PROCUREMENT MANAGEMENT

12.1 Plan Procurements: The process of documenting project procuring decisions, specifying the approach, and identifying potential sellers.
(How, What, How Much and When) * Document Make/Buy decisions and define the purchasing approach.
* Buyers Risk (from Highest to Lowest) - CPFF - T&M - CPIF - FPIF - FFP * Commonly used & Preferred Type - FFP
* Direct Cost or Out-of-Pocket Cost * RFI - Request for Information * IFB - Invitation for Bid * RFB/P - Request for Bid/Proposal * RFQ - Request for
Quotation (Procurement Docs)
* IFB or RFB/P used for 1. Single Price, 2.High $ Value, 3. Standardized * RFQ used for 1. Per Item/Hour Price, 2. Lower $ Value, 3. May be used to
develop info in RFP
OP2 : Types of Procurement statement of work (1) Performance e.g. I want a car having 120 km speed in 4 seconds
(2) Functional – I want a car with 23 cup holders (3) Design – Build a car as per given design
OP5 : can be based on Understanding of need, overall or life-cycle cost, Technical capability, Risk, Management Approach, Warranty etc.
1. Requirements Documentation 1. Make-or-Buy Analysis 1. Procurement Management Plan
2. Activity Resource Requirements 2. Market Research 2. Procurement Statement of Work
3. Project Schedule 3. Expert Judgement (Performance/Functions/Design)
4. Activity Cost Estimates 4. Meetings 3. Procurement Documents
PLANNING

5. Risk Register 4. Make-or-Buy Decisions

6. Stakeholder Register 5. Source Selection Criteria
7. Project Management Plan 6. Change Requests
8. EEF 7. Project Document updates
9. OPA

It is based on PMBOK 5. Please note that these are my personal notes and created using several books, online forums, already created notes by others. If you have any suggestions please feel free to drop an email to
shraddha.pmp@gmail.com. There is no liability assumed for damages resulting from the use of information.
12.2 Conduct Procurements: The process of obtaining seller responses, selecting a seller, and awarding a contract.
* Receive responses from potential sellers and award the contract to the selected seller.
* It carries out the Procurement Management Plan, select one or more sellers and award the procurement, usually in the form of a Contract. * It is the
process of obtaining Seller Responses, Selecting a Seller/Sellers and Awarding Contract.
1. Procurement Management Plan 1. Advertising 1. Selected Sellers
2. Procurement Documents 2. Analytical techniques 2. Agreement
3. Source Selection Criteria 3. Bidder Conference (Vendor/Pre-bid/Contractor) 3. Resource Calendars
EXECUTING

3. Seller Proposal 4. Proposal Evaluation Techniques 4. Change Requests

5. Make-or-Buy Decisions 5. Independent Estimates ('Should-Cost' Estimate) 5. Project Management Plan Updates
6. Project Document 6. Procurement Negotiations 6. Project Document Updates
7. Procurement SOW 7. Expert Judgement
8. OPA

12.3 Control Procurements: The process of managing procurement relationships, monitoring contract performance, and making changes and corrections as
needed.
* Manage the relationships, monitor performance and make changes as necessary. * The buyer and seller review the contract and the work results to
ensure that the results match the contra contract. * Manages any early terminations of the contract work (for Cause, Convenience or Default) in
accordance with the Termination Clause in Contract.
1. Project Management Plan 1. Inspections and Audits 1.Work Performance Information
2. Procurement Documents 2. Procurement Performance Reviews 2. Project Documentation updates
3. Agreements 3. Performance Reporting 3. Change Requests
M&C

4. Approved Change Requests
5. Work Performance Reports
6. Work Performance Data
4. Contract Change Control System 4. Project Management Plan Updates
5. Payment System 5. Organizational Process Assets Updates
6. Claims Administration
7. Records Management System (Indexing,
Archiving, and Information Retrieval Systems)

It is based on PMBOK 5. Please note that these are my personal notes and created using several books, online forums, already created notes by others. If you have any suggestions please feel free to drop an email to
shraddha.pmp@gmail.com. There is no liability assumed for damages resulting from the use of information.
12.4 Close Procurements: The process of completing project procurement.
* Finalize and Close each purchasing contract. * When the contract is Completed or Terminated for any reason, this process is performed.
1. Project Management Plan 1. Procurement Audits (Review of Procurement 1. Closed Procurements
CLOSING

