1. 12-1 Project Management from Simple to Complex

2. 12-2 This work is licensed under the Creative Commons Attribution-Noncommercial-Share Alike 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-sa/3.0/or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA

3. 12-3 Chapter 12 Project Procurement and Closure

4. 12-4 Learning Objectives Identify the factors that are considered when deciding whether to buy goods from within the organization or to obtain them from outsiders Identify what factors are considered when deciding to outsource or perform the work within the organization Describe the role of suppliers Describe the role of vendors

5. 12-5 Learning Objectives Describe the role of partners Identify factors that determine which type of contract to select Describe the types of fixed-cost contracts Describe the types of cost reimbursable contracts Describe the components of the procurement plan Identify the decisions made when selecting the type of contract

6. 12-6 Learning Objectives Describe how bidders are qualified, solicited, and chosen Identify the methods used to manage the contracts Describe the procedures for closing out contracts Describe the elements and purpose of the postproject review process Identify the types of documents that should be archived Identify the objectives of the project closeout celebration

7. 12-7 Identifying the Need for Resources Outside the Organization The project team decides what work that will be self-performed and what will be outsourced Primary factors that influence procurement are: – Cost (Budget) – Schedule Other factors that influence procurement are: – Risk – Quality – Flexibility

8. 12-8 Identifying the Need for Resources Outside the Organization To determine whether to outsource or do the work within the organization, consider: – Which option is less costly – Which option can deliver the work on time

9. 12-9 Procurement Plan Suppliers: Source of commodities Commodities: Items that can be bought off the shelf with no special modification for the project Purchasing commodities from suppliers focuses on achieving the lowest cost On smaller, less complex projects — Supplies can be purchased from the supplier’s catalog

10. 12-10 Procurement Plan On larger, more complex projects — List of materials and supplies is developed from the project cost estimate The list is provided to suppliers as a request for quote – Request for quote (RFQ): Requires a bidder to provide a price and additional information for a defined scope of work Organizations maintain a list of suppliers that meet the organization’s requirements

11. 12-11 Procurement Plan Bid: An offer to provide something of value for compensation – Can be written or verbal and can be in response to a solicitation or unsolicited Key supplier: A person or organization supplying goods or services to the project that has a special relationship with the project or parent organization and might bypass the bidding process

12. 12-12 Procurement Plan Vendor: Provider of problem solutions They provide a unique product or service required for project, which cannot be readily purchased in the marketplace The project team issues a request for proposal – Request for proposal (RFP): Requires a bidder to offer solutions and ideas on how to perform the scope of work and a price for performing that work

13. 12-13 Procurement Plan Vendors are encouraged to submit suggestions that will: – Reduce total project cost – Shorten the schedule – Improve the performance A team member is assigned to: – Monitor the relationship – Provide support from project resources to help assure vendor success

14. 12-14 Procurement Plan Partnership: Formal arrangement to execute the project with each party contributing resources It is formed when the parent organization lacks key skills or relationships Factors critical to the success of a partnership – Clear definition of roles and responsibilities on the project – Common understanding of the project goals – Scope of work for each partner

15. Procurement Plan — Exercise 12-15 Level of Specification Level of Complexity of the Procurement High Low Very Specific Very General ? ? ? Fill in the gaps with the appropriate providers of outsourced goods or services — Suppliers, Vendors, and Partners 1 2 3

16. 12-16 Selecting the Type of Contract Contract: An agreement that is legally enforceable Contracting plan: Defines the relationship between the project and the subcontractors and defines a process for making changes in the agreement Factors to consider when selecting the type of contract: – Uncertainty of the scope of the work needed – Which party assumes the risk of unexpected cost increases – The importance of meeting the scheduled milestone dates – The need for predictable project costs

17. 12-17 Selecting the Type of Contract The legal contracts that support the procurement plan consist of two general types of contract: – Fixed price: A type of contract that pays a contractor an amount that is agreed upon at the start of the project – Cost reimbursable: A contract in which the organization agrees to pay the contractor for the cost of performing the service or providing the goods

18. 12-18 Figure 12.7 - Table of Fixed Price Contracts and Characteristics Click below to view full-size

19. 12-19 Figure 12.9 - Table of Contract Types and Characteristics Click below to view full-size

20. 12-20 Procurement Process Components of the procurement plan: – Selecting the appropriate relationships and contract approaches for each outsourced service or type of materials – Preparing RFQs and RFPs and evaluating partnership opportunities – Evaluating RFQs, RFPs, and partnerships – Awarding and signing contracts – Managing quality, timely performance, and contract changes – Closing contracts

21. 12-21 Procurement Process Factors to be considered when determining the contracting approach – Whether the required work/materials is a commodity, customized product or service, or unique skill or relationship – Type of relationship required — Supplier, vendor, or partnership – Type of approach required — RFQ, RFP, or personal contact – Scope of work – The risks involved and which party should assume which types of risk – Affect of procurement on activities on the project schedule’s critical path and the amount of float on those activities – The need for certainty of the cost

22. 12-22 Procurement Process Solicitation: Process of requesting a price and supporting information from bidders The eligibility of a supplier is determined by the ability to meet project requirements and demonstrate financial stability – Quality specifications – Project schedule RFQs and RFPs are sent to eligible suppliers

23. 12-23 Procurement Process Evaluation of bids in response to RFQs — The lowest total price will win the contract Evaluation of bids in response to RFPs — Includes the price and an evaluation of the technical approach chosen by the bidder

24. 12-24 Procurement Process A project representative validates all conditions of the bid and the contract with the potential contractor Less complex awards requires a reading and signing of the contract to ensure the supplier understands the contract terms and requirements of the project schedule

25. 12-25 Procurement Process More complex projects require detailed discussion of: – Goals – Potential barriers to accomplishing those goals – Project schedule and critical dates for the contract to make – Processes for resolving conflicts and improving work processes

26. 12-26 Procurement Process The manager of supplier contracts develops detailed specifications and assures compliance to these specifications The manager of vendor contracts: – Assures the contractors have the skills and capacity to accomplish the work – Tracks the vendor’s performance against the project needs – Provides support and direction when needed

27. 12-27 Procurement Process The manager of partnering arrangements develops alignment around common goals and work processes Long lead items: Equipment or materials that will require a long time to acquire or build Logistics: Managing procurement, distribution, maintenance, and replacement of goods and services

28. 12-28 Project Closure To close contracts: – Systems are tested – Materials are inspected – Punch lists of work to be completed are made – Final payments are made

29. 12-29 Project Closure Postproject evaluations — To capture the lessons learnt which can be transferred to future projects – Project profile evaluation – Trust and alignment effectiveness – Schedule management – Budget management – Risk mitigation – Procurement contracts – Customer satisfaction

30. 12-30 Project Closure The results of the postproject evaluations are summarized in reports for external (stakeholders) and internal (senior management) use The documents to be archived: – Charter documents – Scope statement – Original budget – Change documents – DPCI ratings – Manager’s summary – Final DPCI rating

31. 12-31 Project Closure Project celebration is an opportunity to improve customer and team member satisfaction Awards may be given to individuals who made outstanding contributions to the project Celebration creates a positive memory of the project and reinforces the learning that can be transferred to future projects