PMP: 11. Project Procurement Management

-  Project Procurement Management includes the processes necessary to purchase or acquire products, services, results needed from outside the project team
-  Project Procurement Management includes the management and control processes required to develop and administer agreements such as contracts, purchase orders, memoranda of agreements (MOAs), or internal service level agreements (SLAs).
-  Most project management processes, there can be significant legal obligations and penalties tied to the procurement process.
-  Project manager does not have to be expert in procurement, but he should be familiar enough to make intelligent decisions
-  Project manager is typically not authorized to sign legal agreements binding the organization
-  The Project Procurement Management processes involve agreements that describe the relationship between two parties (Buyer and Seller)
-  contract should clearly state the deliverables and results expected, including any knowledge transfer from the seller to the buyer. Anything not in the contract cannot be legally enforced
-  A purchasing contract includes terms and conditions and may incorporate other buyer specifics as to what the seller is to perform or provide. Project management team is responsible that all procurement meets the specific needs of the project
-  An agreement can be a contract, an SLA, an understanding an MOA, or a purchase order.
-  Departments that usually deals with procurements are (purchasing, contracting, procurement or acquisitions)
-  A complex project may involve managing multiple contracts simultaneously or in sequence
-  The seller may be identified as contractor, vendor, service provider, or supplier
-  The buyer may be the owner of the final product, a subcontractor, the acquiring organization, a service requestor, or the 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 itself may become a buyer of lower-tiered products, services, and materials from subcontractors and suppliers
-  In smaller companies without purchasing department that project manager has the authority to negotiate and sign directly (decentralized purchasing)
-  When the purchasing and signing contracts is performed by specific department then it is called (centralized purchasing)
-  Online tools for procurement now give the buyers a single point where procurements can be advertised and provide sellers with a single source to find procurement documents and complete them directly online
-  Building Information Model (BIM) is used in construction projects to save time and money

-  The buyer will be required to accept the risks that the contractors do not have control over, such as changing corporate policies
-  Supply chain management helps managing items in long and international projects in advance
-  Webcam can be installed on some sites so the stakeholders can view. And it helps minimizing disputes relating the work on sites
-  In some projects many sellers can submit initial work product on a paid basis before making the full commitment to project scope. Which accelerates the momentum by allowing the buyer to evaluate potential partners
-  In agile environments, specific sellers may be used to extend the team. This collaborative working relationship can lead to a shared risk procurement model where both the buyer and the seller share in the risk and rewards associated with the project.
-  In large projects a governing agreement such as Master Service Agreement (MSA) may be used for to allow changes to occur on adaptive scope without impacting the overall contract.

Plan Procurement Management (Planning Process Group)
Plan Procurement Management is the process of documenting project procurement decisions, specifying the approach and identifying potential sellers
Key benefit of this process is that it determines whether to acquire goods and services from outside the project and, if so, what to acquire as well as how and when to acquire it.
-  This process is performed once or at predefined points in the project.
-  Defining roles and responsibilities related to procurement should be done early in the Plan Procurement Management process
-  Typical steps for this process is to (Prepare procurement statement of work (SOW) or terms of reference (TOR), Prepare high cost estimate for budget, Advertise the opportunity, Identify sellers shortlist, Prepare bid documents, Prepare and submit proposal, Conduct technical evaluation, Perform cost evaluation, Select the winning proposal, and Sign contracts.
-  The requirements of the project schedule can significantly influence the strategy during the Plan Procurement Management process
-  The elements of scope in scope base line develop Statement of Work (SOW) and Terms of Reference (TOR)
-  If the project team does not have the skills to perform the procurement activities for which they are responsible, additional resources will be acquired or training will need to be provided, or both.

