Question

You are managing a government defense project operating under a Cost Plus Fixed Fee (CPFF) contract with a target cost of $8 million and a fixed fee of $800,000. At the 60% completion point, you discover that a subcontractor has been misclassifying certain labor costs as direct project costs when they should have been indirect overhead costs. The misclassification has inflated your actual costs by $400,000. The client's auditor has identified this issue and is demanding corrective action. The contract includes a clause limiting reimbursable costs to 115% of target cost. What is your most appropriate immediate action as project manager?

Accepted Answer

Work with the finance team to reclassify the $400,000 as indirect costs, recalculate the project's true cost performance, and prepare a revised cost forecast for the client

Answer

Implement immediate corrective actions to reduce future spending by $400,000 to stay within the contractual cost ceiling of $9.2 million

Answer

Negotiate a contract modification with the client to increase the target cost by $400,000, citing the discovery as a valid basis for change

Answer

File a claim against the subcontractor for the $400,000 misclassification and proceed with the project while the claim is being resolved

PMP Practice Question: Process — Predictive, Hard

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