Project Procurement Management. Kartika Chandra Hotel Suite 611 Jakarta Ph. 5264089 Fx. 5264088...

Project Procurement Management

Kartika Chandra Hotel Suite 611 Jakarta Ph. 5264089 Fx. 5264088 Email: [email protected] Http://www.mylearnit.com

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Project Procurement Management Processes

Procurement Planning: determining what to procure and when

Solicitation Planning : documenting product requirements and identifying potential sources

Solicitation : obtaining quotations, bids, offer, or proposals, as appropriate

Source Selection : choosing from among potential sellers Contract Administration : managing the relationship with

the seller Contract Closeout : completion and settlement of the

contract, including resolution of any open items.


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Project Procurement Management


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Procurement Planning

The process of identifying which project needs can be best met by procuring products or services outside the project organization.

It involves consideration of whether to procure how to procure what to procure how much to procure when to procure


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Procurement Planning

Inputs Tools & Techniques Outputs

1. Scope statement2. Product description3. Procurement Resources4. Market conditions5. Other Planning outputs6. Constraints7. Assumption

1. Make - or - buy analysis2. Expert judgment3. Contract type selection

1. Procurement management plan2. Statement(s) of work


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Inputs to procurement planning

Scope statement: describes the current project boundaries provides information about project needs than

strategies to be considered should include:

project justificationproject productproject deliverablesproject objectives


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Product descriptions: provides important information about any

technical issues or concerns need to be considered

describes the ultimate end-product of the project


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Procurement resources: organization or project level

Market conditions: consider what products or services available in

the market product or service providers terms and conditions


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Other planning output: preliminary cost and schedule estimates quality management plan cash flow projections work breakdown structures identified risks planned staffing


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Constraints: factors that limit buyer option, eg funds

availability

Assumptions: factors that will be considered to be true, real, or

certain


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Tools & techniques

Make or buy analysis: use of engineering economic analysis

Expert Judgement: other units within the performing organization consultants professionals & technical associations industry groups


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Tools & techniques

Contract type selection: fixed price or lump sum contracts:

a well-defined product little or no modification can be developed for the

plans and specificationsmay include incentives


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Tools & techniques

Contract type selection: cost reimbursable contracts:

design documentation is not complete at time of negotiation

Cost + fee: Cost + percent of cost Cost + fixed fee Cost + fixed fee + profit-sharing clause (guaranteed

maximum price) Cost + sliding fee


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Tools & techniques

Contract type selection: unit price contracts:

flexibility in meeting variations in the amount and quantity of work

based on the guide quantity specified


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Contract strategy considerations

Procurement strategy will depend upon: type of project particular emphasis in terms of scope quality time & cost degree of uncertainty


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Risk sharing principles

Principles for allocating risk among the parties to a project: which party is the source of the particular risk and hence

best able to control the events that may lead to it happening in the first place?

which party can be best manage the risk, if it occurs? Is it or is it not preferable for the client to retain an

involvement in the management of the risk in questions?


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Principles for allocating risk among the parties to a project: if it cannot be controlled, which party can or should carry

the risk? Will the cost incurred, or premium charged, by the

recipient of the risk be reasonable and cost-effective will the recipient be capable of sustaining the

consequences of the risk, if it occurs? Or will it lead to the possibility of the risk of a different

nature being transferred back again


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Scope of workinformation

Very little Partial Complete

Uncertainty High Moderate Low

Degree of risk High Medium low

Suggested riskallocation

Contract types CPPF CPIF CPFF FPPI FFP

100%

0%

0%

100%

Agency (Buyer)

Seller (Contractor)


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Risk Implication (Client’s perspective)

Issue Lump sum Unit Price Target Cost CostReimbursable

Financialobjectives ofclient &contractor

Different butreasonablyindependent

Different andin potentialconflict

Considerableharmony.Reduction ofactual cost iscommonobjectiveprovided costremains withinthe incentiveregion

Both based onactual cost butin potentialconflict

Contractor’sinvolvementin design

Excluded ifcompetitiveprice based onfull design andspecification

Usuallyexcluded

Contractorencouraged tocontribute ideasfor reducing cost

Contractor maybe appointedfor design inputprior toexecution


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Issue Lump sum Unit Price Target Cost CostReimbursable

Clientmanagementinmanagementof execution

Excluded Virtuallyexcluded

Possible throughjoint planning

Should be activeinvolvement

Claimresolution

Very difficult,no basis for$$ evaluation

Difficult, onlylimited basisfor $$evaluation

Potentially easy,based on actualcosts. Contractneeds carefuldrafting

Unnecessaryexcept for feeadjustment.Usuallyrelatively easy


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Issue Lump sum Unit Price Target Cost CostReimburs-able

Forecastfinal costat timeof bid

Known, exceptfor unknownclaim & change

Uncertain,depending onquantityvariations andunknown claim &change

Uncertain. Target costusually increased bychanges, but effectivejoint managementand efficient workingcan reduce final costbelow an originalrealistic budget

Unknown

Paymentfor costof riskevents

Depending oncontract terms,undisclosedcontingency, ifany, incontractor’s bidOtherwise byclaim negotiation

Depending oncontract terms,undisclosedcontingency, ifany, incontractor’s bidOtherwise byclaim negotiation

Payment of actualcost of dealing withrisk as they occur,and target adjustedaccordingly

Payment ofactual cost


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Good condition of contract in respect of risk:

Clear definitions of risk and their assignment Positive incentives linked to risk assignment Flexibility for different assignment of

different risks between parties strong emphasis on good management

practices designed to avoid unnecessary risks


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Solicitation planning

Involves preparing the documents needed to support solicitation


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Solicitation planning

Inputs Tools & Techniques Outputs

1. Procurement management plan2. Statement(s) of work3. Other Planning outputs

1. Standard forms2. Expert judgment

1. Procurement documents2. Evaluation criteria3. Statement of work updates


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Output of Procurement planning asInputs to solicitation planning

Procurement management plan: describe how the remaining procurement process will be

managed: type of contract to be used needs of independent estimates scope of works: proc. Dept. vs project team standardized procurement documents management of multiple providers procurement coordination related to other project aspects

may be formal or informal, detailed or broad, based on project needs


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Output of Procurement planning asInputs to solicitation planning

Statement of work (SOW): describes the procurement item in sufficient details to

allow perspective sellers to determine if they are capable of providing the item

should clear, complete and concise SOW vs SOR:

Product or service to be provided vs problems to be solved


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Tools & techniques for solicitation planning

Standard forms: standard contracts standard description of procurement items

Expert judgement: other units within the performing organization consultants professionals & technical associations industry group


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Output from solicitation planning

Procurement documents: used to solicit/request proposals bid/quotation for price-driven proposal for non-financial consideration common names:

Invitation for Bid (IFB) Request for Proposal (RFP) Request for Quotation (RFQ) Invitation for Negotiation Contractor initial response


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Procurement documents: should be structured include relevant SOW, description of response,

contractual provisions should be rigorous but flexible


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Evaluation criteria: to rate or score proposal often included as part of procurement documents limited vs integrated criteria:

understanding of needsoverall or life cycle costs technical capabilitymanagement approach financial capacity

Project Procurement Management. Kartika Chandra Hotel Suite 611 Jakarta Ph. 5264089 Fx. 5264088...

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