ProjectProcurementManagement LectureSlides (Final)

[Lecture 1]
Tashfeen Riaz
PgMP, PMP, PMI-ACP, LIMC
[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 2
Credentials
 Program Management Professional (PgMP)
 Project Management Professional (PMP)
 PMI Agile Certified Practitioner (PMI-ACP)
Education
 PMI Leadership Institute Masters Class Graduate (LIMC)
 Masters in Project Management, Szabist
 Bachelors in Engineering (IT), UET
Professional Experience
 IT & Telecom Sectors
 Procurement, and
 Project Management
Teaching/Training Experience
 NUST
 Bahria
 Szabist
 Air University
Association with PMI

 President, PMI IPC
 Foremer-VP Professional Development, PMI IPC

Email: tashfeen@tashfeenriaz.com
Facebook: www.facebook.com/tashfeenriaz/
Linkedin: www.linkedin.com/in/tashfeenriaz/
My Blog: www.tashfeenriaz.com
Cell: 0345-8550439
Communication Rules:
• Communication should be limited to clarifications related to course work.

• No requests for attendance, or marks adjustment, extending of deadlines, or
other requests of similar nature

 Punctuality  Adherence to
 Attendance University Policies
 Discipline  Attendance
 Cell Phone Policy  Dress Code
 Communication  No Smoking
 Active Listening  Any future policies
 Mutual Respect

GRADING BREAKUP
Assessment Area %
Mid-Term 30
Quizzes (2) 10
Assignments (2) 10
Final Project 10
Final Exam 40
REFERENCE BOOKS
# Books
Primary PMBoK Guide (6th Ed)
Secondary Rita Mulcahy’s PMP Exam Prep (9th Ed)

COURSE DESCRIPTION COURSE OBJECTIVE
 To acquaint students with  To equip participants with theoretical

as well as practical knowledge of
necessary tools of project standard project procurement and
procurement and contract contracting practices used to develop
a comprehensive Project Procurement
management, and equip them Plan and enable them to make
with the knowledge to help contract award decisions.
them prepare for managing  The course will expose the attendees
supplier relationships in real to the in vogue procurement rules and
practices in the industry and will help
world projects. them to follow and set standards of
good practices within their individual
fields of work.

1. Project procurement 4. Understanding elements in
management process procurements involving
interactions as per PMI’s international suppliers
framework, as well as
industry best practices 5. Managing relationship with
suppliers, measuring
2. Understanding different performance, and closing
types of purchasing the procurement
contracts in both predictive relationships
and adaptive environments
3. Developing a project-
specific procurement
strategy and model for
evaluating supplier bids and
awarding contracts.

 Includes the processes to purchase or acquire
products, services, or results needed from outside the
project team (organization can be buyer or seller)
 Includes management and control processes required

to develop and administer contracts, P.O’s, MOUs, or
SLA’s
 Personnel responsible for project procurements may

be project team members, management, or part of
the organization’s procurement department

 Plan Procurement Management: Involves identifying
 What To Buy
 How to Buy
 Who to Buy from
 Conduct Procurement Management: Involves

 Obtaining Seller responses
 Selecting a seller
 Awarding a Contract
 Control Procurement Management: Involves

 Managing relationship with sellers
 Monitoring performance against the contract
 Making changes/corrections/adjustments if required
 Closing out contracts
Process Process Group Key Output(s)
Plan Procurement Planning Procurement Management Plan
Management Procurement Strategy
Bid Documents
Conduct Procurements Executing Selected Sellers
Agreements
Resource Calendars
Change Requests
Control Procurements Monitoring & Controlling Work Performance Information
Change Requests
Closed Procurements
OPA Updates

 As part of procurement planning, the Buyer organization
analyzes whether the required goods, services or results,
may be ‘made’ by the project team, or should be ‘bought’
from a Supplier
 Both options are analyzed from cost, technical expertise,
and strategic perspective.
 Buyer proceeds with procurement planning, only if ‘buy’
option is more feasible.
 If the ‘make’ options comes out to be more feasible,
procurement is not conducted and the requirement is
assigned to the project team to undertake.

Requirements:
 Phantom Enterprises has been awarded with a project to develop
a 500-house town, near the new Islamabad Airport. The project
must be completed within three years.
 The project site is deserted and isolated, and the area is notorious
for car-snatching.
 The project team at Phantom Enterprises has decided to mitigate
this risk by using vehicle tracking service.
 For this, they want to select a Seller who has the expertise in
providing vehicle tracking services.
 They have documented the details of this requirement as follows:

 Vehicle tracking hardware, installation and maintenance
 Base station at project site for centralized fleet monitoring.
 This would include :
▪ Base station personnel:
▪ Base station hardware/software, installation and maintenance
▪ Tracking application, upgrades, support and maintenance
 Monthly reports of fleet tracking

 Web-access: Tracking application must be accessible online
anywhere through internet.
 Vehicle tracking service for entire fleet (120 vehicles)

MAKE BUY
 Purchase of new servers and  Purchase and installation of

equipment (PKR 2.5 Million) vehicle tracking devices (PKR
 Purchase and installation of 60,000 per device)
vehicle tracking devices (PKR  Avg. Vehicle tracking service:
60,000 per device) PKR 2500 per month per vehicle
 Application development for  Personnel: 2 x 3 shifts. Avg.
fleet management at Base Salary: PKR 25,000
Station (PKR 2 Million)  Advantages/Disadvantages?
 Personnel: 2 x 3 shifts. Avg.  Time Required to setup?
Salary: PKR 25,000
 Advantages/Disadvantages?
 Time Required to setup?

 What if the project was only ‘12 month’s in
duration. What would be your decision
 At what time (no. of months) will the ‘Make’

and ‘Buy’ costs be the same.

