’s attitude).� Type of contract is gaining with popularity.� Downside: administrative cost is high due to award committee.

Contract Incentives

� Contract incentives are fundamentally designed to provide motivation for desiredperformance. There is growing recognition that contract incentives are valuabletools to motivate the desired performance.

� Incentives can be objectively based and evaluated or subjectively based andevaluated� Objectively based and evaluated are tied to performance areas like cost,

schedule or delivery, and quality� Subjectively based and evaluated involve award fees and other special

incentives




Examples of Contract Types

CPPC:Estimated cost: $1,000K Percentage: 10% ($100K) Estimated total price: $1,100K (Estimated cost + 10%*Estimated cost)

If cost increases to $1,100K the total price would be $1,100K plus 10% of the actual costs =$1,210K.

CPFF:Estimated cost: $1,000K Percentage: 10% ($100K)Estimated total price: $1,100K (Estimated cost + 10%*Estimated cost)

If cost increases to $1,100K the total price would be $1,100K plus 10% of theoriginal estimated costs = $1,200K.

CPIF:Estimated cost: $1,000K Predetermined fee: $100KSharing formula: 85/15 (buyer absorbs 85% of the uncertainty and the seller absorbs 15% ofthe risk)

Actual cost: $800K Savings: $200KSeller gets: $800K + $100K + $30K = $930K (Actual cost + Fee + 15%*Savings)Buyer saves: $170K

FPI:Target cost: $1,000K Target profit: $100K (Seller’s fee)Target price: $1,100K Ceiling price: $1,200K (The maximum payout to the seller)Share ratio: 70/30

Example A: Actual cost: $800K Savings: $200K (Target cost - Actual cost) Seller gets: $800K + $100K + 60K = $960K (Actual cost + fee + 30%*savings) Buyer saves: $140K

Example B: Actual cost: $1,300K Seller gets: $1,200K (no profit and a $100K loss on costs) Buyer loses: $100K (the payout is $100K over Target price = Ceiling Price)

FFP: (Lump Sum)

Price: $1,000K

Example A: Actual cost: $700K Seller makes a profit of $300K (Price - Actual Cost)

Example B: Final cost $1,100K Seller loses $100K on contract




Contract ExecutionSpecial Considerations

Changes:

� The change control system should be defined and included in the changes clause ofthe project.

� The system should cover who initiates a change request, how is it processed andfunded and who has the final approval authority.

� For major projects, a configuration control committee should be established� The change proposal must be explicit in terms of the impact of the change on the

contract work statement, specifications and drawings.� Legal: there must be mutual agreement to modify a contract and that agreement must

be supported by consideration (change clause is important!) OR� Change may also be accomplished by unilateral action if pursuant to the exercise of

options contained in the terms of the original contract.

Specifications:� Either standard in nature where a specific design has been accepted throughout the

industry or tailored and unique to the situation at hand.� There is a behavioral component associated with the development of specifications:

These include:� Drive for competency: The person keeps changing the design which results in

increasing complexity and cost. (cannot come to a closure)� Safety margin coefficient: related to design parameters in terms of how much is

enough. At some point, costs increase exponentially, but safety gains do not.� Indifference methodology: related to an attitude that promotes a contingency

approach to specifications even when not warranted. (Design is too flexible --the engineer or architect is “indifferent” to the final structure of the product)

� Monument syndrome: based on the desire to build a product that will lastforever regardless of the cost. (i.e., the pyramids)

� Budget expansion: the designer develops the specifications with an eye to theavailable funds. The more money available, the more complex and costly thedesign.

� Sole-source shelter: specifications are developed so that equipment, materialsand supplies are tailored to require the products of a specific manufacturer orsupplier.

� Careful review during the drafting stage of the contract is of extreme importance!Correcting problems after the contract is signed may rarely be done without costlynegotiation or litigation.




Contract Execution

Special Considerations, continued

Quality Control:

� Quality cannot be inspected into the product -- it must be built into it.� The attitude of quality must be present when the product is designed.� Controls must be established to ensure quality is kept in mind as work progresses.� Periodic checks for specification conformance are a must.� Cost of rework can be high -- the emphasis should be on doing it right the first time.� Defects can be costly and damaging to the reputation of the company and the project

manager and the project team.

