PMP Ch. 12
Project Procurement Management processes include:
1) Plan Procurement Management 2) Conduct Procurements 3) Control Procurements
Org Process Assets (Plan Procurement Management: Inputs) include
1) Preapproved seller lists 2) Formal procurement policies, procedures, guidelines (when not available, the team should supply both resources & expertise) 3) Contract types 4) Cost-Reimbursable contracts 5) Time and Material contracts (T&M)
Expert Judgement (Plan Procurement Management: Tools) include
1) Procurement and purchasing 2) Contract types and contract docs 3) Regulations and compliance topics
The __1__ may be identified as a contractor, vendor, service provider, or supplier. The __2__ may be the owner of the final product, a subcontractor, the acquiring org, a service requester, or the purchaser.
1) Seller 2) Buyer
BCA
Benefit/cost analysis
BIM
Building Information Model
FFP
Firm Fixed Price
Type of source selection method. May be appropriate for procurements of a standard or routine nature where well-established practices and standards exist and from which a specific and well-defined outcome is expected, which can be executed at different costs
Least Cost
MSA
Master Services Agreement
Technology and stakeholder relations (Trend in Procurement Management)
Publicly funded projects are under increasing scrutiny. Web cameras to improve communications. During construction, one or more webcams are installed on the site, with periodic updates to a publicly available website. Video data can be stored, allowing analysis if claims arise. Minimizes disputes
Type of source selection method. Applies when the time and cost of a full selection process would not make sense because the value of the procurement is relatively small. The buyer establishes a short list and selects the bidder with the best credibility, qualifications, experience, expertise, areas of specialization, and references
Qualifications only
Type of source selection method. Allows cost to be included as a factor in the seller selection process. When risk and/or uncertainty are greater for the project, quality should be a key element when compared to cost
Quality and Cost-based
All legal contractual relationships fall into one of two broad families: Or third hybrid called: In practice, not unusual to combine one or more types
fixed-price cost-reimbursable Time and Materials (T&M)
NPV
net present value
The _____ itself may become a buyer of lower-tiered products, services, and materials from subcontractors and suppliers
seller
The Terms and Conditions of the contract and the procurement SOW become key inputs for the ____'s management process
seller's
The _____'s PM team may be concerned with all the processes involved in performing the work or providing the services
seller's
Another name for the procurement SOW
technical statement of work
Another name for a Time and Materials (M&M) contract
time and means
More advanced risk management (Trend in Procurement Management)
to write contracts that accurately allocate specific risks to those entities most capable of managing them. No contractor is capable of managing all the possible major risks on a project. The buyer will be required to accept the risks that the contractors do not have control over. Contracts may specify that risk management be performed as part of the contract
Considerations for Agile in Project Procurement Management
-specific sellers may be sued to extend the team. This collaborative working relationship can lead to a shared risk procurement model where both the buyer and seller share the risk and rewards. Larger projects may use an adaptive approach for some deliverables and a more stable approach for other parts. In these cases, a governing agreement such as a Master Services Agreement (MSA) may be used for the overall engagement, with the adaptive work being placed in an appendix or supplement. This allows changes to occur on the adaptive scope without impacting the overall contract
Trends in Procurement Management:
1) Advances in tools 2) More advanced risk management 3) Changing contracting processes 4) Logistics and supply chain management 5) Technology and stakeholder relations 6) Trial Engagements
Business Documents (Plan Procurement Management: Inputs) include
1) Business case 2) Benefits management plan (when benefits are expected to be available)
Tailoring considerations for Project Procurement Mangement
1) Complexity of procurement 2) Physical location (of buyers and sellers) 3) Governance and regulatory environment 4) Availability of contractors
Types of Cost-Reimbursable Contracts:
1) Cost plus fixed fee (CPFF) 2) Cost plus Incentive Fee (CPIF) 3) Cost plus award Fee (CPAF)
Procurement Strategy (Plan Procurement Management: Outputs) include
1) Delivery methods 2) Contract payment types 3) Procurement Phases
Plan Procurement Management: Tools
1) Expert Judgement 2) Data Gathering (market research) 3) Data Analysis (make-or-buy analysis) 4) Source Selection Analysis 5) meetings (to determine strategy for managing and monitoring the procurement)
the Procurement Management Plan can include guidance for:
1) How procurement will be coordinated with other project aspects 2) Timetable of key procurement activities 3) Procurement metrics 4) Stakeholder roles and responsibilities including authority and constraints 5) Constraints and assumptions that could affect planned procurements 6) The legal jurisdiction and the currency in which payments will be made 7) whether independent estimates will be used and whether they are needed as evaluation criteria 8) Risk management issues including identifying requirements for the performance bonds or insurance contracts to mitigate some forms of project risk 9) Prequalified sellers to be used
Commonly used source selection methods:
1) Least Cost 2) Qualifications Only 3) Quality-based/highest technical proposal score 4) Quality and cost-based 5) Sole Source 6) Fixed Budget
