Chapter 2: Project procurement management process (PPMP)

 Project procurement management: is a process of acquiring goods

and services for a project from outside the performing
organization
• Processes include:
• Planning procurements: determining what to procure, when, and how
• Conducting procurements: obtaining seller responses, selecting sellers,
and awarding contracts
 Solicitation planning: documenting product requirements and
identifying potential sources
 Solicitation: obtaining quotations, bids, offers, or proposals as
appropriate
 Source selection: choosing from among potential vendors
• Administering procurements: managing relationships with sellers,
monitoring contract performance, and making changes as needed
• Closing procurements: completing and settling each contract,
including resolving of any open items
(1) Procurement Planning
o This should take place well before taking any purchasing
action.
o It describes which product will be acquired from vendor as well
as when and how they will be acquired. What, When, How
o Template
• Items to be procured
• Evaluation criteria
• Procurement Method
• Schedule/ Date of delivery
• Ownership rights of the source code
• Ownership rights of the production
o One of the major initiative to improve procurement system

2
(1) Procurement Planning…
o Procurement planning, prior to any action taken, is essential
for the timely solicitation of quotations, bids or proposals;
the award of contracts; and the delivery of inputs.
o Procurement planning entails more than the selection of a
procurement method for various goods, works and services
and when to schedule activities, but combines the legal and
institutional frameworks in which procurement must be
carried out. Business Units should consider the following:
 Types of goods, works or  Requisitions;
 Delivery time and place;

services required;  Evaluation criteria;

 Method of procurement;  Justification for non-

 Potential sources;
competitive procurement;
 Estimated costs;

 Source of funds; 3
(1) Procurement Planning… Pla
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Inputs Tools & Tech. Outputs

1. Scope Baseline 1. Procurement

1. Make –or –buy
2. Requirement management plan
analysis
Documentations 2. Procurement
2. Expert Judgment
3. Teaming agreements statements of work
3. Contract Types
4. Risk Register 3. Make –or –buy
5. Risk-Related Contract decisions
decisions 4. Procurement
6. Activity resource documents
requirements 5. Score selection
7. Project schedule criteria
8. Activity cost estimates 6. Change requests
9. Cost performance
baseline
10. Enterprise
environmental
factors
11. Organizational
process assets
PLAN PROCUREMENTS (INPUTS):
1.1 scope baseline: describes the need, Justification, Requirements and
current boundaries of the project and it is contain:
- Scope statement
- WBS
- WBS Dictionary
1.2 Requirements Documentation: include
- important information about project requirements
- requirements with contractual and legal implications that
may include Health, Safety
1.3 Teaming Agreements: legal contractual agreements between two or
more entities to form a partnership or joint venture, or some other
arrangement as defined by the parties
1.4 Risk Register: include risk-related information such as the identified
risk, risk owners and risk responses
1.5 Risk Related Contract Decision: include insurance, bonding, services
that linked to a specific risk
PLAN PROCUREMENTS (INPUTS):
1.6 Activity Resource Requirements: contain information on specific needs
such as people, equipment or location
1.7 Project Schedule: contain information on required timelines or mandated
deliverable dates.
1.8 Activity Cost Estimates: used to evaluate the reasonableness of the bids of
proposals received from potential sellers
1.9 Cost Performance baseline: provide detail on the planned budget over time
1.10 Enterprise Environmental Factors: include
- Marketplace conditions
- Product and service that are available in the market
- Suppliers, including past performance
- Typical Terms conditions for product or service
- Unique local requirements
1.10 Organizational Process Assets: include
- formal procurement policies, procedure and guidelines
- Management system
- system of pre-qualified sellers
PLAN PROCUREMENTS (TOOLS & TECH.)
2.1. Make –or –buy Analysis: means figuring out whether or not you
should be contracting the work or doing it yourself. It could also mean
deciding whether to build your own solution to your problem or buy one
that is already available.
1.2 Expert Judgment: means asking someone who’s made the same kind
of decision before to help you look at all the information you have for
your project and make the right decision
1.3 Contract Type: determine the risk shared between the buyer and seller
Type of contracts
Fixed-Price Contracts
• Firm Fixed Price Contract (FFP)
• Fixed Price Incentive Fee Contracts (FPIF)
• Fixed Price with Economic Price Adjustment Contract (FP-EPA)

Cost-Reimbursable Contract
• Cost Plus Fixed fee Contract (CPFF)
• Cost Plus Incentive fee Contract (CPIF)
• Cost Plus Award fee Contract (CPAF)

Time and Material Contract (T&M)

