p

Project Procurement Management Overview

Project Procurement Management includes the processes to purchase or acquire the products, services, or results needed from outside the project team to perform the work. This chapter presents two perspectives of procurement. The organization can be either the buyer or seller of the product, service, or results under a contract.

Project Procurement Management includes the contract management and change control processes required to administer contracts or purchase orders issued by authorized project team members.

Project Procurement Management also includes administering any contract issued by an outside organization (the buyer) that is acquiring the project from the performing organization (the seller), and administering contractual obligations placed on the project team by the contract.

Figure 12-1 provides an overview of the Project Procurement Management processes, and Figure 12-2 provides a process flow view of the processes and their inputs, outputs, and related processes from other Knowledge Areas.

The Project Procurement Management processes include the following:

12.1 Plan Purchases and Acquisitions - determining what to purchase or acquire and determining when and how.

12.2 Plan Contracting - documenting products, services, and results requirements and identifying potential sellers.

12.3 Request Seller Responses - obtaining information, quotations, bids, offers, or proposals, as appropriate.

12.4 Select Sellers - reviewing offers, choosing among potential sellers, and negotiating a written contract with each seller.

12.5 Contract Administration - managing the contract and relationship between the buyer and seller, reviewing and documenting how a seller is performing or has performed to establish required corrective actions and provide a basis for future relationships with the seller, managing contract-related changes and, when appropriate, managing the contractual relationship with the outside buyer of the project.

12.6 Contract Closure - completing and settling each contract, including the resolution of any open items, and closing each contract applicable to the project or a project phase.

These processes interact with each other and with the processes in the other Knowledge Areas as well. Each process can involve effort from one or more persons or groups of persons, based on the requirements of the project. Each process occurs at least once in every project and occurs in one or more project phases, if the project is divided into phases. Although the processes are presented here as discrete components with well-defined interfaces, in practice they overlap and interact in ways not detailed here. Process interactions are discussed in detail in Chapter 3.

The Project Procurement Management processes involve contracts that are legal documents between a buyer and a seller. A contract is a mutually binding agreement that obligates the seller to provide the specified products, services, or results, and obligates the buyer to provide monetary or other valuable consideration. A contract is a legal relationship subject to remedy in the courts. The agreement can be simple or complex, and can reflect the simplicity or complexity of the deliverables. A contract includes terms and conditions, and can include other items such as the seller's proposal or marketing literature, and any other documentation that the buyer is relying upon to establish what the seller is to perform or provide. It is the project management team's responsibility to help tailor the contract to the specific needs of the project. Depending upon the application area, contracts can also be called an agreement, subcontract, or purchase order. Most organizations have documented policies and procedures specifically defining who can sign and administer such agreements on behalf of the organization.

Although all project documents are subject to some form of review and approval, the legally binding nature of a contract usually means that it will be subjected to a more extensive approval process. In all cases, the primary focus of the review and approval process ensures that the contract language describes products, services, or results that will satisfy the identified project need. In the case of major projects undertaken by public agencies, the review process can include public review of the agreement.

The project management team may seek support early from specialists in the disciplines of contracting, purchasing, and law. Such involvement can be mandated by an organization's policy.

The various activities involved in the Project Procurement Management processes form the life cycle of a contract. By actively managing the contract life cycle and carefully wording the terms and conditions of the contract, some identifiable project risks can be avoided or mitigated. Entering into a contract for products or services is one method of allocating the responsibility for managing or assuming potential risks.

A complex project can involve managing multiple contracts or subcontracts simultaneously or in sequence. In such cases, each contract life cycle can end during any phase of the project life cycle (see Chapter 2). Project Procurement Management is discussed within the perspective of the buyer-seller relationship. The buyer-seller relationship can exist at many levels on any one project, and between organizations internal to and external to the acquiring organization. Depending on the application area, the seller can be called a contractor, subcontractor, vendor, service provider, or supplier. Depending on the buyer's position in the project acquisition cycle, the buyer can be called a client, customer, prime contractor, contractor, acquiring organization, governmental agency, service requestor, or purchaser. The seller can be viewed during the contract life cycle first as a bidder, then as the selected source, and then as the contracted supplier or vendor.