Enterprise Environmental Factors (Plan Procurement Management: Inputs) include
1) Marketplace 2) Products, services, and results that are available in the marketplace 3) Sellers, including their past performance or reputation 4) Typical terms and conditions for products, services, and results or for the specific industry 5) Unique local requirements 6) Legal advice regarding procurements 7) Contract Management systems 8) Established multi-tier supplier system of prequalified sellers based on prior experience 9) Financial accounting and contract payments system
Project Docs (Plan Procurement Management: Inputs) include
1) Milestone List (when the sellers are required to deliver) 2) Project team assignments (the skills and abilities of the team and availability to support the procurement activities) 3) Requirements documentation 4) Requirements traceability matrix 5) Resource requirements 6) Risk Register (some risks transferred via agreements) 7) Stakeholder register
Typical steps in the Procurement management plan:
1) Prepare the procurements statement of work (SOW) or terms of reference (TOR) 2) Prepare a high-level cost estimate to determine the budget 3) Advertise the opportunity 4) Identify a short list 5) Prepare and issue bid documents 6) Prepare and submit proposals by the seller 7) Conduct a technical evaluation of the proposals including quality 8) Perform a cost evaluation of the proposals 9) Prepare the final combined quality and cost evaluation to select the winning proposal 10) Finalize negotiations and sign contract
Plan Procurement Management: Outputs
1) Procurement Management Plan 2) Procurement Strategy 3) Bid Documents 4) Procurement Statement of Work 5) Source Selection Criteria 6) Make-or-Buy Decisions 7) Independent Cost Estimates 8) Change Requests 9) Project Doc Updates 10) Org Process Asset Updates
Plan Procurement Management: Inputs
1) Project Charter (the objectives, project description, summary milestones, and the preapproved financial resources) 2) Business Documents 3) PM Plan 4) Project Documents 5) Enterprise Environmental Factors 6) Org Process Assets
PM Plan (Plan Procurement Management: Inputs) include
1) Scope management plan 2) Quality management plan (info used in the RFP and the contract may be used in supplier prequalification or as part of the selection criteria) 3) Resource management plan (which resources will be purchases or leased) 4) Scope baseline (to develop the SOW and TOR)
Project Docs (Plan Procurement Management: Inputs). Requirements Documentation:
1) Technical Requirements 2) requirements with contractual/legal implications including health, safety, security, performance, environmental, insurance, intellectual property rights, equal employment opportunity, licenses, permits, and other
An agreement can be a: (5)
1) contract 2) SLA 3) understanding 4) MOA 5) Purchase Order
A contract should clearly state the (3):
1) deliverables 2) Results expected 3) any knowledge transfer from the seller to the buyer
Procurement Strategy (Plan Procurement Management: Outputs). Delivery Methods:
1) for professional services, delivery methods include: buyer/services provider with no subcontracting, buyer/services provider with subcontracting allowed, joint venture between buyer and services provider, and buyer/services provider acts as the representative 2) For industrial or commercial construction, project delivery methods include but are not limited to: turnkey, design build (DB), design bid build (DBB), design build operate (DBO), build own operate transfer (BOOT), and others
Expert Judgement (Control Procurements: Tools) includes
1) relevant functional areas such as finance, engineering, design, development, supply chain management 2) Laws, regulations, and compliance requirements 3) Claims administration
Another word for seller
Contractor
Type of Cost-reimbursable contract. The seller is reimbursed for all legitimate costs, but the majority of the fee is earned based on the satisfaction of certain broad subjective performance criteria that are defined and incorporated into the contract. The determination of a fee is based solely on the subjective determination of seller performance by the buyer and is generally not subject to appeals
Cost Plus Award Fee (CPAF)
Type of Cost-reimbursable contract. The seller is reimbursed for all allowable costs for performing the contract work and receives a fixed-fee payment calculated as a % of the initial estimated project costs. Fee amounts do not change unless the project scope does
Cost Plus Fixed Fee (CPFF)
CPAF
Cost plus award fee
CPFF
Cost plus fixed fee
CPIF
Cost plus incentive fee
Type of Cost-reimbursable contract. The seller is reimbursed for all allowable costs for performing the contract work and receives a predetermined incentive fee based on achieving certain performance objectives as set forth in the contract. If the final costs are less or greater than the original estimated costs, then both the buyer and seller share costs from the departures based upon a prenegotiated cost-sharing formula, for ex: 80/20 split over/under target costs based on the actual performance of the seller
Cost plus incentive fee (CPIF)
Type of Contract. Involves payments to the seller for all legitimate actual costs incurred for completed work, plus a fee representing seller profit. Should be used if the scope of work is expected to change significantly during the execution of the contract
Cost-Reimbursable contracts
DBB
Design bid build
Type of Fixed-Price Contract. The most commonly used contract type. It is favored by most buying orgs because the price for goods is set at the outset and not subject to change unless the scope of work does
Firm Fixed Price (FFP)
