Project Procurement Management

Conduct Procurements - T & Ts

Bidder conference Proposal evaluation techniques Independent estimates Expert judgment Advertising Analytical techniques Procurement negotiations

Close Procurements - Outputs

Closed procurements OPA updates

Contract change control system

Defines the process by which the procurement can be modified. It includes the paperwork, tracking systems, dispute resolution procedures, and approval levels necessary for authorizing changes.

Legal Contractual Relationships

Fixed-price Cost reimbursable Hybrid - Time and Materials All legal contractual relationships generally fall into one of two broad families: either fixed-price or cost reimbursable. Also, there is a 3rd hybrid type commonly in use called the time and materials contract. The more popular contract types in use are discussed below as discrete types, but in practice it is not unusual to combine one or more types into a single procurement.

Procurement negotiations - Close

In all procurement relationships, the final equitable settlement of all outstanding issues, claims, and disputes by negotiation is a primary goals. Whenever settlement cannot be achieved through direct negotiation, some form of alternative dispute resolution (ADR) including mediation or arbitration may be explored. When all else fails, litigation in the courts is the least desirable option

Market research

Includes examination of industry and specific vendor capabilities. Procurement teams may leverage information gained at conferences, online reviews and a variety of courses to identify market capabilities. The team may also refine particular procurement objectives to leverage maturing technologies while balancing risks associated with the breadth of vendors who can provide the materials or services desired

Work performance data

Includes: Extent that quality standards are being satisfied Costs that have been incurred or committed Identification of seller invoices that have been paid All data are collected as part of project execution

Close Procurements - T & Ts

Procurement audits Procurement negotiations Records management system

OPA updates

Procurement file Deliverable acceptance Lessons learned documentation

Plan Procurement Management - Outputs

Procurement management plan Procurement SOW Procurement documents Source selection criteria Make-or-buy decisions Change Requests Project documents updates

PM Plan

Project scope statement WBS WBS Dictionary

Work performance reports

Technical documentation Seller-developed technical documentation and other deliverable information are provided in accordance with the terms of the contract Work performance information Seller's performance reports indicate which deliverables are completed & which are not

Closed procurements

The buyer, usually through its authorized procurement administrator, provides the seller with formal written notice that the contract has been completed. Requirements for formal procurement closure are usually defined in the terms and conditions of the contract and are included in the procurement management plan

Records management system - Close

Used by the PM to manage contract and procurement documentation and records. Contract documents and correspondence are achieved through the records management system.

Performance reporting

Work performance data and reports supplied by sellers are evaluated against the agreement requirements. Work performance information from this evaluation is then reported as appropriate. Performance reporting provides management with information about how effectively the seller is achieving the contractual objectives.

Multiiple contracts/subcontracts

A complex project may involve managing multiple contracts or subcontracts simultaneously or in sequence. Each contract life cycle may end during any phase of the project life cycle. Procurement management is discussed within the perspective of the buyer-seller relationship, which may exist at many levels on any one project, and between organizations internal to and external to the acquiring organization.

Change Requests

A decision that involves procuring goods, services, or resources typically requires a change request. Other decisions during procurement planning can also create the need for additional change requests. Changes to the PM plan, its subsidiary plans, and other components may result in change requests that impact procurement actions.

Make-or-buy analysis

A general management technique used to determine whether particular work can be best accomplished by the project team or should be purchased from outside sources. Sometimes a capability may exist within the project organization, but may be committed to working on other projects in which case the project may need to source such effort from outside the organization in order to meet its schedule commitments. Budget constraints may influence make-or-buy decisions. If a buy decision is to be made, then a further decision of whether to purchase or lease is also made. A make-or-buy analysis should consider all related costs - both direct costs as well as indirect support costs. For example, the buy-side of the analysis includes both the actual out-of-pocket costs to purchase the product, as well as the indirect costs of supporting the purchasing process and purchased item. Available contract types are also considered during the buy analysis. The risk sharing between the buyer and seller determines the suitable contract types, while the specific contract terms and conditions formalize the degree of risk being assumed by the buyer and seller. Some jurisdictions have other types of contracts defined, for example, contract types based on the obligations of the seller - not the customer - and the contract parties have the obligation to identify the appropriate type of contract as soon as the applicable law has been agreed upon