Plan Procurement Management Inputs:
1- Project Charter
2- Business Documents
-  Business case: procurement strategy and business case need to be aligned to ensure the business case remains valid
-  Benefits management plan: describes when specific project benefits are expected to be available, which will drive procurement dates and contract language
3- Project Management Plan
-  Includes (Scope management plan, Quality management plan, Resource management plan and Scope baseline)
4- Project Documents
-  Includes (Milestone list, Project team assignments, Requirements documentations, Requirements traceability matrix, Resource requirements, Risk register and Stakeholder register)
5- Enterprise Environmental Factors
6- Organizational Process Assets
-  Includes (Preapproves seller lists, Formal procurement policies, procedures and guidelines, Contract types and Cost-reimbursable contracts)
- All legal contractual relationships generally fall into (Fixed-price contracts and Cost-reimbursable contracts)
- Fixed Price contracts considered as Risk Transfer
- Fixed-price contracts: This category of contracts involves setting a fixed total price for a defined product to be provided. These contracts should be used when the requirements are well defined and no significant changes to the scope are expected. Types of fixed-price contract include
- Firm fixed price (FFP): The most commonly used contract type is the FFP. 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.
- Fixed price incentive fee (FPIF): This fixed-price arrangement gives the buyer and seller some flexibility in that it allows for deviation from performance, with financial incentives tied to achieving agreed-upon metrics. Typically, such financial incentives are related to cost, schedule, or technical performance of the seller. Under FPIF contracts, a price ceiling is set, and all costs above the price ceiling are the responsibility of the seller.
- Fixed price with economic price adjustments (FPEPA): This type is used whenever the seller’s performance period spans a considerable period of years, or if the payments are made in a different currency. It is a fixed-price contract, but with a special provision allowing for predefined final adjustments to the contract price due to changed conditions, such as inflation changes or cost increases (or decreases) for specific commodities.
- Cost-reimbursable contracts: This category of contract involves payments (cost reimbursements) to the seller for all legitimate actual costs incurred for completed work, plus a fee representing seller profit. This type should be used if the scope of work is expected to change significantly during the execution of the contract. Variations include
- Cost plus fixed fee (CPFF): The seller is reimbursed for all allowable costs for performing the contract work and receives a fixed-fee payment calculated as a percentage of the initial estimated project costs. Fee amounts do not change unless the scope changes
- Cost plus incentive fee (CPIF): The seller is reimbursed for all allowable costs for performing the contract work and receives a predetermined incentive fee based on achieving certain performance objectives as set forth in the contract. In CPIF contracts, if the final costs are less or greater than the original estimated costs then both the buyer and seller share costs from the departures based upon a prenegotiated cost-sharing formula, for example (80/20 split over/under target costs based on the actual performance of the seller)
- Cost plus award fee (CPAF): The seller is reimbursed for all legitimate costs, but the majority of the fee is earned based on the satisfaction of certain broad subjective performance criteria that are defined and incorporated into the contract. The determination of fee is based solely on the subjective determination of seller performance by the buyer and is generally not subject to appeals.
- Time and material contracts (T&M) (Time and Means): Hybrid type of contractual arrangement with aspects of both cost-reimbursable and fixed-price contracts. They are often used for staff augmentation, acquisition of experts, and any outside support when a precise statement of work cannot be quickly prescribed.

Plan Procurement Management Tools & Techniques:
1- Expert Judgment
2- Data Gathering
-  Market research: Includes examination of industry and specific seller capabilities. Procurement teams may leverage information gained at conferences, online reviews, and a variety of sources to identify market capabilities.
3- Data analysis
-  Make-or-buy analysis: Used to determine whether work or deliverables can best be accomplished by the project team or should be purchased from outside sources. Factors to consider in the make-or-buy decision include the organization’s current resource allocation and their skills and abilities, the need for specialized expertise, the desire to not expand permanent employment obligations, and the need for independent expertise. It also includes evaluating the risks involved with each make-or-buy decision.
Make-or-buy analysis may use payback period, return on investment (ROI), internal rate of return (IRR), discounted cash flow, net present value (NPV), benefit/cost analysis (BCA), or other techniques in order to decide whether to include something as part of the project or purchase it externally
4- Source Selection Analysis
-  It is necessary to review the prioritization of the competing demands for the project before deciding on the selection method.
-  Evaluation method in the procurement documents so bidders know how they will be evaluated. Common methods of selection include
- Least cost: Appropriate for procurements of a standard or routine nature where well-established practices and standards exist and from which a specific and well-defined outcome is expected which can be executed at different costs.
- Qualifications only: Appropriate when the time and cost of a full selection process would not make sense because the value of the procurement is relatively small. The buyer establishes a short list and selects the bidder with the best credibility, qualifications, experience, areas of specialization.
- Quality-based/highest proposal score: The selected firm is asked to submit a proposal with both technical and cost details and is then invited to negotiate the contract if the technical proposal proves acceptable. Using this method, technical proposals are first evaluated based on the quality of the technical solution offered. The seller who submitted the highest-ranked technical proposal is selected if their financial proposal can be negotiated and accepted.
- Quality and cost-based: allows cost to be included as a factor in the seller selection process. In general, when risk and/or uncertainty are greater for the project, quality should be a key element when compared to cost.
- Solo source: The buyer asks a specific seller to prepare technical and financial proposals, which are then negotiated. Since there is no competition, this method is acceptable only when properly justified and should be viewed as an exception.
- Fixed Budget: disclosing the available budget to invited sellers in the RFP and selecting the highest-ranking technical proposal within the budget. Because sellers are subject to a cost constraint, they will adapt the scope and quality of their offer to that budget. The buyer should therefore ensure that the budget is compatible with the SOW and that the seller will be able to perform the tasks within the budget. This method is appropriate only when the SOW is precisely defined, no changes are anticipated, and the budget is fixed and cannot be exceeded.
5- Meetings
-  Meetings are useful to gather more information by meeting with potential bidders

