projects procurement management

0

Institute of National Planning, Cairo, EGYPT Page 0 ElDaoushy

Project Management Professional

PMP

Memo No ( )

Projects Procurement Management &

Contracts Administration

using Primavera Expedition Software

by

Dr. Abdalla El Daoushy

Nov, 2010

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Contents

Theoretical Part

Page

Projects Procurement Management & Contracts Administration 3

Procurement Planning . . . . . . 5, 12 Solicitation Planning . . . . . . 6, 23 Solicitation Process . . . . . . 7,28 Determining Source Selection . . . . . 8, 34 Contracts Administration . . . . . 9, 38 Contracts Closeout . . . . . . . 10, 45 Summary-1 . . . . . . . . 48 Key Terms . . . . . . . . 52 Summary-2 . . . . . . . . 53 Self Test . . . . . . . . 55

Practical Part

Using Primavera Expedition for Contracts Administration --- Course 202A

Introduction to Primavera Expedition . . . . 63 Setting Up the Contract Directory . . . . 64 Contract Drawings . . . . . . . 65 Contracts and Purchase Orders . . . . . 66 Recording Project Events . . . . . . 67 Tracking and Statusing Submittals . . . . 68 Communicating Project Information . . . . 69

Contracts Managements with Primavera Expedition --- Course 202B

Managing Project Costs . . . . . . 70 Distributing Contract Costs . . . . . 71 Setting up Payment Requisitions . . . . 72 Change Management . . . . . . 73 Recording Progress for Payment requisitions . . 74 Building Project Issues . . . . . . 75

References . . . . . . . . . 76

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Theoretical Part

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Projects Procurement Management &

Contracts Administration

Projects usually require procurements. Projects need Materials,

Equipments, Consultants, Training, and Many Other Goods &

Services.

Materials, Equipments, Consultants, Training, and Many Other

Goods & Services will generally be referred to as a Product.

Projects Procurement Management is the process of Purchasing

Products necessary for meeting the needs of the Project Scope from

outside the Performing Organization (The Enterprise whose

Employees are most directly involved in doing the Work of the

Project).

The major Processes of Projects Procurement Management involve:

1. Procurement Planning,

2. Solicitation Planning,

3. Solicitation Process),

Solicitation means obtaining “Quotations”, “Bids”, “Offers”, or

“Proposals” as appropriate

4. Choosing a Source (Choosing from among Sellers),

5. Contract Administration, and

6. Contract Closeout.

Projects Procurement Management is discussed from the perspective

of the Buyer-Seller relationship.

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The Seller can be seen as:

Contractor,

Subcontractor,

Vendor, or

Supplier

When buying anything from a Seller, the Buyer needs a CONTRACT.

A Contract becomes a key input to many of the processes within the

Project.

The Contract specifies the rules and agreements for the Project.

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1. Procurement Planning:

Procurement Planning is the process of identifying which part

of the Project should be procured from resources outside the

Performing Organization. Procurement Planning centers on 4

elements:

1. Whether or not Procurement is needed

2. What to procure

3. How much to procure

4. When to procure.

1.1 Inputs

1.1.1 Project Scope Statement

1.1.2 Product Description

1.1.3 Procurement Resources

1.1.4 Market Conditions

1.1.5 Other Planning Outputs (Factors)

1.1.6 Constraints

1.1.7 Assumptions.

1.2 Tools & Techniques

1.2.1 Make-or-Buy Analysis

1.2.2 Expert Judgment

1.2.3 Contract Type Selection

1.3 Outputs

1.3.1 Procurement Management Plan

1.3.2 Statement(s) of Work

1.3.3 Other Planning Outputs (Schedule, Estimates, …)

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2. Solicitation Planning:

Solicitation Planning is the process of preparing to solicit (ask

for) Sellers to provide Products needed for the Project.

2.1 Inputs



2.1.3 Other Planning Outputs (Schedule,

Estimates, ...)

(output from preceding step)


2.2.1 Standard Forms


2.3 Outputs

2.3.1 Procurement Documents

2.3.2 Evaluation Criteria

2.3.3 Statement(s) of Work Updates

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3. Actual Solicitation Process: (Obtaining “Quotations”, “Bids”,

“Offers”, or “Proposals” )

Once the Solicitation Planning has been completed, the actual

process of Solicitation can begin. The Seller (not the Buyer)

performs most of the activities in Solicitation --- usually at no

additional cost to the Project. The Sellers are busy trying to win

the business by providing Quotations, Bids, Offers, or

Proposals.

3.1 Inputs


3.1.2 Qualified Seller Lists

(output from Solicitation step)


Solicitation is the processing of inviting Sellers to solicit the

business of the Performing Organization. There are 2 primary

tools needed to complete this process:

3.2.1 Bidder Conferences

3.2.2 Advertising

3.3 Outputs

3.3.1 Proposals (Documents from Seller to Buyer

responding to a Request for Proposal (RFP) or

other Procurement Documents).

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4. Determining Source Selection: Choosing from among Sellers..

4.1 Inputs

4.1.1 Proposals (output from Solicitation process)

4.1.2 Evaluation Criteria (output from Solicitation planning)

4.1.3 Organizational Policies


4.2.1 Contract(s) Negotiation

4.2.2 Weighting System

4.2.3 Screening System (Refused Bids)

4.2.4 Independent Estimates

4.3 Outputs

4.3.1 Contract(s)

Contracts are known by many names:

o Contract

o Agreement

o Subcontract

o Purchase Order

o Memorandum of Understanding

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5. Contracts Administration:

It is the process of managing the relationship between Sellers

(Contractors, Subcontractors, Vendors, Suppliers. . .) and

Buyers.

It is the process of ensuring that the Buyer and the Seller both

perform to the specification with the Contract.

5.1 Inputs

5.1.1 Contract(s)

5.1.2 Work Results

5.1.3 Change Requests

5.1.4 Seller Invoices (Bills, Charges, debits)


5.2.1 Contract Change Control System

5.2.2 Performance Reporting

5.2.3 Payment System

5.3 Outputs

5.3.1 Correspondence (Documents for legal actions of

disputes (disagreements) arise between the Buyer

& Seller ----)

5.3.2 Contract Changes

5.3.3 Payment Requests

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6. Contracts Closeout:

Completion and Settlement of the Contract, including

resolution of any open items.

