PMP Chapter 12 2004

2/8/2006
PMP Preparation Training
Your key in Successful Project

Management
Akram Al-Najjar, PMP

Project Management Consultant
Chapter 12
Project Procurement
Management
Akram Al-Najjar, PMP.

Source: pmbok guide 2004 Slide 2 Akram_alnajjar@hotmail.com +20105394312
2/8/2006
AGENDA
What is Procurement Management?

Procurement Management Processes
How does the PMBoK® Guide describe
Procurement Management?
Contracts - types
Discussion

Procurement Management
§Project Procurement Management include the processes required to

purchase and acquire products, services, or results needed from
outside the project team to perform the work.
12.1 Plan Purchases and Acquisitions

12.2 Plan Contracting
12.3 Request seller Responses
12.4 Select Sellers
12.5 Contract Administration
12.6 Contract Closure
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Marketplace
Project Procurement Management Process Flow Diagram
Project
Enterprise conditions Plan Purchases Management Plan Develop Project
purchasing SKILLS
Environmental and Acquisitions Management Plan
Factors 4.3
12.1
Polices ,
Organizational procedures, Procurement
Process Lesson Learned Management Plan, Approved change request
Assets S.O.W , Make or buy & corrective action
Scope Statement ,
w.B.S and Plan
Scope Definition dictionary
& Create W.B.S Contracting
5.2 & 5.3 12.2
Activity resource Activity resource Procurement documents , evaluation
estimate 6.3 criteria , S.O.W update
estimate
& schedule 6.5 Request
development & Project schedule
seller
Activity Cost Responses 12.3
Cost Estimating Estimating
Qualified sellers list ,
&Cost Budgeting &Cost Budgeting procurement documents
7.1 & 7.2 Package , proposal
Risk identification Select
& risk response Sellers 12.4
Planning 11.2 & Risk register
11.5 Selected seller
Risk - contractual
agreement Contract , Contract Management Plan
Performance Resource availability

Performance
Report 10.3 Procurement
Report Contract Management Plan update
Administration Requested changes
Work
Direct & Manage performance 12.5 Recommended corrective
Project Execution information actions
Close
4.4 Contract
Contract documentation ,
Organizational Integrated Change
Process Assets Procurement management plan
Control
Contract Contract management Plan 4.6
Close Project Contract closure Closeout 12.6
4.7 procedure
Procurement Management
Planning Executing Controlling Closing
12.3
12.1 Request
seller
Plan Purchases
and Acquisitions Responses
12.6
12.2
12.2 12.4 Contract
Contract
Plan Select Closeout
Administration
Contracting Sellers

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Project Procurement Management

Processes
n Plan Purchases and Acquisitions : determining what to

procure when and how
n Plan Contracting : documenting product requirements and
identifying potential sources
n Request Seller Responses : obtaining quotations, bids,
offers, or proposals as appropriate
n Select Sellers : reviewing offers, choosing among potential
sellers, and negotiating a written contract with each seller.
n Contract administration: managing the contract and
relationship between the buyer and seller, reviewing and
documenting how a seller is performing to establish required
corrective actions
n Contract close-out: completion and settlement of the
contract , including resolution of any open items
Buyer-seller Relationship
n Buyer – The customer

n Seller – Contractor; vendor; supplier
external to the performing organization
n The terms and conditions of the contract
become key inputs to many of the seller’s
processes

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Processes and Key Outputs
Plan Purchases Plan Request Select Contract Contract

and Contracting seller Sellers Administration Closeout
Acquisitions Responses
Complete
Make Or Issue Receive Formally
Award Substantial
buy RFP Proposal Close
contract amount of
decision Contract
work


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Plan Purchases and Acquisitions
It identifies which project needs can best be

met by purchasing or acquiring products,
services, or results outside the project
organization.
n Includes consideration of potential subcontracts

n Plan Purchases and Acquisitions involves

n whether to procure
n how to procure
n what to procure
n how much to procure
n when to procure

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Tools & Techniques

1. Make-or-buy analysis
2. Expert judgment
Inputs 3. Contract types
1. Enterprise environmental factors
2. Organizational process assets
3. Project Scope statement
4. WBS
5. WBS dictionary
6. Project management plan Outputs
• Risk register 1. Procurement management plan
• Risk related contractual agreements 2. Contract Statement of work
• Resource requirements 3. Make or buy decisions
• Project schedule 4. Requested changes
• Activity cost estimates
• Cost baseline Akram Al-Najjar, PMP.