The seller will typically manage the work as a project if the acquisition is not just for materiel, goods, or common products. In such cases:



Buyer becomes the customer, and is thus a key project stakeholder for the seller

Seller's project management team is concerned with all the processes of project management, not just with those of this Knowledge Area

Terms and conditions of the contract become key inputs to many of the seller's management processes. The contract can actually contain the inputs (e.g., major deliverables, key milestones, cost objectives), or it can limit the project team's options (e.g., buyer approval of staffing decisions is often required on design projects).

This chapter assumes that the buyer of items for the project is within the project team and that the seller is external to the project team. This relationship is true if the performing organization is the seller of a project to a customer. This relationship is also true if the performing organization is the buyer from other vendors or suppliers of products, services, results, or subproject components used on a project.

This chapter assumes that a formal contractual relationship is developed and exists between the buyer and the seller. However, most of the discussion in this chapter is equally applicable to non-contractual formal agreements entered into with other units of the project team's organizations. Click To expand Figure 12-1. Project Procurement Management Overview

Note

Note: Not all process interactions and data flow among the processes are shown. Click To expand Figure 12-2. Project Procurement Management Process Flow Diagram

http://pmpstudynotes.blogspot.com/2009/04/project-procurement-management.html 

Definition

 * Procurement Management** is a groups of processes required to to purchase or acquire the products, services, or results needed from outside the project team to perform the work.

Processes
There are following processes which are part of Project Procurement Management.


 * Plan Purchases and Acquisitions


 * Plan Contracting


 * Request Seller Responses


 * Select Sellers


 * Contract Administration


 * Contract Closure

=Plan Purchases and Acquisitions=

The Plan Purchases and Acquisitions process identifies which project needs can best be met by purchasing or acquiring products, services, or results outside the project organization, and which project needs can be accomplished by the project team during project execution. This process involves consideration of whether, how, what, how much, and when to acquire.

Plan Purchases and Acquisitions process is a part of "Project Planning Phase".


 * ==(1) Procurement Management - Inputs== ||
 * **(1.1) Enterprise Environmental Factors:** Enterprise environmental factors that are considered include the conditions of the marketplace and what products, services, and results are available in the marketplace, from whom and under what terms and conditions.


 * (1.2) Organizational Process Assets:** Organizational process assets provide the existing formal and informal procurement-related policies, procedures, guidelines, and management systems that are considered in developing the procurement management plan and selecting the contract types to be used.


 * (1.3) Project Scope Statement:** The project scope statement describes the project boundaries, requirements, constraints, and assumptions related to the project scope. Constraints are specific factors that can limit both the buyer.s and seller.s options.


 * (1.4) Work Breakdown Structure:** The Work Breakdown Structure provides the relationship among all the components of the project and the project deliverables.


 * (1.5) WBS Dictionary:** The WBS dictionary provides detailed statements of work that provide an identification of the deliverables and a description of the work within each WBS component required to produce each deliverable.


 * (1.6) Project Management Plan** ||


 * ==(2) Procurement Management - Tools & Techniques== ||
 * **(2.1) Make-or-Buy Analysis:** Both direct and indirect costs. Project need and urgency.


 * (2.2) Expert Judgment:** Expert purchasing judgment can be used to develop or modify the criteria that will be used to evaluate offers or proposals made by sellers.


 * (2.3) Contract Types:** Different types of contracts are more or less appropriate for different types of purchases.


 * **Fixed-price or lump-sum contracts:** This category of contract involves a fixed total price for a well-defined product.