Type of source selection method. Requires disclosing the available budget to invited sellers in the RFP and selecting the highest-ranking technical proposal within the budget. Because sellers are subject to a cost constraint, they will adapt the scope and quality of their offer to that budget. The buyer should therefore ensure that the budget is compatible with the SOW and that the seller will be able to perform the tasks within the budget. Appropriate only when the SOW is precisely defined, no changes are anticipated, and the budget is fixed and cannot be exceeded
Fixed Budget
FPIF
Fixed Price Incentive Fee
Type of Fixed-Price Contract. Gives the buyer and seller some flexibility in that it allows for deviation from performance, with financial incentives tied to achieving agreed-upon metrics. Typically, such financial incentives are related to cost, schedule, or technical performance of the seller. A price ceiling is set and all costs above the price ceiling are the responsibility of the seller
Fixed Price Incentive Fee (FPIF)
FPEPA
Fixed Price with Economic Price Adjustments
Type of Fixed-Price Contract. Used whenever the seller's performance period spans a considerable period of years, or if they payments are made in a different currency. A special provision allowing for predefined final adjustments to the contract price due to changed conditions, such as inflation changes or cost increases (or decreases) for specific commodities
Fixed Price with Economic Price Adjustments (FPEPA)
Contract type that involves setting a fixed total price for a defined product, service, or result to be provided. Should be used when the requirements are well defined and no significant changes to the scope are expected
Fixed-Price Contracts
Changing contracting processes (trend in procurement management)
Growth in megaprojects particularly in the areas of infrastructure dev and engineering projects. Multi-billion dollar projects are now common. A large proportion of these involve international contracts with multiple contractors from many countries and are inherently more risky. Increasingly, the contractor works closely with the client in the procurement process to take advantage of discounts through quantity purchases or other special considerations. For these projects, the use of internationally recognized standard contract forms is increasing
used to determine whether work or deliverables can be best accomplished by the team or should be purchased from outside sources. Factors to consider include the org's current resource allocation and their skills, the need for specialized expertise, the desire to not expand permanent employment obligations, and the need for independent expertise. Includes evaluating the risks involved. May use payback period, ROI, internal rate of return (IRR), discounted cash flow, net present value (NPV), benefit/cost analysis (BCA), or other techniques in order to decide whether to include something as part of the project or purchase it externally
Make-or-buy analysis
includes examination of industry and specific seller capabilities. Procurement teams may leverage info gained at conferences, online reviews, and a variety of courses to identify market capabilities. May also refine specific procurement objectives to leverage maturing technologies while balancing risks associated with the breadth of sellers who can provide the desired materials or services
Market research
Larger projects may use an adaptive approach for some deliverables and a more stable approach for other parts. In these cases, a governing agreement such as a ________ may be used for the overall engagement, with the adaptive work being placed in an appendix or supplement. This allows changes to occur on the adaptive scope without impacting the overall contract
Master Services Agreement (MSA)
MOA
Memoranda of Agreement
the _____ is typically not authorized to sign legal agreements binding the org
PM
the process of documenting project procurement decisions, specifying the approach and identifying potential sellers
Plan Procurement Management
contains that activities to be undertaken during the procurement process. Should document whether international competitive bidding, national competitive bidding, local bidding, etc., should be done. The sources and availability of funding should be aligned with this and the project schedule
Procurement Management Plan
includes the processes necessary to purchase or acquire products, services, or results needed from outside the project team. Includes the management and control processes required to develop and administer agreements such as contracts, purchase orders, memoranda or agreements (MOAs), or internal service level agreements (SLAs)
Project Procurement Management
Type of source selection method. The selected firm is asked to submit a proposal with both technical and cost details and is then invited to negotiate the contract if the technical proposal proves acceptable. Technical proposals are first evaluated based on the quality of the technical solution offered. The seller who submitted the highest-ranked technical proposal is selected if their financial proposal can be negotiated and accepted
Quality-based/high technical proposal score
Another word for Buyer
Requester
SLA
Service Level Agrement
Type of source selection method. The buyer asks a specific seller to prepare technical and financial proposals, which are then negotiated. Since there is no competition, this method is acceptable only when properly justified and should be viewed as an exception
Sole source
Trial Engagements (Trend in Procurement Management)
Some projects will engage several candidate sellers for initial deliverables and work products on a paid basis before making the full commitment to a larger portion of the project scope. Accelerates momentum by allowing the buyer to evaluate potential partners, while simultaneously making progress on project work
review of the prioritization of the competing demands for the project before deciding on the selection method for sourcing (for procurement). Since competitive selection methods may require sellers to invest a large amount of time and resources upfront, it is good practice to include the evaluation method in the procurement docs so bidders know how they will be evaluated