Input
n Enterprise Environmental Factors – that are considered include
the conditions of the marketplace and what products, services, and
results are available in the marketplace, from whom and under
what terms and conditions.
n Organizational Process Assets– provide the existing formal and
informal procurement-related policies, procedures, guidelines, and
management systems that are considered in developing the
procurement management plan and selecting the contract types to
be used.
n Project Scope statement–describes the project boundaries,
requirements, constraints, and assumptions related to the project
scope.
n W.B.S.
n W.B.S. dictionary
n Project management Plan
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Tools & Technique
n Make-or-buy analysis –This is a general management

technique to determine if the product can be produced
cost-effectively by the performing organization .
n Expert judgment – Groups or individuals with

specialized knowledge or training


Tools & Technique
n Contract-type selection
n Fixed price – A fixed total price for a well-

defined product. May include incentives for
meeting or exceeding selected project
objectives.
n Example : Contract = $ 90,000,000

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Tools & Technique
- Cost reimbursable contacts – Payment to

the seller of actual costs , plus typically a fee representing
seller profit .
Direct costs – Cost incurred in implementing the project
Indirect costs -(Overhead) – Costs allocated to the project
by the performing organization, as a cost of doing business.
n Cost plus incentive fee (CPIF): the buyer pays the
seller for allowable performance costs plus a
predetermined fee and an incentive bonus
n Example : Contract = Cost plus a fee of $100,000.

While for every month the project is completed
sooner than agreed upon, Seller will receive an
additional incentive fess = $10,000 Akram Al-Najjar, PMP.

Tools & Technique
n Contract-type selection (cont.)

Cost Reimbursable Contracts
n Cost plus percentage of costs (CPPC): the

buyer pays the seller for allowable
performance costs plus a predetermined
percentage based on total costs
n Example : Contract = Cost plus 10% of cost as

fee

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Tools & Technique

Cost Reimbursable Contracts
n Cost plus fixed fee (CPFF): the buyer pays the

seller for allowable performance costs plus a
fixed fee payment .
n Example : Contract = Cost plus a fee of $

100,000


Example
n Cost plus incentive fee Calculation
n Target cost $210,000
n Target Fee $25,000
n Target price $235,000
n Sharing Ratio 80 / 20
n Actual cost $200,000
Fee $210,000 - $200,000 = $10,000x20%=$2,000

$25,000 Target fee + $2,000 = $27,000 fee
Final price $200,000 + $ 27,000 = $ 227,000

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Example
n Cost plus incentive fee Calculation
Fee $150,000 - $140,000 = $10,000x20%=$2,000

$20,000 Target fee + $2,000 = $22,000 fee
Final price $140,000 + $ 22,000 = $ 162,000


Example
n Fixed price plus incentive fee calculation
n Ceiling price $200,000
Fee $150,000 - $210,000 = ($60,000x40%)= ($24,000)

$30,000 Target fee + ($24,000) = $6,000 fee
Final price $210,000 + $ 6,000 = $ 216,000

However this is above the ceiling price of $200,000
So the final price is $200,000

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Example
Fee $200,000 - $250,000 = ($50,000x40%)= ($20,000)

$50,000 Target fee + ($20,000) = $30,000 fee
Final price $250,000 + $ 30,000 = $ 280,000

However this is above the ceiling price of $260,000
So the final price is $260,000


Example
Fee $200,000 - $250,000 = ($50,000x40%)= ($20,000)

$50,000 Target fee + ($20,000) = $30,000 fee
Final price $250,000 + $ 30,000 = $ 280,000

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Example

n Time and Material contract – Seller is
paid a preset amount per unit of service,
and the total value of the contract is a
function of the quantities needed to
complete the work


Example

Contract Types Versus Risk

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Output
n Procurement management plan – Describes how the

remaining procurement processes will be managed for example :
n What types of contracts will be used?

n If independent estimates will be needed as evaluation criteria,
who will prepare them and when?
n If the performing organization has a procurement department,
what actions can the project management team take on its own?
n If standardized procurement documents are needed, where can
they be
found?
n How will multiple providers be managed?
n How will procurement be coordinated with other project aspects,
such as scheduling and performance reporting?

