Advanced Project Management Project Procurement/Contract Management Ghazala Amin

2Project Procurement Management PM Framework and Integration Project Life Cycle Team Development Managing Project Human Resources Project InitiationPlanning Executing/Control Closeout Project Organizing Project Scheduling WBS Control Meetings Project Monitoring Project Closeout Change and Risk Management Contract and Customer Relationship Management Processes Activities

3Project Procurement Management Statement of Work (SOW) Binding, legal statement of what seller is to accomplish when it is finally included in the agreement. Narrative description of products or services to be supplied under contract Includes but is not limited to; –Introduction, assumptions, responsibilities, schedule, acceptance criteria, charges, terms and conditions, misc.

4Project Procurement Management Statement of Work (SOW) Words to be cautious of; –All –Never –Unlimited –Unconditionally –Assure or ensure –Acceptable response time –Mutually satisfactory –To your full satisfaction –Without any problem –Fully guaranteed –Etc. etc.

5Project Procurement Management Elements of Contract Mutual agreement: offer and acceptance Considerations: payment Contract capability: contract is binding only if the contractor has the capability to perform the work Legal purpose: contract must be for a legal purpose Form: contract must reflect contractor’s legal obligation or lack of obligation to deliver end products

6Project Procurement Management Contract Terminology Target or Estimated Cost –Level of cost that contractor will most likely obtain under normal performance conditions Target or Expected Profit –Profit value that is negotiated for Profit Ceiling and Profit Floor –Maximum and minimum values, respectively of total profit Price Ceiling or Ceiling Price –Measured as a given percentage of target cost

7Project Procurement Management Contract Terminology Maximum and Minimum Fees –Percentages of target cost and establish outside limits of contractor’s profit Sharing Arrangement –Savings are shared among customer and contractor Point of Total Assumption –Point (cost or price) where contractor assumes all liability for additional costs

Contract Reviews Pink Team Reviews –A seller responds to an RFP by developing a proposal. For sanity purposes, the proposal is passed through the pink team once the outline is completed. The pink team looks at the outline through the perspective of the buyer. The purpose of the team is to catch problems with the proposal in the early stages.

Contract Reviews Red Team Reviews –Once the proposal is in draft form, it passes through a red team which again looks at the proposal through the buyer’s perspective.

Contract Origination –Two ways in which a contract can originate: unilaterally or bilaterally Unilaterally: –Common form for contract is a relatively simple type of document called a Purchase order (PO). –A purchase order is used when routine, standard cost items are needed. –A purchase order is legally binding and should be specific.

Contract Origination –Two ways in which a contract can originate: unilaterally or bilaterally Bilaterally: –Procurement documents are used to solicit proposals from prospective sellers. The procurement document then becomes the basis for the seller’s proposal. –The following are examples of Bilateral procurement documents: Request for quotation (RFQ) Request for proposal (RFP) Invitation for Bid (IFB)

RFP – Request for Proposal –A type of bid document used to solicit proposals from prospective sellers of products or services. In some application areas, it may have a more specific meaning. –Items or services are usually high dollar and non- standard. –Examples: construction project, a research and development project; a made-to-order, highly complex piece of machinery. –Blueprints, drawings, specifications, and other appropriate data should be included with proposal.

RFP vs IFB –Invitation for Bid (IFB) - PMBOK equates this with Request for Proposal and recognizes that it may have a more specific meaning in certain application areas. (appropriate for high dollar, standard items.)

RFQ - Request for Quotation RFQ – Request for Quotation –PMBOK does not distinguish between RFQ and RFP., PMBOK does recognize that some application areas have a more specific meaning for RFQ –Items are of relatively low dollar value such as supplies and materials –A survey of potential suppliers is completed. –The quotation request informing suppliers of the goods or services needed is sent to a scaled-down number of possible suppliers.

IFB – Invitation for Bid PMBOK equates this with Request for Proposal and recognizes that it may have a more specific meaning in certain application areas. –Appropriate for high dollar, standard items. –A prerequisite to this process is a clear and accurate description of the supplies, equipment, and services required. –Includes specifications, drawings, industry standards, performance requirements, etc. –Must ensure fair competition among all bidders. –Provisions should be stated in such a manner to avoid misinterpretation. –Formal bids are submitted to the contracting department in sealed envelopes.

All bids are opened at a specific time. –In most cases, the contract award goes to the lowest responsible bidder. If not awarded to the lowest bidder, must document reasons carefully. –Type of contract is open to fraud, collusion, and other dishonest conduct. Hence, PM and contracting personnel must practice defined ethical business procedures.

17Project Procurement Management The Procurement Cycles Requirement Cycle: –Defines the boundaries of the project Requisition Cycle –Analysis of sources Solicitation Cycle –The bidding process Award Cycle –Contractor selection and contract award Contract Administration Cycle –Managing the contractor until completion of the contract

18 PMBOK Area: Procurement Management Project Procurement Management includes the processes for acquiring or purchasing the materials, products, goods and services which are needed to perform the project work. Project Procurement Management includes the contract management and change control processes required to administer contracts or purchase orders issued by the project team. Processes covered under Project Procurement Management are purchases and acquisitions planning, contract planning, requesting seller responses, seller selection, contract administration, and contract closure.

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20Project Procurement Management Procurement Management Processes (PMBOK) Process Groups Initi a t i o nPlanningExecutionControlClosing Knowledge Areas Procurement Management Plan Procurement Conduct Procurement Administer Procurement Close Procurement

21Project Procurement Management Procurement Management Definitions Plan Procurement –Procurement planning is the process of identifying which project needs can be best met by procuring products or services outside the project organization.

22Project Procurement Management Procurement Management Definitions Conduct Procurement –Solicitation Planning Solicitation planning involves preparing the documents needed to support solicitation –Solicitation Solicitation involves obtaining responses (bids and proposals) from prospective sellers on how project needs can be met. –Source Selection Source selection involves the receipt of bids or proposals and the application of the evaluation criteria to select a provider.

23Project Procurement Management Procurement Management Definitions Administer Procurement –Procurement administration is the process of ensuring that the seller’s performance meets contractual requirements Contract Closeout