11- PMP Training - Procurement Management

10-Procurement ManagementProject Management Training,Qais Ur Rehman Rasooli, PMP

Project

Team

Products

Services

Results

Procurement ManagementProject Procurement Management Includes;

• Processes necessary to purchase or acquire products

,services and result from outside the project team,

• Contract Management and Change control processes

• Controlling any contract issued by outside org acquiring

deliverables from the project team

• Administering contractual obligation placed on the project

team by the contract.

• Procurement management process includes; Plan

Procurement management, Conduct, Control, Close

Procurements

Agreements & Contracts

Agreements• Documents or

communication that

outline relationship,

• Intentions of

Relationships and for the

project

• Charter, PMP,Memos of

intent, Memos of

understanding, emails,

verbal agreements

Contracts• Form legal binding,

• Written or verbal

• Created with External

entity

• Exchange of goods or

services for

compensation

• Provides a framework

for how failure will be

handled

Overview of Procurement Management Process

• Outputs of Procurement management include, Procurement

MP, Procurement SOW, Procurement Documentation, change

requests,

• Procurement process for Government and Private entities are

different,

• Procurement Departments,

• Make or buy decisions identify any procurement needs,

Overview of Procurement Management Process – Select Seller

PM involves

Procurement Dep,

and provides req

information,

PM creates a plan for

procurements, describes

what work will be done,

Procurement

Dep checks for

completeness of

SOW

Sent to

Sellers

Procurement Dep adds

terms to form a formal

Procurement doc

Sellers Prepare

responses/Bidder

Conference

Select

Seller

Tricks to answer Procurement questions on the exam

• Contracts require formality, in case of arbitration, mediation, or

litigation, formal written communications will be enforceable

• All product and PM requirements to be mentioned in the

contract

• If its not in the contract , it can only be done for a formal signed

change order,

• Changes to contracts must be submitted and approved in

writing

• Contracts are legal binding, seller should perform according to

the contract or else face the consequences of the breach

PM’s role in the Procurement Process

• Know the procurement process, plan for it!

• Understand the contract terms and conditions, helps plan and

manage the M&C of procurements,

• Make sure the contract includes product and PM scope to

minimize misunderstandings, miscommunications,

• Identify risks, and incorporate mitigation and transfer or risks in

the contract

• Include time required to complete procurement process in

project schedule,

• Make sure all the work mentioned in the contract is done

• Work with the procurement manager to manage any changes

Centralized/ Decentralized Contracting

• Centralized: one Procurement

department deal with procurement

activities of several project,

• Decentralized: Full time procurement

manager assigned to each project

procurement manager reports directly to

the PM

• Form of contracting environment will

impact the procurement managers

authority and availability

1. Plan Procurement Management,

2. Conduct Procurements

3. Control Procurements

4. Close Procurements

Plan Procurement Management

• What goods or services need to procured and how can we procure them

efficiently

• Plan Procurement management includes;

1. Performing make-or-buy analysis

2. Creating a Procurement MP,

3. Creating a Procurement SOW,

4. Selecting a the contract type,

5. Creating the procurement documents

6. Determining Source selection criteria

Inputs include; PMP, Req Documentation, Activity resources req,

EEF,OPA,Risk register, Stakeholder Reg, Any other procurement, project

schedule and initial cost estimates for work to be performed

Make-or-Buy Decision

• Understand the reason and justification for

the contract

• Decide to contract out the work or NOT,

• Cost involved in managing the procurement is

also part of the procurement decision,

• Buy decreases risk to the project constraints,

• Make if

If you have idle plants or resources

you want to retain control

Work involve proprietary information

Procurement Management Plan• How procurement will be planned , executed and controlled?

• EEF & OPA; governing approach to procurement, current procedure

and policies,

• How to perform make-or-buy analysis

• Process of creating procurement docs and SOW,

• Terms and conditions for the contract,

• Standards for selecting the correct contract type,

• Guidelines of establishing selection criteria,

• Roles and responsibilities for the team related to procurement,

• Rules for bidder conference,

• Guidelines for resolving disputes, process of accepting deliverables

• How are payments to be made?

