Procurement Management

By Abdullah Sahi
M.Phil (LSBU,UK)

Visiting Faculty member

1. College of Actuarial sciences and Statistics, Punjab University , Lahore

2. Hailey college of commerce , Punjab University , Lahore
3. NCB&E west canal Campus, Lahore
4. Global Institute Lahore.
Lecturer
University of Lahore

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
What is Procurement Management
• Includes the processes required to acquire
goods/services from outside the project team
• It also includes Contract Management and
Change Control Processes
• Includes controlling an contract issues by an
outside organisation

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 What is Contract ?
• A Contract is legally binding detailed formal
document that refers to an entire agreement
between 2or more parties
• All terms and conditions of contract must be
met
• Any thing not mentioned in the contract is not
legally binding to anyone.

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Procurement Process
1. Plan procurement
 Spot the product /services that can be acquired from outside the
project organization as well as needs fulfilled by Project team
2. Conduct Procurement
• Obtaining seller responses
• Selecting seller and awarding contract
3. Control Procurement
 Managing Procurement Relationship
 Monitoring Contract performance
4. Close Procurement
 Process of completing the each project procurement
 It may involve multiple contracts/sub contracts

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Plan Procurement
• Consideration of potential sellers
• It can also influence project schedule, resource
estimation and make/buy decision
• Analysis of risks factors in procurement and type of
contract to be used

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Plan Procurement (Inputs)
1. Project Management Plan : it describes need, Justification, requirement
and current boundaries of project
2. Project Scope Statement:
 It may contain product scope description, service description and result description.
 List of deliverables
 Acceptance criteria
 Issues that can impact the cost of estimation
 Skilled available and organizational policies
3. Legal and contractual requirements of Documents
4. Risk Register
 List of risks
 Result of risk analysis
 Risk Response Planning

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Plan Procurement (Inputs)
5. Activity Resource requirements
 It contains information on specific needs i.e. People, equipment, location
6. Enterprise Environmental factors
 Micro factors
 Macro factors
7. Organizational process Assets:
 Formal procurement Policies, procedures and guide lines
 Management system
 Establishment of multi tier supplier system

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Types of Contracts
1. Fixed Price
• Well defined scope/product
• Fixed total price for a defined product/service to be
provided
• Risk is on seller
Types of Fixed Price Contract
• Firm Fixed Price(FFP)
– Favourable for buying organisation price of goods is set at the
beginning and not subject to change unless the scope of work
changes
– Buyer should precisely specify product/service to be procured

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Types of Contract(Fixed price Contract)
Fixed price Incentive Fee Contract:
 It provide flexibility to buyer and seller
 Performance targets are established at the start and final contract
price determined after completion of all work based on seller’s
performance.
Fixed price with Economic price adjustment contract:

 This type of contract used when seller’s services needed for many
years
 Economic Price Adjustment(EPA)
 Changes in inflation
 Prices Variation in commodities
 EPA could be related to financial index (As a benchmark)

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Types of Contracts (Cost Reimbursable
Contract)
2. Cost Reimbursable Contract
• Payment of actual cost plus fee representing seller’s profit
• Risk is on the buyer
Types of Cost Reimbursable Contract
• Cost Plus Fixed Fees Contracts(CPFF)
– Cost plus fixed fee payment calculated as percentage of initial
estimated of project cost
• Cost Plus Incentive Fee Contracts(CPIF)
– Cost plus incentive fee based on certain performance
objectives {80(cost)+20(Performance objectives)}

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
Types of contract(cost reimbursable contract)

• Cost Plus Award Fee Contracts(CPAF)

– Cost plus satisfaction on bases of subjective board
performance of seller
– Subjective performance criteria :
• Price competition
• Time certainty
• Innovative design
• Complicated technology in building
• Flexibility

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Types of contracts
3. Time and Material

 It contain both aspects of cost reimbursable and

fixed price contract
 Cost is charged to spot tasks of an on going
activity for example: Paid Research
 Risk is on buyer side

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
Contract Type Selection

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
Plan Procurement: Tools and techniques

1. Make or Buy Analysis:

Reasons to Buy:
• Capacity and capability
• Exploit opportunity
• Shift risk( cost, time, scope)
Reasons to Make:
• Idle resources
• Want to control
• Confidential information
Chaudhry Abdullah Imran Sahi
M.Phil(LSBU, UK)
Plan Procurement: Tools and techniques

