APP APP Contract Management & Administration 1 — Questions and Answers
Question 1: Which contract type places the greatest financial risk on the buyer?
- Firm Fixed-Price (FFP)
- Cost-Plus-Fixed-Fee (CPFF) (Correct answer)
- Time and Materials (T&M)
- Indefinite Delivery Indefinite Quantity (IDIQ)
Correct answer: Cost-Plus-Fixed-Fee (CPFF)
Cost-Plus-Fixed-Fee contracts require the buyer to reimburse all allowable costs plus a fixed fee, regardless of final cost, placing maximum risk on the buyer.
Question 2: A 'liquidated damages' clause in a purchase contract is best described as:
- A penalty charged by regulators for contract violations
- A pre-agreed amount the seller pays for specific breaches such as late delivery (Correct answer)
- A clause allowing the buyer to cancel without cause
- A fee for modifying contract scope
Correct answer: A pre-agreed amount the seller pays for specific breaches such as late delivery
Liquidated damages clauses pre-establish a monetary remedy for specific contract breaches, most commonly late delivery, avoiding the need to prove actual damages.
Question 3: What is the primary purpose of a contract 'force majeure' clause?
- To set payment milestones
- To excuse performance obligations caused by unforeseeable events beyond a party's control (Correct answer)
- To define intellectual property ownership
- To establish dispute resolution procedures
Correct answer: To excuse performance obligations caused by unforeseeable events beyond a party's control
A force majeure clause relieves a party of liability when extraordinary events such as natural disasters or wars prevent contract performance.
Question 4: Which document formally authorizes a change to an existing purchase contract's scope, price, or schedule?
- Request for Proposal (RFP)
- Change Order (Correct answer)
- Purchase Requisition
- Statement of Work (SOW)
Correct answer: Change Order
A change order is the formal instrument used to modify an executed contract's terms, including scope, price, or delivery schedule.
Question 5: In contract administration, 'substantial completion' typically means:
- The seller has invoiced for 100% of the contract value
- The deliverable is usable for its intended purpose even if minor items remain (Correct answer)
- All contract milestones have been formally closed
- The buyer has accepted and paid the final invoice
Correct answer: The deliverable is usable for its intended purpose even if minor items remain
Substantial completion means the deliverable functions for its intended purpose, allowing the buyer to take beneficial use while minor punch-list items are still resolved.
Question 6: Which practice BEST protects a buyer's rights when a supplier consistently delivers late?
- Verbally warning the supplier at the next meeting
- Issuing a formal cure notice requiring corrective action within a defined timeframe (Correct answer)
- Immediately terminating the contract without notice
- Reducing the payment on the current invoice
Correct answer: Issuing a formal cure notice requiring corrective action within a defined timeframe
A formal cure notice documents the breach, sets a remedy deadline, and creates the paper trail needed to support termination or damages claims if performance does not improve.
APP APP Contract Management & Administration 1
Which contract type places the greatest financial risk on the buyer?