6.1 Inputs

6.1.1 Contract Documentation


6.2.1 Procurement Audits

6.3 Outputs

6.3.1 Contract(s) File(s)

6.3.2 Formal Acceptance & Closure

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All of the above Processes interact with each other. They may

overlap and interact in any ways.

Projects Procurement Management is discussed from the

perspective of the Buyer-Seller relationship.

The Seller will typically manage his work as a Project(s). In such

areas:

o The Buyer becomes the Customer, and thus becomes a key

Stakeholder for the Seller (Contractor, Subcontractor,

Vendor, or Supplier).

o The Seller’s Project Management Team must be concerned

with all Processes of the Projects Management, but not just

those of his knowledge area.

o The Terms & Conditions of the Contract becomes a key

input to many of the Seller’s Processes.

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In details,

1. Procurement Planning:

Procurement Planning is the process of identifying which

Project needs can be best met by procuring products

(Materials & Services). Procurement Planning centers on the

following elements:

1. Whether or not Procurement is needed,

2. What to procure,

3. How much to procure, and

4. When to procure.

The Project Management Team may want to seek support

from Specialists in the disciplines of Contracting &

Procurement when needed, and involve them early in the

process as a Member of the Project Team.

Procurement Planning should also include consideration of

Potential Sellers, particularly if the Buyer wishes to exercise

some degree of Influence or Control over Contracting

Decisions.

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1.1 Inputs to Procurement Planning:

1.1.1 Referring to Scope Statement:

The Project Scope Statement defines the current

Project Work, and only the required work, to complete

the Project. It also defines the boundaries of the Project.

It provides important information about project needs

and strategies that must be considered during

Procurement Planning. It determines what products

(Materials & Services) to be purchased and what does

not.

1.1.2 Referring to Product Description:

The Product Description provides important information

that would need to be considered during Procurement

Planning.

The Product Description is generally broader than a

Statement of Work.

A Product Description defines what the end result of the

Project will be.

A Statement of Work (SOW) may define the work to be

accomplished within the project, but it generally does

not define the product description as a whole.

However, when the Performing Organization chooses to

procure the entire Product, then the distinction between

the two terms (SOW & Product Description) disappears.

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1.1.3 Relying on Procurement Resources

o Often a Performing Organization will have

resources for managing the Procurement Process,

including Contracting & Negotiating on behalf of

the Project.

o If, however, the Performing organization has no

such resources for the Project Manager to rely

upon, then it is up to the Project Manager to

supply the Procurement Management Resources,

including capabilities for negotiating and for

obtaining in a financially responsible way the right

products (Materials and/or services) for a fair

price on behalf of the Performing Organization.

1.1.4 Evaluating the Market Conditions

o Part of The Procurement Management is to

determine what Sources are available to provide

the needed Products for the Project. An

evaluation of the marketplace is needed to

determine what Products are available and from

whom, and under what terms & when they are

available.

o While in most free market enterprise societies

there are multiple Vendors offering comparable

Products, there may be times when choices of

Vendors are limited.

o There are 3 specific terms to know;

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o Sole Source: Only one Qualified Seller

exists in the marketplace.

o Single Source: The Performing

Organization prefers to contract with a

Specific Seller.

o Oligopoly محتكر : There are very few Sellers

and the actions of one Seller will have a

direct effect on the other Seller’s Prices and

the overall market condition.

1.1.5 Other Planning Factors

Other Planning Factors that must often be considered

include Cost Estimates, Schedule Estimate, Quality

Management Requirements, Cash-Flow Projections, the

Work Breakdown Structure Components, Identified

Risks, and Staff Acquisitions and Development.

1.1.6 Constraints

Constraints are factors that limit the Buyer’s options.

One of the most common constraints for many projects

is Funds Availability.

1.1.7 Assumptions

Assumptions are Beliefs or Factors that (for planning

purposes) will be considered to be true, real, or certain.

1.2 Tools & Techniques for Procurement Planning:

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1.2.1 Make-or-Buy Analysis:

This is a general Management Technique that can be

used to determine whether a particular product is more

cost effective to buy or it makes more sense to create it

in-house.

Analysis should include both indirect and direct costs.

For example, the “Buy” side of the analysis should

include both the actual cost to purchase the product as

well as the indirect costs of managing the Purchasing

Process.

A Make-or Buy Analysis must also reflect the

perspective (future) of the Performing Organization, as

well as the immediate needs of the project.

For example, purchasing a Capital Item معمر (anything

from a Construction Crane to a Personal Computer)

rather than renting or leasing it may or may not be cost

effective.

However, if the Performing Organization has a need for

the item, the purchase cost allocated to the project may

be less than the cost of the rental.

The Make-or-Buy Analysis should be made in the initial

Scope Definition to determine if the entire project

should be completed in-house or procured.

The initial costs of the solution for the in-house or

procured product must be considered.

For example:

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A company may elect to lease a piece of equipment. The

ongoing expenses of leasing the piece of equipment

should be weighed against the expected ongoing

expenses of purchasing the equipment and the monthly

costs to maintain, insure, and manage the equipment.

The following figure (Reference No 2 – page 478) shows

the mathematical approach of determining whether it is

better to create a SW Program in-house or buy one from

Software Company.

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There are multiple reasons why an Organization

may choose to make or buy. The following

represents some common examples:

Reasons to Make

Reasons to Buy

Less costly Less costly

Use in-house skills In-house skills not available

or don't exist

Control of work Small volume of work

Control of intellectual

property

More efficient

Learn new skills Transfer risks

Available Staff Available Vendor

Focus on core project work Allows Project Team to focus

on other work items

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Such expertise may be provided by any group or

individual with specialized knowledge or training and is

available from many sources, including:

Other Units within the Performing Organization.

Consultants.

Professional & Technical Associations.

Industry Groups.

1.2.3 Contract Type Selection

A Contract is a formal agreement between the Buyer &

Seller. Contracts can be oral or written --- though

written is preferred.

