Project Procurement Management 2h4p1t

Project Procurement Management It includes the processes necessary to purchase or acquire products, services, or results needed from outside the project team. The organization can be either the buyer or seller of the products, services, or results of a project. It includes the contract management and change control processes required to develop and ister contracts or Purchase orders issued by the authorized project team There are four processes of Procurement Management Plan Procurement Management Planning Conduct Procurement Execution Control Procurement Monitoring and Control Close Procurement Closure

1.

Plan Procurement Management:

It is the process of documenting project procurement decisions, specifying the approach and identifying potential sellers. This process identifies whether to acquire outside , what to acquire, how to acquire, how much is needed and when to acquire. It identifies the project needs that can be met by acquiring products outside the project organization versus those needs which can be met by the project team. Inputs: Project Management Plan: Project Scope Statement, WBS, WBS Dictionary Requirements Documentation, Risk , Activity Resource Requirements, Project Schedule, Activity Cost Estimates, Stakeholder , Enterprise Environmental Factors, Organizational Process Assets Tools and Techniques: Make-and-Buy Decisions: A make-or-buy analysis is a management technique used to determine whether particular work can best be accomplished by the project team or should be purchased from outside sources. Expert Judgment, Market Research, Meetings Outputs: Procurement Management Plan: It describes how a project team will acquire goods and services from outside the performing Organization. It includes – types of contracts to be used, Risk Management Issues, Independent estimates to be used or not, Managing Multiplier Suppliers, Coordinating Procurement with other aspects, any constraints and assumptions, Handling the make-buydecisions etc. Procurement statement of work: Procurement SOW is developed from the project scope baseline and defines only that portion to be included in the related contract. It defines in sufficient detail about the Procurement product or service, to allow the respective seller to determine if they are capable of providing the products, services or results. Procurement Documents: These are try to obtain proposals from the sellers. such as bid, tender or quotation are used when the seller selection is based on price, while a term such as proposal is used when other considerations such as technical capability or technical approach are paramount. Source Selection Criteria: It is criteria used to rate or score seller proposals and can be objective or subjective. Make – and – Buy decisions, Change Request

2.

Conduct Procurements

Conduct procurement is the process of obtaining seller responses, selecting the seller and awarding contracts. It provides alignment of internal and external stakeholders’ expectation through established needs. During the conduct procurement process, team will receive the bids and proposals and will apply previously defined selection criteria to select one or more sellers.

Inputs: Procurement Management Plan, Procurement Statement of work, Proposal documents, Project Documents, Source Selection Criteria, Organizational process assets, Seller Proposals, Make-or-Buy Decisions Tools and Techniques: Bidder Conferences: Bidder Conferences are meetings between the buyer and all prospective sellers prior to submittal of a bid or proposal. They are used to ensure that all prospective sellers have a clear and common understanding of the procurement requirements and that no bidders receive preferential treatment. Independent Estimates: For many procurement items, the procuring organization may elect to either prepare its own independent estimate, or have an estimate of costs 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 statement of work was deficient, ambiguous, and/or that the prospective sellers either misunderstood or failed to respond fully to the procurement statement of work. Proposal Evaluation Techniques, Expert Judgment, Analytical Techniques, Advertising, Procurement Negotiations Outputs: Selected Sellers, Resource Calendars, Change Requests, Project Management Plan Updates, Project Documents Updates, Agreements: A procurement agreement includes and conditions, and may incorporate other items that the buyer specifies regarding what the seller is to perform or provide.

3.

