Chapter 12 Project Procurement Management Answer Key (43-83)

43. In which of the following contracts does the buyer pay the supplier for allowable performance costs along with a predetermined percentage based on total costs?  a. FPIF b. CPIF  c. CPPC d. CPAF ANSWER: c RATIONALE: Feedback: With a cost plus percentage of costs (CPPC) contract, the buyer pays the supplier for allowable performance costs along with a predetermined percentage based on total costs. 44. From the buyer’s perspective, the _____ is the least desirable among all contracts because the supplier has no incentive to decrease costs.  a. CPIF b. CPFF  c. CPAF d. CPPC ANSWER: d RATIONALE: Feedback: With a cost plus percentage of costs (CPPC) contract, the buyer pays the supplier for allowable performance costs along with a predetermined percentage based on total costs. From the buyer’s perspective, this is the least desirable type of contract because the supplier has no incentive to decrease costs. 45. A(n) _____ contract carries the least risk for suppliers.  a. CPPC b. FFP  c. CPAF d. FP-EPA ANSWER: a RATIONALE: Feedback: With a cost plus percentage of costs (CPPC) contract, the buyer pays the supplier for allowable performance costs along with a predetermined percentage based on total costs. From the supplier’s perspective, a CPPC contract carries the least risk. 46. The _____ is a description of the work required for a procurement.  a. RFQ b. RFP  c. WBS d. SOW ANSWER: d RATIONALE: Feedback: The statement of work (SOW) is a description of the work required for a procurement. Some organizations use the term statement of work for a document that describes internal work as well. 47. A(n) _____ is a document used to solicit proposals from prospective suppliers.  a. RFQ b. WBS  c. RFP d. SOW ANSWER: c RATIONALE: Feedback: A Request for Proposal (RFP) is a document used to solicit proposals from prospective suppliers. 48. A document used to solicit quotes or bids from prospective suppliers is known as a(n) _____.  a. RFQ b. RFP  c. WBS d. SOW ANSWER: RATIONALE: a Feedback: A Request for Quote (RFQ) is a document used to solicit quotes or bids from prospective suppliers. 49. After planning for procurement management, which of the following does the next process involve?  a. Determining the evaluation criteria for the contract award  b. Developing procurement statements of work  c. Using expert judgement in planning purchases and acquisitions  d. Sending appropriate documentation to potential sellers ANSWER: d RATIONALE: Feedback: After planning for procurement management, the next process involves deciding whom to ask to do the work, sending appropriate documentation to potential sellers, obtaining proposals or bids, selecting a seller, and awarding a contract. 50. In project procurement management, which of the following is one of the main outputs of the conducting procurement process?  a. A selected seller b. A procurement management plan  c. A procurement statement of work d. A closed procurement ANSWER: a RATIONALE: Feedback: Two of the main outputs of the conducting procurement process are selected sellers and a procurement contract award. 51. The process of choosing suppliers or sellers is known as _____.  a. source selection b. a bid  c. WBS d. a change order ANSWER: a RATIONALE: Feedback: Selecting suppliers or sellers is called source selection. The process involves evaluating proposals or bids from sellers, choosing the best one, negotiating the contract, and awarding the contract. 52. Which of the following is an output of the contract closure process?  a. Procurement statements of work b. Updates to organizational process assets  c. Resource calendars d. Work performance information ANSWER: b RATIONALE: Feedback: Closed procurements and organizational process assets updates are outputs of the contract closure process. Completion 53. _____ refers to the process of acquiring goods and/or services from an outside source. ANSWER: Procurement 54. A(n) _____ is a mutually binding agreement that obligates the seller to provide the specified products or services and obligates the buyer to pay for them. ANSWER: contract 55. _____ management includes the processes required to acquire goods and services for a project from outside the performing organization. ANSWER: Project procurement 56. Procurement statements of work are an output of the _____ process. ANSWER: planning procurement management 57. A(n) _____ decision is one in which an organization decides if it is in its best interests to make certain products or perform certain services inside the organization, or if it is better to buy them from an outside organization. ANSWER: make-or-buy 58. A(n) _____ contract has the least amount of risk for the buyer. ANSWER: firm-fixed-price (FFP) 59. A(n) _____ contract includes a special provision for predefined final adjustments to the contract price due