Project Procurement

Management
.
Project Procurement Management

Project Procurement Management includes

the processes to purchase or acquire the
products or services needed from outside
the project team to perform the work.
 Project Procurement

Project procurement is one of the most

important task at the implementation stage
of a project;

Itinvolves hiring of staff, procurement of

equipments & goods, awarding of
consultancies/contract etc. under a project.
 Project Procurement Management

Project managers role in procurement

To know the procurement process;
To understand contract terms and
conditions;
To make sure the contract contains all
project management requirements, such as
attendance at meetings, reports, actions
and communications deemed necessary.
 Project Procurement Management

To identify risks and incorporate mitigation

To fit the schedule for procurement into the
project schedule
To work with the contract manager to
manage changes to the contract
Centralized or Decentralized Contracting

Centralized where one person is responsible

for carrying out contracts on more than one
projects.

Whereas in decentralized system one person

is assigned as a contract manager to each
project.
 Centralized Contracting

The outcomes of centralized contracting

are,
Increased expertise in contracting;
A full time centre for contracting with
employees working in there as a career;
Continuous improvement;
Standardized company practices;
One person might be over burdened.
 Decentralized Contracting

Outcomes of decentralized contracting are,

More loyalty and time for the project;
More focused;
Little standardization of contracting
practices;
Not usually treated as a career.
 The Procurement Management
Process
This process passes through six logical stages in a
project.

Plan Purchases and Acquisitions:

Determining what to purchase or acquire and
determining when and how.

Plan Contracting:
Documenting products, services and results
requirements and identifying potential sellers.

Request Seller Responses:

Obtaining information, quotations, bids, offers or
proposals.
 The Procurement Management
Process
Select Sellers:
Reviewing offers, choosing among potential
sellers and negotiating a written contract with
seller.

Contract Administration:
Managing the contract and relationship between
the buyer & seller.

Contract Closure:
Completing and settling the contract.
 Inputs to the Procurement Process

Enterprise environmental factors, market conditions

etc.
Organizations internal strengths and weaknesses,
lessons learned, standard contracting procedures,
etc.
Project Scope Statement.
Project WBS
Project Schedule
Cost Estimates
 Plan Purchases and Acquisitions

Make or Buy Analysis:

The performing organization can make all it
needs, buy all it needs or any range of
solutions in between.
 Types of Contracts

Following are the main types of contracts:

CR (Cost Reimbursable)
FP (Fixed Price)
T&M (Time and Material)
 Cost Reimbursable Contracts

The sellers costs are reimbursed;

Plus an additional amount;
Buyer bears the risk here;
Total costs are unknown;
Very common in cases where buyer can
describe what is needed but dont know how
this will be done;
Common in case of IT and R&D projects
 Types of CR Contracts

Cost Plus Fee (CPF)/Cost Plus Percentage of

Cost (CPPC):
The buyer pay for all costs;
Plus a percentage of costs as a fee;
Sellers are not motivated to control costs
Example
Contract = Cost plus 10% of cost as fee
 Types of CR contracts
Cost Plus Fixed Fee (CPFF):

Buyer pays all costs;

But fee or profit is fixed;
Sellers has no incentive in increased costs
here

Example:
Contract = Cost plus a fee of Rs. 100,000/-
 Types of CR contracts

Cost Plus Incentive & Fee (CPIF):

Just like other two except
That the sellers is given an incentive for
beating performance objectives
The amount and criteria is fixed in advance

Example
Contract = Costs + Fee + Incentive (Rs.
50,000/-)
 Fixed Price Contract

A very common type of contract throughout the

world;
One price is agreed upon for doing the entire
work
The seller bears the risk of costs
Most appropriate when the buyer can
completely describe the contract statement of
work
Example:
Contract = Rs. 1000,000/-
 Types of FP contracts

Fixed Price Plus Incentive Fee (FPIF):

Contains incentives for beating performance
objectives
Example
Contract = Rs 1000,000/- plus for every
week early the contract is finished an
additional Rs. 50,000/- is paid to the seller
 Types of FP Contracts

Fixed Price Plus Escalation Per Annum

(FPEPA);
It allows for price increases for some items
where prices are more volatile;
The projects are for multiple years;
Example
Contract = Rs.1000,000/- plus a price
increase is allowed in year two and further
to account for increases in specific items
 T & M Contracts/ Unit Price

They are usually for small amounts

The contract is priced on per hour or per
item basis
Has elements of FP and CR contracts
Example
Contract = Rs. 1500/- per hour plus
expenses such as travelling or materials at
cost
 Plan Contracting

Thisprocess consists of putting together the

procurement documents that will be sent to
potential sellers and has three objectives,

Buyers needs
How to respond
Criteria for selection
 Plan Contracting

The procurement documents also known as

bid documents may take any of the following
three forms;
Request for Proposal (RFP): Requests a price,
but also a detailed proposal on how things
will be done, who will do it, resumes,
experience etc.
Invitation for Bids (IFB): Requests one price
to do all the work.
Request for Quotations (RFQ): Requests a
price quote per item, hour, foot etc.
 Plan Contracting
Procurement documents may include the
following,
Background information;
Guidelines & procedures for replying;
Form of response required;
Evaluation criteria;
Contract SoW;
Terms and conditions etc;
Non-disclosure Agreement;
Standard Contract;
Special Provision Contracts
Letter of intent
Request Bidders/Sellers Responses

This process consists of getting the

procurement documents into the hands of
sellers, answering their questions and the
sellers preparing proposals, and includes
Bidder conferences
Advertising
Pre-qualified bidders/sellers list
 Bidders/Sellers Responses

Proposal or bid
- a Proposal is usually a response to a RFP;
- a Price Quote is usually a response to a
RFQ;
- a Bid is usually a response to an IFB.
 Select Bidders/Sellers

The sellers proposals may be reviewed,

compared, and selected by any one or
combination of the following methods,
Weighting system;
Independent estimates;
Past performance history;
Presentations and screening system.
 Evaluation/Selection Criteria

Evaluation criteria are developed and used to rate

or score proposals;
Evaluation criteria are often included as part of the
procurement documents;
Evaluation criteria can be limited to purchase price
if the procurement item is readily available from a
number of acceptable sellers. Purchase price in this
context includes both the cost of the item and
ancillary expenses such as delivery.
 Evaluation/Selection Criteria

Selection criteria can be identified and documented

to support an assessment for more complex product
or services
Understanding of Need.
How well does the sellers proposal address the
contract statement of work?
Technical Capability.
Does the seller have, or can the seller be
reasonably expected to acquire, the technical
skills and knowledge needed?
 Evaluation/Selection Criteria
Management Approach.
Does the seller have, or can the seller be reasonably
expected to develop, management processes and
procedures to ensure a successful project?
Financial Capacity.
Does the seller have, or can the seller reasonably be
expected to obtain, the necessary financial
resources?
Business Size and Type:
Does the sellers enterprise meet a specific type or
size of business.
References.
Can the seller provide references from prior
customers verifying the sellers work experience and
compliance with contractual requirements?
 Contract Administration

Consists of assuring that the performance of

both parties to the contract meets
contractual requirements
Contains conflict management
Contract change control system
 Contract Closure

Contractclosure is done when;

the contract ends
a contract is terminated before the work
is completed