12-pmp project procurement management pmbok v4 0

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PMP Examination Preparatory CourseTopic: Project Procurement Management

PMBOK Workshop | Financial ServicesAll work described was performed by Capgemini or a Capgemini affiliate

© 2009 Capgemini - All rights reserved 1

Procurement Management

ContractTeaming Agreements

Make or Buy Analysis

Proposals

Procurement management plan

Bidder conferences

Seller

Buyer

Hot Topics




Project procurement Management includes processes required to acquire products and services from outside the organization.

Project procurement Management processes include the following.

1. Plan Procurements

2. Conduct Procurements

3. Administer Procurements

4. Close Procurements

Project Procurement Management includes the processes to purchase or acquire products, services or results needed from outside

project team to perform the work.

Project Procurement Management includes the processes to purchase or acquire products, services or results needed from outside

project team to perform the work.




Initiating Process Group

Planning Process Group

Executing Process Group

Monitoring & Controlling

Process GroupClosing Process

GroupPlan Procurements

Conduct Procurements

Administer Procurements

Close Procurements



Buyer-seller Relationship

A formal contractual relationship is developed and exists between buyer and seller

Buyer - The acquirer of products, goods or services.

Seller - The provider or supplier of products, goods or services.

A contract represents a mutually binding agreement that obligates seller to provide products, services or results and obligate buyer to provide monetary or other valuable consideration.

The buyer-seller relationship can exist at many levels on any one project,and between organizations internal to and external to acquiring organization.

An organization can be either buyer or seller of product, service or result under a contract.

An organization can be either buyer or seller of product, service or result under a contract.



Plan Procurements

Plan Procurements is a process of documenting project purchasingdecisions, specifying the approach and identifying potential sellers.

Involves considering

Whether to acquire or not?

What to acquire?

When to acquire?

How to acquire?

How much to acquire?

Also considers

Potential Sellers

Risks involved in make-or-buy decisions.



Plan Procurements

Inputs Tools and Techniques OutputsScope Baseline

Requirements Documentation

Teaming Agreements

Risk Register

Risk-related contract decisions

Activity resource requirements

Project Schedule

Activity Cost estimates

Cost performance baseline

Enterprise environmental factors

Organizational process Assets

Make-or-buy analysis

Expert judgment

Contract types


Procurement statements of work

Make-or-buy decisions

Procurement documents

Source selection criteria

Change requests



Inputs - Plan Procurements

Scope Baseline• Scope statement

− Product scope, service description, list of deliverables, acceptance criteria.• WBS

− Relationship among all components of project and project deliverables.• WBS Dictionary

− Identifies deliverables and description of work within each WBS

Requirements Documentation• Information about Project requirements that is considered during procurement

planning. • Requirements with contractual and legal implications

Teaming Agreements• Legal contractual agreements between two or more entities.



Inputs (cont’d) - Plan Procurements

Risk Register• Contains Identified Risks, Risk owners and Risk Responses.

Risk-Related Contract decisions• Agreements including insurance, bonding, services.

Activity resource requirements• Information on specific needs i.e. people, equipment.

Project Schedule• Information on required timelines.

Activity Cost Estimates• To evaluate the rationale of the bids or proposals.

Cost Performance Baseline• Detail on the Planned budget over time.



Inputs (cont’d) - Plan Procurements

Enterprise environmental factors• Conditions of market place

• Products, services or results that are available in the market place

• Suppliers, including past performance or reputation.

• Terms and conditions

• Unique local requirement

Organizational process assets• Formal procurement Policies, Procedures, Guidelines

• Management systems

• An established multi-tier system of pre-qualified sellers based on prior experience.



Tools & Techniques - Plan Procurements

Make-or-buy analysis• Make or buy

• Purchase or rent

• Should consider Life cycle costs for the analysis

• Budget constraints influence make-or-buy decisions

Expert judgment• Expert technical judgment

• Expert purchasing judgment

• Expert legal judgment



Tools & Techniques (cont’d) - Plan Procurements

Contract types• Different types of contracts are more or less appropriate for different types of

purchases.

• The type of contract used and the specific contract terms and conditions set the degree of risk being assumed by both buyer and seller.

