Pmp Exam Practice Test - 1I Project Procurement Management

Front 1

What doctrine causes a party to relinquish rights under a contract because it knowingly fails to execute those rights?

a. Assignment of claims
b. Material breach
c. Waiver
d. Warranties

Back 1

c. Waiver

Under the doctrine of waiver, a party can relinquish rights that it otherwise has under the contract. If the seller offers incomplete, defective, or late performance, and the buyer’s project manager knowingly accepts that performance, the buyer has waived its right to strict performance. In some circumstances, the party at fault may remain liable for provable damages, but the waiver will prevent the buyer from claiming a material breach and, thus, from terminating the contract. [Executing]
Adams et al. 1997, 275
Kerzner, 2009, 850

Front 2

Which term describes those costs in a contract that are associated with two or more projects but are not traceable to either of them individually?

a. Variable
b. Direct
c. Indirect
d. Semivariable

Back 2

c. Indirect

The nature of an indirect cost is such that it is neither possible nor practical to measure how much of the cost is attributable to a single project. These costs are allocated to the project by the performing organization as a cost of doing business. [Planning]
PMI®, PMBOK® Guide, 2013, 202, 365

Front 3

Contract type selection is dependent on the degree of risk or uncertainty facing the project manager. From the perspective of the buyer, the preferred contract type in a low-risk situation is—

a. Firm-fixed-price
b. Fixed-price-incentive
c. Cost-plus-fixed fee
d. Cost-plus-a-percentage-of-cost

Back 3

a. Firm-fixed-price

Buyers prefer the firm-fixed-price contract because it places more risk on the seller. Although the seller bears the greatest degree of risk, it also has the maximum potential for profit. Because the seller receives an agreed-upon amount regardless of its costs, it is motivated to decrease costs by efficient production. [Planning]
Adams et al. 1997, 229–231
PMI®, PMBOK® Guide, 2013, 363

Front 4

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

a. $104,000
b. $56,000
c. $30,000
d. $24,000

Back 4

d. $24,000

Comparing actual costs with the target cost shows an $80,000 overrun. The overrun is shared 80/20 (with the buyer’s share always listed first). In this case 20% of $80,000 is $16,000, the seller’s share, which is deducted from the $40,000 target fee. The remaining $24,000 is the fee paid to the seller. [Planning and Closing]
Garrett 2007, 123
PMBOK® Guide, 2013, 364

Front 5

Which term describes the failure by either the buyer or the seller to perform part or all of the duties of a contract?

a. Termination of contract
b. Partial performance
c. Breach of contract
d. Contract waiver

Back 5

c. Breach of contract

A breach of contract is a failure to perform either express or implied duties of the contract. Either the buyer or the seller can be responsible for a breach of contract. [Executing]
Adams et al. 1997, 278
Ward 2008, 45
Kerzner, 2009, 849

Front 6

In some cases, contract termination refers to—

a. Contract closeout by mutual agreement
b. Contract closeout by delivery of goods or services
c. Contract closeout by successful performance
d. Certification of receipt of final payment

Back 6

a. Contract closeout by mutual agreement

A contract can end in successful performance, mutual agreement, or breach of contract. Contract closeout by mutual agreement or breach of contract is called contract termination. [Closing]
Garrett 2007, 185, PMBOK® Guide, 2013, 387

Front 7

Significant differences between the seller’s price and your independent estimate may indicate all the following EXCEPT the—

a. SOW was not adequate
b. Seller misunderstood the SOW
c. Sellers failed to respond
d. Project team chose the wrong contract type

Back 7

d. Project team chose the wrong contract type

The contract type is typically dictated by the procurement SOW and chosen by the contracting officer. Independent estimates are a tool and technique in conduct procurements. [Executing]
PMI®, PMBOK® Guide, 2013, 376

Front 8

You are a contractor for a state agency. Your company recently completed a water resource management project for the state and received payment on its final invoice today. A procurement audit has been conducted. Formal notification that the contract has been closed should be provided to your company by the—

a. State’s project manager
b. Person responsible for procurement administration
c. Project control officer
d. Project sponsor or owner

Back 8

b. Person responsible for procurement administration

The person responsible for procurement administration should provide, in writing, formal notification that the contract has been completed. Requirements for formal acceptance and closeout should be defined in the contract. [Closing]
PMI®, PMBOK® Guide, 2013, 389

Front 9

Which term describes contract costs that are traceable to or caused by a specific project work effort?

