1. Project Procurement Management
Ir. AGUNG NUGROHO, M.Kom
Teknik Elektro FT UNDIP

2. Contents 1 2 3 4 5 6 Plan Purchase & Acquisition Plan Contracting
Request Seller Response 3
Select Sellers 4
Contract Administration 5
Contract Closure 6

3. To become a new and innovative energy company
PT Rekayasa Industri

4. Purchasing
Participation in the development of requirements and their specifications; managing value analysis activities; conducting supply market research; managing supplier negotiations; conducting traditional buying activities; administering purchase contracts; managing supplier quality; buying inbound transportation. (Dobler (1990))
is the process by which a company (or other organisation) contracts with third parties to obtain goods and services required to fulfil its business objectives in the most timely and cost-effective manner. (Steele (1985))

5. Project Procurement Management
Process required to acquire goods and services from outside the performing organization
Is discussed from the perspective of of the buyer
Role PM in Procurement
Identify risk and incorporate mitigation into the contract
Fit the schedule for completion into the schedule of the project
Involve during contract negotiation
Protect the integrity of the project
Protect relationship with the seller

6. Procurement strategy
Corporate:
the relationship of specific procurement actions to corporate strategy
Project:
the relation of specific procurement actions to the operating environment of the project

7. Plan purchase & acquisition
The process of identifying which project needs can be best met by procuring products or services outside the project organization.
It involves consideration of
whether to procure
how to procure
what to procure
how much to procure
when to procure

8. Procurement Management
Step/process
Main activity
Deliverable
1. Plan Purcchase & Acquisition
Make or Buy
Make or buy,
2. Plan Contracting
Procurement Documents
e.G RFP Created
RFP ready
3. Request Seller Responses
Q & A
Proposal Received
4. Select Seller
Pick One
Contract Signed
5. Contract Administration
Admin
Substantially complete, payment
6. Contract Closure
Finish
done

9. Procurement
The acquisition of good and services from outside the performing organization (PMBOK 2000)
the obtaining by various means (e.g. loan, transfer, hire purchase) of supplies and serves with or without consideration (Compton and Jessop (1995))
all activities required in order to obtain the product from the supplier and get it to the place where it is actually used. It encompasses the purchasing function, store, traffic and transportation, incoming inspection, and quality control and assurance. Some firms also include salvage and management of environmental issues (as they are related to materials) in procurement (Van der Weele and Rozemeijer (1996))

10. Contract Contract vs Procurement Each procurement needs contract
For long term project, contract is mostly used as procurement document (Purchase Order)
For short time and repetitive projects, contract is made in general basis, while the purchase order will work in detail item (material and services)
A contract need:
An offer
Acceptance
Consideration: value not only money
Legal capacity: competent parties
Legal purpose: not for illegal goods

11. Centralized/Decentralized Contract
Centralized: separate contracting office handles all contract
Decentralized: contract administrator is assigned to each project
Centralized
Decentralized
Advantages
Increase expertise in contracting
Standardize practices
Clearly defined career path
Easier access to contracting expertise
More loyaly to the project
Disadvantages
Difficult to gain access to contracting expertise
One contracts person may work on many projects
No home after project close
Difficult to maintain high level of ocntracting expertise
Duplication of expertise and inefficient use of resources
Little standardization of contracting process

12. 12.1 Plan Purchase and Acquisitions
Determining what to purchase or acquire and determining when and how

13. Make or Buy Analysis
Purpose: Determine whether a particular product can be produced cost effectively by the performing organization
An evaluation of the benefits & drawback of doing the work within your organization or using an external resource
Influence by: Expertise, capacity, cost, core, competence, trade secret etc
Big influenced from organization broader goals and project’s immediate needs
Security consideration also needed to define the method.
(e.g. choose make when data is very confidential)

14. Contract Type Fixed Price
A fixed total price for a well defined product
Ex. Building a house at a fixed price
Cost Reimbursable
Payment to the seller for its actual cost
Ex. Building a house at cost reimbursable price
Time and Material
Hybrid type of contractual arrangement that containts aspect of cost reimbursable and fixed price
Ex. In drilling operation, seller will charge at US$ __/hour. In case there is a delay. Than the seller still charge the buyer for how long delay*hour rate

