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64 Cards in this Set

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What is a Contract?
A contract is a mutually binding agreement which obligates the seller to provide the specified product and obligates the buyer to pay for it.

Terms and conditions of the contract become a key input to many of the seller's processes. May contain the input (e.g., major deliverables, key milestones, cost objectives), or it may limit the project team's options (a constraint).

A contract may also be called an agreement, understanding, subcontract or purchase order. Most organizations have documented policies and procedures defining the procurement rules and authorities to sign and administer contracts on behalf of the organization. approval processes are usually more extensive for contracts, due to their legally binding nature. This also requires the use of specialists from necessary disciplines, such as contracting, purchasing, and law.
Describe the process 12.1 Plan Procurements
Process of identifying which project needs can be best met by purchasing or acquiring products, services, or results outside the project organization and which project needs can be accomplished by the project team during project execution. Purchasing decisions are documented, specifying the approach and identifying potential sellers.

Includes reviewing the risks involved in each make-or-buy decision. Procurement also is influenced by and influences the project schedule.

Most consider buyer-seller responsibility for permits and/or professional licenses that may be required.

Processes from Plan Procurements through Close Procurements are performed for each item to be acquired.
What are the INPUTS for the process - Plan Procurements?
1. Scope baseline, containing the scope statement, WBS, and WBS dictionary.
2. Requirements documentation from the Collect Requirements process. Those with contractual and legal implications can include HSE, insurance, intellectual property rights, licenses, permits, etc.
3. Teaming agreements, legal contractual agreements between two or more entities to form a partnership or joint venture, or some other arrangement as defined by the parties. The agreement defines buyer-seller roles for each party. Agreement ends when business opportunity ends. This may be a result of a sharing response to a business opportunity.
4. Risk Register, includes risk-related information
5. Risk-related contract decisions from Plan Risk Responses process. Includes insurance, bonding, services, and others as prepared to specify each party's responsibility for specific risks.
6. Activity resource requirements from Estimate Activity Resources process
7. Project Schedule
8. Activity cost estimates from Estimate Costs process
9. Cost performance baseline provides information on the budget
10. Enterprise Environmental Factors, including marketplace conditions, product market availability, suppliers (with past performance information), typical terms and conditions, and unique local requirements.
11. Organizational process assets, including procurement policies, procedures, and guidelines, procurement management systems and per-qualified sellers.
What are the TOOLS & TECHNIQUES of the process - Plan Procurements?
1. Make or buy analysis, which is a general management technique to determine whether a particular product can be produced more cost-effectively by the performing organization or must be purchased from outside sources. Budget constraints may influence the decision. If we decide to buy, then we must decide whether to purchase or lease. Decision must reflect all costs, both direct and indirect.
2. Expert judgement is required to assess the inputs to the outputs from this process.
- Purchase judgement
- Legal judgment
- Business and technical expertise
3. Contract tyles. There are three broad categories:
- Fixed price or lump sum contracts
- Cost reimbursable contracts
- Time and Material (T&M) contracts
(Each category has different risk assumption by buyer and seller.)
When should you use a Fixed Price / Lump Sum Contract?
Fixed total price for a well-defined product. Fixed price contracts may also include incentives for performance on selected project objectives, such as schedule or cost.

Sellers under fixed price contracts are legally obligated to complete such contracts, with possible penalties if they do not. Buyers must precisely specify the product or services. If the product is not well-defined, both the buyer and seller are at risk.
What is a Firm Fixed Price Contract (FFP)?
Most commonly used contract type. Favored by buyers because it firmly establishes the cost for goods, and is not subject to change unless the scope changes. Seller eats cost overruns.
What is a Fixed Price Incentive Fee Contract (FPIF)?
Gives the buyer and seller some flexibility allowing deviation from performance, with financial incentives tied to achieving agreed to metrics, usually related to cost, schedule, or technical performance. Price determined when work is finished. Involves Point of Total Assumption.
What is Point of Total Assumption (PTA)?
Point at which seller is responsible for all cost overruns.

