Chapter 11 online : Project Procurement Management
Contract
- Can be written or verbal - Usually created with external entity - involves exchange of goods or services for a type of compensation (monetary) - Forms legal relationship between entities -Mutually binding and provides framework for how a failure by one side will be addressed and ultimately remedied in court
Procurement Management Process
- Starts with the decision to procure goods or services from an outside source - Creates a procurement management plan - A procurement strategy for how each contract will be managed - a procurement statement of work to describe the type of work that will be done by the seller - Sellers take action and buyers ( project manager) waits - negotiations begin - one or more sellers is then selected and contracts are signed - updates are made to plan and strategy - contracts are monitored and controlled - once the procurement work is complete the procurement is closed
when can a procurement contract be terminated?
- When many changes to a procurement are required and need to just start fresh - Buyer may terminate for cause if the seller breaches the contract -Buyer can terminate a contract before work is complete if they no longer want the work done.
Things a Project Manager should watch out for at a bidder conference.
- collusion -Sellers not asking questions in front of the competition -Making sure all questions and answers are put in writing and issued to all potential sellers by the buyer as addenda to the bid documents.
Agreement
- encompasses documents or communications that outline internal or external relationships with their intentions - Used to express and outline the intentions of projects. - internal agreements - Examples: project management plan and charter, service level agreements, memos of intent, letters of intent, letters of agreements, emails, and verbal agreements
The plan procurement management process includes the following activities:
- performing make or buy analysis -creating procurement management plan -create a procurement strategy -creating a procurement statement of work for each procurement -selecting the appropriate contract type for each procurement -creating the bid documents -determining the source selection criteria
Contract type: Cost plus incentive fee (CPIF)
- provides for the seller to be paid for actual costs plus a fee that will be adjusted based on whether specific performance objectives stated in the contract are met. -original estimate of the total cost is made(target cost) and a fee for the work is determined(target fee) - The seller gets a percentage of the savings if the actual costs are less than the target costs -Ratio is 80% to the buyer and 20% to the seller Formula: Contract = $500,00 target cost plus $50,000 target fee. The buyer and seller share any cost savings or overruns at 80% to the buyer and 20% to the seller
Conduct Procurement Outputs: Agreements (contracts)
-Defines rolls -makes things legally binding -It mitigates or allocates risk -the offer or acceptance can be verbal or written
Bid Document Type: request for proposal (RFP)
-aka request for tender -requests a detailed proposal that includes information on price, how the work will be accomplished, who will do it, and the company's experience
Control Procurement Tools & Techniques: Claims Administration
A claim is an assertion that the buyer did something that has hurt the seller, and the seller is now asking for compensation . This is a type of seller initiated request. Usually addressed through contract change control system. Best way to settle is through negotiation or the dispute resolution process specified in contract
Plan Procurement Management outputs: source selection criteria
A result of source selection analysis Criteria is assigned a numerical percentage to enable evaluation of proposals based on each criterion
Conduct Procurement Outputs: Selected Sellers
A seller is chosen for each procurement which means the buyer and seller have signed off and agree on all terms and conditions of the contract. This stage the move forward to create a product or service in the Control Procurements
Conduct Procurement Outputs: Project Management Plan and documents
Agreement may included changes to the planned approach to quality or communications management Resource calendars and requirements traceability matrix may be updated to reflect responsibilities of new sellers for specific project requirements. Risk register will be updated with risks associated with particular sellers Approved seller list may be updated based on work done in conduct procurement.
Which of the following should the project manager do in the conduct procurement process?
Answer sellers questions about procurement documents
Conduct Procurement Tools & Techniques: Bidder Conferences
Buyer may invite selected sellers to attend a meeting known as the bidder conference where they can tour the buyer facilities or attend an online forum and ask questions about the procurement.
Conduct Procurement Input: Independent Cost Estimates
Buyer needs to compare the sellers proposed cost with an estimate created in house or with outside assistance during procurement planning efforts. This is to discover any significant differences between what the buyer and seller are including in the procurement statement of work
Bidder conferences are used during which procurement management process?
Conduct procurements
Control Procurement Outputs: Procurement Documentation Updates
Data on the contract and contract performance by both the buyer and the seller is gathered and analyzed this information updated and archived. A records management system may be used to keep the procurement documentation complete, organized, and accessible.
