AACE CCT PRIMER COMPREHENSIVE EXAM UPDATED
QUESTIONS AND ANSWERS GRADED A+
✔✔Liquidated Damages - ✔✔An amount of money stated in the contract as being the
liability of a contractor for failure to complete the work by the designated time(s).
Liquidated damages ordinarily stop at the point of substantial completion of the project
or beneficial occupancy by the owner. Also can apply to contract defined output
performance
✔✔Escalation - ✔✔The provision in actual or estimated costs for an increase in the cost
of
equipment, material, labor, etc., over that specified in the purchase order or contract
due to continuing price level changes over time. Inflation may be a component of
escalation, but non-monetary policy influences, such as supplyand-demanded, are often
components
✔✔Inflation - ✔✔Inflation is a rise in the price level of a good or service or market
basket of
goods and/or services. Inflation does not occur by itself but must have a driving force
behind it.
✔✔Driving forces of Inflation - ✔✔1) Money Supply - is influenced by the central bank of
a country.
2) Exchange Rate - can impact inflation by influencing the price of
imported goods and services.
3) Demand-Pull Inflation -is when excessive quantities of money
are chasing a limited amount of goods and services resulting in
what is essentially a "seller's market" as sellers receive premium
prices.
4) Cost-Push Inflation - takes place when product producers
encounter higher costs and then push these costs along to others
in the production chain through higher prices. These higher costs
may be for labor, material, or any other item with a significant
cost element [S&K 5th Ed., 7.2].
✔✔Contingency - ✔✔An amount added to an estimate to allow for items, conditions, or
events for which the state, occurrence, or effect is uncertain and that experience shows
will likely result, in aggregate, in adding costs. Typically estimated using statistical
analysis or judgment based on past asset or project experience. Contingency usually
excludes:
1) Major scope changes such as changes in end product specification, capacities,
building sizes, and location of the asset or project;
2) Extraordinary events such as major strikes and natural disasters;
3) Management reserves; and
4) Escalation and currency effects.
,✔✔Allowance - ✔✔Resources included in estimates to cover the cost of known but
undefined
requirements for an individual activity, work item, account or sub-account. Allowances
are often included in the estimate as a percentage of some detailed cost component.
Some typical examples of allowances that may be included in a detailed construction
estimate are:
Design allowance for engineering equipment
Material take-off allowance
Overbuy allowance
Unrecoverable shipping damage allowance
Allowance for undefined major items
✔✔Reserve - ✔✔An amount added to an estimate to allow for discretionary
management purposes outside of the defined scope of the project, as otherwise
estimated. Use of management reserve requires a change to the project scope and the
cost baseline, while the use of contingency reserve funds is within the project's
approved budget and schedule baseline
✔✔Price - ✔✔The amount of money asked or given for a product (e.g., exchange
value). The chief function of price is rationing the existing supply among prospective
buyers [RP10S-90].
✔✔Price Strategy Type 1 - ✔✔The objective is to win the project and execute it
profitably and satisfactorily according to contractual agreements
✔✔Price Strategy Type 2 - ✔✔example of a "must win" situation where the price is
determined by the
market forces. This case refers to a company that is trying to get a foothold into and
industry. In such cases the profit may not be as important as obtaining the new
business acquisition [S&K 5th Ed., 2.2].
✔✔Pricing - ✔✔Method adopted by a firm to set its selling price. It usually depends on
the
firm's average costs, and on the customer's perceived value of the product in
comparison to his or her perceived value of the competing products. Different pricing
methods place varying degree of emphasis on selection, estimation, and valuation of
costs, comparative analysis, and market situation
✔✔Pricing Strategy - ✔✔Price planning that takes into view factors such as a firm's
overall
marketing objectives, consumer demand, product attributes, competitor's pricing, and
market and economic trends
✔✔Market Pricing - ✔✔Worth of a job based on the current (going) compensation rate
for
, comparable benchmark jobs in the labor market
✔✔Market Penetration Pricing - ✔✔Strategy adopted for quick achieving a high volume
of sales and deep market-penetration of a new product. Under this approach, a product
is widely promoted and its introductory-price is kept comparatively lower.
