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Procurement Management

What is Project Procurement Management?

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Describes the processes required to acquire goods and services from outside the performing organization.

Discussed from the perspective of the buyer in the buyer-seller relationship

12.3. Request Seller

Responses

12.3. Request Seller

Responses

12.2. PlanContracting12.2. Plan

Contracting

12.4. SelectSellers

12.4. SelectSellers

12.5. Contract Administration12.5. Contract Administration

12.6. Contract Closure

12.6. Contract Closure

12.1.Plan Purchases

& Acquisitions

12.1.Plan Purchases

& Acquisitions

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First ProcessIs P.P

Procurement StepsProcurement Steps

Planning

Process

Group

Executing

Process

Group

Monitoring &

Controlling

Process Group

Closing

Process

Group

Procurement Steps

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12.1. Plan Purchases & AcquisitionsDetermining what to procure and when

12.2. Plan ContractingDocumenting product requirements and

identifying potential sources12.3. Request Seller Responses

Obtaining quotations, bids, offers, or proposals

Procurement Steps, cont.

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12.4. Select SellerChoosing from among potential buyers

12.5. Contract AdministrationManaging the relationship with the seller

12.6. Contract CloseoutCompletion and settlement of the contract,

including resolution of any open issues

12.1. Plan Purchases & Acquisitions

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Input:- enterprise environmental factors- organizational process assets- project scope statement- WBS- WBS dictionary- PM plan

risk registerrisk register

risk-related contractual risk-related contractual agreementsagreements

resource requirementsresource requirements

project scheduleproject schedule

activity cost estimateactivity cost estimate

cost baselinecost baseline

12.1. Plan Purchases & Acquisitions

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Tools/Techniques: Make or Buy Analysis

To determine if production is cost-effective for performing organization

Expert JudgmentContract Type Selection

12.1. Plan Purchases & Acquisitions

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Output: Procurement Management PlanContract Statement of Work

Clear, complete, concise description of procurement item for prospective sellers to determine if they are capable of providing item

Make-or-buy decisionsRequested changes

Contract Types

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Fixed Price or Lumped SumFixed value

Cost ReimbursableAll costs are paid by the buyerEg., Cost + % of Cost is the Profit.

Unit PricePreset amount per unit of service

Time and Material (T&M)Open ended

Procurement and Risk-Management Plan

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Contractual AgreementsFor insurance, services and other items in

order to avoid or mitigate threatsContingency Planning

Defining action steps if identified risk occursAlternative Strategies

Changing planned approach to prevent or avoid risk events

InsuranceAvailable to deal with some categories of risk

12.2. Plan Contracting

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Input:

- Procurement management plan- Make or buy decisions- Contract Statement Of Work- Project management plan

risk registerrisk register

risk-related contractual risk-related contractual agreementsagreements

resource requirementsresource requirements

project scheduleproject schedule

activity cost estimateactivity cost estimate

cost baselinecost baseline

12.2. Plan Contracting

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Tools/Techniques: - Standard Form- Expert Judgement

12.2. Plan Contracting

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Outputs:Procurement DocumentsEvaluation CriteriaContract Statement of Work

12.3. Request Select Responses

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Input: - Organizational process assets- Procurement management plan- Procurement Documents

Tools & Techniques- Bidder conferences- Advertising- Develop qualified sellers list

12.3. Request Select Responses

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Outputs:

- Qualified sellers list- Procurement document pachage- Proposals

Sample RFP

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Proposal Format

The Proposal must consist of the following sections in the order presented:

Section 1 – Executive Summary

Section 2 – Requirements Response

Section 3 – Technical Response

Section 4 – Project Management and Implementation Services

Section 5 – Maintenance and Support Services

Section 6 – Bidder Qualifications

Section 7 – Terms and Conditions

Section 8 – Optional Services and Features

Attachments

12.4. Select Sellers

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Input: ProposalsTools/Techniques:

Contract NegotiationWeighting System

Output: Contract

Contract

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Contract: Legal relationship subject to remedy in the courts

Other namesAgreementSubcontractPurchase orderMemorandum of understanding

Delegation of Procurement AuthorityOnly selected persons are authorized to sign

contracts

Contract Negotiation

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Subjects covered in negotiationResponsibilities and authoritiesApplication terms and lawTechnical and business management

approachContract financingPrice

Five Stages of Contract Negotiation

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ProtocolGet to know each other

ProbingEach party identifies issues of concern

Scratch bargainingBargaining occurs, concessions are made

ClosureTwo positions summed up and final concessions

madeAgreement

Both parties have identical understanding of agreements

Weighting Systems

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1. Assign a numerical weight to each of the evaluation criteria

2. Rate the prospective sellers on each criterion

3. Multiply the weight by the rating4. Total the resultant products to compute

overall score

Other Selection Criteria

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ScreeningSpecific requirementsE.g. Project manager must be PMP certified

Independent estimates“Should-Cost” analysisVerifies buyer and seller understand SOW

12.5. Contract Administration

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Input: ContractTool/Technique: Performance Reporting

Providing information on seller’s effectiveness

Payment systemsPayment to seller as defined in contractNeeds review and approval of project manager

Output: Payment Requests

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Input: Payment RequestTools/Techniques: Completing and

settlement of contract, including resolutions of open items (audits)

Output: Contract FileMemorize: Person/organization

responsible for contract admin should provide seller with formal written notice that contract is complete

12.6. Contract Closure12.6. Contract Closure

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Material BreachIs the most serious form of breach of contract, in which

the non-faulting party is discharged from any further obligations under the contract

Privity of ContractA doctrine of law that recognizes the contractual

relationship between a buyer and its prime contractorContested Changes

Changes for which the buyer and seller cannot agree on compensation. (Claims, disputes)

Contract IncentivesInducement provided by buyers to sellers in an attempt

to bring the objectives of the seller in line with the buyer.

GlossaryGlossary

Sample Question 1

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A project management team has subcontracted work to a service company. The process of ensuring that this service company’s performance meets contractual requirements is called...

a) Contract Administrationb) Staff Acquisitionc) Contract Closeoutd) Contract Negotiation

Sample Question 2

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Which of the following is the output of Source Selection?

a) Proposalsb) Evaluation Criteriac) Contract Negotiationd) Contract

Sample Question 3

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Which of the following are frequently used tools in procurement planning?

A Make or buy analysis, expert judgment, and contract type selection

B Contract type selection, bidders conferences, and expert judgment

C Expert judgment, audits, and bidders conferences

D Make or buy analysis, contract type selection, and weighting system

Sample Question 4

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After procurement planning, the other steps of procurement management, (including solicitation planning) are only performed if a “buy” decision is made.

TrueFalse

Answers to Sample Questions

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1.A2.D3.A4.True

References

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PMBOK