Make-or-buy decisions

A make-or-buy analysis results in a decision of whether particular work can best be accomplished by the project team or needs to be purchased from outside sources. I decision is to make the item, the procurement plan may define processes and agreements internal to the organization. A buy decision drives a similar process of reaching agreement with a supplier for the product or services

Early Termination

A special case of procurement closure that can result from a mutual agreement by both parties, from the default of one party, or for convenience of the buyer if provided for in the contract. The rights and responsibilities of the parties in the event of an early termination are contained in the termination clause of the contract. Based upon those procurement terms and conditions the buyer may have the right to terminate the whole contract or a portion of the contract at any time for cause or convenience. However the buyer may have to compensate the seller for sellers preparations and for any completed and accepted work related to the terminated part of the contract.

Procurement audits

A structured review of the procurement process originating from the Plan Procurement Management process through Control Procurements. The objective of the audit is to identify successes and failures that warrant recognition in the parparation or administration of other procurement contracts on the project or on other projects within the performing organization

Change requests

Change request to the PM plan, its subsidiary plans, and other components such as the cost Baseline, schedule Baseline, and procurement management plan, may result from the control procurement process. Requested but unresolved changes can include direction provided by the buyer or actions taken by the seller, which the other party considers a constructive change to the contract. Since any of these constructive changes may be disputed by one party and an lead to a claim against the other party, such changes are uniquely identified and documented by project correspondence.

Procurement negotiations

Clarify the structure, requirements, and other terms of the purchases so that mutual agreement can be reached prior to signing the contract. Final contract language reflects all agreements reached. Subjects covered should include responsibilities, authority to make changes, applicable terms and governing law, technical and business management approaches, proprietary rights, contract financing, technical solutions, overall schedule, payments, and price. Negotiations are made final with the contract document that can be executed by both buyer and seller. For complex procurement items, contract negotiation can be an independent process with inputs (issues or open items listing) and outputs (documented decisions) of its own. For simple procurement items, the terms and conditions of the contract can be previously set and non-negotiable, and only need to be accepted by the seller. The PM may not be the lead negotiator on procurements. The PM and other members of the PM team may be present during negotiations to provide assistance and if needed to add clarification of the project's technical, quality, and management requirements

Buyer

Client Customer Prime Contractor Contractor Acquiring Organization Service Requestor Purchaser Depending on buyer's position in the project acquisition cycle, the buyer may be identified differently as one of the above.

Procurement management plan

Component of the PM Plan that describes how a project team will acquire goods and services from outside the organization. It describes how the procurement processes will be managed from developing procurement documents through contract closure. It can include guidance for: Types of contracts to be used Risk management issues Whether independent estimates will be used and whether they are needed as evaluation criteria Those actions the PM team can take unilaterally, if the performing organization has a prescribed procurement, contracting, or purchasing department Standardized procurement documents if needed Managing multiple suppliers Coordinating procurement with other project aspects such as scheduling and performance reporting Any constraints and assumptions that could affect planned procurements Handling the long lead times to purchase certain items from sellers and coordinating the extra time needed to procure these times with development of the project schedule Healing the make-or-buy decisions and linking them into the Estimate Activity Resources and Develop Schedule processes Setting the scheduled dates in each contract for the contract deliverables and coordinating with the schedule development and control processes Identifying requirements for performance bonds or insurance contracts to mitigate some forms or project risk Establishing the direction to be provided to the sellers on developing and maintaining a WBS Establishing the form and format to be used for the procurement contract SOW Identifying pre qualified sellers if any to be used Procurement metrics to be used to manage contracts and evaluate sellers A procurement management plan can be formal or informal and can be highly detailed or broadly framed, and is based upon the needs of each project.

