Pmbok Book Chapter 12

Front 1

Describe the Plan Purchases and Acquisitions process of the Procurement Mgmt ka. When should this happen? Inputs? Outputs?

Back 1

The first step in procurement management. It identifies which project requirements can be met by purchasing products or services from vendors or contractors outside the organization.

Planning purchases should be accomplished as part of the scope definition process. The project scope statement is a critical input to this process. The Procurement Management Plan is the key output.

Front 2

Describe the Plan Contracting process of the Procurement Mgmt ka.

Back 2

- This process involves the preparation of the documents needed for the solicitation of potential sellers.
- Once the decision has been made to obtain products or services from outside the performing organization and the types of contracts have been selected, the 5 remaining procurement processes, beginning with plan contracting, are performed.

Front 3

Describe the Request Seller Responses process of the Procurement Mgmt ka.

Back 3

After the procurement documents are sent out to prospective sellers, the request seller responses process involves obtaining responses from these sellers. The key outputs of this process are the proposals that are created by the prospective sellers.

Front 4

Describe the Select Sellers process of the Procurement Mgmt ka.

Back 4

Proposals from prospective sellers are received and evaluated to select the single seller to provide the product or service in the select sellers process. Preliminary steps may involve having the top 2 or 3 prospective sellers carry out negotiation, weighing or screening systems to select the final seller before signing a contract.

Front 5

Describe the Contract Administration process of the Procurement Mgmt ka. What 5 processes must be applied to contracts in this process?

Back 5

The contract administration process involves making sure that the seller is performing the work according to contractual requirements. The following key processes must be applied to contracts in this process:
1. Direct and manage project execution (authorizing seller's work according to the project schedule)
2. Integrated change control (ensuring changes are properly managed and communicated; contested changes are called claims, disputes or appeals)
3. Perform quality control (inspection and verification of results for compliance; nonconformance may lead to breach of contract)
4. Performance reporting (monitor costs, schedule and seller's performance; note that scheduled payments or seller's compensation must be linked to seller's performance)
5. Risk monitoring and control (ensure risks are mitigated)

Front 6

Describe the Contract Closure process of the Procurement Mgmt ka.

Back 6

Contract Closure is similar to Administrative Closure. Both involve product verification to ascertain that work was completed correctly and satisfactorily and both require administrative closure (documenting project records for future use). However, contract closure could have unique terms and conditions specified in the contract.

Front 7

Describe Make-or-Buy Analysis

Back 7

In make-or-buy analysis, the project organization evaluates the alternatives of making everything needed and procuring nothing, procuring all goods and services from a single source, procuring all goods and services from multiple sources or procuring some portion of goods and services. Cost is a major factor in the make-or-buy decision. PMI advocates that the actual or direct out-of-pocket costs to purchase the product as well as the indirect costs of managing the procurement must be considered in any make-or-buy decision.

Front 8

What are 8 Factors influencing Contract Type Selection?

Back 8

1. Overall degree of cost and schedule risk
2. Type and complexity of requirement
3. Extent of price competition
4. Cost and price analysis
5. Urgency of requirement or performance period
6. Frequency of expected changes
7. Industry standards of types of contracts used
8. Whether or not there is a well-defined statement of work

Front 9

Describe the Cost Reimbursable contract type

Back 9

Cost reimbursable (CR) contracts involve payment based on sellers' actual costs as well as a fee or incentive for meeting or exceeding project objectives. Therefore, the buyer bears the highest cost risk.

Front 10

Describe the Fixed Price contract type

Back 10

Fixed price (FP) contracts (also called lump-sum contracts) involve a predetermined fixed price for the product and are used when the product is well defined. Therefore, the seller bears a higher burden of the cost risk than the buyer.

Front 11

Describe the Time and Material contract type

Back 11

Time and material (T&M) contracts (sometimes called Unit Price Contracts) contain characteristics of both FP and CR contracts and are generally used for small dollar amounts. These contracts may be priced on a per-hour or per-item basis (fixed price) but the total number of hours or items is not determined (open-ended cost type arrangements like CR contracts). A Purchase Order is a simple form of unit price contract that is often used for buying commodities. It is a unilateral contract and only signed by 1 party instead of the above bilateral contracts that are signed by both parties.

Front 12

Describe the 3 types of Statements of Work (SOW)

Back 12

1. Performance SOW: this type of SOW describes the final product or objective to be accomplished, leaving it up to the seller to decide how the item should be built or what its design characteristics should be. This type of SOW is usually used in new technology, research or complex developmental contracts.
2. Design SOW: this type of SOW describes how the work is to be done in close detail. It is usually used in construction equipment purchasing contracts.
3. Statement of Requirements (SOR): this is a type of SOW used for a procurement item that is presented as a problem to be solved. (Note that there is no reference to the SOR in the PMBOK Guide 2000 edition.)