Contracts generally fall into one of 3 broad categories:

1. Fixed-Price or Lump-Sum Contracts. These Contracts

involve a fixed total price for a well-defined product.

If the product is not well defined, both the Buyer and

Seller are at risk --- the Buyer may not receive the

desired product and the Seller may need to incur

(acquire) additional costs to provide it. These type of

Contracts require the Seller to assume the risk of

cost overruns.

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2. Cost-Reimbursable (Compensation) Contracts ---

These types of Contracts involve payment

(reimbursement) to the Seller for its actual costs, plus

typically a fee representing Seller Profit.

Costs are usually classified as direct costs or indirect

costs. Direct Costs are costs incurred for the project

(e.g., salaries of full-time project staff). Indirect Costs

also called overhead costs and usually calculated as a

percentage of Direct Costs.

3. Time & Material (T&M) Contracts --- T&M Contracts

are open ended, because the full value of the

arrangement is not defined at the time of the award.

Thus, T&M Contracts can grow in contract value as if

there were cost-reimbursable-type arrangement.

Conversely, T&M Contracts can also be similar to

Fixed-Unit Contracts when, for example, the unit

rates are preset by the Buyer and Seller, as when (for

example) both parties agree on the rates for the

category of “Senior Engineers”.

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1.3 Outputs from Procurement Planning:

1.3.1 Procurement Management Plan:

The Procurement Management Plan should describe

how the remaining procurement processes (from

Solicitation Planning through Contract Closeout) will be

managed. For example:

What type of Contracts will be used?

If independent estimates will be needed as

Evaluation Criteria, who will prepare them and

when?

The relationship between the Project Team & the

Procurement Office within the Performing

Organization (if one exists).

If Standardized Procurement Documents are

needed, where can they be found?

How multiple Providers will be managed?

How procurement will be coordinated with other

project aspects, such as scheduling and

performance reporting?

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1.3.2 Statement(s) of Work:

The Statement of Work (SOW) describes the

Procurement Item in sufficient detail to allow future

Sellers to determine if they are capable of providing the

Item.

The SOW should be clear, complete, and concise. It

should include a description of any products 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 SOW.

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2 Solicitation Planning:

Solicitation Planning is the process of preparing to solicit (seek –

ask for) Sellers to provide products needed for the project.

It is straightforward business as shown (Reference No 2):

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2.1 Inputs to Solicitation Planning:


This plan sets out the methodologies and expectations

of procurement within the Performing Organization.


The SOW provides detailed information on what the

Seller will be providing for the Performing Organization.

This document allows the Seller to determine if

Procurement can provide the product and meets the

requirements of the Project Team.

2.1.3 Other Planning Outputs

Other details within the Project Plan, such as the

Schedule, Estimates, Constraints, and Assumptions may

have direct influence on the Solicitation Process.

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2.2 Tools & Techniques for Solicitation Planning:

2.2.1 Standard Forms:

Within the Performing Organization, there may be many

different Standard Forms that include Standard

Contracts, Standard Descriptions of Procurement Items,

Bid Documents, and other Procurement related

Documents.

2.2.2 Expert Judgment:

Expert Judgment may be needed to review and help the

Project Manager to select the best Source for the

Procured Product.

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2.3 Outputs from Solicitation Planning:

Solicitation Planning guides the Solicitation Process. The

output of Solicitation Planning helps the Project Manager,

Project Team, and Sellers clearly communicate. The

expectations between Buyer & Seller are often not met

because a lack of Solicitation Planning.

2.3.1 Procurement Documents:

Procurement Documents guide the relationship

between Buyer & Seller. Requests from Buyers to Sellers

should be specific enough to give the Seller a clear idea

of what the Buyer is requesting, but general enough to

allow the Seller to provide practical (possible)

alternatives.

Common names for different types of Procurement

Documents include (detailed discussion in Practical

Part):

o Invitation for Bid (IFB),

o Request for Proposal (RFP),

o Request for Quotation (RFQ),

o Invitation for Negotiation (IFN), and

o Contractor Initial Response.

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2.3.2 Evaluation Criteria:

Evaluation Criteria is used to rate or score proposals

from Sellers. They may be objective (e.g., “The Proposed

Project Manager must be a certified PMP) or subjective

(e.g., “The Proposed Project Manager must have

documented previous experience with similar projects.”)

Evaluation Criteria are often included as part of the

Procurement Documents.

Other Evaluation Criteria must be identified and

documented to support an assessment. For example:

o Understanding of Need --- as demonstrated by the

Seller’s Proposal.

o Overall or Life-Cycle Cost --- Will the selected

Seller produce the lowest total cost (purchasing

cost + operating cost)?

o Technical Capability --- Does the Seller have the

technical skills and knowledge needed?

o Management Approach --- Does the Seller have

the necessary financial resources?

2.3.3 Statement(s) of Work Updates

Modifications to one or more Statements of Work may

be identified during Solicitation Planning.

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3 Solicitation Process:

Once the Solicitation Planning has been completed, the actual

Process of Solicitation can begin.

Solicitation involves obtaining Quotations, Bids, Offers, or

Proposals from prospective Sellers to make Project Needs be

met.

The Seller (not the Bayer) perform most of the activity in

Solicitation --- usually at no additional cost to the project.

Sellers try to win the business.

3.1 Inputs To Solicitation Process:


These are the Invitation to Bid, Request for Proposal,

and request for Quotations.

3.1.2 Qualified Seller Lists

Some Organizations maintain lists or files with

information on prospective (likely) Sellers (generally

information on relevant past experience and other

characteristics of the prospective Sellers)

If such lists are not available, the Project Team will have

to develop its own Sources.

General Information is widely available through the

Internet, Library Directories, Relevant Local Associations,

Trade Catalogs, and similar sources.

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Detailed Information on specific Sources may require

more extensive effort, such as visits or contact with

previous Customers.

Procurement Documents may be sent to some or all of

the prospective (likely) Sellers.

