Project Procurement Management

Project Procurement Management Processes Procurement Planning: determining what to procure and when Solicitation Planning : documenting product requirements and identifying potential sources Solicitation : obtaining quotations, bids, offer, or proposals, as appropriate Source Selection : choosing from among potential sellers Contract Administration : managing the relationship with the seller Contract Closeout : completion and settlement of the contract, including resolution of any open items.

Project Procurement Management

Procurement Planning The process of identifying which project needs can be best met by procuring products or services outside the project organization. It involves consideration of whether to procure how to procure what to procure how much to procure when to procure

Procurement Planning

Inputs to procurement planning Scope statement: describes the current project boundaries provides information about project needs than strategies to be considered should include: project justification project product project deliverables project objectives

Inputs to procurement planning Product descriptions: provides important information about any technical issues or concerns need to be considered describes the ultimate end-product of the project

Inputs to procurement planning Procurement resources: organization or project level Market conditions: consider what products or services available in the market product or service providers terms and conditions

Inputs to procurement planning Other planning output: preliminary cost and schedule estimates quality management plan cash flow projections work breakdown structures identified risks planned staffing

Inputs to procurement planning Constraints: factors that limit buyer option, eg funds availability Assumptions: factors that will be considered to be true, real, or certain

Tools & techniques Make or buy analysis: Expert Judgement: use of engineering economic analysis Expert Judgement: other units within the performing organization consultants professionals & technical associations industry groups

Tools & techniques Contract type selection: fixed price or lump sum contracts: a well-defined product little or no modification can be developed for the plans and specifications may include incentives

Tools & techniques Contract type selection: cost reimbursable contracts: design documentation is not complete at time of negotiation Cost + fee: Cost + percent of cost Cost + fixed fee Cost + fixed fee + profit-sharing clause (guaranteed maximum price) Cost + sliding fee

Tools & techniques Contract type selection: unit price contracts: flexibility in meeting variations in the amount and quantity of work based on the guide quantity specified

Contract strategy considerations Procurement strategy will depend upon: type of project particular emphasis in terms of scope quality time & cost degree of uncertainty

Risk sharing principles Principles for allocating risk among the parties to a project: which party is the source of the particular risk and hence best able to control the events that may lead to it happening in the first place? which party can be best manage the risk, if it occurs? Is it or is it not preferable for the client to retain an involvement in the management of the risk in questions?

Risk sharing principles Principles for allocating risk among the parties to a project: if it cannot be controlled, which party can or should carry the risk? Will the cost incurred, or premium charged, by the recipient of the risk be reasonable and cost-effective will the recipient be capable of sustaining the consequences of the risk, if it occurs? Or will it lead to the possibility of the risk of a different nature being transferred back again

Risk sharing principles

Risk Implication (Client’s perspective)

Risk Implication (Client’s perspective)

Risk Implication (Client’s perspective)

Good condition of contract in respect of risk: Clear definitions of risk and their assignment Positive incentives linked to risk assignment Flexibility for different assignment of different risks between parties strong emphasis on good management practices designed to avoid unnecessary risks

Solicitation planning Involves preparing the documents needed to support solicitation

Solicitation planning

Output of Procurement planning as Inputs to solicitation planning Procurement management plan: describe how the remaining procurement process will be managed: type of contract to be used needs of independent estimates scope of works: proc. Dept. vs project team standardized procurement documents management of multiple providers procurement coordination related to other project aspects may be formal or informal, detailed or broad, based on project needs

Output of Procurement planning as Inputs to solicitation planning Statement of work (SOW): describes the procurement item in sufficient details to allow perspective sellers to determine if they are capable of providing the item should clear, complete and concise SOW vs SOR: Product or service to be provided vs problems to be solved

Tools & techniques for solicitation planning Standard forms: standard contracts standard description of procurement items Expert judgement: other units within the performing organization consultants professionals & technical associations industry group

Output from solicitation planning Procurement documents: used to solicit/request proposals bid/quotation for price-driven proposal for non-financial consideration common names: Invitation for Bid (IFB) Request for Proposal (RFP) Request for Quotation (RFQ) Invitation for Negotiation Contractor initial response

Output from solicitation planning Procurement documents: should be structured include relevant SOW, description of response, contractual provisions should be rigorous but flexible

Output from solicitation planning Evaluation criteria: to rate or score proposal often included as part of procurement documents limited vs integrated criteria: understanding of needs overall or life cycle costs technical capability management approach financial capacity