12 - Project Procurement Management - 3

*12.3 - Control Procurements* knowledge area *project procurement management* & * monitoring and controlling process group*

@ is the process for administering procurement affiliations, tracking buyer and seller performance, making adjustments to the contract, and closing the contract @ the designated contract administrator verifies and product/service/result as they fulfill the terms and conditions of the agreement @ if there are multiple sellers it is the *contract administrator* is also responsible for * managing the interface points* between the parties @ the cost aspect of this process involves managing payments due with a focus on paying only for completed work @ the performance involves a review of each seller's performance against the agreement

*bidder conferences*

@ are meetings that provide potential sellers a forum to ask a buyer questions and obtain clarification about potential issues before creating a proposal @ such conferences can also include a formal presentation by the buyer @ the conferences should make the questions and answers available to anyone considering bidding on the project @ the buyer must take all reasonable steps to ensure that potential sellers do not collude to inflate pricing

Standard terms and conditions

@ are typically common (non-negotiable) contract terms @ they can be subject to negotiation but generally the company's legal department imposes a tight range of parameters @ can cover payment options, intellectual property rights, and the ability to subcontract

Plan Procurement Management *source selection analysis-quality based/technical proposal score* knowledge area *project procurement management* & * planning process group*

@ asks the providers to submit a proposal with both technical and cost details @ each proposal is then evalulated against a specific model

*negotiating tactics*

@ attacks @ personal insults @ good guy/bad guy @ deadline @ lying @ limited authority

12.3 - Control Procurements *inputs-quality reports* knowledge area *project procurement management* & * monitoring and controlling process group*

@ can be used as the basis for the performance of corrective actions in order to meet project quality expectations @ the reports can also distinguish vendor processes, procedures, or products that do not meet quality expectations

noncompetitive form of procurement-*single source*

@ choosing a preferred vendor rather than accepting bids from competing vendors @ the purchasing organization typically uses a single source if it has a preferred vendor or doesn't have time to go through the full selection process

*rent or buy calculation*

@ consider purchase cost and daily maintenance with the purchase option @ daily/weekly/monthly rental fee which usually includes maintenance fees for the rent option @ to determine the answer you need to *convert the information to a formula*

12.2 - Conduct procurements *outputs-agreements* knowledge area *project procurement management* & * executing process group*

@ contains information - milestone dates @ performance - quality /acceptance criteria - warranties - future support requirements - insurance & general terms - awards and penalties - change request procedures - termination clause - processes for alternative dispute resolution

*cost plus percentage of costs (CPPC)*

@ covers the seller cost for building something for a buyer and pays them a percentage of the total costs as a fee @ the more the seller spends the higher the fees @ must significant the risk for buyer @ most companies will not enter into this type of contract because it can negatively impact the buyer if the seller is not ethical @ high risks for the buyer @ at far right of chart

*cost plus incentive award (CPAF)*

@ covers the seller for legitimate costs but majority of fee is only awarded based on the buyers satisfaction with broad subjective criteria @ bat bridge example | a buyer agrees to pay for costs incurred for a freeway bridge. If the seller meets the agreed upon date with minimal impact on the environment the buyer will award and additional $500k @ minimal risk for buyer but significant risk for seller @ 2nd from right

*Procurement documents*

@ documents associated with the procurement process lay the foundation for vendor relationships @ they apply to the selected vendors and those who are considering the work. @ an ideal procurement answers the questions of the potential vendors and allows them to make a well-planned bid, creating a win/win relationship with the vendor

Plan Procurement Management *outputs-procurement management plan* knowledge area *project procurement management* & * planning process group*

@ formalizes the types of contracts and procurement documents that will be used @ designates and pre qualified sellers @ describes the manner in which procurement is coordinated @ describes the manner in which make-or-buy decisions are conducted @ the PmP plan - run bidder conferences - select vendors to do the work - establish documents needed for project (RFP, RFI, RFQ) - establish contracts with vendors

12.1 - Plan Procurement Management *inputs-scope baseline*

@ if the scope is still evolving the know scope constituents are used to create the statement of work (SOW) and the Terms of reference (TOR)

