Project Procurement and Contract

Management

Lecture 12-13-14
Purpose of Procurement Management ?

includes the processes necessary to purchase or acquire

products, services or results needed from outside the project
team
Procurement Management Processes ?

- Plan Procurements (planning)

- Conduct Procurements (executing)
- Control Procurements (monitoring and controlling)
- Close Procurements (closing)
Project Manager's role during bidding and proposals process ?

- very important
- make sure contract contains all scope of work and PM requirements
- help tailor the contract
- identify risk
- be involved during contract negotiation
- make sure that contract is realistic in term on time, cost constraint
- answer technical and PM questions arising during bidder conference
What is Centralized contracting environment ?

There is one procurement department, a procurement manager may

handle procurements on many projects
What is Decentralized contracting environment ?

A procurement manager is assigned to one project fulltime and

reports directly to the project manager
Purpose of Plan Procurement process ?

is the process of:

- documenting project purchase decisions
- specifying the approach
- identifying potential sellers
ITTOS of Plan Procurement ?
Activities included in Plan Procurement ?

- Perform make-or-buy analysis

- Creating a procurement management plan
- Creating a procurement statement of work for each procurement
- Selecting a contract type for each procurement
- Creating the procurement documents
- Determining the source selection criteria
What is Procurement Statement of Work ?

The work to be done on each procurement

Types of Procurement Statement of Work ?

- Performance
- Functional
- Design
Procurement Documents (Bid Documents) ?

Contains collection of written materials that provide potential seller all

information they need to develop and submit a bid or proposal:
- Request for Information (RFI): looking for information
- Request for Proposal (RFP, Request for Tender): request a detailed proposal on
how the work will be accomplished
- Invitation for Bid (IFB, or Request for Bid, RFB): request a total price to do all the
work
- Request for Quotation (RFQ): request a price quote per item, hour, meter or

other unit or measure

Source Selection Criteria ?

- are included in the procurement documents to give the seller an understanding

of the buyer's needs and to help the seller decide whether to bid or make a
proposal on the work

- help buyer to choose among sellers

Difference between bid and proposal?

- Bid: seller is selected based solely on the price.

- Proposal: seller is selected based on price and proposal (how to do
the work)
When to used Fixed Price Contract ?

- Used for acquiring goods or services with well-defined specifications

or requirements
- There is enough competition to determine a fair and reasonable
fixed price before the work begins
Fixed Price Incentive Fee (FPIF) ?

Profits (or financial incentives) can be adjusted based on the seller

meeting specified performance criteria
Fixed Price Award Fee (FPAF) ?

The buyers pays a fixed price plus an award amount (a bonus) based
on performance.
Total possible award amount is determined in advance and
apportioned out based on performance
Fixed Price Economic Price Adjustment (PFEPA)?

Take in account economic factor for contracts that exist for a multi-
year period and there are uncertainties about future economic
conditions
Purchase Order?

Simple type of contract, normally signed by one party, used for simple
commodity procurements
What is Time And Material (T&M) contracts, when to use ?

- The buyer pays on a per-hour or per-item basis

- Frequently used for service efforts in which the level of effort cannot
be defined when the contract is awarded.
- Has the elements of fixed price contract and cost reimbursable
contract
- Best used for work value at small dollar amounts and lasting a short
amount of time
What is Cost Reimbursable (CR) contracts, when to use ?

- This type of contract provides buyer to pay the seller allowable

incurred costs to the extent prescribed in the contract
- Is used when the exact scope of work is uncertain and, therefore,
costs cannot be estimated accurately enough to effectively use a fixed
price contract
Cost Contract?

The seller receives no fee (profit)

Cost Plus Fee (CPF) or Cost Plus Percentage of Cost (CPPC)

- Buyer pay all costs plus a percentage of costs as a fee

- Bad for buyer
Cost Plus Fixed Fee (CPFF)

- Buyer pays actual costs plus a negotiated fee that is fixed before the
work begins
Cost Plus Incentive Fee (CPIF)

- Buyer pays the actual cost plus a fee that will be adjusted based on
whether the specific performance objectives stated in the contract are
met
- Buyer and seller can share any cost shavings or overruns
Cost Plus Award Fee (CPAF)

- Buyer pays all costs and a base fee plus an award amount (a bonus)
based on performance.
-The award amount is determined in advance and apportioned out
depending on performance
What is Incentive ?

Additional fee provided by buyer if seller meets some cost,

performance, or schedule objectives.
Which contract type is the riskiest for buyer ?

- Cost plus percentage of cost (CPPC)

- Time & Material (TM)
Which contract type is the riskiest for Seller?

Fixed price
Teaming Agreement (Joint Venture) ?

Two sellers sign a teaming agreement with each other to address the
legal and business aspects of the arrangement
Purpose of Conduct Procurement process ?

- distribute procurement document to sellers

- obtain seller responses
- select a seller
- award a contract
ITTOS of Conduct Procurement ?
Objectives of Negotiations ?

- Obtain a fair and reasonable price

- Develop a good relationship with the seller
What is the purpose of a contract ?

- To define roles and responsibilities

- To make things legally binding
- To mitigate or allocate risk
Main items to negotiate ?

- Scope
- Schedule
- Price
Difference between Single Source and Sole Source ?

- Both are noncompetitive procurements

- Single Source: you contract directly with your preferred seller
without going through the procurement process
- Sole Source: There is only one seller (might be a company that owns
a patent)
Purpose to Control Procurements process ?

- Manage procurement relationships

- Monitor contract performance
- Make changes and correction as needed
ITTOS of Control Procurements process ?
Constructive change ?

- is Unauthorized change to contract

- Occur when buyer, through actions or inactions, gets in the seller's
way of performing the work according to the contract . (over-
inspection, failing to cooperate, authorize something without going
through the change process, directs a contractor to do something
outside the scope of the SOW/contract)
What are included in Contract Change Control System ?

- Paperwork
- Tracking system
- Dispute resolution procedures
- Approval level necessary for authorizing changes
Who has the authority to change the contract ?

Procurement manager (contract administrator)

Types of Termination ?

- Buyer terminates a contract for cause if the seller breaches the

contract
- Termination for convenience
Purpose of Close Procurement process ?

- Complete each project procurement

ITTOS of Close Procurement process ?
Purpose of Procurement audits ?

- Capture Lesson Learned

Purpose of Negotiated Settlements ?

- Final settlement of all outstanding issues, claims, disputes using

negotiation or alternative dispute solution (ADR) or litigation in the
courts
What is Procurement Audits ?

- is a structured review of the procurement process to identify

successes or failure in the preparation or administration of contract.
- originating from Plan Procurement process through Control
Procurement
Differences between project/phase closure and procurement closure ?

- There can be many procurement closure >< only 1 project closure

- Procurement closure needs to happen before final project closure
Activities in Procurement closure ?

- Product verification
- Negotiated settlement
- Financial closure
- Procurement audit
- Updates to records
- Final contract performance reporting
- Lessons learned
- Procurement file
- Other