Project Procurement Management
Practice Questions
INSTRUCTIONS: Note the most suitable answer for each multiple-choice question in the appropriate space on the answer sheet.
1. The buyer has negotiated a cost-plus-incentive fee contract with the seller. The contract has a target cost of $300,000, a target fee of $40,000, a share ratio of 80/20, a maximum fee of $60,000, and a minimum fee of $10,000. If the seller has actual costs of $380,000, how much fee will the buyer pay?
A. $104,000
B. $56,000
C. $40,000
D. $30,000
E. $24,000
2. Which of the following terms is an expression by one party of its assent to certain terms in the contract provided that the other party expresses its assent to the identical terms?
A. Proposal
B. Counteroffer
C. Bargain
D. Offer
E. Exchange
3. Which term describes the failure by either the buyer or seller to perform part or all of the duties of a contract?
A. Termination of contract
B. Partial performance
C. Breach of contract
D. Contract litigation
E. Contract waiver
4. Which of the following practices is not an important element of effective contract administration?
A. Preparing contract change documentation
B. Processing payment vouchers
C. Establishing the appropriate contract type
D. Implementing a contract change control system
E. Preparing monthly contract status reports for the buyer
5. When actual costs exceed estimated costs without any change in the scope of work, the project is experiencing:
A. Accelerated costs
B. Cost growth
C. Schedule compression
D. Cost overrun
E. Cost risk
6. Contract type selection is dependent on the degree of risk or uncertainty facing the project manager. From the perspective of the buyer, the preferred contract type in a low-risk situation is:
A. Firm-fixed-price
B. Fixed-price incentive
C. Cost-sharing
D. Cost-plus-fixed fee
E. Cost-plus-a-percentage-of-cost
7. Generally speaking, compensation to a contractor in a cost contract is based on:
A. Actual costs incurred based on the contractor's best efforts
B. The amount of time required to complete the contract
C. Delivery of the goods and services stipulated in the contract
D. The number of resources used
E. Actual costs incurred minus profit if the cost ceiling was exceeded
8. The process of monitoring contract performance, making payments, and awarding contract modifications occurs during:
A. The pre-award phase
B. The award phase
C. Contract administration
D. Contract formation
E. Contract resolution
9. Which term describes those costs that are traceable to, or caused by, a specific project work effort?
A. Variable
B. Direct
C. Indirect
D. Fixed
E. Semi-variable
10. Subcontracting may be the best option when:
A. The subcontractor possesses special technical or engineering skills
B. The performing organization possesses limited capacity in an area
C. The subcontractor can augment the contractor's labor force at a lower cost than an in-house capability can be maintained
D. a and c
E. a, b, and c
11. During negotiation, the seller takes exception to the buyer's terms and conditions and proposes different terms and conditions. Which negotiation technique is the seller using?
A. Recommendation
B. Rejection of offer
C. Separate offer
D. Suggestion
E. Counteroffer
12. Which of the following contract types places the greatest risk on the seller to control costs?
A. Fixed-price with economic price adjustment
B. Fixed-price incentive (firm target)
C. Firm-fixed-price
D. Cost-plus-award fee
E. Cost-plus-incentive fee
13. Which of the following contract types does not encourage the seller to control costs and, as a result, places the greatest risk on the buyer?
A. Cost-sharing
B. Cost-plus-award fee
C. Cost-plus-fixed fee
D. Cost-plus-incentive fee
E. Cost-plus-a-percentage-of-cost
14. The purpose of the bidders' conference is to:
A. Ensure that prospective sellers have a clear, common understanding of the buyer's requirements
B. Confirm which bidders are going to be considered in the procurement
C. Ensure that all qualified sellers are on the qualified sellers list
D. Obtain detailed information on the prospective sellers' past performance
E. Ensure that all bidders attending the conference receive amendments
15. A specification that describes the buyer's requirements with special dimensions, tolerances, or features, such as chemical or electronic requirements, and that is accompanied by engineering drawings, is called a:
A. Design specification
B. Functional specification
C. Performance specification
D. Commercial standard
E. Qualified product
16. The language of contracts sometimes causes misunderstandings and creates situations that adversely affect project completion. Therefore, a relatively fast and informal method for removing the obstacles to progress should always be available. One such method is to submit the issue in question to an impartial third party for resolution. This process is known as:
A. Cause of action
B. Alternative dispute resolution
C. Problem processing
D. Steering resolution
E. Mediation litigation
17. The legal contractual relationship that exists between the buyer and the seller is called:
A. Caveat emptor
B. Apparent authority
C. Contract privity
D. Terms and conditions
E. Force majeure
18. Which term is not a common name for a procurement document that solicits an offer from prospective sellers?
A. Invitation for bid
B. Request for proposal
C. Request for information
D. Request for quotation
E. Invitation for negotiation
19. Typically, a force majeure clause excuses a seller from failure to perform because of:
A. Unanticipated work loads
B. Serious illness
C. Unusually severe weather
D. Delays caused by the negligence or fault of subcontractors
E. a and d
20. Which of the following statements is not true with regard to cost- reimbursement contracts?
A. The seller's interest in cost control diminishes.
B. Payment is based solely on the delivery of goods and services.
C. The seller is reimbursed for all allowable and allocable costs.
D. The buyer's concern about the seller's performance increases.
E. The buyer bears the greater financial risk.
21. Buyers use a variety of methods to provide incentives to a seller to complete work early or within certain contractually specified time frames. One such incentive is the use of liquidated damages. From the seller's perspective, liquidated damages are what form of incentive?
