CPP Contracting & Negotiation Techniques 2 — Questions and Answers
Question 1: A buyer needs a supplier to start work immediately, but the scope and final cost cannot yet be defined. Which contract type best fits this situation?
- Requirements contract
- Time-and-materials contract (Correct answer)
- Firm fixed-price contract
- Fixed-price incentive contract
Correct answer: Time-and-materials contract
Time-and-materials contracts let work begin when scope and duration are uncertain, though they need close monitoring and a ceiling price.
Question 2: Under a cost-plus-percentage-of-cost arrangement, what is the main risk to the buyer?
- The seller's profit rises as costs rise, which removes any reason to control costs (Correct answer)
- The buyer cannot audit the seller's costs
- The contract cannot be modified after award
- The seller bears all cost overrun risk
Correct answer: The seller's profit rises as costs rise, which removes any reason to control costs
Because the fee grows with costs, the seller has no incentive to control spending, so U.S. federal procurement prohibits this contract type.
Question 3: A buyer wants to buy all of a plant's needs for a commodity from one supplier for a year, but the exact quantities are unknown. Which contract fits best?
- Requirements contract (Correct answer)
- Definite-quantity contract
- Firm fixed-price contract
- Letter contract
Correct answer: Requirements contract
A requirements contract obligates the buyer to purchase all of its actual needs from the supplier during the term, without fixing quantities in advance.
Question 4: Which element is NOT required to form a legally enforceable contract?
- A notarized signature (Correct answer)
- Competent parties
- Offer and acceptance
- Consideration
Correct answer: A notarized signature
Valid contracts require offer, acceptance, consideration, capacity and a lawful purpose, but notarization is generally not required.
Question 5: Under UCC Article 2, a contract for the sale of goods priced at $500 or more generally must be:
- Notarized by both parties
- Approved by a court
- In writing and signed by the party against whom enforcement is sought (Correct answer)
- Registered with the state
Correct answer: In writing and signed by the party against whom enforcement is sought
The UCC statute of frauds (§2-201) requires a signed writing for sales of goods of $500 or more, with some exceptions.
Question 6: In a fixed-price incentive contract with a target cost of $100,000, a target profit of $10,000 and a 70/30 buyer/seller share ratio, actual costs come in at $90,000. What is the seller's profit?
- $13,000 (Correct answer)
- $17,000
- $7,000
- $10,000
Correct answer: $13,000
The $10,000 underrun is shared 30% to the seller, adding $3,000 to the $10,000 target profit for $13,000 total.
Question 7: Under the UCC, what is a 'firm offer'?
- A signed written offer from a merchant promising to keep it open, which cannot be revoked for up to three months even without consideration (Correct answer)
- An offer that becomes binding after acceptance by fax
- Any offer with a price stated
- An oral offer between any two parties
Correct answer: A signed written offer from a merchant promising to keep it open, which cannot be revoked for up to three months even without consideration
Under UCC §2-205, a merchant's signed written assurance to hold an offer open is irrevocable for the stated time, up to three months.