> > Three common types of cost-reimbursable contracts are CPF, CPFF, and CPIF > >
 * **Cost-reimbursable contracts:** This category of contract involves payment (reimbursement) to the seller for seller.s actual costs, plus a fee typically representing seller profit.
 * **Cost-Plus-Fee (CPF) or Cost-Plus-Percentage of Cost (CPPC):** Seller is reimbursed for allowable costs for performing the contract work and receives a fee calculated as an agreed-upon percentage of the costs. The fee varies with the actual cost.
 * **Cost-Plus-Fixed-Fee (CPFF):** Seller is reimbursed for allowable costs for performing the contract work and receives a fixed fee payment calculated as a percentage of the estimated project costs. The fixed fee does not vary with actual costs unless the project scope changes.
 * **Cost-Plus-Incentive-Fee (CPIF):** Seller is reimbursed for allowable costs for performing the contract work and receives a predetermined fee, an incentive bonus, based upon achieving certain performance objective levels set in the contract. In some CPIF contracts, if the final costs are less than the expected costs, then both the buyer and seller benefit from the cost savings based upon a pre-negotiated sharing formula


 * **Time and Material (T&M) contracts:** T&M contracts are a hybrid type of contractual arrangement that contains aspects of both cost-reimbursable and fixed-price type arrangements. These types of contracts resemble cost reimbursable type arrangements in that they are open ended. ||

be managed from developing procurement documentation through contract closure.
 * ==(3) Procurement Management - Output== ||
 * **(3.1) Procurement Management Plan:** The procurement management plan describes how the procurement processes will


 * Types of contracts used


 * Managing multiple providers


 * How procurement will be coordinated


 * Standardized documents used


 * Identifying pre-qualified selected sellers, if any, to be used


 * Constraints and assumptions that could affect planned purchases and acquisitions


 * Establishing the form and format to be used for the contract statement of work


 * Who will prepare independent estimates and if they are needed as evaluation criteria


 * Procurement metrics to be used to manage contracts and evaluate sellers


 * (3.2) Contract Statement of Work:** The statement of work (SOW) for each contract is developed from the project scope statement, the project work breakdown structure (WBS), and WBS dictionary. The contract SOW describes the procurement item in sufficient detail to allow prospective sellers to determine if they are capable of providing the item.


 * (3.3) Make-or-Buy Decisions:** The documented decisions of what project products, services, or results will be either be acquired or will be developed by the project team.


 * (3.4) Requested Changes:** Requested changes to the project management plan and its subsidiary plans and other components may result from the Plan Purchases and Acquisition process. ||

=Plan Contracting=

The Plan Contracting process prepares the documents needed to support the Request Seller Responses process and Select Sellers process.

Plan Contracting process is a part of "Project Planning Phase".


 * ==(1) Plan Contracting - Inputs== ||
 * **(1.1) Procurement Management Plan**


 * (1.2) Contract Statement of Work**


 * (1.3) Make-or-Buy Decisions:** The make-or-buy decisions are documented in the issued list of items to be purchased or acquired and those items to be produced by the project team.


 * (1.4) Work Breakdown Structure:** The Work Breakdown Structure provides the relationship among all the components of the project and the project deliverables.


 * (1.5) Project Management Plan** ||


 * ==(2) Plan Contracting - Tools & Techniques== ||
 * **(2.1) Standard Forms:** Standard forms include standard contracts, standard descriptions of procurement items, non-disclosure agreements, proposal evaluation criteria checklists, or standardized versions of all parts of the needed bid documents.


 * (2.2) Expert Judgment:** Expert purchasing judgment can be used to develop or modify the criteria that will be used to evaluate offers or proposals made by sellers. ||


 * ==(3) Plan Contracting - Output== ||
 * **(3.1) Procurement Documents :** Procurement documents are used to seek proposals from prospective sellers. A term such as bid, tender, or quotation is generally used when the seller selection decision will be based on price, while a term such as proposal is generally used when other considerations, such as technical skills or technical approach, are paramount.


 * (3.2)Evaluation Criteria:** Evaluation criteria are developed and used to rate or score proposals. Evaluation criteria are often included as part of the procurement documents. ||

=Request Seller Responses=

The Request Seller Responses process obtains responses, such as bids and proposals, from prospective sellers on how project requirements can be met.