a. Variable
b. Fixed
c. Indirect
d. Direct

Back 9

d. Direct

Direct costs are always identified with the cost objectives of a specific project and include salaries, travel and living expenses, and supplies in direct support of the project. [Planning]
PMI®, PMBOK® Guide, 2013, 202, 207, and 365

Front 10

When a seller breaches a contract, the buyer cannot receive—

a. Compensatory damages
b. Punitive damages
c. Liquidated damages
d. Consequential damages

Back 10

b. Punitive damages

Punitive damages are designed to punish a guilty party and, as such, are considered penalties. Because a breach of contract is not unlawful, punitive damages are not awarded. The other remedies listed are available to compensate the buyer’s loss. [Closing]
Ward 2008, 357

Front 11

Which term is NOT a common name for a procurement document that solicits an offer from prospective sellers?

a. Contractor initial response
b. Request for information
c. Request for quotation
d. Invitation for negotiation

Back 11

b. Request for information

Procurement documents are used to solicit proposals from prospective sellers. A request for information is generally used by the buyer to have potential sellers propose various pieces of information related to a product, service, or result or to a seller capability. [Planning]
PMI®, PMBOK® Guide, 2013, 368

Front 12

Because you are working under a firm-fixed-price contract, management wants you to submit the final invoice and close out the contract as soon as possible. Before final payment on the contract can be authorized, you must—

a. Prepare a contract completion statement
b. Audit the procurement process
c. Update and archive contract records
d. Settle subcontracts

Back 12

d. Settle subcontracts

All payments due must be settled by the seller before the contract can be officially closed. The other items listed are activities performed by the buyer. [Closing]
Garrett 2007, 128–133

Front 13

Recent data indicate that more than 10,000 airline passengers are injured each year from baggage that falls from overhead bins. You performed a make-or-buy analysis and decided to outsource an improved bin design and manufacture. The project team needs to develop a list of qualified sources. As a general rule, which method would the project team find especially helpful?

a. Advertising
b. Internet
c. Trade catalogs
d. Relevant local associations

Back 13

a. Advertising

Advertising in newspapers or specialty trade publications is an excellent way to identify qualified bidders. Detailed information about specific sources may require more extensive effort, such as site visits or contact with previous customers. [Executing]
PMI®, PMBOK® Guide, 2013, 376

Front 14

As you prepare to close out contracts on your project, you should review all the following types of documentation EXCEPT the—

a. Contract document for the contract being closed
b. Procurement audit report
c. Invoice and payment records
d. Seller performance reports

Back 14

b. Procurement audit report

In most organizations, a procurement audit is conducted after the contract has been closed. Therefore, the project manager would not have a procurement audit report to review. Contract document for the contract being closed, invoice and payment records, and seller performance reports are examples of the documents that should be available to the project manager and should be reviewed at closeout. [Closing]
PMI®, PMBOK® Guide, 2013, 388–389

Front 15

You are working on a new project in your organization. You need to decide how best to staff the project and handle all its resource requirements. Your first step should be to—

a. Conduct a make-or-buy analysis
b. Conduct a market survey
c. Solicit proposals from sellers using an RFP to determine whether you should outsource the project
d. Review your procurement department’s qualified-seller lists and send an RFP to selected sellers

Back 15

a. Conduct a make-or-buy analysis

A make-or-buy analysis is a plan procurement management tool and technique used to determine whether a particular product, service, or result can be produced or performed cost effectively by the performing organization or should be contracted out to another organization. The analysis includes both direct and indirect costs and any administrative costs incurred to manage the contractor. [Planning]
PMI®, PMBOK® Guide, 2013, 365

Front 16

Your company decided to award a contract for project management services on a pharmaceutical research project. Because your company is new to project management and does not understand the full scope of services that may be needed under the contract, it is most appropriate to award a—

a. Firm-fixed-price contract
b. Fixed-price-incentive contract
c. Cost-plus-a-percentage-of-cost contract
d. Time-and-materials contract

Back 16

d. Time-and-materials contract

A time-and-materials contract is a type of contract that provides for the acquisition of supplies or services on the basis of direct labor hours, at specified fixed hourly rates for wages, overhead, general and administrative expenses, and profit; and materials at cost, including materials-handling costs. [Planning]
PMI®, PMBOK® Guide, 2013, 364

Front 17

Requirements for formal contract acceptance and closure usually are defined in the—

a. Proposal
b. Statement of work
c. Contract terms and conditions
d. Procurement audit report

