Project Procurement Management

Presented by Zia ur Rehman

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Procurement ManagementProcurement Management - involves managing the process of acquiring outside project resources to produce project deliverables. Procurement Planning – Procurement Planning – the determination of what to

procure, when and how

Definitions

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Definitions Procurement ManagementProcurement Management - involves managing the

process of acquiring outside project resources to produce project deliverables.

Procurement Planning – Procurement Planning – the determination of what to procure, when and how

SolicitationSolicitation - the process of obtaining quotes, bids, or proposals

SelectionSelection - the process of singling out from a number or group according to fitness or preference

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PROJECT PROCUREMENT MANAGEMENT Project procurement management involves acquiring

goods and services for a project from outside the performing organization.

In Project Procurement Management the PMI(Project Management Institute’s) along with thousands of project managers worldwide, have identified six processes for managing procurements within projects:

1. Plan Purchases and Acquisition

2. Plan Contracting

3. Request Seller Responses

4. Select Seller

5. Contract Administration

6. Contract Closure

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Learning Objectives Understand the importance of project procurement

management.

Discuss what is involved in planning contracting, including the creation of various procurement documents and evaluation criteria for sellers.

Describe the seller selection process and recognize different approaches for evaluating proposals or selecting suppliers.

Describe the contract closure process.

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Importance of Project Procurement Management

Procurement means acquiring goods and/or services from an outside source.

Experts predict that global spending on computer software and services will continue to grow.

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Why Outsource? To reduce both fixed and recurrent costs.

To access skills and technologies.

To provide flexibility. To increase accountability. (responsible)

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1)Planning Purchases and Acquisitions

Step 1 – Confirm the project objective

Step 2 – Statement of Work

Step 3 – Identify resources

Step 4 – Conduct a market analysis

Step 5 – Determine project constraints

Step 6 – Select contract type

Step 7 – Prepare a Procurement Management Plan

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2) Planning ContractingStep 1 – Review project constraints

Step 2 – Review forms, templates, policies

Step 3 – Develop a Product or Service Procurement Document

Step 4 – Develop Evaluation Criteria

Step 5 – Make necessary changes

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2) Planning Contracting Cont…

Describing requirements for the products or services desired from the procurement and identifying potential sources or sellers (contractors, suppliers, or providers who provide goods and services to other organizations).

Documentation: Request for Proposals: Used to solicit proposals from prospective

sellers. A proposal is a document prepared by a seller when there are

different approaches for meeting buyer needs. Requests for Quotes: Used to solicit quotes or bids from

prospective suppliers. A bid, also called a tender or quote (short for quotation), is a

document prepared by sellers providing pricing for standard items that have been clearly defined by the buyer.

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Contracts A contract is a mutually binding agreement that

obligates the seller to provide the specified products or services and obligates the buyer to pay for them.

Contracts can clarify responsibilities and sharpen focus on key deliverables of a project.

Because contracts are legally binding, there is more responsibility for delivering the work as stated in the contract.

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Types of Contracts Different types of contracts can be used in different

situations: Fixed price or lump sum contracts: Involve a fixed total price

for a well-defined product or service. Cost reimbursable/ refundable contracts: Involve payment to the

seller for direct and indirect costs. Or Cost-reimbursement contracts usually include an estimate of project cost, a provision for reimbursing the seller’s expenses, a provision for paying a fee as profit, and a limitation on the buyer’s cost liability.

Time and material contracts: Hybrid of both fixed price and cost reimbursable contracts, often used by consultants.

Unit price contracts: Require the buyer to pay the seller a predetermined amount per unit of service.

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3) Requesting Seller Responses

Step 1 – Solicit service or product

Step 2 – Pre-sales Meeting

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3) Requesting Seller Responses Cont…

Obtaining information, quotes, bids, offers, or proposals from sellers, as appropriate.

Deciding whom to ask to do the work, sending appropriate documentation to potential sellers, and obtaining proposals or bids.

A bidders’ conference can help clarify the buyer’s expectations.

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4) Selecting Sellers

Also called source selection.

Step 1 – Annotate seller responses

Step 2 – Rank sellers and evaluate responses

Step 3 – Negotiate Contract

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CONTRACT NEGOTIATION AND FORMATION

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KEY TO A SUCCESSFUL CONTRACT NEGOTIIATIION

Preparation and planning - Effective planning. Negotiation skills. Effective follow-up documentation.

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PHASE 1:PRENEGOTIATION PLANNING (10-STEP

PROCESS)

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PHASE 2:CONDUCTING NEGOTIATIONS

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PHASE 3:POST-NEGOTIATION ACTIONS

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5) Administering the Contract

Step 1 – Collect final contract information.

Step 2 – Create a Contract Change Control System.

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MAIIN TASKS FOR BUYERS AND SELLERS

Analyze obligations, assign responsibilities, and set Performance goals.

Observe, document decisions and events, and report performance.

Identify and analyze variances. Take corrective action. Manage changes and disputes. Close out contract.

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6) Closing the ContractStep 1 – Collect final contract information

Step 2 – Conduct post-contract review

Step 3 – Document and archive lessons learned

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6) Closing the Contract Con…

Involves completing and settling contracts and resolving any open items.

The project team should:

Determine if all work was completed correctly and satisfactorily.

Archive information for future use.

The contract itself should include requirements for formal acceptance and closure.

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REFERENCES Garrett, Gregory A., 2003. World Class Contracting.

CCH Incorporated, Chicago, Il. Kirk, Dorothy. August 2000. PM Network. “Managing

Expectations.” The PMI® Compendium of Project Management

Practices.

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Purchases The activity of buying things that a company needs,

such as materials, parts, equipment, services, etc

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Acquisition The act of getting something, especially knowledge, a

skill etc. E.g: the acquisition of new skills The company spent

more than $1.5 billion on customer acquisition when going online.

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Evaluation A spoken or written opinion about the quality, value,

importance, etc.

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