2.1. Make –or –buy Analysis
• Comparing the cost of Make or Buy
• Question: You are considering whether to buy or make a
software product:
• If you buy, the cost is $ 80,000, and the cost of procurement and
integrating in your company is $ 1,000
• If you want to make it yourself, the product will require seven
software engineers working three months. Salary of each software
engineer is $ 4,000 per month. The overhead costs apportioned to
the project will be $ 2,000.
• Which option will you choose—make or buy?
• Answer: If you buy, cost will be: $ 80,000 + $ 1,000= $ 81,000
• If you make, cost will be: $ 4,000 x 7 x 3 + $ 2,000= $ 86,000
So, it is better for you to buy
Comparing the cost of Rent (lease) or Buy:
• Question: You are considering whether to buy or lease a machine
for your heavy engineering plant. How will the duration of
the project influence your decision?
• If you buy, the cost is $ 29,000, and the one-time cost of
procurement and integrating in your company is $ 1,000
• If you rent/ lease, you have to pay $ 10,000 as down payment and $
5,000 per month
• Answer: If you buy, cost is: $ 29,000 + $ 1,000 = $ 30,000
• Assuming the lease is for M months, the cost is: $ 10,000 + $ 5,000 x
M
• The cost of buy = cost of lease, if : $ 30,000 = $ 10,000 + $ 5,000 x
M
• M = 20,000/5,000 = four months
• So, if the duration of the project is less than four months, you should
lease—otherwise, you should buy.
PLAN PROCUREMENTS (TOOLS & TECH.)

Firm Fixed Price Contract (FFP)

FFP means that you are going to pay one amount regardless of how
much it costs the contractor to do the work. A fixed price contract only
makes sense in cases where the scope is very well known.
Fixed Price Incentive Fee Contracts (FPIF)

FPIF means that you are going to pay a fixed price for the contract
and give a bonus based on some performance goal.
Fixed Price with Economic Price Adjustment Contract (FP-EPA)
FP-EPA means that you are going to pay fixed price with adjustment that
can be changed due to the economic price. This contract is only makes
sense in cases where the contract period is very long.
PLAN PROCUREMENTS (TOOLS & TECH.)

Cost Plus Fixed fee Contract (CPFF)

CPFF means you pay the seller back for the costs involved in doing the
work, plus you agree to an amount that you will pay on top of that.
Cost Plus Award fee Contract (CPAF)
CPAF is similar to the CPFF contract, except that instead of paying
a fee on top of the costs, you agree to pay a fee based on the
buyer’s evaluation of the seller’s performance.
Cost Plus Incentive fee Contract (CPIF)
CPIF means you will reimburse costs on the project and pay a
fee if some performance goals are met.
Time and Material Contract (T&M)
T&M means that you will pay a rate for each of the people
working on your project plus their materials costs.
PLAN PROCUREMENTS (OUTPUTS)

1.1 Procurement Management plan: The Documents that describes

how procurement process from the developing procurement
documentation through contract closure will be managed.
1.2 Procurement Statements of work: developed from the project
scope baseline and include the project scope.
1.3 Make –or –Buy Decisions: this document the conclusion reach
regarding the tasks that are going to be done from the project team or
through the contract
1.4 Procurement Documents: the documents utilized in bid and
proposal activities. Which include the buyer’s invitation for bid,
invitation for Negotiation and seller’s response.
1.5 Source Selection Criteria: the documents to rate or score seller
proposals.
1.6 Change Request: It is a document containing a call for an adjustment of a
system; it is of great importance in the change management process
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Inputs Tools & Tech. Outputs

1.Project Management plan 1. Bidder conference 1. Selected sellers

2. Procurement Documents 2. Proposal evaluation 2. Procurement contract
3. Source Selection Criteria techniques award
4. Qualified Seller list 3. Independent estimates 3. Resource calendars
5. Seller proposals 4. Expert judgment 4. Change requests
6. Project documents 5. Advertising 5. Project management
7. Make –or –buy decisions 6. Internet search plan updates
8. Teaming agreements 7. Procurement 6. Project document
9. Organizational process negotiations update
assets
CONDUCT PROCUREMENTS (INPUTS)

2.1 Project Management plan: describes how the procurement

processes will be managed from developing procurement
documentation through contract closure
2.2 Procurement Documents:
2.3 Source Selection Criteria:
2.4 Qualified Seller List: a list of sellers who been pre-screened for
their qualifications and past experience.
2.5 Seller proposals: the documents provided by seller to be evaluated
and selected
2.6 Project Documents: consist of
- Risk Register
- Risk-Related Contract decisions
2.7 Make –or –buy :
2.8 Teaming agreement: the roles between buyer and seller that have
been agreed on them
CONDUCT PROCUREMENTS (TOOLS & TECH.)

