Procurement Management is one of the key aspect of project success. As a PM you whole need a solid understanding of different contract type, how your company specific procurement process works and how does general procurement process be conducted

1. 10-Procurement Management
Project Management Training,
Qais Ur Rehman Rasooli, PMP
Project
Team
Products
Services
Results

2. Procurement Management
Project Procurement Management Includes;
• Processes necessary to purchase or acquire products
,services and result from outside the project team,
• Contract Management and Change control processes
• Controlling any contract issued by outside org acquiring
deliverables from the project team
• Administering contractual obligation placed on the project
team by the contract.
• Procurement management process includes; Plan
Procurement management, Conduct, Control, Close
Procurements

3. Agreements & Contracts
Agreements
• Documents or
communication that
outline relationship,
• Intentions of
Relationships and for the
project
• Charter, PMP,Memos of
intent, Memos of
understanding, emails,
verbal agreements
Contracts
• Form legal binding,
• Written or verbal
• Created with External
entity
• Exchange of goods or
services for
compensation
• Provides a framework
for how failure will be
handled

4. Overview of Procurement
Management Process
• Outputs of Procurement management include, Procurement
MP, Procurement SOW, Procurement Documentation, change
requests,
• Procurement process for Government and Private entities are
different,
• Procurement Departments,
• Make or buy decisions identify any procurement needs,

5. Overview of Procurement
Management Process – Select Seller
PM involves
Procurement Dep,
and provides req
information,
PM creates a plan for
procurements, describes
what work will be done,
Procurement
Dep checks for
completeness of
SOW
Sent to
Sellers
Procurement Dep adds
terms to form a formal
Procurement doc
Sellers Prepare
responses/Bidder
Conference
Select
Seller

6. Tricks to answer Procurement
questions on the exam
• Contracts require formality, in case of arbitration, mediation, or
litigation, formal written communications will be enforceable
• All product and PM requirements to be mentioned in the
contract
• If its not in the contract , it can only be done for a formal signed
change order,
• Changes to contracts must be submitted and approved in
writing
• Contracts are legal binding, seller should perform according to
the contract or else face the consequences of the breach

7. PM’s role in the Procurement
Process
• Know the procurement process, plan for it!
• Understand the contract terms and conditions, helps plan and
manage the M&C of procurements,
• Make sure the contract includes product and PM scope to
minimize misunderstandings, miscommunications,
• Identify risks, and incorporate mitigation and transfer or risks in
the contract
• Include time required to complete procurement process in
project schedule,
• Make sure all the work mentioned in the contract is done
• Work with the procurement manager to manage any changes

8. Centralized/ Decentralized Contracting
• Centralized: one Procurement
department deal with procurement
activities of several project,
• Decentralized: Full time procurement
manager assigned to each project
procurement manager reports directly to
the PM
• Form of contracting environment will
impact the procurement managers
authority and availability

9. 1. Plan Procurement Management,
2. Conduct Procurements
3. Control Procurements
4. Close Procurements

10. Plan Procurement Management
• What goods or services need to procured and how can we procure them
efficiently
• Plan Procurement management includes;
1. Performing make-or-buy analysis
2. Creating a Procurement MP,
3. Creating a Procurement SOW,
4. Selecting a the contract type,
5. Creating the procurement documents
6. Determining Source selection criteria
Inputs include; PMP, Req Documentation, Activity resources req,
EEF,OPA,Risk register, Stakeholder Reg, Any other procurement, project
schedule and initial cost estimates for work to be performed

11. Make-or-Buy Decision
• Understand the reason and justification for
the contract
• Decide to contract out the work or NOT,
• Cost involved in managing the procurement is
also part of the procurement decision,
• Buy decreases risk to the project constraints,
• Make if
If you have idle plants or resources
you want to retain control
Work involve proprietary information

12. Procurement Management Plan
• How procurement will be planned , executed and controlled?
• EEF & OPA; governing approach to procurement, current procedure
and policies,
• How to perform make-or-buy analysis
• Process of creating procurement docs and SOW,
• Terms and conditions for the contract,
• Standards for selecting the correct contract type,
• Guidelines of establishing selection criteria,
• Roles and responsibilities for the team related to procurement,
• Rules for bidder conference,
• Guidelines for resolving disputes, process of accepting deliverables
• How are payments to be made?