Output
n Statement of work – Describes the procurement

items in sufficient detail for prospective sellers to
determine if they are capable of providing the item
n Should include a description of any collateral services
required for the procured item
n Make-or-Buy Decisions
The documented decisions of what project products,
services, or results will be either be acquired or will be
developed by the project team. This may include decisions
to buy insurance policies or performance bonds contracts to
address some of the identified risks.
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Statement of Work (SOW) Template
I. Statement of Describe
Scope of Work: Work (SOW)
the work toTemplate
be done to detail. Specify the hardware and
software involved and the exact nature of the work.
II. Location of Work: Describe where the work must be performed. Specify the
location of hardware and software and where the people must perform the work
III. Period of Performance: Specify when the work is expected to start and end,
working hours, number of hours that can be billed per week, where the work must
be performed, and related schedule information.
IV. Deliverables Schedule: List specific deliverables, describe them in detail, and
specify when they are due.
V. Applicable Standards: Specify any company or industry-specific standards that
are relevant to performing the work.
VI. Acceptance Criteria: Describe how the buyer organization will determine if the
work is acceptable.
VII. Special Requirements: Specify any special requirements such as hardware or
software certifications, minimum degree or experience level of personnel, travel
requirements, and so on.

The Plan Contracting
n process prepares the documents

needed to support the Request Seller
Responses process and Select Sellers
process.

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Tools & Techniques

1. Standard forms
2. Expert judgment
Inputs
1. Procurement management
Plan
1. Contract statement of work
2. Make or buy decisions
3. Project management plan
• Risk register Outputs
• Risk related contractual 1. Procurement documents
agreements 2. Evaluation criteria
• Resource requirements 3. Contract statement of
• Project schedule work (updates)
• Activity cost estimates
• Cost baseline Akram Al-Najjar, PMP.

Tools and Technique
n Standard forms – Include standard

contracts, standard descriptions of
procurement items, and standardized
versions of all, or part, of the needed bid
documents
n Expert judgment

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Output
n Procurement documents – Used to solicit
proposals from prospective sellers
n Invitation to bid (IFB)
n Request for proposal (RFP)
n Request for quotation (RFQ)
n Invitation for negotiation
n Contractor initial response
n Procurement documents should include :

n The relevant statement of work
n Description of the desired form of the response
n Required contractual provisions


Output
n Tactics of Negotiation
n Attacks, Personal Insults, Good Guy and bad guy,
Deadline, Lying, Limited Authority, Missing man,
Fair and Reasonable, Delay, Extreme Demands,
Withdrawal and Fait Accompli

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Outline for a Request for

Proposal (RFP)
Statement of Work (SOW) Template
I. Purpose of RFP
II. Organization’s Background
III. Basic Requirements
IV. Hardware and Software Environment
V. Description of RFP Process
VI. Statement of Work and Schedule Information
VII. Possible Appendices
A. Current System Overview
B. System Requirements
C. Volume and Size Data
D. Required Contents of Vendor’s Response to RFP
E. Sample Contract


Output
n Evaluation criteria – Used to rate or score
proposals (objective or subjective)
n Understanding of the need-
n Overall or life-cycle cost
n Technical capability
n Management approach
n Financial capacity
n Statement of work updates – Modifications

to one or more statements of work may be
identified during solicitation planning

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Proposal Evaluation
Criteria

Request Seller Responses
Obtaining responses (e.g., bids, quotes,

offers) from prospective sellers on how
project requirements can be met
n Effort usually expended by the prospective

seller

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Tools & Techniques

1. Bidder conferences
2. Advertising
3. Develop qualified sellers list
Inputs Outputs
1. Organizational process assets 1. qualified sellers list
2. Procurement management 2. Procurement document
plan package
3. Procurement documents 3. Proposals


Input
n Organizational Process Assets
Some organizations, as part of their organizational process
assets, maintain lists or files with information on prospective
and previously qualified sellers, sometimes called bidders, who
can be asked to bid, propose, or quote on work. These lists will
generally have information on relevant past experience and
other characteristics of the prospective sellers. Some
organizations maintain preferred sellers lists that include only
sellers already selected through some qualification
methodology.
n Procurement management plan

n Procurement Documents
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Tools and Technique
n Bidders’ conference – Meetings with

prospective sellers prior to preparation of a
proposal
n Ensure all prospective sellers have a clear,
common understanding of the procurement
n Responses to questions may be incorporated into
the procurement documents as amendments
n Advertising – Placing advertisements in

general-circulation publications, such as
newspapers, or in specialty publications,
such as journals


