What is an advantage of cost reimbursable contracts?

Less costly than fixed price because the seller does not account for risk

Requires auditing all the seller invoices this increases buyer efforts

Seller has less incentive to control cost thus these contracts are inefficient

Take A Practice Test On Procurement Management! Quiz

1.

Contracts should be formal and ________ binding. It is best to get the contract in writing.

Explanation
Contracts should be formal and legally binding. This means that the terms and conditions stated in the contract are enforceable by law. When a contract is legally binding, it ensures that both parties involved are obligated to fulfill their respective obligations as outlined in the contract. Having a contract in writing further strengthens its legal validity and provides a clear record of the agreed-upon terms, reducing the chances of any misunderstandings or disputes in the future.

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2.

FFP is a fixed price contract. True or false?
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
FFP stands for Firm Fixed Price, which is a type of contract where the buyer agrees to pay the seller a fixed price for a specified product or service. This means that regardless of any cost increases or changes in the project scope, the price remains fixed. Therefore, the statement "FFP is a fixed price contract" is true.

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3.

What is an advantage of cost reimbursable contracts?
- A.
  
  Less costly than fixed price because the seller does not account for risk
- B.
  
  Requires auditing all the seller invoices this increases buyer efforts
- C.
  
  Seller has less incentive to control cost thus these contracts are inefficient
Correct Answer
A. Less costly than fixed price because the seller does not account for risk

Explanation
Cost reimbursable contracts are advantageous because the seller does not account for risk, making them less costly than fixed price contracts. In fixed price contracts, the seller includes a contingency amount to cover any potential risks or uncertainties. However, in cost reimbursable contracts, the buyer assumes the risk and is responsible for reimbursing the seller for the actual costs incurred. This eliminates the need for the seller to include a contingency amount, resulting in lower overall costs for the buyer.

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4.

Which of the following is NOT a tool for contract evaluation?
- A.
  
  Screening System
- B.
  
  Cost Control
- C.
  
  Weighting System
- D.
  
  Independent Estimates
Correct Answer
B. Cost Control

Explanation
Cost control is not a tool for contract evaluation because it focuses on managing and reducing costs during the execution of a project or contract, rather than evaluating the effectiveness or compliance of the contract itself. Contract evaluation tools typically involve assessing factors such as performance, quality, risk, and compliance to ensure that the contract's objectives are being met.

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5.

Project Procurement Management includes the processes necessary to purchase or acquire products, services, or results needed from outside the project team. True or false?
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Project Procurement Management involves the processes required to obtain goods, services, or outcomes from external sources, rather than relying solely on the project team. This includes activities such as identifying the necessary products or services, selecting suppliers, negotiating contracts, and managing the procurement process. Therefore, the statement "Project Procurement Management includes the processes necessary to purchase or acquire products, services, or results needed from outside the project team" is true.

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6.

Control Procurements is the process of completing each procurement. The key benefit of this process is that it documents agreements and related documentation for future reference. True or false?
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
The correct answer is False. Control Procurements is not the process of completing each procurement, but rather the process of managing procurement relationships, monitoring contract performance, and making necessary changes to ensure that the objectives of the procurement are met. While documentation is an important part of this process, it is not the key benefit.

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7.

Procurement ________ are a tool used in Closing Procurements.

Correct Answer
audits

Explanation
Audits are a tool used in Closing Procurements. During the closing phase of a procurement, audits are conducted to review the procurement process and ensure that all contractual obligations have been met. Audits help identify any discrepancies or non-compliance issues, providing an opportunity to rectify them before finalizing the procurement. This helps ensure that the procurement process has been executed effectively and in accordance with the established procedures and regulations. By conducting audits, organizations can verify the quality and completeness of the procurement deliverables, minimizing risks and ensuring successful closure of the procurement.

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Take A Practice Test On Procurement Management! Quiz

Contracts should be formal and ________ binding. It is best to get the contract in writing.

FFP is a fixed price contract. True or false?

What is an advantage of cost reimbursable contracts?

Which of the following is NOT a tool for contract evaluation?

Project Procurement Management includes the processes necessary to purchase or acquire products, services, or results needed from outside the project team. True or false?

Control Procurements is the process of completing each procurement. The key benefit of this process is that it documents agreements and related documentation for future reference. True or false?

Procurement ________ are a tool used in Closing Procurements.