Procurement Question from Lehmann

Submitted by vmehta1725 on Mon, 12/09/2013 - 21:31

A prime contractor in a customer project under CPFF contract has run into unexpected technical problems. Fixing them will require a lot of additional work to be done.

The company made a decision to book more staff and equipment from their subcontractors in order to adhere to the agreed timeline. The customer agreed to this decision.

What will most likely happen?

1. The contractor‘s indirect costs will increase and the customer‘s payment for them will increase, too.
2. The contractor‘s indirect costs will increase, but the customer‘s payment for them will not increase.
3. The contractor‘s indirect costs will not increase, but the customer‘s payment for them will.
4. Both the contractor's indirect costs and the customer‘s payment for them will not increase.

The correct answer is 4. I do not understand why the contractor's cost do not increase. Wont booking more staff and equipment lead to increased costs from the company? Is there some trick here with the wording - indirect? Please explain to me clearly so I get the concept right. Thanks in advance

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admin

Tue, 12/10/2013 - 06:22

 Check previous posts

 

http://pmzilla.com/lehmann-question-clarification-pmp

http://pmzilla.com/procurement-question-cpff

http://pmzilla.com/oliverlehmann-test

 

vmehta1725

Tue, 12/10/2013 - 16:39

Thanks admin and all for your helpful feedback. i am still confused on this one given its a CR contract, but deducing that indirect costs are included in the estimates and hence covered. tricky tricky tricky.

slashinv

Tue, 12/10/2013 - 10:20

I went through the clarification for this answer & I will have to disagree with answer 4. After hiring more staff and equipment from their subcontractors, indirect costs can not remain same. Indirect cost has to increase for the Contractor.

Any comments ?