CONTRACTS AND PROCUREMENT
1. A project manager must make a narrative description of the project.
This narrative description covers the items that will be supplied under
the contract with the client. It is called:
a. The project plan.
b. The statement of work.
c. The exception report.
d. The progress report.
2. A project manager discovers that there is a part of the project that con-
tains some risk. His or her strategy with this risk is to subcontract the
work to an outside supplier by using a firm fixed price contract. Which
of the following is true?
a. The supplier will include an allowance for the risk in the contracted
price.
b. The supplier will lose money on the contract.
c. The project manager will have to compensate the supplier if the risk
occurs.
d. The project manager will assist the supplier with the project team if
the risk occurs.
3. A project manager discovers that there is a part of the project that con-
tains some risk. His or her strategy with this risk is to subcontract the
work to an outside supplier by using a firm fixed price contract. The
project manager should:
a. Make certain that the project team does not reveal the risk to the
supplier until the contract is signed.
b. Make every effort to make sure that the supplier is made aware of
the risk after the contract is signed.
c. Make sure that the supplier understands the risk before the contract
is signed.
d. Assign a member of the project team to monitor the activity of the
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supplier to make sure that the supplier deals with the risk properly
if it occurs.
4. The project manager is considering contracting some of the work of the
project to a service bureau. The service bureau has been used in the past
by this project manager. The manager has several choices of contracts
that can be used to subcontract this work. Which of the following is not
a type of contract that the project manager might choose?
a. Firm fixed price
b. Make or buy
c. Cost plus incentive fee
d. Unit price
5. A project manager is employed by a construction company and is re-
sponsible for the furnishing of the completed building. One of the first
things that the project manager for this project should do is to write a:
a. Work breakdown structure.
b. Budget baseline.
c. Project charter.
d. Project plan.
6. A contractor is working on a fixed price contract that calls for a single,
lump sum payment upon satisfactory completion of the contract. About
halfway through the contract, the contractor’s project manager informs
the contract administrator that financial problems are making it difficult
for the contractor to pay employees and subcontractors. The contractor
asks for a partial payment for work accomplished. Which of the follow-
ing actions by the buyer is most likely to cause problems for the project?
a. Starting to make partial payments to the contractor
b. Making no payments to the contractor
c. Paying for work accomplished to date
d. Negotiating a change to the contract
7. Under a blanket order arrangement, which of the following is correct?
a. The cost of carrying the inventory is borne by the buyer.
b. The seller delivers all of the material ordered at one time.
c. Payments for all of the material are made at one time.
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299Contracts and Procurement
d. At the end of the blanket order, prices are adjusted for the actual
amount of material delivered.
8. Forward buying will:
a. Decrease storage costs.
b. Decrease capital investment.
c. Decrease transportation costs.
d. Decrease inventory.
9. Which of the following would not be a part of the procurement man-
agement process?
a. Purchasing
b. Contract negotiations
c. Inspection
d. Marketing
10. The equivalent of cost reimbursable contracts is frequently termed:
a. Back charge contracts.
b. Fixed price contracts.
c. Progress payment contracts.
d. Cost plus contracts.
11. The project team has delivered a deliverable to the customer. The deliv-
erable contains defects that are easily correctable. There is a good rela-
tionship with the customer and the customer agrees to make the repairs
and correct the defects on the item and invoice the supplier for the
work that was done. This is considered to be a:
a. Bid cost reduction.
b. Payment authorization.
c. Back charge.
d. Release payment.
12. A project manager decides to go out for bids on some of the project
work that must be done as part of a contract to do a project for another
customer. The bids are received and evaluated, and the seller with the
lowest bid is selected. The cost of the contract to the project can further
be reduced by what action?
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a. Illegal methods
b. Procurement leverage
c. Selecting another seller
d. Contract negotiation
13. A buyer extends a formal invitation that contains a scope of work that
seeks a response that will describe the methodology and results that will
be provided to the buyer. This is called:
a. Invitation to bid.
b. Request for information.
c. Request for proposal.
d. Request for bid.
14. A project manager wants to subcontract part of the project. This part
of the project is quite complicated, and there are many ways that the
work can be done. What method of solicitation should be used by the
project team?
a. Request for bid
b. Request for quotation
c. Request for proposal
d. Request for information
15. The project team is considering whether to purchase a service or do it
themselves. One of the items that should not be considered in their
analysis is:
a. The seller’s price.
b. The cost and availability of floor space at the team’s facility.
c. The seller’s technical staff.
d. A competitor’s method of outsourcing.
16. A request for bid (RFB) differs from a request for proposal (RFP) in
that:
a. The request for proposal is used when source selection will be price
driven.
b. There is no difference.
c. The request for bid is used when source selection will be price
driven.
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301Contracts and Procurement
d. The request for proposal disregards price considerations.
e. The request for bid is concerned with price exclusively.
17. A project has subcontracted part of the work of the project to an outside
vendor. The work involves writing modules of software for the project.
The first delivery of the subcontracted software has been made, and it
is found that the software will not perform the functions that were
specified in the contract. The vendor says that the software cannot do
what was specified in the contract and refuses to do the work. What
should the project team do?
a. Cancel the contract and find another vendor.
b. Hold additional meetings with the vendor to determine the problem
and the solution to the problem.
c. Seek legal advice form the company’s attorney.
d. Offer the vendor an additional incentive to finish the contract.
