PMP 12: Project Procurement Management
• Includes the contract management and change control processes required to develop and administer contracts or purchase orders issued by authorized project team members.
• 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.
• Involve contracts that are legal documents between a buyer and a seller.
• It is the project management team’s responsibility to make certain that all procurements meet the specific needs of the project while adhering to organizational procurement policies.
• The project management team may seek support early from specialists in contracting, purchasing, law, and technical disciplines. Such involvement can be mandated by an organization’s policies.
• an understanding,
• a subcontract, or
• a purchase order.
• 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 is to ensure that the contract language describes the products, services, or results that will satisfy the identified project need.
• 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 procurements, some identifiable project risks can be avoided, mitigated, or transferred to a seller.
• Entering into a contract for products or services is one method of allocating the responsibility for managing or sharing 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.
• This chapter assumes that the buyer of items for the project is assigned to the project team and that the sellers are organizationally external to the project team.
• It also assumes that a formal contractual relationship will be developed and exist between the buyer and the seller.
• However, most of the discussion in this chapter is equally applicable to non-contractual intradivisional work, entered into with other units of the project team’s organization.
• service provider, or
• prime contractor,
• acquiring organization,
• governmental agency,
• service requestor, or
• The seller will typically manage the work as a project if the acquisition is not just for shelf material, goods, or common products. In such cases:
o The buyer becomes the customer, and is thus a key project stakeholder for the seller.
o The seller’s project management team is concerned with all the processes of project management, not just with those of this Knowledge Area.
o 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).
12.2 Conduct Procurements
12.3 Administer Procurements
12.4 Close Procurements
• Involves determining whether to acquire outside support and, if so what to acquire, how to acquire it, how much is needed, and when to acquire it.
• When the project obtains products, services, and results required for project performance from outside the performing organization, the processes from Plan
• Procurements through Close Procurements are performed for each item to be acquired.
• Includes consideration of potential sellers, particularly if the buyer wishes to exercise some degree of influence or control over acquisition decisions.
• Consideration should also be given to who is responsible for obtaining or holding any relevant permits and professional licenses that may be required by legislation, regulation, or organizational policy in executing the project.
• The requirements of the project schedule can significantly influence the strategy during the Plan Procurements process.
• Decisions made in developing the procurement management plan can also influence the project schedule and are integrated with Develop Schedule, Estimate Activity Resources, and make-or-buy decisions
• Includes consideration of the risks involved with each make-or-buy decision.
• Includes reviewing the type of contract planned to be used with respect to mitigating risks, sometimes transferring risks to the seller
2. Requirements Documentation
3. Teaming Agreements
4. Risk Register
5. Risk-Related Contract Decisions
6. Activity Resource Requirements
7. Project Schedule
8. Acitivity Cost Esimtates
9. Cost Performance Baseline
10. Enterprise Environmental Factors
11. Organizational Process Assets
• Scope Statement
• WBS Dictionary
• Requirements with contractual and legal implications that may include health, safety, security, performance, environmental, insurance, intellectual property rights, equal employment opportunity, licenses, and permits—all of which are considered when planning for procurements
• Whenever the new business opportunity ends, the teaming agreement also ends.
• Whenever a teaming agreement is in effect, the planning process for the project is significantly impacted.
• Thus whenever a teaming agreement is in place on a project, the roles of buyer and seller are predetermined, and such issues as scope of work, competition requirements, and other critical issues are generally predefined
• Products, services, and results that are available in the marketplace;
• Suppliers, including past performance or reputation;
• Typical terms and conditions for products, services, and results or for the specific industry; and
• Unique local requirements
• Management systems that are considered in developing the procurement management plan and selecting the contract types to be used.
• An established multi-tier supplier system of pre-qualified sellers based on prior experience
2. Expert Judgement
3. Contract Types
• Budget constraints may influence make-or-buy decisions.
• If a buy decision is to be made, then a further decision of whether to purchase or lease is also made.
• A make-or-buy analysis should consider all related costs; both direct costs as well as indirect support costs.
• For example, the buy-side of the analysis includes both the actual out-of-pocket costs to purchase the product, as well as the indirect costs of supporting the purchasing process and purchased item
• Expert purchasing judgment can also be used to develop or modify the criteria that will be used to evaluate seller proposals.
• Expert legal judgment may involve the services of legal staff to assist with unique procurement issues, terms, and conditions.
• Such judgment, including business and technical expertise, can be applied to both the technical details of the acquired products, services, or results and to various aspects of the procurement management processes
• If a contract type other than fixed-price is intended, it is incumbent on the project team to justify its use.
• The type of contract to be used and the specific contract terms and conditions fix the degree of risk being assumed by the buyer and seller.
• All legal contractual relationships generally fall into one of two broad families, either fixed-price or cost reimbursable. Also, there is a third hybrid-type commonly in use called the time and materials contract.