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3.2 Tools & Techniques for Solicitation Process:

3.2.1 Bidder Conferences

Bidder Conferences (also called Contractor

Conferences, Vendor Conferences, and Pre-Bid

Conferences) are meetings with prospective sellers prior

to preparation of a Proposal. They are used to ensure

that all prospective Sellers have a clear, common

understanding of the Procurement (technical

requirements, contract requirements, etc.).

All potential Sellers must remain on equal standing

during this process.

3.2.2 Advertising

Existing “Lists of Potential Sellers” can often be

expanded by placing advertisements in general

circulation publications such as newspapers or specially

publications such as professional journals.

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3.3 Outputs from Solicitation Process:

3.3.1 Proposals, Bids, and Quotations

These documents indicate the Seller’s ability and

willingness to complete the Project Work. They are

prepared in accordance with the requirements of the

relevant Procurement Documents. Proposals may be

supplemented with an oral presentation.

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4 Determining Source Selection: عملية فتح المظاريف

Source Selection involves the receiving of Bids or Proposals and

application of the Evaluation Criteria to select a Provider. Many

factors (aside from cost or price) may need to be evaluated in the

source selection decision process.

Price may be the primary determinant item, but the lowest

proposed price may not be the lowest cost if the Seller

proves unable to deliver the product in a timely manner.

Proposals are often separated into technical and

commercial (financial) sections with each evaluated

separately.

Multiple Sources may be required for Critical Products.

Select a single Source who will be asked to sign a Standard

Contract.

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4.1 Inputs to Source Selection

4.1.1 Proposals

The Proposals, Bids, and Quotations provided by the

Sellers are key inputs. These are the documents the

Performing Organization will evaluate to determine

which Seller is the Best Provider for the Project.

4.1.2 Evaluation Criteria

The Evaluation Criteria are evidence of the quality,

depth, and experience of work the Seller has performed

in the past and capable of performing on the current

project.

Evaluation Criteria are developed in Solicitation Planning

and applied in Source Selection.

4.1.3 Organizational Policies

Organizations concerned with Project Procurement

typically have formal policies that affect the evaluation

of proposals.

As an example, some Organizations’ Procurement

Policies do not allow Project Managers to accept any

gifts beyond $25 in value….

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4.2 Tools & Techniques for Source Selection:

In case of existing more than one Seller that can satisfy the

demands of the Project, there are many Tools & Techniques

the Project Manager can rely on:

4.2.1 Contract Negotiation

Contract Negotiation involves clarification and mutual

agreement on the structure and requirements of the

contract prior to the signing of the contract.

The final contract language should reflect all agreements

reached.

Subjects covered generally include (but are not limited

to, responsibilities and authorities) applicable terms and

law, technical and business management approaches,

contract financing, and price.

For complex Procurement Items, contract negotiation

may be an independent process with inputs (e.g., issues

or open items list) and outputs (e.g., memorandum of

understanding) of its own.

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4.2.2 Weighting System

A Weighting System is a method for qualifying

qualitative data to minimize the effect of personal

unfairness on Source Selection. Most such Systems

involve:

o Assigning a numerical weight to each of the

evaluation criteria.

o Rating the prospective (likely) Sellers on each

criterion.

o Multiplying the weight by the rating.

o Totaling the resultant products to compute an

overall score.

4.2.3 Screening System العطاءات المرفوضة

A Screening System is a method to remove Sellers form

consideration if they do not meet given conditions.

For example, Screening could require that the Seller

must be certified by a Specific organization, and have

prior experience with the Project Technology.

Sellers that do not meet the requirements are removed

from the Selection Process and their proposals are not

considered.

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4.2.4 Independent Estimates

For many Procurement Items, the Procuring

Organization may prepare its own Independent

Estimates as a check on proposed pricing.

Significant differences from these estimates may be an

indication that the SOW was not adequate, or that the

Seller either misunderstood or failed to response fully to

the SOW.

`Independent Estimates are often referred to as “Should

Cost” Estimates.

These estimates are created by the Performing

Organization to predict what the cost of the procured

product should be. If there is a significant difference

between what the Organization has predicted and what

the Sellers have proposed, either the SOW was

inadequate or the Sellers have misunderstood the

requirements (Reference 2 --- page 564)

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4.3 Outputs from Source Selection:

4.3.1 Contract(s)

A Contract is a mutually obligatory agreement that

obligates the Seller to provide the specified product and

obligates the Buyer to pay for it.

A Contract is a legal relationship subject to remedy

(preparation) in the Courts.

The agreement may be simple or complex reflecting the

simplicity or complexity of the product.

Contracts may be called (among other names) a

Contract, an Agreement, a Subcontract, a Purchase

Order, or a Memorandum of Understanding.

Most Organizations have documented policies and

procedures specifically defining who can assign such

agreements on behalf of the Organization, typically

called a Delegation of Procurement Authority.

Although all Project Documents are subject to some

form of review and approval, the nature of a contract

usually means that it will be subjected to a more

extensive approval process.

In all cases, a primary focus of the review and approval

process should be to ensure that the contract language

describes a product (Materials & services) that will

satisfy the identified need.

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5 Contracts Administration:

Contract Administration is the process of ensuring that the

Seller’s Performance meets Contractual Requirements. The

Project Manager & the Contract Administrator must work

together to make certain the Seller meets his obligations.

In case of large Projects with multiple Product’ Providers, a key

aspect of Contract Administration is managing the interfaces

among the various Providers.

Another aspect of Contract Administration (especially on larger

Projects with multiple Sellers providing various products) is the

coordination between the Contractors.

Contract Administration includes application of the appropriate

Project Management Processes to the contractual relationship(s)

and integration of the outputs from these processes into the

overall Project Management. This integration and coordination

will often occur at multiple levels when there are multiple Sellers

and multiple Products involved.

Within the Contract, there must be the terms for payment.

Typically the performance and progress of the Contractor is

directly linked to payments it receives. The Project Manager must

track performance and quality to approve or decline (reject)

payment as needed.

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The Project Management Processes that must be applied within

Contract Administration include:

Project Plan Execution to authorize the Contractor’s Work

at the appropriate time.

Performance Reporting to monitor Contractor Cost,

Schedule, and Technical Performance.

