project management-project procurement management

By: Yogender S Rana ( [email protected])

Project Management Project Procurement Management

by:Yogender Rana


ProcurementProcurement:Procurement is the acquisition of goods and/or services at the best possible total cost of ownership, in the right quantity and quality, at the right time, in the right place and from the right source for the direct benefit or use of corporations, or individuals, generally via a contract. Procurement planning identifies which part/s of the project should be procured from resources outside of the organization. Weather or not to procure resources from outside depends upon what is more cost effective and certain other factors.

One of the most important aspects of procurement is contract and vendor management. There are different type of contract, out of which an organization chooses the most profitable one for its project. Contract closure includes setting all planned objectives with the vendor and the confirmation that all obligations of the contract were met as expected. The final step is the project closure which includes processes at various levels of the organization.


Learning Objective Identifying which part/s of the project should be procured from

outside the organization is known as procurement planning. Many factors influence the decision of weather make or to Buy

certain equipment's; principal among them is cost-effectiveness. Contracts are of 4 Types- Fixed-price, cost-plus, time & materials

and technical & commercial contracts. Contract Administration has 2 main aspects- Performance Reports

(Reviewing vendor performance) & Change Request ( Request of change in cost, scope or time duration of project).

Contract Closure: is the information that all obligations related to the contract have been met & auditing of the entire procurement process has been done. Project closure works at many levels like at the organizational & administrative level, requires a work performance information and fullfilmnet of the objectives of the project.


Managing RiskProject Procurement Management includes the processes necessary to purchase or acquire products, services or results needed from outside the project team. The organization can either the buyer or seller.

Project procurement management also includes administering any contract issued by an outside organization(the buyer) that is acquiring the project from the performing organization(the seller) and administering contractual obligation placed on the project team by the contract.Project Procurement Management processes include the following. Plan procurements Conduct procurements Administer procurements Close procurementsThe project procurement Management processes involve contracts that are legal documents between a buyer and seller.


Glossary of Terms A contract represents a mutually agreement that obligates the seller to provide the

specified products, services or result and obligates the buyer to provide monetary or other valuable consideration.

Depending upon the application area a contract can be called an agreement, understanding, a subcontract or purchase order. The legally binding nature of a contract usually means that it will be subjected to a move extensive approval process.

Depending on the application area of the seller can be called a contractor, subcontractor, vendor, service provider or supplier.

Depending on the buyer’s position in the project acquisition cycle, the buyer can be called a client, customer, and prime contractor, acquiring organization, governmental agency, service requestor or purchase.

The seller can be viewed during the contract life cycle first as a bidder then as the selected source and then as the contracted supplier or vendor.


Plan ProcurementsPlan Procurements is the process of documenting project purchase decisions, specifying the approach and identifying potential sellers. It identified those project needs which can best be, or must be, met by acquiring products, services or results outside of the project organization, versus those project needs which can be accomplished by the project team.The plan procurements process includes consideration of the risks involved with make-or-buy decision.Inputs: Teaming AgreementsTeaming agreements are legal contractual agreements between two or more entities. The agreement defines buyer-seller roles for each party. Whenever the new business opportunity ends, the teaming agreement also endsTools and Techniques Make-or-Buy Analysis Contract Types


Introduction


To make or To Buy?


Contract Types -1All legal contractual relationship generally fall into one of two broad families, either Fixed-Price or Cost Reimbursable. Also, there is a third-type called the Time and Materials Contract.Fixed Price Contracts: This category of contracts involves setting a fixed total price for a defined products or service to be provided. Fixed-price contracts may also incorporate financial incentives for achieving or exceeding selected product objectives. Firm Fixed Price Contracts ( FFP) Fixed Price Incentive Fee Contracts ( FPIF) Fixed Price with economic Price Adjustment Contracts (FP-EPA): This contract type is

used whenever the seller’s performance period spans a considerable period of years. Its is a fixed-price contract, but with a special provision allowing for pre-defined final adjustments to the contract price due to changed conditions, such as inflation changes, cost increased(or decreased) for specific commodities. The FP-EPF contract is intended to protect both buyer and seller from external conditions beyond their control.


Contract Types -2Cost Reimbursable Contracts: This category of contract involves payment ( cost reimbursements) to the seller for all legitimate actual costs incurred for completed work, plus a free representing seller profits. Cost Plus Fixed Fee Contracts (CPFF): The seller is reimbursed for all allowable costs

for performing the contract work receive a fixed fee payment calculated as a percentage of initial project costs.

Cost plus incentive Free Contracts(CPIF): The seller is reimbursed for all allowable costs for performing the contract work and received a predetermined incentive fee based upon achieving certain performance objectives as set forth in the contract. If the final costs are less or greater than the original estimated costs, then both the buyer and seller share costs from the departures.

Cost Plus Award Fee Contracts(CPAF): The seller is reimbursed for all legitimate costs, but the majority of the fee is only earned based on the satisfaction of certain board subjective performance criteria defined and incorporated into the contract.


Contract Types -2

Time and Material Contracts ( T&M) : Time and material contracts are a hybrid type of contractual agreement. These types of contracts resemble cost-reimbursable contracts in that they can be left open ended and may be subject to a cost increase for the buyer. T&M contracts can also resemble fixed unit price arrangements when certain parameters are specified in the contract.