Plan Procurement Management *source selection analysis-least cost* knowledge area *project procurement management* & * planning process group*

@ in *least cost* the lowest provider wins @ typically recommended in situations where the team is only dealing with a commoditized product

12.1Plan Procurement Management *inputs-requirements documentation* knowledge area *project procurement management* & * planning process group*

@ includes the requirements management plan, technical requirements that must be met by the seller, and requirements that must be met that appertain to contractual or legal considerations @ these documents discuss the "business, stakeholder, solution, transition, project, and quality* requirements

*12.2 - Conduct procurements* knowledge area *project procurement management* & * executing process group*

@ incorporates soliciting responses from the sellers, selecting a seller, and awarding a contract @ the team will request bids or proposals from potential sellers, apply the defined selection criteria ro the bids or proposals received to determine the selected seller and award the contract to the selected seller @ major procurements may require iterations of this process and includes negotiation

noncompetitive form of procurement-*sole source*

@ involves using a company that has no competition @ typically owns a patent or some other intellectual right

*qualified sellers list*

@ is a *list that a buyer can uses as a screening mechanism in the procurement process* @ it allows a buyer to consider sellers of services that have met predefined screening @ allows vendors to make their selection rom vendors that have already met the predefined qualifications

12.2 - Conduct procurements *inputs-procurement management plan* knowledge area *project procurement management* & * executing process group*

@ is a component of the project management plan and is the key output of the *plan procurement process* process @ contains guidelines for coordinating procurement with other project processes @ contains constraints and assumptions @ activity timeline

12.2 - Conduct procurements *t&t-proposal evaluation* knowledge area *project procurement management* & * executing process group*

@ is a data analysis technique utilized to assess proposals in terms of completeness and alignment with procurement documentation, the SOW, source selection criteria and any additional documents contained in the bid package

*master services agreement (MSA)*

@ is a governing agreement that is used for the overall engagement @ MSAs are often used on large projets where parts of the project is managed using agile methods @ any adaptive work is placed in an appendix or supplement which allows changes to occur on an adaptive scope without impacting the entire contract

12.1 - Plan Procurement Management *outputs-procurement strategy* knowledge area *project procurement management* & * planning process group*

@ is created after make or buy and the decision to purchase has been made @ addresses the delivery methods, contract payments type @ procurement phase information has the descriptions and objectives

*noncompetitive form of procurement*

@ is done when there is *only source for the products* or when the *buyer has an established relationship with the seller* @ there need to have mechanisms in place to ensure the buyer of the product or services attains a fair price

Contract interpretation

@ is important in that it can keep the organization out of courts or put in courts @ if it is not in the contract it is not a requirement @ any agreement to modify the contract should be signed as an attachment and attached to the contract @ if any changes are made to the contract before it has been signed the changes should be handwritten and initialed by all parties

Project procurement management

@ is the process of obtaining products, services, or results from a person, or entity *that is not part of the project team* @ the process can be very complex and mistakes can have legal consequences @ an agreement describes the relationship between the buyer and the seller @ unless stated *the exam references procurement from a buyer's perspective* @ if it is not in the contract it can only be done if a formal change order to the contract is issued @ changes must be submitted and approved in writing @ contracts are legally binding; both parties are obligated to perform per the terms of the contract @ contracts should diminish/reduce product risks

12.1 - Plan Procurement Management *t&t-make or buy analysis* knowledge area *project procurement management* & * planning process group*

@ is utilized to determine if it is more advantageous for the project team to perform work or to contract the work/buy from an outside source @ *make* decision qualities - the buyer owns tIP with the work and considers doing work internally - the buyer has excess capacity @ *buy* decision qualities - the buyer doesn't possess the skills or capacity for the work

12.1 - Plan Procurement Management *t&t-expert judgement* knowledge area *project procurement management* & * planning process group*

@ it is important to consider expertise related to - procurement - purchasing - contract types - pertinent regulatory & compliance information

12.2 - Conduct procurements *t&t-expert judgement* knowledge area *project procurement management* & * executing process group*

@ it is important to consider expertise related to proposal evolution, knowledge about the procurement item and applicable functionality (finance, engineering, design, etc) and pertinent industry regulations and compliance requests

What are the advantages of FP Contract?

