Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
84 Cards in this Set
- Front
- Back
|
Agreements |
The broader term "agreement" generally encompasses documents or communications that outline internal or external relationships and their intentions. Some other examples of agreements are service level agreements, memos of intent, letters of intent, letters of agreement, e-mails, and verbal agreements. (rm, p 459) |
|
|
Bidder conferences |
The exam often asks what things the project manager must watch out for in a bidder conference. The answers include: • • Collusion • • Sellers not asking questions in front of the competition • Making sure all questions and answers are put in writing and issued to all potential sellers by the buyer as addenda to the procurement documents (this ensures that all sellers are responding to the same procurement statement of work) |
|
|
Breach |
• This occurs when any obligation of the contract is not met. • The response to a breach must always be to issue a letter formally notifying the other party of the breach. (RM, p 490) Material Breach Material breach This breach is so large that it may not be possible to complete the work under the contract. |
|
|
Buyers and Sellers |
• In the real world, the company or person who provides services and goods can be called a "contractor;' "subcontractor;' "supplier," "designee "vendor;' etc. • The PMBOK® Guide uses only one term, "seller;' but the exam may use any of these terms to describe the seller. • The company or person who purchases the services is called the "buyer." Many companies are a buyer in oneprocurement and a seller in another. • If no point of view is mentioned, assume you are the BUYER • Unless an exam question indicates otherwise, assume the seller is providing all of the work external to the buyer's team rather than supplying resources to supplement the team. ((RM, p462) |
|
|
Ceiling price |
This is the highest price the buyer will pay; it's a way for the buyer to encourage the seller to control costs. The ceiling price is a condition of the contract that must be agreed to by both parties before signing. Keep in mind that answers to calculations on the exam can change when a ceiling price is mentioned. (RM, p 479) |
|
|
Claims Administration |
A claim is an assertion that the buyer did something that has hurt the seller and the seller is asking for compensation. Another way of looking at claims is that they are a form of seller change requests (RM, p504) Claims are usually addressed through the contract change control system. (RM, p504) |
|
|
Closing Procurement |
upon completion of the contract for each procurement, the project manager performs a procurement audit and closes out the procurement. (RM, p507) Procurement closure requires more record keeping and must be done more formally than is generally required for project closure, to protect the legal interests of both parties. (RM, p 507) |
|
|
Conflict with procurement manager |
It might also be valuable to contact your contracts, procurement, or legal department. (RM, p459) |
|
|
Constructive Changes |
constructive changes. These changes occur when the buyer, through actions or inactions, gets in the seller's way of performing the work according to the contract. (RM,p500) A simple direction to the contractor to perform certain work that may seem minor, if it is outside the scope of the contract, can result in a constructive change and cost the company a lot of money. (RM, p500) |
|
|
Contract and Agreement |
• The PMBOK® Guide uses the terms "agreement" and "contract," so you need to be prepared to see both on the exam and understand what each means. (PM, p459) • Contracts can be written or verbal, but they are typically created with an external entity, and there is some exchange of goods or services for some type of compensation (usually monetary). (PM, p 459) • The broader term "agreement" generally encompasses documents or communications that outline internal or external relationships and their intentions. • A contract can be considered an agreement, but an agreement wouldn't necessarily be a contract. The charter, the project management plans, service level agreements, memos of intent, letters of intent, letters of agreement, e-mails, and verbal agreements are examples of agreements that are not contracts; they are internal agreements.(RM, p459) |
|
|
Contract change control system |