PTA = [(Ceiling Price - Target Price) / Buyer Share)] + Target Cost
What is a Fixed Price With Economic Price Adjustment Contract (FP-EPA)?
Contract is used when agreement may span years, and permits adjustment to fixed prices based on changed conditions, such as inflation or cost increases for specific commodities. EPA clause must relate to some reliable financial index which is used to adjust the final price. The contract is intended to protect both the buyer and seller.
What is a Cost Reimbursable Contract?
Payment (reimbursement) to the seller for all legitamate actual costs, plus typically a fee representing seller profiit. It may include incentives for exceeding or falling below selected project objectives such as costs, schedule, or technical performance targets.
What is a Cost Plus Fixed Fee Contract (CPFF)?
Seller is paid for all allowable costs, and receives a fixed fee payment usually calculated as a percentage of the initial estimate, at the end of the job. Cost ca change, but fees don't change unless scope changes.
What is a Cost Plus Incentive Fee Contract (CPIF)?
Seller is reimbursed for all allowable costs, and receives a predetermined incentive fee based on achieving certain performance objectives as specified in the contract. If final costs are less or greater than original estimated costs, both buyer and seller share the differences based upon a pre-negotiated sharing formula.
What is a Cost Plus Aware Fee Contract (CPAF)?
Seller gets all costs, with majority of aware fee based on satisfaction of subjective performance defined in the contract. Award is based on buyers satisfaction.
What is a Time and Material (T&M) Contract?
Hybrid type with aspects of both cost-reimbursable and of fixed-price:
- Cost-reimbursable because the contract is open ended
- Fixed-price because unit rates are preset (ex. senior engineer is $85/hour)
For the Contractor(Seller), order the contracts from the highest risk to the Contract(seller) to lowest risk
Firm Fixed Price (FFP)
Fixed Price Incentive Fee (FPIF)
Cost Plus Incentive Fee (CPIF)
Cost Plus Fixed Fee (CPFF)
Cost Plus Precent of Cost (CPPC)
For the Buyer (Customer), order the contracts from the highest risk to the Buyer (Customer) to lowest risk
Cost Plus Percent of Cost (CPPC)
Cost Plus Fixed Fee (CPFF)
Cost Plus Incentive Fee (CPIF)
Fixed Price Incentive Fee (FPIF)
Firm Fixed Price (FFP)
What are the OUTPUTS of the process - Plan Procurement?
1. Procurement Management Plan
2. Procurement statement of Work
3. Make or Buy Decision Documents
4. Procurement Documents
5. Source Selection Criteria
6. Change Requests
The Procurement Management Plan, which sets out how procurement processes will be managed, should address what (as needed)?
- Types of contracts
- Risk management issues
- Whether independent estimates will be used
- Interaction with performing organization procurement, purchasing, or contracting group.
- Standard procurement documents needed
- Managing multiple providers
- Coordinating procurement with schedule and performance reporting
- Purchased items lead times
- Linking make-or-buy decisions to Activity Resource Estimating and Scheduled Development
- Set schedule dates for contract deliverables
- Identify performance bonds or insurance contracts
- Information provided to sellers for contract WBS
- Form and format for Contract Statement of Work
- Pre-qualified sellers list
- Procurement metrics used to manage contracts and evaluate sellers

Plan can be formal or informal, highly detailed or broadly framed, based on the needs of the project. It is a component of the project management plan.
What is the Procurement Statement of Work?
It defines just the portion of the project scope that is included within the related contract. It describes the procurement item in sufficient detail to allow sellers to determine if they can provide the items. It can include specifications, quantities, quality levels, performance data, when, work location, etc.
It may be revised and refined as needed during procurement process until incorporated into a signed contract
- Each procurement item requires a separate SOW, though multiple products or services can be grouped into a single SOW.
What is a Make or Buy Decision Document?
It documents the conclusions reached, and may include decisions reached, and may include decisions reached on requiring insurance or performance bonds.
What are Procurement Documents and what do they contain?
Procurement Documents are used to solicit proposals from prospective sellers.
- Terms such as bid, tender, or quotation are generally used when the decisions will be based on price.
- Proposal is generally used when other considerations, such as technical capability or approach and paramount.
- Terms for the documents include RFI (request for information), RFP (request for proposal), RFQ (request for quotation), tender notice, invitation for negotiation, seller initial response. Meaning varies by industry and location.
Who structures the procurement documents?
The buyer structures the procurement documents to facilitate an accurate and complete response and permit easy comparison of responses. If you do not do this, you will find it difficult to compare the results. Sometimes, as in government contracting, the content and structure is defined by regulation.

