1. ProjectProcurementManagement
By “Training Mile” - A training & management
company
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Content Developed by Training Mile
e-Mail: trainingmile@gmail.com
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2. Introduction
Procurement is a formal process by which many organizations obtain goods & services.
Managing procurements require legal knowledge, negotiations and an understanding of the procurement process.
The work is analysed if internal resources can do everything, or if any of the work will be outsourced
(i.e. make –or – buy)
Once decision is made, procurement SOW is created by the Seller
Decision is made on Procurement Document:
RFQ (Request for Quotation)
RFP (Request for Proposal)
IFB (Invitation for Bid)
Exam tips
Assume you are the buyer
All the product & project management work should be stated in the Contract
All changes must be submitted and approved in writing
A formal change order is required to Change the contarct
Contract should help diminish the project work
Seller has no choice rather than binding with the contract
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3. ProcurementProcesses
Plan Procurement
Conduct Procurement
Administer Procurement
Close Procurement
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Role of a Project Manager in Procurements
Know the process to know what will happen when
Understand the Contract to abide with it
Identify Risk and analysis related Procurements
Be involved in Contract Negotiations to protect the relationship between Seller & Buyer
Help tailor the Contract to the unique needs to project
Fit the schedule for completion of the procurement process
Make sure all the work in the Contract is done not only the technical scope
Request for change in the contract, if you want to ask for something else in respect of procurements
Work with the procurement manager to manage the changes in the contract, if any.
Centralized/ Decentralized Contract
These are the way in which procurements can be organized.
Centralized : There is one procurement function and procurement manager handles procurement for
various projects
Decentralized: A procurement manager is assigned to one project full-time and reports directly to project
manager.
*The type of organization will impact the project & Procurement manager’s availability & authority
5. Tools &Techniquesof PlanProcurements
Performing Make-or-Buy Analysis
Creating a procurement management plan
Creating a procurement state of work
Selecting a Contract type
Fixed Price/Lump Sum Contract
Firm Fixed Price
Fixed Price Incentive Fee
Fixed Price Award Fee
Fixed Price Economic Price Adjustment
Cost reimbursement
Cost Plus fixed Fee Contract
Cost Plus Percentage of Costs
Cost Plus Incentive Fee
Cost Plus Award Fee
Time & Material - Hybrid
Creating the procurement documents
Determining the source selection criteria- e.g. No
of years in business, ability to complete the work
on time, Project Management ability etc.
Outputs
Procurement Management Plan
Procurement SOW
Make-or-Buy Decision
Procurement Documents
Source Selection Criteria
Changes Requests
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6. Risk and Contract Type
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Buyer
Seller
CPPC CPAF T&M FPIF
CPFF CPIF FPEPA FP
Q1. Who has the risk in a cost reimbursable
contract-the buyer or the seller?
A: The buyer If the costs increase, the buyer
pays the added cost
Q2. Who has the cot risk in a fixed price
contract- the buyer or the seller?
A: The seller. If the costs increase, the seller
pays the costs and makes less profit
Other Important Terms in the exam:
1. Ceiling Price: The highest price the buyer will pay.
2. Point of Total Assumption(PTA): This is applicable only Fixed price incentive fee contracts. Amount above
which the seller bears the cost overrun happened due to mismanagement.
Formula: PTA = ((Ceiling price- Target price)/Buyer’s share ratio ) + Target Cost
3. Target price: The end result cost, which was expected
4. Sharing Ratio: Incentive usually are expressed in a ratio. The sharing ratio describes how the cost savings and
cost overruns will be shared.
7. OtherTermsusedinExam
• Non disclosure Agreement
• Teaming Agreement/Joint Venture
• Special Provision/Special conditions
• Terms & Conditions:
• Acceptance Criteria
• Agent (Who is the authorized representative of each party)
• Assignment( Circumstances under which one party can assign its rights to others)
• Authority
• Bonds
• Breach/Default(extremely serious event)
• Changes
• Confidentiality
• Dispute Resolution
• Termination
• Force Majeure (Fire/Electric Storm, It is usually resolved by the seller receiving an extension of time)
• Indemnification/Liability (Who is liable for personal injury, damage, accidents)
• Intellectual Property (Who owns the patents, trademarks, copyrights, processes, source codes
• Waivers
• Warranties
• Letter of Intent (If the Contract is not signed on time, seller may ask buyer to provide letter of intent for hiring
people or purchasing new equipment etc. to fulfil the contract needs)
• Privity – Contractual Relationship
• Single Source- Contract directly with a preferred seller bypassing the procurement process
• Sole Source- A company a patent, which is the only seller in this case
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8. ConductProcurements
• Getting procurement Documents prepared as per ‘Plan Procurements Process’
• Reviewing the seller responses for selecting the seller
1. Advertising
2. Pre-qualified Seller List
3. Bidder Conferences
4. Seller’s Proposal & Proposal Review
5. Weighing Systems (Similar to Source Selection Method)
6. Independent Estimates
7. Screening Systems
8. Past performance history
9. Presentations
After Seller/ Vendor Selection : Negotiations (Scope/ Schedule/ Price)
Why do we need a contract?
To define Roles & responsibilities
To make things legally binding
To mitigate or allocate RISK
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9. AdministerProcurements
• Managing the relationship between the buyer and the seller and assuring that the performance of both the parties to
the procurements meets the contractual requirements
• Actions to be taken under administer procurements by Project Manager/ Procurement Manager
Review Invoices
Complete Integrated Change Control
Documentation (Record everything)
Authorize payments on time to the seller
Resolve disputes
Make sure only authorized people are communicating with the seller
Monitor the cost , schedule and technical performance against the contract at all times
Perform Inspects and Audits
Identify risks and Control risks
Understand the legal implications of actions taken
Report the performance to all the stakeholders
Work with the procurement manager for evaluating & managing changes
Interpret what contract means
Verify the correct scope is being done
Review the claims filled by the seller asserting damages against buyer
Control quality according to what is required in the contract
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10. CloseProcurement
Procurements are closed:
When a contract is completed
When a contract is terminated before the work is completed
Procurement closure needs to happen before the project closure
Closure provides value to both the buyers and sellers and should not be avoided in any circumstances
If contract is terminated then procurements are closed through negotiated settlements between both the parties
Following should be done for Procurement Closure:
1. Product Verification
2. Negotiated Settlement – Final settlement of claims, Invoices and other Issues
3. Procurement Audit
4. Update records
5. Final Contract Performance Recording
6. Lessons Learnt
7. Procurement File – Contract, Changes(Approved/Rejected), Submittals from the seller, Seller performance Reports,
Financial Information's, inspection results,
8. Other activities
Arranging the storage of records and drawings, if any
Creating & Delivering Legal Documents
Returning Property used for procurement to its owner
Formal Acceptance and Closure:
Seller has to receive a final sign –off
In gaining sign –off, seller also works to measure customer satisfaction
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