Claims administration

Contested changes and potential constructive changes are those requested where buyer & seller cannot reach an agreement on compensation for change or cannot agree that a change has occurred. Contested changes are called claims, defeats, or appeals. Claims are documented, processed, monitored, and managed throughout contract lifecycle, usually in accordance with terms of contract. If the buyers and sellers do not resolve a claim it may be handled in accordance with alternative dispute resolution (ADR) typically following procedures established in the contract. Settlement of all claims and disputes through negotiation is the preferred method

Control Procurements - T & Ts

Contract change control system Procurement performance reviews Inspections and audits Performance reporting Payment systems Claims administration Records management system

Sellers

Contractor Subcontractor Vendor Service Provider Supplier Depending on the application area, the seller may be identified differently as one of the above. The seller can be viewed during the contract life cycle in the following order: Bidder Selected Source Contracted supplier of a vendor

Bidder conference

Contractor Conferences, vendor conferences, pre-bid conferences Meetings between the buyer and all prospective sellers prior to submittal of a bid or proposal. Used to ensure that all prospective sellers have a clear and common understanding of the procurement requirements and that no bidders receive preferential treatment. To be fair, buyers should take great care to ensure that all prospective sellers hear every question from an individual prospective seller and every answer from the buyer. Typically fairness is addressed by techniques such as collecting questions from bidders or arranging field visits in advance of the bider converend. Responses to questions can be incorporated into procurement documents as amendments

OPA Updates

Correspondence Contract terms & conditions often require written documentation of certain aspects of buyer/seller communications: the need for warnings of unsatisfactory performance & requests for contract changes or clarification. Can include reported results of buyer audits & inspections that indicate weaknesses the seller needs to correct. In addition to specific contract requirements for documentation, a complete and accurate written record of all written and oral contract communications, as well as actions taken and decisions made, are maintained by both parties. Payment schedules and requests All payments should be made in accordance with procurement contract terms and conditions Seller performance evaluation documentation Prepared by buyer & documents seller's ability to continue to perform work on current contract, indicate if the seller can be allowed to perform work on future projects, or rate how well seller is performing project work. These documents may form the basis for early termination of the seller's contract or determine how contract penalties, fees, or incentives are administered. The results of these evaluations can also be included in the appropriate qualified seller lists.

Advertising

Existing list of potential sellers often can be expanded by placing advertisements in general circulation publications such as selected newspapers or in specialty trade Publications. Some organizations use online resources to communicate solicitations to the vendor Community. Some government jurisdictions require a public advertising of certain types of procurement items, and most government jurisdictions require public advertising or online posting of pending government contracts

Fixed Price Incentive Fee Contracts (FPIF)

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. Performance targets are established at the outset, and the final contract price is determined after completion of all work based on the seller's performance. Under FPIF contracts a price ceiling is set and all costs above the price ceiling are responsibility of the seller who is obligated to complete the work

Time and Material Contracts (T&M)

Hybrid type of contractual arrangement that contain 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. These types of contracts resemble cost-reimbursable contracts in that they can be left open ended and may be subject to a cost increase for the buyer. The full value of the agreement and the exact quantity of items to be delivered may not be defined by the buyer at the time of the contract award. T&M contracts can increase in contract value as if they were cost-reimbursable contracts. Many organizations require not-to-exceed values and time limits placed in all T&M contracts to prevent unlimited cost growth. T&M contracts can also resemble fixed unit price arrangements when certain parameters are specified in the contract. Unit labor or material rates can be preset by the buyer and seller, including seller profit, when both parties agree on the values for specific resource categories such as senior engineer at specified rates per hour or categories of materials at specified rates per unit

Requirements documentation

Important information about project requirements is considered during planning for procurements. Requirements with contractual and legal implications that may include health, safety, security, performance, environmental, insurance, intellectual property rights, equal employment opportunity, licenses, and permits - all of which are considered when planning for procurements

Procurement Contract

Includes terms and conditions; may incorporate other items that the buyer specifies as to what the seller is to perform or provide. It is the PM team's responsibility to make certain all procurements meet the specific needs of the project and adhere to organizational procurement policies. Depending upon the application area, a contract can also be called an agreement, an understanding, a subcontract or purchase order. Most organizations document policies and procedures specifically defining the procurement rules and specifying who has authority to sign and administer such agreements on behalf of the organization.