Warranties:

� The concept of warranty is based on one party’s assurance to the other that the goodswill meet certain standards of quality, including condition, reliability, description,function or performance. � Express warranty: applies when service or product does not meet the level of

quality specified in the contract. (Section 2-313(1)(a) of the UniformCommercial Code)

� Implied warranty: is measured by “merchantability” or “fitness for a particularuse”.Ø The implied warranty of merchantability arises in every sale of goods

made by a merchant who deals in goods of the kind sold. It means thegoods must be reasonably fit for the ordinary purposes for which suchgoods are used. (applies to goods which can be resold)

Ø The implied warranty of fitness for a particular use applies to bothmerchants and non-merchants, alike. The warranty is implied, if at timeof contracting, the seller knows a particular purpose for which the item isbeing purchased, and the seller also knows the buyer is relying on theseller’s judgment in selecting or furnishing suitable goods. The impliedwarranty is NOT applicable in the following cases:

1. The client PM is knowledgeable of the product, has inspected it,and made his own independent judgment without relying on theseller’s skill.

2. The product meets the specifications and plans furnished by theclient project manager.

Analogy: If you buy a lawnmower, you would expect it to cut grass. If you use it on the carpet, the warranty doesn’t apply.




Contract ExecutionSpecial Considerations, continued

Waiver:

� The client PM must be continually aware of the waiver pitfall.� Under the doctrine of a waiver, a party may relinquish rights he otherwise has under the

contract.� If the client PM knowingly accepts incomplete, defective or late performance and

accepts that performance without objection, the PM has waived his right to strictperformance.

Bonds:

� Bonds contain penal amounts sufficient to assure performance and payment. Whenappropriate, bonds are drafted into the contract.

� Types of bonds:� Performance: secures the performance and fulfillment of all the undertakings,

terms and conditions of the contract. (The penal amount could be as much as100% of the contract price such as in construction projects)

� Payment: secures the payment of subcontractors, laborers, and materialmen bythe prime contractor. Additionally, the PM may want to include a contract clauserequiring the prime contractor to secure payment bonds from any subcontractoron the project for the subcontractor’s suppliers of labor and material.

� Under certain circumstances, fidelity and patent infringement bonds may berequired.

� The Miller Act requires both performance and payment bonds on all but minorconstruction projects in which the U.S. government is a party to the contract.

Breaches:

� Breach of contract: failure to perform a contractual obligation.� The measure of the damages for a breach is the amount of loss the injured party has

sustained.� Materials breach of contract: The non-faulted party is discharged from any further

obligations under the contract. The breach is so serious that it also deprives thenon-faulting party the expected benefits of the bargain.

� Time: Should no time for performance be stated or implied in the contract, theperformance must be completed within a reasonable amount of time. However, if timeis critical, the contract should explicitly state “time is of the essence”.

� Time is of the essence: when explicitly stated within the contract, failure to performwithin the allotted time will constitute a materials breach of contract and the buyer willnot be required to accept late performance.




Negotiation

Stages of Negotiation:

1. Protocol: Introductions are made, and the negotiators get to know each other. Theatmosphere for the rest of the negotiations is determined in this stage.

2. Probing: The negotiators begin the search process. Each party identifies issues ofconcern. Strengths and weaknesses are identified and possible areas of interest.

3. Scratch Bargaining: This is the essence of the meeting. Actual bargaining occurs andconcessions are made. Points of concession are identified.

4. Closure: The two positions are summed up and final concessions are reached. Theagreements are summarized and documented.

5. Agreement: The main difficulty in this stage is ensuring both parties have an identicalunderstanding of the agreements. This stage should establish the plans for recordingthe agreements in a written contract.

Negotiation Tactics:

The PM should be aware of the following negotiation tactics. � Imposing a deadline for reaching an agreement

� A powerful tactic because it implies a possible loss to both parties � Other party does not have to accept deadline, but often does

� Surprise -- One party springs information such as a price change on the other party� Stalling

� One party may claim that an agreement cannot be finalized because he haslimited authority and cannot commit the company’s resources.

� A party may claim that the person with final authority is absent. The “missingman” technique may also be used when the party does not have the informationasked for by the other party.

� Fair and reasonable� Negotiator may claim the price for a computer is equitable because that is what

another company is paying.� Delays

� Useful when tempers are beginning to flare, a team member is going astray, todivert from a subject, etc.