18. A project manager is about to request bids on a large part of the work
that must be done on the project. This work amounts to over $1 mil-
lion. The best reason that the bid should be advertised is:
a. It is a legal requirement to do so.
b. Advertising will notify more companies that you are interested in
contracting the work.
c. It will avoid criticism from other potential vendors.
d. It avoids having pressure from the public.
19. A project manager must have some work done by an outside contractor.
This work has a great deal of risk associated with it, and it has become
very difficult to find a contractor willing to take on the job. Which of
the following types of contract would offer the greatest incentive to the
contractor?
a. Cost plus percentage of cost as an award fee
b. Cost plus fixed fee
c. Cost plus incentive fee
d. Firm fixed price
20. A project manager purchases 3,500 widgets for his project. The widgets
are delivered on time, but there are many defects in the paint that is on
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the surface of the widgets. The project manager returns the parts to the
vendor for repair and rework. The vendor complains that the paint job
quality was not specified in the contract and it is not his responsibility
to repair the parts. It is likely that the parts will be repaired by the
vendor because of:
a. Expressed warranty.
b. Implied warranty.
c. Past business practices.
d. Threat of legal action by the project team.
21. A project is coming to a close, and the project manager is listing the
things that must be done to close out the project. One of the things
that must be done by the person responsible for contract administration
is:
a. Issue letters of recommendation for the project team.
b. Issue a formal written notice of project completion to the contrac-
tors.
c. Put a legal notice in the newspapers indicating that all invoices must
be submitted.
d. Request final inspection reports for all vendor supplied materials.
22. A project is engaged in making electronic devices. It is necessary for
them to purchase materials to make the printed circuit boards. All of
the parts are common parts that are available from several vendors. The
most likely contract that should be issued for these parts is:
a. Unit price contract.
b. Firm fixed price contract.
c. Cost reimbursable contract.
d. Award fee contract.
23. A project is being managed by a project manager. A large portion of the
work of the project is being subcontracted to an outside vendor. During
the project it is found that a significant change in the design of the
project is necessary. The project manager should:
a. Issue a change notice to the contractor immediately.
b. Issue a purchase order to investigate the change.
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303Contracts and Procurement
c. Notify the contractor of the design change possibility.
d. Rebid the contract.
24. An automotive design project is underway. The project is to design the
new body style for the upcoming season. Body styles are considered to
be one of the more important items for competing in the next season.
The completion date for the project is moved up to three months earlier
than planned. Because of this change in the project completion date,
there is the possibility of having some of the work done by a design
bureau in town. The project manager must make a decision as to
whether or not to subcontract this work out to the design bureau. What
is the most important consideration in making this decision?
a. Cost of work to the design bureau
b. Security of the design bureau
c. Communications between the project team and the design bureau
d. Ability of the design bureau to deliver on time
25. At the request of the project team for a large project, the company’s
purchasing department advertises that they intend to let a contract for
construction work associated with the project. This is called:
a. Procurement planning.
b. Solicitation.
c. Advertising.
d. The procurement process.
26. An agreement between competent parties, for valid consideration, to
accomplish some lawful purpose with terms clearly set forth is called a:
a. Procurement.
b. Solicitation.
c. Contract.
d. Letter of intent.
27. A project manager is managing a project to design a software system
for a client. She decides to subcontract the work to a programming
subcontractor. The subcontractor fails to deliver the work on time, and
the project manager invokes a penalty clause that was written into the
contract. It is found that the person signing the contract was under
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twenty-one years of age (the legal age where the contract was signed).
What can be done?
a. The company can invoke the penalty clause, and it must be hon-
ored.
b. The work must be completed by the subcontractor, and the penalty
clauses must be deducted from the amount paid to the subcon-
tractor.
c. The company should renegotiate the contract.
d. The contract is void for lack of competent parties, and no additional
work should be done.
28. A company wants to buy steel machine screws for a project they are
working on. The screws are an example of what type of purchase?
a. On the shelf
b. Commodity purchase
c. Normal procurement
d. Blanket order
29. The procurement manager of a company decides to solicit bids on a
contract. On the basis of the bid the company must clearly specify
exactly what they intend to purchase. The selection of the vendor will
be on the basis of:
a. Price and features of the proposal.
b. Price alone.
c. Overall desirability of the products offered.
d. Comprehensive evaluation of the vendor and the proposal.
30. A trucking company expects to purchase 525 truck tires over the next
year for their fleet. The company places a blanket order for the tires to
a local tire vendor. At the end of a year the company has only purchased
500 of the tires. What should be done to close the contract?
a. The trucking company should pay for the 25 tires and the tire ven-
dor should deliver them.
b. The total price of the blanket order should be adjusted.
c. The contract should be closed because the year is up and no adjust-
ments are necessary.
d. A new blanket order should be negotiated.
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. first
things that the project manager for this project should do is to write a:
a. Work breakdown structure.
b. Budget baseline.
c. Project charter.
d. Project plan.
6 action by the project team.
21. A project is coming to a close, and the project manager is listing the
things that must be done to close out the project. One