This strategy is based on the assumption that (1) the product does not have an
identifiable price-market segment, (2) it has elasticity of demand (buyers are price
sensitive), (3) the market is large enough to sustain relatively low profit margins, and (4)
the competitors too will soon lower their prices
✔✔Demand-Oriented Pricing - ✔✔Method in which price of a product is changed
according to its demand higher price when the demand is strong, lower price when it is
weak
✔✔Predatory Pricing - ✔✔Practice of temporarily selling below survival prices or giving
goods away to undermine or eliminate the existing competition. Predatory pricing is an
abuse of dominant position, and is illegal in several countries
✔✔At Cost Pricing - ✔✔In slow construction cycles, contractors often price jobs at or
just
below cost to keep their workforce employed and active in the market. However,
contracts awarded in this case often suffer from extensive change order requests to
make the project profitable.
✔✔Cost Estimate - ✔✔cost estimate is defined as "a compilation of all the costs of the
elements of a project or effort included within an agreed upon scope." To a contractor,
this is the cost that will most likely be incurred in completing the project as defined in the
contract documents. The contractor's cost includes its own internal costs, as well as
those of its subcontractors, suppliers, and third parties [S&K 4th Ed., 1-1].
✔✔Basic Steps of Estimating - ✔✔Take Off, Costing, Pricing
✔✔Take-Off - ✔✔Measuring and cataloging the quantities of work derived from the
scope
documents [S&K 4th Ed., 1-1].
✔✔Costing (estimating) - ✔✔Using the take-off and the information presented in the
scope documents to assign cost values to the elements of work previously cataloged
[S&K 4th Ed., 1-1].
✔✔Pricing (estimating) - ✔✔Determining the amount to be charged to the owner/client
so as to fully
include direct and indirect cost items, as well as contingency and profit [S&K 4th Ed., 1-
1].
QUESTIONS AND ANSWERS GRADED A+
✔✔Liquidated Damages - ✔✔An amount of money stated in the contract as being the
liability of a contractor for failure to complete the work by the designated time(s).
Liquidated damages ordinarily stop at the point of substantial completion of the project
or beneficial occupancy by the owner. Also can apply to contract defined output
performance
✔✔Escalation - ✔✔The provision in actual or estimated costs for an increase in the cost
of
equipment, material, labor, etc., over that specified in the purchase order or contract
due to continuing price level changes over time. Inflation may be a component of
escalation, but non-monetary policy influences, such as supplyand-demanded, are often
components
✔✔Inflation - ✔✔Inflation is a rise in the price level of a good or service or market
basket of
goods and/or services. Inflation does not occur by itself but must have a driving force
behind it.
✔✔Driving forces of Inflation - ✔✔1) Money Supply - is influenced by the central bank of
a country.
2) Exchange Rate - can impact inflation by influencing the price of
imported goods and services.
3) Demand-Pull Inflation -is when excessive quantities of money
are chasing a limited amount of goods and services resulting in
what is essentially a "seller's market" as sellers receive premium
prices.
4) Cost-Push Inflation - takes place when product producers
encounter higher costs and then push these costs along to others
in the production chain through higher prices. These higher costs
may be for labor, material, or any other item with a significant
cost element [S&K 5th Ed., 7.2].
✔✔Contingency - ✔✔An amount added to an estimate to allow for items, conditions, or
events for which the state, occurrence, or effect is uncertain and that experience shows
will likely result, in aggregate, in adding costs. Typically estimated using statistical
analysis or judgment based on past asset or project experience. Contingency usually
excludes:
1) Major scope changes such as changes in end product specification, capacities,
building sizes, and location of the asset or project;
2) Extraordinary events such as major strikes and natural disasters;
3) Management reserves; and
4) Escalation and currency effects.