Output
q Qualified sellers list

q Procurement document package : Is a buyer-
prepared formal request sent to each seller and is
the basis upon which a seller prepares a bid for
the requested products, services, or results that
are defined and described in the procurement
documentation.
q Proposals – Seller-prepared documents that
describe the seller’s ability and willingness to
provide the requested product, proposal can be
supplemented with an oral presentation
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Select Seller
The receipt of bids or proposals, and the

application of the evaluation criteria in
order to select a provider

Select Seller
Inputs Tools & Techniques

1. Organizational process assets 1. Weighting system
2. Procurement management Plan 2. Independent estimates
3. Evaluation criteria 3. Screening system
4. Procurement document package 4. Contract negotiation
5. Proposals
5. Seller rating system
6. Qualified sellers list
6. Expert judgment
7. Project management plan
• Risk register 7. Proposal evaluation techniques
• Risk related contractual agreements
Outputs
1. Selected sellers 4. Resource availability
2. Contract 5. Requested changes
3. Contract management plan 6. Procurement management plan (updates)
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Select Seller
Input
n Organizational Process Assets: Formal or
informal policies that can affect the evaluation of
proposals
n Evaluation criteria – May include samples of the

suppliers previously produced products/services for the
purpose of providing a way to evaluate their
capabilities and quality of products

Select Seller
Tools and Technique
n Weighting system
n Select a single source, who will be asked to
sign a standard contract
n Rank and order all proposals to establish a
negotiating sequence
n Select a short list of qualified sellers, based

on a preliminary proposals and, then, a
more detailed evaluation of a more detailed
and comprehensive proposal

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Point Rating System

• Request for proposal 33 1/3 %
- Technical 50%
- Company 25%
- Previous experience 25%
n Presentation 33 1/3 %
- Team 60%
- Format 40%
n Price 33 1/3 %
- Day rates 85%
- Expenses 15%
n Overall 100%
Criteria for Weighting Suppliers

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Select Seller
Tools and Technique
Independent estimates : For many procurement items , the
procuring organization may prepare its own independent
estimates as a check on proposed pricing .
Screening System : Involves establishing minimum

requirements of performance for one or more of the evaluation
criteria

Select Seller
Tools and Technique
n Contract negotiation – Involves

clarification and mutual agreement on the
structure and requirements of the contract,
prior to the signing of the contract
n Final contract language should reflect all

agreements reached
n Include responsibilities and authorities, applicable
terms and laws, technical and business
management approaches, contract financing, and
price

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Select Seller
Tools and Technique
n Rating Systems : Seller rating systems are
developed by many organizations and use
information such as the seller’s past performance,
quality ratings, delivery performance, and
contractual compliance.
n Expert Judgment
n Proposal Evaluation Techniques: Many
different techniques can be used to rate and score
proposals, but all will use some expert judgment
and some form of evaluation criteria

Select Seller
Output
n Selected Sellers : are those sellers who have been judged to
be in a competitive range based upon the outcome of the proposal
or bid evaluation, and who have negotiated a draft contract, which
will be the actual contract when an award is made.
Contract – A mutually binding agreement that obligates the seller to
provide the specified product, and obligates the buyer to pay for it
n A contract is a legal relationship subject to remedy in the courts
n It may be called a contract, an agreement, a subcontract, a
purchase order, or a memorandum of understanding
n The review-and-approval process should ensure that the
contract language describes a product or service that will
satisfy the need identified

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Select Seller
Output
n Contract Management Plan: The plan

covers the contract administration activities
throughout
n Resource Availability
n Procurement Management Plan
(Updates)
n Requested Changes

