PMP Procurement Exercise

You have been asked to assist the contract manager in drafting the contract for a large project with limited scope clarity. What type of contract would you suggest, such that your organization does not incur any financial losses ?

• Time and Material

• Fixed Price

• Cost plus fixed fee

• Cost plus incentive fee

A Cost Plus Incentive Fee (CPIF) contract has an estimated cost of $150K with a predetermined fee of $15K and a share ratio of buyer to seller equal to 70/30. The actual cost of the project is $120K. How much savings did the seller make in total, and out of total savings how much did he make because of the incentive ?

• $30K, $9K

• $55K, $30K

• $32K, $27K

• $15K, $3K

Which of the following is not an advantage of a fixed price contract ?

• Less work for buyer to manage

• Seller has a strong incentive to control cost

• Buyer knows the total price at project start

• Final cost may be more than a cost reimbursable contract because contractors have to inflate the price to cover their risk

A new project manager is about to begin creating the contract statement of work. One stakeholder wants to add many items to the contract statement of work. Another stakeholder only wants to describe the functional requirements. The project is important for the project manager's company, but a seller will do the work. How would you advise the project manager ?

• The contract statement of work should be general to allow the seller to make his own decisions

• The contract statement of work should be general to allow clarifications later

• The contract statement of work should be detailed to allow clarification later

• The contract statement of work should be as detailed as necessary for the type of project

A project manager for a large bank is in charge of developing a new certificate of deposit product, which needs information technology systems development. His internal information technology staff does not have expertise in the technology needed for this project, so he must contract out the work. Unfortunately, he does not have time or the information to develop a detailed contract statement of work, but this effort is likely to be large. In this situation, which is the best type of contract ?

• Fixed price

• Cost plus fixed fee

• Cost plus incentive fee

• Time and material

As the buyer during the contract negotiation process, you are interested in a contract that would have the least amount of risk to your organization. Which of the following contracts would be preferred to meet your risk-averse needs ?

• Firm Fixed Price

• Cost Plus Percentage of Cost

• Cost Plus Incentive Fee

• Cost Plus Fixed Fee

The buyer has negotiated a cost plus incentive fee contract with the seller. The contract has a target cost $300,000, a target fee of $40,000, a sharing ratio of 80/20, a maximum fee of $60,000 and a minimum fee of $10,000. If the actual cost of the project is $380,000 how much will the buyer pay as a fee to the seller ?

• $56,000

• $104,000

• $30,000

• $24,000

A cost reimbursable contract introduces greater risk to the:

• Buyer

• Seller

• Project Team

• Functional Manager

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 cost of the project is $130,000. What is the total fee that will be awarded to the seller ?

• $31,000

• $19,000

• $15,000

• None of the above

Under which type of contract does the seller accept all liability for poor workmanship, engineering errors and consequential damages ?

• Incentive fee

• Fixed price

• Cost plus

• Cost plus fixed fee