Project Procurement Management

Lecture-8

What is Procurement?• Project Procurement Management (PPM) includes the

processes necessary to purchase or acquire products, services, or results needed from outside the project teams. At some places, it is the Goods, Work or Services (GWS) needed for the project.

• It also includes the contract management and change control processes required to develop and administer contracts or purchase orders issued by authorized project management team.

• Project Procurement Management also controls contractual obligations placed on the project team by the contract.

How and when do we enter into Project Procurement

Management?

When do we enter into PPM?• When the following things are ready• Stakeholder register• Activity resource requirement• Activity cost estimates• Project schedule• Risk register

Procurement Management• Procurement management refers to planning and control

of the following• Equipment , material or components designed and

provided by vendors specifically for the project• It may be a portion of a work package or entire work

package• It may be off-the-shelf (OTS) equipment and

components• bulk material, like cement, metal piping etc.• Consumables items; nails, bolts, lubricants• Support equipment for construction, cranes, lifts etc• Administrative equipment, computers, project office

facilities

Procurement of Items• Procurement means the activities related to purchase of

subcontracted items• Procurement items are usually classified as goods, work or

services (GWS)• Goods represent raw material or produced items (tools/machinery)• Work means contracted labor• Service means consultation

• Planning, budgeting, scheduling and follow-up control all fall under procurement management• Logistics plan includes everything related to the transport

and storage of materials for the projects. GWS items cannot be scheduled to arrive just-in-time (JIT). Provision must be made to store and protect them until they are needed.

What is a Contract?• It is a legal document between a buyer and a seller. It provides

a mutual binding agreement that obligates the seller to provide the specified product, service or result and obligates the buyer to provide monetary or other valuable consideration. The agreement can be simple or complex.

• A procurement contract will include terms and condition also. A contract can be an agreement, an understanding, a subcontract or a purchase order.

Types of Contracts• Fixed Price Contract• Firm Fixed Price (FFP)

• Most commonly used where scope is very clear. It can only be changed if the scope changes or there is a change in specifications. Any cost increase is the responsibility of the seller

• Fixed Price Incentive Fee (FPIF)• Price ceiling is set and all costs above the price ceiling are the

responsibility of the seller, who is obligated to complete the work. Incentive is related to cost, schedule and or performance. The final contract price is determined after the completion of all work based on the seller’s performance.

• Fixed Price with Economic Price Adjustment (FPEPA)• This happens if the contract is spanned for a considerable period of

time. It caters for inflation, cost increase / decrease of specific commodities. It is attached with some reliable financial index. It protects both buyer and seller from external conditions.

Types of Contracts• Cost-reimbursement Contracts:• Cost plus Fixed Fee Contract (CPFF)

• The seller is reimbursed for all allowable costs for performing the contract work and receives a fixed fee (can be a %age or predetermined cost). Fee is paid only for the completed work and does not change due to seller performance.

• Cost plus Incentive Fee Contract (CPIF)• In this contract the final cost are less or greater than the original

estimated cost. In this case, both the buyers and sellers share cost from the departure based upon a cost sharing formula e.g. (20/80)

• Cost Plus Award Fee Contract (CPAF)• The determination of FEE is based solely on the seller’s

performance and is generally not subject to appeals. The majority of the fee is earned only based on the satisfaction of certain broad subjective performance criteria defined and incorporated in the contract.

Time & Material Contract (hybrid or Adhoc)• Normally related with smaller projects and is

mostly built on item / day basis. Can be left open-ended.

• These contracts are often used for staff augmentation, acquisition of experts, or any outside support when a precise statement of work cannot be quickly arranged.

Processes in PPM

•Plan Procurement Management•Conduct Procurement•Control Procurement•Close Procurement

Plan Procurement Management

•What we have– Project Management Plan – Requirement Document– Risk register (List of Risks, Result of Risk Analysis & risk responses)– Activity resource requirements– Project schedule (time when required)– Activity cost estimates (Cost management)– Stakeholder register

Plan Procurement Management• What we do:– Make-or-buy analysis, Expert judgment, Market Research, Meetings

• What we get:• Procurement Management Plan

– Types of Contracts– Risk management Issues– Estimate evaluation process– Those actions that Project management Team can take unilaterally– Standardized procurement documents, if needed– Managing multiple suppliers– Coordinating procurement as per schedule– Manage assumptions and constraints– Handling lead time in purchases– Handling make or buy decisions

• Statement of Work (SOW) for each procurement• Procurement Document (bid, tender or quotation, RFI, RFQ, RFP, IFB)• Source Selection Criteria• Make of Buy decisions• Change Request (integrated change control process)

The Procurement Process

Conduct Procurement

•What we have:– Project Management Plan– Procurement document– Source Selection Criteria (Who qualifies to be a supplier)– Seller Proposal– Project Document (Risk register & risk related contract decisions)– Procurement Statement of Work (specifications, quantity,

quality, work location)– Make-or-buy decision

Conduct Procurement

• How we do it:– Bidder conference– Proposal evaluation techniques– Independent estimates– Expert judgment– Advertising– Analytical Technique– Procurement negotiations

Conduct Procurement

• What we get:– Selected sellers– Agreements (Contracts & Terms and Conditions)– Resource calendars– Change request

Control Procurement• What we have:– Procurement document– Project management plan– Agreements– Approved change requests– Work performance reports– Work performance data

Control Procurement

• How we do it:– Contract change control system– Procurement performance review– Inspection and audits– Performance reporting– Payment systems (Account Payables)– Claim administration– Record management system (manage contract & Procurement

documents)

Control Procurement• What we get:– Work performance information– Change request

Close Procurement• What we have:– Project management Plan– Procurement documents

• What we do:– Procurement audits– Negotiated settlements– Record management systems

• What we get:– Closed procurements– Organizational process updates

1. The fixed price contract is advantageous to the buyer because it:

A. requires extremely well defined specificationsB requires formal procedures for scope changesC Contractor assumes financial and technical riskD has a known cost

2. Unit Price (UP) contract provides:

A. a reimbursement of allowable costs plus a fixed fee which is paid proportionately as the contract progresses

B. a reimbursement of allowable cost of services performedplus an agreed upon percentage of the estimated cost as profit

C. the supplier with a fixed price for delivered performance plus a predetermined fee for superior performance

D. a fixed price where the supplier agrees to furnish goods and services at unit rates and the final price is dependent on the quantities needed to carry out the work

3. In Which phase of the Acquisition Process Cycle does source qualifications reside?A. Pre-AwardB. AwardC. Post AwardD. Origination

4. Performance bond should always provide what part of the contract value?

A 10 percentB 25 percentC 50 percentD 100 percentE Normally a performance bond, depending upon the

state, only stipulates that the contractor will guarantee the work for a certain period of time.

5. Which contract type places the most risk on the seller?

A. Cost plus percentage feeB. Cost plus incentive feeC. Cost plus fixed feeD. Fixed price plus incentive feeE. Firm fixed price

6. What is the last item a project manager must do to finalize project close-out?A. Reassign the teamB. Contract completionC. Archive the project recordsD. Complete lessons learnedE. None of the above.F. All the above

Answers• 1-C• 2-D• 3-B• 4-D• 5-E• 6-B

Thank you