PM Test Center

While building a new community park, you hired a contractor to complete a small visitor center that includes restrooms, a snack shop, and bulletin boards. You agreed to a fixed price contract payable upon completion of their deliverable. Midway through the project, they contractor informs you that the economy has affected their bottom line and they could use some funds upfront to pay their subcontractors. Which is the following is the best thing for you to do?

A. Insist that you agreed to pay upon completion and are not willing to violate the contract.
B. Negotiate a change to the payment conditions.
C. Pay the contractor for the work accomplished to date.
D. Start the search for another contractor.

Answer: B. Negotiate a change to the payment conditions.
Although paying the contractor for the work accomplished to date seems fair, you would want that detailed in a new contract or addendum. Therefore, the best approach is the negotiate the change first so the new payment conditions, whatever they may be, are documented and approved by both parties.

When hiring a supplier with a time and material contract, one concern to be aware of is:

A. Supplier is not motivated to reduce cost
B. You must have clear scope
C. There is usually an increase in change orders
D. Work can be incomplete or sloppy if they fall behind

Answer: A. Supplier is not motivated to reduce cost
For a time and material contract, there is little to no incentive for the vendor to reduce cost. In fact, the more work there is and the longer the project takes, the more the vendor could earn. The other choices are disadvantages for fixed price contracts.

When hiring a supplier with a fixed price contract, one concern to be aware of is:

A. Supplier is not motivated to reduce cost
B. Work can be incomplete or sloppy if they fall behind
C. It is only appropriate for small projects
D. Total project cost is unknown

Answer: B. Work can be incomplete or sloppy if they fall behind
When a vendor is working with a fixed price contract, they do their best to keep their cost down. The more they save themselves, the more they profit. Therefore, in the event the vendor falls behind, in efforts to keep their profit margins high, they could reduce the quality of their work.

You are the project manager for a utility company. While determining the type of contract with one of your suppliers, you realize that the scope has not been defined yet. Which of the following contract types is your best choice?

A. Firm Fixed Price (FFP)
B. Time and Material (T&M)
C. Cost Plus Fixed Fee (CPFF)
D. Cost Plus Award Fee (CPAF)

Answer: B. Time and Material (T&M)
This type of contract is used when the scope is not well defined. If a fixed price contract were used, change orders would ensue, which would typically lead to a cost overrun. This pay-as-you-go method allows the buyer and seller to work together to progressively elaborate on the project scope.

You are the project manager for a utility company. While determining the type of contract with one of your suppliers, you want to pay a simple fee but recognize that the project will take nearly a decade to complete. Which of the following contract types is your best choice?

A. Cost Plus Fixed Fee (CPFF)
B. Time and Material (T&M)
C. Firm Fixed Price (FFP)
D. Fixed Price with Economic Price Adjustment (FP-EPA)

Answer: D. Fixed Price with Economic Price Adjustment (FP-EPA)
This type of contract is used when a project is estimated to take many years to complete. It is basically a fixed price contract with pre-defined adjustments due to financial conditions. It is used on long-term relationships and provides good protection for both parties.

You are the project manager for a utility company. While determining the type of contract with one of your suppliers, you determine that you want to reimburse costs and pay a fee based on achieving performance objectives. Which of the following contract types is your best choice?

A. Cost Plus Fixed Fee (CPFF)
B. Cost Plus Incentive Fee (CPIF)
C. Firm Fixed Price (FFP)
D. Fixed Price Incentive Fee (FPIF)

Answer: B. Cost Plus Incentive Fee (CPIF)
This type of contract pays a supplier a certain amount based on meeting metrics. All allowable costs are reimbursed.

The project you’ve been working on for the last six months is slightly behind schedule. Since you have a contingency fund available and the project is currently under budget, you figure the best way to catch up is to on time is to add a temporary staff for the next three months. What contract type is typically best for staff augmentation?

A. Fixed Price
B. Cost-Reimbursable
C. Time and Material
D. Depends on the project budget

Answer: C. Time and Material
Time and Material contracts (T&M) are often used for staff augmentation since they allow you to roll your resources on when you need them and off when you do not. Other common uses for T&M contracts are to bring on expert resources or staff a team when the scope is not clear.

As the buyer, you decide that the best contract for your project needs is one that will reimburse the supplier. Regardless of how the supplier performs, you are willing to pay a predetermined amount upon the completion. This an example of what kind of contract?

A. Firm Fixed Price (FFP)
B. Cost Plus Award Fee (CPAF)
C. Fixed Price Plus Cost (FPPC)
D. Cost Plus Fixed Fee (CPFF)

Answer: D. Cost Plus Fixed Fee (CPFF)
This is a cost-reimbursable contract. As with any contract of this type, the buyer will reimburse the seller (supplier) for any allowable cost. However, in order for the seller to earn money, they have to also get a fixed fee, an incentive fee, and/or award fee. In this case, it happens to be a fixed fee.

After a thorough search, the vendor selection team used various evaluation techniques and finally chose a seller for the core deliverable. Which process did they just complete?

A. Close Procurements
B. Administer Procurements
C. Conduct Procurements
D. Plan Procurements

Answer: C. Conduct Procurements
Two primary outputs of the Conduct Procurements process are typically a selected seller and a contract award.

Part of your project includes the construction of a new room and although it is not your company’s core competency, you decide to perform a make-or-buy analysis. After you conduct your due diligence and make your decision, you will be creating a request for proposal. Which process are you working on?

A. Plan Procurements
B. Select Sellers
C. Conduct Procurements
D. Plan Contracting

Answer: A. Plan Procurements
The four current processes in the procurement knowledge area are Plan Procurements, Conduct Procurements, Administer Procurements, and Close Procurements. Make-or-buy decisions and procurement documents, such as a request for proposal, are performed in the Plan Procurements process.