to changes in conditions such as inflation. ANSWER: fixed-price with economic price adjustment (FP-EPA) 60. The cost at which the contractor assumes total responsibility for each additional dollar of contract cost is known as a(n) _____. ANSWER: point of total assumption (PTA) 61. Three types of cost-reimbursable contracts include cost plus incentive fee, cost plus fixed fee, and _____. ANSWER: cost plus percentage of costs 62. _____ contracts are a hybrid of fixed-price and cost-reimbursable contracts. ANSWER: Time and material (T&M) 63. A(n) _____ is a contract clause that allows the buyer or supplier to end the contract. ANSWER: termination clause 64. If an SOW is used as part of a contract to describe only the work required for that particular contract, it is called a(n) _____. ANSWER: contract statement of work 65. A contract statement of work is a type of _____ statement that describes the work in sufficient detail to allow prospective suppliers to determine if they can provide the required goods and services and to determine an appropriate price. ANSWER: scope 66. A(n) _____ is a document prepared by a seller when there are different approaches for meeting buyer needs. ANSWER: proposal 67. A(n) _____ is also known as a tender or quote, short for quotation. ANSWER: bid 68. All procurement documents should be in _____ form in order to facilitate accurate and complete responses from prospective sellers. ANSWER: written 69. A(n)_____ conference helps ensure that everyone has a clear, common understanding of the buyer’s desired products or services. ANSWER: bidders’ 70. The process of source selection involves evaluating proposals from sellers, choosing the best one, negotiating, and awarding the _____. ANSWER: contract 71. _____ are oral or written acts or omissions by someone with actual or apparent authority that can be construed to have the same effect as a written change order. ANSWER: Constructive change orders 72. In procurement management, evaluation of any change should include a(n) _____ analysis. ANSWER: impact 73. The final process in project procurement management is _____. ANSWER: closing procurements 74. Tools used in contract closure include procurement audits, _____, and a records management system. ANSWER: negotiated settlement 75. A(n) _____ system provides the ability to easily organize, find, and archive procurement-related documents. ANSWER: records management 76. A(n) _____ type of e-procurement that sends requests for information and prices to suppliers and receives the response of suppliers using Internet technology. ANSWER: e-tendering 77. A(n) _____ type of e-procurement that Identifies new suppliers for a specific category of purchasing requirements using Internet technology. ANSWER: e-sourcing Essay 78. What are some of the advantages that outsourcing offers which is encouraging many companies to adopt it? ANSWER: Outsourcing provides several advantages. These include: (1) Access to skills and technologies: Organizations can gain access to specific skills and technologies by using outside resources. A project may require experts in a particular field for several months, or it might require specific technologies from an outside source. Planning for this procurement ensures that the needed skills and technologies will be available for the project. (2) Reduces both fixed and recurrent costs: Outsourcing suppliers often can use economies of scale that may not be available to the client alone, especially for hardware and software. It can also be less expensive to outsource some labor costs to other organizations in the same country or offshore. (3) Allows the client organization to focus on its core business: By outsourcing many IT functions, employees can focus on jobs that are critical to the success of the organization. 481 (4) Provides flexibility: Outsourcing to provide extra staff during periods of peak workloads can be much more economical than trying to staff entire projects with internal resources. Many companies cite better flexibility in staffing as a key reason for outsourcing. (5) Increases accountability: A well-written contract can clarify responsibilities and sharpen focus on key deliverables of a project. Contracts are legally binding and thus there is more accountability for delivering the work as stated in the contract. 79. List and briefly describe the four main processes of project procurement management. ANSWER: The four main processes of project procurement management are as follows: (1) Planning procurement management involves determining what to procure, when, and how. In procurement planning, one must decide what to outsource, determine the type of contract, and describe the work for potential sellers. (2) Conducting procurements involves obtaining seller responses, selecting sellers, and awarding contracts. (3) Controlling procurements involves managing relationships with sellers, monitoring contract performance, and making changes as needed. (4) Closing procurements involves completion and settlement of each contract or agreement, including resolution of any open items. 