Financial management component

Involves monitoring payments to the seller. This ensures that payment terms defined within the contract are met and that seller compensation is linked to seller progress, as defined in the contact. One of the principal concerns when making payments to suppliers is that there is a close relationship of payments made to the work accomplished.

Cost-reimbursable contracts

Involves payments (cost reimbursements) to the seller for all legitimate actual costs incurred for completed work, plus a fee representing seller profit. Cost-reimbursable contracts may also include financial incentive clauses whenever the seller exceeds, or falls below define objectives such as costs, schedule, or technical performance targets. Three of the more common types of cost-reimbursable contracts in use are Cost Plus Fixed Fee (CPFF), Cost Plus Incentive Fee (CPIF) and Cost Plus Award Fee (CPAF). This type of contract provides the project flexibility to redirect a seller whenever the SOW cannot be precisely defined at the start & needs to be altered, or when high risks may exist in the effort

Fixed-price contracts

Involves setting a fixed total price for a defined product, service, or result to be provided. These contracts may also incorporate financial incentives for achieving or exceeding selected project objectives, such as scheduled delivery dates, cost and technical performance, or anything that can be quantified and subsequently measured. Sellers under fixed-price contracts are legally obligated to complete such contracts, with possible financial damages if they do not. Under this arrangement, buyers need to precisely specify the product or services being procured. Changes in scope may be accommodated, but generally with an increase in contract price.

Contracts

Legal documents between a buyer and a seller. Represents a mutually binding agreement that obligates the seller to provide something of value (specified products, services, or resutls) and obligates the buyer to provide monetary or other valuable compensation. Terms and conditions of the contract become key inputs to many of the seller's management processes. The contract can actually contain the inputs (major deliverables, key milestones, cost objectives) or it can limit the project team's options (buyer approval of staffing decisions is often required on design projects).

OPAs

Listings of prospective and previously qualified sellers Information on relevant past experience with sellers, both good and bad Prior agreements Whenever a priori agreement is in place, the buyer and seller roles will have already been decided by executive management. In some cases, the seller may already be working under a contract funded by the buyer or jointly by both parties. The effort of the buyer and seller in this process is to collectively prepare a procurement SOW that will satisfy the requirements of the project. The parties will then negotiate a final contract for award.

Plan Procurement Management - T & Ts

Make-or-buy analysis Expert judgment Market research Meetings

Firm Fixed Price Contracts (FFP)

Most commonly used contract type Favored by most buying organizations because the price for goods is set at the outset and not subject to change unless the scope of work changes. Any cost increase due to adverse performance is the responsibility of the seller, who is obligated to complete the effort. Under the FFP contract, the bur should precisely specify the product or services to be procured, and any changes to the procurement specification can increase the costs to the buyer

Source selection criteria

Often included as a part of the procurement documents, developed and used to rate or score seller proposals and can be objective or subjective. Selection criteria may be limited to only the purchase price if the procurement item is readily available from a number of acceptable sellers. Purchase price in this context includes both the cost of the item and all ancillary expenses such as delivery. Other selection criteria can be identified and documented to support an assessment for more complex products, services, or results.