[Lecture 2]
Tashfeen Riaz
 What To Buy Procurement Statement of Work
 How to Buy
 Who to Buy from Procurement strategy, competitive/non
competitive process, type of contract to be used



 Scope of work to be done on each procurement
 Achieved by: Breaking down the project into scope baseline.
 Some of this work is to be done by project team
 The remaining is to be done by Supplier(s)
 Procurement Statement of Work: Work to be done on each
procurement
 Must be clearly, complete, concise – must describe “ALL THE

WORK” and activities seller is required to complete
 ALL THE WORK must include:
 Meetings, reports, communications, acceptance criteria, process of
gaining acceptance
 Functional and/or performance requirements

 Performance-based:
 Conveys what final product should perform e.g. ‘A car that will to 120 km/hr in 5 seconds’
 You get what you need
 Highly preferred. Offers most competition and low cost
 Functional-based:
 Conveys the end product or result e.g. A car with 6 car-seats, and 6 cup-holders
 You get what you want
 Moderately preferred. Offers moderate competition and moderate cost
 Design-based:
 Conveys precisely what word is to be done e.g. A car to be built precisely as per the drawings.
Includes materials to be used, and explanation of how work should be completed
 You get what you specify
 Least preferred. Offers least competition and high cost
 Choice depends on nature of work, industry, and the amount of detail that can be
provided about the work

 Develop procurement statement of work of
each type, for the following scenario:
 Your organization needs to purchase

‘centralized data storage’ to provide data
storage to its employees.

 Performance-based:
 A Scalable data storage solution, that could support 100 users at a time, with a minimum data-access speed
of 10 Mbps.
▪ In response, Sellers may offer:
▪ In-house data center solution (in your office)
▪ Shared data center solution (they already have a data center, and will add another storage server for your)
▪ Cloud Solution (like Microsoft Azure, Amazon Web Services Cloud etc.)
▪ This allows sellers to offer various solutions – all serving the same purpose. But whatever they offer, they will be
responsible for its performance that you have demanded
 Functional-based:
 A data storage server, with a capacity of 500 TB, and 64 GB RAM, from HP/Dell or equivalent brand
▪ In response, sellers may offer only HP, or Dell, or any similar server
▪ Lesser options
▪ Sellers would not be responsible if the server is slow etc.
 Design-based:
 A data storage server of the exact shape, size and schematics (drawing attached)
▪ In response, sellers may offer anything that fits into the provided drawing or description
▪ Very few options
▪ Complete responsibility on the Buyer. Seller only has to ensure that the server matches the physical features
 Although, a design based procurement statement of work would hardly be applicable to a server, and only
used as an example here, but it is frequently used in construction projects (construction of a building as per
the architectural drawings)

 Fixed Price (FP, Lump Sum, Firm Fixed Price)
 Buyer pays a fixed amount to Seller
 Used for acquiring goods, products, or services with well-defined
specifications or requirements
 Time & Material (T&M)

 Buyer pays on a per-hour or per-item basis
 Typically used for service efforts in which the level of effort cannot be
defined when the contract is awarded.
 Cost-Reimursable (CR)
 Buyer pays on a per-item basis
 Typically used when the exact scope of work is uncertain and,
therefore, costs cannot be estimated accurately enough when the
contract is awarded

YOUR REQUIREMENT SUPPLIER’S OFFER
 An organization needs to  Generator Supply and Installation:
purchase an 820 KVA diesel PKR 10 Million
 Including import from China, and
generator delivery and installation at your office
 They are in search of a supplier  24x7 Onsite Support: PKR 10,000

who would be responsible for: per visit
 Supply and Installation of 1  Our technical team will arrive at the
location, within 2 hours of being
generator informed of a breakdown
 Provide 24x7 onsite support in case  Parts Replacement: Actual Cost +

of a breakdown 20% Service Charges
 Actual cost of any replacement
components + 20% of cost of
 Arrange for replacement any faulty components (as service charges)
components

Both quantity and price are known. A
 Generator Supply and Installation: PKR 10 Million Fixed price contract may be formed
 Including import from China, and delivery and installation at
your office
Only unit price known, not the
 24x7 Onsite Support: PKR 10,000 per visit quantity (i.e. at the time of contract
 Our technical team will arrive at the location, within 2 hours signing, it is unknown how many
of being informed of a breakdown times the generator will breakdown.
A Time & Material contract can be
 Parts Replacement: Actual Cost + 20% Service Charges used
 Actual cost of any replacement components + 20% of cost of
components (as service charges)
Neither unit price, nor the quantity is

known (i.e. at the time of contract
signing, it is unknown how many and
which components will need to be
replaced, and what will be their cost) .
A Cost Reimbursable contract can be
used

[Lecture 3]
Tashfeen Riaz
 How to Buy
 Who to Buy from Procurement strategy, competitive/non competitive
process, type of contract to be used


 Contract: A written or spoken agreement, that is intended to be enforceable by law e.g.
employment, sales, tenancy, provision of services, or other business transactions
 A very important document as it governs the relationship between two business parties
 E.g. a Buyer intends to purchase material from a Supplier, for use on a project. Both parties
get into a contract under which the Supplier is bound to deliver the goods at the agreed-
upon time, and the Buyer is bound to make payments as agreed.
 Procurement Manager select the contract type, most suitable for each procurement, based
on:
 What is being purchased (goods, or services)
 Completeness of statement of work
 Level of effort and expertise required to manage the seller
 Incentives for supplier based on meeting certain criteria (e.g. early completion, or meeting quality
standards etc.)
 Marketplace or economy
 Industry standard for the type of contract used

 Offer and Acceptance
 A contract is formed when an offer by one party is accepted by the other party.
 Intention To Create Legal Relation

 The intent of the parties to the agreement must intend to enter into a legally binding
agreement.
 E.g. Offering a free ride, or offering a paid ride
 Consideration
 The price paid to the other party
 Must have some value, though not necessarily be money
 Legal Capacity
 The capacity, authorized by law, to enter into a contract.
 Mentally impaired, minors, bankrupts, prisoners etc. may not get into a contract
 Free Consent
 The elements of free will and proper understanding of what each of the parties is doing. The
consent of each of the parties to a contract must be genuine.
 Free will may be affected by: mistake, duress, undue influence,

