#12 Project Procurement Management
Project
Procurement Management includes the processes necessary to purchase or acquire
products, services, or results needed from outside the project team. The
organization can be either the buyer or seller of the products, services, or
results of a project. Project Procurement Management includes the contract
management and change control processes required to develop and administer
contracts or purchase orders issued by authorized project team members. Project
Procurement Management also includes controlling any contract issued by an
outside organization (the buyer) that is acquiring deliverables from the project
from the performing organization (the seller), and administering contractual
obligations placed on the project team by the contract.
Procurement
Management Processes
The knowledge area of Project Procurement
Management consists of the following processes -
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Process
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Project Phase
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Key Deliverables
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Plan Procurement
Management
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Planning
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Procurement Management Plan
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Conduct
Procurements
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Execution
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Selected Sellers, Procurement contract
award
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Control
Procurements
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Monitoring and Controlling
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Change requests
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Close
Procurements
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Closure
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Closed procurements
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Plan Procurement
Management process
Plan
Procurement Management is the process of documenting project procurement
decisions, specifying the approach, and identifying potential sellers. The key
benefit of this process is that it determines whether to acquire outside
support, and if so, what to acquire, how to acquire it, how much is needed, and
when to acquire it. The inputs, tools and techniques, and outputs of this
process are
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Inputs
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Tools and Techniques
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Outputs
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Project
management plan
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Make-or-buy analysis
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Procurement management plan
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Requirements
documentation
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Expert judgment
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Procurement Statements Of Work (SOW)
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Risk register
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Market research
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Procurement documents
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Activity resource
requirements
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Meetings
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Source selection criteria
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Project schedule
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Made-or-buy decision
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Activity cost
estimates
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Change
requests
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Stakeholder
register
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Project document update
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Enterprise
environmental factors
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Organizational
process assets
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What is contract?
A contract is a formal agreement. It is a
legal document biding to both seller and buyer. Changes to contract must be in
writing and formally controlled, anything is not mentioned in the contract is
not binding to anyone. Most Governments back all contracts by providing a court
system.
All legal
contractual relationships generally fall into one of two broad families: either
fixed-price or cost reimbursable. Also, there is a third hybrid type commonly
in use called the time and materials contract.
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Fixed-price contracts. This category of contracts
involves setting a fixed total price for a defined product, service, or result
to be provided.
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Firm Fixed Price Contracts (FFP). The most commonly used
contract type is the FFP. It is favored by most buying organizations because
the price for goods is set at the outset and not subject to change unless the
scope of work changes. Any cost increase due to adverse performance is the
responsibility of the seller, who is obligated to complete the effort.
o
Fixed Price Incentive Fee Contracts (FPIF). This
fixed-price arrangement gives the buyer and seller some flexibility in that it
allows for deviation from performance, with financial incentives tied to
achieving agreed upon metrics. Under FPIF contracts, a price ceiling is set,
and all costs above the price ceiling are the responsibility of the seller, who
is obligated to complete the work.
o
Fixed Price with Economic Price Adjustment Contracts
(FP-EPA). This contract type is used whenever the seller’s performance period spans
a considerable period of years, as is desired with many long-term
relationships.
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Cost-reimbursable contracts. This category of contract
involves payments (cost reimbursements) to the seller for all legitimate actual
costs incurred for completed work, plus a fee representing seller profit.
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Cost Plus Fixed Fee Contracts (CPFF). The seller is
reimbursed for all allowable costs for performing the contract work, and
receives a fixed-fee payment calculated as a percentage of the initial
estimated project costs.
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Cost Plus Incentive Fee Contracts (CPIF). The seller is
reimbursed for all allowable costs for performing the contract work and
receives a predetermined incentive fee based upon achieving certain performance
objectives as set forth in the contract.
o
Cost Plus Award Fee Contracts (CPAF). The seller is
reimbursed for all legitimate costs, but the majority of the fee is earned only
based on the satisfaction of certain broad subjective performance criteria
defined and incorporated into the contract.
