Project Procurement

PJMT 1202-Unit 6

Adapted from several sources

Presented by: Vikas Kumar, M. Pharm., MBA, PMP
 Agenda
• Last class learnings
• Discuss about contracts change management
• Describe in detail about Long-term Agreements
• Briefly go over Corporate Teaming Agreements/Alliances/Arrangements
• What to expect in next class

Faculty of Business 2
 Agenda
• Last class learnings
• Discuss about contracts change management
• Describe in detail about Long-term Agreements
• Briefly go over Corporate Teaming Agreements/Alliances/Arrangements
• What to expect in next class

Faculty of Business 3
Last Class learnings
• Identifying the methods to select appropriate contract type
• Explain the different types of contracts, when to use them
and the associated risks

Faculty of Business 4
Last Class learnings

Faculty of Business 5
 Last Class Learnings: Contract Types
Who is mainly at
PROJECT LIFE
CYCLE Risk?
Implementation Conceptual

Cost
HIGH

LOW
Reimbursable
Identified Procurement

BUYER

Technology
Challenge
Risks

Time and Material

SELLER
LOW

HIGH
Fixed-Price

Specific Vague

SCOPE

Faculty of Business 6
Last Class Learnings: Contract Types

Faculty of Business 7
 Agenda
• Last class learnings
• Discuss about contracts change management
• Describe in detail about Long-term Agreements
• Briefly go over Corporate Teaming Agreements/Alliances/Arrangements
• What to expect in next class

Faculty of Business 9
 Contracts change management
• Why are we learning this?
Managing changes is one of the key role of a project manager/procurement
manager
Changes are expected to happen during project execution
 A change can be defined as deviation from the project plan and/or scope of
work
Typically, a change log is maintained by the PM to jot down all the changes in
the project scope

Faculty of Business 10
 Contracts change management
Changes in
Project

Not
Acceptable
acceptable

Do not do the work or follow

Follow the change control process
Alternative dispute resolution (ADR)
End result : Contract termination or
End Result : Contract amendment
no change related work
Faculty of Business 11
 Contracts change management
Type of changes

Intrinsic
Examples include volume variance,
resource changes, price variances,
scope changes due to factors
internal to organization
Extrinsic
Examples include statutory
requirements, new technology,
currency fluctuations etc.

Faculty of Business 12
 Contracts change management:
Change management process flow
Change Is change per Study the cost
identified requirement impact

Demand
Approve amendment

Execute Approved

Reference for this topic: Project Procurement, A real world guide to procurement skills by Ajay Bhargove
Faculty of Business 13
 Agenda
• Last class learnings
• Discuss about contracts change management
• Describe in detail about Long-term Agreements
• Briefly go over Corporate Teaming Agreements/Alliances/Arrangements
• What to expect in next class

Faculty of Business 14
 Long Term Agreements
• What are these?
Price, terms, and conditions are already agreed to. These aspects need not to
be discussed again and again
 This will help reducing the order placement time, cost, and efforts
 Project specific additional terms and conditions will be discussed later as
project specific work order (WO)
Different industries can use different nomenclatures, but the idea is to secure
more business through collaboration
 LTAs are re-negotiable and terminable

Reference for this topic: Project Procurement, A real world guide to procurement skills by Ajay Bhargove
Optional Reading: https://hbr.org/2019/09/a-new-approach-to-contracts

Faculty of Business 15
 Long Term Agreements
• Why needed?
 Constrained project schedules
 Relationships can sometimes help influence the vendor to do more for a
particular project
 Fewer claims
 Fewer arbitration claims
 Negotiation is only required once i.e., when you initially negotiate an LTA; not
repeatedly for each project
Repeat business

Reference for this topic: Project Procurement, A real world guide to procurement skills by Ajay Bhargove
Faculty of Business 16
 Long Term Agreements
• Timing and Structure
 Timing can vary (may be at proposal stage or later)
 Structure will depend on organizational risk-taking strategy
 Fixed Price
 Cost reimbursable

Reference for this topic: Project Procurement, A real world guide to procurement skills by Ajay Bhargove
Faculty of Business 17
 Long Term Agreements
• Limitations:
 Good for standard project requirements
 Risk of being beaten by competition
Instead of agreeing to lump sum amounts, try to consider "market fluctuations in prices"
(e.g., inflation etc.) within the agreement. This way the competitor's will no longer be able to
offer the product at a lower cost in case of price dip
 Compliance with laws
 Remember to follow anti-competition laws and don't end up creating a monopoly