2.1 Bidder Conferences: are meetings between the buyer and all prospective
sellers prior to submittal of a bid or proposal. They are used to ensure that all
prospective sellers have a clear and common understanding
2.2 Proposal Evaluation Techniques: to evaluate the proposal provided by the
sellers
2.3 Independent Estimates: by outside professional estimator
2.4 Expert judgment :
2.5 Advertising: to find seller through public newspaper
2.6 Internet Search
2.7 Procurement negotiations: Negotiations clarify the structure, requirements
and other terms of the purchases so that mutual agreement can be reached
prior to signing the contract.
CONDUCT PROCUREMENTS (OUTPUTS)
2.1 Selected Sellers: The sellers selected are those sellers who have
been judged to be in a competitive range based
upon the outcome of the proposal or bid evaluation,
2.2 Procurement Contract Award: The contract can be in the form of
simple purchase order. It is a legal document between the buyer and
seller
2.3 Resource Calendars: The quantity and availability of contracted
resources and those dates on which each specific resource can be active
or idle are documented
2.4 Change Requests
2.5 Project Management Plan updates
2.6 Project Document updates
• Source selection involves
– evaluating bidders’ proposals
– choosing the best one
– negotiating the contract
– awarding the contract
• It is helpful to prepare formal evaluation
procedures for selecting vendors
• Buyers often create a “short list”

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Evaluate Vendors: Evaluation Step Considerations
Evaluation Objectives( why we evaluate venders/ suppliers/ providers/? Purpose
(i) Provide clear direction and guidance (ii) Ensure integrity of fair evaluation process
(iii)Create a documented process (iv) Recommend for contract award

Phase 1 • Initial Screening

• Confidentiality and
• Evaluation of Technical and Security • Conflict of Interest
Phase 2 Management Response
• Evaluation
• Oral Presentations (if applicable)
Phase 3 Milestones
• Evaluator
• Evaluation of Cost Proposals
Phase 4 Availability?
• Best and Final Offers
(BAFO)
Phase 5

• Ranking of
Phase 6 Proposals
Sample Proposal Evaluation Sheet

Detailed Criteria for Selecting Suppliers

6
2
Be Careful in Selecting Suppliers and Writing Their Contracts

• Many dot-com companies were created to meet potential

market needs, but many went out of business, mainly due
to poor business planning, lack of senior management
operations experience, lack of leadership, and lack of
visions. Check the stability of suppliers
• Even well-known suppliers can impede/hinder project
success. Be sure to write and manage contracts well with all
suppliers (see What Went Wrong?)

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3. Administer Procurements/Contract Administration
• Contract administration ensures that the seller’s performance
meets contractual requirements
• Contracts are legal relationships, so it is important that legal
and contracting professionals be involved in writing and
administering contracts
• Many project managers ignore contractual issues, which can
result in serious problems
• Includes application of appropriate project management processes
to the contractual relationship(s) and integration of the outputs
from these processes into the overall management of the project

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3. Administer Procurements…

Inputs Tools & Tech. Outputs

.1 Procurement documents .1 Contract change control .1 Procurement

.2 Project management plan system documentation
.3 Contract .2 Procurement .2 Organizational process
.4 Performance reports performance reviews assets updates
.5 Approved change .3 Inspections and audits .3 Change requests
requests .4 Performance reporting .4 Project management
.6 Work performance .5 Payment systems plan updates
information .6 Claims administration
.7 Records management
system
ADMINISTER PROCUREMENTS (INPUT)

3.1 Procurement Documents

3.2 Project Management Plan
3.3 Contract
3.4 Performance Reports
3.5 Approved Change Requests
3.6 Work Performance Information: including the extent to which
quality standards are being satisfied
ADMINISTER PROCUREMENTS (TOOLS & TECH.)

3.1 Contract Change Control System: defines the process by which the
procurement can be modified
3.2 Procurement Performance Reviews: is a structured review of the
seller’s progress to deliver project scope and quality, within cost and
on schedule, as compared to the contract
3.3 Inspections and Audits: required by the buyer and supported by the
seller as specified in the procurement contract can be conducted during
execution of the project.
3.4 Performance Reporting: Performance reporting provides
management with information about how effectively the seller is
achieving the contractual objectives
3.5 Payment Systems: typically processed by the accounts payable
system of the buyer after certification of satisfactory work by an
authorized person on the project team.
ADMINISTER PROCUREMENTS (OUTPUTS)

3.1. Procurement Documentation: includes the procurement contract

with all supporting schedules, requested unapproved contract changes,
and approved change requests.
3.2 Organizational Process Assets updates
3.3 Change Requests
3.4 Project Management Plan updates
Suggestions on Change Control for Contracts

• Changes to any part of the project need to be

reviewed, approved, and documented by the same
people in the same way that the original part of the
plan was approved.