,✔✔Allowance - ✔✔Resources included in estimates to cover the cost of known but
undefined
requirements for an individual activity, work item, account or sub-account. Allowances
are often included in the estimate as a percentage of some detailed cost component.
Some typical examples of allowances that may be included in a detailed construction
estimate are:
Design allowance for engineering equipment
Material take-off allowance
Overbuy allowance
Unrecoverable shipping damage allowance
Allowance for undefined major items
✔✔Reserve - ✔✔An amount added to an estimate to allow for discretionary
management purposes outside of the defined scope of the project, as otherwise
estimated. Use of management reserve requires a change to the project scope and the
cost baseline, while the use of contingency reserve funds is within the project's
approved budget and schedule baseline
✔✔Price - ✔✔The amount of money asked or given for a product (e.g., exchange
value). The chief function of price is rationing the existing supply among prospective
buyers [RP10S-90].
✔✔Price Strategy Type 1 - ✔✔The objective is to win the project and execute it
profitably and satisfactorily according to contractual agreements
✔✔Price Strategy Type 2 - ✔✔example of a "must win" situation where the price is
determined by the
market forces. This case refers to a company that is trying to get a foothold into and
industry. In such cases the profit may not be as important as obtaining the new
business acquisition [S&K 5th Ed., 2.2].
✔✔Pricing - ✔✔Method adopted by a firm to set its selling price. It usually depends on
the
firm's average costs, and on the customer's perceived value of the product in
comparison to his or her perceived value of the competing products. Different pricing
methods place varying degree of emphasis on selection, estimation, and valuation of
costs, comparative analysis, and market situation
✔✔Pricing Strategy - ✔✔Price planning that takes into view factors such as a firm's
overall
marketing objectives, consumer demand, product attributes, competitor's pricing, and
market and economic trends
✔✔Market Pricing - ✔✔Worth of a job based on the current (going) compensation rate
for
, comparable benchmark jobs in the labor market
✔✔Market Penetration Pricing - ✔✔Strategy adopted for quick achieving a high volume
of sales and deep market-penetration of a new product. Under this approach, a product
is widely promoted and its introductory-price is kept comparatively lower.
This strategy is based on the assumption that (1) the product does not have an
identifiable price-market segment, (2) it has elasticity of demand (buyers are price
sensitive), (3) the market is large enough to sustain relatively low profit margins, and (4)
the competitors too will soon lower their prices
✔✔Demand-Oriented Pricing - ✔✔Method in which price of a product is changed
according to its demand higher price when the demand is strong, lower price when it is
weak
✔✔Predatory Pricing - ✔✔Practice of temporarily selling below survival prices or giving
goods away to undermine or eliminate the existing competition. Predatory pricing is an
abuse of dominant position, and is illegal in several countries
✔✔At Cost Pricing - ✔✔In slow construction cycles, contractors often price jobs at or
just
below cost to keep their workforce employed and active in the market. However,
contracts awarded in this case often suffer from extensive change order requests to
make the project profitable.
✔✔Cost Estimate - ✔✔cost estimate is defined as "a compilation of all the costs of the
elements of a project or effort included within an agreed upon scope." To a contractor,
this is the cost that will most likely be incurred in completing the project as defined in the
contract documents. The contractor's cost includes its own internal costs, as well as
those of its subcontractors, suppliers, and third parties [S&K 4th Ed., 1-1].
✔✔Basic Steps of Estimating - ✔✔Take Off, Costing, Pricing
✔✔Take-Off - ✔✔Measuring and cataloging the quantities of work derived from the
scope
documents [S&K 4th Ed., 1-1].
✔✔Costing (estimating) - ✔✔Using the take-off and the information presented in the
scope documents to assign cost values to the elements of work previously cataloged
[S&K 4th Ed., 1-1].
✔✔Pricing (estimating) - ✔✔Determining the amount to be charged to the owner/client
so as to fully
include direct and indirect cost items, as well as contingency and profit [S&K 4th Ed., 1-
1].
