Project Procurement Management
Project Procurement Management Processes necessary to purchase or acquire products, services or results needed from outside the project team.
Procurement Management Processes Process Plan Procurements Process Group Planning Conduct Procurements Executing Control Procurements Monitoring and Controlling Close Procurements Closing
Plan Procurements Plan Procurements is the process of documenting project purchasing decisions, specifying the approach, and identifying potential sellers
Plan Procurements Inputs Tools and Techniques Outputs Project management plan Requirements documentation Teaming agreements Risk Register Project Schedule Activity cost estimates Stakeholder register Enterprise Environmental Factors Organizational Process Assets Make or buy analysis Expert Judgment Market research Meetings Procurement management plan Procurement statements of work Make or buy decisions Procurement documents Source selection criteria Change requests Project document updates
Plan Procurements - Inputs Project Management Plan - describes the need, justification, requirements, and current boundaries for the project. It consists of Scope statement, WBS and WBS dictionary. Requirements documentation include Important information about project requirements that is considered during planning for procurements. Risk Register include risk-related information such as identified risk, risk owners and risk responses Activity resource requirements state the type and quantities of resources needed for project activities Project Schedule provides information on project timelines and milestones Activity cost estimates are used to evaluate the price quoted in the bids or proposals received from potential sellers Stakeholder Register describes the details on the participants and their interest in the project
Plan Procurements - Inputs Enterprise Environmental Factors includes condition of marketplace, what product and service are available in the market, who is the seller and what are his terms and condition Organizational Process Assets includes policies and procedures, standards,guidelines, performance measurement criteria, defect management procedures, change control procedures and historical information. Some organizations may define certain constraint on procurement decisions. This also include the various types of contractual agreements used by the organization, 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. The next slides describes the different contract types in details
Plan Procurements -Tools and Techniques Types of Contract Time & Material T & M Firm Fixed Price - FFP Fixed Price Incentive Fee FPIF Fixed Price with Economic Price Adjustment Contracts FP-EPA The seller is paid for the amount of time it takes to accomplish the work and he is also reimbursed for the materials used for the project The seller is paid a fixed price for an agreed upon unit of work done by him The seller is paid a fixed price plus an incentive amount for achieving pre-agreed project metrics The seller is paid a fixed price. The contract is reviewed at pre-defined intervals in the project for adjustments to the contract price based on certain parameters
Plan Procurements -Tools and Techniques Types of Contract Cost Plus Fixed Fee CPFF Cost Plus Incentive Fee - CPIF Cost Plus Award Fee The contractor is reimbursed its cost plus an additional fixed fee. Not desirable from the buyer s point of view Seller is reimbursed for an agreed upon performance cost along with a preestablished fee plus an incentive bonus. In this case, the buyer and seller share the uncertainty to a certain degree Seller is reimbursed for an agreed upon performance cost plus all legitimate cost
Plan Procurements -Tools and Techniques Make or buy analysis helps project management team to decide whether it is beneficial (in terms of cost and quality) to procure a product or service or it can be produced within the organization. Market Research includes examination of industry and specific vendor capabilities. Procurement teams may leverage information gained at conferences, online reviews and a variety of sources to identify market capabilities. Meetings, by collaborating with potential bidders, the organization purchasing the material or service may benefit while supplier can influence a mutually beneficial approach or product.
Plan Procurements - Outputs Procurement management plan describes how the procurement process will be managed from planning procurement to close procurement. It contains detail on 1. Types of Contracts to be used 2. Risk management issues 3. Whether independent estimates will be used and whether they are needed as evaluation criteria 4. Standardized procurement documents, if needed 5. Process of managing multiple providers (sellers) 6. Coordination with other project aspects 7. Any constraints and assumptions that could affect planned procurements 8. Handling the long lead times to purchase certain items from sellers and coordinating the extra time needed to procure these items with the development of the project schedule 9. Handling make or buy decision and linking them to the Estimate Activity Resources and Develop schedule process.