 Lawful Objective/Legality of Purpose
 The purpose of the contract must be legal. Contracts for illegal purposes are void
 E.g. Purchase of 1 kg of cocaine
 Certainty of Meaning.
 Agreement the meaning of which is not Certain or capable of being made certain are void.
 Possibility of Performance.
 If the act is impossible in itself, physically or legally, if cannot be enforced at law.
 E.g. Mr. A agrees with B to discover treasure by magic
 Other reasons
 Not all contracts are enforced by law e.g.
 E.g. a contract to commit a crime, sexually immoral, prejudice public safety, relations with
other countries

Contract Type Unit Price/Item Total Quantity Example
Fixed Price Known Known 1 Diesel Generator x PKR 10

Million
Time & Material Known Unknown PKR 10,000 per visit for
generator repair (how many
visits i.e. qty is unknown)
Cost Reimbursable Unknown Unknown Any spare parts (which

parts will need
replacement, and their
price, are both unknown)

 Fixed Price (FP, Lump Sum, Firm Fixed Price)
 Buyer pays a fixed amount to Seller
 Used for acquiring goods, products, or services with well-defined
specifications or requirements
 Time & Material (T&M)

 Buyer pays on a per-hour or per-item basis
 Typically used for service efforts in which the level of effort cannot be
defined when the contract is awarded.
 Cost-Reimursable (CR)
 Buyer pays on a per-item basis
 Typically used when the exact scope of work is uncertain and,
therefore, costs cannot be estimated accurately enough when the
contract is awarded

 Fixed-price contracts  Cost-reimbursable
 Firm Fixed Price contracts
Contracts (FFP).  Cost Plus Fixed Fee
 Fixed Price Incentive Fee Contracts (CPFF).
Contracts (FPIF).  Cost Plus Incentive Fee
 Fixed Price Award Fee Contracts (CPIF).
Contract (FPAF)  Cost Plus Award Fee
 Fixed Price with Contracts (CPAF).
Economic Price
Adjustment Contracts  Time and Material
(FP-EPA). Contracts (T&M).

Fixed Price Contracts (FP)  Example
 A 1 kanal house is to be
 Firm Fixed Price (FFP) constructed as per the
 Buyer agrees to a fixed, drawings, within 12
unchangeable, price months
against a fixed,
unchangeable,  Price: PKR 10 Million
procurement scope of
work
 Typically used where the
procurement statement of
work is known to
maximum possible detail,
and is no changes are
expected

 Fixed Price Incentive Fee  Example:
(FPIF)  A 1 kanal house is to be
 Buyer agrees to a fixed constructed as per the
price, and offers an drawings, within 12
‘adjustable Incentive’ months
based on the seller
meeting specified  Price: PKR 10 Million plus
performance criteria ▪ PKR 1 Million for each month
of early completion, or
 Typically used when Buyer
wants Seller to ‘exceed’
the minimum performance
requirements e.g. getting
the work done faster,
cheaper, or better.

 Fixed Price Award Fee (FPAF)  Example:
 A 1 kanal house is to be constructed as per
 Buyer agrees to a fixed price, and the drawings, within 12 months
an award amount (a bonus) based
on performance.  Price: PKR 10 Million plus
▪ PKR 1 Million for each month of early
 Similar to FPIF, except the total completion, upto a maximum of PKR 3
Million, or
possible award amount is
determined in advance, and
apportioned based on
performance
 Typically used when Buyer wants

Seller to ‘exceed’ the minimum
performance requirements – but
does not want to ‘exceed’ a pre-
determined ‘performance
incentive’

 Fixed Price Economic  Example
Price Adjustment  A 1 kanal house is to be
(FPEPA) constructed as per the
 Buyer agrees to a fixed drawings, within 12
price, and allows an months
adjustment to the price
based on economic  Price: PKR 10 Million plus
indicators ▪ Adjustment equal to the

increase in market prices of
steel and cement, or
 Typically used for multi- ▪ 5% increase for the portion
year contract periods of work completed in 2019

Advantages Disadvantages
Easily manageable, and less Buyer would have to spend lot of time and effort in
work for Buyer (especially while making sure that the procurement statement of work is
monitoring) complete in all respects.
Seller is more concerned about If Seller begins to lose money (because of incorrect
material costs, than the Buyer pricing, or inflation, etc.), they may try not to complete
some of the work, or use low-grade materials than
agreed. Buyer would have to be more vigilant
Buyer knows the total price Changes in procurement statement of work can be
before the work begins, or even unreasonably costly.
before contract signing.
Often used, and companies have If used where procurement statement of work is
experience developing and incomplete (detail of work is not known completely),
monitoring this contract the Seller would add a ‘buffer’ for increased risk

[Lecture 4]
Tashfeen Riaz
 Time and Material (T&M) or  Examples:
Unit Price Contracts  Conducting a financial audit of
 Buyer agrees on a per-unit a company. Price:
(per-hour or per-item) price ▪ PKR 5000 per hour (Senior
Auditor), and
 “Not To Exceed” clause be
added, if possible ▪ PKR 2000 per hour (Junior auditor)
 Staff augmentation for a

 Typically used for software development effort.
▪ ‘Services’, where level of effort Price:
cannot be defined, or
▪ PKR 10,000 per day (PHP
▪ ‘Products’, where exact quantity Developer)
cannot be determined
▪ PKR 15,000 per day (iOS
 … at the time of awarding the Developer)
contract, or
 Network cable laying. Pirce:
▪ PKR 25 per running meter of cable
laid

Can be created quickly, as statement of Seller doesn’t know the quantity,
work is less detailed than a Fixed-Price therefore, they might charge a
contract ‘higher’ per unit price
Once contract is signed, work can start Seller has no incentive of getting the
immediately whenever needed. work done quickly or efficiently
A good choice for acquiring ‘services’ or Requires more ‘day to day’ oversight
hiring ‘temporary workers’, with very little and monitoring.
knowledge of the ‘exact work’ to be done
Buyer is concerned about the ‘units’
(of time or material) being used.
Seller is not concerned.
Total price is partially known