In some cases, publication of the request will be done in public newspapers, trade journals, registries, or on the internet.
When should Request for Quotation (RFQ) be used?
Procurement items are standard off the shelf and relatively low in price. A list of qualified sellers receives the RFQ.
When should Request for Proposal (RFP) be used?
Procurement items are complex, non-standard and high in price. Items are solutions to problems as specified by a Statement of Requirements.
When should Invitation for Bid (IFB) be used?
Procurement items are standard, but high in price. All items are clearly specified by a Statement of Work.
What is source selection criteria?
Source selection criteria are often included in teh solicitation documents. How the winner will be picked. May be based on price, or other considerations, based on the complexity of the product, service or result sought.
What are possible selection criteria?
- Seller understanding of need
- Overall or life-cycle cost
- Technical capability
- Risk
- Management approach
- Technical approach
- Warranty
- Financial capacity of seller
- Production capacity and interest
- Business size and type
- Past performance of seller
- References
- Intellectual property rights
- Proprietary rights
Describe the process - Conduct Procurements
Involes obtaining responses (bids and proposals) from prospective sellers on how project needs can be met, selecting a seller, and awarding a contract.

On major procurement items, the overall process of conducting procurements may be repeated, shortening the list of sellers asked to respond. This permits a more detailed evaluation with fewer sellers and less effort, spending less time on sellers who did not make the first cut.
What are the INPUTS of the process - Conduct Procurements?
1. Project management paln, which contains the procurement management plan, which describes how the processes will be managed from beginning to end.
2. Procurement documents, as described in the Plan Procurements process outputs
3. Source selection criteria, as described in Plan Procurements process outputs
4. Qualified sellers list, a listing of sellers who have been pre-screened for their qualifications and pass experience
5. Seller proposals, received in response to a procurement document package, which will be evaluated against the selection criteria to select a seller
6. Project documents, including risk register and risk-related contract decisions, as output from Plan Risk Responses process.
7. Make-or-buy decisions, as described in Plan Procurements process
8. Teaming agreements, as described in Plan Procurements process
9. Organizational process assets, including listings of prospective and previously qualified sellers, and information on relevant past experience with sellers.
What are the TOOLS AND TECHNIQUES of the process - Conduct Procurements?
1. Bidder conferences,
2. Proposal evaluation techniques
3. Independent estimates to serve as benchmark on proposed responses. Significant differences are a red flag.
4. Expert judgement
5. Advertising
6. Internet Search
7. Procurement negotiations
What are bidder conferences?
Bidder conferences are meetings with all prospective sellers prior to preparation of a proposal. Ensures clear, common understanding of the procurement request (AKA contractor, vendor or pre-bid conferences). ALL potential sellers must remain on equal standing during the process. Electronic means are frequently used to achieve the same results as a conference.
What are proposal evaluation techniques?
On complex procurements, where source selection will be made based on seller responses to previously weighted criteria, a formal review process will be defined by the buyer's policies for procurement. Evaluation committee will make the selection for approval by management prior to the award.
How can expert judgement be used in the process Conduct Procurement?
Expert judgement may be achieved by using an evaluation team with expertise in each of the areas involved, including functional disciples such as legal, finance, contracting,accounting, engineering, design, research, development, sales and manufacturing.
How is advertising used in the process Conduct Procurement?
Advertising of proposals can be done in general circulation publications such as newspapers or in specialty publications such as professional journals. Some types of procurement activities require public advertising/post (e.g., governmental bodies).
How are Internet Searches used in the process - Conduct Procurement?
Many commodities, components, and off-the-shelf items can be procurement via Internet searches, but not high-risk, high-complexity items.
How are Procurement negotiations used in the process - Conduct Procurement?
Procurement negotiations are used to clarify the structure, requirements, and other terms prior to signing the contract. Final language reflects all agreements reached. Negotiation concludes with a contract document to be executed by both buyer and seller. Project manager might not be the lead negotiator.
What are the OUTPUTS of the process - Conduct Procurement?
1. Selected sellers, those sellers who have been judged too be in a competitive position based on the proposal evaluation, and who have negotiated a draft contract. Final approval may require senior management approval prior to award of the contract.
2. Procurement contract award, awarded to each selected seller. Could be in a number of forms, from a simple purchase order to a complex document.
3. Resource calendars showing when contract resources will be available
4. Change requests to the project management plan, or subsidiary plans. Processed for approval through Perform Integrated Change Control Process
5. Project management plan updates, including cost baseline, scope baseline, schedule baseline, and the procurement management
6. Project documents updates, including requirements documentation, requirements traceability documentation, and the risk register
What are the components of a Contract?
- Statement of work or deliverables
- Schedule baseline
- Performance reporting
- Period of performance
- Roles and responsibilities
- Seller's place of performance
- Pricing
- Payment terms
- Place of delivery
- Inspection and acceptance criteria
- Warranty
- Product support
- Limitation of liability
- Fees and retainage
- Penalties
- Incentives
- Insurance and performance bonds
- Subordinate subcontractor approvals
- Change request handling
- Termination and dispute resolution mechanisms
What is the formula for a Fixed Price Incentive Fee?
Price = [Cost + Target Profit + [Sharing Ratio * (Target Cost - Cost)]] max price
What is the formula for Cost Plus Incentive Fee?
Price = Cost + [Target Fee + [Sharing Ratio * (Target Cost - Cost)]] Max Fee and Min Fee
What is the sharing formula for Fixed Price Incentive Fee (FPIF) contracts?
Given Target Cost, Ceiling Price, Target Profit and Sharing Ratio

