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 297 298 Preparing for the Project Management Professional Certification Exam 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. 9618$$ CH17 09-06-02 15:00:40 PS 299Contracts and Procurement d. At the end of the blanket order, prices are adjusted for the actual amount of material delivered. 8. Forward buying will: a. Decrease storage costs. b. Decrease capital investment. c. Decrease transportation costs. d. Decrease inventory. 9. Which of the following would not be a part of the procurement man- agement process? a. Purchasing b. Contract negotiations c. Inspection d. Marketing 10. The equivalent of cost reimbursable contracts is frequently termed: a. Back charge contracts. b. Fixed price contracts. c. Progress payment contracts. d. Cost plus contracts. 11. The project team has delivered a deliverable to the customer. The deliv- erable contains defects that are easily correctable. There is a good rela- tionship with the customer and the customer agrees to make the repairs and correct the defects on the item and invoice the supplier for the work that was done. This is considered to be a: a. Bid cost reduction. b. Payment authorization. c. Back charge. d. Release payment. 12. A project manager decides to go out for bids on some of the project work that must be done as part of a contract to do a project for another customer. The bids are received and evaluated, and the seller with the lowest bid is selected. The cost of the contract to the project can further be reduced by what action? 9618$$ CH17 09-06-02 15:00:40 PS 300 Preparing for the Project Management Professional Certification Exam 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. 9618$$ CH17 09-06-02 15:00:41 PS 301Contracts and Procurement d. The request for proposal disregards price considerations. e. The request for bid is concerned with price exclusively. 17. A project has subcontracted part of the work of the project to an outside vendor. The work involves writing modules of software for the project. The first delivery of the subcontracted software has been made, and it is found that the software will not perform the functions that were specified in the contract. The vendor says that the software cannot do what was specified in the contract and refuses to do the work. What should the project team do? a. Cancel the contract and find another vendor. b. Hold additional meetings with the vendor to determine the problem and the solution to the problem. c. Seek legal advice form the company’s attorney. d. Offer the vendor an additional incentive to finish the contract. 18. A project manager is about to request bids on a large part of the work that must be done on the project. This work amounts to over $1 mil- lion. The best reason that the bid should be advertised is: a. It is a legal requirement to do so. b. Advertising will notify more companies that you are interested in contracting the work. c. It will avoid criticism from other potential vendors. d. It avoids having pressure from the public. 19. A project manager must have some work done by an outside contractor. This work has a great deal of risk associated with it, and it has become very difficult to find a contractor willing to take on the job. Which of the following types of contract would offer the greatest incentive to the contractor? a. Cost plus percentage of cost as an award fee b. Cost plus fixed fee c. Cost plus incentive fee d. Firm fixed price 20. A project manager purchases 3,500 widgets for his project. The widgets are delivered on time, but there are many defects in the paint that is on 9618$$ CH17 09-06-02 15:00:42 PS 302 Preparing for the Project Management Professional Certification Exam 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. 9618$$ CH17 09-06-02 15:00:42 PS TEAMFLY Team-Fly ® 303Contracts and Procurement c. Notify the contractor of the design change possibility. d. Rebid the contract. 24. An automotive design project is underway. The project is to design the new body style for the upcoming season. Body styles are considered to be one of the more important items for competing in the next season. The completion date for the project is moved up to three months earlier than planned. Because of this change in the project completion date, there is the possibility of having some of the work done by a design bureau in town. The project manager must make a decision as to whether or not to subcontract this work out to the design bureau. What is the most important consideration in making this decision? a. Cost of work to the design bureau b. Security of the design bureau c. Communications between the project team and the design bureau d. Ability of the design bureau to deliver on time 25. At the request of the project team for a large project, the company’s purchasing department advertises that they intend to let a contract for construction work associated with the project. This is called: a. Procurement planning. b. Solicitation. c. Advertising. d. The procurement process. 26. An agreement between competent parties, for valid consideration, to accomplish some lawful purpose with terms clearly set forth is called a: a. Procurement. b. Solicitation. c. Contract. d. Letter of intent. 27. A project manager is managing a project to design a software system for a client. She decides to subcontract the work to a programming subcontractor. The subcontractor fails to deliver the work on time, and the project manager invokes a penalty clause that was written into the contract. It is found that the person signing the contract was under 9618$$ CH17 09-06-02 15:00:42 PS 304 Preparing for the Project Management Professional Certification Exam 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. 9618$$ CH17 09-06-02 15:00:43 PS . 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