Request Seller Responses process is a part of "Project Planning Phase".

files with information on prospective and previously qualified sellers, sometimes called bidders, who can be asked to bid, propose, or quote on work.
 * ==(1) Request Seller Responses - Inputs== ||
 * **(1.1) Organizational Process Assets:** Some organizations, as part of their organizational process assets, maintain lists or


 * (1.2) Procurement Management Plan**


 * (1.2) Procurement Documents** ||


 * ==(2) Request Seller Responses - Tools & Techniques== ||
 * **(2.1) Bidder Conferences :** Bidder conferences are meetings with prospective sellers prior to preparation of a bid or proposal . They are used to ensure that all prospective sellers have a clear, common understanding of the procurement


 * (2.2) Advertising:** Existing lists of potential sellers can often be expanded by placing advertisements in general circulation publications such as newspapers or in specialty publications such as professional journals.

or information are readily available. Whether or not that data is available, the project team can also develop its own sources. General information is widely available through the Internet, library directories, relevant local associations, trade catalogs, and similar sources. ||
 * (2.3) Develop Qualified Sellers List:** Qualified sellers lists can be developed from the organizational assets if such lists


 * ==(3) Request Seller Responses - Output== ||
 * **(3.1) Qualified Sellers List :** The qualified sellers list are those sellers who are asked to submit a proposal or quotation.


 * (3.2)Procurement Document Package:** The procurement document package is a buyer-prepared formal request sent to each seller and is the basis upon which a seller prepares a bid for the requested products, services, or results that are defined and described in the procurement documentation.


 * (3.3) Proposals:** Proposals are seller-prepared documents that describe the seller.s ability and willingness to provide the requested products, services, or results described in the procurement documentation. ||

=Select Sellers=

The Select Sellers process receives bids or proposals and applies evaluation criteria, as applicable, to select one or more sellers who are both qualified and acceptable as a seller.

Select Sellers process is a part of "Project Execution Phase".


 * ==(1) Select Sellers - Inputs== ||
 * **(1.1) Organizational Process Assets:** The organizational process assets of the organizations involved in project procurement typically have formal policies that affect the evaluation of proposals.


 * (1.2) Procurement Management Plan**


 * (1.3) Evaluation Criteria:** Evaluation criteria can include samples of the supplier.s previously produced products, services, or results for the purpose of providing a way to evaluate the supplier.s capabilities and quality of products.


 * (1.4) Procurement Document Package**


 * (1.5) Proposals**


 * (1.6) Qualified Sellers List**


 * (1.7) Project Management Plan** ||


 * ==(2) Select Sellers - Tools & Techniques== ||
 * **(2.1) Weighting System :** A weighting system is a method for quantifying qualitative data to minimize the effect of personal prejudice on seller selection.


 * (2.2) Independent Estimates:**For many procurement items, the procuring organization can either prepare its own independent estimates or have prepared an independent estimate of the costs as a check on proposed pricing.


 * (2.3) Screening System:** A screening system involves establishing minimum requirements of performance for one or more of the evaluation criteria, and can employ a weighting system and independent estimates.


 * (2.4) Contract Negotiation:** Contract negotiation clarifies the structure and requirements of the contract so that mutual agreement can be reached prior to signing the contract.


 * (2.5) Seller Rating Systems:** Seller rating systems are developed by many organizations and use information such as the seller.s past performance, quality ratings, delivery performance, and contractual compliance.


 * (2.6) Expert Judgment:** Expert judgment is used in evaluating seller proposals.