Cost-Reimbursable (CR)
 Used when exact scope of work is uncertain
 Buyer pays the seller all allowable costs incurred, to
the extent prescribed in contract
 Requires seller to have an accounting system that can
track costs by project
 Buyer has HIGH risk
 Cost Contract (CC)
 Cost Plus Fee (CPF) or Cost Plus Percentage of Costs (CPPC)
 Cost Plus Fixed Fee (CPFF)
 Cost Plus Incentive Fee (CPIF)
 Cost Plus Award Fee (CPAF)
 Cost Contract (CC)  Example
 Buyer agrees to reimburse  World Health Organization

the actual costs incurred to (Buyer) will pay all costs
the Seller, during the incurred to the NGO
performance of a contract, (Seller) for setting up a
without paying any first-aid clinic in a village
additional charges, service
fee, or profit.
 Typically used in ‘Not for

Profit’ organizations.

 Cost Plus Fee (CPF) or Cost  Example
Plus Percentage of Costs
(CPPC)
 World Health
 Buyer agrees to reimburse the Organization (Buyer) will
actual costs incurred to the pay all costs incurred to
Seller, during the performance of
a contract, plus additional the ABC Company
charges, service fee, or profit – (Seller) for setting up a
which are adjustable first-aid clinic in a village,
proportionate to the costs
incurred plus
 Typically, used where Buyer ▪ 10% of the costs as service

needs the Seller’s full interest in charges
the project, and not compromise
any quality aspects

 Cost Plus Fixed Fee  Example
(CPFF)
 World Health Organization
 Buyer agrees to reimburse (Buyer) will pay all costs
the costs incurred to the incurred to the ABC Company
Seller, during the (Seller) for setting up a first-
performance of a contract, aid clinic in a village, plus
plus fixed additional charges,
service fee, or profit, and ▪ PKR 5 Million as service charges
non-adjustable in relation to
the costs incurred
 Typically, used where Buyer

wants to prevent the seller
from unnecessarily buying
expensive materials

 Cost Plus Incentive Fee (CPIF)  Example:
 Buyer pays for actual costs, but
sets a ‘target cost’, plus a base-fee  World Health Organization
for meeting the ‘target cost’. (Buyer) will pay all costs
incurred to the ABC Company
 The base-fee will be adjusted
(Seller) for setting up a first-
based on whether the ‘target cost’ aid clinic in a village, plus
objective is met
▪ PKR 5 Million as base-fee
 Seller gets a percentage of
savings, if actual costs are less
than target costs, and also shares ▪ Target for incurred costs is
the cost overrun PKR 20 Million
 Typically used when the Buyer ▪ Costs savings/over runs shared

wants the Seller to be watchful of at 60:40 (Buyer: Seller) ratio,
actual costs and meet a certain and adjustable within the
cost target base-fee

 Cost Plus Award Fee (CPAF)  Example:
 Buyer pays for actual costs, but sets a
‘target cost’, plus a base-fee for
meeting the ‘target cost’.  World Health Organization
(Buyer) will pay all costs incurred
 The base-fee will be adjusted based on to the ABC Company (Seller) for
whether the ‘target cost’ objective is setting up a first-aid clinic in a
met village, plus
 Seller gets a percentage of savings, if ▪ PKR 5 Million as base-fee
actual costs are less than target costs,
but will not share the cost overrun
▪ Target for incurred costs is PKR 20
 Typically used when the Buyer wants Million
the Seller to be watchful of actual costs
and meet a certain cost target, but also ▪ Costs savings will be shared at
acknowledges that cost over-runs may 60:40 (Buyer: Seller) ratio, but
be beyond the Seller’s control (market upto a maximum of PKR 100,000.
fluctuations, inflation etc.)
 Similar to CPIF, except the incentive is ▪ Seller will not be penalized in case
an award (instead of award of penalty) of cost over-run

Allows for a simpler procurement Buyer will have to spend extra time and
statement of work. Saves time and effort effort (during monitoring) to audit every
during planning invoice to make sure that the costs billed
are ‘actual’ and ‘authentic’ costs.
Seller does not have to add ‘buffer’ to Buyer is concerned about the ‘units’ (of
cover for any risks related to market time or material) being used, as well as
fluctuations, inflation etc. their price. Seller is not concerned.
Total price is not known

Scenario Contract
To get the work started right away T&M
Hiring a consultant or expert to determine exact requirements CR
The exact requirements are known by the project team FP
Hiring an external auditor to perform an audit T&M
Do not want to spend time in verifying and auditing the invoices FP
Building a road as soon as possible FPIF
You need the best performing product CPIF, CPAF
Hire an external resource to conduct research and development CR
Hiring software developers to augment your existing team T&M
Hiring a software firm to develop a software FP
Sharing the risk of price fluctuations during a long-term contract FPEPA
Buying an exact number of items/commodities whose price is known PO
Risk Sharing Between Buyer and Seller (Indicative)
100%
90 %
80 %
Buyer
70%
60 %
Risk
50%
40 %
30%
20 %
Seller
10%
0%
FP FPAF FPIF T&M CPIF CPAF CPFF CPPC

[Lecture 5]
Tashfeen Riaz
 How to Buy
Procurement strategy, competitive/non
 Who to Buy from
competitive process, type of contract to be
used
 Obtaining Seller responses Supplier Prequalification


 Procurement Strategy  Delivery methods.
 Once the make-or-buy analysis is  Professional Services
complete and the decision is made  Construction
to acquire from outside the ▪ turnkey,
project, a procurement strategy ▪ design build (DB),
should be identified. ▪ design bid build (DBB),
▪ design build operate (DBO),
 The objective of the procurement ▪ build own operate transfer (BOOT),
strategy is to determine the
project delivery method, the type  Contract payment types
of legally binding agreement(s),  FP, CR, Awards and Incentives
and how the procurement will
advance through the procurement
phases.  Procurement phases
 Sequencing or phase
 Procurement strategy may  KPIs
include:  Criteria (Gate)
 Monitoring Plan for tracking
 Process of knowledge transfer