Plan Procurement Management Outputs:
1- Procurement Management Plan
-  Contains the activities to be undertaken during the procurement process. It should document whether international competitive bidding, national competitive bidding, local bidding should be done
-  If project is financed externally the procurement should be aligned with it
2- Procurement Strategy
Once the make-or-buy analysis is complete and the decision is made to acquire from outside the project, a procurement strategy should be identified. The objective of the procurement strategy is to determine the project delivery method, the type of legally binding agreement(s), and how the procurement will advance through the procurement phases.
-  Delivery methods for professional services include (buyer/services providers with no subcontractors, buyer/ services provider with subcontracting allowed, joint venture between buyer and services provider, and buyer/ services provider acts as the representative)
-  Delivery methods for industrial or commercial construction, project delivery methods include turnkey, design build (DB), design bid build (DBB), design build operate (DBO), build own operate transfer (BOOT).
-  Fixed price contracts are suitable when the type of work is predictable and the requirements are well defined and not likely to change.
-  Cost plus contracts are suitable when the work is evolving, likely to change, or not well defined
-  Incentives and awards may be used to align the objectives of buyer and seller
3- Bid Documents
-  Bid documents are used to solicit proposals from prospective sellers. Terms such as bid, tender, or quotation are generally used when the seller selection decision is based on price, while a term such as proposal is generally used when other considerations such as technical capability or technical approach are the most important.

Bidding documents include:
- Request for information (RFI): An RFI is used when more information on the goods and services to be acquired is needed from the sellers. It will typically be followed by an RFQ or RFP.
- Request for quotation (RFQ): An RFQ is commonly used when more information is needed on how vendors would satisfy the requirements and/or how much it will cost
- Request for proposal (RFP): An RFP is used when there is a problem in the project and the solution is not easy to determine. This is the most format of the “request for” documents and has strict procurement rules for content timeline and seller responses.
-  These documents include a description of the desired form of the response, the relevant procurement SOW, and any required contractual provisions
-  Procurement documents are required to be sufficiently detailed to ensure consistent, appropriate responses, but flexible enough to allow consideration of any seller suggestions for better ways to satisfy the same requirements
4- Procurement Statement of Work (SOW)
-  The statement of work (SOW) for each procurement is developed from the project scope baseline and defines only that portion of the project scope that is to be included within the related contract.
-  SOW describes the procurement item in sufficient detail to allow prospective sellers to determine if they are capable of providing the products, services or results
-  Details 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 Information included in a SOW can include specifications, quantity desired, quality levels, performance data, period
-  The SOW can be revised as required as it moves through the procurement process until incorporated into a signed agreement
-  Terms of reference (TOR) is sometimes used when contracting for services. Similar to the procurement SOW.
5- Source Selection Criteria
-  In choosing evaluation criteria, the buyer seeks to ensure that the proposal selected will offer the best quality for the services required.
-  For international projects, evaluation may include “local content” requirements
-  The specific criteria may be a numerical score, color-code, or a written description
6- Make-Or-Buy Decisions
-  A make-or-buy analysis results in a decision as to whether particular work can best be accomplished by the project team or needs to be purchased from outside sources
7- Independent Cost Estimates
-  For large procurements, the procuring organization may elect to either prepare its own independent estimate or have a cost estimate prepared by an outside professional estimator to serve as a benchmark on proposed responses
-  Significant differences in cost estimates can be an indication that the procurement SOW was deficient or ambiguous or that prospective sellers either misunderstood or failed to respond fully to the procurement SOW
8- Change Requests
9- Project Documents Updates
-  Includes (Lessons learned register, Milestone list, Requirements documentation (either technical requirements that the seller is required to satisfy or contractual requirements), Requirements traceability matrix, Risk register and Stakeholder register)
10- Organizational Process Assets Updates
-  Includes Information on qualified sellers