Processes - for capturing Lessons Learned)

2. Procurement Documentation 2. Procurement Negotiation 2. Organizational Process Assets Updates
3. Records Management System
# FFP - Risk is entirely shifted to the SELLER. It is very popular 'When the Scope of work is thoroughly defined & completely known'.
# FPIF - Point of Total Assumption (PTA) is a point in the contract where a subcontractor assumes responsibility for all additional costs.
PTA = Target Cost + ((Ceiling Price - Target Price) / Buyer's % share ratio)
# FP-EPA - Fixed Price with Economic Price Adjustment. It is popular where Fluctuations in Exchange Rates and Interest Rates. Economic Stipulation may be
based on the Interest Rates, the Consumer Price Index, Cost of Living Adjustments, Currency Exchange Rates or other Indices.
# T&M - The Buyer bears the most risk of Cost overruns. It is used when the SCOPE of work is not completely defined.

 Price – Amount seller charges the buyer

 Profit (fee) – This is planned into the price which seller states to the buyer
 Cost – How much an item cost a seller to create, develop or purchase.
 Target Price - end result of the project with what was expected ( target price) from buyer’s point of view
 Sharing Ratio – Incentives take the form of formula usually expressed as ratio
 Ceiling Price – highest price the buyer will pay
 Point of Total assumption – Only applies to FPIF – amount above which seller bears all the loss of cost
PTA = Target Cost + ((Ceiling Price - Target Price) / Buyer's % share ratio)
 Non-disclosure agreement – This is an agreement between the buyer and sellers stating the information or documents they will hold confidential and
control, and who will gain the access to it.
 Teaming agreement – Often two sellers believe that their chances of winning the work will enhance if they join together for one procurement. In this case
they will sign the teaming agreement. Closer to master service agreement or retainer contract e.g. Information service provider
 Terms and Conditions
1. Acceptance – how will you specifically know whether work is acceptable?
2. Agent – who is authorised representative for each party
It is based on PMBOK 5. Please note that these are my personal notes and created using several books, online forums, already created notes by others. If you have any suggestions please feel free to drop an email to
shraddha.pmp@gmail.com. There is no liability assumed for damages resulting from the use of information.
 3.Arbitration – uses private third party to resolve disputes
4.Assignment – one party assigns right to another party based on circumstances
5.Authority – who has the power to do
6.Bonds – e.g. payment bond protects the buyer from claims of non-payment by seller
7.Breach / default – This occurs when any obligation of contract is not met. (e.g. not completing an item stated in contract ‘seller’s breach’
cannot be handled by buyer stopping ALL the payment ‘buyer’s breach’
8. Confidentiality – what information must not be made known
9. Dispute Resolution – how the disputes will be settled
10. Force Majeure – Act of God, such Fire or storm, allowable excuse for either party not meeting contract requirements.
Workers Strike: The situation described is probably a force majeure. The appropriate response to a force majeure is to extend the contract.
11. Incentives – benefits seller receive for aligning buyer’s objectives
12. Indemnification (Liability) – who is liable for personal injury or damage
13. Independent Contractor – seller is not an employee of buyer
14. Intellectual Property – who owns patents, trademark, copyrights, source code, books etc
15. Liquidated Damages – estimated damages for specific defaults
16. Material breach – May not be possible to complete the work under the contract
17. Retainage – amount of money withheld from each payment. Money is paid when final work is done.
18. Time is of essence – phrase means delivery dates are strictly binding.
19. Waivers – statements saying that rights under the contract may not be waived or modified
20. Work for hire – work provided under the contract will be owned by buyer
 Letter of Intent – Getting through contract negotiations and getting final contract signatures can take time. If the contract is not signed in time then seller
may ask buyer to prove a letter of intent. It is intended to give the seller confidence that the contract will be signed soon and make them comfortable
with risk of ordering equipment if required any. It is simply a letter without legal binding
 A fair contract shares a reasonable amount of risk between the buyer and the seller.
 Privity is a confidential agreement between the buyer and seller.
 An SOW can be a contract if both parties agree to the SOW and sign the document as a contract.
 A single source seller means there is only one seller the company wants to do business with.
It is based on PMBOK 5. Please note that these are my personal notes and created using several books, online forums, already created notes by others. If you have any suggestions please feel free to drop an email to
shraddha.pmp@gmail.com. There is no liability assumed for damages resulting from the use of information.
  An IFB is typically a request for a sealed document that lists the seller’s firm price to complete the detailed work.
 Contracts are legal documents and, therefore, generally require more sign-offs.
 Look again at the question. Ask yourself "How many computers does the contract say?" Did you read it as twenty (25)? This is an example of a conflict in
the contract. The intent of the contract can be determined by remembering that words are more binding than numbers. Therefore, you should return the
five extra computers.
 This is an example of privity. Because Companies A and C have no legal relationship, Company A cannot direct Company C. The smart thing to do is for the
project manager of Company A to call the project manager from Company B, and have him communicate the directive from Company A.
 Contract that limits fees for large projects with limited scope definition is cost plus fixed fee.
 Generally in procurement situations, a change control board might review and approve or reject a change, but only the procurement manager has the
authority to sign a change.
 The time and material contract is the easiest to negotiate and allows for rapid turnaround. If you didn't have the time constraint, you would select a fixed
price contract

