Deck 14: Contract Management

Question 1

The longer the term of the purchase agreement, the less likely firm-fixed price contracts will be acceptable to the supplier.

Answer 1

True

Question 2

Agreeing to a short-term contract frequently allows the buyer to have access to more detailed cost and price information from the supplier in exchange for the shorter contract term.

Answer 2

False

Question 3

As the total dollar value/unit cost of the contract decreases, purchasers must spend more effort creating effective pricing mechanisms.

Answer 3

False

Question 4

Long-term contracts can help the buyer to gain exclusive access to proprietary supplier technology, and blocking competitor access to this supplier technology can result in at least a short-term competitive advantage for the buyer.

Question 5

Fixed price contracts are the most complex and difficult for purchasing to manage because there is a need for extensive auditing or additional input from the purchasing side.

Question 6

In the firm fixed price contract, the price stated in the agreement does not change, regardless of fluctuations in general overall economic conditions, industry competition, levels of supply, market prices, or other environmental changes.

Question 7

Once a contract has been negotiated and signed, the real work is over.

Question 8

Cost-sharing contracts are especially important during a period when raw material prices are decreasing.

Question 9

The use of automated online catalogs by major suppliers of MRO items allows users to buy directly from blanket orders and national contracts from their desktops.

Question 10

In many instances, the alternatives to court adjudication are slower than litigation.

Question 11

Once a long-term contract with a supplier has been executed, it is much more difficult (and expensive) to switch suppliers.

Question 12

Perhaps the most important clause of a consulting contract to the consultant is the assurance of payment.

Question 13

Escalation clauses allow increases in the base price but not decreases.

Question 14

To be successful, a good long-term contract needs to only consider the needs of the buyer.

Question 15

Even when there is no contract, most transactions are covered by a "gap filler" known as the Uniform Commercial Code.

Question 16

One of the leading causes for failure of systems contracts is that buyers get locked into price structures that do not adequately reflect changes that have occurred once the agreement is signed.

Question 17

The assignment and contracting clause of a contract stipulates whether the supplier can assign its rights described in the agreement to another party and whether subcontracting is permissible.

Question 18

If suppliers are not forthcoming with labor and material cost data, cost models can be developed to improve the buyer's negotiating position using material/labor ratios available from industry databases.

Question 19

Purchasers cannot rely on an arbitration clause contained in their forms, particularly if the suppliers' forms do not contain such a clause.

Question 20

It is important to ensure that an arbitrator's opinion will not be binding on both parties to the dispute.

Question 21

In construction contracts, penalty clauses are technically called "liquidated damages clauses;" if they are labeled "penalty" clauses, there is a long line of cases that says they are not enforceable.

Question 22

To be most effective, cost-based contracts should include cost productivity improvements in order to drive continuous cost reduction over the life of the contract.

Question 23

A carefully worded and prepared contract is not subject to any form of dispute or disagreement.

Question 24

Firm fixed price contracts are generally applicable when the goods or services procured are expensive, complex, and important to the purchasing party or when there is a high degree of uncertainty regarding labor and material costs.

Question 25

In global commerce, people assume that the terms of one market are acceptable in another and do not recognize cultural or legal landmines.

Question 26

Cost-based contracts are inappropriate for situations in which there is a risk that a large contingency fee might be included.

Question 27

Perhaps the simplest method of resolving a contractual disagreement involves straightforward, face-to-face negotiation between the two parties involved.

Question 28

Generally speaking, the more complex the nature of the contract and the greater the dollar amounts involved, the more likely it is that a future dispute over interpretation of the terms and conditions will occur.

Question 29

Even if the client company does not withhold income taxes, a consultant will normally be viewed as an employee, not as an independent contractor.

Question 30

The least appropriate method of drafting a new contract is to start with a general form (or forms) and samples of past contracts for similar situations.

Question 31

It is typically easy to go back and negotiate what contractual terms actually mean once the contract has been signed and a period of time has passed.

Question 32

Long-term contracts should be written to exclude incentive or cost-sharing arrangements.

Question 33

There is an automatic determination of copyright ownership unless the consultant and the client company execute an agreement specifically assigning the copyright to the client company.

Question 34

Taking a dispute into the jurisprudence system should be an automatic step in resolving the dispute, and not viewed as a last resort in resolving contractual disputes.

Question 35

In a firm fixed price contract, if the supplier increases its contract price in anticipation of rising costs, and the anticipated conditions do not occur, then the purchaser has paid too high a price for the good or service.

Question 36

A major concern with many outsourced system contracts today is that much of this work is going overseas to countries such as India.

Question 37

Perhaps the most compelling reason to consider a short-term contract, from the buyer's perspective, is that such contracts may reduce the level of risk incurred if longer-term contracts are employed.

Question 38

Under a fixed-price contract, increasing factor market prices will place more risk on the purchasing organization whereas decreasing such prices will shift the contract economic risk to the supplying organization.