 * (2.7) Proposal Evaluation Techniques:** Many different techniques can be used to rate and score proposals, but all will use some expert judgment and some form of evaluation criteria. ||


 * ==(3) Select Sellers - Output== ||
 * **(3.1) Selected Sellers :** The sellers selected are those sellers who have been judged to be in a competitive range based upon the outcome of the proposal or bid evaluation, and who have negotiated a draft contract, which will be the actual contract when an award is made

seller to provide the specified products, services, or results, and obligates the buyer to pay the seller.
 * (3.2) Contract:** A contract is awarded to each selected seller. The contract can be in the form of a complex document or a simple purchase order. Regardless of the document.s complexity, a contract is a mutually binding legal agreement that obligates the


 * (3.3) Contract Management Plan :** For significant purchases or acquisitions, a plan to administer the contract is prepared based upon the specific buyer-specified items within the contract such as documentation, and delivery and performance requirements that the buyer and seller must meet

resource can be active or idle are documented.
 * (3.4) Resource Availability:** The quantity and availability of resources and those dates on which each specific


 * (3.5) Procurement Management Plan updates:** The procurement management plan is updated to reflect any approved change requests that affect procurement management.


 * (3.6) Requested Changes:** Requested changes to the project management plan and its subsidiary plans and other components, such as the project schedule and procurement management plan, may result from the Select Sellers process. ||

=Contract Administration=

Both the buyer and the seller administer the contract for similar purposes. Each party ensures that both it and the other party meet their contractual obligations and that their own legal rights are protected. The Contract Administration process ensures that the seller.s performance meets contractual requirements and that the buyer performs according to the terms of the contract.

Contract Administration process is a part of "Project Controlling Phase".


 * ==(1) Contract Administration - Inputs== ||
 * **(1.1) Contract**


 * (1.2) Contract Management Plan**


 * (1.3) Selected Sellers**


 * (1.4) Performance Reports**


 * (1.5) Approved Change Requests**


 * (1.6) Work Performance Information** ||


 * ==(2) Contract Administration - Tools & Techniques== ||
 * **(2.1) Contract Change Control System :**A contract change control system defines the process by which the contract can be modified. It includes the paperwork, tracking systems, dispute resolution procedures, and approval levels necessary for authorizing changes.


 * (2.2) Buyer-Conducted Performance Review :**A procurement performance review 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.


 * (2.3) Inspections and Audits:** Inspections and audits required by the buyer and supported by the seller as specified in the contract documentation, can be conducted during execution of the project to identify any weaknesses in the seller.s work processes or deliverables.


 * (2.4) Performance Reporting:** Performance reporting provides management with information about how effectively the seller is achieving the contractual objectives. Contract performance reporting is integrated into performance reporting.


 * (2.5) Payment System:** Payments to the seller are usually handled by the accounts payable system of the buyer.


 * (2.6) Claims Administration:** Contested changes and constructive changes are those requested changes where the buyer and seller cannot agree on compensation for the change, or cannot agree that a change has even occurred. These contested changes are variously called claims, disputes, or appeals. Claims are documented, processed, monitored, and managed throughout the contract life cycle, usually in accordance with the terms of the contract.


 * (2.7) Records Management System:** A records management system is a specific set of processes, related control functions, and automation tools that are consolidated and combined into a whole, as part of the project management information system.


 * (2.8) Information Technology:** The use of information and communication technologies can enhance the efficiency and effectiveness of contract administration by automating portions of the records management system, payment system, claims administration, or performance reporting and providing electronic data interchange between the buyer and seller. ||


 * ==(3) Contract Administration - Output== ||
 * **(3.1) Contract Documentation :** Contract documentation includes, but is not limited to, the contract along with all supporting schedules, requested unapproved contract changes, and approved change requests.


 * (3.2) Requested Changes:** Requested changes to the project management plan and its subsidiary plans and other components, such as the project schedule and procurement management plan may result from the Contract administration process. Requested changes are processed for review and approval through the Integrated Change Control process.


 * (3.3) Recommended Corrective Actions:** A recommended corrective action is anything that needs to be done to bring the seller in compliance with the terms of the contract.


 * (3.4) Organizational Process Assets updates:**


 * (3.2) Project Management Plan updates** ||

=Contract Closure=

The Contract Closure process supports the Close Project process, since it involves verification that all work and deliverables were acceptable. The Contract Closure process also involves administrative activities, such as updating records to reflect final results and archiving such information for future use. Contract closure addresses each contract applicable to the project or a project phase. In multi-phase projects, the term of a contract may only be applicable to a given phase of the project.

