Project Management

Chapter 20 : Project Procurement Management

Project Procurement Planning

Scope Statement
Product or Service Description
Procurement Resources
Market Conditions
Make or Buy Analysis
Expert Judgement
Selecting a Type of Contract
Procurement Management Plan
Statement of Work

Solicitation Planning

Procurement Document
Criteria for Judging the Vendor

Solicitation

Short listed Vendor List

Vendor Meetings
Negotiation and its Goals
Advertising
Accepting Proposals

Vendor Selection

Contract Negotiation
Weighting System
Screening System
Developing Independent Estimations

Contracting

Contract Administration

Contract Change Management System

Contract Closing
Chapter Summary

Procuring is one of the major challenges faced by project managers, especially when the project
is one of infrastructure or manufacturing. These projects require various materials and skills from
external sources and therefore its important to adhere to the organizational standards for quality
and price. According to PMBOK, project procurement management is the process of acquiring
goods and services from a firm external to the project organization. There are five key
components in a project procurement management system-project procurement planning,
solicitation planning, solicitation, source selection, contract administration and contract closing.

Project procurement planning is about discovering the needs of the project that can be satisfied
by acquiring products and services from firms external to the project organization. When the
project requires products and services from external firms, it has to go through a series of
activities starting from solicitation planning to contract closure. The project manager should get
help from the professionals in contracting and procurement, if required.

Procurement process is effective if it contributes to organizational profits through discounts on

bulk purchases and quality products and services.

Contract selection is influenced by the project manager's level of uncertainty. While entering into
contract, the vendee always likes to transfer the maximum risk of performance to the vendor,
while the vendor likes to minimize his level of risk and maximize his profit. Generally there are
five major categories of contracts namely:

• Fixed Price (FP) contracts

• Cost Plus Fixed Fee (CPFF) or Cost Plus Percentage Fee (CPPF) contracts
• Guaranteed Maximum Shared Savings (GMSS) contracts
• Fixed Price Incentive Fee (FPIF) contracts
• Cost Plus Incentive Fee (CPIF) contracts

Solicitation is a process of seeking information from all prospective vendors. It is one-way of

knowing the vendor's way of solving the problem or satisfying the project requirements. The
process involves handling the procurement documents, short listing vendors list, negotiating and
advertising and accepting proposals.

In order to administer the contract in an effective and efficient manner, the project organization
should employ a contract administrator to manage total contract administration activities.
Therefore it becomes his responsibility to see to it that the end-product or service matches the
performance expectations of the project.

The project organization has the authority to put an end to a continuing contract at any point of
time depending on the nature of the contract and the terms and conditions that are agreed upon.