Back 17

c. Contract terms and conditions

The contract terms and conditions typically describe the procedure the buyer will employ to close the contract. [Closing]
PMI®, PMBOK® Guide, 2013, 377–378, 387

Front 18

You plan to award a contract to provide project management training for your company. You decide it is important that any prospective contractor have an association with a major university that awards master’s certificates in project management. This is an example of—

a. Setting up an independent evaluation
b. Preparing requirements for your statement of work
c. Establishing a weighting system
d. Establishing source selection criteria

Back 18

d. Establishing source selection criteria

The selection criteria are typically included in procurement documents and are then used to rate or score proposals. [Planning]
PMI®, PMBOK® Guide, 2013, 368–369

Front 19

All the following elements must be evident in a written contract for it to be legally enforceable EXCEPT—

a. Legal capacity
b. Mutual assent
c. Appropriate form
d. Pricing structure

Back 19

d. Pricing structure

The following elements must be present for a contract to be legally enforceable: legal capacity, mutual assent, consideration, legality, and an appropriate contract form that follows applicable laws governing businesses. [Executing]
Adams et al. 1997, 240

Front 20

A purchase order is a good example of which form of contracting?
a. Unilateral
b. Bilateral
c. Trilateral
d. Severable

Back 20

a. Unilateral

The purchase order is a unilateral (one signature) offer that includes a promise to pay upon delivery. [Planning]
Adams et al. 1997, 231

Front 21

You are responsible for ensuring that your seller’s performance meets contractual requirements. For effective contract control, you should—

a. Hold a bidders’ conference
b. Establish the appropriate contract type
c. Implement the contract change control system
d. Develop a statement of work

Back 21

c. Implement the contract change control system

Contract change control entails ensuring that contract changes are properly approved and that everyone who needs to know is made aware of such changes. [Monitoring and Controlling]
PMI®, PMBOK® Guide, 2013, 383

Front 22

The primary benefit of contract control procurements is to ensure that—

a. Buyers conduct performance reviews
b. Payment is made in a timely fashion
c. Disagreements are handled quickly and to everyone’s satisfaction
d. Both parties meet contractual obligations and protect their legal rights

Back 22

d. Both parties meet contractual obligations and protect their legal rights

Contracts are awarded to obtain goods and services in accordance with the buyer’s stated requirements. Although there are multiple purposes in the control procurements process, ensuring that the seller delivers what is stated in the contract is of paramount importance. [Monitoring and Controlling]
PMI®, PMBOK® Guide, 2013, 379

Front 23

Buyers use a variety of methods to provide incentives to a seller to complete work early or within certain contractually specified time frames. One such incentive is the use of liquidated damages. From the seller’s perspective, liquidated damages are what form of incentive?

a. Positive
b. Negative
c. Nominal
d. Risk-prone

Back 23

b. Negative

Liquidated damages are considered negative incentives because they result in a loss of revenue for the seller if it fails to perform rather than a gain in revenue if it performs well. [Closing]
Ward 2008, 251
Kerzner, 2009, 849

Front 24

The principal function of a warranty is to—

a. Provide assurance of the level of quality to be provided
b. Provide a way to assert claims for late payment
c. Provide a way to allow additional time following acceptance to correct deficiencies, without additional costs
d. Ensure that goods purchased fit the purposes for which they are to be used

Back 24

a. Provide assurance of the level of quality to be provided

A warranty is one party’s assurance to the other that goods will meet certain standards of quality, including condition, reliability, description, function, or performance. This assurance may be express or implied. [Executing]
Adams et al. 1997, 272
Kerzner, 2009, 850
PMI®, PMBOK® Guide, 2013, 369

Front 25

You have decided to award a contract to a seller that has provided quality services to your company frequently in the past. Your current project, although somewhat different from previous projects, is similar to other work the seller has performed. In this situation, to minimize your risk you should award what type of contract?

a. Fixed price with economic price adjustment
b. Fixed-price-incentive (firm target)
c. Firm-fixed-price
d. Cost-plus-award-fee

Back 25

c. Firm-fixed-price

In a firm-fixed-price contract, the seller receives a fixed sum of money for the work performed regardless of costs. This arrangement places the greatest financial risk on the seller and encourages it to control costs. [Planning]
Adams et al.1997, 229
PMI®, PMBOK® Guide, 2013, 363

Front 26

As project manager, you need a relatively fast and informal method addressing disagreements with contractors. One such method is to submit the issue in question to an impartial third party for resolution. This process is known as—

a. Alternative dispute resolution
b. Problem processing
c. Steering resolution
d. Mediation litigation