Supplier Pre-qualification  Prequalification is typically
based on a high-level criteria,
 An organization may already which must be fulfilled by the
have existing suppliers (selected suppliers to be considered for
through a thorough participation in a procurement
procurement process), who are process. E.g.
qualified to provide the required  Minimum experience
services  Availability of required expertise
 Geographic presence
 If an existing pool of suppliers is
not already available within an  Purpose of prequalification is to
organization, the procurement ensure that only ‘relevant’
team may have to conduct suppliers are included in the
‘Supplier Market Analysis’ to process
identify potential suppliers
 Develop a prequalification
criteria for ‘Vehicle Tracking
Service Provider’
 Bid Documents  Procurement Statement of Work
 Request for information (RFI). An RFI  The statement of work (SOW) for each
is used when more information on the procurement is developed from the
goods and services to be acquired project scope baseline and defines only
is needed from the sellers. It will that portion of the project scope that is
typically be followed by an RFQ or RFP. to be included within the related
contract.
 Request for quotation (RFQ). An RFQ
is commonly used when more  The SOW describes the procurement
information is needed on how vendors item in sufficient detail to allow
would satisfy the requirements and/or prospective sellers to determine if they
how much it will cost. are capable of providing the products,
services, or results.
 Request for proposal (RFP). An RFP is
used when there is a problem in the  Sufficient detail can vary based on the
project and the solution is not easy nature of the item, the needs of the
to determine. This is the most formal of buyer, or the expected contract
the “request for” documents and has form. Information included in a SOW
strict procurement rules for content, can include specifications, quantity
timeline, and seller responses. desired, quality levels, performance
data, period of performance, work
location, and other requirements.

 Source Selection Criteria
 In choosing evaluation criteria, the buyer seeks to ensure that the
proposal selected will offer the best quality for the services required.
 The source selection criteria may include:

▪ Capability and capacity;
▪ Product cost and life cycle cost;
▪ Delivery dates;
▪ Technical expertise and approach;
▪ Specific relevant experience;
▪ Adequacy of the proposed approach and work plan in responding to the SOW;
▪ Key staff’s qualifications, availability, and competence;
▪ Financial stability of the firm;
▪ Management experience; and
▪ Suitability of the knowledge transfer program, including training

[Lecture 6]
Tashfeen Riaz
PREQUALIFICATION CRITERIA SOURCE SELECTION CRITERIA
Seller should be: Simple Criteria e.g.

 A ‘Private Limited’  Lowest Cost, or
company  Best quality
 Should be in business since
Detailed Criteria e.g.
last 5 years  Technical: 60%
 Should have at least 3 MNC
 Projects Completed: 20%
customers (currently) on its  Solution Proposed: 40%
panel  Commercial: 40%
 Must have local presence  Financial Stability: 10%
(e.g. in Islamabad)  Price: 30%

Detailed Commercial Criteria Sub-W’age
Lifecycle Cost 20%

Compliance to Contractual T&C’s 5%
Selection Criteria Weightage
Financial Strength 5%
Total 30%
Commercial Aspects 30%
Detailed Technical Criteria Sub-W’age
Technical Aspects 70% Ability to provide required services 20%
Ability to provide associated services 10%
Total 100% Sustainability (Carbon footprint, Diversity, Economic Aspects etc.) 10%
No. of years in business 5%
Regional presence 5%
No. of registered offices 5%
Verifiable references from clients 5%
No. of clients served 5%
Total volume of business during last two years 5%
Total 70%
70
Detailed Commercial Criteria Sub-W’age
Lifecycle Cost 30%

Compliance to Contractual T&C’s 5%
Selection Criteria Weightage
Financial Strength 5%
Total 40%
Commercial Aspects 40%
Detailed Technical Criteria Sub-W’age

Technical Aspects 60%
No. of Years in Business 5%
Total employee headcount 5%
Total 100%
No. of Certified Engineers (CISA, CISM) 5%
Type of Business 5%
Client References 5%
Top Pen-testing clients 5%
No. of Projects on GSM Networks 5%
5 largest pen testing projects 10%
SLA Time 5%
Resource profile 10%
Total 60%
71
 Habib Bank Ltd. (HBL) needs to hire a ‘software
development’ company to design and develop
their Online Banking Services.
 The seller will be responsible to
 Design the solution architecture
 Develop website, phone app for Android and iOS
 Develop backend services (e.g. database)
 Enable 256-bit encryption (for security)
 Provide support and maintenance for at least three (3)
years

 Due to the sensitivity of this project,  Bid Document Should Contain:
HBL’s preference is to hire a  Bidding Guidelines for Sellers
company that has a proven track  Summary/Description of each
record in this type of work. document
 Guidelines on how to prepare their
 You are responsible for preparing proposal – Do’s and Don'ts
the Bidding Documents for this  Schedule for pre-bid meeting
procurement including:  Deadline for submission
 Procurement Statement of Work  How to mark and submit the ‘envelopes’
 Procurement Strategy  Key ‘points of contact’ for technical
 Seller Long-list queries
 Prequalification criteria  Key ‘points of contact’ for
commercial/financial queries
 Prequalification questionnaire
 Any other rules related to submitting
 Technical Proposal Format the bids
 Financial Proposal Format  Any other information sellers may
 Source Selection Criteria required to preparing or submitting the
 Bid Document bids

 Procurement Management Plan
 The procurement management plan contains the activities

to be undertaken during the procurement process. It
should document whether international competitive
bidding, national competitive bidding, local bidding, etc.,
should be done.
 If the project is financed externally, the sources and

availability of funding should be aligned with the
procurement management plan and the project schedule.
 The procurement management plan can include guidance

for:
 How procurement will be coordinated with other project aspects
 Timetable of key procurement activities;
 Procurement metrics to be used to manage contracts;
 Stakeholder roles and responsibilities related to procurement, including authority and

constraints of the project team
 Constraints and assumptions that could affect planned procurements;
 The legal jurisdiction and the currency in which payments will be made;
 Determination of whether independent estimates will needed as evaluation criteria;
 Risk management issues including identifying requirements for performance bonds or

insurance contracts to mitigate some forms of project risk;
 Prequalified sellers, if any, to be used

 The process of obtaining seller responses, selecting a seller, and awarding a
contract.
 Key Benefit: It selects a qualified seller and implements the legal agreement for
delivery. The end results of the process are the established agreements including
formal contracts
 Frequency: Performed periodically throughout the project as needed.

