Project Procurement Project Procurement

PROJECT
PROJECT PROCUREMENT
PROCUREMENT
Project Management
12–1
Project
Project Procurement
Procurement Management/
Management/ Outsourcing
Outsourcing
Project Procurement Management- the processes required to acquire goods and services
for a project from outside the performing organization. Many private companies use the word
purchasing instead of procurement.
Outsourcing is a process that is becoming more common in organizations globally.
• Advantages • Disadvantages
– Cost reduction – Coordination breakdowns
– Faster project completion – Loss of control
– High level of expertise – Interpersonal conflict
– Flexibility – Security issues
Project
Project Procurement
Procurement Management
Management Processes
Processes
The key processes and activities involved in project procurement management are as follows:
PROCESS DESCRIPTION ACTIVITY

Procurement Planning Determining what to procure and when ‘Make or Buy’ decision
Solicitation Planning Documenting project requirements and identifying Issue Request for Proposal
potential sources
Solicitation Obtaining quotations, bids, offers, or proposals as Receive proposals

appropriate
Source Selection Choosing from among potential vendors Award contract
Contract Administration Managing the relationship with the vendor

Complete substantial amount of work
Contract Close-out Completion and settlement of the contract, including Formally close contract
resolution of any open items.
Project
Project Outsourcing
Outsourcing
Procurement Planning
Project procurement planning is the process of identifying which project needs can best be met by using
products or services outside of the organization.
Key questions are:
a. Do we outsource?
b. How do we outsource?
c. What to outsource?
d. How much to outsource?
e. When to procure?
Procurement Planning Tools and Techniques:

Make-or-buy analysis – For example in case of IT hardware and software it is important to include the full
life cycle cost including installation, training, maintenance and support.
NB. Expert judgment, both internal and external, is an asset in making procurement decisions and engagements/ marriages.
Contract: “ An exchange of promises between two or more parties to do, or refrain from doing, an act, which
resulting contract is enforceable in a court of law”.
It is a binding legal agreement with a clear, concise and complete Statement of Work (SoW)
A good contracts must include a Statement of Work (SOW)- description of the work required for the procurement. Its purpose
is to allow potential vendors to determine if they have the requisite expertise to perform the work and to allow them to develop a
cost estimate.
Types
Types of
of Contracts
Contracts
• Fixed-price (FP) Contract or Lump-Sum Agreement
–The contractor with the lowest bid agrees to perform all
work specified in the contract at a fixed price.
–The disadvantage for owners is that it is more difficult
and more costly to prepare.
–The primary disadvantage for contractors is the risk of
underestimating project costs.
–Contract adjustments
• Redetermination provisions
• Performance incentives
Types
Types of
of Contracts
Contracts (cont’d)
(cont’d)
• Cost-Plus Contracts
–The contractor is reimbursed for all direct
allowable costs (materials, labor, travel) plus an
additional prior-negotiated fee (set as a
percentage of the total costs) to cover overhead
and profit.
–Risk to client is in relying on the contractor’s best
efforts to contain costs.
–Controls on contractors
• Performance and schedule incentives
• Costs-sharing clauses
Contract
Contract Type
Type versus
versus Risk
Risk
Contract
Contract Administration
Administration
– Contract Administration- Managing the relationship with the vendor to ensure
that the vendor’s performance meets contractual requirements.
– The Project Manager and Project Team should be involved in drafting and
administering the contract.
– CHANGE CONTROL is an important part of contract administration. The following

suggestions ensure adequate change control for projects that involve outside
contractors:
Changes to any part of the project need to be reviewed, approved & 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 “Triple constraint “
scope, time, cost and quality of the goods and services being provided?
Changes must be documented in writing. Project team members should document all-
important proceedings formally
with versioning.
12–8
Contract
Contract Close
Close Out
Out process
process
– Contract Close-out Processes- Contract close-out is
defined as completion and settlement of the contract, including
resolution of any open items.
– Contract close-out activities are:

Verification that that all work is complete, correct and satisfactory and all
activities in the Work Break Down Structure are
100% complete and closed.
Updating records to reflect final results.
Archiving information for future use.
Formal written notice from contract administrator to vendor that the
contract has been completed and closed.
Procurement audits to identify lessons learned.
Project Lessons learned documented by team and project manager.
12–9
Best
Best Practices
Practices in
in Outsourcing
Outsourcing
Project
Project Work
Work
Treat Outsourcers as Partners!

Why
Why Project
Project Partnering
Partnering Efforts
Efforts Fail
Fail
• Causes of Partnering Failures
– Senior management fails to address problems or does
not empower team members to solve problems.
– Cultural differences are not adequately dealt with
such that a common team culture develops.
– No formal evaluation process is in place to identify
problems and opportunities at the operating level or to
assess the current state of the partnering relationship.
– A lack of incentive for continuous improvement by
contractors participating in the partnering relationship.
12–11
Advantages
Advantages of
of Long-term
Long-term Partnerships
Partnerships
• Reduced administrative costs

• More efficient utilization of resources
• Improved communication
• Improved innovation
• Improved performance
12–12
The
The Art
Art of
of Negotiating
Negotiating
• Project management is NOT a contest.
– Everyone is on the same side—OURS.
– Everyone is bound by the success of the project.
– Everyone has to continue to work together.
• Principled Negotiations
– Separate the people from the problem
– Focus on interests, not positions
– Invent options for mutual gain
– When possible, use objective criteria
TABLE 12.2
12–13
The
The Art
Art of
of Negotiating
Negotiating (cont’d)
(cont’d)
• Dealing with Unreasonable People
– If pushed, don’t push back.
– Ask questions instead of making statements.
– Use silence as a response to unreasonable demands.
– Ask for advice and encourage others to criticize your
ideas and positions.
– Use Fisher and Ury’s best alternative to a negotiated
agreement (BATNA) concept to work toward a win/win
scenario.
12–14

Project Procurement Project Procurement

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PROJECT

Outsourcing is a process that is becoming more common in organizations globally.

PROCESS DESCRIPTION ACTIVITY

Solicitation Obtaining quotations, bids, offers, or proposals as Receive proposals

Source Selection Choosing from among potential vendors Award contract

Contract Administration Managing the relationship with the vendor

Key questions are:

Procurement Planning Tools and Techniques:

– CHANGE CONTROL is an important part of contract administration. The following

– Contract close-out activities are:

Treat Outsourcers as Partners!

• Reduced administrative costs

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