CPP Procurement & Contract Management 3 — Questions and Answers
Question 1: Which contract type transfers the MOST cost risk to the seller?
- Cost-Plus-Fixed-Fee (CPFF)
- Cost-Plus-Award-Fee (CPAF)
- Firm-Fixed-Price (FFP) (Correct answer)
- Time and Materials (T&M)
Correct answer: Firm-Fixed-Price (FFP)
Under a Firm-Fixed-Price contract, the seller bears all cost overrun risk because the price does not change regardless of actual costs incurred.
Question 2: A project manager wants to procure custom software development but cannot fully define the requirements upfront. Which contract type is MOST suitable?
- Firm-Fixed-Price (FFP)
- Fixed-Price with Economic Price Adjustment (FP-EPA)
- Time and Materials (T&M) (Correct answer)
- Purchase Order
Correct answer: Time and Materials (T&M)
T&M contracts are appropriate for unclear or evolving scopes because they compensate the seller for actual time and materials used, providing flexibility.
Question 3: What distinguishes a unilateral contract modification from a bilateral one?
- Unilateral changes require seller consent; bilateral do not
- Unilateral changes are issued by the buyer alone; bilateral require both parties to agree (Correct answer)
- Unilateral changes only affect price; bilateral changes affect scope
- Unilateral changes void the original contract; bilateral do not
Correct answer: Unilateral changes are issued by the buyer alone; bilateral require both parties to agree
A unilateral modification (change order) can be issued by the contracting officer alone under the Changes clause; a bilateral modification requires mutual agreement.
Question 4: The make-or-buy analysis in procurement planning is used to determine which of the following?
- Whether to use fixed-price or cost-reimbursable contracts
- Whether to produce goods internally or acquire them from external sources (Correct answer)
- How to evaluate competing vendor proposals
- When to issue contract change orders
Correct answer: Whether to produce goods internally or acquire them from external sources
Make-or-buy analysis evaluates the cost, capability, and strategic factors to decide whether the project team should produce something in-house or outsource it.
Question 5: Which document formally authorizes a seller to begin work before a definitive contract is signed?
- Letter of Intent
- Memorandum of Understanding
- Letter Contract (Undefinitized Contract Action) (Correct answer)
- Non-Disclosure Agreement
Correct answer: Letter Contract (Undefinitized Contract Action)
A letter contract or undefinitized contract action allows work to begin immediately while final contract terms are still being negotiated.
Question 6: In a competitive procurement, the project manager notices that one bidder's price is significantly lower than all others. What should the PM do FIRST?
- Award the contract immediately to save costs
- Disqualify the bidder for unrealistic pricing
- Request a price/cost analysis to understand the basis for the low bid (Correct answer)
- Contact the other bidders to lower their prices
Correct answer: Request a price/cost analysis to understand the basis for the low bid
An unusually low bid warrants a price or cost analysis to determine if it is realistic, reflects missing scope, or indicates a risk of nonperformance.
Question 7: Which of the following BEST describes a privity of contract issue in subcontracting?
- The prime contractor cannot hold subcontractors accountable
- The buyer has no direct contractual relationship with subcontractors (Correct answer)
- Subcontractors must negotiate directly with the project owner
- The prime contractor must share all contract documents with subcontractors
Correct answer: The buyer has no direct contractual relationship with subcontractors
Privity of contract means only the parties to the contract have legal rights and obligations under it, so the buyer typically cannot enforce terms directly against subcontractors.
CPP Procurement & Contract Management 3
Which contract type transfers the MOST cost risk to the seller?