Flash cards - 12. Procurement Management

Below are flash cards simulation questions on the chapter Procurement management.
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1. What are different Types of contracts. (Too see answer, select text below with mouse/ cursor)
Answer:

• Fixed price contract
• Time and Material contract
• Cost reimbursable 

2. What do you know about Firm fixed price contract (who bears risk; How much is profit; what happens if scope changes). (Too see answer, select text below with mouse/ cursor)

Answer:

Firm fixed Price contracts –FFP = setting a fixed total price for a defined product, service, or result

·         Risk is for seller (contractor). Profit is not known. Cost increases due to adversities--> borne by seller

·         Most common type. If scope changes, specs change, renegotiate contract

  3. What is Fixed price incentive Fee contract (FPIF). (Too see answer, select text below with mouse/ cursor)
Answer:

·         Incentive OR penalty – based on achieving agreed metrics

·         Final contract price is determined after completion of work and evaluating performance targets

·         Any costs above ceiling price is responsibility of seller

Concept of “Point of Total assumption” = target cost +[(ceiling price-target price)/buyer ratio]

4. What is Fixed price Award Fee (FPAF). (Too see answer, select text below with mouse/ cursor)
Answer: FPIF is potential award or penalty BUT FPAF is always award (not a compulsory fee)

5. What is Fixed price with Economic Price Adjustment Contracts. (Too see answer, select text below with mouse/ cursor)
Answer:

·         For very long term contracts

·         Adjusted for inflation, $ exchange, crude oil price hikes

6. What is Cost reimbursable contract. (Too see answer, select text below with mouse/ cursor)
Answer:

Cost reimbursable contracts = when scope is not precisely defined at the start or when there are high risks, this type provides some flexibility to contractor

e.g. R&D projects

7. What is Cost Plus Fixed Fee. (Too see answer, select text below with mouse/ cursor)
Answer:

Payments to seller =All legitimate actual costs incurred + Fixed fee (determined at the start);

Fee doesn’t change based on performance. It may change if Scope changes;

8. What is Cost plus incentive Fee. (Too see answer, select text below with mouse/ cursor)
Answer:

Payments to seller = All legitimate actual costs incurred + [Fixed fee + Incentive based on % of savings]

·         Fixed Fee = Min fee or Target fee or Max fee

·          [Fixed fee + Incentive based on % of savings] should not exceed max fee

·         If no savings, cost exceeds the target, only min fee he will get. No incentives

·        e.g.  Target cost 1,00,000, Fee (Min 9k, target 12k, max 14k), sharing ratio 80:20

·         If work finished for 95k  seller gets 95k+ 12k (i.e. target fee) + 20% of  savings ( i.e. 100k – 95k = 5k) = 95k +12k+ 1k = 108k

·        If work finished for 85k  seller gets 85k+ [12k + 20% of (1L – 85k)] = 85k + 15k-> but max fee is 14k, so 85k+14k = 99k

If work finishes for 1,20,000 ,  seller gets 120k+ 9k = 129k

9. what is Cost Plus Award Fee. (Too see answer, select text below with mouse/ cursor)
Answer:

Payments to seller = All legitimate actual costs incurred + Fee (determined based on subjective performance, not fixed at start)

Award = bonus

Cost plus incentive fee is potential award or penalty BUT cost plus award fee is always potential award

10. What is Cost Plus Percentage of Costs (CPPC) or Cost plus Fee. (Too see answer, select text below with mouse/ cursor)
Answer:

Cost Plus Percentage of Costs (CPPC) or Cost plus Fee:

e.g. cost + 10% of total cost as fee

11. What is Time and Material contract? (Too see answer, select text below with mouse/ cursor)
Answer:

Time and Material contracts

Hybrid type – for staff augmentation, acquisition of experts etc

·         Buyer pay a rate for resource (like fixed contract)

·         But these also resemble cost-reimbursable because they may be left open ended and so subject to cost increase for buyer

T&M contracts may have ‘Not-to-exceed (NTE)’ stipulations to avoid risks. Usually preferred when scope is changing continuously – we cant go for Fixed contract in this case and T&M has lesser cost risk than Cost reimbursable contacts

12. What is difference between Agreements and contracts. (Too see answer, select text below with mouse/ cursor)
Answer:

Agreements	Contracts
Contract is one type of agreement but all agreements not necessarily contracts. Agreement is super set and contract is subset (mathematically)	Contract = exchange of goods or service for some compensation
E.g. of Agreement but not a contract: Service level agreement, Charter, PM plan, letter of intent etc	Contract can be written or verbal; but mostly formal-written
Agreements can be internal agreement or external agreement	Typically created with external parties. E.g. Procurement contracts
Agreements generally encompass documents or communications that outline internal/external relationships and their intentions	Contracts form the legal relation between entities

13. What are different things done during Plan procurement management process. (Too see answer, select text below with mouse/ cursor)

Answer:

Make or Buy decision

Create procurement SoW, procurement docs, terms n conditions

Select contract type

create source selection criteria

create Procurement management plan

14. What are different things done during Conduct Procurements. (Too see answer, select text below with mouse/ cursor)

Answer:

Find possible sellers (through advt or through OPA’s qualified seller list)

Send procurement docs (RFP, IFB, RFQ, RFI, PO etc to sellers

Answer seller’s questions (bidder conference etc)

Receive and analyze sellers responses (Bids, sellers’ response to procurement docs, proposal evaluation techniques etc)

Select seller

15. What are different things done during 

Control procurments. 

(Too see answer, select text below with mouse/ cursor)
Answer:

Monitor performance, Perform inspection and audits, conduct performance reviews

Review cost submittals and make payments

Issue change requests to contract if buyer’s needs changed

Accept verified deliverable

16. 

 What are different things done during  

Close procurments. 

(Too see answer, select text below with mouse/ cursor)

Answer:

Negotiate settlements

Validate product -

issue formal acceptance

Audit procurement process

create lessons learnt - update records

Closure of contracts/ all procurements

17. What are differences between Quality audit, Process audit and procurement audit. (Too see answer, select text below with mouse/ cursor)
Answer:

Quality audit	Risk audit	Procurement audit
During execution process	During monitoring and control process	During closing process
During Perform quality assurance	During Control risk	During close procurements