You find that a change is needed, only to realize that there is no plan in place describing how the change should be submitted, who should review it, who can approve the change, and how the cost, time, and other impacts of the change will be evaluated. You could spend more time figuring out how you will make the change than doing the work the change calls for. This is the reason for the contract change control system. (rm, p 461) While the work is underway, the buyer's needs may change and, as a result, the buyer may issue a change order to the contract. (rm, p500) This system includes change procedures, forms, dispute resolution processes, and tracking systems and is specified in the contract. (RM, P500) Claims are usually addressed through the contract change control system. (RM, p504) |
|
|
Contract interpretation |
Contract interpretation is based on an analysis of the intent of the parties to the contract and a few guidelines. (RM, p504) One such guideline is that the contract supersedes any memos, conversations, or discussions that may have occurred prior to the contract signing. (RM, p504) Therefore, if a requirement is not in the contract, it does not have to be met, even if it was agreed upon prior to signing the contract. (RM, p504) |
|
|
Contract Types |
when the exam asks a question relating to contract type, first see if knowing which category the contract is in helps you answer the question. In most cases, it does.The three broad categories of contracts are: • Fixed price (FP) • Time and material (T&M) • Cost-reimbursable (CR) Keep in mind that although the buyer initially proposes the contract type, the final contract type is subject to negotiation with the seller. (RM, p474) |
|
|
FP |
Fixed Price (FP, or Lump Sum, Firm Fixed Price) A fixed-price contract is used for acquiring goods, products, or services with well-defined specifications or requirements. If the costs are more than the agreed-upon amount, the seller must bear the additional costs The profit is not disclosed to the buyer in this contract type.470 Contract = $1,100,000. negotiations are not usually needed in a fixed-price contract because the scope is complete and the lowest bidder is selected based on price. (rm, p497) |
|
|
FPIF
|
Fixed Price Incentive Fee (FPIF)
In a FPIF contract, profits (or financial incentives) can be adjusted based on the seller meeting specified performance criteria such as getting the work one faster, cheaper, or better. Contract = $1,100,000. For every month early the project is finished, an additional $10,000 is paid to the seller. |
|
|
FPAF |
Fixed Price Award Fee (FPAF) In a FPAF contract, the buyer pays a fixed price plus an award amount (a bonus) based on performance. This is very similar to the FPIF contract, except the total possible award amount is determined in advance and apportioned based on performance. Contract = $1,100,000. For every month performance exceeds the planned level by more than 15 percent, an additional $5,000 is awarded to the seller, with a maximum award of $50,000. |
|
|
FPEPA |
Fixed Price Economic Price Adjustment (FPEPA Think "economy" whenever you see this on the exam, and you should remember it. 472 Contract = $1,100,000, but a price increase will be allowed in year two based on the US Consumer Price Index report for year one. Or Contract = $1,100,000, but a price increase will be allowed in year two to account for increases in specific material costs. |
|
|
purchase order |
• A purchase order is the simplest type of fixed-price contract. • This type of contract is normally unilateral (signed by one party) • Purchase orders become contracts when they are "accepted" by performance (e.g., equipment is shipped by the seller—a unilateral purchase order). Contract = 30 linear meters of wood at $9 per meter. |
|
|
T&M |
• In this type of contract, the buyer pays on a per-hour or per-item basis. • frequently used for service efforts in which the level of effort cannot be defined when the contract is awarded. • the seller's profit is built into the rate, • best used for work valued at small dollar amounts and lasting a short amount of time. • the buyer has a Medium amount of cost risk Contract = $100 per hour plus expenses or materials at cost. Or Contract = $100 per hour plus materials at $5 per linear meter of wood. If a cost-reimbursable or time and material contract is used, there will likely be negotiations to finalize the contract price and other issues. (RM, P497) |
|
|
CR |
used when the exact scope of work is uncertain and, therefore, costs cannot be estimated accurately enough to effectively use a fixed-price contract. If a cost-reimbursable or time and material contract is used, there will likely be negotiations to finalize the contract price and other issues. (RM, P497) |
|
|