80. What are the four types of cost-reimbursable contracts? Briefly describe each type. ANSWER: The four types of cost-reimbursable contracts are as follows: (1) A cost plus incentive fee (CPIF) contract is one in which the buyer pays the supplier for allowable performance costs along with a predetermined fee and an incentive bonus. If the final cost is less than the expected cost, both the buyer and the supplier benefit from the cost savings, according to a negotiated share formula. (2) A cost plus fixed fee (CPFF) contract is one in which the buyer pays the supplier for allowable performance costs plus a fixed fee payment usually based on a percentage of estimated costs. This fee does not vary, however, unless the scope of the contract changes. (3) With a cost plus award fee (CPAF) contract, the buyer pays the supplier for allowable performance costs plus an award fee based on the satisfaction of subjective performance criteria. This type of contract is not usually subject to appeals. (4) With a cost plus percentage of costs (CPPC) contract, the buyer pays the supplier for allowable performance costs along with a predetermined percentage based on total costs. From the buyer’s perspective, this is the least desirable type of contract because the supplier has no incentive to decrease costs. 81. How is a statement of work (SOW) different from a contract statement of work? What are some of the requirements for creating a contract SOW? ANSWER: The statement of work (SOW) is a description of the work required for the procurement. If a SOW is used as part of a contract to describe only the work required for that particular contract, it is called a contract statement of work. The contract SOW is a type of scope statement that describes the work in sufficient detail to allow prospective suppliers to determine if they are capable of providing the goods and services required and to determine an appropriate price. A contract SOW should be clear, concise, and as complete as possible. It should describe all services required and include performance reporting. It is important to use appropriate words in a contract SOW such as must instead of may. It should specify the products and services required for the project, use industry terms, and refer to industry standards. It should specify the location of the work, the expected period of performance, specific deliverables and when they are due, applicable standards, acceptance criteria, and special requirements. A good contract SOW gives bidders a better understanding of the buyer’s expectations. A contract SOW should become part of the official contract to ensure that the buyer gets what the supplier bid on. 82. How are RFPs different from RFQs? What are some of the requirements of writing an RFP? ANSWER: A Request for Proposal (RFP) is a document used to solicit proposals from prospective suppliers. On the other hand, A Request for Quote (RFQ) is a document used to solicit quotes or bids from prospective suppliers. Developing an RFP is often a time-consuming process. Organizations must plan properly to ensure that they adequately describe what they want to procure, what sellers to include in their proposals, and how they will evaluate proposals. To generate a good RFP, expertise is invaluable. It is thus important to consult with experts who know the contract planning process for particular organizations. Legal requirements are often involved in issuing RFPs and reviewing proposals, especially for government projects. To make sure that an RFP has enough information to provide the basis for a good proposal, the buying organization should try to put itself in the suppliers’ shoes. 83. What are the four main capabilities of procure-to-pay suites for indirect procurements? What type(s) of organizations are they suitable for? ANSWER: The four main capabilities of procure-to-pay suites for indirect procurements include: E-purchasing functionality: This provides a self-service solution to requisition and order goods and services through the use of catalogs, e-forms, or free-text orders (for when users cannot find items in a structured format). Catalog management capabilities: Includes catalog content upload, content update evaluation tools, and catalog search tools. E-invoicing: Enables the interchange and storage of legally valid invoices in electronic format. Accounts Payable Invoice Automation (APIA): Allows approval and control of incoming invoices through either automatic or manual approvals by automatic workflows. At current software suite prices, organizations with annual revenues of $800 million or more usually realize a good return on investment from using these tools.