Types of contracts• Fixed price or lump-sum

• Cost-reimbursable

• Time and material (T & M)




Contract typesFirm Fixed price –Most commonly used contract type. A fixed total price for a well-defined product and cost not to change unless the scope of work changes. Fixed price Incentive Fee contracts – Fixed price plus financial incentives for achieving performance targets. Fixed price with Economic price adjustment contracts – used when the contract period spans for considerable years. Fixed price with adjustments due to changed conditions i.e. inflation, increase in labor costs etc. Cost Plus Fixed fee contracts – Seller reimbursed for all costs (direct & indirect) for performing the work plus fixed fee. Cost Plus incentive fee contracts - Seller reimbursed for all costs (direct & indirect) for performing the work plus incentive fee on achieving performance objectives. Cost Plus award fee contracts - Seller reimbursed for all costs (direct & indirect) for performing the work plus fee based on subjective determination of seller performance. Time and Material contracts – Hybrid type of contract with aspects of Fixed (i.e. costs not to exceed and time limits) and Cost reimbursable (value of agreement not defined).




Firm Fixed Price (FFP)

Fixed Price Incentive Fee (FPIF)

Fixed price with Economic price adjustment (FP-EPA)

Cost Plus Award Fee (CPAF)

Cost Plus Incentive Fee (CPIF)

Cost Plus Fixed Fee (CPFF)

Buyer’s risk

Seller’s risk



Outputs - Plan Procurements

Procurement management plan – Describes how the procurement processes will be managed. It includes,

Types of contracts to be used

Estimate preparation and evaluation

Standardized procurement document

Coordinating procurement with scheduling and performance reporting

Constraints and assumptions

Identifying performance bonds or insurance contracts to mitigate project risks

Format to be used for contract statement of work

Procurement metrics to be used to manage contract and evaluate sellers



Outputs (cont’d) - Plan Procurements

Procurement statement of work • Describes the procurement items in sufficient detail for prospective sellers to

determine if they are capable of providing the item

• Describes products, services or results to be supplied by seller

• Includes specifications, quantity desired, quality levels work location etc.

• Should include a description of any collateral services required for the procured item

Make-or-Buy decisions• What project products, services or results will be either acquired or will be

developed by project team

• Make-or-buy decisions document includes a short justification for decision




Procurement documents - Used to seek proposals from prospective sellers.• Bids, tender, quotation – when seller selection decision is based on price.• Proposal – When seller selection is done based on technical skill or approach

Common names for different types of procurement documents are• Invitation for bid (IFB)• Request for proposal (RFP)• Request for quotation (RFQ)• Tender notice• Invitation for negotiation• Contractor initial response

Procurement documents should include:• The relevant statement of work• Description of the desired form of the response• Required contractual provisions




Source selection criteria - Used to rate or score proposals (objective or subjective)• Understanding of the need• Overall or life-cycle cost• Technical capability• Risk• Management approach• Financial capacity• Production capacity and interest • Business size and type• References• Intellectual property rights• Propriety rights

Change requests



Questions

1. Which type of contract should be used for a well defined product?a. Unit–price contractb. Fixed-price contractc. Cost-reimbursable contract d. Partnership contract

2. All of the following are processes in project procurement management excepta. Contract terminationb. Conduct Procurementsc. Plan Procurementsd. Administer Procurements




Conduct Procurements is a process of obtaining seller responses,selecting a seller and awarding a contract.




Inputs Tools and Techniques Outputs

Project Management Plan

Procurement Documents

Source Selection Criteria

Qualified Seller List

Seller Proposals

Project Documents

Make-or-buy decisions

Teaming agreements

Organizational process Assets

Bidder conferences

Proposal evaluation techniques

Independent Estimates

Expert Judgment

Advertising

Internet Search

Procurement Negotiations

Selected sellers

Procurement contract award

Resource calendars

Change requests

Project Management plan updates

Project document updates



Inputs - Conduct Procurements

Project Management Plan• Described earlier

Procurement Documents• Described earlier

Source Selection Criteria• Described earlier

Qualified Seller List• Listing of sellers who have been pre-screened based on their qualifications and past

experience. Procurement documents are directed to only those sellers.

