Very confusing fixed price contract and risk transfer

Submitted by smartcode on Sun, 12/16/2012 - 17:17

In your project, you have been sub-contracting your IT development work to four consultancy firms. Which of the following statements about transferring risk to a contractor is not true?

Choice 1  Risk transference nearly always involves payment of a risk premium.

 Choice 2  Fixed price contract always transfers the risk to the seller.

Choice 3  Cost-plus contracts may transfer the cost risks to the buyer.

 Choice 4  Contracts may be used for the transference of liability for specified risks to another party.

   Correct Choice : 2

 Justification :

 A fixed-price contract may transfer risk to the seller.

Reference: PMBOK® Guide Fourth Edition, Page Number: 303

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suvoraj239's picture

suvoraj239

Mon, 12/17/2012 - 02:00

Correct choice can't be 2 as in fixed price contract, the seller bears all the risks (risk of completing the project on estimated cost etc.). To me it looks like the correct coice should be 1 as paying risk premium for risk tolerence doesn't make sense in this question context. Pls correct me anyone if I am wrong.

sspawar

Mon, 12/17/2012 - 15:16

If you read carefully - p303  , Transfer ---- Option 1, 3 and 4 is copy (ditto) of PMBOK. While option 2 is little modified, -using word "always" , in place of "may be".

smartcode

Tue, 12/18/2012 - 15:12

 Thanks for your note. I agree with you and wonder if the exam will come tricky as this.