• The more popular of the contract types in use are discussed below as discrete types, but in practice it is not unusual to combine one or more types into a single procurement
• Cost-reimbursable contracts
• Time and material contracts (T&M)
• 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 must precisely specify the product or services being procured.
• Changes in scope can be accommodated, but generally at an increase in contract price
• Fixed Price Incentive Fee Contracts (FPIF)
• Fixed Price with Economic Project Adjustment Contracts (FP-EPA)
• 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 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
• Performance targets are established at the outset, and the final contract price is determined after completion of all work based on the seller’s performance.
• The EPA clause must 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 Plus Incentive Fee Contracts (CPIF)
• Cost Plus Award Fee Contracts (CPAF)
• A cost-reimbursable contract gives the project flexibility to redirect a seller whenever the scope of work cannot be precisely defined at the start and needs to be altered, or when high risks may exist in the effort
• Fee amounts do not change unless the project scope changes
• 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. Thus, T&M contracts can increase in contract value as if they were cost-reimbursable contracts.
• Many organizations require not-to-exceed values and time limits placed in all T&M contracts to prevent unlimited cost growth.
• Conversely, T&M contracts can also resemble fixed unit price arrangements when certain parameters are specified in the contract.
• Unit labor or material rates can be preset by the buyer and seller, including seller profit, when both parties agree on the values for specific resource categories, such as senior engineers at specified rates per hour, or categories of materials at specified rates per unit
2. Procurement Statement of Work
3. Make-or-Buy Decisions
4. Procurement Documents
5. Source Selection Criteria
6. Change Requests
• Risk management issues;
• Whether independent estimates will be used and if they are needed as evaluation criteria;
• Those actions the project management team can take unilaterally, if the performing organization has a prescribed procurement, contracting, or purchasing department;
• Standardized procurement documents, if they are needed;
• Managing multiple suppliers;
• Coordinating procurement with other project aspects, such as scheduling and performance reporting;
• Any constraints and assumptions that could affect planned procurements;
• Handling the required lead times to purchase items from sellers and coordinating them with the project schedule development;
• Handling the make-or-buy decisions and linking them into the Estimate Activity Resource and Develop Schedule processes;
• Setting the scheduled dates in each contract for the contract deliverables and coordinating with the schedule development and control processes;
• Identifying requirements for performance bonds or insurance contracts to mitigate some forms of project risk;
• Establishing the direction to be provided to the sellers on developing and maintaining a work breakdown structure (WBS);
• Establishing the form and format to be used for the procurement/contract statements of work;
• Identifying prequalified sellers, if any, to be used; and Procurement metrics to be used to manage contracts and evaluate sellers
• Sufficient detail can vary based on the nature of the item, the needs of the buyer, or the expected contract form.
• Information included in a SOW can include specifications, quantity desired, quality levels, performance data, period of performance, work location, and other requirements.
• The procurement SOW is written to be clear, complete, and concise.
• It includes a description of any collateral services required, such as performance reporting or post-project operational support for the procured item.
• In some application areas, there are specific content and format requirements for a procurement SOW. Each individual procurement item requires a SOW. However, multiple products or services can be grouped as one procurement item within a single SOW.
• The procurement SOW can be revised and refined as required as it moves through the procurement process until incorporated into a signed contract award
• The make-or-buy decisions document can be as simple as a listing that includes a short justification for the decisions.
• These decisions can be altered as subsequent procurement activities indicate a requirement for a different approach
• Terms such as bid, tender, or quotation are generally used when the seller selection decision will be based on price (as when buying commercial or standard items), while a term such as proposal is generally used when other considerations, such as technical capability or technical approach are paramount.
• Specific procurement terminology used may vary by industry and location of the procurement.
• The buyer structures procurement documents to facilitate an accurate and complete response from each prospective seller and to facilitate easy evaluation of the responses.
• These documents include a description of the desired form of the response, the relevant procurement statement of work (SOW) and any required contractual provisions.
• With government contracting, some or all of the content and structure of procurement documents can be defined by regulation.
• The complexity and level of detail of the procurement documents should be consistent with the value of, and risks associated with, the planned procurement.
• Procurement documents must be sufficient to ensure consistent, appropriate responses, but flexible enough to allow consideration of any seller suggestions for better ways to satisfy the same requirements.
• Issuing a procurement request to potential sellers to submit a proposal or bid is normally done in accordance with the policies of the buyer’s organization, which can include publication of the request in public newspapers, in trade journals, in public registries, or on the internet.
• invitation for bid (IFB),
• request for proposal (RFP),
• request for quotation (RFQ),
• tender notice,
• invitation for negotiation, and
• invitation for seller’s initial response.
• Overall or life-cycle cost.
• Technical capability.
• Management approach.
• Technical approach.