Front 13

Describe the RFP procurement document.

Back 13

Request for Proposal (RFP): Requests a detailed proposal on price, how the work will be accomplished, skills and experience of the people to be included and various other details. Items of service are usually high dollar value and are nonstandard.

Front 14

Describe the IFB (also called RFB) procurement document.

Back 14

Invitation for Bid (IFB) or Request for Bid (RFB): Requests a single price for the entire package of work. Items of service are usually high dollar value and are standard.

Front 15

Describe the RFQ procurement document.

Back 15

Request for Quotation (RFQ) or Request for Proposal (RFP): Requests a price quote per item, hour, etc. Items are relatively low dollar value.

Front 16

What are 4 Evaluation Criteria for selecting sellers?

Back 16

1. Seller's price or cost criteria
2. Seller's understanding of the project need and requirements
3. Seller's technical ability and management approach
4. Seller's financial capacity and reputation

Front 17

Describe the 5 stages of Negotiation

Back 17

1. Protocol: negotiators meet and get to know each other
2. Probing: each side brings up issues and concerns and identifies common interests, weaknesses and differences
3. Scratch Bargaining: points of concession are identified and actual bargaining begins
4. Closure: final concessions are reached and positions are established, summarized and documented
5. Agreement: both sides are assured they have an identical understanding of the agreements reached and in which plans are drawn up for the written contract

Front 18

What are 10 functions and requirements of Contracts?

Back 18

1. Agreement formalized
2. All requirements specifically stated
3. All contract requirements met before formal acceptance by the buyer
4. Changes in writing and formally controlled
5. Disputes backed by government court systems
6. Mutual assent (offer and acceptance)
7. Sufficient cause (consideration to both parties)
8. Legal capacity (signing parties must have legal right to contract)
9. Legal purpose
10. No violation of public policy

Front 19

What are 6 performance controls that could impact contract administration?

Back 19

1. Waivers, which relinquish rights under the contract (The Waiver Pitfall occurs when the project manager for the buyer knowingly accepts incomplete, defective or late performance without objection, thereby waiving his or her right to strict performance.)
2. Contract breach, which is the failure to perform a contractual obligation
3. Material breach of contract, which is when the nonfaulted party is discharged from any further obligations under the contract
4. Time is of the essence, which, when explicitly stated in the contract, is the seller's failure to perform within the allotted time and which constitutes a material breach of contract
5. Subcontract management, which is when, if the seller subcontracts to a third party, the buyer has no control over the performance of the third party
6. Termination, which, when early, is a special case of contract closeout

Front 20

What is a Contract Change Control System?

Back 20

A contract change control system is a key tool or technique of the contract administration process. It defines the process by which the contract may be modified.

Some buyer organizations may utilize a centralized group whose specific function is to handle contract administration. This group may contain one or more contracting officers or contract administrators who are assigned to various projects. In such cases, this person is the only one with authority to change the contract.

Front 21

How do Contract Closure and Administrative Closure differ?

Back 21

Contract closure could have unique terms and conditions specified in the contract.

Front 22

Define: Buyer

Back 22

The performing organization seeking to acquire goods and services from an external entity (the seller). The buyer becomes the customer and key stakeholder.

Front 23

Define: Contract

Back 23

The binding agreement between the buyer and the seller.

Front 24

Define: Definitive Contract

Back 24

A contract entered into following normal contracting procedure — i.e., negotiation of all contractual terms, conditions, costs and schedules prior to initiation of performance.

Front 25

Define: Letter Contract

Back 25

A written preliminary contract authorizing the seller to begin work immediately although price has not yet been negotiated.

Front 26

Define: Letter of Intent

Back 26

This is NOT a contract but simply a letter, without legal binding, that says the buyer intends to hire the seller.

Front 27

Define: Privity

Back 27

The contractual relationship between the 2 parties of a contract. If party A contracts with party B and party B subcontracts to party C. There is no privity between party A and party C.

Front 28

Define: Seller

Back 28

The subcontractor, vendor or supplier who will provide the goods and services to the buyer. The seller generally manages the work as a project, utilizing all processes and knowledge areas of project management.