Quality Control to examine and verify the sufficiency of the

Contractor’s Product.

Change Control to insure that Changes are properly

approved.

Contract Administration also has a Financial Management

Component. Payment Terms should be defined within the

Contract and must involve a specific linkage between Seller

Progress Made and Seller Compensation Paid.

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5.1 Inputs to Contract Administration:

5.1.1 Contract(s)

The Contract is needed as a guide for effective Contract

Administration. The Contract states the requirements

and expectations of the Seller and Buyer.

The obligations of both parties should be in association

with the Contract; if not, disagreements, delays, and

even work stoppage can arise.

5.1.2 Work Results

The Seller’s Work Results must be completed according

to the requirements of the Contract.

The Seller’s Work Results (which deliverables have been

completed and which have not, to what extent quality

standards are being met, what costs have been incurred

or committed, etc.) are collected as part of Project Plan

Execution.

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5.1.3 Change Requests

Change Requests may include modifications to the terms

of the contract or the description of the product or

service to be provided.

In some instances, the Seller and Buyer may disagree

about the cost of changes. These differences may be

labeled as claims, disputes, or appeals (demands) ---

they can ultimately slow the project progress if they are

not solved.

If the Seller’s Work is unsatisfactory, then a decision to

terminate the contract would also be handled as a

Change Request.

Contested (Disputed) Changes --- those where the Seller

and the Project Management Team cannot agree on

compensation for the change are called claims,

disputes, or appeals.

5.1.4 Seller Invoices

The Seller must submit invoices from time to time to

request payment for Work Performed.

Invoicing Requirements (including necessary supporting

documentation) are defined within the Contract.

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5.2 Tools & Techniques for Contract Administration:

5.2.1 Communication Plan

The actual process of completing Contract

Administration relies heavily on communication

between Project Manager, the Contract Officer, and the

Seller.

The Communications Plan may have consideration for

how and when the communication between the Buyer

and Seller should take place and what the purpose of

the communication should be.

5.2.2 Contract Change Control System

A Contract Change Control System defines the process

by which the contract may be modified. It includes the

Paperwork, Tracking Systems, Dispute Resolution

Procedures, and Approval Levels necessary for

Authorizing Changes.

The Contract Change Control System should be

integrated with the Integrated Change Control System.

5.2.3 Performance Reporting

Performance Reporting provides management with

information about how effectively the Seller is achieving

the contractual objectives.

Contract Performance Reporting should be integrated

with the Integrated Project Performance Reporting.

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5.2.4 Payment System

Payments to the Seller are usually handled by the

Accounts Payable System of the Performing

Organization.

On larger Projects with many or complex Procurement

Requirements, the Project may develop its own System.

In either case, the Payment System must include

appropriate reviews and approvals by the Project

Management Team.

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5.3 Outputs from Contract Administration:

5.3.1 Correspondence

Contract Terms & Conditions often require Written

Documentation of certain aspects of Buyer/Seller

Communications, such as Warnings of Unsatisfactory

Performance and Contract Changes or Clarifications.

Correspondence can serve as documentation for legal

action if disputes arise between the Buyer and Seller.

5.3.2 Contract Changes

Changes (Approved and unApproved) are fed back

through the appropriate Project Planning and Project

Procurement Processes and the Project Plan or other

relevant Documentation is updated as appropriate.

5.3.3 Payment Requests

This assumes that the Project is using an External

Payment System. If the Project has its own Internal

System, the output here would simply be “Payments”.

45


6 Contract Closeout:

Contract Closeout involves both Product Verification (was all

work completed correctly and satisfactory?) and Administrative

Closeout (Updating of Records to reflect final results and archiving

of such information for future use).

Contract Closeout can also be linked to Administrative Closure,

because it is the process of confirming the work was completed.

The Contract Terms & Conditions may prescribe specific

procedures for Contract Closeout.

6.1 Inputs to Contract Closeout:

6.1.1 Reviewing Contract Documentation

Contract Documentation includes (but is not limited to)

the Contract itself along with all supporting Schedules,

Requested & Approved Contract Changes, and Seller-

Developed Technical Documentation, Seller

Performance Reports, Financial Documents such as

Invoices and Payment Records, and the results of any

Contract-Related Assessments.

The Project Manager should review and consider the

following:

Schedules of Procured Work

Contract Change Request --- Approved & Declined

Financial Documents, invoices, and Payment

Records

Results of Contractual Inspections (Assessments)

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6.2 Tools & Techniques for Contract Closeout:

6.2.1 Procurement Audits

A Procurement Audit is a structured review of the

Procurement Process from Procurement Planning

through Contract Administration.

The objective of a Procurement Audit is to identify

successes and failures that deserve transfer to other

Procurement Items on this Project or to other Projects

within the Performing Organization.

The purpose of the audit is to learn from what worked

and what did not work during the Procurement Process.

This knowledge can then be applied to other areas

within the current project and to other projects within

the Performing Organization.

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6.3 Outputs from Contract Closeout:

6.3.1 Contract File

A Contract File is a complete set of indexed Records that

should be prepared for inclusion with the final Project

Records.

These Records include Financial Information as well as

Information on the Performance and Acceptance of the

Procured Work.

6.3.2 Formal Acceptance & Closure

The Person or Organization responsible for Contract

Administration should provide the Seller with Formal

Acceptance and Closure that usually defined in the

Contract.

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Summary-1:

Procurement Planning

Procurement Planning is determining which aspects of the project can

best be fulfilled by procuring the specified Products (Materials and/or

Services.

The Project Scope serves as a key input to describe the work ( and

only the required work) needed to complete the Project.

A clearly defined Product Description is needed in order to

successfully procure the product.

Make-or-Buy Analysis calculates and predicts which is better for the

Performing Organization to make the Product or to hire an entity

outside of the Organization to make the Product.

Some Contracts can transfer the risk to the Seller; other Contract types

require the Buyer to retain the risk of cost overruns.

Solicitation Planning

The Buyer should provide the Seller with a SOW, details on the type

of response needed such as a Proposal, Quote, or Bid, and any

information on contractual provisions, such as non-disclosure

agreements or a copy of the model contract the Buyer intends to use.