Control Procurement Tools & Techniques:Trend Analysis
Determines whether performance is getting better or worse. Can be used to develop forecast estimates and estimate at completion
Plan Procurement Management outputs: Procurement Strategy
Done for each procurement after the make or buy analysis and the goods or services to be acquired from outside the organization have been identified. must be incorporated into the overall strategy for the project.
Conduct Procurement Tools & Techniques: Advertising
Done to attract sellers and one may be placed in newspapers, magazines, online or other media outlets.
With which type of contract is the seller most concerned about the project scope?
Fixed price
Plan Procurement Management Key inputs: Enterprise environmental factors
For procurement, they include marketplace conditions, the services available to be purchased, and the culture and structures surrounding the organizations approach to procurement's
Contracts require what ?
Formality, meaning any correspondence, clarification, and notification related to the contracts should be a formal written communication. written is more enforceable
Contract Type: Fixed Price Incentive Fee
In the FPIF contact, projects can be adjusted based on the seller meeting specified performance criteria. Final price is calculated using the formula below based on the relationships of final negotiated costs to the total target costs Formula: Contract = $1,100,000. For every month the project is finished early an additional $10,000 is paid to the seller
Control Procurement Tools & Techniques: Inspections
Involve walkthroughs of the project work site or reviews of deliverables produced to verify compliance with the procurement statement of work
Which of the following activities occurs during the Plan Procurement Management process?
Make or buy decisions
Plan Procurement Management Tool and Technique: Make or Buy Analysis
Manager will need to determine whether the project team will do all the project work or if some or all the work will be outsourced. this analysis is completed early in the planning process to avoid wasted time planning work that will ultimately be outsourced.
Plan Procurement Management Outputs: Change Requests
Many procurement's do not begin until after initial project planning is completed. Therefore, procurement management plan is likely be to iterated, and changed through integrated change control as each procurement is needed. This is done in change requests
Bid Document Type:Request for information (RFI)
May be used before bid documents are created. Responses to the RFI help the buyer identify which companies are qualified to handle the procurement. Buyers also can use them to collect information on what work is possible , for later inclusion in RFPs or IFBs. Main purpose is to gather information
Conduct Procurement Outputs: Change Requests
Must be submitted through integrated change change control then evaluated against the project and either approved, rejected, or deferred
Control Procurement Tools & Techniques: Audits
Performed by team that includes representatives from both the buyer and seller. This is to confirm that the sellers activities are in compliance with approved procurement policies and processes. Result can be used to improve the procurement process and capture lessons learned
Bid documents are created during which of the following procurement processes?
Plan procurement management
Source selection Criteria are an output of which procurement management process?
Plan procurement management
Conduct Procurement Tools & Techniques: Negotiations
Procurement manager generally leads the negotiations but project manager is involved. Not usually needed with fixed-price contracts Main objectives are to obtain fair and reasonable prices, and develop a good relationship between the buyer and seller. Items that must be negotiated in order are: -scope -schedule -price
Special Provisions (Conditions)
Project manager must know how to read and understand terms and conditions but also determine when additions, changes, or deletions from the standard provisions are required.
Project manager's role in procurements
Project managers need to be involved on both the buyer and sellers sides before a contract is signed. if not, they could be handed a contract with unrealistic time or cost constraints and the project could start out with trouble.
contract type: Cost Plus Fixed Fee (CPFF)
Provides payment to the seller of actual costs plus a negotiated fee that is fixed before the work begins (the sellers profit; it's usually a percentage of the estimated cost of the project) formula: cost plus a fee of $100,000
Plan Procurement Management outputs:May or Buy Decisions
Result of make or buy analysis Any decision to buy will require the team to follow the procurement management process
Contract Type: Purchase Order
Simplest type of fixed price contract Normally is unilateral(signed by one party) used for simple commodity procurement Formula: Contract = 30 linear meters of wood at $9 per meter
Control Procurements Inputs
Team will oversee procurements and ensure they are completed according to the contract. PM will review lessons learned. Approved change requests from integrated change control are implemented. PM will use milestone list, schedule, scope, and cost baselines to confirm project progressions.
Conduct Procurement Tools & Techniques: Proposal Evaluation
The buyer first uses a screening system to eliminate sellers who do not meet the minimum requirements of the source selection criteria. Then uses that to assess the ability and willingness of the sellers to provide the requested products or services.