Expert Judgment

Often used to assess the inputs to and outputs from this process. Expert purchasing judgment can also be used to develop or modify the criteria that will be used to evaluate seller proposals. Expert legal judgment may involve the services of legal staff to assist with the unique procurement issues, terms, and conditions. Such judgment, including business and technical expertise, can be applied to both the technical details of acquired products, services, or results and to various aspects of the procurement management processes

Proposal evaluation techniques

On complex procurements, where source selection will be made based on seller responses to previously defined weighted criteria, a formal evaluation review process will be defined by the buyer's procurement policies. The evaluation committee will make their selection for approval by management prior to the award.

Make-or-buy decisions - Conduct

Organizations procuring goods or services analyze the need, identify resources, and then compare procurement strategies when deciding to buy. Organizations also evaluate the need of buying products versus making the items themselves. Factors that influence these decisions may include: Core capabilities of the organization Value delivered by vendors meeting the ned Risks associated with meeting the need in a cost-effective manner Capability internally compared with the vendor community

Close Procurements - Inputs

PM Plan Procurement documents

Control Procurements - Inputs

PM Plan Procurement documents Agreements Approved change requests Work performance reports Work performance data

Plan Procurement Management - Inputs

PM Plan Requirements documentation Risk register Activity resource requirements Project schedule Activity cost estimates Stakeholder register EEFs OPAs

Payment systems

Payments to the seller are typically processed by the accounts payable system of the buyer after certification of satisfactory work by an authorized person on the project team. All payments should be made and documented in strict accordance with the terms of the contract.

Close Procurements

Process of completing each procurement. It documents agreements and related documentation for future reference. Also involves administrative activities: finalizing open claims, updating records to reflect final results, archiving information for future use. It addresses each contract applicable to project or project phase. In some projects, the term of a contract may only be applicable to a project phase. In these cases this process closes the procurements applicable to that phase of the project. Unresolved claims may be subject to litigation after closure. The contract terms and conditions can prescribe specific procedures for agreement closure. This process supports the close project or phase process by ensuring contractual agreements are completed or terminated.

Plan Procurement Management

Process of documenting project procurement decisions, specifying the approach, and identifying potential sellers. It determines whether to acquire outside support, and if so what to acquire, how to acquire it, how much is needed. Identifies project needs that can best be met or should be met by acquiring products, services, or results outside of the project organization, versus needs which can be accomplished by the project team. When a project obtains P/S/R required for project performance from outside of the performing organization, the processes from Plan Procurement Management through Close Procurements are performed for each item. Includes evaluating potential sellers, particularly if the buyer wishes to exercise some degree of influence or control over acquisition decisions. Though it should be given to who is responsible for obtaining or holding any relevant permits and professional licenses that may be required by legislation, regulation, or organizational policy in executing the project. Requirements of the project schedule can significantly influence the strategy during this process. Decisions made in developing this plan can also influence the project schedule and are integrated with Develop Schedule, Estimate Activity Resources, and make-or-buy analysis. Process includes evaluating risks involved with each make-or-buy analysis & includes reviewing the type of contract planned to be used with respect to avoiding or mitigating risks, sometimes transferring risks to the seller.

Control Procurements

Process of managing procurement relationships, monitoring contract performance, and making changes and corrections to contracts as appropriate. It ensures both seller's and buyer's performance meet procurement requirements according to the terms of the legal agreement. Both buyer and seller will administer procurement contract for similar purposes. Each is required to ensure both parties meet their contractual obligations and their own legal rights are protected. Legal nature of the contractual relationship makes it imperative that the PM team is aware of legal implications of actions taken when controlling any procurement. On larger projects with multiple providers, a key aspect of contract administration is managing interfaces among the various providers . Due to varying organizational structures, many organizations treat contact administration as an administrative function separate from project organization. A procurement administrator maybe on the project team, but they typically report to a supervisor from a different department. This is usually true if the performing organization is also the seller of the project to an external customer. Control procurements includes application of the appropriate PM processes to the contractual relationships and integration of the output from these processes into the overall management of the project. This integration will often occur at multiple levels when there are multiple sellers and multiple products, services, or results involved.