Back 26

a. Alternative dispute resolution

Alternative dispute resolution, or dispute resolution, is a relatively informal way to address differences of opinion on contracts. Its purpose is to address such issues without having to seek formal legal redress through the courts. [Executing, Monitoring and Controlling, and Closing]
Ward 2008, 15–17
PMI®, PMBOK® Guide, 2013, 378, 384, 388

Front 27

A no-cost settlement sometimes is used—

a. To close out a successful contract
b. In lieu of formal termination procedures
c. When buyer property has been furnished under the contract
d. When such an arrangement is acceptable to one of the parties involved

Back 27

b. In lieu of formal termination procedures

A no-cost settlement can be used in lieu of formal termination procedures when the seller has indicated that such an arrangement is acceptable, no buyer property has been furnished under the contract, no payments are due the seller, no other obligations are outstanding, and the product or service can be readily obtained elsewhere. [Closing]
Garrett 2007, 191

Front 28

When writing payment terms in your fixed-price subcontracts it is especially important to—

a. Include incentives if the seller exceeds or fails below defined objectives
b. Provide flexibility to redirect the seller if the scope of work is not defined precisely confusion
c. Link progress made to compensation paid
d. Associate the payment to a specific time period for more efficient accounting

Back 28

c. Link progress made to compensation paid

A buyer under a fixed-price contract should pay a seller for work delivered rather than time expended. Linking payment with progress ensures that the seller will focus on results and not on effort expended. [Planning]
Garrett 2007, Chapter 8
PMI®, PMBOK® Guide, 2013, 362–363

Front 29

A buyer has negotiated a fixed-price-incentive-fee contract with the seller. The contract has a target cost of $200,000, a target profit of $30,000, and a target price of $230,000. The buyer also has negotiated a ceiling price of $270,000 and a share ratio of 70/30. If the seller completes the contract with actual costs of $170,000, how much profit will the buyer pay the seller?

a. $21,000
b. $35,000
c. $39,000
d. $51,000

Back 29

c. $39,000

To calculate the fee that the buyer must pay, actual costs are compared with the target cost. If actual costs are less than the target cost, the seller will earn profit that is additional to the target profit. If actual costs are more than the target cost, the seller will lose profit from the target profit. The amount of profit is determined by the share ratio (with the buyer’s share listed first). In this example, the seller is under target cost by $30,000. That amount will be split 70/30. So the buyer keeps $21,000, and the seller receives an additional $9,000 added to the target profit, which is the incentive. Total fee is $39,000. [Planning and Closing]
Garrett 2007, 123
PMI®, PMBOK® Guide, 2013, 362–363

Front 30

Requirements for formal deliverable acceptance are defined in the—

a. Contract
b. Procurement management plan
c. Overall project management plan
d. Specifications

Back 30

a. Contract

Two important components of any contract include what the buyer wants to buy and how the buyer defines acceptance of the products or services delivered. For contract closure to occur, deliverable acceptance must be completed. [Closing]
PMI®, PMBOK® Guide, 2013, 389

Front 31

Payment bonds are often required by the contract and require specific actions under the stated conditions. Payment bonds are specifically designed to ensure that the prime contractor provides payment of—

a. Insurance premiums
b. Weekly payrolls
c. Subcontractors, laborers, and sellers of material
d. Damages for accidents caused

Back 31

c. Subcontractors, laborers, and sellers of material

Payment bonds, which are required by the buyer, are issued by guarantors to prime contractors. The buyer wants to ensure that subcontractors of the prime contractor receive payment so that work is not disrupted. [Closing]
Adams et al. 1997, 273

Front 32

You are working on a contract in a remote location. The contract requires you to be on site at the office on a daily basis. You were unable to get to the office for three days last month because of severe blizzard conditions. Your failure to appear at the office was excused because of a clause in the contract entitled—

a. Non compos mentis
b. Forjurer royalme
c. Force majeure
d. Force minoris dictus

Back 32

c. Force majeure

Force majeure clauses can be used to protect either party from events that are outside their control and not a result of their negligence, such as acts of nature, war, civil disobedience, or labor disruption. [Executing]
Garrett 2007, 56
Kerzner, 2009, 849

Front 33

All of the following are examples of good control procurement skills that project managers need to exercise EXCEPT—

a. Approving invoices as the work is completed
b. Supervising the work to be done under the terms of the contract
c. Developing contract clauses
d. Preparing and processing change requests