Make-or-buy decisions• Described earlier

Seller Proposals• Seller-prepared documents that describe the seller’s ability and willingness to provide

the requested product, services or results• It is legal and formal offer in response to a buyers’ request



Inputs (cont’d) - Conduct Procurements

Project Documents• Risk Register

• Risk-related contract decisions

Teaming agreements• Described earlier

Organizational process Assets• Listing of prospective and previously qualified sellers

• Information on relevant past experience with sellers, both good and bad.



Tools & Techniques – Conduct Procurements

Bidder’s conference• Contractor conference, vendor conference, pre-bid conference

• Meetings with prospective sellers prior to preparation of a proposal

• Ensure all prospective sellers have a clear, common understanding of the procurement

• Responses to questions may be incorporated into the procurement documents as amendments

Proposal evaluation techniques• Different techniques to rate and score proposals

Independent Estimates• Develop Independent Estimate to serve as a benchmark on proposed responses.



Tools & Techniques (cont’d) – Conduct Procurements

Expert Judgment• Procurement review by expertise from functional disciplines such as legal, financing.

Advertising• Placing advertisements in general-circulation publications, such as newspapers, or in

specialty publications, such as professional journals

Internet search• Exploring Internet/Purchasing products on the Internet depending on the Procurement

type.

Procurement Negotiations• Involves clarification and mutual agreement on the structure and requirements of the

contract, prior to the signing of the contract.

• Contract negotiations conclude with a Contract document that can be signed by both buyer and seller.



Outputs - Conduct Procurements

Selected sellers• Selected sellers are those sellers who have been judged to be in competitive range

based on outcome of proposal or bid evaluation• And who have negotiated a draft contract that will become actual contract when an

award is made.

Procurement contract award• A mutually binding agreement that obligates the seller to provide the specified product,

and obligates the buyer to pay for it. Major components in a contract document will include the following: Statement of Work, Schedule baselines, Performance reporting, Period of performance, Roles and Responsibilities, Pricing, etc.

Resource calendars• Quantity and availability of resources • Dates on which specific resource can active or idle

Change requests• Requested changes to project management plan and its subsidiary plans and other

components.



Outputs - Conduct Procurements

Project Management plan updates• Updates to Procurement management plan, Scope baseline, Cost baseline, Schedule

baseline.

Project document updates• Requirements documentation

• Requirements traceability documentation

• Risk Register



Questions

1. Recent statistics indicate that more than 10,000 airline passengers are injured each year from baggage that falls from overhead bins. You recently were assigned to manage a project to make it safer to sit on an aisle seat on planes. You performed a make or buy analysis and decided to outsource an improved bin design and manufacture. You found out that it may be time-consuming to ensure that sellers have clear and common understanding of the procurement process and of needs of your project. Which technique may help you saving time?

a. Bidder Conferences

b. Internet Search

c. Advertising

d. Relevant local associations.



Definitions

Term DefinitionRequest for Proposal (RFP)

Request for a price and a proposed method of meeting requirements

Often used when both price and technical evaluation determine winnersRequest for Quote (RFQ)

Materials or services

Price-drivenWarranty Implied Warranty. Act of sale implies:

General fitness for use

Fitness for special uses

Express Warranty

Beyond the mere act of the sale

Seller makes specific representationsArbitration Resolution of dispute outside court

Dispute referred to one or more person by whose decision they abide.



Definitions (cont’d)

Term DefinitionForce Majeure In an extraordinary event or circumstance beyond the control of the

parties prevents one or both parties from fulfilling their obligations under the contract.

Breach / Material breach

Any failure to perform that permits the other party to the contract to either compel performance, or collect damages because of the breach.

Intellectual property

Intellectual property reflects the idea that this subject matter is the product of the mind or the intellect.

Retainage Retainage is a sum withheld from the progress payments to the Contractor and later paid in accordance with the terms of the construction contract.

Termination Cancellation of an outsourcing agreement.Waiver Voluntary relinquishment or surrender of some known right or privilege

A waiver can only release negligent activity, not intentional activity

The waiver must be signed voluntarily and with the full knowledge the right being waived



Definitions (cont’d)

Term DefinitionPurchase order Form of contract that is unilateral

Used for simple procurementsLetter of intent Normally not a contract but an agreement between two parties

No legal binding

Expresses Intention



Contractual elements

What is required to make a contract?• An offer

• Acceptance

• Consideration

• Legal capacity

• Legal purpose

A contract is mutually binding legal agreement that obligates the buyer to pay the seller to provide the specified products, services or results

and obligates the buyer to pay the seller.

