Project procurement management is concerned with purchasing products, services into an organization to perform specific work (Kloppenborg 2008). Organizations are involved in the process as a buyer or seller performing contract management and change control processes. These processes facilitate project team members’ administration of contracts and their obligations by the organization and purchase orders from outside organizations.
A single project management may encompass multiple sub contracts in sequence or simultaneous and each contract life cycle is independent of the project life cycle. Project procurement mimics a buyer-seller relationship and therefore has many levels of buyer and seller engagements that depend on the application area, buyer position and seller position. Kloppenborg (2008) confirms that within a contract life cycle a seller transforms from a bidder, to a selected source and finally into the contract supplier. There are different stages and requirements of project procurement management as outlined in the subsequent sections of this paper.
Plan Purchases and Acquisitions
According to Sanghera (2008), Plan Purchases and Acquisitions is a process of recognizing the most imperative executable project needs that require procurement. This progression is a consideration of whether, how and how much, what and when to acquire. In addition, the process considers potential sellers – to allow the buyer to influence and control contracting decisions, lawful requirements, by-law and organizational policy involved in the project execution. Parties’ responsibilities of holding relevant permits, professional licenses as required by regulation or organization policy in executing the project are placed in consideration. The process reviews both risks associated with each make-or-buy decision and the type of contract used in mitigating risks from the buyer.
Plan Purchases Acquisitions: Inputs
Enterprise Environmental Factors
Stackpole (2010) notes that Enterprise Environmental Factors are essentially, conditions of the marketplace, products, services and results that are available in the market place, sellers and their terms and conditions. Project teams provide resources and expertise required in implementing project procurement activities in cases where the organization lacks a formal purchasing or contracting group.
Organizational Process Assets
The existing formal and informal policies of procurement, procedures, guidelines and management systems that form the development of procurement management plans and the selection of usable contract types form the core provision of organizational process assets. According to Kloppenborg (2008), policies provided in the assets may constraint procurement decisions through limitation of simple purchase orders, requirements for a longer contract for item valued higher than a given threshold, insistence on specific contract types, limitation of the freedom to decide on make-or-buy and finally through specification of seller type and size. There are multi-tier supplier systems in specific application areas of organizations that serve to reduce direct contact with sellers and provide an extended supply chain.
Project Scope Statement
This is a description of project boundaries, requirements, suppositions and constraints associated with the project range. Constraints restrict both the buyer and seller’s options such as availability of funds, specifications on delivery dates, availability of skilled resources and organizational policies. Suppositions include assumed availability of a single-source or multiple sellers. Requirements present in contractual and legal implications include safety, health, intellectual property rights and other specifications outlined.
Kloppenborg (2008) states that the project scope statement precedes the Plan Purchases and Acquisition process by informing executors the project needs and strategies under consideration. It provides a list of what is to be delivered and the acceptance criteria for products, services and results of the project. Furthermore, it accommodates factors that are later included in the procurement documentation to reflect on the sellers contract. The description part of the project scope statement offers vital information on technical issues related to products, services and results of the project. The description part consists of the work breakdown structure and its dictionary component.
Work Breakdown Structure (WBS)
The Work Breakdown structure relates to all the components of the project and their connection with project variables.
This is a collection of detailed work statements providing an identification of deliverables and work description inside each WBS component necessary for the production of each variable.
Project Management Plan
The project management plan covers the whole project and includes lesser plans; scope management plan, quality management plan, procurement management plan and contract management plan. The lesser plans guide and direct the procurement management planning. Existence of other planning outputs is factored in during the Plan Purchases and Acquisitions process and these outputs include:
- Risk register; containing any risk-related information and risk responses.
- Risk-related contractual agreements; encompass agreements for items set to specify each party’s risk responsibility.