Early termination of a contract is a special case of contract closure, and can result from a mutual agreement of the parties or from the default of one of the parties.

Contract Closure process is a part of "Project Closing Phase".


 * ==(1) Contract Closure - Inputs== ||
 * **(1.1) Procurement Management Plan**


 * (1.2) Contract Management Plan**


 * (1.3) Contract Documentation**


 * (1.4) Contract Closure Procedure** ||


 * ==(2) Contract Closure - Tools & Techniques== ||
 * **(2.1) Procurement Audits :**The objective of a procurement audit is to identify successes and failures that warrant recognition in the preparation or administration of other procurement contracts on the project, or on other projects within the performing organization


 * (2.2) Records Management System** ||


 * ==(3) Contract Closure - Output== ||
 * **(3.1) Closed Contracts :** The buyer, usually through its authorized contract administrator, provides the seller with formal written notice that the contract has been completed. Requirements for formal contract closure are usually defined in the terms of the contract, and would be included in the contract management plan, if one was prepared.


 * (3.2) Organizational Process Assets updates:**


 * **Contract file:** A complete set of indexed contract documentation, including the closed contract, is prepared for inclusion with the final project files.


 * **Deliverable acceptance:** The buyer, usually through its authorized contract administrator, provides the seller with formal written notice that the deliverables have been accepted or rejected.


 * **Lessons learned documentation:** Lessons learned analysis and process improvement recommendations are developed for future purchasing and acquisition planning and implementation. ||

=Last Moment Revision:=


 * **Buyer:**The acquirer of products, services, or results for an organization.

>
 * **Contract:** A contract is a mutually binding agreement that obligates the seller to provide the specified product or service or result and obligates the buyer to pay for it.
 * **Contract Administration:** The process of managing the contract and the relationship between the buyer and seller, reviewing and documenting how a seller is performing or has performed to establish required corrective actions and provide a basis for future relationships with the seller, managing contract related changes and, when appropriate, managing the contractual relationship with the outside buyer of the project.


 * **Contract Closure:** The process of completing and settling the contract, including resolution of any open items and closing each contract.


 * **Contract Management Plan:** The document that describes how a specific contract will be administered and can include items such as required documentation delivery and performance requirements.


 * **Contract Statement of Work (SOW):** A narrative description of products, services, or results to be supplied under contract.


 * **Contract Work Breakdown Structure (CWBS):** A portion of the work breakdown structure for the project developed and maintained by a seller contracting to provide a subproject or project component.


 * **Procurement Documents:** Those documents utilized in bid and proposal activities, which include buyer.s Invitation for Bid, Invitation for Negotiations, Request for Information, Request for Quotation, Request for Proposal and seller.s responses.


 * **Procurement Management Plan:** The document that describes how procurement processes from developing procurement documentation through contract closure will be managed.


 * **Request for Information:** A type of procurement document whereby the buyer requests a potential seller to provide various pieces of information related to a product or service or seller capability.


 * **Request for Proposal (RFP):** A type of procurement document used to request proposals from prospective sellers of products or services. In some application areas, it may have a narrower or more specific meaning.


 * **Request for Quotation (RFQ):** A type of procurement document used to request price quotations from prospective sellers of common or standard products or services.

>
 * **Request Seller Responses:** The process of obtaining information, quotations, bids, Glossary offers, or proposals, as appropriate.
 * **Seller:** A provider or supplier of products, services, or results to an organization.


 * **Select Sellers:** The process of reviewing offers, choosing from among potential sellers, and negotiating a written contract with a seller.


 * **Standard:** A document established by consensus and approved by a recognized body that provides, for common and repeated use, rules, guidelines or characteristics for activities or their results, aimed at the achievement of the optimum degree of order in a given context.


 * **Statement of Work (SOW):** A narrative description of products, services, or results to be supplied.


 * **War Room:** A room used for project conferences and planning, often displaying charts of cost, schedule status, and other key project data.