Procurement Statement of Work

• What needs to be procured? SOW to be done on procurement

• Work done on each procurement is “Procurement SOW ”

• Include all the work and activities the seller is required to

complete

• To prevent contract problems, complete procurement SOW,

• Types depend on the nature of work, industry, amount of detail;

Performance : What the final product should be able to

accomplish/perform?

Functional; End purpose or result, minimum essential

characteristics of the product

Design: What work is to be done and materials to be used?

Contracts & Contract Types

• Contract: Represents a mutually binding agreement.

• Select based on;

What is being purchased,

The completeness of the procurement SOW,

The allowable management time available for the seller,

Do incentives come into play,

Marketplace or economy,

Industry standard for the type of contract used

• Three broad categories;

Fixed Price (FP), Time and Material (T&M), Cost Reimbursable

(CR)

Fixed Price Contracts

• Used for acquiring goods, product or services with well defined

specifications or requirements,

• If cost are more than what's agreed, seller bears it,

• Seller is most concerned with procurement statement of work,

• Sellers may not have a database of past costs or buyer may not

be able to create a complete Procurement SOW, THIS AVOIDS

THE USE OF FIXED PRICE CONTRACTS,

• Types; fixed price, fixed price incentive fee, fixed price award

fee, Fixed price economic price adjustment, purchase orders,

Time and Material (per hour or per item based, Simple terms

and conditions)

Cost Reimbursable Contracts• When exact SOW is uncertain

• An alternative for FP contracts

• Buyer pays the seller allowable incurred costs

• Seller to have an accounting system – traceable costs

• Buyer has most cost risk – total cost is UNKNOWN

• R&D and technology project usually use this type of contract,

• Types; Cost contract, Cost plus percentage of costs, Cost plus

fixed fee, Cost plus incentive fee, Cost plus Award fee

• Payment timing is important (as work is completed, cost is

incurred, according to payment schedule, after successful

completion)

Time & Material Contracts

• Buyer pay per hour or unit based,

• Used for services of undefinable LOE,

• Mix of fixed price and cost plus

• Best used for work valued small dollar amounts and short in

duration,

• Not to Exceed clause needs to be added to the contract,

• Buyer has a medium cost risk compared to CR and FP.

Advantages and Disadvantages of Fixed Price Contracts

Advantages and Disadvantages of T&M and CR Contracts

What type of contract is being used?

Risk with each type of contract

Terms to know

• Price

• Profit (fee),

• Cost

• Target Price = Target cost + Target Fee,

• Sharing Ratio, e.g. 75/25

• Ceiling Price

• Point of total Assumption (PTA);

-used in FPIF Contracts only

-Seller bears all the loss of cost overruns above this amount,

-shows mismanagement of seller if cost go beyond this

Procurement Documents

• Request for proposal

• Invitation for bid

• Request for quotation

Source Selection Criteria

• Included in the procurement documents

• Basis for the buyer to use in evaluating the bids or proposals

• When purchasing commodity, lowest price required quality,

• When buying services look for experience;

Number of years in business,

Financial stability, Understanding of need,

Technical ability,

Quality of past performance

Ability to complete work on time

• Change Requests;

• Nondisclosure Agreement

• Standard Contract

• Special Provisions

additions, changes ,deletions

Term and Conditions

• Understand the contract language so you can enforce it,

• If equipment is procured, T&C should mentioned ownership of

equipment and insurance of damages in transit,

Noncompetitive Procurement

Use noncompetitive procurement when;

• The project is under extreme schedule pressure,

• Seller unique in the services they provide,

• There is only one seller available who can do the job,

• Seller has patent of the item you need,

• Two types; Single source, Sole source

• Single source: Master service contract holders, previous

experience,

• Sole source; only one company available to do the type of

work you want

Conduct procurements

• Get procurement documents to prospective sellers

• Answer seller’s questions,

• Having sellers submit their responses,

• Review sellers responses,

• Select seller,

• Inputs include; procurement SOW, Procurement MP, Source

selection criteria, seller proposals, OPAs

Tool & Techniques include:

• Bidder conferences, Sellers proposals evaluation, Weighting

systems, independent estimates, screening system,

presentations, negotiations (scope , schedule, price)

Some Negotiation Tactics

• Attacks,

• Personal insults,

• Good guy/bad guy,

• Deadline,

• Lying,

• Limited Authority,

• Missing Man

• Fair and reasonable,

• Delay,

• Extreme demands,

• Withdrawal and Fait Accompli

Output Conduct procurements

• Selected sellers

• Agreements

• Resource Calendars

• Change requests

• Project management plan updates,

• Project document updates

Control Procurements

• Manage procurement relationships,

• Monitor contract performance

• Make changes and corrections to contracts as appropriate

• Protect legal rights

• Make sure payments are good compared to work completed

• PM must know what kind of problems to watch for in different kinds

of contracts,

• All work and legal requirement in the contract is to be completed

• PM must uphold all part of the contract not only the scope

• Capture necessary details , may be used for termination of contract

• Amendment – can be made prior to contract closure by mutual

consent

Control Procurements - Actions

• Review invoices for accuracy, timeliness

• Authorize payment/Request of further information on disputed

areas,

• Document all seller interactions /Communications

• Interpret contract

• Make sure authorized people communicate with sellers

• Hold procurement performance review meetings

• Understand legal implications of action taken,

• Issue/Review Claims,

• Coordinate sellers work with the overall project work,

• Manage interface among all sellers on the project

Control Procurements – Actions by Contract type

Fixed Price Contract

• Scope Cuts

• Quality Cuts,

• Over price and

unnecessary

change orders,

• Scope

misunderstanding

or contract

misinterpretation

Time and Material

• Day to day

direction

• Get solid

deliverables

• Watch the project

duration,

• Makes sure

hour/work ration

make sense,

• switching a

contract type is

realistic?

Cost Reimbursable

• Audit every invoice,

• Makes sure cost

are chargeable,

• Check efficiency of

sellers

performance

• Watch for resource

shifts

• Re-estimate cost of

the project

Control Procurements – Tools and techniques

• Contract Change Control system

• Procurement Performance Reviews

• Inspections and Audits

• Performance Reporting

• Payment Systems

• Claims administration,

• Records management system

Control Procurements – Outputs

• Work Performance Information

• Change Requests

• PMP Updates

• Project document updates

• OPA Updates

Contract Interpretation

• What does the

contract really say

and/or mean?

• Who is responsible for

what part of the

procurement SOW?

• Contract supersedes

any memos ,

conversations or

discussions before the

contract is signed

What takes Precedence

or

Contract Language A memo drafted by one of the parties and

expected to be signed after the contract

Contract Language A memo signed by both parties before the

contract is signed that describes was agreed

during negotiations

Common definition Intended meaning ( without supplying a

definition)

Common use of Term Industry use of Term

Typed over wording in

the contract

A hand written comment on the contract that is

initialed

Words Numbers

Contract Term and

Conditions

Procurement statement of work

Close Procurements

• Close project procurement if the procurement objectives are

met,

• Close procurement if the procurement is terminated (T4C,T4D),

• Helps make sure all responsibilities for the company regarding

procurement are taken care of,

• Inputs are PMP, Procurement Documents

Close Procurements - Tools & Techniques

• Procurement Audits: Structured re-visit of the procurement

process and identify any lessons learned,

• Records Management System:

- Record every correspondence with the

client in a structured time phased fashion

Emails, phone calls, meeting minutes,

claims, Contract versions/Amendments,

• Negotiations:

Negotiate in Person,

Alternative Dispute resolution (mediation/Arbitration)

Litigation in Courts (least desirable)

Close Procurements - Output

• Closed procurements

-Get formal acceptance letter

-A written notice of project completion/termination

• Procurement file

• Final Procurement Performance Report

• Updates to OPA

– Record lesson learned

- Store Acceptance letter

The Active PMP Learner

Find the difference between Solicited and non-

solicited request for proposals.

PM Quote of the day

It takes me a long time to make a big purchase

~ Jessica Chastain

11- PMP Training - Procurement Management

Leadership & Management

Transcript of 11- PMP Training - Procurement Management