1. Chapter 12 Procurement Management
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12-1

2. Procurement Management
Processes required to acquire products, services or results needed from outside the project team
Organization can be either the buyer or seller of products, services or results of a project
Includes Contract Management and change control processes required to develop and administer contracts
Includes administering contract issued by outside organization (Buyer) acquiring the project from the performing organization (Seller)
Main outputs of this process:
Procurement Management Plan
Procurement documents
Procurement Contract Award
Project Procurement management includes below processes:
Plan Procurements
Conduct Procurements
Administer Procurements
Close Procurements
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3. Inov8Solutions Inc – Quality Educational Services For Professionals
Plan Procurements
Plan Procurements –
Document project purchasing decisions
specifying the approach and identifying potential sellers
Identify project needs
Consideration of potential sellers
Procurement management plans might influence
project schedule
estimate Activity Resources and
make or buy decisions
Consideration of the risks involved with each make or buy decision.
Mitigating risk
transferring risks to the seller
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4. 12.1 Plan Procurements Inputs and Outputs
Class Group Activity – 15 Minutes
Divide Class into 3 groups (3 to 4 students in each group)
Discuss and brainstorm the inputs/outputs
Present your inputs/outputs to the rest of the teams
Check and compare your inputs/outputs with PMBOK® Guide 4th edition
PMP, CAPM, PgMP, PMI-SP , PMI-RMP, OPM3 and PMBOK  are registered marks of Project Management Institute, Inc
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5. Inov8Solutions Inc – Quality Educational Services For Professionals
Contract Types
Fixed Price Contracts
Firm Fixed Price Contracts (FFP)
Fixed Price Incentive Fee Contracts (FPIF)
Fixed Price with Economic Price Adjustment Contracts (FP- EPA)
Cost reimbursable contracts
Cost Plus Fixed Fee Contracts (CPFF)
Cost Plus Percentage of Cost (CPPC)
Cost Plus Incentive Fee Contracts (CPIF)
Cost Plus Award Fee Contracts (CPAF)
Time and Material Contracts (T& M)
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6. Inov8Solutions Inc – Quality Educational Services For Professionals
Contract Types (Cont..)
Fixed Price (lump sum, firm fixed price)
One price for all work
Most common type of contract
Buyer has the least cost risk
Seller is most concerned with scope of work with this type of contract
Cost Reimbursable
Seller costs are reimbursed
Buyer has the most cost risk as total costs are unknown
Used when buyer are sure of what they need rather than what to do
Types:
CPFF: Buyer pays all cost, fee is fixed
CPPC: Buyer pays all cost + percent of cost as fee
CPIF: Buyer pays all cost + agreed upon fee + bonus for deadlines
CPAF: Buyer pays all cost + apportionment of bonus based on performance. This is similar to CPIF
PMP, CAPM, PgMP, PMI-SP , PMI-RMP, OPM3 and PMBOK  are registered marks of Project Management Institute, Inc
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7. Inov8Solutions Inc – Quality Educational Services For Professionals
Contract Types (Cont..)
Time and Material
Priced per hour or per time basis
Has an element of fixed price contract and a cost reimbursable contract
Buyer has medium amount of cost risk
Contract is usually for small dollar amounts and for short length projects
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8. Procurement Management Plan
Procurement management plan - describes how procurement processes will be managed and includes:
Types of contracts
Risk management issues
Independent estimates needed?
Standardized documents
Multiple provider management
Incorporate with other project aspects (schedule and performance reporting)
Statement of work – describes procurement in detail, clear concise description of services and includes:
Developed from the scope baseline and defines specific portion of project scope to be included in the contract
Can also be a statement of requirements for problem solving activities
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9. Inov8Solutions Inc – Quality Educational Services For Professionals
Conduct Procurements
Conduct Procurement is the –
Process of obtaining seller responses, selecting a seller and awarding a contract
Select sellers qualified to perform work based on selection criteria
Weighing system can be used to select Seller(s)
Weighing system can also be used to establish a negotiating sequence by ranking all proposals by the weighted evaluation scores assigned to each proposal
PMP, CAPM, PgMP, PMI-SP , PMI-RMP, OPM3 and PMBOK  are registered marks of Project Management Institute, Inc
Inov8Solutions Inc – Quality Educational Services For Professionals
12-9

10. 12.2. Conduct Procurements Inputs and Outputs
Class Group Activity – 15 Minutes
Divide Class into 3 groups (3 to 4 students in each group)
Discuss and brainstorm the inputs/outputs
Present your inputs/outputs to the rest of the teams
Check and compare your inputs/outputs with PMBOK® Guide 4th edition
PMP, CAPM, PgMP, PMI-SP , PMI-RMP, OPM3 and PMBOK  are registered marks of Project Management Institute, Inc
Inov8Solutions Inc – Quality Educational Services For Professionals
12-10