Cost Contract |
A cost contract is one in which the seller receives no fee (profit). It is appropriate for work performed by nonprofit organizations. |
|
|
CPF/CPPC |
requires the buyer to pay for all costs plus a percentage of costs as a fee. (RM, p 473) This type of cost-reimbursable contract is generally not allowed for US federal acquisitions or procurements under federal acquisition regulations and is bad for buyers everywhere. (RM, p 473) Contract = Cost plus 10 percent of costs as fee. |
|
|
CPFF |
A cost plus fixed fee contract provides for payment to the seller of actual costs plus a negotiated fee (the seller's profit, usually a percentage of the estimated cost of the project) that is fixed before the work begins. (RM, p 473) Contract = Cost plus a fee of $100,000. |
|
|
CPIF |
A cost plus incentive fee contract provides for the seller to be paid for actual costs plus a fee that will be adjusted based on whether the specific performance objectives stated in the contract are met. (RM, p 474) Contract = $500,000 target cost plus $50,000 target fee. The buyer and seller share any cost savings or overruns at 80% to the buyer and 20% to the seller. |
|
|
CPAF |
|
|
|
Contracting Environments |
Centralized Decentralized |
|
|
Centralized contracting |
• In a centralized contracting environment, there is one procurement department, and a procurement manager may handle procurements on many projects. (RM, p464) • In a centralized contracting environment, the procurement manager is involved with many projects at the same time and reports organizationally to the head of the procurement department, not to the project manager. (RM, p465) |
|
|
Decentralized contracting |
• In a decentralized contracting environment, a procurement manager is assigned to one project full-time and reports directly to the project manager. (RM, p 464) • In a decentralized contracting environment, there may be little standardization of procurement processes and contract language because there is not a procurement department to regulate standards, improve knowledge, and increase professionalism in procurement management. (RM, P465) |
|
|
Contracts |
• Contracts can be written or verbal, but they are typically created with an external entity, and there is some exchange of goods or services for some type of compensation (usually monetary). (PM, p 459) • Contracts require formality. What this means is that any correspondence, clarification, and notifications related to the contracts should be formal written communication, which can be followed up with verbal communication, if necessary. If any issues develop that require arbitration, mediation, or litigation, the formal written communications will be more enforceable and supportable than any verbal communications. (RM, p462) • Make sure the contract contains all the scope of work and all the project management requirements, such as attendance at meetings, reports, actions, and communications deemed necessary to minimize problems and miscommunications with the seller(s). (RM, p 463) • Help tailor the contract to the unique needs of the project while it is being written. (RM, p464) So it may be necessary to revisit the work done in Plan Procurement Management which can in turn lead to decisions to contract for resources or goods that may require changes to the project management plan or other aspects of the project. (RM, p. 488) Creating a contract requires the involvement of both the project manager and the procurement manager. (RM, p 489) This person may be called the procurement manager or contract administrator and, in many cases, IS THE ONLY ONE WITH AUTHORITY TO CHANGE THE CONTRACT. (RM, p500) |
|
|
Cost |
Payments may be made as work is completed, as costs are incurred, according to a payment schedule, or only after the successful completion of the contract. The project manager must know when payments will be made in order to plan for the time required to review and make these payments. (RM, p 475) This is how much an item costs the seller to create, develop, or purchase. A buyer's costs can include a seller's costs and profits. (RM, p479) |
|
|
Final contract performance reporting |
Think of this as creating a final report. First you need to analyze and document the success and effectiveness of the procurement and the seller, and then turn that into a final report. (RM, p509) |
|
|
Financial closure |
Financial closure is making final payments and completing cost records. (rm, p508) |
|
|
Force majeure |