> Target Price = Target Cost + Target Profit
> Seller pays Sharing Ratio of costs above Target Cost
> Seller receives Target Profit plus Sharing Ratio of costs below Target Cost
> Final Price never exceeds Ceiling Price (Seller pays ALL costs above Ceiling Price)
What is the sharing formula for Cost Plus Incentive Fee (CPIF) contracts?
Given Target Cost, Target Feel, Maximum Fee, Minimum Fee and Sharing Ratio

> Seller reimbursed 100% of costs
> Seller fee varies between Maximum and Minimum Fee
> Seller part of Sharing Ratio is smaller
Describe the process - Administer Procurements?
The process of managing procurement relationships, monitoring contract performance, and making changes and and corrections as needed.
Both the buyer and seller administer the procurement contract for similar purposes. Each must ensure that both parties meet their contractual obligations, and that their own legal rights are protected.
Team members must e aware of the legal implications int eh management of contract.s
On larger projects with multiple providers, a key aspect of contracts administration is managing the interfaces among the various providers.
Due to varying organizational structures, many organizations treat contract administration as an administrative function separate from the project team. While the team may include a procurement administrator, that individual typically reports to a supervisor from a different department.
This process includes applying appropriate project management processes to the contractual relationship and integration of the outputs into the overall management of the project.
Administer procurements includes a financial management component involving monitoring payments to the seller. One of the principal concerns is that payments correlate to work performed.
Administer procurements includes managing any early termination of the contracted work (for cause, convenience, or default) in accordance with the termination clause of the contract.
May also involve contract changes in accordance with the change control terms.
What Project Management processes are applied to Administering Procurements?
- Direct and manage project execution, to authorize seller's work at the appropriate time.
- Report performance to monitor scope, cost, schedule, and tehnical performance
- Perform quality contract to inspect and verify the adequacy of the seller's product
- Perform integrated change control to assure changes are approved and made known
- Monitor and control risks to ensure that risks are mitigated.
What are the INPUTS of the process - Administer Procurements?
1. Procurement documents, including procurement contract awards and statements of work
2. Project management plan, including the procurement management plan
3. Contract, described in the Conduct Procurements process
4. Performance reports related to the seller's performance, including seller-developed documentation and performance reports provided for in the contract.
5. Approve change requests, which can include modifications to the terms and conditions of the contract and statement of work, pricing, and descriptions of products
6. Work performance information from Direct and Manage Project Execution, including quality contract results, cost incurred, invoices paid, etc.
What are the Contract Change Types?
- Administrative: No effect on substantive rights, such as change of address
- Change order: Written order directing the Seller to make a change
- Contract modification: Any written change in the terms
- Undefinitized contractual action: Action that authorizes start of work prior to setting final definitive price
- Supplemental agreement: Modification accompanied by mutual action of parties
- Constructive change: Change caused by the action or inaction of personnel, or circumstances that cause Seller to perform work differently than required.
What are the causes of Constructive Changes?
- Defective specifications with impossibility of performance
- Erroneous interpretation of contract
- Over inspection of work
- Failure to disclose superior knowledge
- Acceleration of performance
- Late or unsuitable Buyer furnished property
- Failure to cooperate
- Improperly exercised options
- Misusing proprietary data
What are Warranties?
Seller assures Buyer that goods will meet industry standards for quality, reliability and performance.
What is an Express Warranty?
Invoked when goods do not comply with contract specifications.
What is an Implied Warranty?
Measured by "Merchantability" or "Fitness for a particular use."
What is Implied Warranty of Merchantability?
It means goods must be fit for the ordinary purposes for which such goods are used.
What is Implied Warranty of fitness for a particular use?
It applies if at the time of contracting the Seller knows the particular purpose for which the item is purchased, and that the Buyer is relying on the Seller's judgement.
What is a Waiver?
Under the doctrine of waiver a party can relinquish rights he otherwise has under the contract. The Buyer waives his right to strict performance if he knowingly accepts defective goods, or late performance without objection.
What is Breach of Contract?