� Examples of delays: arrival of refreshments, request for recess, etc.� Reasoning together� Confusing the other party: deliberately distorting issues and figures. (If this is done,

someone should speak up before agreeing to anything)� Withdrawal

� Sometimes done to divert attention from an area of weakness� One party may make an attack upon an issue, then retreat.

� Make the other party appear unreasonable by pointing out all the concessions made bythe party

� Arbitration - a third party may be brought in when agreement cannot be reached.� Fait accompli - a party may claim that what is being asked for has already been

accomplished and cannot be changed.




Sample Questions

1. A unilateral contract under which the seller is paid a preset amount per unit ofservice is called:A. A cost reimbursable contractB. A lump sum contractC. A unit price contractD. A fixed price contract

2. Which of the following is considered during the Procurement Planning Process?A. Whether to procureB. How to procure and how much to procureC. What and when to procureD. All of the above

3. From a buyer’s standpoint, which of the following is true?A. Procurement planning should include consideration of potential subcontractsB. Procurement planning does not include consideration of potential subcontracts since

this is the duty of the contractor.C. Subcontractors are first considered during the Solicitation ProcessD. None of the above

4. Which of the following processes involves obtaining information (bids and proposals) from prospective sellers?

A. Procurement PlanningB. SolicitationC. Solicitation PlanningD. Source Selection

5. Which of the following is true about procurement documents?A. Procurement documents are used to solicit proposals from prospective sellers.B. Invitation for Bid and Request for Proposal are two examples of procurement

documents.C. Procurement documents should be structured to facilitate accurate and complete

responses from prospective sellers.D. All of the above




Sample Questions, continued

6. Which of the following is a method for quantifying qualitative data in order to minimize the effect of personal prejudice on source selection?

A. Weighting systemB. Screening systemC. Selecting systemD. All of the above

7. Which of the following is true concerning evaluation criteria?A. Can often be found in procurement documentsB. Can be objective or subjectiveC. May be limited to purchase price if procurement item is readily available from number

of sourcesD. all of the above

8. Which of the following are inputs to the Source Selection Process?A. Evaluation criteriaB. Organizational policiesC. Procurement documentsD. a and b

9. A significant difference between independent estimates and proposed pricing could mean that:

A. The independent estimates are most likely incorrect and the proposed pricing correctB. The SOW was not adequateC. The prospective seller either misunderstood or failed to respond fully to the SOW.D. b or c

10. Which of the following are examples of indirect costs?A. Salaries of corporate executivesB. Salaries of full-time project staffC. Overhead costsD. a and c

11. Which of the following contract types places the greatest risk on the seller?A. Cost-plus-fixed-fee contractB. Cost plus-incentive-fee contractC. Firm-fixed-price contractD. Fixed-price-incentive contract





12. In which of the following contract types is the seller’s profit limited?A. Cost-plus-percentage-cost contractB. Cost-plus-fixed-fee contractC. Fixed-price-plus-incentiveD. b and c

13. A cost-plus-percentage-cost (CPPC) contract has an estimated cost of $120,000 with an agreed profit of 10% of the costs. The actual cost of the project is $130,000. What is the total reimbursement to the seller?

A. $143,000B. $142,000C. $140,000D. $132,000

14. A cost-plus-incentive-fee (CPIF) contract has an estimated cost of $150,000 with a predetermined fee of $15,000 and a share ratio of 80/20. The actual costs of the project is $130,000. How much profit does the seller make?

A. $31,000B. $19,000C. $15,000D. none of the above

15. A fixed-price-plus-incentive-fee (FPI) contract has a target cost of $130,000, a target profit of $15,000, a target price of $145,000, a ceiling price of $160,000, and a share ratio of 80/20. The actual cost of the project was $150,000. How much profit does the seller make?

A. $10,000B. $15,000C. $0D. $5,000

16. Under what circumstances is it better for a contractor to subcontract?A. The subcontractor possesses special technical and engineering skills that the

contractor does not have.B. The work to be subcontracted represents almost all of the overall work effort.C. The subcontractor can perform the work at a lower cost than the contractor.D. a and c





17. Which type of bilateral contract is used for high dollar, standard items?A. Purchase orderB. Request for proposal (RFP)C. Invitation for bid (IFB)D. Request for quotation (RFQ)

18. Which of the following are characteristics of a purchase order?A. A bilateral contract used for low dollar itemsB. A unilateral contract used when routine, standard cost items are required.C. A bilateral contract used for high dollar, standard itemsD. a and c

19. In which stage of the negotiation meeting are points of concession identified?A. probingB. closureC. agreementD. scratch bargaining

20. Which type of warranty is enacted if a service or product does not meet the level of quality specified in the contract?

