Project Management Professional (PMP) Practice Exam

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Study for the Project Management Professional (PMP) exam. Study with flashcards and multiple choice questions. With over 500 questions. Practice the PMP practice multiple choice questions. Updated for 2023-2025. Get ready for your exam!

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An organization is considering various contract types in order to motivate sellers and to ensure preferential treatment. What should they consider before deciding to use an award fee contract?

Payment of an award fee would be linked to the achievement of objective performance criteria.
Any unresolved dispute over the payment of an award fee would be subject to remedy in court.
Payment of an award fee would be agreed upon by both the customer and the contractor.
Payment of an award fee is decided upon by the customer based on the degree of satisfaction.

The correct answer is: Payment of an award fee is decided upon by the customer based on the degree of satisfaction.

Before deciding to use an award fee contract, the organization should consider that payment of the award fee is solely based on the customers' satisfaction, rather than objective performance criteria or agreement between both parties. This can potentially lead to favoritism and bias towards the contractor, as their payment is not tied to measurable achievements. Additionally, if there is a dispute over the payment of the award fee, it would have to be resolved through the customer rather than through court, which could further delay and complicate the process.