Reference for this topic: Project Procurement, A real world guide to procurement skills by Ajay Bhargove
Faculty of Business 18
 Agenda
• Last class learnings
• Discuss about contracts change management
• Describe in detail about Long-term Agreements
• Briefly go over Corporate Teaming Agreements/Alliances/Arrangements
• What to expect in next class

Faculty of Business 19
Corporate Teaming
Agreements/Alliances/Arrangements: Definition
• Let's dissects the definition further
• Partnership:
 An ordinary partnership occurs when two or more entities (persons) combine capital and/or services to
carry on a business for profit. From a legal standpoint, it is a group of separate persons
• Partner:
 A 'partner' is defined as a firm with whom your company has an ongoing buyer-seller relationship,
involving a commitment over an extended time-period, a mutual sharing of information and a sharing of
risks and rewards resulting from the relationship
• Joint Venture:
 An enterprise owned and operated by two or more businesses or individuals as a separate entity (not
a subsidiary) for the mutual benefit of the members of the group
 Joint ventures possess the characteristics of joint control; e.g., joint property, joint liability for losses
and expenses, and joint participation in profits
 Joint ventures can be either incorporated or unincorporated

Durham College: Faculty of Business 20

Corporate Teaming
Agreements/Alliances/Arrangements: Definition
• Teaming Arrangement:
 An agreement of two or more firms to form a partnership or joint venture (JV) to act as
a potential prime contractor (II);
 or
 an agreement by a potential prime contractor to act as a subcontractor under a
specified acquisition program (I);
 or
 an agreement for a joint proposal resulting from a normal prime contractor-
subcontractor, licensee-licensor, or leader-company relationship (III)

• What is a prime contractor?

 Somebody who has already worked with US government

Durham College: Faculty of Business 21

Corporate Teaming
Agreements/Alliances/Arrangements: Need?
• Why teaming agreements needed?
 Allow the contractor team members to complement each other’s unique capabilities
 „Offer the government the best combination of performance, cost and delivery for the
system or product being acquired

Durham College: Faculty of Business 22

Corporate Teaming
Agreements/Alliances/Arrangements: Categories
• Two Categories:

Teaming Subcontractor
Agreement (I)

Categories/models are same thing in this context

What is third category? Model III

Partnership
Other Teaming
JV
Agreement
(II)
Categorised to help understanding the types of contracts and advantages/disadvantages of each
Ref: Federal Acquisition Regulations (FAR) Subpart 9.6 - Contractor Team Arrangements | Acquisition.GOV
23
Durham College: Faculty of Business
Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 1: Teaming agreements creating Superior Subordinate
relationship
• Creates a superior contractor - subordinate relationship between the different entities
• Under these teaming arrangement it doesn't matter who is in charge, as long as someone is given that
responsibility, and all parties understand that point and abide by it
• These teaming arrangement is clean, clear, and it typically works.
• An example could be the United States Air force contract for the Aerospace Centre Support Work at their
Arnold Air Force Base in Tennessee (next slide)

Durham College: Faculty of Business 24

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 1: Teaming agreements creating Superior Subordinate
relationship
United
States Air
Force

Computer
Sciences
Corporation

General
DynCorp
Physics

Durham College: Faculty of Business 25

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 1: Teaming agreements creating Superior Subordinate
relationship
• There is one entity responsible for the project “Computer Sciences Corporation”.
• The customer (USAF) understand that and the subcontractors in this case DynCorp and General Physics
understand that too.
• In the teaming agreement the responsibility , authority and accountability is clearly outlined to Computer
Sciences Corporation

Durham College: Faculty of Business 26

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 1: Teaming agreements creating Superior Subordinate
relationship
• The teaming agreement model requires that CSC buy certain previously defined scope of work from its two
major teaming members for the duration of the agreement period (three years)
• In this model it is Clear who is responsible for the results of the project
• Who would USAF hold accountable if things go wrong or if things go right?
• Computer Sciences Corporation

Durham College: Faculty of Business 27

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 1: Teaming agreements creating Superior Subordinate
relationship
• The Abuses by project team. They know that the prime contractor MUST use their services and may
therefore take advantage by
 Not fully cooperating
 Not providing reasonable prices
 Inadequate service
• Usually, this issue is temporary. When it happens executives eventually know about it and relationship is
restored (even if uncooperative team members are reassigned)