• Evaluation of any change should include an impact

analysis. How will the change affect the scope, time,
cost, and quality of the goods or services being
provided?
• Changes must be documented in writing. Project team
members should also document all important
meetings and telephone phone calls

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(4 ) CLOSE PROCUREMENTS
• Procurements are closed when a contract is completed OR when a contract is
terminated before the work is completed. The Close Procurements is a part of
Closing Process Group (i.e a group is made up of all final processes that are
needed to close a project as well as deliver the final products including reports
to the stakeholders
• All procurements must be closed out, no matter the circumstances under
which they stop, are terminated, or are completed.
• Close Procurements
•Verifies that all work and deliverables from the contract are acceptable
•Early termination of the contract is a special case of procurement closure
•Tools and Techniques used are:
• ◦Procurement audits
◦Negotiated settlements
◦Records management system
•Outputs are:
◦Closed procurements
◦Organizational process assets updates
• Contract close-out includes product verification to determine if all work was
completed correctly and satisfactorily administrative activities to update
records to reflect final results archiving information for future use
Procurement audits identify lessons learned in the procurement process
• Work that must be performed during Close Procurement phase:-
• Product verification: Involves checking to see if all the work is done
correctly and satisfactorily.
• Negotiated settlement: Final settlement of all claims, invoices and
other issues.
• Financial closure: Involves making final payments and completing
cost records.
• Procurement audit: Structured review of only the procurements
process.
• Updates to records: Making sure all of the records of the project are
complete and are accessible in the records management system.
• Final contract performance reporting: This is creating a final report.
• Lessons learned: Lessons learned from everyone including the seller are
documented for the project.
• Procurement file: The file includes contract, changes, submittals
from the seller, financial information, inspection results, lessons
learnt.
Cl o
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4. Close Procurements

Inputs Tools & Tech. Outputs

.1 Project management .1 Procurement audits .1 Closed procurements

plan .2 Negotiated settlements .2 Organizational process
.2 Procurement .3 Records management assets updates
documentation system
CLOSE PROCUREMENTS (INPUTS)

4.1 Project Management Plan

4.2 Procurement Documentation

CLOSE PROCUREMENTS (TOOLS & TECH.)

4.1 Procurement Audits: to identify successes and failures that
warrant recognition in the preparation or administration of
procurement contracts on the project
4.2 Negotiated Settlements: You need to make sure that all of
the terms of the contract have been met and there are no
outstanding claims on it
CLOSE PROCUREMENTS (OUTPUTS)
4.1 Closed Procurements: provides the seller with formal
written notice that the contract has been completed
4.2 Organizational Process Assets updates
Resolution of Seller
Claims
Using Software to Assist in Project Procurement Management

• Word processing software helps in writing proposals and

contracts, spreadsheets help in evaluating suppliers, databases
help track suppliers, and presentation software aids in presenting
procurement-related information
• In the late 1990s and early 2000s, many companies started using e-
procurement software to do many procurement functions
electronically
• Companies such as Commerce One, Ariba, Concur Technologies, SAS,
and Baan provide corporate procurement services over the
Internet
• Organizations also use other Internet tools to help find
information on suppliers or auction goods and services

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Summary of Procurement Steps
1. Identify the Need and Outcomes

Planning 2. Communicate Need Within Agency

3. Identify Scope, Timeline and Requirements

Phase

4. Identify Vendors

5. Define Scope and/or Statement of Work

6. Communicate Formal Need With Vendors

Solicitation

Selection

7. Evaluate Vendors
&

8. Select Vendor
Procurement

9. Negotiate Contract
Post

10. Contract Execution and Management

We’ve broken these steps into three Purchasing and Procurement Planning Phases:
Start with the Pre-planning (steps 1-5) needed to establish a good foundation for the
procurement. These steps involve initiating the project internally and defining the scope for
the procurement.
1. Identify the Need and Outcomes
2. Communicate Need Within Agency
3. Identify Scope, Timeline and Requirements
4. Identify Vendors
5. Define Scope and/or Statement of Work

Then move to the actual Solicitation and Selection Process (steps 6-8) where the
procurement of a vendor takes place.
6. Communicate Formal Need With Vendors
7. Evaluate Vendors
8. Select Vendor

Finally, the Post-Procurement phase (steps 9-10) leading to the management of the
contract for the goods or services procured.
9.Negotiate Contract (or purchase order, field order, etc. Both are contracts as they are binding
orders for routine services and goods. Contracts typically are used when a more complex scope
and statement of work is required.)
10. Contract Execution and Management

Group Discussion - Chat: Based on your experience, what is the most important step in the
procurement process, and why?
Thank you

End of Chapter - 2