Conduct Procurements

Process of obtaining seller responses, selecting a seller, and awarding a contract. It provides alignment of internal and external stakeholder expectations through established agreements. During this process the team will receive bids or proposals and apply previously defined selection criteria to select one or more sellers who are qualified to perform the work and acceptable as a seller. On major procurement items, the overall process of requesting responses from sellers and evaluating those responses can be repeated. A short list of qualified sellers can be established based on a preliminary proposal. A more detailed evaluation can then be conducted based on a more specific and comprehensive requirements document requested from the sellers on the shortlist. Tools and techniques may be used alone or in combination to select sellers. For example a weighting system can be used to: Select a single seller that will be asked to sign a standard contract Establish a negotiating sequence by randing all proposals by the weighted evaluation scores assigned to each proposal.

Project Procurement Management

Processes necessary to purchase or acquire products, services, or results needed from outside the project team. Oorganization can be either the buyer or seller of the products, services, or results Process includes contract management and change control processes required to develop and administer contracts or purchase orders issued by authorized project team members. It also includes controlling any contract issued by an outside organization (the buyer) that is acquiring deliverables from the project from the performing organization (the seller) and administering contractual obligations placed on the project team by the contract. All processes involve agreements, including contracts. An agreement can be simple or complex, and may reflect the simplicity or complexity of the deliverable or required effort

Project documents updates - Control

Procurement documentation May include the procurement contract with all supporting schedules, requested unapproved contract changes, and approved changes requests. Also includes any seller-developed technical documentation Other work performance information such as deliverables, seller performance reports and warranties Financial documents including invoices and payment records and the results of contract-related inspections

Conduct Procurements - Inputs

Procurement management plan Procurement documents Source selection criteria Seller proposals Project documents Make-or-buy decisions Procurement SOW OPAs

PM Plan updates

Procurement management plan Schedule baseline Cost baseline

Analytical techniques

Procurements involve defining a need in such a way that vendors can bring value through their offerings. To ensure that the need can be and is met, analytical techniques can help organizations identify the readiness of a vendor to provide the desired end-state, determine the cost expected to support budgeting, and avoid cost overruns due to changes. By examining past performance information, teams may identify areas that may have more risk and that needs to be monitored closely to ensure success of the project

Approval Process

Project documents may be subject to some form of review and approval, but the legally binding nature of a contract or agreement usually means it will be subjected to a more extensive approval process. The primary focus of the review and approval process is to ensure that the contract language describes the products, services, or results that will satisfy the identified project need. PM team may seek support in early phases from specialists in contracting, purchasing, law, and technical disciplines. Such involvement can be mandated by an organization's policies.

Work performance information

Provides a basis for identification of current or potential problems to support later claims or new procurements. By reporting on the performance of a vendor, the organization increases knowledge of the performance of the procurement, which supports improved forecasting, risk management, and decision-making. Performance reports also assist in the event there is a dispute with the vendor. Work performance information includes reporting compliance of contracts, which provides procuring organizations a mechanism to track specific deliverables expected and received from vendors. Contract compliance reports support improved Communications with vendors so that potential issues are addressed promptly to the satisfaction of all parties.

Procurement SOW - Conduct

Provides suppliers with a clearly stated set of goals, requirements, and outcomes from which they can provide a quantifiable response. The SOW is a critical component of the procurement process and can be modified as needed through this process until a final agreement is in place. The SOW may include Specifications Quantity desired Quality levels Performance data Period of performance Work location Other requirements

Inspections and audits

Required by the buyer and supported by the seller, as specified in the procurement contract, can be conducted during execution of the project to verify compliance in the seller's work processes or deliverables. If authorized by contract, some inspection and audit teams can include buyer procurement personnel

Project documents updates

Requirements documentation Requirements traceability matrix Risk register

Meetings

Research alone may not provide specific information to formulate a procurement strategy without additional information interchange meetings with potential bidders. By collaborating with potential bidders, the organization purchasing the material or service may benefit while the supplier can influence a mutually beneficial approach or product.