15. Fixed Price
Risk on seller since any cost overruns may not be passed to the buyer
Buyer have experience and know the total price at project start
Can be more expensive than cost reimbursable
Two type:
Fixed price Incentive Fee:
Incentive fee for meeting a target specified in the contract; eg completed ahead of schedule
Fixed price Economic Adjustment:
For case when fluctuations in the exchange rate / interest rate may impact to the project

16. Cost Reimbursable Risk on Buyer
Often used when the buyer can only describe what they need rather than what to do
Simpler scope of work
Two type:
Cost plus fixed fee
The seller passes the cost back to buyer and receive additional fix fee upon competion of project. Risk on buyer
Cost plus incentive fee
The seller passes the cost back to the buyer and gets an incentive fee for meeting a target (eg. Keep the cost remain low). Risk on Buyer and Seller

17. Time & Material
In this case, Seller charges for time, plus the cost of any materials needed to complete the work
Form: contract is priced on a per hour or per item basis and has elements of a fixed price contract (price per hour) and cost reimbursable (material used and total is unknown)
Buyer has medium amount cost of risk
Used when scope of work not completely defined, but everyone agrees that the project is relatively small and the need is urgent
Quick to create, good choice when you are hiring people to augment your staff
Require the most day to day oversight from the buyer

18. Output Procurement Management Plan:
High Level document that describe how the remaining procurement process (solicitation planning~Contract Close Out) will be maintained
Statement of Work:
Describe what work is to be completed under the contract
Should be clear, complete and concise
Describe all the work & activity that the Seller is required to complete
May be changed during procurement process
Type: performance, functional, design

19. Suggested Risk Sharing Principles
Scope of work information
Very Little
Partial
Complete
Uncertainty
High
Moderate
Low
Degree of risk
High
Medium
Low
100% 0%
Suggested risk allocation
Owner (client)
contractor 0%
100%
Contract Types
CPPF
CPIF
CPFF
FPIF
FFP
CPPF : Cost Plus Percentage Fee
CPIF : Cost Plus Incentive Fee
CPFF : Cost Plus Fixed Fee
FPIF : Fixed Price Incentive Fee
FFP : Firm Fixed Price

20. 12.2 Plan Contracting
Documenting products, services and results requirements and identifying potential Sellers

21. Plan Contracting
Documenting products, services and results requirement and identifying potential sellers
Output:
Procurement documents
Evaluation criteria
Contract Statement of Work (updates)

22. Procurement Document (1)
Procurement document consist:
Information for the sellers:
Background
Procedure for replying
Guideline for the proposal
Evaluation criteria
Pricing forms
Scope of work
Proposed terms and condition

23. Procurement Document (2)
Invitation of Bid (IFB)
Request one price do all the work
Request for proposal (RFP)
Request a price, but also detail proposal on how the work will be accomplishe, who will do it, resume, company experience etc
Request for Quotation (RFQ)
Request a price a quote per item

24. Contract Terms Standard Contract
Standard of contract that used by the company. No need further review
Special provision
Addition to standard terms and condition, what need to be added, changes or removed from standard provision so that the resulting contract addresses the particular need of the project
As a result of:
Risk analysis
Requirement of the projects
Type of project
Administrative, legal or business requirements
Letter of Intent
It is not a contract, but a letter without legal binding, that says the buyer intends to hire the seller

25. Non Competitive Forms of Procurement
This form is used when the scope is awarded to a seller without competition. This would be implemented in the following condition:
The project under schedule pressure
A seller has unique qualification
There is only one seller
A seller hold a patent
Other mechanism exist to ensure that the seller’s price are reasonable
The forms are:
Single source: contract directly to preferred seller. This might be a company that have worked before and for various reason don’t want to look for another
Sole source: there is only one seller. This might be a company that owns a patent

26. Evaluation Criteria Objective
Used to rate or score the proposal. In common practice, the criteria didn’t include in procurement document (only use as internal purpose)
Rank of Criteria
All of the criteria should be ranked which is the most priority and the less priority based on the weight of each criteria
Criteria, example:
Understanding of need
Overall of life cycle cost
Technical capability
Project implementation/management approach
Credentials
Time to Deliver
Evidence or demonstration of proven deliverable
Team member Expertise
Company performance: financial performance, customer base, license and certification, and organization

