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What is a description of work to be done by the seller?
Procurement statement of work
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What is a Noncompetitive bidding situation?
Work might be so specialized that there is only one potential seller.
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Regarding make-or-buy analysis, it is better to make if:
- you have an idle plant or workforce
- you want to retain control
- the work involved proprietary information or procedures.
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The daily lease cost $120.
To purchase the item, it cost $1,000 and $20 per day for maintenance.
How long will it take for the lease cost, to be the same as the purchase cost?
$120(D) = $1,000 + $20(D)
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The 3 broad categories of contracts are:
- Fixed price (FP)
- Time and material (T&M)
- Cost-reimbursable (CR)
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What type of contract does the buyer have the least cost risk?
Fixed price (FP)
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(FP)
Fixed Price
Ex: Contract = $1,100,000
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(FPIF)
Fixed Price Incentive Fee
Ex: Contract = $1,100,000. For every month early the project is finished, an additional $10,000 is paid to seller.
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(FPAF)
Fixed Price Award Fee
Ex: Contract = $1,100,000. For every month performance exceeds the planned level by more than 15%, an additional $5,000 is awarded to the seller, with a maximum award of $50,000.
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(FPEPA)
Fixed Price Economic Price Adjustment
Ex: Contract = $1,100,000, but a price increase will be allowed n year two based on the US Consumer Price Index report for year one
or
Contract = $1,100,000, but a price increase will be allowed n year two to account for increases in specific material cost.
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This type of Fixed Price contract is used for simple commodity procurements, ____________.
Purchase Order
Ex: Contract = 30 linear meters of wood at $9 per meter.
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When is it best to use T&M contract?
Its best used for work valued at small dollar amounts and lasting short amount of time.
Ex: Contract = $100 per house plus expenses or materials at cost.
or
Contract = $100 per house plus materials at $5 per linear meter of wood.
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(CPF) or (CPPC)
Cost Plus Fee or Cost Plus Percentage of Cost
Ex: Contract = cost plus 10% of cost fee
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(CPFF)
Cost Plus Fixed Fee
Ex: Contract = Cost plus a fee of $100,000
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(CPIF)
Cost Plus Incentive Fee
Ex: Contract = $500,000 target cost plus $50,000 target fee. The buyer and seller share any cost savings or overruns at 80% to the buyer and 20% to the seller.
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(CPAF)
Cost Plus Award Fee
Ex: Contract = cost plus a base fee plus award for meeting buyer-specified performance criteria. Maximum award available $50,000.
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Who has the risk in a cost-reimbursable contract, buyer or the seller?
The buyer. If the cost increase, the buyer pays added cost.
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Who has the cost risk in a fixed-price, buyer or the seller?
The seller. If cost increase, the seller pays the cost and makes less profit.
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What things must a PM watch out for at a bidder conference?
- Collision
- Sellers not asking questions in front of the competition
- Making sure all questions and answers are put in writing and issued to all potential sellers by the buyer as addenda to the procurement documents
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Negotiations are not normally needed in a ______________ contract because the scope is complete and the lowest bidder is selected based on price.
Fixed-Price
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What happens in the Control Procurement process group for a fixed-price contract?
- Watch for the seller cutting scope
- Watch for the seller cutting quality
- Watch for overpriced change orders
- Check for scope misunderstandings
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What happens in the Control Procurement process group for a Time & Material contract?
- Provide day-to-day direction to the seller
- Attempt to get concrete deliverables
- Make sure the project length is not extended
- Make sure the number of hours spent on work is reasonable
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What happens in the Control Procurement process group for a Cost-reimbursable contract?
- Audit every invoice
- Make sure all cost are applicable and chargeable to your project
- Make sure the seller's work is progressing efficiently
- Watch for seller charges that were not part of original plan
- Reestimate the cost of the project
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How is project control different in a procurement environment?
- The seller will have a different company culture and different procedures than the buyer's organization
- The buyer and seller have different objectives
- It's not easy to see problems because the work is being done at a different location
- There is a greater reliance on reports to determine if a problem exists
- There is a great reliance on relationships between buyer and seller project managers to deal with issues that are not covered in the wording of the contract
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Close Project or Phase vs Close Procurements
- All procurements must be closed before the final project closure
- Projects managed by phases the Close Project or Phase process will be performed at the end of each phase
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What are the key outputs of the Plan Procurement Management process?
- Make-or-buy decisions
- Procurement Management Plan
- Procurement Statement of Work
- Source selection criteria
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What are the key outputs of the Conduct Procurement process?
- Selected sellers
- Signed contracts
- Resource calendars
- Change requests
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What are the key outputs of the Close Procurement process?
- Formal acceptance
- Final payments made (when made can vary)
- Closed procurements
- Lessons learned and records update
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The profit is not disclosed to the buyer in what contract type:
Fixed Price.
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Target Cost + Target Fee =
Target Price.
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Point of total assumption (PTA) only refers to _______ contracts
Fixed Price Incentive Fee (FPIF)
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Single Source vs Sole Source
Single you contract with a preferred seller without going through full procurement process, in Sole you deal with the only seller who can do the work.
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What are Independent Estimates?
When the buyer creates their own estimate to compare with seller's cost estimates to check for reasonableness.
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Objectives of Negotiation
- Obtain a fair & reasonable price
- Develop a good relationship with the seller
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Normal activities (tools) in the Control Procurement process include:
- Conflict
- Contract Change Control System
- Procurement Performance Review
- Claims Administration
- Records Management System (record keeping)
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Close Procurements consists of:
- tying up all the loose ends
- verifying all work & deliverables are accepted
- finalize open claims
- paying witheld retainage
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This is a structured review of only the procurement process, a way to gain lessons learned of the procurement process itself. What is this step?
Procurement Audit
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Negotiation occurs in what Procurement Management process(s):
- Conduct Procurements
- Close Procurements
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Contract Change Control System includes:
- change procedures
- forms
- dispute resolution processes
- tracking systems
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