Project Procurement Management
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Buys pay
for the service from a Seller (seller may also be the performing organisation)
§
sellers
are external to the project team
§
need to
go through all 4 processes for each and every procurement
§
Contract
Elements:
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offer (seller offer buyer)
§
acceptance (buyer criteria)
§
capacity (physical/financial
capabilities)
§
consideration (seller receive)
§
legal
purpose (must
be legal under law)
§
PM needs
to understand terms and conditions, identify risks, include procurement
schedule and involve in negotiations
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Centralized contracting vs
Decentralized contracting
§
Procurement
Categories:
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major
complexity (high risk)
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minor
complexity (low risk, expensive)
§
routine
purchase (Commercial Off the Shelf Products COTS)
§
goods and
services (to perform part of our product)
§
Suppliers
can be:
§
sole
source
§
single
source (preferred, for building a long-term relationship)
§
oligopoly
(very few sellers)
§
a
contract is not required to be written, it can be verbal or handshake, for
internal projects, a formal contract is best
Plan
Procurement Management
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Inputs: Project Charter, Business
Documents, Project Management Plan, Project Documents, EEF, OPA
§
Tools
& Techniques: Expert Judgement, Data Gathering (e.g. Market Research), Data Analysis,
Source Selection Analysis, Meetings
§
Outputs: Procurement Management
Plan, Procurement Strategy, Bid Documents, Procurement
Statement of Work, Source Selection Criteria, Make-or-buy Decisions, Independent Cost Estimates (inside or outside the
organization), Change Requests, Project Documents Update, OPA Updates
§
identify
explicitly what is needed
§
identify
possible sellers and pre-meeting with them
§
make-or-buy
analysis (determine
whether to obtain products/services outside of the organization) is a
compulsory process, needs to take risks into
considerations
§
carefully
written terms and conditions can transfer/share risks
§
teaming
agreements or joint ventures
§
Procurement
Documents:
§
request
for proposal (RFP)
§
invitation
for bid (IFB)
§
request
for quote (RFQ)
§
request
for information (RFI)
§
tender
notice
§
invitation
for negotiation
§
seller
initial response
§
The
procurement management plan specifies how a project will acquire goods/services
from outside, includes contract type, risk management, constraints and
assumptions, insurance requirements, form and format, pre-qualified sellers,
metrics used, etc.
§
Return on
investment (ROI)
§
Internal
rate of return (IRR)
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Discounted
cash flow
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Net
present value (NPV)
§
Benefit/cost
analysis (BCA)
§
target
cost = total cost = estimated cost, total price = total cost + total profit
§
Point
of Total Assumption –
(in fixed-price (incentive fee) contracts) in budget
overrun, the point at which the seller assumes all additional costs for
delivering the product/service
§
PTA
= (Ceiling Price – Total Price) / Buyer’s Share Ratio + Target Cost
§
PTA
= Target Cost + (Ceiling Price – Target Price) / % Share of Cost Overrun
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Procurement
Statement of Work (SOW) is a legal document subject to legal reviews, legal
advice should be sought throughout the whole procurement process, can be
developed by the seller or buyer and must be detailed enough to allow the
potential sellers to decide whether they want/are qualified (at a minimum) to
pursue the work
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performance (describe what can be
accomplished)
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functional (convey the end purpose or
result)
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design (convey precisely what are
to be done),
§
Evaluation
Criteria: risk,
understanding of need, life-cycle cost, technical capability, management
approach, technical approach
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Procurement
Strategy (new in PMBOK® Guide 6th Edition)
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the
procurement strategy determines the project delivery method:
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with/without
subtracting, joint venture, representative, etc.
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turnkey,
design and build (DB), build own operate transfer (BOOT), etc.