Durham College: Faculty of Business 28

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 1: Teaming agreements creating Superior Subordinate
relationship
• Sometimes the principal companies will trade places
• In one project Company A can be prime contractor and company C and D can be sub-contractors
• In another project Company C is the prime contractor and Company A and D are subcontractors
• The switching of primary roles is mainly driven by a simple marketing decision: which of us is in the best
position to lead the effort to capture this new project
• See example (next slide)

Durham College: Faculty of Business 29

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 1: Teaming agreements creating Superior Subordinate
relationship

United States United States Air

Navy force
Project (F/A – 18 Aircraft) Project (ATF-23 Aircraft)

Northrop
McDonell Corporation
Douglas

Northrop McDonell
Corporation Douglas

Durham College: Faculty of Business 30

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 1: Teaming agreements creating Superior Subordinate relationship
• Model 2: Teaming agreements creating partners
• Model 3 : Performance on a single project without a teaming agreement

Durham College: Faculty of Business 31

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 2: Teaming agreements creating partners
• Sometimes this model is used by industry
• A corporate teaming arrangement will be created by 2 or more firms. The buyer will
issue one contract for a joint venture or directly to each of the various firms
participating in the arrangement

Durham College: Faculty of Business 32

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 2: Teaming agreements creating partners
• An example would be the US Navy awarded the A12 Avenger Aircraft contract to both
McDonnel Douglas and General Dynamics.
• Those two companies were competitors.
• They were each expected to perform 50% of the project scope.
• In this case there is no one who has absolute authority and accountability

Durham College: Faculty of Business 33

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 2: Teaming agreements creating partners

The A-12 Avenger Aircraft Project

US Navy

McDonnell General
Douglas Dynamics
Teaming Arrangement with Equal Partners

Durham College: Faculty of Business 34

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 2: Teaming agreements creating partners
In the above example (previous slide) the project was a failure
The contract was signed in 1988 but cancelled in 1991
The two private contractors versus the Navy argued over an alleged over payment of
$1.35 billion dollars which by 2001 had grown to $2.6 billion with accruing interest
 The case was settled in 2014 each to pay $200 million (after 23 years!!)

https://en.wikipedia.org/wiki/McDonnell_Douglas_A-12_Avenger_II

Durham College: Faculty of Business 35

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 2: Teaming agreements creating partners

 Advantage:
Cheaper since there is no prime contractor who will take management fees to
manage the contract

 Disadvantage:
No accountability leads to difficulty in conflict resolution

https://en.wikipedia.org/wiki/McDonnell_Douglas_A-12_Avenger_II

Durham College: Faculty of Business 36

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 1: Teaming agreements creating Superior Subordinate relationship
• Model 2: Teaming agreements creating partners
• Model 3 : Performance on a single project without a teaming agreement

Durham College: Faculty of Business 37

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 3 : Performance on a single project without a teaming
agreement
 In this model there is no actual teaming arrangement covering the multi company performance
on a single project
 The buyer simply expects there to be cooperation and harmony between the different
participants

Durham College: Faculty of Business 38

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 3 : Performance on a single project without a teaming
agreement
 BPX requested proposals from several companies, and finally selected three
 The intent of BPX was to let the three contracted companies work out their own detailed
interfaces, and to minimize the BPX management responsibilities

IT Project
British Petroleum
Exploration (BPX)

Sema Group SAIC Syncordia

Durham College: Faculty of Business 39

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Model 3 : Performance on a single project without a teaming
agreement
 Advantage:
 Less costly than a prime contractor model since you don’t pay for management fees
 Disadvantages:
 No guarantee that the companies will work well together
 Depending on results – companies can throw problems at each other and fight over the
reasons of successes

Durham College: Faculty of Business 40

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Which model is best you think?

 Model 1:
 Model 1 is the most efficient
 Model 1 would usually be more costly but its usually money well spent

 Model 2 and 3:
 Model 2 and 3 have less clear lines of responsibility
 Someone has to manage the cracks and overlaps which will always emerge
 Such management costs are on buyer

 Model 2 and 3 don’t always fail but often have extra costs to the buyer

Durham College: Faculty of Business 41

Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Which model is best you think?