Contract Type: Fixed Price Award Fee (FPAF)
The buyer pays a fixed price plus an award amount based on performance. The total possible award amount is determined in advance and apportioned based on performance. Formula: Contract = $ 1,100,000. For every month performance exceeds the planned level by more than 15%, an additional $5,000 is awarded to the seller, with a maximum award of $50,000
Contract Type: cost plus award fee (CPAF)
The buyer pays all costs and a base fee plus an award amount that is determined in advance based on performance but there is no possibility of penalty formula: contract = cost plus a base fee plus award for meeting buyer specified performance criteria Maximum award available is $50,000
Conduct Procurement's
The process of getting bid documents, including procurement statement of work, to prospective sellers, answering the sellers questions, and receiving and evaluating seller responses. PM will also select a seller using the source selection criteria specified in the procurement management plan then negotiate the contract.
contract type: cost contract
The seller receives no fee (profit). Typically used by nonprofit organizations
Plan Procurement Management Key inputs: Types of contracts
The types of contracts or agreements that are approved for use within an organization are considered organizational process assets. The three contracts are: -fixed price -time and material -cost reimbursable
Control Procurement Outputs: Closed Procurements
This consists of typing up all loose ends, verifying that all work and deliverables are accepted, finalizing open claims, and paying with held retainage for each of the procurements on the project. Buyer will provide the seller with formal notice that the contract has been completed. Procurements are closed: -when a contract is completed -when a contract is terminated before the work is completed
Conduct Procurement Input: Seller proposal (price quote or bid)
This is a sellers response to the bid documents. The proposal presents an official offer from the seller. A price quote is usually the response to a request for a quote a bid is usually the response to an invitation for bid
Plan Procurement Management Process
This process involves creating a procurement management plan as well as involves putting together the bid documents that will be sent to prospective sellers describing the buyers need, how to respond, and the criteria the buyer will use to select a seller.
Plan Procurement Management Key inputs: Organizational process assets
Those used in procurement can include procurement procedures and documents, standard contract types used by the organization, statement of work templates , list of Pre-qualified sellers
Plan Procurement Management Tool and Technique: Source Selection Analysis
Used to determine the criteria that will be used to select a seller through project constraints analysis
Contract Type: Fixed price with Economic Price Adjustments (FPEPA)
Used when a contact has to cover a multi year period, but there might be uncertainties about future economic conditions. Formula: Contract =$1,100,000 but a price increase will be allowed in a two year based on the US Consumer Price Index report for year one.
Contract type: Cost Reimbursable (CR)
Used when the exact scope of work is uncertain and costs cannot be estimated accurately enough . - contract requires the buyer to pay the seller allowable incurred costs to the extent prescribed in the contract -Requires the seller to have an accounting system that can track costs by project -The buyer has the most cost risk because the total costs are unknown
What statement about contracts is true?
a contract is a type of agreement but an agreement isnt necessarily a contract
Buyer
a person or company that purchases the services
Seller
a person or company who provides services and goods can be also known as a contractor, subcontractor, supplier, designer , or vendor.
Plan Procurement Management outputs: Bid Documents
a result of contract type selection and the procurement statement of work has been created, the buyer can put together the bid document that describes the buyers needs to sellers. Following are types of bid documents: -request for proposal -invitation for bid -request for quotation -request for information
Contract Type: Fixed Price (FP)
all requirements must be clearly described by the buyer. Then a fixed total price is set for the project, and no changes to the scope should occur. Most common and the high risk falls with the seller
Bid Document Type: Invitation for bid (IFB)
also known as a request for bid, usually requests a total price to complete all the work. Think of it as where the work is described in the procurement statement of work is detailed enough for bidders to determine a total price
Plan Procurement Management outputs: independent cost estimates
buyer may prepare an internal estimate to produce a benchmark against which to validate the bids provided by outside sellers during conduct procurement's
Control Procurement Outputs:Change Requests
buyers needs may change as a result the buyer may issue a change order to the contract . Changes to the contract may be requested throughout the procurement process
which tool or technique of control procurements involves negotiating a form of seller change requests?
claims administration
What is the main purpose of a procurement audit
confirm that the sellers activities comply with approved processes
Inspections are performed during which procurement process?