Contract Administration
Ensuring the seller’s performance meets

contractual requirements
• The legal nature of the contractual relationship

makes it imperative that the project team be
acutely aware of the legal implications of
actions they take during administration of the
contract
• Payment terms should be defined within the

contract and should link progress made with
compensation paid
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Applying the appropriate PM processes

to the contractual relationships
n Direct and Manage Project Execution – To authorize the

contractor’s work at the appropriate time
n Performance reporting – To monitor contractor’s cost,
schedule, and technical performance
n Quality control – To inspect and verify the adequacy of the
contractor’s product
n Change control – To ensure that changes are properly
approved and that the appropriate stakeholders are made aware
of such changes
n Risk Monitoring and Control - to ensure that risks are mitigated.
Inputs Tools & Techniques

1. Contract 1. Contract change control system
2. Contract management plan 2. Buyer conducted performance
3. Selected sellers review
4. Performance reports 3. Inspections & audits
5. Approved change requests 4. Performance reporting
6. Work performance 5. Payment system
information 6. Claims administration
7. Records management system
8. Information technology
Outputs
1. Contract documentation 5. Project management plan (updates)
2. Requested changes - Procurement management plan
3. Recommended corrective actions - Contract management plan
4. Org. process assets (updates)

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Input
n Approved Change requests –

Modifications to the terms of the contract or
to the description of the product or the
service to be provided. Contested changes
are called claims, disputes, or appeals.
n Work performance information – Status
of deliverables, to what extent quality
standards are being met, and costs incurred
or committed are collected as part of the
project plan execution

Tools and Technique
n Contract change control system –

Defines the process by which the contract
may be modified. It includes:
n Paperwork
n Tracking systems
n Dispute-resolution procedures
n Approval procedures
n Performance reporting
n Payment system

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Tools and Technique
n Buyer-Conducted Performance Review: A procurement performance
review is a structured review of the seller’s progress to deliver project scope and
quality, within cost and on schedule, as compared to the contract.
n Inspections and Audits: can be conducted during execution of the project to
identify any weaknesses in the seller’s work processes or deliverables.
n Performance Reporting : provides management with information about how
effectively the seller is achieving the contractual objectives.
n Payment system – Handled by the accounts payable system of the performing

organization. The system must include the appropriate reviews and approvals by
the project management team.
n Claims Administration: Contested changes and constructive changes are
those requested changes where the buyer and seller cannot agree on
compensation for the change changes
n Records Management System: is used by the project manager to manage
contract documentation and records. The system is used to maintain an index of
contract documents and correspondence, and assist with retrieving and archiving
that documentation.
n Information Technology

Output
n Contract documentation :Contract documentation includes, but is
not limited to, the contract along with all supporting schedules, requested
unapproved contract changes, and approved change requests. Contract
documentation also includes any seller-developed technical
documentation and other work performance information, such as
deliverables, seller performance reports, warranties, financial documents
including invoices and payment records, and the results of contract-
related inspections.
n Requested Changes.
n Recommended Corrective Actions
n Organizational Process Assets (Updates)
• Correspondence. Contract terms and conditions often require written
documentation of certain aspects of buyer/seller communications, such as
warnings of unsatisfactory performance and requests for contract changes
or clarifications. This can include the reported results of buye r audits and
inspections that indicate weaknesses the seller needs to correct.
• Payment schedules and requests.
• Seller performance evaluation documentation.

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Contract Close Out
Completion and settlement of the contract,

including resolution of any open items

Contract Close Out
Inputs
1. Procurement management plan Tools & Techniques
2. Contract management plan 1. Procurement audits
3. Contract documentation 2. Records management system
4. Contract closure procedure 4.7.3.2.
Outputs
1. Closed Contracts
2. Organizational process assets (updates)

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Contract Close Out

Input
Contract documentation – Includes, but not

limited to:
• Contract
• Supporting schedules
• Requested and approved contract changes
• Seller-developed technical documentation
• Seller performance reports
• Financial documents (e.g., invoices and payment
records)
• Results of any contract-related inspections

Contract Close Out

Tools and Technique
Procurement audits –Structured reviews

of the procurement process, from
procurement planning through contract
administration, conducted to identify
successes and failures (lessons learned)

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Contract Close Out

Output
n Closed contracts
The buyer, usually provides the seller with formal written notice that the
contract has been completed.
n Organizational Process Assets (Updates)
• Contract file. A complete set of indexed contract documentation, including
the closed contract, is prepared for inclusion with the final project files
• Deliverable acceptance. The buyer, usually through its authorized contract
administrator, provides the seller with formal written notice that the
deliverables have been accepted or rejected. Requirements for formal
deliverable acceptance, and how to address non-conforming deliverables, are
usually defined in the contract.
• Lessons learned documentation. Lessons learned analysis and process
improvement recommendations are developed for future purchasing and
acquisition planning and implementation.


