PMP Procurement Management 2 — Questions and Answers
Question 1: Which contract type places the MOST financial risk on the buyer?
- Fixed-Price Incentive Fee (FPIF)
- Cost Plus Fixed Fee (CPFF)
- Time and Material (T&M)
- Cost Plus Percentage of Cost (CPPC) (Correct answer)
Correct answer: Cost Plus Percentage of Cost (CPPC)
CPPC gives the seller no incentive to control costs since their fee increases as costs rise, placing maximum risk on the buyer.
Question 2: A seller delivers work that technically meets contract requirements but misses the project's intent. What should the project manager do FIRST?
- Accept the deliverable and close the contract
- Issue a change order to redefine requirements (Correct answer)
- Escalate to senior management immediately
- Review the contract with legal counsel before acting
Correct answer: Issue a change order to redefine requirements
A change order formalizes the adjustment to scope or requirements to align the deliverable with intent while keeping the contract valid.
Question 3: What is the PRIMARY purpose of a bid conference (also called a bidders' conference)?
- To negotiate final contract terms with the preferred vendor
- To evaluate vendor financial stability
- To ensure all prospective sellers have equal understanding of procurement requirements (Correct answer)
- To announce the winner of the procurement award
Correct answer: To ensure all prospective sellers have equal understanding of procurement requirements
Bidders' conferences give all prospective sellers the same information simultaneously to ensure fair and equal understanding of requirements.
Question 4: Which document serves as the formal authorization from the buyer to the seller to begin work?
- Request for Proposal (RFP)
- Letter of Intent
- Notice to Proceed (NTP) (Correct answer)
- Statement of Work (SOW)
Correct answer: Notice to Proceed (NTP)
A Notice to Proceed (NTP) is the formal authorization that instructs the seller to begin work on the contract.
Question 5: During contract negotiations, the seller insists on a higher price due to material cost increases. The buyer wants to maintain the original price. This is BEST described as:
- A scope change requiring change control
- A contractual dispute requiring mediation
- A risk event that was not identified (Correct answer)
- A claims administration situation
Correct answer: A risk event that was not identified
Unidentified material cost increases represent a risk event that was not adequately identified and planned for in risk management.
Question 6: A project manager is evaluating make-or-buy decisions. Which factor would MOST favor outsourcing to a vendor?
- The work aligns with the organization's core competency
- The organization has excess capacity and resources
- The work requires specialized expertise not available internally (Correct answer)
- The project timeline allows for internal skill development
Correct answer: The work requires specialized expertise not available internally
Specialized expertise unavailable internally is a primary driver to outsource, as building that capability in-house would be costly and time-consuming.
Question 7: In a Fixed-Price Incentive Fee contract, what happens if the final cost exceeds the Point of Total Assumption (PTA)?
- The buyer absorbs all additional costs above the PTA
- The seller absorbs all additional costs above the PTA (Correct answer)
- Costs are shared equally between buyer and seller
- The contract is automatically terminated
Correct answer: The seller absorbs all additional costs above the PTA
Above the PTA, the seller bears 100% of additional costs, which effectively converts the contract to a firm-fixed-price arrangement.
PMP Procurement Management 2
Which contract type places the MOST financial risk on the buyer?