A. Positive
B. Negative
C. Nominal
D. Reverse
E. Risk-prone
22. Payment bonds are often required by the contract and require specific actions under the stated conditions. Payment bonds are specifically designed to ensure that the prime contractor provides payment of:
A. Insurance premiums
B. Weekly payrolls
C. Incremental earned value charges
D. Subcontractors, laborers, and suppliers of material
E. Damages for accidents caused
23. When a seller breaches a contract, the buyer cannot receive:
A. Compensatory damages
B. Punitive damages
C. Specific performance
D. Liquidated damages
E. All the above
24. The contracting function in an organization is considered to be decentralized when:
A. Each project manager has control over the contracting process for his or her project
B. The project manager controls contract award
C. The contracting person appointed to the project is available and under the project manager's direct control
D. Contracting is tailored to a single project
E. All the above
25. Which of the following terms represents a contract type category?
A. Fixed-price
B. Cost-reimbursement
C. Unit-price
D. a and b
E. a, b, and c
26. Which item is not a basic element of a contract?
A. Offer
B. Acceptance
C. Consideration
D. Pricing structure
E. Legality of purpose
27. Three techniques used for procurement planning are:
A. Make-or-buy analysis, expert judgment, and contract type selection
B. Fixed-price, cost-reimbursement, and unit-price contracts
C. Cost and schedule estimates, invoice processing, and cash flow projections
D. Scope statement, change management, and marketing analysis
E. Contract type selection, negotiation, and cash flow projections
28. A buyer has negotiated a fixed-price incentive contract with the seller. The contract has a target cost of $200,000, a target profit of $30,000, and a target price of $230,000. The buyer has also negotiated a ceiling price of $270,000 and a share ratio of 70/30. If the seller completes the contract with actual costs of $170,000, how much profit will the buyer pay the seller?
A. $21,000
B. $30,000
C. $35,000
D. $39,000
E. $51,000
29. Contracts may be written in any form that is understandable and enforceable, so project personnel often attempt to be "creative" in developing the contract's terms and conditions. If all the following options are available, the best course of action to meet the requirements of the project is to:
A. Prepare unique terms and conditions
B. Tailor an existing contract
C. Use standard clauses whenever possible
D. Avoid using contractual documents
E. None of the above
30. When costs increase because of changes in the scope of work, the project is experiencing:
A. Accelerated costs
B. Cost growth
C. Cost escalation
D. Cost overrun
E. Cost risk
31. Issues to be addressed during procurement planning are:
A. Importance of price versus quality of products
B. Lead time required for ordering products
C. Potential delays in receiving products and development of appropriate follow-up procedures
D. a and b
E. a, b, and c
32. During solicitation planning, the project team is responsible for:
A. Determining the make-or-buy decision
B. Specifying schedule parameters in the form of delivery dates
C. Developing the procurement documents
D. Developing the specifications and drawings to accompany the solicitation
E. Preparing "should cost" estimates if required
33. After the contract is signed by both parties, a post-negotiation critique should be conducted to:
A. Obtain feedback on how well the negotiation was planned and conducted
B. Target areas for improvement in future negotiations
C. Establish how well the negotiations achieved the objectives
D. Analyze the strategy and tactics of both parties to determine how to improve negotiations in the future
E. All the above
34. The principal function of a warranty is to:
A. Provide assurance of the level of quality to be provided
B. Provide a way to assert claims for late payment
C. Provide a way to allow additional time following acceptance to correct deficiencies, without additional costs
D. Ensure that goods purchased fit the purposes for which they are to be used
E. Ensure that goods are merchantable
35. Which term describes those costs that are associated with two or more projects but are not traceable to each of them individually?
A. Variable
B. Direct
C. Indirect
D. Fixed
E. Semi-variable
36. The procurement audit:
A. Identifies successes and failures that can be applied to other projects
B. Verifies that all work was completed correctly so that the buyer is satisfied
C. Includes updating all records to reflect final results
D. Provides a way for final acceptance and closure of the contract
E. All the above
37. A purchase order is a good example of which form of contracting?
A. Bilateral
B. Trilateral
C. Unilateral
D. Severable
E. Promissory
38. What doctrine causes a party to relinquish rights under a contract because he or she knowingly fails to execute those rights?
A. Quantum meruit
B. Assignment of claims
C. Material breach
D. Waiver
E. Warranties
39. Requirements for inspection and acceptance are defined in the:
A. Contract
B. Procurement management plan
C. Overall project plan
D. Quality control plan
E. Proposal
40. A specification that expresses the buyer's requirements in terms of a range of acceptance characteristics or minimum acceptable standards, such as minimum and maximum capacity, function, velocity, or operation of equipment, is called a:
A. Design specification
B. Functional specification
C. Commercial standard
D. Performance specification
E. Qualified product