2. Expert Judgement:
 Legal Judgement
 It need the services of legal staff to assist on issues
of procurement, terms and conditions
3. Market Research
 Examination of industry and specific vendor
capabilities
4. Meetings

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Plan Procurement: Out puts
1. Procurement Statement of Work:
It may include following
 Specification
 Quantity desired
 Quality level
 Performance data
2. Procurement documents:
Following may be examples of procurement documents
 Invitation for bid
 Request for proposal
 Request for Quotation
Chaudhry Abdullah Imran Sahi
M.Phil(LSBU, UK)
 Conduct procurement: Inputs
1. Seller proposal:
 On the basis of procurement documents the basic
information that will be used by evaluation body to
select one or more successful bidders
2. Make or buy decision:
 Core capabilities of organization
 Values delivered by vendors meeting the needs of
project
 Risk associate with meeting need in cost efficient
manner
 Capability compared with vendor community
Chaudhry Abdullah Imran Sahi
M.Phil(LSBU, UK)
 Conduct procurement: Inputs
• Organizational process assets:
– Listing of prospective and previously qualified
sellers
– Information on relevant past experiences of sellers
– List prior agreements

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
Conduct Procurement: Tools and techniques

• Bidder conferences
– These are meetings between buyer and all
potential seller prior to submission of bid or
proposal
– Arranging field visit for bidders
• Independent Estimates
– For procured items estimates of cost prepared by
an outside professional estimator to serve as
bench mark on proposed responses
Chaudhry Abdullah Imran Sahi
M.Phil(LSBU, UK)
Conduct Procurement: Tools and techniques

• Expert Judgement:
– Evaluation of seller proposal by different
functional expertise
• Analytical techniques
– By examining the past performance teams may
identified the areas that may have more risks and
that need to be monitored closely to ensure the
success.

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Conduct Procurement: Outputs
• Selected sellers
• Agreements:
– A procurement agreement includes terms and
conditions with respect to buyer
– A contract is legal relationship and subject to
present in the court in case of dispute.
– Following may be components of agreements
• Pricings
• deliverables

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Conduct Procurement: Outputs
• Penalties
• Insurance
• Performance
• Warranty
• Alternative dispute resolution mechanism

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Control Procurement
• It is process of managing procurement
relationship, monitoring contract ,
performance, making changing to contract as
appropriate.
• It ensures that both sellers and buyers
performance meet procurement requirement
according to terms of legal agreement

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Control Procurement
• Integrate d change control:
– To manage the impact of change on the project
through submission, review and approval of
changes in many of forms
• Project Management process :
– Direct and manage the project work
– Control quality
– Perform integrated change control
– To control the risks: to ensure risks are mitigated
Chaudhry Abdullah Imran Sahi
M.Phil(LSBU, UK)
 Control Procurement
• Financial Management
– Concerned with the relationship of payment made
to seller inline with work accomplished

Performance Review of seller

– It used to measure competency of seller ,which

could be later used for future project
– Termination of contracted work
Chaudhry Abdullah Imran Sahi
M.Phil(LSBU, UK)
 Control procurement :Inputs
• Work Performance reports:
– Technical documentation
– Work performance information
• Work performance data:
– Extent to which quality standards are being
satisfied
– Costs have been committed
– Payment of seller’s invoice

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
Control Procurement : Tools and techniques

• Procurement Performance Review:

– Sellers observed with respect to following

• Project Scope
• Quality
• Cost
• Schedule
– As compare to contract

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
Control Procurement : Tools and techniques

• Inspection and audit

• Payment system

• Record Management system

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Control procurement : Out Put
• Work performance information
• Organization process assets updates:
– Correspondence among buyer/seller mostly in
documented forms
– Payment schedules and requests
– Seller performance evaluation and doucmentation

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Close procurement:
• It is process of completing each
procurement
• Closure of administrative
activities
• Information could be saved for
future use
Chaudhry Abdullah Imran Sahi
M.Phil(LSBU, UK)
 Close procurement: inputs
• All core points already discussed

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
Close procurement: Tools and techniques

• Procurement audits
• Procurement Negotiations
• Record management system
– To manage contracts
– To manage procurement documents and records
– Archival of correspondence with sellers

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)
 Close procurement: Out Put
• Close procurement:
– Formal written notice provider to seller that
contract has been completed
• Organizational process assets updates:
– Procurement file:
– Deliverable acceptance
– Lesson learned documentation
• What has been experienced
• Improvement of processes and future recomendaitons

Chaudhry Abdullah Imran Sahi

M.Phil(LSBU, UK)