Conduct Procurements (Executing Process Group)
Conduct Procurements is the process of obtaining seller responses, selecting a seller, and awarding a contract
Key Benefit is that it selects a qualified seller and implements the legal agreement for delivery.
-  This process is performed periodically thought the project as needed

Conduct Procurements Inputs:
1- Project Management Plan
-  Includes (Scope management plan, Requirements management plan, Communications management plan, Risk management plan, Procurement management plan, Configuration management plan and Cost baseline)
2- Project Documents
-  Includes (Lessons learned register, Project schedule, Requirements documentation, Risk register and Stakeholder register)
3- Procurement Documentation
-  Procurement documentation provides a written record used in reaching the legal agreement, and may include older documents predating the current project. Procurement documentation can include
- Bid documents: RFI, RFP and RFQ
- Procurement statement of work (SOW): provides sellers with a clearly stated set of goals, requirements, and outcomes from which they can provide a quantifiable response.
- Independent cost estimate: Developed either internally or externally to provide a reasonable check against proposals submitted by bidders.
- Source selection criteria: How proposals will be evaluated. Sometimes to mitigate risks the buyer may sign agreements with more than one seller.
4- Seller Proposals
-  Prepared in response to a procurement document package, form the basic information that will be used by an evaluation body to select one or more successful bidders (sellers).
5- Enterprise Environmental Factors
6- Organizational Process Assets

Conduct Procurements Tools & Techniques:
1- Expert Judgment
2- Advertising
-  communicating with users or potential users of a product, service, or result. Existing lists of potential sellers can be expanded by placing advertisements in general circulation publications such as selected newspapers or in specialty trade publications.
-  Most government jurisdictions require public advertising or online posting of pending government contracts
3- Bidder Conferences
-  Bidder conferences (also called contractor conferences, vendor conferences, and pre-bid conferences) are meetings between the buyer and prospective sellers prior to proposal submittal.
-  They are used to ensure that all prospective bidders have a clear and common understanding of the procurement and no bidders receive preferential treatment
4- Data Analysis
-  Proposal Evaluation: Proposals are evaluated to ensure they are complete and respond in full to the bid documents, procurement statement of work, source selection criteria and any other documents that went out in the bid package
5- Interpersonal and Team Skills
-  Negotiation: discussion aimed at reaching an agreement. Procurement negotiation clarifies the structure, rights, and obligations of the parties and other terms of the purchases so that mutual agreement can be reached prior to signing the contract
-  The negotiation should be led by a member of the procurement team that has the authority to sign contracts, the manager and team members may be present during negotiation

Conduct Procurements Outputs:
1- Selected Sellers
-  The selected sellers are those who have been judged to be in a competitive range based on the outcome of the proposal or bid evaluation. Final approval of complex, high-value, high-risk procurements will generally require organizational senior management approval prior to award
2- Agreements
-  A contract is a mutually binding agreement that obligates the seller to provide the specified products. obligates the buyer to compensate the seller; and represents a legal relationship that is subject to remedy in the courts. The major components in an agreement will vary but includes
-  Procurement statement of work or major deliverables;
-  Schedule, milestones, or date by which a schedule is required;
-  Performance reporting;
-  Pricing and payment terms;
-  Inspection, quality, and acceptance criteria;
-  Warranty and future product support;
-  Incentives and penalties;
-  Insurance and performance bonds;
-  Subordinate subcontractor approvals;
-  General terms and conditions;
-  Change request handling; and
-  Termination clause and alternative dispute resolution mechanisms.
3- Change Requests
4- Project Management Plan Updates
-  Includes (Requirements management plan, Quality management plan, Communications management plan, Risk management plan, Procurement management plan, Scope baseline, Schedule baseline and Cost baseline.
5- Project Documents Updates
-  Includes (Lessons learned register, Requirements documentation, Requirements traceability matrix, resource calendars, Risk register and Stakeholder register)
7- Organizational Process Assets Updates
-  Includes (Listing of prospective and prequalified sellers and information on relevant experience with the sellers)