It is based on PMBOK 5. Please note that these are my personal notes and created using several books, online forums, already created notes by others. If you have any suggestions please feel free to drop an email to
shraddha.pmp@gmail.com. There is no liability assumed for damages resulting from the use of information.
Contract Types

Fixed Price Cost Reimbursable Time and Material

Firm Fixed Price (FFP)
 e.g. Buyer will pay total $285,000 for 18
months of technical Support
 risky for seller as Procurement statement of
work is given in detail
Fixed Price Plus Incentive Fee (FPIF)
e.g. Buyer will pay total $285,000 for 18 months
of technical Support and additional $2000 will be
awarded each month if seller provides average 10
issues resolved per person with 3 min wait time
Cost Plus Fixed Price (CPFF)  e.g. Buyer will pay for cost of phone service,
e.g. Buyer will pay for phone service, rent and rent plus $4000 per month for an employee
employee cost plus $ 2500 per month but total cost should not exceed by $14500
per month
 Buyer may put “Not to Exceed” clause
 Buyer bears the risk
Cost Plus Incentive Fee (CPIF)
e.g. Buyer will pay for cost of phone, rent and
employees. Additional $2000 will be awarded
each month if seller provides average 10 issues
resolved per person with 3 min wait time

Fixed Price Economic Price Adjustment (FD-EPA) Cost Plus Award Fee (CPAF)
 It is fixed price contract but final adjustments e.g. Buyer will pay for cost of phone, rent and
can be modified based on changed conditions employee and additional $5000 will be paid for

It is based on PMBOK 5. Please note that these are my personal notes and created using several books, online forums, already created notes by others. If you have any suggestions please feel free to drop an email to
shraddha.pmp@gmail.com. There is no liability assumed for damages resulting from the use of information.
 such as inflation or increase/decrease for exceptional performance
specific commodity
 Protects both buyer and seller

Purchase Order
 e.g. Contract to purchase 30 linear meters of
wood at $ 9 per meter
 Unilateral (signed by one party)

Fixed Price Cost Reimbursable Time and Material

Advantages Advantages Advantages

 Less work for buyer to manage  Simpler procurement statement of work  Quick to create
 Buyer knows total price before contract  Usually requires less work to define scope  Contract duration is brief
begins  Lower cost than FP  Good choice when you are hiring “Bodies”

Disadvantages Disadvantages Disadvantages

 More work for the buyer to write  Requires auditing seller’s invoices  There is a profit for seller in every hour billed
procurement statement of work  More work for the buyer  The seller has no incentives to control cost
 Seller may try to not complete some of the  Total price is unknown  Appropriate only for small projects
procurement statement of work if they start  Buyer has the cost Risk  Requires day-to-day oversight from the buyer

It is based on PMBOK 5. Please note that these are my personal notes and created using several books, online forums, already created notes by others. If you have any suggestions please feel free to drop an email to
shraddha.pmp@gmail.com. There is no liability assumed for damages resulting from the use of information.
 getting loss.
 Seller has the cost Risk

It is based on PMBOK 5. Please note that these are my personal notes and created using several books, online forums, already created notes by others. If you have any suggestions please feel free to drop an email to
shraddha.pmp@gmail.com. There is no liability assumed for damages resulting from the use of information.