Bids and Quotes are needed when the decision is made on price.

Proposals are needed when decisions are based on other factors, such

as experience, qualifications, and approaches to the project work.

The Procurement Management Plan describes the procedures for

procuring work or products.

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Solicitation Process

Solicitation Process is requesting the Potential Sellers to provide Bids,

Proposals, or Quotes to complete the Project Work or supply the

described Product.

An Organization may retain a Qualified Seller List from which the

Project Team is forced to select a Vendor. In other instances, the

Project Team can rely on Trade Associations, Industry Directories,

and other resources to locate Qualified Sellers.

Advertisements for the procured process in Newspaper and Trade

Publications can increase the List of Sellers the Buyer can choose

from.

Bidder Conferences allow Sellers to meet with the Buyer to query the

Buyer on details of the Procurement Process. The goal of the Bidder

Conference is to ensure that all Prospective Sellers have the same

information and all of the needed information to complete an accurate

Bid or Proposal.

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Source Selection

Samples of the Sellers’ previous related Products can serve as

Evaluation Criteria.

Contract Negotiation focuses on finding a fair and reasonable price for

both the Buyer and the Seller.

Weighting Systems are unbiased approaches to determine which

Seller has the best offer to complete the Procured Product.

Screening Systems allow an Organization to screen out Sellers that do

not qualify for the procured product or service.

“Should Cost” Estimates are completed by the Performing

Organization to determine if Sellers completely understand the

requirements of the Project Work.

Contract Administration

Contract Administration ensures the Sellers are meeting their

contractual obligations.

Change Requests may require updates to the contract between the

Buyer and the Seller. Contract Change Requests are part of the

Integrated Change Control System.

The Project Manager must document and report to the Seller and

Management on how the Seller is meeting Contract Obligations.

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Contract Closeout

Contract Closeout is similar to Administrative Closure.

Contract Documentation --- such as the Contract, Schedules, relevant

Documentation, Approved Contract Changes, Performance Reports,

and other pertinent information --- is needed to complete Contract

Closeout.

Procurement Audits are intended to review, document, and share the

successes and failures of the current Project’s Procurement Process.

The information can be applied to other projects within the

Organization.

A Contract File is created and is included with the Project Records as

part of the Historical Information of the current Project.

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Key Terms

Bid Direct Costs Proposal

Bidder Conferences Evaluation Criteria

Qualified Seller List

Centralized Contracting Fixed-Price Contracts

Quote Contract

Letter Contract (The intent of Letter Contract is to allow the Vendor to get to work

immediately to solve the Project Problem)

Letter of Intent (This letter describes how to buy from . . .)

Request for Proposal (RFP)

Contract Administration Indirect Costs

Request for Quote (RFQ) Contract Change Control System

Invitation for Bid (IFB) “Should Cost” Estimates

Contract Closeout

Single Source Contract File

Make-or-Buy Analysis Sole Source

Cost-Reimbursable Contracts

Procurement Statement of Work

Decentralized Contracting Procurement Audits

Time and Materials Procurement Management Plan

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Summary-2:

Project Procurement Management allows a Project to ascertain Resources,

Materials, Equipment, Services, and other Components needed to

successfully complete the Project. It is the process of finding Sellers that can

supply the needed Products or Services at a fair rate and meet the Quality,

Time, and Cost Expectations of the Project.

The Product Description will help the Project Manager and the Vendor

determine what the best solution for the Procurement Need is.

One of the first activities the Project Manager and the Project Team

complete together before procuring Products is to determine the need to Buy

versus the ability to Make the Product.

A Decision Tree can help the Project Manager determine which decision is

most cost effective, reliable, and best for the Project. A Buy-versus-Build

Analysis can compare the benefits of buying versus selling---including

attributes other than just price and time.

Bidder Conferences allow the Bidders to meet with the Project Managers

and other officials representing the Seller to confirm the details of the

Statement of Work.

Recall that the Statement of Work is provided to all of the Vendors that may

be creating Bids or Proposals for the Seller.

The Bidders’ Conference allows the Bidders to obtain any additional

information they may need to create a full and complete Bid, Quote, or

Proposal. It is part of the Solicitation Process and proceeds to Source

Selection.

PMP Candidates and Project Managers must be familiar with the different

Contract Types and when to use each one.

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Here’s a recap of the most common Contract Types:

Cost Plus Fixed Fee: Details the fixed cost of the Contract which

includes a Profit Margin for the Seller.

Cost Plus Percentage of Cost: Has a price for the contracted product

or service, but cost overruns areassigned to the Buyer.

Cost Plus Incentive Fee: The Seller determines a price for the

Product or Service---but includes an incentivereward for completing

the procured work on time or ahead of schedule.

Fixed-Price: A simple fixed price for the Contract---but it can include

an incentive for the Seller to completeearly, ahead of schedule, or

other savings shared between the Buyer and the Seller.

Lump-Sum: The Contract has one price for all of the contracted

work.

Time and Materials: Price assigned for the Time and Materials

provided by the Seller.

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Self Test (Reference No 2)

1. Which of the following may be used as a Risk Mitigation

(improvement) Tool?

A. Vendor proposal B. Contract C. Quotation D. Project requirements

2. A Contract cannot have provisions (necessities) for which one of the

following?

A. A deadline for the completion of the work B. Illegal activities C. Subcontracting the work D. Penalties and fines for disclosure of intellectual rights (A contract cannot contain illegal activities)

3. You are the Project Manager for the 89A Project. You have created a

contract for your Customer. The contract must have what one thing of

the following?

A. Offer and Consideration B. Signatures and the stamp of a notary (legal representative) public C. Value and worth of the procured item D. Start date and acceptance of start date

4. The Product Description of a Project can help a Project Manager

create Procurement Details. Which one of the following best describes

this process?

A. The product description defines the contracted work.

B. The product description defines the requirements for the contract

work.

C. The Product Description defines the contracted work, which

must support the requirements of the project’s customer.

D. Both parties must have and retain their own copy of the product

description.

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5. Yolanda has outsourced a portion of the project to a vendor. The

vendor has discovered some issues that will influence the cost and

schedule of its portion of the project. How must the vendor update the

agreement?