Control Procurements

It is the process of managing procurement relationships, monitoring contract performance and making changes and corrections to contracts as appropriate. The key benefit of this process is that it ensures that both the seller’s and buyer’s performance meets procurement requirements according to the of the legal agreement. Control Procurements also has a financial management component that involves monitoring payments to the seller. This ensures that payment defined within the contract are met and that seller compensation is linked to seller progress, as defined in the contract. The Control Procurements process reviews and documents how well a seller is performing or has performed based on the contract and establishes corrective actions when needed. This performance review may be used as a measure of the seller’s competency for performing similar work on future projects. Inputs: Project management plan, Procurement documents, Agreements, Approved change requests, Work performance reports: Seller performance-related documentation includes (1) Technical documentation. Seller-developed technical documentation and other deliverable information are provided in accordance with the of the contract. (2) Work performance information. The seller’s performance reports indicate which deliverables have been completed and which have not. Work performance data: Work performance data includes (1) the extent to which quality standards are being satisfied, (2) the costs that have been incurred or committed, and (3) identification of the seller invoices that have been paid. All data are collected as part of project execution Tools and Techniques: Inspections and audits, Performance reporting, Payment systems, Records management System Claims istration: When there’s a dispute between a buyer and a seller, that’s called a claim. Most contracts have some language that explains exactly how claims should be resolved—and since it’s in the contract, it’s legally binding, and both the buyer and seller need to follow it Contract change control system: It 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. Procurement performance reviews: It is a structured review of the seller’s progress to deliver project scope and quality, within cost and on schedule, as compared to the contract. It can include a review of seller-prepared documentation and buyer inspections, as well as quality audits conducted during seller’s

execution of the work. The objective of a performance review is to identify performance successes or failures, progress with respect to the procurement statement of work, and contract noncompliance, which allow the buyer to quantify the seller’s demonstrated ability or inability to perform work. Outputs: Work performance information, Change requests, Project management plan updates, Project documents updates, Organizational process assets updates.

4.

Close Procurements

Close Procurements is the process of completing each procurement. The key benefit of this process is that it documents agreements and related documentation for future reference. The Close Procurements process also involves istrative activities such as finalizing open claims, updating records to reflect final results, and archiving such information for future use. Inputs: Project Management Plan, Procurements Documents Tools and Techniques: Procurement Audits: A procurement audit is a structured review of the procurement process originating from the Plan Procurement Management process through Control Procurements. The objective of a procurement audit is to identify successes and failures that warrant recognition in the preparation or istration of other procurement contracts on the project, or on other projects within the performing organization Procurement Negotiations, Records Management System Outputs: Closed Procurements: The buyer, usually through its authorized procurement , provides the seller with formal written notice that the contract has been completed. Requirements for formal procurement closure are usually defined in the and conditions of the contract and are included in the procurement management plan Organizational Process Assets: (1) Procurement file: A complete set of indexed contract documentation, including the closed contract, is prepared for inclusion with the final project files. (2) Deliverable Acceptance: Documentation of formal acceptance of seller-provided deliverables may be required to be retained by the organization. The Close Procurement process ensures this documentation requirement is satisfied. Requirements for formal deliverable acceptance and how to address nonconforming deliverables are usually defined in the agreement. (3) Lessons learned documentation. Lessons learned, what has been experienced, and process improvement recommendations, should be developed for the project file to improve future procurements.

Contracts

Contract is a mutual binding agreement that obligates the seller to provide something of value and obligates the buyer to provide monetary or valuable compensation. A contract is a legal relationship subject to remedy in the courts. There are 3 types of contracts Fixed-Price: It involves setting a fixed total price for a defined product, service or result to be provided. Sellers under fixed-price contracts are legally obligated to complete such contracts, with possible financial damages if they do not. Under the fixed-price 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. 1) Buyer are going to pay one amount regardless of how much it costs the contractor to do the work. 2) A fixed-price contract only makes sense in cases where the scope is very well known. 3) Fixed Price Contracts doesn’t have risk for the buyers. There are 3 types of Fixed Price Contract Firm Fixed Price Contracts (FFP). The most commonly used contract type is the FFP. It is 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 buyer should precisely specify