A contract is mutually binding legal agreement that obligates the buyer to pay the seller to provide the specified products, services or results

and obligates the buyer to pay the seller.




Process of managing procurement relationships, monitoring contract performance and making changes and corrections as needed.

Buyer and seller ensure that both meet their contractual obligations and have their legal rights protected

The legal nature of the contractual relationship makes it imperative that the project team be acutely aware of the legal implications of actions they take during administration of the contract

Payment terms should be defined within the contract and should link progress made with compensation paid

Procurement Administration process ensures that seller’s performance meets contractual requirements and that the buyer

performs according to the terms of the contract.

Procurement Administration process ensures that seller’s performance meets contractual requirements and that the buyer

performs according to the terms of the contract.





Procurement documents

Project management plan

Contract

Performance reports

Approved change requests

Work performance information

Contract change controlsystem

Procurement performance reviews

Inspections and audits

Performance reporting

Payment systems

Claims administration

Records management system

Procurement documentation

Organizational process assets (updates)

Change requests

Project management plan (updates)



Inputs – Administer Procurements

Procurement documents – discussed earlierProject Management Plan – discussed earlierContract – discussed earlierPerformance reports• Seller developed technical documentation and other deliverables information

provided in accordance with the contract terms • Seller Performance reportsApproved Change requests• Modifications to the terms of the contractWork performance information• Extent to which quality standards are met, what costs are incurred, sellers’

invoices etc. • Which deliverables have been completed and which have been not



Tools & Techniques - Administer Procurements

Contract change control system• Defines the process by which the contract may be modified. It includes: paperwork,

tracking systems, dispute-resolution procedures, approval procedures, performance reporting, payment system

Procurement performance reviews• Provides management with information about how effectively the seller is achieving the

contractual objectives

Inspection and audits• Required by buyer and supported by seller

Performance reporting• It provides management with information about how effectively seller is achieving

contractual objectives.



Tools & Techniques (cont’d) - Administer Procurements

Payment systems• Handled by the accounts payable system of the performing organization

• It includes the appropriate reviews and approvals by the project management team

Claims administration• Contested changes where buyer and seller can’t agree on compensation for the

change.

• Also called claims, disputes and appeals

• Documented, Processed, Monitored and Managed throughout the contract life cycle.

Records Management system• Manage contract documents and records by maintaining an index of all documents



Outputs - Administer Procurements

Procurement documentation• Contains schedules, requested unapproved contract changes, approved change

requests, seller developed technical documentation and work performance information

Organizational process assets (updates)• Correspondence, payment schedule and requests, seller performance evaluation

documentation

Change requests• Change requests to Project management plan, its subsidiary plan and other

components i.e. Cost baseline, Performance baseline.

Project management plan (updates)• Updates to procurement management plan and Baseline schedule.



Close Procurements

Completion and settlement of each procurement, including resolution of any open items

Involves product verification and administrative closeout

Early closure of contract is a special case of procurement closure

May result from mutual agreement of the parties or from default of one of the parties.

Procurements closure process involves verification that all work and deliverables were accepted.

Procurements closure process involves verification that all work and deliverables were accepted.



Close Procurements


Project management plan

Procurement documentation

Procurement audits

Negotiated settlements

Records management system

Closed Procurements

Organizational process assets updates



Input - Close Procurements

Project management plan• Described earlier

Procurement documentation• Described earlier



Tools & Techniques - Close Procurements

Procurement audits• Structured reviews of the procurement process, from plan procurements through

Administer procurements

• Conducted to identify successes and failures in preparation or administration of other procurement contracts

Negotiated settlements• Settlement of Claims, outstanding issues. • When settlement cannot be achieved through direct negotiation, alternative dispute

resolution may be explored.

Records Mangement system• Described earlier



Outputs - Close Procurements

Closed procurements• Buyer provides the seller with formal notice that contract has been

completed.

Organizational process assets• Updates

− Procurement file

− Deliverable acceptance

− Lessons learnt documentation



Recap

ContractTeaming Agreements

Make or Buy Analysis

Proposals


Bidder conferences

Seller

Buyer



Review Questions Time

Review Questions

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