Certified Professional Public Buyer (CPPB) Practice Test

What structure does a term contract typically follow in relation to price volatility?

1. Structured based on fixed pricing

2. Structured on a schedule

3. Structured on a pay-as-you-go basis

4. Structured with no specific schedule

The correct answer is: Structured on a schedule

A term contract is designed to provide stability and predictability, especially in contexts where price volatility may affect the procurement process. Typically, such contracts are established based on a predetermined schedule for the delivery of goods or services over a specified time frame. This structure enables both the buyer and seller to manage expectations regarding pricing and availability. When dealing with items that could fluctuate in price due to market conditions, having a structured schedule in a term contract allows for agreed-upon prices to be maintained throughout the term, mitigating the impact of potential price swings for the duration of the agreement. This aspect is crucial for effective budgeting and financial planning in public procurement. In contrast, fixed pricing usually locks in a price for the duration of a contract, which can be beneficial, but it doesn't inherently address the timing and delivery associated with term contracts. Pay-as-you-go structures might integrate price fluctuations based on usage or need, leading to uncertainty for both parties. Finally, a contract with no specific schedule would likely lack the essential delivery framework that term contracts are meant to provide, making it less effective for managing procurement over time.