Question 39

Most commonly used contracts are developed from earlier contracts that are subsequently modified to fit the situation at hand.

Question 40

Technical sections of the contract are typically the least source of misinterpretation of terms and conditions.

Question 41

The _____ clause of a contract specifies the terms for supply and delivery of the product or service.

A)specifications, quality, and health, safety, environment
B)scope of agreement
C)payment
D)confidentiality
E)None of these answers.

Question 42

The _____ the term of the purchase agreement, the _____ firm fixed-price contracts will be acceptable to the supplier.

A)shorter….less likely
B)longer….more likely
C)longer….less likely
D)longer….same likelihood that
E)There is no relationship between contract term and acceptability to the supplier.

Question 43

The _____ clause of a contract stipulates whether either party has the ability to terminate the contract at any time, and how much advance notice must be given.

A)effective date and termination
B)payment
C)third-party rights
D)most favored customer
E)force majeure

Question 44

All of the following are major issues to be considered with respect to e-commerce contract issues except _____.

A)parity between electronic and paper records
B)enforceability of shrinkwrap, clickwrap, and boxtop agreements and licenses
C)attribution procedures
D)digital signatures
E)location of the supplier's facility in relationship to the buyer's location

Question 45

The _____ clause of a contract specifies method of manufacture and quality requirements and may include language specific to terms of quality.

A)liability
B)specifications, quality, and health, safety, environment
C)intellectual property
D)assignment and contracting
E)confidentiality

Question 46

In the _____ contract, if the supplier can demonstrate actual cost savings through production efficiencies, lean production activities, or substitution of materials, the resulting savings from the initial price targets are shared between the supplier and the purchaser at a predetermined rate.

A)time and materials
B)cost plus fixed fee
C)fixed-price with incentives
D)firm fixed price
E)fixed-price with escalation

Question 47

An important factor to consider when hiring an outside consultant to perform contract services for a company is that such a person is the purchasing company's employee, not its agent.

Question 48

In a fixed price contract with escalation, all price changes should be keyed to a third-party price index, preferably to a well-established, widely published index.

Question 49

A buyer should work to determine an acceptable initial price because over the course of a long-term contract, as a price adjustment mechanism (if used) will apply the initial price as the base for future adjustments.

Question 50

In [the] _____, a court refers a lawsuit pending between the parties to a private, neutral party who conducts a "trial" as though it were conducted in a real court.

A)mediation
B)mini trial
C)dispute prevention
D)arbitration
E)rent-a-judge

Question 51

In a firm fixed price contract, if market prices _____ the stated contract price because of outside factors such as competition, changes in technology, or raw material prices, the _____ assumes the risk or financial loss.

A)rise above….purchaser
B)stay the same….seller
C)stay the same….purchaser
D)fall below….purchaser
E)None of these answers.

Question 52

There is an incentive, at least in the short run, for suppliers to be inefficient in cost-based contracts because they are rewarded with higher prices.

Question 53

The ____ clause of a contract defines what is in and out of scope, which might include the geographical limitations, the validity or invalidity of prior contracts, preferential treatment by the supplier, or other elements.

A)force majeure
B)supply and delivery
C)scope of agreement
D)liability
E)key performance indicators and compensation

Question 54

A/An _____ clause assumes the contract will be renewed every year unless the supplier is otherwise notified that this is not the case.

A)evergreen
B)due diligence
C)penalty
D)escape
E)None of these answers.

Question 55

[A/An] _____ is an intervention between conflicting parties to promote reconciliation, settlement, or compromise.

A)mediation
B)arbitration
C)litigation
D)mini trial
E)rent-a-judge

Question 56

_____ refers to the volatility of pricing conditions for major elements of the product, such as raw materials, purchased components, and labor.

A)Supplier's ability to impact costs
B)Component market uncertainty
C)Process or technology uncertainty
D)Total dollar value of the purchase
E)None of these answers.

Question 57

In a firm fixed price contract, if market prices for a purchased good or service _____ the stated contract price, the _____ bears the brunt of the financial loss.

A)rise above….purchaser
B)rise above….seller
C)fall below….seller
D)stay the same….seller
E)None of these answers.

Question 58

A _____ contract should be used in cases where the parties cannot accurately predict labor or material costs and quantities to be used prior to the execution of the purchase agreement.

A)fixed-price with escalation
B)firm fixed price
C)cost sharing
D)cost-based
E)fixed-price with redetermination

Question 59

It is always a good idea to double-check all attachments to the contract, because many of the technical details are included there.

Question 60

In a systems outsourcing situation, acceptance test criteria can only be determined after issuing the contract as actual operating conditions cannot be specified until the system is fully operational.

Question 61

All of the following are important factors to consider when negotiating with a supplier over contract type except _____.