27. 12.3 Request Seller Response
Obtaining information, quotation, bids, offers, or proposals as appropriate

28. Technique Bidder’s Conference
Meeting with prospective sellers to make sure that they all have a clear and common understanding of procurement
Making sure the pricing of the seller is matches with the work
Collusion
Sellers is not asking their question in front of their competition
Question and answer should be written and issued to all potential sellers
Advertising vs qualified seller lists
Advertising: open, attract additional sellers, avoid the collusion
Shorted list: closed, potential seller has been checked in advance

29. Request Seller Responses
Output:
Qualified sellers list
Procurement document package
Proposal

30. 12.4 Select Sellers
Reviewing offers, choosing among potential sellers and negotiating a written contract with each seller

31. Select Seller
Reviewing offers, choosing among potential seller and negotiating a written contract with each seller
Output:
Selected sellers
Contract
Contract Management Plan
Resources availability
Procurement Management Plan (up dates)
Requested changes

32. Proposal Review Evaluation criteria needed to review the proposal
A seller may be asked to make presentation then negotiation (if ok)
A seller may simply be selected and asked to sign a contract
The list of sellers may be narrowed downs (short listed)
Short listed maybe asked to make presentation
May combination of presentation and negotiation

33. Technique
Weighting system: weighting the according to each of the evaluation criteria
Screening system: eliminating sellers that do not meet minimum requirements
Independent estimate: comparing the cost to an estimated created in house or with outside assistance
Past performance history

34. Contract Negotiation Objective Obtain fair and reasonable price
Develop good relationship with the seller
Tactics
Attacks
Personal insults
Deadline
Good guy bad guy
Lying
Missing man
Delay
Withdrawal
Limited authority
Fair & reasonable
Extreme demand
Fait accomply

35. Items to Negotiate
Responsibilities
Authority
Applicable law
Technical & business management approaches
Contract financing
price

36. 12.5 Contract Administration
Managing the contract and relationship between buyer and seller, reviewing and documenting how a seller is performing or has performed to establish required corrective actions and provide a basis for future relationship with the seller, and managing contract related changes

37. Contract Administration
Contract admin: is the process of ensuring that the Seller’s performance meet contractual requirement
Contract Change Control System:
A process for modifying a contract that should be included in the contract
Changes: review the impact
Contract administrator is the only one with authority to change the contract
There are potential conflict between project manager and contract administrator
Correspondence: written documentation of certain aspect of buyer seller communication, such as clarification, contract changes, unsatisfactory performance

38. Manage Contract Changes
Contract changes are requested from:
Seller Request (Material, Resources availability)
Buyer Request (change of scope)
Amendment
To change the contract content (time, scope, cost)
Addendum
To add article/sub article that has not been made in the contract original

39. Logistic

40. Inland Transport

41. Sea Freight

42. Air Freight

43. Railway

44. Heavy Lift

49. Contract Administration
Output:
Contract documentation
Requested changed
Recommended corrective actions
Organizational process assets (updates)
Project Management Plan (up dates)
To become a new and innovative energy company
PT Rekayasa Industri

50. 12.6 Contract Closure
Completing and settling each contract, including the resolution of any open items, and closing each contract applicable to the project or a project phase

51. Contract Close Out Done When: Contract ends
Contract is terminated before the work is completed
Activities:
Verification
Financial closure
Update record
Final contract performance report
Contract file
Procurement Audit
Review of procurement process, not audit of cost. It is a lesson learned of the procurement process

52. Contract Closeout Vs Administrative Closure
Contract close out occurs first. At the end of contract, PM would perform a procurement audit, administratively close out the contract, then administratively close out the project
Administrative closure may be done at the end of each project phase and at the end of the project as a whole. Contract close out is done only once.
Administrative closure uses the term lesson learned and contract close out uses term procurement audit
Contract closeout requires more documentation than administrative closure

53. Contract Closure
Output:
Closed contract
Organizational process assets (up dates)

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