CPCM Contract Formation and Types 1 — Questions and Answers
Question 1: Which element is NOT required for a valid contract to be formed?
- Offer
- Acceptance
- Notarization (Correct answer)
- Consideration
Correct answer: Notarization
A valid contract requires offer, acceptance, consideration, and mutual assent — notarization is not a required element for most contracts.
Question 2: A firm-fixed-price (FFP) contract places the cost risk primarily on which party?
- The government
- The contractor (Correct answer)
- Both parties equally
- A third-party guarantor
Correct answer: The contractor
Under a firm-fixed-price contract, the contractor bears full cost risk because the price is not subject to adjustment based on actual costs.
Question 3: What type of contract reimburses the contractor for all allowable costs plus a fixed fee?
- Cost-Plus-Fixed-Fee (CPFF) (Correct answer)
- Time and Materials (T&M)
- Firm-Fixed-Price (FFP)
- Fixed-Price Incentive (FPI)
Correct answer: Cost-Plus-Fixed-Fee (CPFF)
A Cost-Plus-Fixed-Fee contract reimburses all allowable, allocable costs and adds a pre-negotiated fixed fee regardless of actual cost outcomes.
Question 4: Which contract type is considered the highest risk for the government?
- Firm-Fixed-Price
- Cost-Plus-Percentage-of-Cost (Correct answer)
- Fixed-Price Incentive
- Indefinite Delivery/Indefinite Quantity
Correct answer: Cost-Plus-Percentage-of-Cost
Cost-Plus-Percentage-of-Cost contracts are generally prohibited in US federal contracting because they incentivize the contractor to increase costs.
Question 5: An Indefinite Delivery/Indefinite Quantity (IDIQ) contract must specify a:
- Maximum quantity only
- Minimum and maximum quantity (Correct answer)
- Exact delivery schedule
- Fixed unit price for all orders
Correct answer: Minimum and maximum quantity
FAR requires IDIQ contracts to establish both a minimum and maximum quantity to obligate the government to purchase at least the minimum.
Question 6: Which of the following best describes a Time and Materials (T&M) contract?
- Fixed price per deliverable
- Reimbursement of costs plus a percentage fee
- Payment for labor hours at fixed rates plus actual material costs (Correct answer)
- Lump-sum payment upon project completion
Correct answer: Payment for labor hours at fixed rates plus actual material costs
T&M contracts pay for direct labor at negotiated fixed hourly rates and reimburse actual material costs, making them appropriate when scope is uncertain.
CPCM Contract Formation and Types 1
Which element is NOT required for a valid contract to be formed?