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contract
payment types:
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Firm
Fixed Price (FFP)
– the price is fixed, specifications are well known, risk on the seller
§
Fixed
Price Incentive Fee (FPIF) – incentives for faster/better than contracted
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Fixed
Price with Economic Adjustment / Economic Price Adjustment (FPEA / FP-EPA) –
inflation are taken into account
§
Purchase
Order (PO) – for off-the-shelf goods/services with published rates
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Cost
Reimbursable (CR)
/ Cost Plus – buying the expertise (not the products), outcome is not clear,
risk on the buyer, little incentive to control costs on buyer, need invoice
audits
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Cost Plus
Fixed Fee (CPFF)
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Cost Plus
Incentive Fee (CPIF) – incentive for performance, sharing of unused money if
under/over contracted amount
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Cost Plus
Award Fee (CPAF) – award to be given based on agreed criteria, solely decided by the customer on the degree of
satisfaction
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Cost Plus
Percentage of Costs (CPPC) – illegal for contracts with US Government
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Cost
Contract – no profit, for NGO
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Best
Efforts – obligates the seller to utilize best attempts, high uncertainty in
meeting the goal
§
Time
and Materials (T&M)
– (hybrid type) when scope is not known, need constant
monitoring to control schedule and cost, simple, for short duration, good for
proof-of-concept type projects
§
procurement
types
§
Bid
Documents
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Request
for Proposal (RFP) – cost reimbursable contract, functional/performance SOW
§
Invitation
for Bid (IFB) / Request for Bid (RFB) – fixed-price contract, design SOW
§
Request
for Quote (RFP) – time and material, any type of SOW
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Contractual
Terms
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Cancellation
for Convenience –
buyer can cancel and pay up to the point
§
Cancellation
for Cause – default
by either party, may result in legal actions
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Escrow –
survivability of seller in doubt, put the product in escrow (esp. if seller
does not give up intellectual properties)
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Force
Majeure –
standard disclaimer refers to ‘Acts of God’
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Indemnification
/ Liability – responsible party
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LOI
Letter of Intent – not legally binding
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Privity – the contractor may use
sub-contractor, no direct contractual relationship with buyer
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Retainage
– amount to be withheld to ensure delivery
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Risk of
Loss – how the risk is shoulder by the parties
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Time
is of the Essence –
delay in delivery will cause cardinal breach of contract
§
Work
Made for Hire – all
work owned by the buyer
Conduct
Procurements
§
Inputs: Project Management Plan,
Project Documents, Agreements, Procurement Documentation, Seller Proposals,
EEF, OPA
§
Tools
& Techniques: Expert Judgement, Advertising, Bidder Conferences, Data Analysis,
Interpersonal and Team Skills
§
Outputs: Selected Sellers, Agreements,
Change Requests, Project Management Plan Updates, Project Documents Update, OPA
Updates
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identify
the sellers and award the contracts
§
PM may
not be the lead negotiator on procurement but may be present to assist
§
may need senior management approval before awarding
the contracts
§
bidder’s
conference is a Q&A session with bidders, all bidders receive the same
information (bidder are careful not to expose their technical approach during
the session => may not have many questions)
§
remember NOT to have secret meetings or communications with
individual vendors
§
review
seller proposals: weighting systems, independent estimates, screening systems
(screen out non-qualified vendors), seller rating systems (for past
performance), expert judgement
§
Data
Analysis includes ensuring that proposal is full and complete
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Contract
Negotiations and Tactics
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Fait
Accompli –
not negotiable terms
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Deadline
– deadline for deliverables
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Good Guy/
Bad Guy – one friendly, one aggressive
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Missing
Man – decision maker is missing
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Limited
Authority – not given authority
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Fair and
Reasonable – what is fair?
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Unreasonable
– making unreasonable demands
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Delay –
esp in critical moments
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Attack –
force compliance
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The
agreement is legally binding and should include (PM should NOT attempt to write
the agreement):
§
statement
of work, schedule baseline, performance reporting, the period of performance,
roles and responsibilities, warranty, payment terms, fees and retainers,
incentives, liability, penalties, etc.
Control
Procurements
§
Inputs: Project Management Plan,
Project Documents, Agreements, Procurement Documentation, Approved Change
Requests, Work Performance Data, EEF, OPA
§
Tools
& Techniques: Expert Judgement, Claims Administration,
Data Analysis, Inspection, Audits
§
Outputs: Closed Procurements, Work Performance Information,
Procurement Documentation Updates, Change Requests, Project Management Plan
Updates, Project Documents Update, OPA Updates
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would be
performed by both seller and buyer
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manage
procurement relationships, monitor contract performance, make change and
corrections
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Data
Analysis Techniques:
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Performance
reviews
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Earned
value analysis (EVA)
§
Trend
analysis
§
the
procurement administrator may be external to the
project team
§
to close
a procurement, the project management team should check and approve all
deliverables and a written notice be sent to the seller (closed procurement)
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may
identify early signs and capture details for pre-mature termination of a
contract
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For Fixed Price contracts, look out for Bait and Switch (replace with cheaper materials),
look out for excessive change requests
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For Cost Reimbursable contracts, audit all invoices,
look out for additional charges, tie payment to milestones, make sure people
with the required skill sets are doing the job
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For Time and Materials contracts, ensure hours are not
padded, follow the milestone dates
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the
claims administration process deals with changes/disputes, disputes is best to be settled through negotiation > ADR
§
may need
Alternative Dispute Resolution (ADR) by 3rd parties in case disputes cannot be
settled
§ OPA may include the seller’s
performance
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