A. As a new contract signed by Yolanda and the vendor. B. As a contract addendum (addition) signed by Yolanda and the

Vendor. C. As a memo and SOW signed by Yolanda and the vendor. D. Project Management contracts have clauses that allow vendors

to adjust their work according to unknowns.

6. The United States backs (supports) all Contracts through which of the

following?

A. Federal law B. State law C. Court System D. Lawyers

7. Terry is the Project Manager of the MVB Project. She needs to

purchase a piece of equipment for her project. The Accounting

Department has informed Terry she needs a unilateral (independent)

Form of Contract. Accounting is referring to which of the following?

A. SOW B. Legal binding contract C. Purchase Order D. Invoice from the vendor

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8. Bonnie is the Project Manager for the HGH Construction Project.

She has contracted a portion of the project to the ABC Construction

Company. Bonnie has offered a bonus to ABC if they complete their

portion of the work by August 30. This is an example of which one of

the following?

A. Project requirement B. Project incentive (encouragement) C. Project goal D. Fixed-price contract

9. The purpose of a contract is to distribute between the Buyer and Seller

a reasonable amount of which of the following:

A. Responsibility B. Risk C. Reward D. Accountability

(A fair contract shares a reasonable amount of risk between the Buyer & the Seller)

10. Privity is what?

A. Relationship between the project manager and a known vendor B. Relationship between the project manager and an unknown

vendor

C. Contractual, confidential information between customer

and vendor

D. Professional information regarding the sale between customer

and vendor (Privity is considered agreement between the Buyer & Seller)

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11. Sammy is the Project Manager of the DSA Project. He is considering

proposals and contracts presented by vendors for a portion of the

project work. Of the following, which contract is least dangerous to

the DSA Project?

A. Cost plus fixed fee B. Cost plus percentage of cost C. Cost plus incentive fee D. Fixed-price ( A Fixed-Price Contract contains the least amount of risk for a project. The Seller assumes all of the risk)

12. In the following contract types, which one requires the Seller to

assume the risk of cost overruns?

A. Cost plus fixed fee B. Cost plus incentive fee C. Lump Sum D. Time and materials (A & B are incorrect because these contracts require the Seller to carry the risk of cost overruns. D

is incorrect because Time & Materials Contracts require the Buyer to pay for cost overruns on the

materials and the time invested in the Project Work)

13. Benji is the Project Manager of PLP Project. He has hired an

independent contractor for a portion of the project work. The

contractor is billing the project $120 per hour, plus materials. This is

an example of which one of the following?

A. Cost plus fixed fee B. Time and Materials C. Unit-price D. Lump sum

14. Mary is the Project Manager of JHG Project. She has created a

Statement of Work (SOW) for a Vendor. For Mary’s SOW to be a

legal contract, what must be included?

A. Affidavit (official declaration – confirmation) of agreement B. Signatures of both parties agreeing to SOW C. Signature of vendor D. Signature of Mary

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15. You are the Project Manager for a Software Development Project

for an Accounting System that will operate over the Internet. Based

on your research, you have discovered it will cost you $25,000 to

write your own code. Once the code is written you estimate you’ll

spend $3,000 per month updating the Software with Client

Information, Government Regulations, and Maintenance.

A Vendor has proposed to write the code for your company and

charge a fee based on the number of clients using the program every

month.

The Vendor will charge you $5 per month per user of the Web-Based

Accounting System. You will have roughly 1,200 clients using the

system per month.

However, you’ll need an in-house accountant to manage the time and

billing of the system, so this will cost you an extra $1,200 per month.

How many months will you have to use the system before it is better

to write your own code than to hire the vendor?

A. 3 months B. 4 months C. 6 month D. 15 months (The money invested in the Vendor’s solution would have paid for your own code in 6 months. This is calculated by finding your cash spend for the 2 solutions: $25,000 for your own code creation, and zero cash spend for the vendor’s solution. The monthly cost to maintain your own code is $3,000. The monthly cost of the Vendor’s is $7,200 (1200 * 5 + 1200). Subtract your cost of $3,000 from the Vendor’s cost of $7,200 and this equals $4,200. Divide this number into the cash outlay (spend) of $25,000 to create your own code and you will come up with 5.95 months. Of all the choices presented, C --6 months--, is the best choice)

Vendor: $5/month/User * 1200 Users $6000/month + extra $1200/month $7000/month In-House: $3000/moth Difference = $7200 – $3000 = $4200 Therefore, 25000/4200 :=5.95 := 6 months

60


16. You are completing the closeout of a project to Design a Warehouse

in Columbus, Ohio. The contract is a Cost plus Incentive Fee

Contract. The target costs are $300,000, with a 10 percent target

profit.

However, the project came in (executed) at $275,000. The incentive

split is 80/20. How much is the total contract cost??

A. $300,000 B. $275,000 C. $310,000 D. $330,000 The total contract cost is $310,000. Here is how the answer is calculated: Target cost is $300,000. The 10% profit is $30,000. The finished cost was $275,000, a difference of $25,000 between the target & the actual. The contract calls for an 80/20 split if the contract comes in under budget. The formula reads:

Finished Cost + Profit Margin + (0.20 * Under Budget Amount) ---- $275000+30000+5000 = 310,000 ----

17. A Contract between an Organization and a Vendor may include a

clause that penalizes the Vendor if the project is late. The lateness of a

project has a monetary penalty; penalty should be enforced or waived

(ignored) based on which one of the following?

A. If the project manager could have anticipated (expected) the delay B. If the project manager knew the delay was likely C. Whether the delay was because of an unseen risk D. Who caused the delay and the reason why? (The party that caused the delay is typically the party responsible for the delay. It would not be

acceptable for the project manager to willingly cause a delay and then penalize the contractor

because the project was late).

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18. A Single Source Seller means what?

A. There is only one qualified Seller. B. There is only one Seller the company wants to do business

with. C. Here is a seller that can provide all aspects of the Project

Procurement Needs.

D. There is only one Seller in the market. (“B”. A single source seller means there is only one seller the company wants to do business with.