Source Selection Analysis
TOR
Terms of Reference
T&M
Time and Materials
Type of Contract. A hybrid type of contractual arrangement with aspects of both cost-reimbursable and fixed-price contracts. Often used for staff augmentation, acquisition of experts, and any outside support when a precise statement of work cannot be quickly prescribed
Time and Materials (T&M)
The legally binding nature of a contract means it will be subject to a more extensive ___1___, often involving the legal department. The primary focus of the review and ___1___ is to ensure that the contract adequately describes the products, services, or results that the seller is agreeing to provide, while being in compliance with the laws and regulations regarding procurements
approval process
Logistics and supply chain management (Trend in Procurement Management)
because so many large engineering, construction infrastructure projects are done through multiple international contractors, the management of the flow of materials becomes critical to successful complete. For long-lead items, both the manufacture of the items and their transportation to the project site become schedule-drivers. In the IT field, a long-lead item may require ordering 2 or 3 months in advance. It is possible to begin contracting for these long-lead materials, supplies, or equipment before the final design of the end product itself is completed based on the known requirements identified in the top-level design. Not only are primary sources of supplies identified early in the project, but secondary, back-up sources are also generally identified. May countries require international contractors to purchase certain minimum %s of materials and supplies from local vendors
The Procurement strategy and business case need to be aligned to ensure the _____ remains valid
business case
The Project Procurement Management processes involve agreements that describe the relationship between two parties: a ____ and a ____
buyer and a seller
The _____ relationship may exist at many levels on any one project, and between orgs internal to and external to the acquiring org
buyer-seller
When the actual procurement and contracting functions are carried out by a separate department with the specific role to purchase, negotiate, and sign contracts (for more mature orgs)
centralized purchasing
The _____ approach and the _____ itself should reflect the simplicity or complexity of the deliverables or required effort and should be written in a manner that complies with local, national, and international laws regarding contracts
contracting contract
The PM should be familiar enough with the procurement process to make intelligent decisions regarding ____ and ____ relationship
contracts contractual
The buyer becomes the ____ to subcontractors, supplies, and service providers and then is a key project stakeholder from the seller's perspective
customer
When the PM assumes the purchasing authority role to negotiate and sign contracts directly (usually in smaller orgs)
decentralized purchasing
DB
design build
DBO
design build operate
The seller can be viewed during the contract life cycle first as the _____, then as the _____, and then as the ____ or ______
during the contract life cycle first as the bidder, then as the selected source, and then as the contracted supplier or vendor
IRR
internal rate of return
When working ______, keep in mind the effect that culture and local law have upon contracts and their enforceability, no matter how clearly a contract is written
internationally
What is the key benefit of the Plan Procurement Management process?
it determines whether to acquire goods and services from outside the project and, if so, what to acquire as well as how and when to acquire it. Goods and services may be produced from other parts of the performing org or from external sources
In international contracting, the ________ under which the contracts will be administered are clearly spelled out in the contract
legal jurisdiction
Advances in Tools (Trend in Procurement Management)
online tools for procurement give buyers a single point where procurements can be advertised and sells to find procurement docs and complete them online. In construction/engineering/infrastructure field, the increasing use of the building information model (BIM) has shown to save time and money. Can substantially reduce construction claims, thereby reducing both costs and schedule
Most org's document policies and procedures specifically defining procurement rules and specifying who has authority to sign and administer such agreements of behalf of the ____
organization
It is the PM team's responsibility to make certain all procurements meet the specific needs of the project while working with the ______ offic eto ensure org procurement policies are followed
procurement
Once the make-or-buy analysis is complete and the decision is made to acquire from outside the project, a ______ should be identified. The objective of which is to determine the project delivery method, the type of legally binding agreement(s), and how the procurement will advance through the procurement phases.
procurement strategy
Participants in the Plan Procurement Management process may include personnel from the _______ department as well as personnel from the buying org's ______ department. These responsibilities should be documented in the procurement management plan
purchasing legal
A ______ includes terms and conditions and may incorporate other buyer specifics as to what the seller is to perform or provide
purchasing contract
Orgs use diff names for divisions that deal with procurement such as:
purchasing, contracting, procurement, or acquisitions
For larger, more complex projects, the _____ may become part of an integrated project team after the contract is awarded
seller
