CAPM Procurement & Contract Management 3 — Questions and Answers
Question 1: In a Cost Plus Incentive Fee (CPIF) contract, what happens if the seller's actual costs are below the target cost?
- The seller receives only the base fee
- The seller and buyer share the savings according to a formula (Correct answer)
- The buyer keeps all savings
- The contract is renegotiated
Correct answer: The seller and buyer share the savings according to a formula
In a CPIF contract, cost underruns are shared between buyer and seller based on a pre-agreed share ratio, incentivizing cost efficiency.
Question 2: What does 'privity of contract' mean in project procurement?
- Confidentiality of contract terms from competitors
- A direct contractual relationship between two parties (Correct answer)
- The right to audit a seller's financial records
- Priority given to long-term vendor relationships
Correct answer: A direct contractual relationship between two parties
Privity of contract means only parties who are directly named in the contract have legal rights and obligations under it.
Question 3: Which process involves documenting completed deliverables and formally accepting the seller's work?
- Control Procurements
- Close Procurements (Correct answer)
- Plan Procurement Management
- Conduct Procurements
Correct answer: Close Procurements
Close Procurements finalizes all procurement activities, confirms work is complete, and provides formal acceptance of seller deliverables.
Question 4: What is the main risk to the buyer in a Time and Material (T&M) contract?
- The seller may not complete the work on time
- Total costs can grow unchecked if the scope is not controlled (Correct answer)
- The quality of deliverables may be lower than expected
- The seller may subcontract work without approval
Correct answer: Total costs can grow unchecked if the scope is not controlled
T&M contracts have no fixed ceiling, so costs can escalate indefinitely if hours or materials are not carefully monitored.
Question 5: A project manager discovers a seller is consistently delivering below the quality standards in the contract. What is the most appropriate first action?
- Terminate the contract immediately
- Issue a formal letter documenting the performance issue (Correct answer)
- Withhold payment until quality improves
- Reassign the work to another vendor
Correct answer: Issue a formal letter documenting the performance issue
Issuing a formal written notice documents the deficiency and gives the seller an opportunity to cure the performance problem as required by most contracts.
Question 6: What is an 'Invitation for Bid' (IFB) most commonly used for?
- Procurements requiring innovative solutions from sellers
- Procurements where price is the primary evaluation criterion (Correct answer)
- Selecting consultants based on qualifications
- Gathering market information before issuing a contract
Correct answer: Procurements where price is the primary evaluation criterion
An IFB (also called Invitation for Tender) is used when requirements are well-defined and the contract will be awarded primarily on lowest price.
Question 7: Which tool used during procurement planning helps identify whether a particular need should be internally sourced or contracted?
- Make-or-Buy Analysis (Correct answer)
- Contract Type Selection
- Risk Register
- Procurement Audit
Correct answer: Make-or-Buy Analysis
Make-or-Buy Analysis evaluates the costs and benefits of producing goods/services internally versus procuring them from an external seller.
CAPM Procurement & Contract Management 3
In a Cost Plus Incentive Fee (CPIF) contract, what happens if the seller's actual costs are below the target cost?