“A” describes a “sole source” seller. “C” is incorrect; there may be multiple sellers that can

satisfy the project needs. “D” is also incorrect; just because there is only one seller in the market

does not mean the seller can adequately and fully fill the project needs).

19. Which one of the following is not a valid Evaluation Criterion for

Source Selection?

A. Age of the Contact Person at the Seller B. Technical Ability of the Seller C. Contract Requirements D. Price (“A” The age of the contact at the seller should not influence the source selection. The experience

of the person doing the work, however, can. “B”, “C”, and “D” are all incorrect, as technical

ability, objective requirements (such as qualifications and certifications), and price can be valid

evaluation criteria).

20. Henry has sent the ABN Contracting Company a letter of intent

(aim). This means which one of the following?

A. Henry intends to sue (charge, go to court) the ABN Contracting

Company. B. Henry intends to buy from the ABN Contracting Company. C. Henry intends to bid on a job from the ABN Contracting

Company.

D. Henry intends to fire the ABN Contracting Company. (B. Henry intends to buy from the ABN Contracting Company. A, C, and D are all incorrect;

these choices do not adequately describe the purpose of the letter of intent).

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21. Martha is the Project Manager of the MNB Project. She wants a

Vendor to offer her one price to do all of the detailed work. Martha is

looking for which type of Document?

A. RFP (Request For Proposal) B. RFI (Request For information) C. Proposal D. IFB (Invitation for Bid) (A and B, Request for Proposal and Request for Information, are documents from the Buyer to the

Seller requesting information on completing the work. C, a proposal, does not list the price to

complete the work, but instead offers a solutions to the Buyer for completing the project needs).

22. Which one of the following is true about Procurement Documents?

A. They offer no room for bidders to suggest changes. B. They ensure receipt of complete proposals. C. They inform the performing organization why the bid is being

created.

D. The project manager creates and selects the bid (B. Procurement documents detail the requirements for the work to ensure complete proposals

from sellers. A is incorrect; procurement documents allow input from the seller to suggest

alternative ways to complete the project work. C is incorrect; informing the performing

organization on why the bid is being created is not the purpose of the procurement documents. D is not realistic).

23. In what process group does source selection happen?

A. Initiating B. Planning C. Executing D. Closing (C. Source selection happens during the Execution process group. A, B, and D are all incorrect,

as these process groups do not include source selection).

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24. You have an emergency on your project. You have hired a vendor that

is to start work immediately. What contract is needed now?

A. T&M B. Fixed fee C. Letter Contract D. Incentive contract (C. For immediate work, a letter contract may suffice. The intent of the letter contract is to allow

the vendor to get to work immediately to solve the project problem. Choices A, B, and D are all

incorrect; these contracts may require additional time to create and approve. When time is of the

essence, a letter contract is acceptable).

25. You are the Project Manager for a Seller. You are managing another

company’s project. Things have gone well on the project, and the

work is nearly complete. There is still a significant amount of funds in

the project budget. The Buyer’s representative approaches you and

asks that you complete some optional requirements to use up the

remaining budget. You should do which one of the following?

A. Negotiate a change in the contract to take on the additional

work.

B. Complete a contract change for the additional work. C. Gain the approval of the project stakeholder for the

requested work.

D. Deny the change because it was not in the original contract. (C. Any additional work is a change in the project scope. Changes to project scope should be

approved by the mechanisms in the change control system. The stakeholder needs to approve the

changes to the project scope.

A, B, and D are not realistic expectations of the project. These questions border on the PMP

Code of Professional Conduct. Typically, when a project scope has been fulfilled, the project work

is done. The difference in this situation is that the additional tasks are optional requirements for

the project scope)..

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Practical Part

Using Primavera Expedition for Contract Administration

Course 202 A & Course 202 B

65


Using Primavera Expedition for Contract Administration

Purpose & Objectives:

This section provides a comprehensive overview of Primavera Expedition

features that will enable to administrate Contracts.

It will introduce you to setting up a Project of Contract(s) recording events,

communicating Project Information, Cost Management, and Change

Management Process.

This section includes:

Set up a Project

Develop a Contract Directory

Record and Distribute Contract Drawings

Award Contracts & Purchase Orders

Track Material Deliveries

Record Meeting Minutes

Log Daily Reports

Manage Submittals

Create Transmittals

Produce Letters and Request for Information (RFI )

Define the Cost Process

Applying the Cost Worksheet

Distribute Contract Costs

Setup and Progress Payment Requisitions

Define Change Management Process

66


Introduction to Primavera Expedition:

Course 202A

Page 1-1

67


Setting up Companies & Contacts Directory:

Course 202A

Page 2-1

68


Contract Drawings:

Course 202A

Page 3-1

69


Contracts & Purchase Orders:

Course 202A

Page 4-1

70


Recording Project Events:

Course 202A

Page 5-1

71


Tracking and Statusing Submittals:

Course 202A

Page 6-1

72


Communicating Project Information

Course 202A

Page 7-1

73


Managing Project Costs:

Course 202B

Page 1-1

74


Distributing Contract Cost:

Course 202B

Page 2-1

75


Setting up Payment Requistions:

Course 202B

Page 3-1

76


Change Management:

Course 202B

Page 4-1

77


Recording Progress for Payment Requisitions:

Course 202B

Page 5-1

78


Building Project Issues:

Course 202B

Page 7-1

79


References

1. PMBOK Guide, A Guide to the Project Management of Knowledge

Project Management Institute, Four Campus Boulevard, Newtown

Square, PA 19073-3299 USA

2. Joseph Phillips, Project Management Professional – Study Guide

McGraw Hill

3. Using Primavera Expedition for Contract Administration, Course 202

A, Training Manual.

4. Contract Management with Primavera Expedition, Course 202 B,

Training Manual.

5. Dr. Abdalla El Daoushy,

Projects Time Management & Controlling using Projects

Management Software, Memo No. 971, Institute of National

Planning, Cairo, Egypt, 2008

6. Dr. Abdalla El Daoushy,

Projects Cost Management – Computer Software Oriented, Memo

No. 973, Institute of National Planning, Cairo, Egypt, 2009