@ less work for buyer to manage @ seller has a strong incentive to control costs @ buyer knows the total price @ companies have more experience with this form

Plan Procurement Management *source selection analysis-qualifications only* knowledge area *project procurement management* & * planning process group*

@ looks for the provider who best meets the defined needs regardless of costs @ often leads to to providers who meet the needs but risks exceeding the project budget

What are the advantages of CR Contract?

@ lower cost because no extras added for risk @ less work to write the procurement SOW

12.1 - Plan Procurement Management *t&t-market research* knowledge area *project procurement management* & * planning process group*

@ may use information gained at conferences, online reviews, and other sources to determine market capabilities

*negotiations*

@ negotiations may occur between the buyer and the seller when the buyer when the buyer is outsourcing work to another company @ *negotiations should result in a win/win for both parties* @ competition - using one seller against another to attain the best price @ deadline - using a deadline to attempt to get the other party to sign the contract @ the boss is missing - explaining the key person is not available @ PM is not negotiator

Buyer and Seller names

@ note that depending on circumstances the terms for the buyer and seller can change during the project

12.1 - Plan Procurement Management *outputs-make or buy decisions*

@ one of the basics of procurement @ from the analysis done in the tools section you will have a decision

*firm fixed price (FFP)

@ one of the most common contracts in business today because a company can budget for a fixed price. @ it requires a seller to estimate accurately. It is typically used when there is a *detailed scope* of work - keeping tight to the scope allows them to make a profit for the contract signed. - if the scope isn't properly defined the seller might work on items and not be reimbursed @ minimal risk for buyer but has the most significant risk for the seller @ if the buyer doesnt have manpower to audit the invoices this is the best contract type as they are only looking at deliverables @ is the far left contract type

Statement of Work (SOW)

@ performance based - this type conveys what the final product should be able to do rather than how it is built or what the design characteristics are @ functional based - this the conveys the the end purpose or result, rather than the specific procedures or approach - functional statements may include a statement of minimal essential characteristics of the product @ design - this type conveys precisely what work is to be done

12.2 - Conduct procurements *outputs-cost baseline* knowledge area *project procurement management* & * executing process group*

@ procurement cost changes (labor and/or material) must be incorporated into the cost baseline

What are the disadvantages of T&M Contract?

@ profit in every hour billed @ seller has no incentive to control costs @ appropriate for small-sized projects

12.1 - Plan Procurement Management *inputs* knowledge area *project procurement management* & * planning process group*

@ project charter @ business case @ *scope baseline*business management plan @ scope, *quality*, and resource management plan @ milestone list @ project team assignments @ *requirements documentation* @ requirements traceability matrix @ *resource requirements* @ * risk register* @ *stakeholders register* @ EEFs @ OPAs

12.3 - Control Procurements *inputs* knowledge area *project procurement management* & * monitoring and controlling process group*

@ project management plan - requirements MP - risk MP - *procurement management plan* - change MP - schedule baseline @ project documents - assumption log - lessons learned - milestone list - *quality reports* - requirements documentation - *requirements traceability matrix* - *risk register* - stakeholder register @ *agreements* @ * procurements documentation* @ *approved change requests* @ work performance data @ EEFs @ OPAs

12.2 - Conduct procurements *inputs* knowledge area *project procurement management* & * executing process group*

@ project management plan - scope management plan - requirements management plan - communications management plan - risk management plan - *procurement management plan* - configuration management plan - *cost baseline* @ project documents - lessons learned register - *project schedule* - requirements documentation - risk register - stakeholder register @ procurement documentation - *seller proposals* @ EEFs @ OPAs

What are the advantages of T&M Contract?

@ quick @ brief contract @ good choice when you are hiring bodies or people tp augment your staff

*point of total assumption*

@ relates only to fixed price incentive fee contracts and refers to the amount which the seller bears all the loss of a cost overrun @ costs that go above the PTA are assumed to be due to mismanagement

What are the disadvantages of CR Contract?