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Time and Material Contracts (T&M). Time and material
contracts are a hybrid type of contractual arrangement that contain aspects of
both cost-reimbursable and fixed-price contracts.
The
statement of work (SOW)
for each procurement is developed from the project scope baseline and defines
only that portion of the project scope that is to be included within the
related contract. The procurement SOW describes the procurement item in
sufficient detail to allow prospective sellers to determine if they are capable
of providing the products, services, or results.
Procurement
Documents are used
to solicit proposals from prospective sellers. Common terms are in use for
different types of procurement documents and may include request for
information (RFI), invitation for bid (IFB), request for proposal (RFP),
request for quotation (RFQ), tender notice, invitation for negotiation, and
invitation for seller’s initial response. Specific procurement terminology used
may vary by industry and location of the procurement.
Conduct Procurement
Process
Conduct
Procurements is the process of obtaining seller responses, selecting a seller,
and awarding a contract. The key benefit of this process is that it provides
alignment of internal and external stakeholder expectations through established
agreements. The inputs, tools and techniques, and outputs of this process are
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Inputs
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Tools and Techniques
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Outputs
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Project
Management Plan
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Bidder conferences
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Selected sellers
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Procurement
documents
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Proposal evaluation techniques
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Agreements
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Source Selection
criteria
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Independent estimates
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Resource calendars
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Seller proposals
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Expert judgment
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Change requests
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Project documents
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Advertising
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Project management plan updates
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Make-or-buy
decisions
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Analytical techniques
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Project document updates
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Procurement SOW
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Procurement negotiations
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Organizational
process assets
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Bidder
conferences
(sometimes called contractor conferences, vendor conferences, and pre-bid
conferences) are meetings between the buyer and all prospective sellers prior
to submittal of a bid or proposal. They are used to ensure that all prospective
sellers have a clear and common understanding of the procurement requirements),
and that no bidders receive preferential treatment. The major components in a
contract document:
Agreements A procurement agreement includes
terms and conditions, and may incorporate other items that the buyer specifies
regarding what the seller is to perform or provide. Regardless of the
document’s complexity, a contract is a mutually binding legal agreement that
obligates the seller to provide the specified products, services, or results,
and obligates the buyer to compensate the seller. The major components in an
agreement document will vary, but may include the following: Statement of work
or deliverables, Schedule baseline, Performance reporting, Period of performance,
Roles and responsibilities, Seller’s place of performance, Pricing, Payment
terms, Place of delivery, Inspection and acceptance criteria, Warranty, Product
support, Limitation of liability, Fees and retainer, Penalties, Incentives, Insurance
and performance bonds, Subordinate subcontractor approvals, Change request
handling, and Termination clause and alternative dispute resolution (ADR)
mechanisms.
Control Procurement
process
Control Procurements
is the process of managing procurement relationships, monitoring contract
performance, and making changes and corrections to contracts as appropriate.
The key benefit of this process is that it ensures that both the seller’s and
buyer’s performance meets procurement requirements according to the terms of
the legal agreement. The inputs, tools and techniques, and outputs of this
process are
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Inputs
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Tools and Techniques
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Outputs
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Project
management plan
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Contract change control system
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Work performance information
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Procurement
documents
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Procurement performance reviews
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Change requests
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Agreements
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Inspection and audits
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Project management plan updates
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Work performance
reports
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Performance reporting
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Organizational process assets updates
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Approved change
requests
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Payment systems
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Work performance data
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Claims administration
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Records management system
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Close Procurement
process
The process of Close Procurement involves
completing each procurement. The process involves verifying that all planned
work as per the contract has been completed and accepted.
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Inputs
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Tools and Techniques
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Outputs
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Project
management plan
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Procurement audits
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Closed procurements
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Procurement
documentation
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Procurement negotiations
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Organizational process updates
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Records management system
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