This is a situation that can be considered an "act of nature such as a fire or freak electrical storm, and is an allowable excuse for either party not meeting contract requirements. If a force majeure occurs, it is considered to be neither party's fault. It is usually resolved by the seller receiving an extension of time on the project. (See also "Risk of loss:') Who pays for the cost of theitems destroyed in a fire or other force majeure? Usually the risk of loss is borne by the seller and is hopefully covered by insurance. (rm, p 490) |
|
|
Formal acceptance |
In gaining formal acceptance, the seller is also working to measure customer satisfaction. Often a formal customer satisfaction survey may be included in a seller's closure records. (rn, p507) |
|
|
Incentives |
Incentives, therefore, are designed to motivate the seller's efforts toward things that might not have been emphasized otherwise and to discourage seller inefficiency and waste in the areas in which the incentives are designated. (rm, p474) These are benefits the seller may receive for aligning with the buyer's objectives of time, cost, quality, risk, and performance. (rm, p489) |
|
|
Indemnification (liability) |
Who is liable for personal injury, damage, or accidents? (RM, p489) |
|
|
Independent Estimates |
The buyer may compare the seller's proposed cost with an estimate created in-house or with outside assistance. (RM, p 496) |
|
|
Lessons learned |
Procurement lessons learned are received from everyone involved in the project, even the seller, and become part of the lessons learned for the project. They often include a discussion of what went right, what went wrong, and what can be done better next time. Lessons learned are created as a result of the procurement audit. These then become part of the organizational process assets. Lessons learned are documented and disseminated throughout the organization. Could you imagine being able to access files from every project manager that has gone before you in your company, describing what they would do differently the next time? How valuable would that be? Thus, lessons learned provide input to help improve how the organization handles procurements in the future. (rm, p509) |
|
|
Letter of intent |
A letter of intent is NOT a contract, but simply a letter, without legal binding, that says the buyer intends to hire the seller. It is intended to give the seller confidence that the contract will be signed soon and to make them comfortable with taking the risk of ordering the equipment or hiring the staff that will eventually be needed. (rm, p489) |
|
|
Make or Buy analysis |
When a project is planned, the scope is analyzed to determine whether internal resources can complete the project scope, or if any of the work will be outsourced (a make-or-buy decision). (RM, p450) The costs involved in managing the procurement should be considered as part of the decision, in addition to the direct costs of the product or service to be procured. (RM, p468) It is better to "make" if: • You have an idle plant or workforce. • You want to retain control. • The work involves proprietary information or procedures. Question You are trying to decide whether to lease or buy an item for your project. The daily lease cost is $120. To purchase the item, the investment cost is $1,000 and the daily maintenance cost is $20. How long will it take for the lease cost to be the same as the purchase cost? Answer Let D equal the number of days when the purchase and lease costs are equal. $120D = $1,000 + $20D $120D — $2012 = $1,000 $100D = $1,600 D = 10 |
|
|
Negotiation |
The procurement manager generally leads the negotiations. (RM, P497) The exam typically has only one or two questions about contract negotiations, and one of these questions usually deals with the reason the project manager must be involved. (RM, P497) To achieve a signed contract, the following are usually negotiated in order. See if the order makes sense to you. • Scope • Schedule • Price There are other things that need to negotiated, however. These include: • Responsibilities • Authority • Applicable law: if you are working with a seller from a different state, country, or region, you need to agree upon whose law will apply to the contract. • Project management process to be used • Payment schedule Often price is not a factor at all. (RM, P498) |
|
|
Objectives |
It is important for everyone involved in negotiations to understand that the objectives of the negotiations are to: • Obtain a fair and reasonable price. • Develop a good relationship with the seller. |
|
|
Tactics |