• Financial capacity.
• Production capacity and interest.
• Business size and type.
• Past performance of sellers.
• Intellectual property rights.
• Proprietary rights.
• Are processed for review and disposition through the Perform Integrated Change Control process
• On major procurement items, the overall process of requesting responses from sellers and evaluating those responses can be repeated.
• A short list of qualified sellers can be established based on a preliminary proposal.
• A more detailed evaluation can then be conducted based on a more specific and comprehensive requirements document requested from the sellers on the short list.
• In addition, tools and techniques described here can be used alone or in combination to select sellers
2. Source Selection Criterias
3. Qualified Seller List
4. Seller Proposals
5. Project Documents
6. Make-or-Buy Decisions
7. Teaming Agreements
8. Organizational Process Assets
2. Proposal Evaluation Techniques
3. Independent Estimates
4. Expert Judgement
6. Internet Search
7. Procurement Negotiations
2. Procurement contact award
3. Resource calendars
4. Change requests
5. Project management plan updates
6. Project document updates
• Risk-related contract decisions
• In some cases the seller may already be working under some form of interim contract funded by the buyer or jointly by both parties.
• The effort of the buyer and seller in this process is to collectively prepare a procurement statement of work that will satisfy the requirements of the project.
• The parties will then negotiate a final contract for award
• Information on relevant past experience with sellers, both good and bad
• They are used to ensure that all prospective sellers have a clear and common understanding of the procurement (both technical and contractual requirements), and that no bidders receive preferential treatment.
• Responses to questions can be incorporated into the procurement documents as amendments.
• To be fair, buyers must take great care to ensure that all prospective sellers hear every question from any individual prospective seller and every answer from the buyer
• The evaluation committee will make their selection for approval by management prior to the award
• 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
• The evaluation of proposals may be accomplished by a multi-discipline review team with expertise in each of the areas covered by the procurement documents and proposed contract.
• This can include expertise from functional disciplines such as contracting, legal, finance, accounting, engineering, design, research, development, sales, and manufacturing
• Some government jurisdictions require public advertising of certain types of procurement items, and most government jurisdictions require public advertising of pending government contracts
• While many commodities, components, and off-the-shelf-items can be quickly located and secured at a fixed-price on the internet, the high-risk, highly complex, procurement effort that must be closely monitored cannot be obtained by this means
• Negotiations conclude with a contract document that can be executed by both buyer and seller.
• For complex procurement items, contract negotiation can be an independent process with inputs (e.g., issues or an open items listing) and outputs (e.g., documented decisions) of its own.
• For simple procurement items, the terms and conditions of the contract can be previously set and non-negotiable, and only need to be accepted by the seller
• The project manager may not be the lead negotiator on procurements.
• The project manager and other members of the project management team may be present during negotiations to provide assistance, and if needed to add clarification of the project’s technical, quality, and management requirements
• Final approval of all complex, high-value, highrisk procurements will generally require organizational senior management approval prior to award
• The contract can be in the form of simple purchase order or a complex document. Regardless of the document’s complexity, a contract is a mutually binding legal agreement that obligates the seller to provide the specified products, services, or results, and obligates the buyer to compensate the seller.
• A contract is a legal relationship subject to remedy in the courts
• Schedule baseline,
• Performance reporting,
• Period of performance,
• Roles and responsibilities,
• Seller’s place of performance,
• Payment terms,
• Place of delivery,
• Inspection and acceptance criteria,
• Product support,
• Limitation of liability,
• Fees and retainage,
• Insurance and performance bonds,
• Subordinate subcontractor approvals,
• Change request handling, and
• Termination and alternative dispute resolution (ADR) mechanisms. The ADR method can be decided in advance as a part of the procurement award
• Scope baseline,
• Schedule baseline, and
• Procurement management plan
• Requirements traceability documentation, and
• Risk register
• Each must ensure that both parties meet their contractual obligations and that their own legal rights are protected.
• The Administer Procurements process ensures that the seller’s performance meets procurement requirements and that the buyer performs according to the terms of the legal contract.
• The legal nature of the contractual relationship makes it imperative that the project management team is aware of the legal implications of actions taken when administering any procurement.
• On larger projects with multiple providers, a key aspect of contract administration is managing interfaces among the various providers.
• Due to varying organizational structures, many organizations treat contract administration as an administrative function separate from the project organization.
• While a procurement administrator may be on the project team, this individual typically reports to a supervisor from a different department.
• This is usually true if the performing organization is also the seller of the project to an external customer.
• Administer Procurements includes application of the appropriate project management processes to the contractual relationship(s) and integration of the outputs from these processes into the overall management of the project.
• This integration will often occur at multiple levels when there are multiple sellers and multiple products, services, or results involved.
