Selecting a contract

Question 1

Why is it important for a project manager to understand the seller’s perspective?

Answer 1

It is important because contracts are mutual agreements, and both parties need to be satisfied for the project to succeed.

Question 2

What are the two key documents that define the work required by the buyer?

Answer 2

The two key documents are the scope (what we want) and the statement of work (who’s going to do what).

Question 3

What is a sole source contract?

Answer 3

A sole source contract is when there is only one contractor selected to perform the work, often due to their unique capabilities.

Question 4

Why might a sole source contract be considered unethical?

Answer 4

It may be unethical if it is awarded to a friend or someone with whom there is a personal relationship, as it can lead to favoritism.

Question 5

What is the advantage of a fixed-price contract from the buyer’s perspective?

Answer 5

The advantage is that it provides predictable costs for the project.

Question 6

What is a disadvantage of a fixed-price contract?

Answer 6

A disadvantage is that it requires well-defined requirements, as mistakes can lead to costly changes. less control as PM

Question 7

How can a project manager incentivize a contractor in a fixed-price contract?

Answer 7

The project manager can add incentives for cost and schedule to encourage timely and cost-effective delivery.

Question 8

What is a key advantage of a cost-plus contract for the buyer?

Answer 8

It offers flexibility in defining goals and objectives without needing detailed specifications upfront.

Question 9

What is a disadvantage of a cost-plus contract for the buyer?

Answer 9

The buyer relies on the seller to control costs, which can lead to higher final expenses.

Question 10

From the seller’s perspective, what is an advantage of a cost-plus contract?

Answer 10

The seller can undertake risky and long efforts since they will be reimbursed for all legitimate costs.

Question 11

What is a disadvantage for the seller in a cost-plus contract?

Answer 11

If costs escalate significantly, the seller’s profitability may decrease, especially if they have a fixed fee.

Question 12

What is the main advantage of a time and materials contract for the buyer?

Answer 12

It provides maximum flexibility, allowing the buyer to start quickly and select the right expert for the task.

Question 13

What is a disadvantage of a time and materials contract?

Answer 13

The buyer does not have assurance of the final cost, which can lead to unexpected expenses.

Question 14

Buyer risk based on contracts

Low to high

Answer 14

1. Firm Fixed Price (FFP)
2. Fixed Price Incentive Fee (FPIF)
3. Cost Plus Incentive Fee (CPIF)
4. Cost Plus Fixed Fee (CPFF)
5. Cost Plus Percentage of Cost (CPPC)

Vice versa for seller (high to low)