Project Management-Project procurement Management

Project Procurement Management
by:
Yogender Rana
By: Yogender S Rana ( Rana26@gmail.com)

Procurement
Procurement:
Procurement is the acquisition of goods and/or services at the best possible total cost
of ownership, in the right quantity and quality, at the right time, in the right place and
from the right source for the direct benefit or use of corporations, or individuals,
generally via a contract. Procurement planning identifies which part/s of the project
should be procured from resources outside of the organization. Weather or not to
procure resources from outside depends upon what is more cost effective and certain
other factors.
One of the most important aspects of procurement is contract and vendor
management. There are different type of contract, out of which an organization
chooses the most profitable one for its project. Contract closure includes setting all
planned objectives with the vendor and the confirmation that all obligations of the
contract were met as expected. The final step is the project closure which includes
processes at various levels of the organization.

Learning Objective
 Identifying which part/s of the project should be procured from outside the
organization is known as procurement planning.
 Many factors influence the decision of weather make or to Buy certain
equipment's; principal among them is cost-effectiveness.
 Contracts are of 4 Types- Fixed-price, cost-plus, time & materials and technical
& commercial contracts.
 Contract Administration has 2 main aspects- Performance Reports (Reviewing
vendor performance) & Change Request ( Request of change in cost, scope or
time duration of project).
 Contract Closure: is the information that all obligations related to the contract
have been met & auditing of the entire procurement process has been done.
Project closure works at many levels like at the organizational & administrative
level, requires a work performance information and fullfilmnet of the
objectives of the project.

Managing Risk
Project Procurement Management includes the processes necessary to purchase or
acquire products, services or results needed from outside the project team. The
organization can either the buyer or seller.
Project procurement management also includes administering any contract
issued by an outside organization(the buyer) that is acquiring the project from the
performing organization(the seller) and administering contractual obligation placed on
the project team by the contract.
Project Procurement Management processes include the following.
 Plan procurements
 Conduct procurements
 Administer procurements
 Close procurements
The project procurement Management processes involve contracts that are legal
documents between a buyer and seller.

Glossary of Terms
 A contract represents a mutually agreement that obligates the seller to provide the
specified products, services or result and obligates the buyer to provide monetary
or other valuable consideration.
 Depending upon the application area a contract can be called an agreement,
understanding, a subcontract or purchase order. The legally binding nature of a
contract usually means that it will be subjected to a move extensive approval
process.
 Depending on the application area of the seller can be called a contractor,
subcontractor, vendor, service provider or supplier.
 Depending on the buyer’s position in the project acquisition cycle, the buyer can be
called a client, customer, and prime contractor, acquiring organization,
governmental agency, service requestor or purchase.
 The seller can be viewed during the contract life cycle first as a bidder then as the
selected source and then as the contracted supplier or vendor.

Plan Procurements
Plan Procurements is the process of documenting project purchase decisions,
specifying the approach and identifying potential sellers. It identified those project
needs which can best be, or must be, met by acquiring products, services or results
outside of the project organization, versus those project needs which can be
accomplished by the project team.
The plan procurements process includes consideration of the risks involved with make-or-
buy decision.
Inputs: Teaming Agreements
Teaming agreements are legal contractual agreements between two or more entities.
The agreement defines buyer-seller roles for each party. Whenever the new business
opportunity ends, the teaming agreement also ends
Tools and Techniques
 Make-or-Buy Analysis
 Contract Types

Introduction

To make or To Buy?

Contract Types -1
All legal contractual relationship generally fall into one of two broad families, either
Fixed-Price or Cost Reimbursable. Also, there is a third-type called the Time and
Materials Contract.
Fixed Price Contracts: This category of contracts involves setting a fixed total price for
a defined products or service to be provided. Fixed-price contracts may also
incorporate financial incentives for achieving or exceeding selected product
objectives.
 Firm Fixed Price Contracts ( FFP)
 Fixed Price Incentive Fee Contracts ( FPIF)
 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. Its is a fixed-price contract, but with a special provision allowing for pre-defined
final adjustments to the contract price due to changed conditions, such as
inflation changes, cost increased(or decreased) for specific commodities. The FP-EPF
contract is intended to protect both buyer and seller from external conditions
beyond their control.

Contract Types -2
Cost Reimbursable Contracts: This category of contract involves payment ( cost
reimbursements) to the seller for all legitimate actual costs incurred for completed
work, plus a free representing seller profits.
 Cost Plus Fixed Fee Contracts (CPFF): The seller is reimbursed for all allowable costs
for performing the contract work receive a fixed fee payment calculated as a
percentage of initial project costs.
 Cost plus incentive Free Contracts(CPIF): The seller is reimbursed for all allowable
costs for performing the contract work and received a predetermined incentive fee
based upon achieving certain performance objectives as set forth in the contract. If
the final costs are less or greater than the original estimated costs, then both the
buyer and seller share costs from the departures.
 Cost Plus Award Fee Contracts(CPAF): The seller is reimbursed for all legitimate
costs, but the majority of the fee is only earned based on the satisfaction of certain
board subjective performance criteria defined and incorporated into the contract.

Contract Types -2
 Time and Material Contracts ( T&M) : Time and material contracts are a hybrid type
of contractual agreement. These types of contracts resemble cost-reimbursable
contracts in that they can be left open ended and may be subject to a cost increase
for the buyer. T&M contracts can also resemble fixed unit price arrangements when
certain parameters are specified in the contract.