 Model 1:
 Model 1 is the most efficient
 Model 1 would usually be more costly but its usually money well spent

 Model 2 and 3:
 Model 2 and 3 have less clear lines of responsibility
 Someone has to manage the cracks and overlaps which will always emerge
 Such management costs are on buyer

 Model 2 and 3 don’t always fail but often have extra costs to the buyer

Durham College: Faculty of Business 42

Corporate Teaming
Agreements/Alliances/Arrangements: Pros/Cons
• Two Categories: Advantages:
 Limit the parties’ obligations to one
another
Teaming Subcontractor Disadvantages:
 Team members can tailor their 
Agreement (I) The renegotiation of a
negotiations to the specific solicitation
teaming agreement for each
and provide for a variety of termination
solicitation
provisions
 The prime contractor is the
 Allow parties who are unfamiliar with
only party in privity of contract
each other and therefore reluctant to
with the government, and
jointly form a new entity to pursue the
therefore bears the entire risk
solicitation
of contract performance
Partnership  Reduce risk by requiring the prime

Other Teaming
JV contractor and the subcontractor to bear
Agreement their own proposal preparation costs
(II)
Categorised to help understanding the types of contracts and advantages/disadvantages of each
Ref: Federal Acquisition Regulations (FAR) Subpart 9.6 - Contractor Team Arrangements | Acquisition.GOV
Durham College: Faculty of Business 43
Corporate Teaming
Agreements/Alliances/Arrangements: Pros/Cons
• Two Categories: Advantages:
 New company can be established to
cover multiple solicitations and
Teaming Subcontractor contracts Disadvantages:
Agreement (I)  Management issues or
 Separate company can benefit from the
partner disagreements may be
combined bonding capacity of its
difficult to mitigate and may
member companies
result in delayed decision
 Liability can be limited to the new legal making
entity if the parties form a limited liability 
Members may be locked into
partnership
a relationship with one another
 The entity may be able to avoid the for a longer period of time than
Partnership high-cost structure of its member intended
Other Teaming
JV companies, which is important if price is
Agreement a major source selection criterion
(II)
Categorised to help understanding the types of contracts and advantages/disadvantages of each
Ref: Federal Acquisition Regulations (FAR) Subpart 9.6 - Contractor Team Arrangements | Acquisition.GOV
Durham College: Faculty of Business 44
Corporate Teaming
Agreements/Alliances/Arrangements: Models
• Summary
 Make sure that the purpose of the teaming arrangement is proper and legal

 Get spectrum of technical, business and legal help in forming this agreement

 Make sure the company’s proprietary data rights are adequately protected

 Get your customer involved. Let them know your plan when forming an alliance

 Know the “hard” issues to demand when forming teaming arrangements

 IBM and Microsoft

 Gates insisted on not giving source code of operating system to IBM (DOS) thus each new
upgrade had to be purchased from Microsoft

 This led to decline of IBM at the time and a rise of Microsoft

Durham College: Faculty of Business 45
What to expect in next class?
• Explain Planning for Solicitations
• Describe the reason to always require a seller's schedule
• Define how to Evaluate Seller's Proposals
• Explain RFP, RFQ, IFB, RFI
• Discuss sole source vs. single source and competitive
procurement8,000.000

Faculty of Business 46
Thank you!!

Faculty of Business 47
References
Adapted from Several source including but not limited to:
• How to Improve Your TEAMING AGREEMENT: PART 1 OF 2 Mulligan, Stephen P. Contract Management;
McLean Vol. 55, Iss. 2, (Feb 2015): 54-57
• How to Improve Your TEAMING AGREEMENT, Part 2 of 2 Mulligan, Stephen P. Contract Management;
McLean Vol. 55, Iss. 3, (Mar 2015): 34-41
• Teaming Agreements: To Team or Not to Team? Caisse, Lauren J. Contract Management;
McLean Vol. 50, Iss. 4, (Apr 2010): 30-32,34,36-37
• Does teaming pay off? Wisner, Priscilla S; Feist, Hollace A. Strategic Finance; Montvale Vol. 82, Iss. 8, (Feb
2001): 58-64
• www.wardberry.com/govcon/teaming-agreements/
• Government Contracts: Teaming Agreements and Other Teaming Arrangements by Erin L. Toomey, Foley &
Lardner LLP, with Practical Law Commercial Transactions Practical Law, Thomas Reuters

Durham College: Faculty of Business 48