CAPM Chapter 12

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alternative dispute resolution

An issue or claim must be settled before the contract can be closed; parties will try to reach a settlement through mediation or arbitration.


document the seller provides to the buyer. Price is usually the determining factor in the decision making process.


Formal agreement between buyer and seller. Can be oral or written, though written is preferred.

contract statement of work (SOW)

Document that requires that the seller fully describe the work to be completed. The SOW becomes part of the contract between buyer and seller.

cost plus award fee contract

Pays the vendor all costs for the project, but also includes a buyer-determined award fee for project work.

cost plus fixed fee contract

Requires the buyer to pay for the cost of the goods and services procured, plus a fixed fee for the work. The buyer assumes the risk of a cost overrun.

cost plus incentive fee

Requires the buyer to pay a cost for the procured work, plus a bonus for the work if the terms and conditions are met.

cost plus percentage of costs

Requires the buyer to pay for the cost of goods and services procured, plus a % of the costs. Buyer assumes all of the risks for costs overruns.

direct costs

Costs incurred for the project to exist, such as equipment needed, salaries of project team, and other expenses.

fixed price contract

Also known as firm fixed price and lump sum contracts; defines total price for the project.

fixed price incentive fee

Fixed-price contract with bonuses for meeting goals on costs, schedule, and other objectives. Usually has a price ceiling for costs and bonuses.

fixed price with economic price adjustments

Fixed price contract with special allowances for price increases based upon economic reasons such as inflation or cost of raw materials.

force majeure

An "act of God" that may have a negative impact on the project, such as fire, hurricane, earthquake, etc.

invitation for bid (IFB)

From buyer to seller, requesting the seller to provide a price for the procurement.

letter contract

Stopgap contract that allows the vendor to begin working on the project immediately.

letter of intent

Not a contract, but a letter stating that the buyer intends to create a contractual relationship with the vendor.


Confidential and secure nature of the contractual relationship between the buyer and seller.


Document seller provides to buyer with fee amount and indicators of vendor's skills, reputation, and proposed completion of project work.

purchase order

Form of unilateral contract the buyer provides to the vendor indicating that the purchase has been approved by the buyer's organization.

seller rating system

Used to rate prior experience with each vendor worked with in the past.

terms of reference (TOR)

Defines obligations for the seller, what the seller will provide, and all other particulars of the work. Similar to SOW.

time and materials contract

Simple contract where the buyer pays for the time and materials for the seller's procured work. Contracts should include a "not to exceed" clause to protect the buyer.