Procurement Plan Outputs
 Procurement Management Plan describes how the procurement processes will be
managed from developing procurement documents through contract closure. The
procurement management plan can include for types of contracts to be used, managing
multiple suppliers, handing lead times to purchase items, handling make-or-buy
decisions.
 Procurement statements of work describes the procurement item in sufficient details to
allow prospective seller to determine if they are capable of providing the products,
services or results. Information included in a SOW can include specifications, quantity
desired, quality levels, performance data, period of performance, work location.
 Procurement Documents: Terms such as bid, tender, or quotation are generally used
when the seller selection decision will be based on the price while a term such as
proposal is generally used when other considerations, such as technical capability or
technical approach are paramount.
Common terms are in use for different types of procurements documents and may include
request for information invitation for bid (IFB),request for proposal(REP), request for
quotation(RFQ), tender notice.

Source Selection Criteria
Criteria are developed and used to rate or score seller proposals and can be objective or
subjective. Selection criteria can be limited to purchase price other selection criteria can
be identified.
In the weighting system, the decision makers mark out their preference & accordingly
weights are assigned to the values of the proposal. Each proposal is cored and the
vendor with the highest score is chosen.
1. Overall or life cycle cost 2. Production capacity 3. Technical Capability
4. Past performance of seller 5. Risk 6. References 7. Warranty
8. Financial capacity 9. Intellectual property rights

Conduct Procurements
Conduct Procurements is the process of obtaining seller responses selecting a selller and
awarding a contract. A short list of qualified seller can be established based on a
preliminary proposal.
Inputs include procurement Documents, Selection Criteria, Qualified Seller List and Seller
proposal.
Tools and Techniques:
 Bidder Conferences: Sometimes called contractor conference, vendor conference and
pre-bid conference are meeting with all prospective sellers and buyers prior to submittal
of a bit or proposal.
 Independent Estimates: For many procurement items the procuring organization may
elect to prepare its own independent estimate or have an estimate of costs prepared by
outside professional estimator.
 Proposal Evaluation Techniques
 Adverting
 Internet Search
 Procurement Negotiations

Conducts Procurements: Outputs(Procurement Contract Award)
A procurements contract is awarded to each selected seller. The contract cab be in the
form of simple purchase order. The major component is a contract document will vary,
but will sometimes include the following.
 Statement of work or deliverables
 Performance reporting
 Period of performance
 Roles and responsibilities
 Pricing
 Payment terms,
 Product supports
 Penalties
 Incentives
 Termination

Administer Procurement
Administer procurements is the process of managing procurement relationship,
monitoring contract performance and making changes and corrections as needed.
Administer procurements also has a financial management component that involves
monitoring payments to the seller.
Due to varying organizational structures, many organizational treat contract
administration as an administrative function separate from the project organization.
The administer procurements process reviews and documents how well a seller is
performing or has performed based on the contract and establishes corrective actions
when needed. Administer procurements includes managing any early terminations of
the contracted work.

Administer Procurement: Tools and Techniques
 Contract changes Control System: It defines the process by which the procurement
can be modified.
 Procurement Performance Reviews: is a structured review of the seller’s progress
to deliver project scope and quality, within cost on schedule, as compared to the
contract.
 Claims Administration: Contested changes and potential constructive changes are
those requested changes where the buyer and seller cannot reach an agreement
on compensation for the changes, or cannot agree that a change has occurred.
These contested changes are variously called claims, disputes, or appeals.
Settlement of all claims and disputes through negotiation is the preferred method.
 Records Management System: is used by project manager to manage contract and
procurement document and records.
 Inspections and audits

Close Procurement
 Contract closure also involves auditing the procurement process from the
procurement planning stage through the contract administration. The main aim of
auditing is to identify the successes & failures within the procurement process in
the project-in other words, what worked & what didn’t.
 Once the contract has been confirmed closed, all the contract information should
be collected and recorded in a contract file. A contract file is fully indexed set of
records of the procurement process & is incorporated into the contract closure
process. Financial information, as well as information regarding the performance of
the contract is part of these records.
 Close procurement process of completing each project procurement. It involves
verification that all work and deliverables were acceptable.

Close Procurement
 The close procurements process also involves administrative such as finalizing open
claims updating records to reflect final results and archiving such information for
future use. Unresolved claims may be subject to litigation after closure.
 Early termination of a contract is a special case of procurement closure that can
results from a mutual agreement of both parties, from the defaults of one party, or
convenience of the buyer if provided for in the contract.
 The buyer usually provides the seller with formal written notice that the contract
has been completed.

Project Closure
 Organization Process: Every organization has certain procedures related to financial
reporting & human resource obligations that project managers must follow to close
the project.
 Work Performance Information: A project is not closed by declaration of
completion alone; work performance information defining schedule, costs &
objectives have been meet must be submitted.
 Objectives: Obviously the objective that has been delivered at the end of the
project serves as an input to the project closure.
 Administrative closure: This refer to all the formal activities necessary to close the
project. It involves the project manager, the project team, sponsors, key
stakeholders & vendors. It includes the following activities.
 Collection & Assembling of project records
 Analysis of the project’s success or failure
 Documentation of lesson learned
 Archiving project data for future reference

Thanks for reading
By
Yogender Singh Rana

Project Management-Project procurement Management

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