CH 12 Procurement Mgmt

project procurement mgmt

include the processes necessary to purchase, acquire products/services/results needed from outside the project team

plan procure mgmt

documenting project purchasing decisions, specifying the approach and id'ing potential sellers

conduct procurements

obtaining seller responses, selecting a seller and awarding a contract

control procurements

managing relationships, monitoring contract performance, making changes and corrections as needed

close procurements

completing each project procurement


legal documents between buyer and seller

contract detail 1

mutually binding agreement that obligates seller to supply product/service/result and buyer to provide monetary or other valuable consideration

contract detail 2

legal relationship subject to remedy in the courts

contract detail 3

includes terms and conditions, may include other documentation that buyer is relying upon to establish what seller is to perform/provide

contract detail 4

can be simple or complex, also called agreement, understanding, subcontract, purchase order


aka: client, customer, contractor, acquiring organization, service requestor, purchaser


aka: contractor, vendor, service provider, supplier

PM team responsibility

procurements must meet needs of project, review/approve contracts, enlist specialists in contracting/purchasing/law as needed, manage contracts throughout lifecycle

FIXED PRICE contracts

category involves a fixed total price for a well-defined product. may also include incentives for meeting or exceeding selected project objectives

firm fixed price FFP

price of goods is set at beginning, any cost increases absorbed by seller

fixed price incentive fee FPIF

provides some flexibility through incenetives on predetermined metrics, targets are established at outset

fixed price with economic price PF-EPA

used over long-term contracts, provisions for adjustments for inflation, commodity price increases, etc...

Cost Reimbursable contracts

involves payment/reimbursement to the seller for seller's actual costs, plus a fee typically representing seller profit

cost plus fixed fee CPFF

seller reimbursed for allowable costs for performing the contract work , also receives fixed fee payment calculated as % of estimated project costs. fee does not vary with actual costs unless project scope changes

cost plus incentive fee CPIF

seller reimbursed for allowable costs, and may receive an incentive bonus (predetermined) based upon achieving certain performance objective levels set in the contract. if final costs are less, both buyer & seller benefit from the cost savings based on pr

cost plus award fee CPAF

seller reimbursed for allowable costs, but majority of the fee earned is based on the satisfaction of preset brad subjective performance criteria

time and material contracts (T&M)

hybrid of contractual arrangement, has aspects of cost-reimbursable & fixed-price arrangements. often used for staff augmenting, acquisition of experts, any outside support, when precise statement of work cannot be quickly prescribed.

contract risk - seller to buyer respectively

(seller) FFP, FPI, CPIF, CPAF, T&M, CPFF (buyer)

make-or-buy analysis

considers project budget constraints, must also consider lease- or purchase- , both direct and indirect costs for all options, and considers contract types

Make Or Buy - MAKE

integration of operations, utilize existing capacity, direct control, design secrecy, avoid unreliable supplier base, stabilize existing workforce

Make or Buy - BUY

utilize skills of suppliers, small volume requirements, limited capacity, augment labor force, indirect control

procurement options

Make or BUY(buy/rent/lease) from Single/Multiple sources

sole vs multiple source --single buyer

single buyer - shorter procurement time, can choose vendor, build relationship; but- may have higher price, less competition, higher risk if vendor fails

sole vs multiple source --single seller

eliminate competitive bidding, can ask higher price, one buyer version, possibly steady stream; but - higher risk if buyer leaves, may need further binding agreements

estimating procurement options cost

Rent vs Lease - rent @ 100/day; lease at 60/day + 1,000; break even is 25 days for equal cost. less renting is better, more leasing is better

procurement mgmt plan may contain:

-type of contract(s) to use
-who prepares independent estimates
-if ind.est. are needed for eval criteria
-PM team allowable procurement vs org procurement dept
-if/what standard procure documents needed
-managing multiple providers/vendors

procurement mgmt plan may also include:

-lead time for purchase/acquire, mesh with project schedule
-handling make/buy; link to activity resource est & sched development processes
-setting schedule for deliverables
-ID'ing performance bonds/ins. contracts
-estab direction for sellers to develop

statement of work

defines for those items being purchased or acquired, the portion of the scope that is included within the related contract. uses enough detail that sellers can determine if they are able to provide

statement of work 2 - contract SOW

must be clear, complete, concise. include description of any collateral services required, such as perf. reporting, post-project op support for item/service. can/may be revised thru process until incorporated into single contract.

procurement documents

used to seek proposals from prospective sellers
aka: bid, tender, quote, proposal
- buyer must structure so as to facilitate an accurate, complete response from all prospective sellers and facilitate easy eval of bids
- complexity, level of detail should

source selection criteria

understanding of need
overall/live-cycle cost
tech capability
mgmt approach
tech approach
financial capacity
production capacity & interest
business size/type
intellectual property and proprietary rights

bidder conferences

aka: contractor/vendor/pre-bid conferences
meeting w/prosp.sellers prior to prep of bid/proposal. ensure all prosp. sellers have clear common understanding of procurement item/service
- all potential sellers are given equal standing during initial buyer/s

independent estimate

procuring org can either prepare own ind.estimates/est of costs as a check on proposed costs ('should-cost' estimate)
- significant dif between ind. and sellers could be unclear RFPs, or assumptions that vary between independent and bidding sellers.

procurement negotiation

- clarify structure, requirements of contract so mutual agreement can be reached
- final contract language reflects all agreements reached
- may include:
responsibilities & authorities
applicable terms & law
tech/bus. mgmt approaches
proprietary rights


may include:
- statement of work, - schedule
- performance reporting, - perf. period
- roles/responsibilities, - place of perf.
- pricing/payment, - acceptance criteria
- warranty, - product support
- limitation of liability, - fees/retainer
- penalties/i

direct & manage project work

authorize the seller's work at the appropriate time

control quality

inspect, verify the adequacy of the seller's product

perform integrated change control

assure that changes are properly approved & all those w/need to know are aware

control risks

ensure risks are mitigated

performance reviews

structured review of sellers progress to deliver scope & quality w/in cost and schedule; may include - seller prepared documentation, buyer inspection, quality audits

claims admin

resolving disagreement for contested changes or potential constructive changes where buyer & seller cannot reach agreement. includes Claims/Disputes/appeals; may include alternative dispute resolution (to avoid slow, costly court battle)

close documents

finalizing open claims, updating records, early termination

Termination of Contract

term for convenience: term at any time for any reason, compensation due seller for work completed and accepted to date.
term for default/breach: seller fails to perform/make substantial progress, compensation due only for work accepted to date, contractor

org process assets updates

procurement file
deliverable acceptance
lessons learned documentation

procurement file

complete set of indexed contract documentation, including the closed contract, is prepared for inclusion with the final project files

deliverable acceptance

document formal acceptance of seller-provided deliverables may be required for organization. Close Procurement process ensures this documentation req is satisfied. These reqs and how to address non-conformation to them are usually defined in the agreement

lessons learned documentation

lessons learned, experiences, process improvement recommendations developed for project file to improve future procurements