Plan Purchases and Acquisitions: Tools and Techniques
Make-or-Buy analysis is a component of the project Plan Purchases and Acquisitions process usable in the determination of the viability of the project team producing a particular product of purchasing the product. The analysis factors in budget constraints, and follows up a buy decision with a purchase or rent analysis. In the analysis, direct and indirect costs are considered (Sollish & John 2007).
Sollish and John (2007) further explain that, decisions made in the make-or-buy analysis also echo the viewpoint of the project team’s organization and direct project needs. In an example, the purchase of an item might not be outright cost effective compared to leasing or renting, however funds available for purchasing the item might be less than the rental price of the item and if the project team’s organization needs the item recurrently then a make option is considered. Long-term project considerations form the input in make-or-buy analysis and may lead to the making of decisions that go beyond the current projects constraints and requirements. This leads to a costs reduction on project compared to the actual project costs and the difference makes up a future investment.
Experts provide a technical analysis of inputs and outputs of the process and the judgement offered can be incorporated in developing or modifying criteria used in the evaluation of offers and proposals to sellers. In legal matters, expert judgement can be sought from lawyers to assist in understanding non-standard procurement terms and conditions. All expertise judgement sought is applicable in technical details of procured products, services and results of the aspects of procurement management process.
Stackpole (2010) breaksdown how specific contract terms and conditions, setting the risk degree facing buyers and sellers, define the contract type as follows:
- Fixed-price or lump sum; there is a total fixed price for a definite product. Incentives for meeting the objectives outlined can be included. A purchase order is the simplest type of this contract and specifies delivery date and price.
- Cost reimbursable; the seller gets a reimbursement of their actual costs and additional specified fee. Costs fall into two categories of direct costs incurred only for the project benefit and indirect costs that are a total of the costs of doing business associated with the project. Indirect consist of a percentage of direct costs. Reimbursements occur as:
- Cost-Plus-Fee (CPF); Also known as cost-plus-percentage of cost (CPPC) and the seller is reimbursed allowed costs and obtains an additional agreeable fee. The additional fee varies with actual cost.
- Cost-Plus-Fixed (CPFF); it is similar to CPF but the additional fee does not vary unless the project scope changes
- Cost-Plus-Incentive-Fee (CPIF); in addition to CPFF condition, the sender receives a bonus after meeting specified performance objectives.
- Time and Material (T&M) contracts; a hybrid of cost-reimbursement and fixed-price types of contract. They are open ended, full value and buyer when awarding contract does not specify exact quantity. When unit prices are defined the contract assumes a fixed nature.
Type of contract adopted also depends on buyer specific requirements, and the seller may claim additional costs for the extra specifications. In cases where a recurrent purchase is probable, sellers entice buyers by quoting lower than normal prices.
Plan Purchases and Acquisitions: Outputs
Procurement Management Plan
This is a description of the procurement process covering initial documentation to contract closure. A procurement management plan includes:
- Contract types to be used
- Need for independent estimates for evaluation and persons to prepare them
- Delegated actions for the project management team, and a confirmation of whether the contractor has a procurement department
- Standard procurement documents as needed
- Management of multiple suppliers
- Coordination of procurement and other project aspects
- Assumptions and constraints to purchasing and acquisitions
- Supervision of lead time necessary for purchase and acquisitions and subsequent coordination with project schedule development
- Handling make-or-buy analysis, linking to Activity Resource and estimating Schedule Development process
- Scheduling contract variables deliverable dates and scheduling with schedule development and control process
- Identification of risk mitigation measures
- Developing seller guide on establishment and maintenance of contract breakdown structure
- Formulation and formatting the contract statement form
- Identification of pre-qualified sellers
- Contract management and seller evaluation metrics to be used
The procumbent management plan does not have to be formal and is a subsidiary of the project management plan.
Contract Statement of Work
Sollish and John (2007) explain that contract statements of work (SOW) define specific items to for procurement and the portion of the project specified in the related contract. Contract SOW is a derivation of the project scope statement, WBS and WBS dictionary. Each procurement item needs a contract SOW however grouping of similar items is possible.