@ requires auditing @ more work to manage @ the total price is unknown @ seller has only a moderate incentive to control costs

12.2 - Conduct procurements *outputs-resource calendars* knowledge area *project procurement management* & * executing process group*

@ resource calendars must be updated to reflect the availability of sellers

Scope of work-*functionality*

@ scope of work in which the buyer details *the functionality needed in the new system or development* @ functionality allows the sellers to propose their own solution as long as the end results are achieved @ *typically work is with cost plus (CP) contracts. @ example company hires a vendor to install a phone system

*Scope of work*

@ scope of work is typically the part of the contract that describes what the seller will do for the buyer what the seller will do for the buyer @ when the scope of work is complete, the main work of the contract is complete and closing can begin. @ there are two types of approaches to develop the scope in the contract

What are the disadvantages of FP Contract?

@ seller may "cut" scope @ seller may charge extra on change orders @ more work for the buyer to write the scope of work @ more expensive as they might add for risk

12.2 - Conduct procurements *inputs-seller proposals* knowledge area *project procurement management* & * executing process group*

@ seller proposals are submitted in response to a procurement document package and contains the information that will be assessed against the source selection criteria to determine the bids that satisfy the criteria @ typically a seller proposal is separate from a price proposal

Contract Component-*share* (BSR)

@ share is a contract component that divides any remaining money between the buyer and seller @ it is normally negotiable @ the total amount paid to the seller is *actual cost + share* @ Buyer Sharing Ratio @ top ratio is buyer | bottom is seller

12.1 - Plan Procurement Management *inputs-risk register knowledge area *project procurement management* & * planning process group* *

@ some risks may be *transferred* through the use of a procurement agreement

*price*

@ the amount charged the customer @ it is defined as cost plus profit

*material breach*

@ the breach is so large that it may not be possible to to complete the work under contract

12.2 - Conduct procurements *inputs-cost baseline* knowledge area *project procurement management* & * executing process group*

@ the budget consists of the cost baseline and the management reserves @ if the project uses earned value management (EVM) than it is known as the performance measurement baseline

Scope of work-*design*

@ the buyer provides details to the seller *with the exact details of what is required* @ design is typically used when buyers know exactly what they want and want no variance from specifications @ typically works with fixed-price contracts

Procurement documents *invitation/request for bid (IFB/RFB)

@ used for government sealed bidding processes with characteristics for an RFP @ a document that requests an approach, price, and significant detail about how the seller proposes to do the requested work @ example: a request from a branch of the us government to sellers regarding the design, implementation, and training of an enterprise reporting system, the selection process is a sealed bid and the contract is awarded on March 25th

12.2 - Conduct procurements *t&t-bidder conferences*

knowledge area *project procurement management* & * executing process group* @ bidder conferences are meetings between the buyer and aspiring sellers that are conducted prior to proposal submission for the purpose of providing all aspiring sellers with an explicit and common interpretation of the of the procurement @ the meetings must be conducted in a manner that eliminates preferential treatment of any bidder

12.2 - Conduct procurements *outputs-scope baseline*

knowledge area *project procurement management* & * executing process group* @ the WBS, deliverables, assumptions and constraints contained in the scope baseline must be considered during the performance of during the performance of procurement activities

12.3 - Control Procurements *inputs-agreements*

knowledge area *project procurement management* & * monitoring and controlling process group* @ review of pertinent agreements is required to determine if the terms and conditions are satisfied

*time is of the essence*

this phase means that delivery dates are strictly binding and will be stringily enforced @ the seller is placed on immediate notice if any delay is considered a material breach

Requirements for a contract *CCOLA*

*C*apacity | legal age and competent * O*ffer | proposition to exchange X for Y *C*onsideration | the item to exchange *L*egal purpose | needs to be legal *A*cceptance | a buyer willing to accept it

*Contract*

*a contract is a mutually binding legal agreement between buyer and seller* @ other names are *purchase order, subcontract, or agreement*

12.2 - Conduct procurements *outputs-selected sellers* knowledge area *project procurement management* & * executing process group*

@ are aspiring sellers who have been deemed competitive based on the results of the proposal/bid assessment @ for more sophisticated high-value and/or high-risk procurements, approval by senior management is typically required prior to awarding the contract