Plan Procurement Conduct Procurement
Pre- Receipt of
Supplier Invitation to Selected
Qualified Clarification Bids/Proposa Evaluation Negotiations
Identification Tender Supplier
Suppliers ls
Commerci
Long-list Suppliers al, and
of are Tender is contractu
suppliers prequalifie floated Suppliers Pre- al
Proposals
is d based through are given qualified negotiatio Top-
are
developed on a advertisin the suppliers ns are ranked
evaluated
. ‘Prequalifi g opportunit show their done with supplier is
against
cation (newspap y to seek interest in top selected
criteria,
criteria’. er, email, any the tender ranked and a
All known and each
social clarificatio by vendors, contract is
and An ITT is proposal/s
media n in bid submittin and signed
relevant sent only upplier is
etc.) to document g their ranking is with them
suppliers to pre- ranked
prequalifie s proposals updated
are qualified d suppliers based on
included suppliers negotiatio
n results
Advertising, Seller Pre- Bidder Proposal Award/Cont

qualification Advertising, conferences Proposal evaluation/ Procurement ract Signing
OPAs criteria OPAs Submission analytical negotiations
Presentations
techniques 81
Procurement Statement of Work
 XYZ Company requires information security services from competent suppliers.
The service required is Penetration testing of the various networks and systems.
 Details of work required in each area are provided below:
 Perform white/grey/black box penetration testing of XYZ Company infrastructure
including but not limited to:
 Hardware and network infrastructure.
 Application software’s, databases and web applications (may include code reviews).
 Telecom infrastructure.
 Scope of each assignment will be provided as applicable.
 Deliverables will be a summary report for executive management followed by a
detailed report and a presentation for technical team.
 Detailed report must have complete but to the point description of all the
findings and clear/detailed methodology to fix the found weaknesses.
 Supplier will perform a post assessment activity to check security status after
identified vulnerabilities are fixed.

Project Team decided the following pre-qualification
criteria for the suppliers:
1. Should not have been black-listed by any of its clients
due to breach of contract
2. Past Experience of providing services to telecom or
banking sectors
3. Must be in the same business for the last 3 years
4. Must have delivered at least 10 successful pen-testing
projects
Decided that any supplier who does not fulfill ANY of the
above-mentioned criteria will be disqualified from the
procurement process
Prequalification Criteria: Pen-Testing Services
Name of Company:
Name of the Contact Person
Cell Number of the contact person
Email address of the contact person
1 Has your company been black-listed by any client due to breach of contract Yes/No
2 Does your company have clients from the telecom or banking sector of Pakistan Yes/No
3 How long has your company been in the same business (pen-testing) (No. of Years)
4 How many successful projects (in above mentioned services/areas) has your company delivered so far? (No. of Projects)
This questionnaire was emailed to supplier long list and their responses requested

Vendor long-list  The prequalification
1. Kualitatem questionnaire was
2. Rewterz emailed to all suppliers
3. Secunia
4. Sidat Hyder included in the vendor
5. AF Fergusons (PWC) long-list
6. CCure IT
7. Ernst n Young  They were requested
8. Comtel (IBM) to respond to the
9. Netsol
10. Tranchulas prequalification.
11. Trillium  Only 10 responded
12. Systems Ltd
13. Forensic People
Prequalification responses were received and compiled as below:
Req’d Rewterz Sidat A. F. CCure IT EnY Comtel NetSol Tranchulas Trillium Forensic
Hyder Ferguson (IBM) People
Has your company been
black-listed by any client
No No No No No No No No No No Yes
due to breach of
contract
Does your company have
clients from the telecom
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
or banking sector of
Pakistan
How long has your
company been in the 3 (or
8 5 5 3 15 3 8 8 2 9
same business (pen- More)
testing)
How many successful
projects (in above
mentioned 10 (or
25 75 10 19 26 9 25 50 12 15
services/areas) has your More)
company delivered so
far?

NON-QUALIFIED PRE-QUALIFIED
Did not Respond to Responded, and fulfilled the
Prequalification: criteria:
1. Kualitatem 1. Rewterz
2. Secunia 2. Sidat Hyder
3. Systems Ltd 3. A. F. Ferguson
4. CCure IT
Responded, but did not fulfill the 5. Ernst & Young
criteria: 6. NetSol
7. Tranchulas
1. Comtel (IBM)
2. Trillium Only these suppliers shall be
3. Forensic People invited to bid.