A)component market uncertainty
B)degree of trust between buyer and seller
C)process or technology uncertainty
D)supplier's ability to impact costs
E)physical distance between the buyer and supplier facilities

Question 62

A/An _____ is an agreement that typically covers many different items that can be purchased under the same purchase order number, thereby minimizing repetitive paperwork in the purchasing department for relatively low-cost items.

A)annual contract
B)national contract
C)blanket order
D)national buying agreement
E)corporate agreement

Question 63

The _____ contract is generally used in plant and equipment maintenance agreements, where the supplier cannot determine accurate costs prior to the repair service.

A)fixed-price with redetermination
B)firm fixed price
C)cost-sharing
D)time and materials
E)cost plus fixed-fee

Question 64

The _____ clause of a contract outlines the relationship between the Agreement and any other purchase orders issued by the company to the supplier.

A)specifications, quality, and health, safety, environment
B)most favored customer
C)statistics
D)effective date and termination
E)purchase orders

Question 65

The _____ clause of a contract specifies conditions regarding who owns any IP that comes out of the agreement, and who owns what IP going into the agreement.

A)liability
B)confidentiality
C)intellectual property
D)technology improvements
E)assignment and contracting

Question 66

The _____ clause of a contract defines all of the important terms contained within the contract and is important so everyone understands exactly what each term means.

A)supply and delivery
B)specifications, quality, and health, safety, environment
C)scope of agreement
D)force majeure
E)definitions

Question 67

The use of [a/an] _____, or third party, to help settle contractual disputes is the fastest-growing method of conflict resolution among contracting parties, both in the United States and overseas.

A)rent-a-judge
B)litigation
C)mediation
D)minitrial
E)outside arbitrator

Question 68

A/An _____ specifies that the buyer will buy a certain amount of goods and services for the duration of the agreement.

A)pricing agreement
B)evergreen clause
C)national buying agreement
D)national contract
E)blanket order

Question 69

The _____ clause in a contract provides specific details on how the supplier's performance will be measured and if any compensation will be awarded by the supplier to the buyer if these defined levels of performance are not maintained.

A)key performance indicators and compensation
B)liability
C)notices
D)third-party rights
E)assignment and contracting

Question 70

The _____ clause in a contract stipulates that any benefits attributed to a third party (other than the buyer or supplier) identified in the contract must be enforced.

A)governing law
B)severability
C)most favored customer
D)assignment and contracting
E)third-party rights

Question 71

All of the following are reasons for suppliers preferring long-term contracts except _____.

A)the supplier receives better scheduling information, which in turn helps the supplier's production area improve efficiency and materials planning
B)detailed projections of volumes and delivery dates allow the supplier to better budget the flow of funds and investment stemming from the expectation of continued future volume
C)the supplier's organization lowers unit costs because fixed costs are spread out over the term of the contract
D)the supplier can afford to pay its workforce higher wages to increase productivity
E)the supplier can realize lower administrative costs over the term of the contract.

Question 72

A/An _____ is defined as a contract purchase that is routinely made over a relatively limited time horizon, typically one year or less.

A)short-term contract
B)alliance
C)spot contract
D)long-term contract
E)partnership

Question 73

In the _____ approach to a systems supplier's level of service, the outsource service supplier takes on only two or three small functions from the client, using a stepping stone approach.

A)evergreen
B)turnkey
C)shared
D)modular
E)time and materials

Question 74

A/An _____ contract is designed to provide access to expensive computer networks and software that single companies are unable to afford on their own.

A)time and materials
B)systems
C)firm fixed price
D)cost-sharing
E)evergreen

Question 75

A/An _____ is a contract purchase that is made on a continuing basis for a specified or indefinite period of time, typically exceeding one year.

A)one-time buy
B)short-term contract
C)spot contract
D)long-term contract
E)None of these answers.

Question 76

In the _____ approach to a systems supplier's level of service, the service provider and the client company share resources and operational control over the outsourced service.

A)shared
B)commonality
C)evergreen
D)modular
E)turnkey

Question 77

The _____ clause in a contract establishes where bills, invoices, notices, and other documents should be sent, as well as the key contact person at the buying and supplying companies to whom all questions and issues concerning the relationship.

A)severability
B)notices
C)governing law
D)supply and delivery
E)intellectual property

Question 78

The _____ clause of a contract describes the course of events that occur if there are unforeseen calamities such as earthquakes or hurricanes that prevent a supplier from fulfilling its obligations to the buyer.

A)liability
B)force majeure
C)confidentiality
D)third-party rights
E)governing law

Question 79

A/An _____ is new intellectual property (such as tools, methodologies, and knowledge) developed as the result of the interaction between the enterprise and the consulting company.

A)evergreen contract
B)output
C)good
D)service
E)residual

Question 80

The _____ clause of a contract specifies whether the buyer, if he or she becomes aware of any technology or cost improvements of other products in the market, he or she can share this information with the supplier and how the supplier should act on this information.

A)confidentiality
B)intellectual property
C)liability
D)technology improvements
E)governing law