TOPIC: Free PMP® Exam Sample Question of the Week

During execution of your project, a major dispute arises between your company and one of its vendors following your latest review of the vendor's performance reports. Your company's position is that the vendor has failed to meet certain performance obligations under the contract terms. The vendor feels that your company is behind in making payments. What is the best course of action for you to take in this situation?

A. Refer this issue to a third party for mediation or arbitration
B. File a contract claim and then work directly with the vendor to resolve the issue
C. Terminate the contract early, document lessons learned, and find another vendor who can do the work
D. Conduct a procurement audit

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HINT: What is the tool used during Control Procurements to document, process, monitor, and manage disputes between a buyer and seller?

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Answer and Explanation:
The correct answer is B.

When disputes arise on a project, claims administration can be an effective tool to help buyers and sellers reach an agreement and prevent damage caused by litigation and early contract termination. Filing a contract claim and working with the vendor to reach an agreement is a more direct problem-solving approach and therefore the 'best' answer choice. Claims administration also refers to using alternative dispute resolution. However, since mediation and arbitration can be costly, risky, and time-consuming processes, of the choices provided, negotiation is the preferred method of settling disputes and is, therefore, the best course of action for you to take in this situation.

A. Refer this issue to a third party for mediation or arbitration
Incorrect. Claims administration is used during the Control Procurements process to handle claims, disputes, or appeals between a buyer and a seller. Alternative dispute resolution, which involves mediation and arbitration, can be costly and time-consuming to a project and should only be used if the parties cannot first resolve a claim on their own.

B. File a contract claim and then work directly with the vendor to resolve the issue
Correct. When disputes arise on a project, the disputing party should first seek to negotiate or work directly with the other party to settle the dispute and document the issue by having one or both parties file a claim. This claim should be processed, monitored, and managed throughout the contract lifecycle.

C. Terminate the contract early, document lessons learned, and find another vendor who can do the work
Incorrect. Early termination of the contract would be an overreaction at this point since the company has yet to try resolving the dispute using claims administration. Since the early termination of the contract could create delays to the project schedule or added cost, this would not be the 'best' answer choice.

D. Conduct a procurement audit
Incorrect. From the question, you can determine that the project is in the process of Control Procurements, as your company is still administering the contract and monitoring the vendor's contract performance. Procurement audits, however, are a primary tool of the Close Procurements process and are mainly used to capture lessons learned from the procurement process to help inform future projects.

Reference: A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Page(s) 498

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