Front 29

Describe 6 other factors to be considered in the make-or-buy decision

Back 29

1. Availability of human resources and skills (if unavailable, the performing organization needs to "buy")
2. Direct control or customization required (if a high level of control or customization is needed, the performing organization needs to "make")
3. Design secrecy (if high levels of security are required, the performing organization needs to "make")
4. Unavailability or reliability of suppliers (if the product or service is not available in the market, the performing organization needs to "make")
5. Small volume requirements (for low quantities, the performing organization should "buy")
6. Limited capacity or time (if the product is already available, it is quicker to "buy")

Front 30

Describe the Cost Plus Percentage of Costs (CPPC) form of cost reimbursable contracts

Back 30

This is an illegal form of contract for the United States government. The buyer bears 100% of the risk. This type of cost reimbursable contract requires the buyer to pay for all costs plus a percent of costs as a fee. Sellers are not motivated to control costs because the seller will get paid a larger profit as project costs increase, without a limit.

Front 31

Describe the Cost Plus Fixed Fee (CPFF) form of cost reimbursable contracts

Back 31

This is a very common form of cost reimbursable contract. The buyer bears a higher burden of the risk in a CPFF contract because the buyer pays all costs. The fee of the seller is fixed at a specific dollar amount. This fee is usually based on a percent of the original estimated cost. The seller's costs are kept in line because any cost overruns will not generate any additional profit. The only time the fee in a CPFF contract could change is when the buyer approves change orders that increase or decrease the scope of the project. This type of contract is used in research projects and projects in which the outcome is uncertain.

Front 32

Describe the Cost Plus Incentive Fee (CPIF) form of cost reimbursable contracts

Back 32

This type of contract is becoming more popular. Risk is shared by both buyer and seller. The seller is paid for allowable performance costs plus an agreed on fee, plus an incentive bonus. If the final costs are less than the expected costs, both the buyer and seller benefit by splitting the cost savings on a prenegotiated sharing formula. This type of contract is used in long-performance period types of contracts.

Front 33

Describe the Cost Plus Award Fee (CPAF) form of cost reimbursable contracts

Back 33

An award pool is created and managed by an award committee. The buyer has more flexibility than in a CPIF contract as subjective judgments can be used to determine the award. Administrative costs are high.

Front 34

Describe the Firm Fixed Price (FFP) type of fixed price contracts. Who bears the most risk?

Back 34

Also called a lump-sum contract. In an FFP contract, the seller bears the greatest degree of risk. This is a common type of contract when the seller agrees to perform a service or furnish supplies at an established price.

Front 35

Describe the Fixed Price Economic Price Adjustment (FPEPA) type of fixed price contracts

Back 35

Sometimes a fixed price contract will allow for price increases if the contract is for multiple years.

Front 36

Describe the Fixed Price Incentive Fee (FPIF) type of fixed price contracts

Back 36

This is a complex type of contract in which the seller bears a higher burden of risk. For every dollar the seller can reduce cost below the target, the cost savings are split between the seller and buyer based on a share ratio (similar to CPIF). There is also a ceiling price. The buyer does not pay more than the ceiling price; therefore if costs exceed the ceiling, the seller receives no profit.

Front 37

Describe 9 negotiation tactics

Back 37

1. Imposing a Deadline: a powerful tactic since it emphasizes the schedule constraints of the project and implies a possible loss to both parties
2. Surprises: one party springs a surprise on the other, such as a change in dollar amount
3. Stalling: one party claims it does not have the authority, that the person with authority is not available or that it needs more information
4. Fair and Reasonable: one party claims the price is equitable because another organization is paying it
5. Delays: necessary when arguments are going nowhere, tempers are short or one party is off on a tangent
6. Deliberate Confusion: either distorting facts and figures or piling on unnecessary details to cloud the issues
7. Withdrawal: either the negotiator is so frustrated he or she does not continue or one side makes an attack and then retreats
8. Arbitration: a third party is brought in to make decisions, including a decision on the final outcome
9. Fait Accompli: one party claims "What is done is done" and cannot be changed

Front 38

Discuss the 3 categories into which contract change modifications fall

Back 38

1. Administrative Change: a unilateral contract change, in writing, that does not affect the substantive rights of the parties
2. Change Order: a written order, signed by the contracting officer, directing the seller to make a change
3. Legal Change: requires mutual agreement to modifications with supporting consideration

Front 39

Describe 3 outputs of the contract closure process

Back 39

Outputs of the contract closure process consist of the closed contracts and updates to the organization's process assets which include:
1. Contract File: a complete set of indexed records to be included with the final project archives when administrative closure for the phase or project is performed. The contract file includes documentation from procurement audits, lessons learned and an evaluation of the seller for future reference. The contract file also contains contract documents for documenting work and work performance.
2. Deliverable Acceptance: deliverable acceptance includes a formal written notice to seller that the deliverables have been accepted or rejected. The terms for acceptance or nonacceptance of deliverables should have been defined in the contract.
3. Lessons Learned: lessons learned, including process improvement recommendations, are kept for future reference in managing procurement of products or services.