This is a document to containing all make-or-buy decisions made. In essence, it contains a listing of decisions and their justifications.
These may arise from the Plan Purchase and Acquisition process for the project management plan and its subsidiary plans.
Plan Contracting: Tools and Techniques
Standard forms encompass all standardized documentation.
Plan Contracting: Outputs
These are documents used to obtain seller proposals, bids, tenders or quotes. Proposals imply that the procured item is intangible. Level of detail of procurement documents should match the value and risk of the planned procurement. Procurement documents are issued formally as per the organization’s policies.
These are milestones used to rate or score proposals. According to Sollish & John (2007), they may be objective or subjective and form part of procurement documents. Evaluation criteria once identified and documented provide a complex product and service assessment.
Request Seller Responses: Inputs
Organizational Process Assets
Organizational process assets contain documentation of previous seller engagements with the organization that form supporting documents for pre-qualifying sellers.
Select Sellers is a process that receives bids and applies evaluation criteria to select the most qualified seller. During this process, the following are considered individually or together:
- Type of proposal (Commercial, Technical or Management)
- Costs associated with multiple sources
It is the clarification of the construction and necessities of contracts to achieve a mutual agreement before signing the contract. Usually each party appoints a lead negotiator in the process.
The buyer awards a contract to the seller to confirm agreement of procurement. It binds the two parties legally to follow its terms and conditions as laid out in the contract details.
Buyer-Conducted Performance Review
This is a structured review by the seller that compares, progress of delivery of the project scope and quality on schedule within costs as stipulated in the contract. The review offers the buyer a quantification of the seller’s ability to perform.
Inspections and Audits
They are a buyer requirement supported by the seller as per contract documentation and can be conducted seller weakness in meeting deliverables specifications.
It shows the seller efficacy seller in achieving contact objectives.
Information Technology improves the efficiency of contract administration through automation.
Contracting Administration: Outputs
This is a collection of the contract and all documents linked to it.
Requested changes refer to changes made on the project management plan and its subsidiaries.
Recommended Corrective Actions
Anything required in doing, making the seller comply with contract terms.
Correspondence includes the written documentation of aspects of buyer-seller communications. It may include reports of audits and inspections highlighting seller inefficiencies.
Seller Performance Evaluation Documentation
The buyer prepares the seller performance evaluation documentation that showcases the seller’s ability to continue carrying out the current contract. The evaluation indicates the suitability of the seller to meet future project requirements. The document can form forms the basis of early contract termination and determination of penalties and other charges associated with early termination.
This process supports the Close Project process as it encompasses verification and acceptance of all work and deliverables. In addition, administrative activities accompanying verification are also included. All claims unresolved after contract closure is subject to litigation. Early contract termination is a special contract closure that arises after mutual agreement or defaulting by one party. Contract agreements stipulate the rights of termination of each party and compensations due.
Contract Closure: Tools and Techniques
Procurement audits are structured reviews of the procurement process that identify accomplishments and let downs.
Records Management Systems
This is a system of contract documentation keeping, which ensures timely and proper retrieval when needed.
Contract Closure: Outputs
The buyer informs the seller of the completion of the contract through a formal written notice.
The buyer informs the seller of the acceptance or rejection of contract deliverables through a formal written notice as defined in the contract.
Lessons Learned Documentation
The buyer creates documentation for lesson learned analysis and recommendation for process improvement to use in future acquisitions plans and their implementation.
Kloppenborg, TJ 2008, Contemporary project management, South-Western Cengage Learning, Mason, OH.
Sanghera, P 2008, Fundamentals of effective program management: a process approach based on the global standard, J. Ross Publishing, Inc, Dallas, TX.
Sollish, F & John, S 2007, The procurement and supply manager’s desk reference, John Wiley & Sons, Hoboken, NJ.
Stackpole, CS 2010, A User’s manual to the PMBOK guide, John Wiley and Sons, Hoboken, NJ.