Procurement SOW

SOW for each procurement is developed from the project scope baseline and defines only that portion of the project scope that is to be included within the related contract. This SOW describes the procurement item in sufficient detail to allow prospective sellers to determine if they are capable of providing the products, services, or results. Sufficient detail can vary based on the nature of the time, the needs of the buyer, or the expected contract form. Information included can be specifications, quantity desired, quality levels, performance data, period of performance, work location, and other requirements The Procurement SOW is written to be clear, complete, and concise. It includes a description of any collateral services required such as performance reporting or post-project operational support for the procured item. In some application areas, there are specific content and format requirements for a procurement SOW. Each individual procurement item requires a SOW however multiple products or services can be grouped as one item within a single SOW. It can be revised and refined as required as it moves through the procurement process until incorporated into a signed agreement.

Conduct Procurements - Outputs

Selected sellers Agreements Resource calendars Change requests PM Plan updates Project documents updates

Procurement performance reviews

Structured review of sellers' progress to deliver project scope & quality, within cost & on schedule, as compared to the contract. May include a review of seller-prepared documentation and buyer inspections, and quality audits conducted during seller's execution of the work. The objective is to identify performance successes or failures, progress with respect to the procurement SOW, and contract noncompliance, which allow the buyer to quantify the seller's demonstrated ability or inability to perform work. Such reviews may take place as a part of project status reviews which would include key suppliers.

Alternative Dispute Resolution (ADR)

The ADR method can be decided in advance as a part of the procurement award

Independent estimates

The procuring organization may elect to either prepare its own independent estimate, or have an estimate of cost prepared by an outside professional estimator, to serve as a benchmark on proposed responses. Significant differences in cost estimates can be an indication that the procurement SOW was deficient, ambiguous, and/or that the prospective sellers either misunderstood or failed to respond fully to the procurement SOW

Cost Plus Incentive Fee Contracts (CPIF)

The seller is reimbursed for all allowable costs for performing the contract work and receives a predetermined incentive fee based upon achieving certain performance objectives as set forth in the contract. In CPIF contracts, 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 pre negotiated cost-sharing formula,for example, an 80/20 split over/under target costs based on the actual performance of the seller

Cost Plus Fixed Fee Contracts (CPFF)

The seller is reimbursed for all allowable costs for performing the contract work, and receives a fixed-fee payment calculated as a percentage of initial estimated project costs. A fee is paid only for completed work and does not change due to seller performance. Fee amounts do not change unless the project scope changes

Cost Plus Award Fee Contracts (CPAF)

The seller is reimbursed for all legitimate costs, but the majority of the fee is earned only based on the satisfaction of certain broad subjective performance criteria defined and incorporated into the contract. The determination of the fee is based solely on the subjective determination of seller performance by the buyer and is generally not subject to appeals

Project Buyer/Seller Relationship

The seller will typically manage the work as a project if the acquisition is not just for shelf material, goods, or common products. In such cases: The buyer becomes the customer, and is a key project stakeholder for the seller now The seller's PM team is concerned with all the processes of PM, not only with those of this KA

Managing/Sharing/Transferring Risks

The various activities involved in this process form the life cycle of an agreement. By actively managing the agreement life cycle and carefully wording the terms and conditions of a procurement, some identifiable project risks may be shared or transferred to a seller. Entering into an agreement for products or services is one method of allocating the responsibility for managing or sharing potential risks.

OPAs

The various types of contractual agreements used by the organization also influence decisions for this process. The OPAs that influence this process include: Formal procurement policies, procedures, and guidelines. Most organizations have formal procurement policies & buying organizations. When procurement support is not available, project team should supply both resources & the expertise to perform such procurement activities Management systems that are considered in developing procurement management plan and selecting the contractual relationships to be used An established multi-tier supplier system of prequalified sellers based on prior experience.