Special provisions

@ *are added to a contract to account for any standard terms and conditions that will not meet the needs of the work involved* @ buyer and seller negotiate these provisions

12.2 - Conduct procurements *tools and techniques* knowledge area *project procurement management* & * executing process group*

@ *expert judgement* @ advertising @ *bidder conferences* @ data analysis-*proposal evaluation* @ interpersonal and team skills -negotiation

12.1 - Plan Procurement Management *tools and techniques* knowledge area *project procurement management* & * planning process group*

@ *expert judgement* @ data gathering - *market research* - *make or buy analysis* @ source selection analysis @ meetings

12.1 - Plan Procurement Management *outputs* knowledge area *project procurement management* & * planning process group*

@ *procurement management plan* @ *procurement strategy* @ bid documents @ *procurement statement of work* @ source selection criteria* @ *make or buy decisions* @ independent cost estimates @ *change requests* @ product documents updates @ OPAs updates

12.2 - Conduct procurements *outputs* knowledge area *project procurement management* & * executing process group*

@ *selected sellers* @ *agreements* @ change requests @ project management plan updates - requirements MP - quality MP - communications MP - risk MP - procurement MP - *scope/schedule/cost baselines* @ project documents updates - lessons learned register - requirements documentation - requirement traceability matrix - *resource calendars* - risk register - stakeholder register @ OPA updates

*Point of total assumption*

@ PTA = ((Ceiling Price - Target Price) / Buyer's Share Ratio) + Target Cost @ If, however, the seller finishes work at lower cost, there is an incentive, and this maximizes the Seller's gains.

*purchase order*

@ a *unilateral* agreement that requires approval by only one party because the other party has offered the product for a predefined price @ a PO is used for commodity items @ neutral on risk for buyer @ is the middle of the contract type

*fixed price economic price adjustment (FP-EPA)

@ a Fixed price contract with a multiyear component @ to compensate for economic changes an adjustment is usually tied to an economic metric @ minimal risk for buyer but has significant risk for seller @ third from left @ example might be building a new freeway over three years tied to cost of living

*12.1 - Plan Procurement Management* knowledge area *project procurement management* & * planning process group*

@ a company analyzes its procurement or outsourcing needs @ during this process the organization may involve people specializing in law, purchasing, or contracts @ identify which project needs can be best be met by purchasing or acquiring outside of the organization @ project schedule greatly influences and is influenced by purchase and acquisition decisions @ the organization completes for the project which may include - request for information (RFI) - request for quote (RFQ) - request for proposal (RFP)

*fixed price incentive fee (FPIF)*

@ a contract price with the fixed price contract includes incentive fees to produce at a rate greater than the minimum required @ it includes added profit for completing early @ is usually used to help accelerate a buyer's need @ need to watch quality @ minimal risk for buyer but has significant risk for seller @ second from left

*privity*

@ a contractual relationship

Ceiling price

@ a percentage of the target cost @ this is the maximum total amount of work is expected to cost with any cost overruns being considered @ example 140% of cost 1,000,000*140% = $1,400,000

Trends in procurement management

@ advances in tools utilized to manage the procurement and implementation phases @ paid trial engagements for several vendors before commitments to a single vendor @ advanced risk management tools that allow risk allocation to both buyers and sellers

*incentive fees*

@ an incentive fee is a fee that the *buyer can use to impose a specified standard of productivity on the seller* @ the fee is typically paid to the seller in addition to the base price of the contract

*Point of total assumption (PTA)*

@ the calculation or the point of total assumption establish the point at which the seller is responsible for all cost overruns @ the total amount of money the buyer will pay regardless the cost overrun on the contract for a FPIF contract @ To understand the PTA, you must first have a good understanding of the Fixed Price Incentive Fee Contract. In this contract, the buyer agrees to pay a fixed price, and a maximum price for cost overruns. This is called the Most Pessimistic View of Costs. Beyond this point, if the cost rises, it will most likely be because of mis-management at the Seller's end, thus, the seller has to bear all the extra costs beyond this point. @ Any FPIF contract specifies a target cost, a target profit, a target price, a ceiling price, and one or more of the sharing ratios. @ The PTA is the difference between the ceiling and target prices, divided by the buyer's portion of the share ratio for that price range, plus the target cost.