control procurements
Work performance data is an input to which procurement management process>
control procurements
The contract for the project specifies that the seller will be paid for actual costs plus a percentage of any cost savings if the actual costs are below targeted amount. what type of contract is being used?
cost plus incentive fee (CPIF)
what is an example of a contract price that might be included in a cost plus fixed fee (CPFF) Contract?
costs plus $10,000 as a fee
A team is int he plan procurement management process. Which of the following are they working on?
creating a request for proposal
Plan Procurement Management Key inputs: resource requirements
describe the skills, numbers, and type of resources that will be needed for the project
The seller has invoiced for work completed. The buyer rejects the invoice because the work was not authorized. What is the seller's recourse for this situation?
file a claim or dispute
Which contract type has the least buyer involvement and transfers the majority of (cost) risk to the seller?
fixed price
procurement
formal process to obtain goods and services
Plan Procurement Management Key inputs: Stakeholder register
identifies who will be impacted by the procurement process as well as who should have an input
Bid Documents
in reference to requests for proposal (RFPs) and requests for quotation (RFQs). Also used for requests for information (RFIs) as well as invitations for bid (IFB).
Control Procurements
involves managing the legal relationship between the buyer and seller ensuring both parties perform as required by the contract and closing each contract when completed. The seller is focused on work completion while the buyer is focused on measuring performance of the seller against the actual performance to the contract.
Bid Document Type: request for quotation (RFQ)
it requests a price quote per item, hour, meter, or other unit of measure
Plan Procurement Management Key inputs: Benefits Management plan
lists the benefits of the project and details when they are to be delivered. This info is used to determine what procurement's are needed, when they must be entered into, and what dates should be included in the bid documents and contracts
Plan Procurement Management Key inputs: Project Documents
milestone list and the requirements traceability matrix can help plan the procurement management.
what is one of the buyers key objectives during contract negotiations
obtain a fair and reasonable price
Plan Procurement Management Key inputs: Business Case
outlines the reason the project was undertaken; procurement strategy must be aligned with this
Which of the following buyer-created documents describes the specific, expected seller obligations or requirements for a contract?
procurement statement of work (SOW)
Plan Procurement Management outputs: Procurement Statement of work
project manager facilitates the creation of a scope of work to be done on each procurement. Breaks down the project scope baseline into the work the project team will do and the work that will be purchased from the sellers. Each statement describes all the work and activities the seller is required to complete Must be finalized when the contract is signed
Plan Procurement Management Key inputs: risk register
provides an understanding of the individual and overall project risks uncovered to date, as well as the risk responses that involve procurement's
Contract Type: Cost Plus fee or cost plus percentage of costs
requires the buyer to pay for all costs, plus a percentage of the costs as a fee. - not allowed for federal acquisitions or procurement's under federal acquisition regulations. -bad for buyers everywhere - requires the buyer ti carefully monitor and control all invoices Formula: contract = cost plus 10 percent of costs as fee
which input to conduct procurement is a response to the projects bid documents?
seller proposals
contract type: Time and Material (T&M)
the buyer pays on a per hour or per item basis Used for service efforts in which the level of effort cannot be defined when the contract is awarded The buyer may add a "Not to Exceed" clause to the contact to limit the total amount they are required to pay The buyer has a medium amount of cost risk as compared to a cost-reimbursable and fixed price contracts
Control Procurement Tools & Techniques:Performance Reviews
the buyers project manager analyzes all available data to verify that the seller is performing as they should
Plan Procurement Management Outputs: Procurement Management Plan
the plan documents how procurement's will be planned, executed, and controlled . Enterprise environmental factors and organizational process assets influence this plan
Plan Procurement Management Key inputs: Requirements documentation
this is where the project manager will find the scope related requirements that will help define the end product, service, or result provided by a seller
The project manager has determined that a consultant is needed to immediately begin working on a part of the project. The work is expected to last a few weeks. What is the most appropriate contract type in this situation
time and material
Control Procurement Tools & Techniques: Earned Value Analysis
used to identify scope, schedule, or cost variances from the performance measurement baseline
Standard Contract
usually drafted or reviewed by lawyers. The contract terms and conditions are most commonly created by the buyer, who may use it in a standard format that is used over and over on similar procurements.
