Key Terms

Bid From seller to buyer. Price is the determining factor in the decision-making process.

Bidder conference A meeting of all the project's potential vendors to clarify the contract statement work and the details of the contracted work.

Claims These are disagreements between the buyer and the seller, usually centering on a change, who did the change, and even if a change has occurred. Claims are also called disputes and appeals, and are monitored and controlled through the project in accordance with the contract terms.

Contract A contract is a formal agreement between the buyer and the seller. Contracts can be oral or written—though written is preferred.

Contract change control system This defines the procedures for how the contract may be changed. The process for changing the contract includes the forms; documented communications; tracking; conditions within the project, business, or marketplace that justify the needed change; dispute resolution procedures; and the procedures for getting the changes approved within the performing organization.

Contract statement of work (SOW) This document requires that the seller fully describe the work to be completed and/or the product to be supplied. The SOW becomes part of the contract between the buyer and the seller.

Cost plus fixed fee contract A contract that requires the buyer to pay for the cost of the goods and services procured plus a fixed fee for the contracted work. The buyer assumes the risk of a cost overrun.

Cost plus incentive fee A contract type that requires the buyer to pay a cost for the procured work, plus an incentive fee, or a bonus, for the work if terms and conditions are met.

Cost plus percentage of costs A contract that requires the buyer to pay for the costs of the goods and services procured plus a percentage of the costs. The buyer assumes all of the risks for cost overruns.

Direct costs These are costs incurred by the project in order for the project to exist. Examples include equipment needed to complete the project work, salaries of the project team, and other expenses tied directly to the project's existence.

Fixed-price contracts Also known as firm fixed-price and lump-sum contracts, these are agreements that define a total price for the product the seller is to provide.

Force majeure An "act of God" that may have a negative impact on the project; consider fire, hurricanes, tornados, and earthquakes.

Independent estimates These estimates are often referred to as "should cost" estimates. They are created by the performing organization or outside experts to predict what the cost of the procured product should be.

Indirect costs These are costs attributed to the cost of doing business. Examples include utilities, office space, and other overhead costs.

Invitation for bid (IFB) From buyer to seller. Requests the seller to provide a price for the procured product or service.

Letter contract A letter contract allows the vendor to begin working on the project immediately. It is often used as a stop-gap solution.

Letter of intent A letter of intent is not a contract, but a letter stating that the buyer is intending to create a contractual relationship with the seller.

Make-or-buy decision A process in which the project management team determines the cost effectiveness, benefits, and feasibility of making a product or buying it from a vendor.

Privity The contractual relationship between the buyer and the seller is often considered confidential and secret.

Procurement management plan A project management subsidiary plan that documents the decisions made in the procurement planning processes.

Procurement planning A process to identify which parts of the project warrant procurement from a vendor by the buyer.

Proposal A document the seller provides to the buyer. The proposal includes more than just a fee for the proposed work; it also includes information on the vendor's skills, the vendor's reputations, and ideas on how the vendor can complete the contracted work for the buyer.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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