Target cost (TC)

@ the expected cost of the work in the contract @ example $1 million

Target Profit (TP)

@ the expected profit of the work in the contract @ example $200,000

Tailoring in procurement management

@ the intricacy of the procurement @ the governance and regulatory climate

12.3 - Control Procurements *inputs-requirements traceability matrix* knowledge area *project procurement management* & * monitoring and controlling process group*

@ the matrix associates product requirements with deliverables in an effort to insure that each requirement is tested and that tested requirements increase the overall project quality

12.1 - Plan Procurement Management *inputs-quality management plan* knowledge area *project procurement management* & * planning process group*

@ the plan has the codes applicable to the project which is use to create bidding documents such as the RFP

Agreements

@ the procurement contract is a legally binding *agreement* obligating the seller to provide one or more product, services, results and obligating the buyer to compensate the seller @ the agreement is subject to remedy in the courts @ may be simple or complex and components vary @ the items may include: - payment term - inspection criteria - penalties and incentives - termination

Profit rate @ target cost

@ the profit margin the the target profit compared to the target cost @ target profit/target cost @ $200,000/$1,000,000 = 20%

Share ratio (SR)

@ the ratio between the buyer and seller for cost savings or overruns

* sharing ratio*

@ the sharing ratio describes how cost overruns will be coved by buyer and seller

*work for hire*

@ the work provided will be owned by the buyer

*Contract Type selection*

@ there are different contract types and each one has its own risks for seller and buyer @ Whatever is in the contract and signed, as long as it meets a valid contract is what is to be done

*liquidated damages*

@ these are estimated damages for specific defaults described in advance

*force majeure*

@ this is a situation which may be considered as an act of god, and is an allowable excuse to for either party not meeting contractual requirements @ usually the risk is covered by the seller for which they will often carry insurance

*retainage*

@ this is the amount of money, usually 5%-10%, withheld from each payment @ this money is paid when the all of the final work is complete @it's purpose is to ensure proper completion

*time and materials (T&M)*

@ typically used for smaller initiatives, staff supplementation, or the initial piece of a project @ minimal risk for buyer and seller @1 left from PO

Procurement documents *request for information (RFI)*

@ typically used to solicit information to learn more about a company that could provide service for a buyer @ EX: a request from a state government to determine if a consulting company has the appropriate experience to bid for a project

Procurement documents *request for quote (RFQ)*

@ typically used to solicit proposals for a small dollar amount of commodity type of products that do not require a great deal of customization @ a document that requests a price for a standard item @ there is a general assumption that negotiation is not associated @ example: 50 xyz servers with 64g RAM, 4 TB hard drive to be purchased within 90 days of submittal @ an RFQ can commit the seller to a price in many situations

Procurement documents *request for proposal/tender (RFP/RFT)*

@ typically used to solicit proposals for larger, higher priced customized services or products. @ the seller describes the detailed solution approach it proposes to take and includes a list of related experiences @ The general assumption is that negotiations occur based on the scope, schedule, and costs of the buyer request and consideration of the sellers suggestions. @ example: a request for a proposal to prospective sellers for design, implementation, and training for a data warehouse to consolidate five different enterprise databases at Widgets Inc

*cost plus incentive fee (CPIF)

@ typically used when the buyer knows generally what is needed but lacks any detail to know what is needed to build it. @ a buyer hires a company to write a manual for publication and sale. The buyer agrees to pay cost plus incentive fee for each week the project is done @ medium risk for buyer and minimal risk for seller @ also needs to pay attention to quality @ 2nd from center 3rd from right

*cost plus fixed fee (CPFF)

@ typically used when the buyer knows generally what is needed but lacks detail to know: limited scope definition specifically what is needed to build it @ covers the costs of the seller and includes a predefined fee for the work medium risk for buyer and minimal risk for seller @ 1 from center, 4th from right @ a buyer hires a vendor to provide video training series but is not yet sure of all of the detail needed and agrees to pay the vendor for costs plus a fee