Chapter 10: Project Procurement

Management
  Overview of Project Procurement Management
  Plan Procurement Management Process
  Conduct Procurements Process
  Control Procurements Process
  Close Procurements Process
Overview of Project Procurement Management
Basic Concepts

A seller is offering goods or services.

A buyer is buying goods or services.

The contract outlines terms of

agreement between buyer and seller.

A contract is a legal, binding

document.
Contract
Project Manager’s Role in Procurement Contracts

Understand the contract and tailor the

contract to the project.
Protect the project by defining the scope
and ensuring that the work can be done.
Identify risks and incorporate risk
management into the contract.
Protect the relationship with seller.
Adjust the project schedule to include
enough time for the procurement
process.
Ensure that changes follow the contract
terms and the integrated change control
process.
Overview of Project Procurement Management
Major Processes

Project Procurement
Plan
Procurement Management
Management

Conduct
Procurements

Control
Procurements

Close
Procurementssure
Plan Procurement Management Process
Contract Types
Fixed-Price or Lump Sum Contracts
Characteristics and risks of fixed-price contracts:
The seller assumes the risks, such as higher costs or
nonperformance; sellers are motivated to decrease cost.

The seller sets the fixed total price to

compensate for taking the risk.
The seller must completely
understand the scope of work.
If the scope is not well-defined, the
buyer and the seller are both at risk.
The seller is legally obligated to complete
the contract.
If the scope changes, there is usually an
adjustment to the contract price.
Contract Types
Cost-Reimbursable or Cost Plus Contracts

Characteristics and risks of cost plus contracts:

Buyer assumes highest risk
since costs are uncertain.
Buyer must audit invoices
carefully.
No incentive for seller to control
costs unless there is a ceiling
price or a ceiling on costs.
Cost plus contracts often include an incentive
(or penalty).
Outputs
Procurement Management Plan

Procurement
management plan
  Contract types
  Lead times
  Procurement forms
  Integration
Outputs
Procurement Statements of Work

Describes needed work

Includes portion of product

Is negotiable

Can be written by buyer

or seller
Outputs
Procurement Documents

Procurement What it is looking

Contract Type
Document for….
Price, who will accomplish
RFP the work and how?
CP

IFB of RFB Price FP

RFQ Quote/price per item T&M
Outputs
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.
• If the decision is to make the item, then the
procurement plan may define processes and
agreements internal to the organization.
• A buy decision drives a similar process of reaching
agreement with a supplier for the product or
services.
Conduct Procurements Process
Tools and Techniques
Proposal Evaluation Techniques

Weighting system:
Evaluates proposals quantitatively
Independent estimate:
Prepared to verify seller estimates

Screening system:
Requires minimum criteria
Sellers rating systems:
Takes past performance into account

Expert judgment:
Proposals evaluated by multi-discipline review team
Tools and Techniques
Procurement Negotiations
Agree on a fair and reasonable price.

Establish a good relationship with the seller.

Control Procurements Process
Administer Procurements Process: Inputs
Activities by Contract Type

Fixed price
•  Make sure all work as defined in scope is being done.
•  Watch for overpriced changes to contract.

Cost plus
•  Monitor seller’s costs carefully.
•  Ensure resources assigned to project add value.
•  Make sure level of resources agreed upon are attained.
•  Ensure work is progressing efficiently.

Time and materials

•  Ensure work is progressing and schedule is not being extended.
•  Make sure most efficient form of contract is being used.
Tools and Techniques
Contract Change Control Systems
Why is change control more complex in a
contracted environment?

Analyze impact of change.

Follow change procedures specified

in contract.
Any changes to a contract must be
formally made.
Know who has authority to make changes to contract
and how changes must be processed.
Close Procurements Process
End of Chapter 10: Project
Procurement Management
  Overview of Project Procurement Management
  Plan Procurement Management Process
  Conduct Procurements Process
  Control Procurements Process
  Close Procurements Process