Seller and termination

This process reviews and documents how well a seller is performing or has performed based on the contract and establishes corrective actions when needed. The performance review may be used as a measure of the seller's competency for performing similar work on future projects. Similar evaluations are also carried out when it is necessary to confirm that a seller is not meeting the seller's contractual obligations and when the buyer contemplates corrective actions. This process includes capturing the necessary details for managing any early terminations of the contracted work (for cause, convenience, or default). These details are used in the Close Procurements process to terminate the agreement. Agreements can also be amended at any time prior to contract closure by mutual consent in accordance with the change control terms of the agreement. Amendments are typically captured in writing.

Selected sellers

Those who have been judged to be in a competitive range based upon the outcome of the proposal or bid evaluation and to have negotiated a draft contract that will become the actual contract when an award is made. Final approval of all complex, high-value, high-risk procurements will generally require organizational Senior Management approval prior to award

Procurement documents - Close

To close the contract, all procurement documentation is collected, indexed, and filed. Information on contract schedule, scope, quality, & cost performance along with all contract change documentation, payment records, & inspection results are catalogued. This information can be used for lessons learned information and as a basis for evaluating contracts for future contracts.

Examples of possible source selection criteria

Understanding of need Overall life-cycle cost Technical capability Risk Management Approach Technical approach Warranty Financial capacity Production capacity and interest Business size and type Past performance of sellers References Intellectual property rights Proprietary rights

Agreements

Understanding, Contract, Subcontract, Purchase Order The different names are dependent upon the application area. Includes terms and conditions, and may incorporate other items that buyer specifies regarding what seller is to perform or provide. It is the PM teams responsibility to make certain all agreements meet specific needs of the project while adhering to organizational procurement policies. Regardless of document's complexity, a contract is a mutually binding legal agreement that obligates the seller to provide the specified products, services, or results, and obligates the buyer to compensate the seller. A contract is a legal relationship subject to remedy in the courts. The major components in an agreement document will vary

Records management system

Used by the PM to manage contract and procurement documentation and records, consisting of specific set of processes, related control functions, and automation tools that are consolidated and combined as part of the PMIS. This contains retrievable archives of contract documents and correspondence

Procurement documents

Used to solicit proposals from prospective sellers. Terms such as bid, tender, or quotation are generally used when the seller selection decision will be based on price (as when buying commercial or standard items) while a term such a proposal is generally used when other considerations such as technical capability or approach ae paramount. Specific procurement terminology used may vary by industry and location of the procurement. Common terms are in use for different types of procurement documents and may include: Request for information (RFI) Invitation for bid (IFB) Request for proposal (RFP) Request For quotation (RFQ) Tender notice Invitation for negotiation Invitation for sellers initial response The buyer structures procurement documents to facilitate an accurate and complete response from each perspectives eller and to facilitate easy evaluation of the responses. These documents include a description of the desired form of the response, teh relevant procurement SOW and any required contractual provisions. With government contracting, some or all of the content and structure of procurement documents may be defined by regulation. The complexity and level of detail of the procurement documents should be consistent with the value of and risks associated with the planned procurement. Procurement documents are required to be sufficient to ensure consistent, appropriate responses, but flexible enough to allow consideration of any seller suggestions for better ways to satisfy the same requirements. Issuing a procurement request to potential sellers to submit a proposal or bid is normally done in accordance with the policies of the buyer's organization which can include publication of the request in public newspapers , in trade journals, in public registries, or on the internet

Fixed Price with Economic Price Adjustment Contracts (FP-EPA)

Used whenever the seller's performance period spans a considerable period of years, as is desired with many long-term relationships. It's FP, but with 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. The EPA clause needs to relate to some reliable financial index, which is used to precisely adjust the final price. The FP-EPA contract is intended to protect both buyer and seller from external conditions beyond their control

Control Procurements - Outputs

Work performance information Change requests PM Plan updates Project documents updates OPA Updates