PMB 440 Contract Management Final Examination
Covering all class materials (comprehensive)
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Have all questions on your paper followed by your answers. Take your time and be decisive, to the point, summaries if possible. Treat this as an upper management review report.
READ ALL QUESTIONS AND THE ATTACHMENTS BEFORE ANSWERING THE QUESTIONS.
Bruce Phillips of the Tri-State Power Company (TSPC) recognized that the best way to control the cost of a fixed price contract, as the contract owner (consumer-buyer) is to control the number of changes to the original contractual agreement scope of work. Bruce meets with the Tri-State Engineering Manager to emphasize the need to control the number of changes to the specifications and drawings, included within the Request for Proposal, as also defined within the fixed price contract. In spite of these efforts, it is necessary to modify the drawings for the circulating water system due to comments received from the California State and United States federal licensing agencies. This deign modification is made after the civil construction contract is awarded to the Frank Construction Company (FCC) of El Cajon, California. The Contract Manager, Charles Dubs, from FCC, submits a contract change request for these design modifications in the form of a cost reimbursement contract line item number (CLIN) with an incentive fee based of proposed cost and cost realized. The change request appears inflated to the contract cost and price estimators at TSPC. The incentive is to cost as defined in the change request as such. The additional cost projected, should the cost realized be less than the projection there will be a share of 50% to 50% share unrealized for not used project (budgeted) costs. Should the cost exceed the budget, then the cost overrun will be shared at a rate of 20% and 80%. That means that TSPC share will be 20% contribution to the cost overrun and FCC will absorb 80% of the cost overrun.
Bruce Phillips of TSPC met with his managers of the cost and engineering groups to develop a cost monitoring system for the reimbursable contractual efforts with FCC. This cost monitoring system is used to determine the achievements of the cost plus incentive fees (CPIF) by FCC. Bruce schedules monthly meeting with FCC to evaluate cost performance and determine the achievement of the incentive fees.
Answer the following questions as if you are Bruce Phillips. Each question is worth 5%.
1. How is the control of the cost performance of a supplier or contractor dependent on the control of quality and schedule performance?
2. Why is it important that Tri-State Power Company Engineering department clearly understands the impact of making changes to the technical documentation include in the fixed price contract?
3. Why is it important that TSPC project groups understand the impact of making changes to the management requirements in the fixed price contract?
4. How can Contract Management of TSPC insure no one within TSPC can direct FCC to do anything that is not now written into the overall contract?
5. How will you evaluate the contract change request received from FCC for the construction of the revision to the circulating water system? Which project groups, within TSPC, evaluate the proposal contract change? When does the contract change need to be resolved and when does it become part of the existing contract between TSPC and FCC?
6. Since the design modification of the circulating water system adds a significant amount of civil construction to the project, what are the advantages and disadvantages of having a new contract for the change instead of having FCC perform the work under the initial contract?
7. It unit price provisions for the contract were included in the original contractual documentation with FCC, how would this facilitate the resolution of the design change?
8. Will you have TSPC Engineering group update their estimated cost that was provided by FCC?
9. What are the advantages of the TSPC Engineering group periodically update its estimate for the engineering contract costs?
10.If TSPC does periodically update its estimate of the engineering contract costs, will you use the new estimates or the original FCC estimate as the bases for determining FCC’s achievement of its incentive fee specified in the contract? Explain your answer.
11.What type and frequency of the cost reported will you want from FCC that compare budget to actual cost expenditures by FCC?
12.What type and frequency of cost reports will you want from FCC that compare budgeted toactual equipment cost for such items as the computer systems used by FCC?
13.How will you structure the monthly meeting with FCC to review cost performance and achievement of the incentive fee specified in the contract?
14.What type of review will the accounting group perform on the FCC invoice for overhead expenditures?
15.How will you control changes to the personnel at FCC uses to complete engineering contract work?
16.How will you control overtime expenditures by FCC?
17.How will you control travel expenditures by FCC personnel working on the contract?
18.How will you modify the cost control program for the work performed by FCC if you have extra work performed on a reimbursable basis?
19.What concerns will you have with the accuracy of FCC’s reporting of actual expenditures and work completed for the design modification if it is performed on a cost reimbursable basis?
20.How will you control the cost of the equipment and materials that FCC uses for the extra work?