• Attacks "If your organization cannot manage the details of its own operations, perhaps it should get out of the business!" • Personal insults "If you do not understand what you are doing, perhaps you should find another job!" • Good guy/bad guy One person is helpful to the other side, while another is difficult to deal with. • Deadline "We have a flight leaving at 5 p.m. today and must finish negotiations before that time:' • Lying Lying may be obvious or hidden. • Limited authority "I can't agree to shorten the schedule by six months. I have only been authorized to offer three months." Limited authority statements may or may not be true. • Missing man "Only my boss can agree to that request, and he isn't here. Why don't we agree to only do ? I can agree to that." • Fair and reasonable "Let's be fair and reasonable. Accept this offer as it stands." • Delay "Let's revisit this issue the next time we get together." This may also take the form of never actually getting down to negotiating until the last day of a planned visit. • Extreme demands As the buyer you will have to pay for all of the risks for this work. It is not our responsibility to plan for risks!" • Withdrawal This can either be an emotional withdrawal or a physical withdrawal and can show a lessening of interest. • Fait accompli This is a done deal. "These government terms and conditions must be in all our contracts." |
|
|
Noncompetitive forms of procurement |
Generally, private companies can hire anyone they want, using any methods they choose. Regardless of whether the procurement is competitive, however, you must still have a procurement statement of work. (RM, P489) |
|
|
Single Source |
In this type of procurement, you contract directly with your preferred seller without going through the full procurement process. (RM, p492) |
|
|
Sole Source |
In this type of procurement, there is only one seller. This might be a company that owns a patent. (rm, P492) |
|
|
Nondisclosure agreement |
This is a agreement between the buyer and prospective sellers identifying the information or documents they will hold confidential and control, and who in the organization will have access to the confidential information. (RM, p 488) |
|
|
PM'S role in procurement |
|
|
|
Presentations |
|
|
|
Price |
|
|
|
Privity |
|
|
|
Procurement audit |
|
|
|
Procurement documents |
|
|
|
Request For Proposal (RFP) |
• The most common procurement documents are request for proposal (RFP), invitation for bid (IFB), and request for quotation (RFQ). (RM, p 460) • sometimes called request for tender • RFPs request a detailed proposal on how the work will be accomplished, who will do it, résumés, company experience, price, etc. (RM, p 486) |
|
|
Invitation For Bid (IFB) |
The most common procurement documents are request for proposal (RFP), invitation for bid (IFB), and request for quotation (RFQ). (RM, p 460) or request for bid, RFB) IFBs usually just request a total price to do all the work. (RM, p486) |
|
|
Request For Quotation (RFQ) |
The most common procurement documents are request for proposal (RFP), invitation for bid (IFB), and request for quotation (RFQ). (RM, p 460) RFQs request a price quote per item, hour, meter, or other unit of measure (RM, p 486) |
|
|
RFI |
• The PMBOK° Guide lists request for information (RFI) as one of the types of procurement documents, but in reality, it does not belong in this category. A procurement document is an attempt to procure something, while an RFI is simply looking for information. • The information received could help identify which companies are qualified to handle the procurement. • Buyers can also use RFIs to collect information on what work is possible for later inclusion in RFPs or IFBs. Remember that the purpose of an RFI is to get information, (rm, p 486) |
|
|
Procurement file |
Creating the procurement file involves putting all e-mails, letters, conversation records, payment receipts, reports, etc., related to the procurement into an organized file. This file will be stored for use as historical records and will help protect the project in case of arguments or legal action regarding what was done and not done on the contract. The project manager,with the help of the procurement manager, decides what documents need to be kept. The file could include: — Contract — Changes (approved and rejected) — Submittals from the seller — Seller performance reports — Financial information — Inspection results — Lessons learned (RM, p. 509) |
|
|
Procurement Management Plan |
• the project manager will facilitate creating a plan for how the procurement process will proceed (a procurement management plan) (RM, p 450)
rules for bidder conferences and negotiations.