Back 33

c. Developing contract clauses

First, developing contract clauses is done during contract formation, not control procurements, which begins at contract signing. Second, contract specialists and attorneys—given their legal expertise—are typically the individuals who write contract clauses, not project managers. [Monitoring and Controlling]
Verma 1995, 63
PMI®, PMBOK® Guide, 2013, 381–384

Front 34

The best approach to resolve the settlement of all outstanding contract changes, claims, and disputes is using—

a. Litigation
b. Alternative dispute resolution
c. Negotiation
d. Mediation

Back 34

c. Negotiation

While there are a variety of ways to settle claims, disputes, and changes, the preferred approach is negotiation. It is a strategy to work toward compromise or to reach an agreement that both parties can accept. [Monitoring and Controlling]
PMI®, PMBOK® Guide, 2013, 384, 517

Front 35

On large contracts, the contract administrator typically has a need to resolve ambiguity in the clauses that govern work performance and other issues. Assume that on your contract there is an order of precedence clause. This means that—

a. Inconsistencies in the solicitation of the contract shall be resolved in a given order of procedure
b. An alternative dispute resolution process is in place that shall be followed to resolve any conflicts
c. Any ambiguities are generally interpreted against the party who drafted the document
d. Undefinitized contractual actions cannot be authorized

Back 35

a. Inconsistencies in the solicitation of the contract shall be resolved in a given order of procedure

The order of precedence specifies that any inconsistency in the contract shall be resolved in a given order. This avoids confusion and debate, which could lead to litigation. [Monitoring and Controlling]
Kerzner 2009, 860

Front 36

During contract negotiations on large contracts, the negotiation process focuses on many key issues, with price being one of them. Separate negotiations can be made on price, quantity, quality, and timing, which can significantly lengthen the process. The negotiation process can be shortened, however, provided that—

a. Planning is done for negotiations
b. Expertise of the project management staff in the procurement process is at a high level
c. A request for proposal is used rather than a request for quotation
d. There is integrity in the relationship and prior history with the vendor

Back 36

d. There is integrity in the relationship and prior history with the vendor

When people know and trust one another, and in particular have worked with each other before, the negotiation process can be significantly shortened. Three major factors of negotiation should be followed: compromise ability, adaptability, and good faith. [Executing]
Kerzner 2009, 848

Front 37

Contract negotiations are NOT required when—

a. A company uses sealed bids
b. There is a sole source procurement
c. A competitive range is established
d. A two-step process is used

Back 37

a. A company uses sealed bids

When using the sealed bid method, competitive marketforces determine the price, and the award goes to the lowest bidder, provided all other terms and conditions of the contract are met. [Executing]
Kerzner 2009, 847

Front 38

It is critical during the proposal preparation stage that—

a. The negotiation strategy is determined
b. A change management strategy is developed
c. Roles and responsibilities for the ultimate project are determined
d. Contract terms and conditions are reviewed before the proposal is submitted to the client

Back 38

d. Contract terms and conditions are reviewed before the proposal is submitted to the client

The contracts (legal) representative is responsible for the preparation of the contract portion of the proposal. Generally, contracts with the legal department are handed through or in coordination with the proposal group. Before the proposal is submitted to the client, contract terms and conditions should be reviewed and approved. [Executing]
Kerzner 2009, 866

Front 39

Which of the following types of contracts has the least risk to the seller?

a. Firm-fixed-price
b. Cost-plus-fixed-fee
c. Cost-plus-award-fee
d. Fixed-price-incentive fee

Back 39

b. Cost-plus-fixed-fee

On a firm-fixed-price contract, the seller absorbs 100 percent of the risks; while on a cost-type contract, the buyer carries the most risk. Cost-plus-fixed-fee contracts have less risk to sellers than cost-plus-award-fee or cost-plus-incentive-fee contracts because the fee is fixed based on costs, so the seller is guaranteed a certain level of profit. [Planning]
PMI®, PMBOK® Guide, 2013, 364

Front 40

Assume that your company has a cost-plus-fixed-fee contract. The contract value is $110,000, which consists of $100,000 of estimated costs with a 10-percent fixed fee. Assume that your company completes the work but only incurs $80,000 in actual cost. What is the total cost to the project?

a. $80,000
b. $90,000
c. $10,0000
d. $125,000

Back 40

b. $90,000

In this situation the fixed-fee of $10,000 does not change but now represents a seller profit of 12.5 percenton incurred costs. This means that the total cost to the project is $90,000. [Closing]
Fleming 2003, 97
PMI®, PMBOK® Guide, 2013, 363–364