Processes and Key Outputs
Plan Purchases Plan Request Select Contract Contract

and Contracting seller Sellers Administration Closeout
Acquisitions Responses
Complete
Make Or Issue Receive Formally
Award Substantial
buy RFP Proposal Close
contract amount of
decision Contract
work

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Source Selection
Definitions
n Request for Proposal (RFP)

n Request for a price and a proposed method
of meeting requirements
n Often used when both price and technical
evaluation determine winners
n Request for Quote (RFQ)

n Request for materials or services
n Price-driven

Source Selection
Definitions
n Warranty
n A promise about a product made by either a
manufacturer or seller.
n Part of a contract, the truth of which is
necessary to the validity of the contract
n Implied Warranty – a guarantee imposed

by law in a sale
n Express Warranty – an assertion or

promise concerning goods or services

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Summary
n Review Questions

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PMBOK® Multiple Choice Quiz
1. A project manager is working on a project for a large technology

integrator. His project calls for Java technology. He needs to
supplement his technical staff for 1 month because his company does
not have this skill set due to unexpected leaves of absence in the
technical team. He will manage the vendor's work since he wants to
retain control. Which would be the BEST type of contract?
A. CPFF (Cost plus fixed fee)

B. T&M (Time and materials).
C. FP (Fixed price)
D. No contract is needed. A simple purchase order will work.
b) T&M (Time and materials) , this is short duration and small

dollar amount T & M is good choice for staff augmentation
2. The seller tells you that your

activities have resulted in an
increase in their costs. You should
A. Issue a change to the project costs
B. Have a meeting with management
C. Ask the seller for supporting information
D. deny any wrongdoing
C) Ask the seller for supporting information

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3. Your company has an emergency and needs

contracted work done as soon as possible. Under
these circumstances, which of the following would
be the MOST helpful to add to the contract?
A. Requirements about which subcontractors can be
used
B. A clear scope of work
C. Incentives
D. A force major clause
C) Incentives , helps to bring seller’s objectives in line with

buyer’s
4. During the execution of your project, the seller

loses key personnel who were working on your
project. What is generally the BEST thing for the
project manager to do?
A. Remind the seller of the next delivery due date
B. Contact the other bidding vendors and see if one could
complete the project
C. Work closely with the seller to review the qualifications of
any replacement staff
D. Attempt to hire the people to work directly for you
C) Work closely with the seller to review the qualifications of

any replacement staff
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5. You are managing procurement for a project and

have arranged a bidders' conference with the
potential proposals. All of the following are
appropriate for a bidders' conference EXCEPT?
A. A walkthrough of the project scope
B. Explanation of why particular terms and conditions are in
the contract
C. A request for bidders to offer their thoughts on problems
with the scope of the work
D. Working with the bidders to determine alternative solutions
for the project
D) Working with the bidders to determine alternative solutions

for the project (it may include in bids or proposal not now)
7. A seller is giving you so much trouble that your time available allocated
to the project has gone from 20% to over 80% for this small piece of
the overall project. Most of the seller's deliverables are late and
inadequate and you have little confidence in his company's ability to
complete the project. What should you do?
A. Assign a group within your team to meet with the seller and
reassign project work so that the seller has easier work to
accomplish
B. Terminate the seller for convenience and hire another seller
C. Meet with the seller to discover the cause of the problem
D. Provide some of your own staff to augment the seller's staff
B) Terminate the seller, because this is a small piece of the

overall project and you have low confidence level

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8. With which type of contract is the seller

MOST concerned about project scope?
A. Time and material
B. Cost plus fixed fee
C. Fixed price
D. Purchase order
C) Fixed price