11. Inov8Solutions Inc – Quality Educational Services For Professionals
Solicitation
Procurement Documents
Invitation for Bid (ITB): Buyer requests one price to do all work
Request for Proposal (RFP): Buyer requests price & detailed proposal of how to accomplish the work
Request for Quotation (RFQ): Buyer requests a price quote per item
Bidders Conference
Meeting with Prospective sellers to ensure clear understanding
Project Manager addresses all questions raised by Seller
Qualified Sellers List
Sellers qualifications are normally checked in advance
Name of companies are on an approved or pre-qualified list
Proposals
Seller prepared documents that describe seller’s ability and willingness to provide requested product
Prepared in accordance with requirements of relevant procurement documents
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12. Inov8Solutions Inc – Quality Educational Services For Professionals
Source Selection
Receives, reviews and selects seller
Evaluation criteria provides basis of quantitatively evaluating proposals
Techniques used:
Weighting system
Screening system
Independent Estimate
Past Performance history
Presentations may be requested of the Sellers for following reasons:
Proposal can be presented in person by seller
Buyer can pick the most appropriate seller
Buyers can see the prospective team and ask questions to assess the competency, knowledge and ability of the team
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13. Inov8Solutions Inc – Quality Educational Services For Professionals
Negotiation
Purpose of Negotiation is:
To obtain a fair, reasonable price and develop a good relationship with the seller
To discuss responsibilities, authority and price
To discuss on Applicable law, Technical & Business Management approaches
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14. 12.3 Administer Procurements
Process of
managing procurement relationships,
monitoring contract performance and
making changes and corrections as needed
Making sure
seller’s performance meets procurement requirements
buyer performs according to terms of legal contract
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12-14

15. 12.3 Administer Procurements (Cont…)
Administer Procurements also:
Monitors payments to Seller
Compensates Seller based on Seller progress
Review and documents Seller performance
Reviews performance of Seller to take corrective action, if required
Measures Seller’s competency for future projects
Evaluates Seller’s non-ability to fulfill contractual obligations
Manages early termination of contracted work, per termination clause of the contract
Amends contracts prior to contract closure by mutual consent and change control terms of contract
PMP, CAPM, PgMP, PMI-SP , PMI-RMP, OPM3 and PMBOK  are registered marks of Project Management Institute, Inc
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16. 12.3 Administer Procurements Inputs and Outputs
Class Group Activity – 20 Minutes
Divide Class into 3 groups (3 to 4 students in each group)
Discuss and brainstorm the inputs/outputs
Present your inputs/outputs to the rest of the teams
Check and compare your inputs/outputs with PMBOK® Guide 4th edition
PMP, CAPM, PgMP, PMI-SP , PMI-RMP, OPM3 and PMBOK  are registered marks of Project Management Institute, Inc
Inov8Solutions Inc – Quality Educational Services For Professionals
12-16

17. Inov8Solutions Inc – Quality Educational Services For Professionals
12.4 Close Procurements
Complete/Close project procurement activities
Verify that all work and deliverables are accepted
Involves administrative activities
finalizes open claims
updates records to reflect final results
archives records for future use
Early termination
special case of procurement closure
after mutual agreement of both parties
Termination clause of contract contains rights/responsibilities of the parties
Contract closeout occurs before project is closed
PMP, CAPM, PgMP, PMI-SP , PMI-RMP, OPM3 and PMBOK  are registered marks of Project Management Institute, Inc
Inov8Solutions Inc – Quality Educational Services For Professionals
12-17

18. 12.4 Close Procurements Inputs and Outputs
Class Group Activity – 20 Minutes
Divide Class into 3 groups (3 to 4 students in each group)
Discuss and brainstorm the inputs/outputs
Present your inputs/outputs to the rest of the teams
Check and compare your inputs/outputs with PMBOK® Guide 4th edition
PMP, CAPM, PgMP, PMI-SP , PMI-RMP, OPM3 and PMBOK  are registered marks of Project Management Institute, Inc
Inov8Solutions Inc – Quality Educational Services For Professionals
12-18

19. Tips – Procurement Management
Project Manager’s role for procurement
Risk identification and evaluation
Work within the procurement process
Procurement process
Procurement planning = Make or buy
Solicitation planning = Request for Proposal
Solicitation = Questions / Answers
Source Selection = Pick Vendor
Contract Administration = Admin
Contract Closeout = Finish
Make or Buy: consider out of pocket costs and indirect cost of managing procurement
Buy: to decrease risk (cost, schedule, performance, scope of work)
Make
Idle plant or workforce
Retain control
Proprietary information / procedures
Buy Vs lease questions
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12-19

20. Tips – Procurement Management
Contract Type selection: reasonable risk between the Buyer and Seller, greatest initiative for seller’s efficient and economic performance
Scope is well defined
Amount or frequency of changes expected after start date
Amount of effort and expertise the buyer can devote to manage the seller
Industry standards
Cost Reimbursable (CR): seller’s cost are reimbursed, buyer bears highest risk (cost increases)
CPFF: Cost plus fixed fee, buyer pays all costs –fee (profit) established
CPPC: Cost plus percentage of costs, bad for buyers (seller not motivated to control costs)
CPIF: Cost plus incentive fee, seller costs + fee + bonus for meeting / exceeding target (incentive clause)
Time and Materials: priced on per hour basis, elements of fixed price contract and cost reimbursable contracts – buyer has medium risk
PMP, CAPM, PgMP, PMI-SP , PMI-RMP, OPM3 and PMBOK  are registered marks of Project Management Institute, Inc
Inov8Solutions Inc – Quality Educational Services For Professionals
12-20

21. Tips – Procurement Management
Fixed Price (lump sum, or fixed price) : most common, one price for all work, Seller has high risk
FPIF : Fixed price incentive fee
FPEPA: Fixed price economic price adjustment-long duration projects
Incentives: Help bring Seller’s objectives in line with buyer’s
Incentive Fee and Final Price calculations:
Fee = (Target Cost – Actual Cost ) x Seller ratio(%)
Total Fee = Fee + Target Fee
Final Price = Actual Cost + Total Fee
PMP, CAPM, PgMP, PMI-SP , PMI-RMP, OPM3 and PMBOK  are registered marks of Project Management Institute, Inc
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12-21

22. Questions