|
|
|
Procurement Management Process |
|
|
|
Plan Procurement Management |
Inputs • Project Management Plan • Requirements Documentation • Activity resources requirements The activity resource requirements will provide information on the required skills, number, and type of resources that will be needed in the procurements processes. • Enterprise Environmental Factors • Organizational Process Assets • Risk Register • Stakeholder Register • Any procurements already in place on the project • The project schedule • Initial Cost estimates for work to be procured |
|
|
Conduct Procurements |
This process involves getting the procurement statement of work and other procurement documents created in the Plan Procurement Management process to prospective sellers, answering the sellers' questions, having sellers submit responses, and reviewing the responses to select a seller according to the procurement management plan. (RM, P 494) The key outputs of the Conduct Procurements process are selected sellers, signed contracts (agreements), resource calendars for contracted resources, change requests, and updates to the project management plan and project documents. (RM, p499) |
|
|
Control Procurements |
The Control Procurements process involves managing the relationship between the buyer and seller and ensuring that both parties perform as required by the contract. (RM, P500) The seller have a different company culture and different procedures than the buyer's organization. • The buyer and seller have different objectives. The seller's objective is to generate revenue, and the buyer's objective is to complete the work. • It is not as easy to "see" problems on the project because the procurement work is being done in at a different location • There is a greater reliance on reports to determine if a problem exists. • There is a greater reliance on relationships between the buyer's and seller's project managers to deal with iss es that are not covered in the wording of the contract. (RM, p504) |
|
|
Close Procurements |
Closing procurements consists of tying up all the loose ends, verifying that all work and deliverables are accepted, finalizing open claims, and paying withheld retainage for each of the procurements on the project. (RM, p 507) Procurements are closed: • When a contract is completed • When a contract is terminated before the work is completed |
|
|
Product validation |
This involves checking to see if all the work was completed correctly and satisfactorily. Was the product of the procurement the same as what was requested? Did the product of the procurement meet the buyer's needs? (RM, P508) |
|
|
Profit |
• This is planned into the price the seller provides the buyer. • Sellers usually have an acceptable profit margin in mind. • However, how much profit they actually receive is based on many factors, including the contract terms and the seller's ability to manage the project. (RM, p479) |
|
|
PTA |
• This only relates to fixed price incentive fee contracts and refers to the amount above which the seller bears all the loss of a cost overrun. • Costs that go above the PTA are assumed to be due to mismanagement: a design statement of work should have been created to allow for fair and reasonable contract negotiations for the required work, suggesting the seller either did not estimate correctly or did not manage the work well. • Sellers will sometimes monitor their actual costs against the PTA to make sure they are still receiving a profit for completing the project. PTA — (Ceiling price — Target price) + Target cost Buyer's share ratio (RM, p479) |
|
|
Qualified seller lists |
The process of finding prospective sellers can take months. Another option, especially if a buyer purchases the same type of service often, is to find,investigate, and check the credentials of prospective sellers in advance. |
|
|
Records Management system |
Record keeping can be critical if actions taken or situations that occurred during a procurement are ever in question after the work is completed, such as in the case of unresolved claims or legal actions. A records management system can include indexing systems, archiving systems, and information retrieval systems. (RM, p. 505) |
|
|
Retainage |
This is an amount of money, usually 5 percent or 10 percent, withheld from each payment. This money is paid when all the final work is complete. It helps ensure completion. (RM, p489) |
|
|
Risk and contract type |
Risk of loss This allocates the risk between the parties to a contract in the event goods or services are lost or destroyed during the performance of a contract. (rm, p489) |
|
|
Screening system |
A screening system eliminates sellers who do not meet the minimum requirements of the source selection criteria. (RM, p. 496) |
|
|
Seller Proposal (or Price Quote or Bid) |
|
|
|
|
|
|
|
Source selection criteria |
|
|
|
Special provisions |
|
|
|
Standard contract |
The contract terms and conditions are most commonly created by the buyer, who have even put their terms and conditions into a standard format that is used over and over for similar procurements. (RM, P 488) |
|
|
|
Target cost plus target fee equals target price. (Remember, we are thinking about procurements from the buyer's point of view!) (RM, p479) |
|
|
|
Constructive Changes
|
|
|
Terms and conditions
|
|
|
|
|
|
|
|
|
These are statements saying that rights under the contract may not be waived or modified other than by express agreement of the parties.
|
|
|
|
|
|
|
|
|