A. Implied warranty of merchantabilityB. Implied warranty of specified qualityC. Express warranty D. none of the above

21. Which type of contract provides the highest risk to the owner (buyer) ?A. Cost-plus Incentive Fee B. Cost-plus Percentage of CostsC. Cost-plus Fixed FeeD. Fixed-Price Plus Incentive Fee

22. In negotiations, what is a fait accompli tactic ?A. Completing a phase of work before the other side is readyB. Pretending to accept the other side's offerC. Claiming an issue has already been decided and therefore cannot be changedD. Promising that a requirement will be completed before it is due





23. The Statement of Work (SOW) is an output of which process?A. Solicitation PlanningB. Procurement PlanningC. Source Selection D. None of the above

24. A legally binding document offered unilaterally is a:A. Purchase OrderB. Scope of WorkC. Express warranty D. None of the above

25. Contract administration is the process of:A. Product verification and administrative close-outB. Obtaining information from prospective sellersC. Clarification and mutual agreement on the structure and requirements of the contract D. Monitoring contract performance, making payments, and awarding contract

modifications

26. Breach of contract is best described as:A. Failure by the buyer to perform part or all of the duties of a contractB. Failure by either the buyer or seller to perform part or all of the duties of a contractC. Failure by the seller to perform part or all of the duties of a contractD. None of the above

27. Contract Close-out and administrative closure are similar because the both involve:A. Administrative close-out and customer satisfaction analysisB. Product verification, administration close-out, and lessons learnedC. Product verification and administration close-out D. None of the above

28. During procurement planning the project team is responsible for:A. Developing the procurement management planB. Developing the procurement documentsC. Developing the statement of work D. a and c





29. The criteria for evaluating a proposal are developed as part of:A. Procurement planningB. Solicitation planningC. Solicitation D. Source Selection

30. Privity of contract is the legal relationship that exist between parties to a contract that allows:

A. Either party to enforce contractual rights against the other partyB. The buyer to seek remedy against the seller for nonperformance C. Either party to seek remedy directly from the other partyD. a and c




Answer Sheet

dcba30.

dcba29.

dcba28.

dcba27.

dcba26.

dcba25.

dcba24.

dcba23.

dcba22.

dcba21.

dcba20.

dcba19.

dcba18.

dcba17.

dcba16.

dcba15.

dcba14.

dcba13.

dcba12.

dcba11.

dcba10.

dcba9.

dcba8.

dcba7.

dcba6.

dcba5.

dcba4.

dcba3.

dcba2.

dcba1.




Answers

D30PMBOK Guide, pg. 128B29PMBOK Guide, pg. 127D28PMBOK Guide, pg. 133C27

B26PMBOK Guide, pg. 131D25

A24PMBOK Guide, pg. 127B23

C22B21C20D19B18C17D16

Is impliedA15B14A13D12C11D10

PMBOK Guide, pg. 131D9

PMBOK Guide, pg. 130, Proposals is the other input. Procurement documentsare input into the Solicitation Process.

D8PMBOK Guide, pg. 1128D7PMBOK Guide, pg. 131A6PMBOK Guide, pg. 128D5PMBOK Guide, pg. 129B4

PMBOK Guide, pg. 125, Particularly if buyer wishes to exercise some degree ofinfluence or control over subcontracting decisions.

A3PMBOK Guide, pg. 125D2Project Procurement Management Study Notes pg. 9 C1




PMP® Certification Exam Preparation

What did I do wrong ?

_________Total

_________10. NOT rushed to finish

_________9. Reviewed my answer after reading the other questions

_________8 Used the PMI® rather than my own perspective

_________7. Checked the mathematics

_________6. Known the PMBOK® definition

_________5. Known the formula

_________4. Used a strategy of elimination

_________3. Read ALL the answers before answering the question

_________2. Read the answer properly and identified the keywords

_________1. Read the question properly and identified the keywords

NumberI would have answered a larger number of questions correctlyif I had ___________.




Documents

Pmp Exam Preparation Study Guide - Project Procurement Management