#12 PMP - Project Procurement Management

#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 -

Process	Project Phase	Key Deliverables
Plan Procurement Management	Planning	Procurement Management Plan
Conduct Procurements	Execution	Selected Sellers, Procurement contract award
Control Procurements	Monitoring and Controlling	Change requests
Close Procurements	Closure	Closed procurements

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

Inputs	Tools and Techniques	Outputs
Project management plan	Make-or-buy analysis	Procurement management plan
Requirements documentation	Expert judgment	Procurement Statements Of Work (SOW)
Risk register	Market research	Procurement documents
Activity resource requirements	Meetings	Source selection criteria
Project schedule		Made-or-buy decision
Activity cost estimates		Change requests
Stakeholder register		Project document update
Enterprise environmental factors
Organizational process assets

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.

-          Fixed-price contracts. This category of contracts involves setting a fixed total price for a defined product, service, or result to be provided.

o   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.

-          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.

o   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.

o   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.

-          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

Inputs	Tools and Techniques	Outputs
Project Management Plan	Bidder conferences	Selected sellers
Procurement documents	Proposal evaluation techniques	Agreements
Source Selection criteria	Independent estimates	Resource calendars
Seller proposals	Expert judgment	Change requests
Project documents	Advertising	Project management plan updates
Make-or-buy decisions	Analytical techniques	Project document updates
Procurement SOW	Procurement negotiations
Organizational process assets

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

Inputs	Tools and Techniques	Outputs
Project management plan	Contract change control system	Work performance information
Procurement documents	Procurement performance reviews	Change requests
Agreements	Inspection and audits	Project management plan updates
Work performance reports	Performance reporting	Organizational process assets updates
Approved change requests	Payment systems
Work performance data	Claims administration
	Records management system

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.

Inputs	Tools and Techniques	Outputs
Project management plan	Procurement audits	Closed procurements
Procurement documentation	Procurement negotiations	Organizational process updates
	Records management system