Practice Quiz

PMI PMP Project Manager Certification

Category - Procurement Management

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Company T is seeking services with a vendor that will upgrade the look of its Performance Statements for its few remaining high net worth clientele. The vendor is proposing a stylized statement design along with the following contract terms - Company T will reimburse the vendor for some new software, plus a $25,000 fee regardless of how long the project takes. What type of contract is this?
  1. Cost plus award
  2. Cost plus fixed fee
  3. Cost plus incentive fee
  4. Time and material
  5. Fixed price with economic price adjustment
Explanation
Answer: b - This type of contract is a cost plus fixed fee contract.

Cost plus fee would reimburse the vendor plus pay them an additional percentage of all costs.

Cost plus incentive provides reimbursement for cost, an additional fixed fee, AND a bonus for fine performance. Time and material is typically priced on a per hour or per unit basis.

Key Take Away: Project managers should never be surprised by items that are in the contract that they themselves have negotiated. Working with their legal department, they should familiarize themselves with every aspect of their contract ESPECIALLY the pricing terms. Different contexts will cause for different types of contracts.
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