Procurement Plan Outputs Procurement Management Plan describes how the procurement processes will be

managed from developing procurement documents through contract closure. The procurement management plan can include for types of contracts to be used, managing multiple suppliers, handing lead times to purchase items, handling make-or-buy decisions.

Procurement statements of work describes the procurement item in sufficient details to allow prospective seller to determine if they are capable of providing the products, services or results. Information included in a SOW can include specifications, quantity desired, quality levels, performance data, period of performance, work location.

Procurement Documents: Terms such as bid, tender, or quotation are generally used when the seller selection decision will be based on the price while a term such as proposal is generally used when other considerations, such as technical capability or technical approach are paramount.

Common terms are in use for different types of procurements documents and may include request for information invitation for bid (IFB),request for proposal(REP), request for quotation(RFQ), tender notice.


Source Selection CriteriaCriteria are developed and used to rate or score seller proposals and can be objective or subjective. Selection criteria can be limited to purchase price other selection criteria can be identified.In the weighting system, the decision makers mark out their preference & accordingly weights are assigned to the values of the proposal. Each proposal is cored and the vendor with the highest score is chosen.1. Overall or life cycle cost 2. Production capacity 3. Technical Capability4. Past performance of seller 5. Risk 6. References 7. Warranty8. Financial capacity 9. Intellectual property rights


Conduct ProcurementsConduct Procurements is the process of obtaining seller responses selecting a selller and awarding a contract. A short list of qualified seller can be established based on a preliminary proposal.Inputs include procurement Documents, Selection Criteria, Qualified Seller List and Seller proposal.Tools and Techniques: Bidder Conferences: Sometimes called contractor conference, vendor conference and pre-

bid conference are meeting with all prospective sellers and buyers prior to submittal of a bit or proposal.

Independent Estimates: For many procurement items the procuring organization may elect to prepare its own independent estimate or have an estimate of costs prepared by outside professional estimator.

Proposal Evaluation Techniques Adverting Internet Search Procurement Negotiations


Conducts Procurements: Outputs(Procurement Contract Award)

A procurements contract is awarded to each selected seller. The contract cab be in the form of simple purchase order. The major component is a contract document will vary, but will sometimes include the following. Statement of work or deliverables Performance reporting Period of performance Roles and responsibilities Pricing Payment terms, Product supports Penalties Incentives Termination


Administer ProcurementAdminister procurements is the process of managing procurement relationship, monitoring contract performance and making changes and corrections as needed. Administer procurements also has a financial management component that involves monitoring payments to the seller.

Due to varying organizational structures, many organizational treat contract administration as an administrative function separate from the project organization.

The administer procurements process reviews and documents how well a seller is performing or has performed based on the contract and establishes corrective actions when needed. Administer procurements includes managing any early terminations of the contracted work.


Administer Procurement: Tools and Techniques Contract changes Control System: It defines the process by which the procurement

can be modified. Procurement Performance Reviews: is a structured review of the seller’s progress to

deliver project scope and quality, within cost on schedule, as compared to the contract.

Claims Administration: Contested changes and potential constructive changes are those requested changes where the buyer and seller cannot reach an agreement on compensation for the changes, or cannot agree that a change has occurred. These contested changes are variously called claims, disputes, or appeals. Settlement of all claims and disputes through negotiation is the preferred method.

Records Management System: is used by project manager to manage contract and procurement document and records.

Inspections and audits


Close Procurement

Contract closure also involves auditing the procurement process from the procurement planning stage through the contract administration. The main aim of auditing is to identify the successes & failures within the procurement process in the project-in other words, what worked & what didn’t.

Once the contract has been confirmed closed, all the contract information should be collected and recorded in a contract file. A contract file is fully indexed set of records of the procurement process & is incorporated into the contract closure process. Financial information, as well as information regarding the performance of the contract is part of these records.

Close procurement process of completing each project procurement. It involves verification that all work and deliverables were acceptable.


Close Procurement

The close procurements process also involves administrative such as finalizing open claims updating records to reflect final results and archiving such information for future use. Unresolved claims may be subject to litigation after closure.

Early termination of a contract is a special case of procurement closure that can results from a mutual agreement of both parties, from the defaults of one party, or convenience of the buyer if provided for in the contract.

The buyer usually provides the seller with formal written notice that the contract has been completed.


Project Closure Organization Process: Every organization has certain procedures related to financial

reporting & human resource obligations that project managers must follow to close the project.

Work Performance Information: A project is not closed by declaration of completion alone; work performance information defining schedule, costs & objectives have been meet must be submitted.

Objectives: Obviously the objective that has been delivered at the end of the project serves as an input to the project closure.

Administrative closure: This refer to all the formal activities necessary to close the project. It involves the project manager, the project team, sponsors, key stakeholders & vendors. It includes the following activities.

Collection & Assembling of project records Analysis of the project’s success or failure Documentation of lesson learned Archiving project data for future reference


The End

Thanks for reading

ByYogender Singh Rana

project management-project procurement management

Environment

project organization

project closure

project needs

contract closure

yogender s rana

onthe project team

project acquisition

contract administration