13. Procurement Statement of Work
• What needs to be procured? SOW to be done on procurement
• Work done on each procurement is “Procurement SOW ”
• Include all the work and activities the seller is required to
complete
• To prevent contract problems, complete procurement SOW,
• Types depend on the nature of work, industry, amount of detail;
Performance : What the final product should be able to
accomplish/perform?
Functional; End purpose or result, minimum essential
characteristics of the product
Design: What work is to be done and materials to be used?

14. Contracts & Contract Types
• Contract: Represents a mutually binding agreement.
• Select based on;
What is being purchased,
The completeness of the procurement SOW,
The allowable management time available for the seller,
Do incentives come into play,
Marketplace or economy,
Industry standard for the type of contract used
• Three broad categories;
Fixed Price (FP), Time and Material (T&M), Cost Reimbursable
(CR)

15. Fixed Price Contracts
• Used for acquiring goods, product or services with well defined
specifications or requirements,
• If cost are more than what's agreed, seller bears it,
• Seller is most concerned with procurement statement of work,
• Sellers may not have a database of past costs or buyer may not
be able to create a complete Procurement SOW, THIS AVOIDS
THE USE OF FIXED PRICE CONTRACTS,
• Types; fixed price, fixed price incentive fee, fixed price award
fee, Fixed price economic price adjustment, purchase orders,
Time and Material (per hour or per item based, Simple terms
and conditions)

16. Cost Reimbursable Contracts
• When exact SOW is uncertain
• An alternative for FP contracts
• Buyer pays the seller allowable incurred costs
• Seller to have an accounting system – traceable costs
• Buyer has most cost risk – total cost is UNKNOWN
• R&D and technology project usually use this type of contract,
• Types; Cost contract, Cost plus percentage of costs, Cost plus
fixed fee, Cost plus incentive fee, Cost plus Award fee
• Payment timing is important (as work is completed, cost is
incurred, according to payment schedule, after successful

17. Time & Material Contracts
• Buyer pay per hour or unit based,
• Used for services of undefinable LOE,
• Mix of fixed price and cost plus
• Best used for work valued small dollar amounts and short in
duration,
• Not to Exceed clause needs to be added to the contract,
• Buyer has a medium cost risk compared to CR and FP.

18. Advantages and Disadvantages of
Fixed Price Contracts

19. Advantages and Disadvantages of
T&M and CR Contracts

20. What type of contract is being used?

21. Risk with each type of contract

22. Terms to know
• Price
• Profit (fee),
• Cost
• Target Price = Target cost + Target Fee,
• Sharing Ratio, e.g. 75/25
• Ceiling Price
• Point of total Assumption (PTA);
-used in FPIF Contracts only
-Seller bears all the loss of cost overruns above this amount,
-shows mismanagement of seller if cost go beyond this

23. Procurement Documents
• Request for proposal
• Invitation for bid
• Request for quotation

24. Source Selection Criteria
• Included in the procurement documents
• Basis for the buyer to use in evaluating the bids or proposals
• When purchasing commodity, lowest price required quality,
• When buying services look for experience;
Number of years in business,
Financial stability, Understanding of need,
Technical ability,
Quality of past performance
Ability to complete work on time

25. • Change Requests;
• Nondisclosure Agreement
• Standard Contract
• Special Provisions
additions, changes ,deletions

26. Term and Conditions
• Understand the contract language so you can enforce it,
• If equipment is procured, T&C should mentioned ownership of
equipment and insurance of damages in transit,

27. Noncompetitive Procurement
Use noncompetitive procurement when;
• The project is under extreme schedule pressure,
• Seller unique in the services they provide,
• There is only one seller available who can do the job,
• Seller has patent of the item you need,
• Two types; Single source, Sole source
• Single source: Master service contract holders, previous
experience,
• Sole source; only one company available to do the type of
work you want

28. 1. Plan Procurement Management,
2. Conduct Procurements
3. Control Procurements
4. Close Procurements

29. Conduct procurements
• Get procurement documents to prospective sellers
• Answer seller’s questions,
• Having sellers submit their responses,
• Review sellers responses,
• Select seller,
• Inputs include; procurement SOW, Procurement MP, Source
selection criteria, seller proposals, OPAs
Tool & Techniques include:
• Bidder conferences, Sellers proposals evaluation, Weighting
systems, independent estimates, screening system,
presentations, negotiations (scope , schedule, price)