9. A contract has just been signed with a construction

company to complete a remodeling project within three
months. Due to force major, the project will be delayed by
an additional three months. The construction company has
asked for an early termination of the contract due to lack of
resources. What is the MOST appropriate thing to do in this
situation?
A. Seek legal advice
B. Complete administrative closure
C. Complete contract closeout
D. Renegotiate the contract
C) Complete contract closeout, (because we have uncontrollable

risk)
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10. A project manager for a large international bank has a project

team that just implemented an electronic funds project involving
four large vendors. The project manager struggled through every
phase of the procurement process since the bank had a weak
internal contracts department. What would be the MOST
appropriate thing to do to ensure the problems are resolved for
future projects?
A. Document all of the issues in a memo and schedule a
meeting with the head of the contract office
B. Include an agenda item in the project closedown to discuss
these issues in a no threatening manner
C. Address this through contract change control
D. Conduct a procurement audit
D) Conduct a procurement audit , it is structured review that

flush out issues and set up lessons learned
11. During negotiations, the seller tells you he wants

to work with you, but if he does not have a
signed contract by tomorrow, he will not be able
to obtain the equipment needed to meet your due
date. In view of this, you should issue an:
A. contract.
B. letter of intent.
C. change order.
D. addendum.
B) letter of intent, it gives the seller more confidence for buyer’s

commitment
2/8/2006
12. You have just finished most of the work on a new systems
integration project when the seller comes to you with
detailed procedures for closeout of the contract. The
contract included closeout procedures. What should you do?
A. Revise the closeout procedures after getting management's
approval
B. Get a change order
C. Create new procedures that are more complete
D. Assess the quality of the seller's new detailed procedures
and if they are better than the current procedures, use
them
B) Get a change order, this is a change to the contract,

procedures are the same as work, if the work change ,change
order should be issued Akram Al-Najjar, PMP.
13. Under a seller agreement, formal, written

correspondence with the seller is required
when:
A. a meeting with the seller's management is held.
B. a change to the project is issued.
C. the seller is asked for supporting information.
D. there is a follow up to a conversation.
B) a change to the project is issued, procurement is very formal

processes ,any change need to be fully documented

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2/8/2006

PMP Preparation Training

Your key in Successful Project

Akram Al-Najjar, PMP

Akram Al-Najjar, PMP.

What is Procurement Management?

Akram Al-Najjar, PMP.

§Project Procurement Management include the processes required to

12.1 Plan Purchases and Acquisitions

Performance Resource availability

Akram Al-Najjar, PMP.

Project Procurement Management

n Plan Purchases and Acquisitions : determining what to

n Buyer – The customer

Akram Al-Najjar, PMP.

Project Procurement Management

Plan Purchases Plan Request Select Contract Contract

Akram Al-Najjar, PMP.

Akram Al-Najjar, PMP.

Plan Purchases and Acquisitions

It identifies which project needs can best be

n Includes consideration of potential subcontracts

Akram Al-Najjar, PMP.

Plan Purchases and Acquisitions

n Plan Purchases and Acquisitions involves

Akram Al-Najjar, PMP.

Plan Purchases and Acquisitions

Tools & Techniques

Plan Purchases and Acquisitions

Plan Purchases and Acquisitions

n Make-or-buy analysis –This is a general management

n Expert judgment – Groups or individuals with

Akram Al-Najjar, PMP.

Plan Purchases and Acquisitions

n Fixed price – A fixed total price for a well-

Akram Al-Najjar, PMP.

Plan Purchases and Acquisitions

- Cost reimbursable contacts – Payment to

n Example : Contract = Cost plus a fee of $100,000.

Plan Purchases and Acquisitions

n Contract-type selection (cont.)

n Cost plus percentage of costs (CPPC): the

n Example : Contract = Cost plus 10% of cost as

Akram Al-Najjar, PMP.

Plan Purchases and Acquisitions

n Contract-type selection (cont.)

n Cost plus fixed fee (CPFF): the buyer pays the

n Example : Contract = Cost plus a fee of $

Akram Al-Najjar, PMP.

Plan Purchases and Acquisitions

Fee $210,000 - $200,000 = $10,000x20%=$2,000

Final price $200,000 + $ 27,000 = $ 227,000

Akram Al-Najjar, PMP.

Plan Purchases and Acquisitions

Fee $150,000 - $140,000 = $10,000x20%=$2,000

Final price $140,000 + $ 22,000 = $ 162,000

Akram Al-Najjar, PMP.

Plan Purchases and Acquisitions

Fee $150,000 - $210,000 = ($60,000x40%)= ($24,000)

Final price $210,000 + $ 6,000 = $ 216,000

Akram Al-Najjar, PMP.

Plan Purchases and Acquisitions