Plan Procurements - Outputs Procurement statements of work defines the products, services, or result to be procured in details so that the seller can be sure that he can provide appropriate products, services, or results. It is developed from the project scope baseline and defines only that portion of the project scope that needs to be procured and stated in the contract. Procurement documents define the buyer s requirements and facilitate complete and correct response from the prospective sellers in the form of a proposal, which aids in the selection of the seller(s). The most commonly used procurement documents are RFP (Request for Proposal), IFB (Invitation for Bid and RFI (Request for Information
Plan Procurements - Outputs Source selection criteria are the set of guidelines on the basis of which a particular seller is selected from among the proposals received. Some of the source selection criteria are seller s understanding of need, overall- life-cycle cost, technical capability, Risk, past performance of the seller, Financial capacity, Warranty etc Make or - Buy Decisions, A make-or- buy analysis results in a decision of whether particular work can best be accomplished by the project team or needs to be purchased from outside sources. Change requests may be there during this process due to updates in the project plan or its subsidiary plan and other components. These changes are reviewed and approved through the integrated change control process. Project Documents Updates that may be updated include requirement documentation, requirements traceability matrix and risk register.
Exercise 1: Make or Buy Analysis Practicing Key Concepts You ve been contracted by a construction company to manage their contracting. They have a choice of either buying an excavator or renting it. To buy it, the company would have to pay $105,000, but owning it will require approximately $10,000 in maintenance costs per year. The price to rent the excavator is $5000 per month, with a one-time service charge of $2000. What s the minimum number of months the company needs to use the excavator in order for it to make sense to buy it rather than rent? 1. 8 months 2. 16 months 3. 21 months 4. 25 months
Exercise 2: Plan Procurements Which document are we referring below? 1. A type of procurement document used to request proposals from prospective sellers of products or services. 2. A type of procurement document used to request price quotations from prospective sellers of common or standard products or services.
Exercise 2: Plan Procurements Which document are we referring below? 1. A type of procurement document used to request proposals from prospective sellers of products or services. RFP 2. A type of procurement document used to request price quotations from prospective sellers of common or standard products or services. RFQ
Conduct Procurement Conduct Procurements is the process of obtaining seller responses, selecting a seller, and awarding a contract
Conduct Procurement Inputs Tools and Techniques Outputs Project Management Plan Procurement documents Source selection criteria Seller proposals Project documents Make or buy decisions Teaming agreements Organizational Process Assets Bidder conferences Proposal evaluation techniques Independent estimates Expert Judgment Advertising Analytical Techniques Procurement negotiation Selected sellers Agreements Resource calendars Change requests Project management plan updates Project document updates
Conduct Procurement - Inputs Project Management Plan contains procurement management plan and this describes how the procurement process will be managed from preparing procurement documentation through close procurements Procurement Documents as explained earlier provide an audit trail for contracts and other agreements Source Selection criteria are set of guidelines, either subjective or objective, that are used by the performing organization to select a particular contract/ vendor (seller) from among the proposals received. Seller proposals are responses to the procurement document package that will be used for selection of the sellers by the organization s evaluation body
Conduct Procurement - Inputs Project documents that are important inputs to this process include risk register and risk related contract decisions. Make- or -buy decisions as explained earlier is based on the outcome of Make orbuy- Analysis. The factors that influence the decision making include, core competencies of the organization, value delivered, risk associated with meeting the need in a cost=effective manner and internal capability as compared to the vendor community. Procurement Statement of Work provides suppliers with a clearly stated set of goals, requirements, and outcomes from which they can provide a quantifiable response. The statement of work include Specifications Quantity desired Quality levels Performance data, period of performance, work location and other requirements
Conduct Procurement - Inputs Organizational Process Assets that can influence this process include listings of prospective and previously qualified sellers and information on relevant past experience with sellers, prior agreements
Conduct Procurement Tools and Techniques Bidder conferences are meetings wherein the prospective supplier (sellers) are called in to ensure that all the supplier have a clear understanding of the work defined in the procurement documents. Proposal evaluation techniques are used to evaluate the proposals by giving a rating score to each proposal Independent estimates are sometimes prepared by the procuring organization using internal expert in estimation or an outside professional estimator Expert Judgment includes a team of experienced and skilled experts for evaluation of proposals under various areas of expertise as mentioned in the procurement documents and contract
Conduct Procurement Tools and Techniques Advertising is used by the performing organization to invite the potential sellers to be Contracted Analytical Techniques, procurements involve defining a need in such as way that vendors can bring value through offerings. To ensure that the need can be and is met, analytical techniques can help organizations identify the readiness of a vendor to provide the desired end state. By examining past performance information, teams may identify areas that may have more risk and that need to be monitored closely to ensure success of the project Procurement negotiations between the buyers and the potential sellers are performed with the goal of reaching mutual agreement on the contractual terms and conditions. The goal is to reach a win-win scenario between the buyer and seller.