30. Some Negotiation Tactics
• Attacks,
• Personal insults,
• Good guy/bad guy,
• Deadline,
• Lying,
• Limited Authority,
• Missing Man
• Fair and reasonable,
• Delay,
• Extreme demands,
• Withdrawal and Fait Accompli

31. Output Conduct procurements
• Selected sellers
• Agreements
• Resource Calendars
• Change requests
• Project management plan updates,
• Project document updates

32. 1. Plan Procurement Management,
2. Conduct Procurements
3. Control Procurements
4. Close Procurements

33. Control Procurements
• Manage procurement relationships,
• Monitor contract performance
• Make changes and corrections to contracts as appropriate
• Protect legal rights
• Make sure payments are good compared to work completed
• PM must know what kind of problems to watch for in different kinds
of contracts,
• All work and legal requirement in the contract is to be completed
• PM must uphold all part of the contract not only the scope
• Capture necessary details , may be used for termination of contract
• Amendment – can be made prior to contract closure by mutual
consent

34. Control Procurements - Actions
• Review invoices for accuracy, timeliness
• Authorize payment/Request of further information on disputed
areas,
• Document all seller interactions /Communications
• Interpret contract
• Make sure authorized people communicate with sellers
• Hold procurement performance review meetings
• Understand legal implications of action taken,
• Issue/Review Claims,
• Coordinate sellers work with the overall project work,
• Manage interface among all sellers on the project

35. Control Procurements – Actions by
Contract type
Fixed Price Contract
• Scope Cuts
• Quality Cuts,
• Over price and
unnecessary
change orders,
• Scope
misunderstanding
or contract
misinterpretation
Time and Material
• Day to day
direction
• Get solid
deliverables
• Watch the project
duration,
• Makes sure
hour/work ration
make sense,
• switching a
contract type is
realistic?
Cost Reimbursable
• Audit every invoice,
• Makes sure cost
are chargeable,
• Check efficiency of
sellers
performance
• Watch for resource
shifts
• Re-estimate cost of
the project

36. Control Procurements – Tools and
techniques
• Contract Change Control system
• Procurement Performance Reviews
• Inspections and Audits
• Performance Reporting
• Payment Systems
• Claims administration,
• Records management system

37. Control Procurements – Outputs
• Work Performance Information
• Change Requests
• PMP Updates
• Project document updates
• OPA Updates

38. Contract Interpretation
• What does the
contract really say
and/or mean?
• Who is responsible for
what part of the
procurement SOW?
• Contract supersedes
any memos ,
conversations or
discussions before the
contract is signed
What takes Precedence
or
Contract Language A memo drafted by one of the parties and
expected to be signed after the contract
Contract Language A memo signed by both parties before the
contract is signed that describes was agreed
during negotiations
Common definition Intended meaning ( without supplying a
definition)
Common use of Term Industry use of Term
Typed over wording in
the contract
A hand written comment on the contract that is
initialed
Words Numbers
Contract Term and
Conditions
Procurement statement of work

39. 1. Plan Procurement Management,
2. Conduct Procurements
3. Control Procurements
4. Close Procurements

40. Close Procurements
• Close project procurement if the procurement objectives are
met,
• Close procurement if the procurement is terminated (T4C,T4D),
• Helps make sure all responsibilities for the company regarding
procurement are taken care of,
• Inputs are PMP, Procurement Documents

41. Close Procurements - Tools & Techniques
• Procurement Audits: Structured re-visit of the procurement
process and identify any lessons learned,
• Records Management System:
- Record every correspondence with the
client in a structured time phased fashion
Emails, phone calls, meeting minutes,
claims, Contract versions/Amendments,
• Negotiations:
Negotiate in Person,
Alternative Dispute resolution (mediation/Arbitration)
Litigation in Courts (least desirable)

42. Close Procurements - Output
• Closed procurements
-Get formal acceptance letter
-A written notice of project completion/termination
• Procurement file
• Final Procurement Performance Report
• Updates to OPA
– Record lesson learned
- Store Acceptance letter

43. The Active PMP Learner
Find the difference between Solicited and non-
solicited request for proposals.

44. PM Quote of the day
It takes me a long time to make a big purchase
~ Jessica Chastain