[Lecture 7 - 11]
Tashfeen Riaz
 Making proposals (as Sellers)
 Receiving proposals
 Evaluating proposal using ‘Bracket System’
 Evaluating proposal using ‘Ratio System’

[Lecture 12]
Tashfeen Riaz
 Seller Prequalification
 The process through which we determine/identify the
sellers who are to be invited for participation in the
procurement/bidding process
 Bidder Conferences
 A meeting with participating suppliers, during which their
queries about procurement statement of work are clarified
 Seller Proposals
 The (technical and/or commercial) proposals by the Seller
to prove their ability to perform the required work, and the
cost at which they will perform it

 Proposal Review and Evaluation
 The process of conducting an ‘apple-to-apple’ comparison of
seller proposals, and evaluating the proposals to rank the
suppliers. This helps in identifying the best fit supplier(s)
 Most of the times, a ‘Weighted System’ is used to evaluate
seller proposals
 Helps in shortlisting the supplier-pool, with whom negotiations
will be conducted
 Negotiations
 A discussion aimed at reaching an agreement or understanding,
and to achieve the following objectives:
▪ Obtain a fair and reasonable price
▪ Develop a good relationship with the supplier
▪ Create a Win-Win Situation for both parties
 Non-Disclosure Agreement (NDA)
 An agreement where one, or both parties, do not want general public or competitors to know that they are pursuing a
procurement.
 They sign an NDA to bound each other by a legal commitment that they will not share that information with any third party
 Standard Contract
 Mostly contracts are created by Buyer, who may use the same T&Cs into a standard format for usage across all similar
procurements.
 This format is vetted by ‘Legal’ unit and, if signed without alteration, require no further legal review
 Special Provisions (Special Conditions)

 To address particular needs of the project, Special Provisions i.e. special T&Cs, are inserted into the Standard Contract.
 If and when a contract with Special Provisions is used, it is reviewed by the legal department to ensure the legal implications of
such a contract are acceptable to the organization/project
 Terms and Conditions

 Contract clauses that form the general and/or special provisions, requirements, and rules etc. that form an integral part of an
agreement or contract.
 Read Page 490 and 491
 Letter of Intent
 The letter issued by Buyer informing the Seller of their intent of purchasing goods/services, before the contract is signed.
 LoI has no legal binding, but is issued only for Seller’s confidence that the contract will be signed soon
 Privity
 Existence of a legal relationship between two parties

 Does not involve a ‘Competitive’ (Bidding) Process’
 Only a single Seller is selected, through one of the following non-procurement
processes:
 Single-Source (Preferred Seller)
 Sole-Source (Only-one Seller)
 Typical situations for non-competitive procurement

 Extreme schedule pressure
 Seller has unique qualifications (e.g. A well-known doctor, trainer or consultant)
 Only one seller who can provide goods or services (e.g. Windows ® by Microsoft)
 A seller holds a patent for the required item
 A seller holds exclusive rights for the required item (e.g. renting a hoarding/property,
branding at Cineplex/Centaurus etc.)
 No time/effort to be spent in running a competitive process. However,

procurement statement of work, and finalization of contract must still be done

SINGLE SOURCE SOLE SOURCE
 Scope: Tendency for the buyer’s organization to say,  Scope: You may have to change the work specified in
‘the seller knows us and we know them; we do not the project to “take what you can get,” rather than “ask
have to spend so much time determining our for what you want.”
requirements and completing a procurement
 Risk: What if the seller owns a patent and goes out of
statement of work. “They know what we want”
business? What if they take on too much business and
 Quality: Seller may never be asked to prove they have can’t complete all of the work on time?
the experience, cash-flow, and man-power to  Risk: If the seller owns a patent and goes bankrupt,
complete the new work. Also, the quality of work may who owns the patent? How will you get what you need
not be consistently meeting stated requirements
from the seller?
because the seller knows they are not competing and
may not complete work correctly the first time at the  Quality: You may have to take what you get rather
quality levels expected than request a certain quality level
 Cost: It will be necessary to spend time comparing  Cost: Multiple-year agreements may be required for
previous cost to the new cost to check if it is the purchase of items to prevent a price increase in the
reasonable future.
 Schedule: Now that the seller knows they have you as  Schedule: The seller has little incentive to agree to a
a longer-term customer, they may not be as responsive schedule.
to your schedule requirements.  Customer Satisfaction: The seller has little incentive
 Customer Satisfaction: Now that the seller has you as to be concerned with the buyer’s needs and desires
a longer-term customer, they may not be as responsive
to your concerns

NEGOTIATION TACTICS ITEMS TO NEGOTIATE
 Attacks  Scope
 Personal Insults  Schedule
 Good guy/Bad guy
 Deadline  Price
 Lying  Responsibilities
 Limited authority  Authority
 Missing man  Applicable law
 Fair and reasonable  Project management
 Delay
 Extreme demands process
 Withdrawal  Payment schedule
 Fait accompli

[Lecture 13]
Tashfeen Riaz
 The process of managing procurement relationships; monitoring contract
performance, and making changes and corrections as appropriate; and closing
out contracts
 Key Benefit: It ensure that both the seller’s and buyer’s performance meet the
project’s requirements according to the terms of the legal agreement.
 Frequency: Performed throughout the project as needed

 Involves managing relationship between buyer and seller, and
 Ensuring both parties perform as required by contract
 During execution, if buyer’s needs change, a change order to the contract

is issued
 Impact of contract changes are negotiated
 ‘Tying up all loose ends’
 Verifying all work is complete and accepted
 Finalizing all open claims
 Paying withheld retained payments to Suppliers
 Procurement is closed when:

 A contract is completed
 A contract is terminated before work is completed
 Project Manager performs a procurement audit and closes the

procurement
 Typically involves more formal record keeping to safeguard interests of