Conduct Procurements Outputs Selected Sellers are those who have met the evaluation criteria and negotiated a draft contract with the buyer, which will become the actual contract when the contract is awarded Agreement is a formal document governing the relationship between the buyer and the seller. The contract describes the work to be performed and perhaps the way in which the work will be performed. An important to include with the contract is how disputes will be resolved. Depending upon the application area, an agreement can also be called an understanding, a contract, a subcontract, or a purchase order. Regardless of the document complexity, a contract is a mutually binding legal agreement that obligates the seller to provide the specific products, services, or results and obligates the buyer to compensate the seller. The major component of agreement are:
Conduct Procurements Outputs Major components of an agreement Statement of work or deliverables Schedule baselines 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
Conduct Procurements Outputs Major components of an agreement Penalties Incentives Insurance and performance bonds Subordinate subcontractor approvals Change request handling and Termination clause and alternative dispute resolution (ADR) mechanism. The ADR method can be decided in advance as a part of the procurement award.
Conduct Procurements Outputs Resource Calendar state the availability and the quantity of contracted resource and the project period (dates) during which the resources are active or idle Change Requests to the project management pan, its subsidiary plans and other components are processed for review and disposition through the Perform Integrated Change Control process. Project Management Plan Updates, the elements of the project management plan that may be updated include Cost baseline, Scope baseline, Schedule baseline, Communication management plan, and Procurement management plan. Project Document Updates, the project documents that may be updated include, requirement documentation, requirement traceability documentation, risk register and stakeholder register.
Conduct Procurements Outputs Selected Sellers are those who have met the evaluation criteria and negotiated a draft contract with the buyer, which will become the actual contract when the contract is awarded Procurement Contract Award is a formal document governing the relationship between the buyer and the seller. The contract describes the work to be performed and perhaps the way in which the work will be performed. An important to include with the contract is how disputes will be resolved. Resource Calendar state the availability and the quantity of contracted resource and the project period (dates) during which the resources are active or idle Change Requests As discussed earlie Project Management Plan Updates As discussed earlier Project Document Updates As discussed earlier
Control Procurements Managing procurement relationships, monitoring contract performance and making changes and corrections as needed.
Control Procurement Inputs Tools and Techniques Outputs Project Management Plan Procurement documents Agreement Approved change requests Work Performance reports Work performance Data Contract change control system Procurement performance reviews Inspections and audits Performance reporting Payment system Claims administration Records management system Work performance information Change requests Project management plan updates Project document updates Organizational process assets update
Control Procurement - Inputs Project Management Plan describes how the procurement process will be managed from developing procurement documentation through contract closure. Procurement documents contain complete supporting records for administration of the procurement processes; this includes procurement contract awards and the statement of work Agreements As Explained earlier Agreements are understanding between parties, including understanding of the duties of each parties. Approved change requests include modifications to the terms and condition of the contract including the procurement statement of work, pricing and the description of the products, services or results.
Control Procurement - Inputs Work Performance Reports is a seller performance related documentation that include Technical documentation. Sellers- developed technical documentation and other deliverable information are provided in accordance with the terms of the contract. Work performance information. The seller s performance reports indicate which deliverables have been completed and which have not. Work Performance Data includes information on a regular basis of the performance and status of the seller s project work activities. It includes information such as which deliverables have been completed and which have not, whether the quality standards defined for the project are being adhered to and the payment is being made for the costs that have been stated in the contract.
Control Procurement Tools and Techniques Contract change control system is a component of integrated change control system and it describes the process of updating the contract Procurement performance reviews are periodic reviews initiated by the buyer to measure the project s progress against the plan Inspections and audits are done by the buyer and supported by the seller to identify any non-compliance to the project s process or deliverables. Performance reporting provides information to management about how effectively the seller is achieving his contractual objective. Payment system helps to ensure that invoices and payments match up and that the right amount is being invoiced for the right deliverables at the right time.
Control Procurement Tools and Techniques Claims administration are basically disagreements (about scope or change request). It is preferred that the claims should be resolved by the parties involved as per the dispute resolution procedure. If not resolved by the parties involved, then the disputes are resolved by the process of Arbitration whereby a third neutral party is given the task of getting the dispute resolved. Records management system is a part of the project management information systems (PMIS). In addition to the documentation, it also consists of processes, control functions, and automated tools. This system should index various documents for their easy retrieval and archival.