Either party to the contract fails to perform a contractual obligation.
What is a Material Breach of Contract?
The offending party is deprived of benefits and discharged from further obligation under the contract.
What are Bonds?
Performance and Payment
What are the TOOLS AND TECHNIQUES of the process - Administer Procurements?
1. Contract change control system, defines the process by which the procurement can be modified. Includes the paperwork, tracking systems, dispute resolution procedures, and approval levels necessary. Integrated with the integrated change control system.
2. Procurement performance reviews, a structured review of the seller's progress. Includes review of seller-prepared documentation and buyer inspections, and quality audits conducted.
3. Inspections and audits, required by the buyer and supported by the seller, as specified in the contract. Verifies compliance in the seller's work processes or deliverables
4. Performance reporting, provides management with information about how effectively the seller is achieving contract objectives
5. Payment systems, typically process payments to the seller by accounts payable, after certification of satisfactory work.
6. Claims Administration
6. Record management system, used by project manager to manage contracts and procurement documentation and records. Consists of a set of processes, related control functions, and automation tools, consolidated and combined as part of the project management information system.
What is Claims Administration?
Claims are contested changes and potential constructive changes where the buyer and seller cannot reach agreement on compensation for the change, or even agree that a change has occurred. May be called disputes or appeals as well. Claims are documented, processed, monitored, and management throughout the contract life cycle, per the contract. this may lead to alternative dispute resolution following procedures specified int eh contract.
What are the OUTPUTS for the process - Administer Procurements?
1. Procurement documentation, including procurement contract with all supporting schedules, requested changes with dispositions, seller-developed technical documentation and other work performance information and performance reports, warranties, invoices and payment records, and inspection results.
2. Organization process assets updates, including correspondence, payment schedules and requests, and seller performance evaluation documentation.
3. Chang erequests for the project management plan, its subsidiary plans, and other components such as the cost baseline, schedule, and procurement management plan. Processed through the Perform Integrated Change Control Process. Includes contested changes.
4. Project management plan updates. This includes the procurement management plan and the baseline schedule.
Describe the process - Close Procurements.
The process of completing each project procurement. Supports the Close Project or Phase process, since it involves verification that all work and deliveables were acceptable.
This process also involves administrative activities such as finalizing open claims, updating records to reflect final results, and archiving for future use. Addresses each contract in the project. Contract terms and conditions can prescribe specific procedures for contract closure.
What are the reasons for Early Termination?
Mutual agreement

Convenience of the buyer
- Elimination of requirement
- Technological advances
- Budgetary changes
- Anticipated profits not allowed

Sellers Actions
- Failure to deliver on scheduled date
- Failure to make progress and endanger contract performance and terms
- Failure to perform any other contract provisions
What are the INPUTS of the process - Close Procurements?
1. Project management plan, including procurement management plan
2. Procurement documentation, collected, indexed, and filed. Information on contract schedule, scipe, quality, and const performance, along with all contract change documentation, payment records, and inspection results. This will form the basis for lessons learned documentation and for evaluating contractors for future contracts.
What are the TOOLS AND TECHNIQUES of the process - Close Procurements?
1. Procurement audits, a structured review of the procurement process soup to nuts. The objective is to identify what worked and what didn't to drive lessons learned.
2. Negotiated settlements, of all outstanding issues, claims, and disputes. If settlement cannot be reached though direct negotiation, some form of alternate dispute resolution, including mediation or arbitration may be used.
Last result: litigation in the courts.
3.Records management system
What are the OUTPUTS of the process - Close Procurements?
1. Closed procurements, providing the seller with formal written notice that the contract has been completed. Requirements for closure are usually defined in terms and conditions, and included in the procurement management plan
2. Organizational process assets, including:
- Procurement file, a complete set of indexed contract documentation.
- Deliverable acceptance, a formal written notice of acceptance or rejection
- Lessons learned documentation