the product or services to be procured, and any changes to the procurement specification can increase the costs to the buyer. Fixed Price Incentive Fee Contracts (FPIF). This fixed-price arrangement gives the buyer and seller some flexibility in that it allows for deviation from performance, with financial incentives tied to achieving agreed upon metrics. Performance targets are established at the outset, and the final contract price is determined after completion of all work based on the sellers performance. Under FPIF contracts, a price ceiling is set, and all costs above the price ceiling are the responsibility of the seller, who is obligated to complete the work. Fixed Price Award Fee (FPAF). In FPAF contract, the buyer pays a fixed price plus an award amount based on performance. The total possible award amount is determined in advanced and appropriated based on performance Fixed Price with Economic Price Adjustment Contracts (FP-EPA). This contract type is used whenever the seller’s performance period spans a considerable period of years, as is desired with many long-term relationships. It is a fixed-price contract, but with a special provision allowing for pre-defined 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. Cost-reimbursable contracts. It is used when the exact scope of work in uncertain and therefore costs cannot be estimated accurately enough to effectively use as a fixed price contract. This category of contract 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, defined objectives such as costs, schedule, or technical performance targets. There are three types of cost-reimbursable contracts Cost Plus Percentage of Costs (PC): It requires the buyer to pays all the costs plus a percentage of costs as a fee. It is not practice because it is very bad for buyers. Cost Plus Fixed Fee Contracts (FF): The seller is reimbursed for all allowable costs for performing the contract work, and receives a fixed-fee payment calculated as a percentage of the 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. : The contract lays out the costs and then adds a dollar amount fee on top of that. There is risk involved for both Seller and Buyer Cost Plus Incentive Fee Contracts (IF). 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 IF 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 Award Fee Contracts (AF). 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 fee is based solely on the subjective determination of seller performance by the buyer, and is generally not subject to appeals. 1) There is risk involved for Seller Time and Material Contracts (T&M). Time and material contracts are a hybrid type of contractual arrangement that contain aspects of both cost-reimbursable and fixed-price contracts. They are often used for staff augmentation, acquisition of experts, and any outside 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. Time and Material is used in labor contracts. It means that you will pay a rate for each of the people working on your project plus their materials costs. The “time” part means that the buyer pays a fixed rate for labor—usually a certain number of dollars per hour. And the “materials” part means that the buyer also pays for materials, equipment, office space, istrative overhead costs, and anything else that has to be paid for. The seller typically purchases those things and bills the buyer for them. This is a really good contract to use if you don’t know exactly how long your contract will last, because it protects both the buyer and seller. : T&M will have not to exceed clause to limit risk for the buyer. Points to  Force Majeure: If something like a war or riots or natural disaster happens, you’re excused from the of the contracts.  Point of total assumption: The point at which the seller assumes the costs. In a fixed price contract, this is the point where the costs have gotten so large that the seller basically runs out of money from the contract and has to start paying the costs. o PTA = ((Ceiling Price – Target Price)/Buyer Share ratio)+Target Cost  Invitation for bid (IFB): It is a document that tells sellers that you want them to submit proposals. Other are requests for information (RFI) and requests for proposals (RFP).  Invitation for quote (IFQ). This is a way to tell sellers that you want them to give you a quote on a fixed-price contract to do the work.  Purchase order is something you’ll send out to a seller who you know that you want to work with. It’s an agreement to pay for certain goods or services.  RFI: Request for information documents are sent to potential sellers to ask for information about their capability to do the work.  RFP: Request for proposal is when you give a seller the opportunity to examine your procurement documents and write up a proposal of how they’d do the work.  Performance Review vs Inspection and Audits: The difference is that performance reviews are about the work, while inspections and audits are about the deliverables and products.  Even if the buyer fails to deliver on a contract and it has to be terminated early, you still need to perform the Closed Procurements process.  Fixed Price contract is riskiest for the Seller whereas time and materials (T&M) contract is the medium risk for the buyer. With a cost-reimbursable contract, the buyer has the most cost risk because the total cost are unknown.  Purchase Order is the simplest type of Fixed-Price contract. It is normally unilateral and used for simple commodity procurement. It becomes contract when they are accepted by performance.  Ceiling Price: This is the highest price the buyer will pay. It is the condition of the contract that must be agreed with seller and buyer before g the contract.  When actual cost is higher than the target cost (seller), seller receives less fee or profit.  Final Fee or profit = (Target Costs – Actual Costs )*Seller Sharing %+target fee  Final Price = Actual costs + final fee Procurement Document Contract Type Procurement SOW RFP CR Performance or Functional IFB FP Design RFQ T&M Any