Control Procurement Outputs Work Performance Information provides a basis for identification of current or potential problems to support later claims or new procurements. By reporting on the performance of a vendor, the organization increases the knowledge of the performance of the procurement, which supports improved forecasting, risk management and decision making. Performance reports also assist in the event there is a dispute with the vendor. Change requests, changes to the project management plan, its subsidiary plans, and other components, such as the cost baseline, schedule baseline, and procurement management plan may result from the control procurement process. Project management plan updates includes update to the procurement management plan,schedule baseline and cost baseline
Control Procurement Outputs Project Documents Updates include updates to procurement documentation, it include the procurement contract with all supporting schedules, requested unapproved contract changes, and approved change requests. It also includes any seller developed technical documentation and other work performance information such as deliverable s, seller performance reports and warranties, financial documents including invoices and payment records, and the result of contract related inspections. Organizational process assets updates that will be updated as a result of this process includes documentation related to seller s unsatisfactory performance, request for contract changes or clarifications, payments made by the buyer to the seller and also the documents related to seller s performance.
Exercise : Control Procurements Revising Tools and Techniques 1. involves process to change the procurement contract. It can involve the approvals, paperwork and the dispute resolution mechanism required for the change control. 2. system refers to how the payments are made to the seller.
Answer to Exercise : Control Procurements Revising Tools and Techniques 1. Contract Change Control System involves process to change the procurement contract. It can involve the approvals, paperwork and the dispute resolution mechanism required for the change control. 2. Payment system refers to how the payments are made to the seller.
Close procurements Process of completing each project procurement. It involves administrative activities such as updating the project records with results and archiving the information for future use and finalizing open claims in accordance with the terms and conditions stated in the contract document Close Procurement process closes the procurement applicable to that phase of the project
Close procurements Inputs Tools and Techniques Outputs Project Management Plan Procurement documentation Procurement audits Procurement Negotiations Records management system Closed procurements Organizational process assets updates
Close procurements- Inputs Project Management Plan Discussed Earlier Procurement documentation includes information on contract schedule, scope, quality and cost performance along with all contract change documentation, payment records and inspection results. This information can be used for lessons learned information and as a basis of evaluating contractors for future contracts.
Close procurements- Tools and Techniques Procurement Audits is a structured review of the procurement processes from the plan procurements process through administer contracts process. The purpose of procurement audit is to identify the improvement areas and the flawed procurement processes and/ or procedure. This will assist in reusing the successful/updated procedures in other projects. Procurement Negotiations refers to the settlement for any outstanding issues, claims and disputes through negotiation. Whenever the settlement cannot be achieved through direct negotiation, some form of alternative dispute resolution(adr) including mediation or arbitration can be explored Records Management System is used by the project manager to manage contract and procurement documentation and records. Contract documents and correspondence are archived through the records management system as part of the close procurement process
Close procurements- Outputs Closed Procurements is the process in which the buyer s contract administrator sends formal written notice to the seller that the contract is complete. Organizational Process Assets Updates will be updated due to modification in the procurement files and lessons learned documentation. Also, deliverable acceptance and rejection will be stated in the final contract documentation with supporting reasons.
Exercise 5: Contract Type Reviewing Associated Risks to Buyers & Sellers Explain the risks from buyer and seller perspective in case of the following types of contracts 1. Firm fixed price 2. Fixed price plus incentive fee (FPIF) 3. Cost plus fixed fee 4. Cost plus award fee 5. Cost plus incentive fee 6. Time and Material (T&M)
Project Procurement Management Negotiations Techniques Deadline: imposing a deadline to reach an agreement Stalling: one party may claim that an agreement cannot be finalized because of his limited authority Fair and Responsible: a negotiator may claim that the price for a product is equitable because that s what another company is paying. Delay: are useful when tempers are beginning to flare, to divert from a subject, etc (Ex: arrival of refreshments, request for recess etc) Withdrawal: one party may attack an issue, then retreat
Project Procurement Management Negotiations Techniques Arbitration: a third party may be brought in when agreement cannot be reached. (out of court settlement) Fait Accompli: a party may claim that what is being asked for has already been accomplished and cannot be changed
Exercise 5: Procurement Management Revising Key Terms : Complete the following 1. An Invitation for is a document that ask sellers for the price of work 2. The buyer selects the selection criteria before contacting potential sellers 3. The contract has high risk to the seller because the seller must cover costs that go beyond the price
QUIZ!