• Report Performance to monitor contract scope, cost, schedule, and technical performance;
• Perform Quality Control to inspect and verify the adequacy of the seller’s product;
• Perform Integrated Change Control to assure that changes are properly approved and that all those with a need to know are aware of such changes; and
• Monitor and Control Risks to ensure that risks are mitigated
• This ensures that payment terms defined within the contract are met and that seller compensation is linked to seller progress, as defined in the contract.
• One of the principal concerns when making payments to suppliers is that there is a close relationship of payments made to the work accomplished.
• The Administer 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.
• Similar evaluations are also carried out when it is necessary to confirm that a seller is not meeting the seller’s contractual obligations and when the buyer contemplates corrective actions.
• Administer Procurements includes managing any early terminations of the contracted work (for cause, convenience, or default) in accordance with the termination clause of the contract.
• Contracts can be amended at any time prior to contract closure by mutual consent, in accordance with the change control terms of the contract. Such amendments may not always be equally beneficial to both the seller and the buyer
2. Project Management Plan
4. Performance Reports
5. Approved Change Requests
6. Work Performance Information
2. Procurement Performance Reviews
3. Inspections and Audits
4. Performance Reporting
5. Payment Systems
6. Claims Administration
7. Records Management System
2. Organizational Process Assets Updates
3. Change Requests
4. Project Management Plan Updates
• Seller-developed technical documentation and other deliverable information provided in accordance with the terms of the contract, and
• Seller performance reports indicate which deliverables have been completed and which have not
• All changes are formally documented in writing and approved before being implemented
• It includes the paperwork, tracking systems, dispute resolution procedures, and approval levels necessary for authorizing changes.
• The contract change control system is integrated with the integrated change control system
• The objective of a performance review is to identify performance successes or failures, progress with respect to the procurement statement of work, and contract non-compliance, which allow the buyer to quantify the seller’s demonstrated ability or inability to perform work.
• Such reviews may take place as a part of project status reviews which would include key suppliers
• If authorized by contract, some inspection and audit teams can include buyer procurement personnel
• All payments should be made and documented in strict accordance with the terms of the contract
• 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.
• If the parties themselves do not resolve a claim, it may have to be handled in accordance with alternative dispute resolution (ADR) typically following procedures established in the contract.
• Settlement of all claims and disputes through negotiation is the preferred method
• The system contains a retrievable archive of contract documents and correspondence
• Procurement documentation also includes any seller-developed technical documentation and other work performance information such as deliverables, seller performance reports, warranties, financial documents including invoices and payment records, and the results of contract-related inspections
• Payment schedules and requests
• Seller performance evaluation documentation
• This can include the reported results of buyer audits and inspections that indicate weaknesses the seller needs to correct.
• In addition to specific contract requirements for documentation, a complete and accurate written record of all written and oral contract communications, as well as actions taken and decisions made, are maintained by both parties
• Such performance evaluations document the seller’s ability to continue to perform work on the current contract, indicate if the seller can be allowed to perform work on future projects, or rate how well the seller is performing the project work.
• These documents can form the basis for early termination of the seller’s contract or determine how contract penalties, fees, or incentives are administered.
• The results of these performance evaluations can also be included in the appropriate qualified seller lists
• Change requests are processed for review and approval through the Perform Integrated Change Control process
• Requested but unresolved changes can include direction provided by the buyer, or actions taken by the seller, that the other party considers a constructive change to the contract.
• Since any of these constructive changes may be disputed by one party and can lead to a claim against the other party, such changes are uniquely identified and documented by project correspondence
• Baseline Schedule
• Involves administrative activities such as finalizing open claims, updating records to reflect final results and archiving such information for future use.
• Close Procurements 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.
• In these cases, the Close Procurements process closes the procurement(s) applicable to that phase of the project.
• Unresolved claims may be subject to litigation after closure.
• The contract terms and conditions can prescribe specific procedures for contract closure.
• Early termination of a contract is a special case of procurement closure that can result from a mutual agreement of both parties, from the default of one party, or for convenience of the buyer if provided for in the contract.
• The rights and responsibilities of the parties in the event of an early termination are contained in a terminations clause of the contract. Based upon those procurement terms and conditions, the buyer may have the right to terminate the whole contract or a portion of the contract, at any time for cause or convenience.
• However, based upon those contract terms and conditions, the buyer may have to compensate the seller for seller’s preparations and for any completed and accepted work related to the terminated part of the contract
2. Procurement Documentation
2. Negotiated Settlements
3. Records Management System
2. Organizational Process Assets
• This information can be used for lessons learned information and as a basis for evaluating contractors for future contracts
• Whenever settlement cannot be achieved through direct negotiation, some form of alternative dispute resolution (ADR) including mediation or arbitration may be explored.
• When all else fails, litigation in the courts is the least desirable option
• Deliverable Acceptance
• Lessons Learned Documentation
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