PMP Terminologies

PMP Terminologies
Here are a few terms related to the Procurement Knowledge
area.
Administrative closure vs Contract
closure


The Closure process group is having only 2 processes




Out of 42 processes. One comes under the Integration
management knowledge area and the other one in the Procurement management
knowledge area. Under the Integration, it is Close Phase or Project and under
Procurement, it is Close Procurement.
Before the Project closure the lessons learnt are to be documented and
should go to the repository or the knowledge Management system. So the
closure takes in the following order.
1 Contract/Procurement closure
2 Administrative Closure(close project or phase)
The contract closure can happen multiple times (once for
each contract) where as the administrative closure happens only once per
phase or for the complete project.
































































Different types of Contracts:

Under the Procurement as we know there are 3 different
types of contracts, Fixed, Cost Reimbursable and Time & Material. Which one
has to be used when?
From the Buyer perspective if the scope of work is clear,
go for the Fixed Price (FP). If the scope is not clear then go for Cost Reimbursable
(CR) and if the project is of short duration or to be started immediately then
go for Time and Material (T& M). In
case of FP, the seller is having more risk in terms of over running the cost
where as in case of CR, the Buyer will have more risk compare to the seller. FP
and CR can be awarded with different flavours based on the situations or
understanding with the seller. Here are a few:
Fixed Price
Incentive Fee (FPIF): This type of contract is used to motivate the seller
in terms of getting the things done faster. For example, the FP is $10,000 and
for every month early the project is finished, an additional $100 is paid to
the seller.
Fixed Price Award Fee
(FPAF): Contract cost or the FP is $10,000 and for every month performance
exceeds the planned level by more than 15%, an additional $50 is awarded to the
seller, with maximum award of $700
Fixed Price Economic
Price Adjustment (FPEPA): In case of long term projects, say 10 years,
which are under contract, in case of fixed price the seller may not be able to
survive with inflation or rise in the material cost or fluctuation in the oil
prices due to economy. In this case Buyer will go for the economic price
adjustment type. For example the FP is $10,000, but a price increase will be
allowed based on the economy or inflation in the material cost
Purchase Order:
This is used for simple purchase of commodity available in the market. For
example, contract to purchase 100 metres of iron at the rate of $100 per metre.
Cost plus Fee (CPF)
or Cost plus percentage of Costs (CPPC): Here buyer has to all cost plus
percentage of fee. Contract=Cost plus 10% of cost as Fee.
Cost plus Fixed Fee
(CPFF): The seller receives the actual cost plus a negotiated fee that is
fixed before the start the work. For example: Contract=Cost plus a fee of $1000.
Cost Plus incentive Fee
(CPIF): The Buyer pays the actual cost plus the fee that will be adjusted
based on whether the specific objectives mentioned in the contract are met.
Cost plus Award Fee
(CPAF): The buyer pays the actual cost plus an award amount or bonus
depending on the performance. For example, Contract=Cost plus $50 for every
month production exceeds 100 units or if it is delivered 5 days earlier.
Time and Material
(T&M): In this type of contract, the buyer pays based on per hour or
per item basis. For example, Contract=$100 per hour plus the material cost or
Contract= $100 per hour and $10 per metre of iron rod.