Control Procurements (Monitor & Control Process Group)
Control Procurements is the process of managing procurement relationships; monitoring contract performance, and making changes and corrections as appropriate; and closing out contracts
Key benefit is that it ensures that both the seller’s and buyer’s performance meet the project’s requirements according to the terms of the legal agreement
-  This process is performed throughout the project as needed
-  Both buyer and seller are required to ensure both parties meet their contractual obligations
-  Because of the legal aspect, many organizations treat contract administration as an organizational function that is separate from the project. While a procurement administrator may be on the project team, this individual typically reports to a supervisor from a different department
-  The quality of the controls, including the independence and credibility of procurement audits, is critical to the reliability of the procurement system
-  Control Procurements has a financial management component that involves monitoring payments to the seller.
-  A contract that requires payments linked to project output and deliverables rather than inputs such as labor hours has better controls.
-  Agreements can be amended at any time prior to contract closure by mutual consent, in accordance with the change control terms of the agreement. Such amendments are typically captured in writing.

Control Procurements Inputs:
1- Project Management Plan
-  Includes (Requirements management plan, Risk management plan, Procurement management plan, Change management plan and Schedule baseline
2- Project Documents
-  Includes (Assumption log, Lessons learned register, Milestone list, Quality Reports, Requirements documentation, Requirements traceability matrix, Risk register and Stakeholder register)
3- Agreements
4- Procurement documentation

5- Approved Change Requests
-  Approved change requests can include modifications to the terms and conditions of the contract including SOW, pricing and product description
-  All procurement-related changes are formally documented in writing and approved before being implemented through the Control Procurements process
-  Change requests may come from the seller or the buyer
6- Work Performance Data
-  Includes (Technical Performance, activities that has started/progress/completed, and costs that have been incurred or committed and also seller invoices that has been paid
7- Enterprise Environmental Factors
8- Organizational Process Assets

Control Procurements Tools & Techniques:
1- Expert Judgment
2- Claims Administration
-  Contested changes and potential constructive changes are those requested changes where the buyer and seller cannot reach an agreement on compensation for the change or cannot agree that a change has occurred which is called “claims”
-  Claims become dispute when not resolved and finally appeals
-  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
-  Negotiation should be the first step in solving the claims before using the ADR
3- Data Analysis
-  Performance Reviews: measure, compare, and analyze quality, resource, schedule and cost performance against the agreement
-  Earned Value Analysis (EVA): Schedule and cost variances along with schedule and cost performance indexes are calculated to determine the degree of variance from target
-  Trend Analysis: develop a forecast estimate at completion (EAC) for cost performance to see if performance is improving or deteriorating
4- Inspection
-  Structured review of the work being performed by the contractor involves a simple review of the deliverables or an actual physical review of the work itself.
-  On a construction/engineering/infrastructure project inspections involve walkthroughs of the site by both the buyer and the contractor to ensure a mutual understanding of the work in progress.
5- Audits
-  Structured review of the procurement process. Rights and obligations related to audits should be described in the procurement contract

Control Procurements Outputs:
1- Closed Procurements
-  The buyer, usually through its authorized procurement administrator, provides the seller with formal written notice that the contract has been completed
-  Requirements for formal procurement closure are usually defined in the terms and conditions of the contract and included in the procurement management plan
-  All deliverables should be provided on time and meet technical quality requirements
-  There should be no outstanding claims or invoices and all payments have been made
2- Work Performance Information
-  Information how seller is performing and cost incurred and accepted against SOW
3- Procurement Documentations Updates
-  Includes schedule, requested unapproved contract changes and approved changes
4- Change Requests
-  Requests but unresolved changed are identified and documented by project correspondence
5- Project Management Plan Updates
-  Includes (Risk management plan, Procurement management plan, Scheudle baseline and Cost baseline)
6- Project Document Updates
-  Includes (Lessons learned register, Resource requirements, Requirements traceability matrix, Risk register and Stakeholder register)
7- Organizational Process Assets Updates
-  Includes (Payment schedule and requests, Seller performance evaluation documentation, Prequalified seller list updates, Lessons learned repository and Procurement file)