both parties
 All procurements must be closed out, before project closure
 What the project manager should be doing at point in
time?
 What problems and issues to watch out for, under
different contract types that might affect the
management of the project?
 That all work and legal requirements in the contract
must be accomplished, however small and however
seemingly unimportant
 That the project manger must help uphold all parts of
the contract, not just the project scope
 Review invoices
 Complete integrated change control
 Document (record everything)
 Manage changes
 Authorize payments to the seller
 Interpret what the contract means
 Resolve disputes
 Make sure only authorized people are communicating with the seller
 Work with the procurement manager regarding requested and approved
changes and contract compliance
 Hold procurement performance review meetings with your team and the
seller
 Report on performance (both, Seller’s and Buyer’s)
 Monitor cost, schedule, and technical performance against the contract,
including T&Cs, procurement statement of work, etc.
 Understand the legal implications of actions taken
 … and many more (page 501 and 502, Rita)
 Definition of ‘Constructive Changes’ (change by implication)
 Alteration or modification ordered to be made in a construction contract by
the principal (client) without issuing a formal change order.
 When Buyer, through actions or inactions, gets in the seller’s way of
performing the work according to the contract.
 May include over-inspection and failing to cooperate
 Seller’s may file a claim if Buyer fails to uphold their end of contract (e.g.
failing to review documents/reports/deliverables on time, as per the
contract)
 PM needs to be particularly sensitive towards constructive changes
 A simple direction to the contractor to perform certain work that may
seem minor, if outside the scope of the contract, can result in a
constructive change – and cost the company a lot of money.
 Termination for Convenience
 A contract provision which gives a party (or parties) the right to
unilaterally terminate the contract at any time with or without
giving any reason
 Although the right could be assigned to one or both parties –

but is, most typically, exclusive to Buyer
 Example:
 “Buyer may terminate this agreement for any reason by giving the
Vendor 30 days’ prior written notice”
 “Either party may terminate this Agreement, for any reason or for
no reason, upon not less than 45 days prior written notice to the
other party”
 Termination for Cause
 Termination for cause (also called termination for default - TFD) is a
contract provision that permits a party completely or partially to
terminate performance of the contract for material breach or other
stated causes
 Example:
 Buyer may terminate the whole or any part of this Agreement, by
written notice of default to Seller, in any one of the following
circumstances:
▪ if Seller fails to perform any duties or obligations within the time specified herein or
any written extension thereof granted by Buyer;
▪ if Seller fails to comply with any of the material terms and conditions of this
Agreement. Such termination shall become effective if Seller does not cure such
failure within a period of ten (10) days after written notice of default by Buyer”
 Methods for solving conflicts and disputes
 Negotiation
▪ Negotiation is the most basic means of settling differences. It is back-and-forth
communication between the parties of the conflict with the goal of trying to find a
solution
▪ Process: You may negotiate directly with the other person. You may hire an attorney to
negotiate directly with the other side on your behalf. There are no specific procedures to
follow - you can determine your own - but it works best if all parties agree to remain calm
and not talk at the same time.
 Mediation
▪ Mediation is a voluntary process in which an impartial person (the mediator) helps with
communication and promotes reconciliation between the parties which will allow them to
reach a mutually acceptable agreement. Mediation often is the next step if negotiation
proves unsuccessful
▪ Process: The mediator manages the process and helps facilitate negotiation between the
parties. A mediator does not make a decision nor force an agreement. The parties directly
participate and are responsible for negotiating their own settlement or agreement.
 Methods for solving conflicts and disputes (Cont’d…)
 Arbitration
▪ Arbitration is the submission of a disputed matter to an impartial person (the arbitrator)
for decision.
▪ Process: Arbitration is typically an out-of-court method for resolving a dispute. The
arbitrator controls the process, will listen to both sides and make a decision. Like a trial,
only one side will prevail. Unlike a trial, appeal rights are limited
 Litigation
▪ Litigation is the use of the courts and civil justice system to resolve legal controversies.
Litigation can be used to compel opposing party to participate in the solution
▪ Process: Litigation is begun by filing a lawsuit in a court. Specific rules of procedure,
discovery and presentation of evidence must be followed. The attorney for the other side
will want to take your deposition to learn more about the facts as you see them and your
position in the case. There can be a number of court appearances by you and/or your
lawyer. If the parties cannot agree how to settle the case, either the judge or a jury will
decide the dispute for you through a trial.
 Procurements, like projects, are subject to changes.
 Contract change control system is establish to handle those changes
 Part of the contract
 The system includes change procedures, forms, dispute resolution
processes, tracking systems
 System must be followed
 Changes must be made formally
 Any changes need to be analyzed for their impacts to the rest of the
project
 If changes are taking too much time, or the contract does not serve the
purpose – it may be terminated, and a new contract be signed.
 During the control procurement process, Buyer’s project manager
analyzes all available data to verify that the seller is performing as
they should (as per the contract)
 Seller is often present to review the data
 Seller may talk about what the Buyer can do differently to help
advance the work in a better way
 Objectives:
 To see if any changes are needed to improve the relationship
 Changes are required in the processes being used
 Determining how the work is progressing
 Changes may be requested as a result of this meeting

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[Lecture 1]

Association with PMI

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 3

• Communication should be limited to clarifications related to course work.

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 6

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 7

Secondary Rita Mulcahy’s PMP Exam Prep (9th Ed)

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 8

 To acquaint students with  To equip participants with theoretical

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 9

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 10

 Includes management and control processes required

 Personnel responsible for project procurements may

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 11

 Conduct Procurement Management: Involves

 Control Procurement Management: Involves

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 13

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 14

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 15

 Monthly reports of fleet tracking

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 16

 Purchase of new servers and  Purchase and installation of

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 17

 At what time (no. of months) will the ‘Make’

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 18

 Conduct Procurement Management: Involves

 Control Procurement Management: Involves

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 20

 Must be clearly, complete, concise – must describe “ALL THE

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 21

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 22

 Your organization needs to purchase

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 23

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 24

 Time & Material (T&M)

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 25

 They are in search of a supplier  24x7 Onsite Support: PKR 10,000

 Provide 24x7 onsite support in case  Parts Replacement: Actual Cost +

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 26

Neither unit price, nor the quantity is

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 27

 Control Procurement Management: Involves

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 29

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 30

 Intention To Create Legal Relation

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 31

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 32

Fixed Price Known Known 1 Diesel Generator x PKR 10

Cost Reimbursable Unknown Unknown Any spare parts (which

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 33

 Time & Material (T&M)

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 34

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 35

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 36

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 37

 Typically used when Buyer wants

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 38

indicators ▪ Adjustment equal to the

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 39

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 40

 Staff augmentation for a

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 42

[Ref: PMBoK 6th Edition (C) Project Management Institute, USA] 43