Project Procurement Management

By Training Mile - A training & management company

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Introduction
Procurement is a formal process by which many organizations obtain goods & services. Managing procurements require legal knowledge, negotiations and an understanding of the procurement process. The work is analysed if internal resources can do everything, or if any of the work will be outsourced (i.e. make or buy) Once decision is made, procurement SOW is created by the Seller Website: www.training-mile.in Copyrights TrainingMile Decision is made on Procurement Document: RFQ (Request for Quotation) RFP (Request for Proposal) IFB (Invitation for Bid)

Exam tips

Assume you are the buyer All the product & project management work should be stated in the Contract All changes must be submitted and approved in writing A formal change order is required to Change the contarct Contract should help diminish the project work Seller has no choice rather than binding with the contract

Procurement Processes
Plan Procurement Conduct Procurement Administer Procurement Close Procurement

Centralized/ Decentralized Contract These are the way in which procurements can be organized. Centralized : There is one procurement function and procurement manager handles procurement for various projects Decentralized: A procurement manager is assigned to one project full-time and reports directly to project manager.

*The type of organization will impact the project & Procurement managers availability & authority

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Role of a Project Manager in Procurements Know the process to know what will happen when Understand the Contract to abide with it Identify Risk and analysis related Procurements Be involved in Contract Negotiations to protect the relationship between Seller & Buyer Help tailor the Contract to the unique needs to project Fit the schedule for completion of the procurement process Make sure all the work in the Contract is done not only the technical scope Request for change in the contract, if you want to ask for something else in respect of procurements Work with the procurement manager to manage the changes in the contract, if any.

Inputs - Plan Procurements

Scope Baselines Requirement Documents Contracts/Legal contracts Risk Register Risk related Contract Decisions Activity Resource Requirements Cost Performance Baseline Enterprise Environmental Factors Organization Assets

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Tools & Techniques of Plan Procurements

Performing Make-or-Buy Analysis Creating a procurement management plan Creating a procurement state of work Selecting a Contract type Fixed Price/Lump Sum Contract Firm Fixed Price Fixed Price Incentive Fee Fixed Price Award Fee Fixed Price Economic Price Adjustment Cost reimbursement Cost Plus fixed Fee Contract Cost Plus Percentage of Costs Cost Plus Incentive Fee Cost Plus Award Fee Time & Material - Hybrid Creating the procurement documents Determining the source selection criteria- e.g. No of years in business, ability to complete the work on time, Project Management ability etc. Outputs Procurement Management Plan Procurement SOW Make-or-Buy Decision Procurement Documents Source Selection Criteria Changes Requests Website: www.training-mile.in Copyrights TrainingMile

Risk and Contract Type

Buyer
Q1. Who has the risk in a cost reimbursable contract-the buyer or the seller? A: The buyer If the costs increase, the buyer pays the added cost Website: www.training-mile.in Copyrights TrainingMile

Seller

Q2. Who has the cot risk in a fixed price contract- the buyer or the seller? A: The seller. If the costs increase, the seller pays the costs and makes less profit FP

CPPC CPFF

CPAF CPIF

T&M

FPIF

FPEPA

Other Important Terms in the exam: 1. Ceiling Price: The highest price the buyer will pay. 2. Point of Total Assumption(PTA): This is applicable only Fixed price incentive fee contracts. Amount above which the seller bears the cost overrun happened due to mismanagement. Formula: PTA = ((Ceiling price- Target price)/Buyers share ratio ) + Target Cost 3. Target price: The end result cost, which was expected 4. Sharing Ratio: Incentive usually are expressed in a ratio. The sharing ratio describes how the cost savings and cost overruns will be shared.

Other Terms used in Exam

Non disclosure Agreement Teaming Agreement/Joint Venture Special Provision/Special conditions Terms & Conditions: Acceptance Criteria Agent (Who is the authorized representative of each party) Assignment( Circumstances under which one party can assign its rights to others) Authority Bonds Breach/Default(extremely serious event) Changes Confidentiality Dispute Resolution Termination Force Majeure (Fire/Electric Storm, It is usually resolved by the seller receiving an extension of time) Indemnification/Liability (Who is liable for personal injury, damage, accidents) Intellectual Property (Who owns the patents, trademarks, copyrights, processes, source codes Waivers Warranties Letter of Intent (If the Contract is not signed on time, seller may ask buyer to provide letter of intent for hiring people or purchasing new equipment etc. to fulfil the contract needs) Privity Contractual Relationship Single Source- Contract directly with a preferred seller bypassing the procurement process Sole Source- A company a patent, which is the only seller in this case

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Conduct Procurements
Getting procurement Documents prepared as per Plan Procurements Process Reviewing the seller responses for selecting the seller

After Seller/ Vendor Selection : Negotiations (Scope/ Schedule/ Price) Why do we need a contract? To define Roles & responsibilities To make things legally binding To mitigate or allocate RISK

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1. Advertising 2. Pre-qualified Seller List 3. Bidder Conferences 4. Sellers Proposal & Proposal Review 5. Weighing Systems (Similar to Source Selection Method) 6. Independent Estimates 7. Screening Systems 8. Past performance history 9. Presentations

Administer Procurements
Managing the relationship between the buyer and the seller and assuring that the performance of both the parties to the procurements meets the contractual requirements Actions to be taken under administer procurements by Project Manager/ Procurement Manager Review Invoices Complete Integrated Change Control Documentation (Record everything) Authorize payments on time to the seller Resolve disputes Make sure only authorized people are communicating with the seller Monitor the cost , schedule and technical performance against the contract at all times Perform Inspects and Audits Identify risks and Control risks Understand the legal implications of actions taken Report the performance to all the stakeholders Work with the procurement manager for evaluating & managing changes Interpret what contract means Verify the correct scope is being done Review the claims filled by the seller asserting damages against buyer Control quality according to what is required in the contract

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Close Procurement
Procurements are closed: When a contract is completed When a contract is terminated before the work is completed Procurement closure needs to happen before the project closure Closure provides value to both the buyers and sellers and should not be avoided in any circumstances If contract is terminated then procurements are closed through negotiated settlements between both the parties Following should be done for Procurement Closure: 1. Product Verification 2. Negotiated Settlement Final settlement of claims, Invoices and other Issues 3. Procurement Audit 4. Update records 5. Final Contract Performance Recording 6. Lessons Learnt 7. Procurement File Contract, Changes(Approved/Rejected), Submittals from the seller, Seller performance Reports, Financial Information's, inspection results, 8. Other activities Arranging the storage of records and drawings, if any Creating & Delivering Legal Documents Returning Property used for procurement to its owner Formal Acceptance and Closure: Seller has to receive a final sign off In gaining sign off, seller also works to measure customer satisfaction

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Thank you!
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