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Outline

 Contract and Negotiation

 Procurement and Inspection
 Construction and Erection
Chapter 9  Commissioning
Project Implementation  Evaluation

Introduction
…Cont’d
 Project is ready for execution when the required funds
are arranged and necessary statutory approvals are Project implementation phase ensures that any
obtained tool or aid used in the planning process is properly
managed and the inputs are accurate and realistic
 Project implementation is one of the most critical
components of a project and more specifically the overall
management
The first part of Project implementation will cover
activities related to Procurement
 For project management there area number of tools
available that will help you to plan and schedule
activities but the these tools are only as good as the
implementer.

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Project Procurement Management Project Procurement Management

•Project need materials, equipment, consultants, training, and
•When buying anything from a vendor, the buyer needs a
many other goods and services.
contract, which becomes a key input to many of the processes
•Project procurement management is the process of
within the project.
purchasing the products necessary for meeting the needs of
the project scope. •The contract, more than anything else, specifies the rules and
•It involves planning, acquiring the products or services from agreements for the project.
sources, choosing a source, administering the contract, and •The project manager should interact with a legal, contracting
closing out the contract.
or procurement department to deal with contracts.
•It can be applied to internal work orders, formal agreements,
•When the seller is completing its obligations to supply a product,
and contracts between organizational units within a single
PM treats those obligations as a project itself.
entity.

Project Manager’s Role in Procurement

Project Manager’s Role in Procurement

•Help tailor the contract to the unique needs of the project

The project manager must be involved in the creation of
•Fit the schedule for completion of the procurement process
contracts and fulfills the following key roles:
into the schedule for the project
 Know the procurement process
 Understand contract terms and conditions •Be involved during contract negotiation to protect the
 Make sure the contract contains all the project relationship with the seller

management requirements such as attendance at •Protect the integrity of the project and the ability to get the work

meeting, reports, actions and communications deemed done

necessary •Uphold the entire contract, not just the contract statement of

 Identify risks and incorporate mitigation and allocation 7of work

•Work with the contract manager to manage changes to the
risks into the contract
contract

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How Do We Manage Procurement?

Project Procurement Management Processes
•Four processes [Link] Procurements: the process of documenting project
•Plan Procurements purchasing decisions, specifying the approach, and identifying
•Conduct Procurements potential sellers
•Control Procurements
[Link] Procurements: the process of obtaining seller
•Close Procurements
responses, selecting a seller, and awarding a contract
[Link] Procurements: the process of managing
Plan Conduct Control Close procurement relationships, monitoring contract performance,
Procurements Procurements Procurements Procurements and making changes and corrections as needed
[Link] Procurements: the process of completing each
project procurement

Plan Procurements
Plan Procurements
•Is the process of documenting project purchasing decisions,
•This process also includes consideration of potential sellers,
specifying the approach, and identifying potential sellers.
particularly if the buyer wishes to exercise some degree of
•Procurement planning is the process of identifying which part of
the project should be procured from resources outside of the influence and control over acquisition decisions
organization. It is concerned with determining what to procure, •The requirements of the project schedule can significantly
when, and how influence the strategy during this process .
•Generally, procurement decisions are made early on in the •This process includes consideration of the risks involved with
planning processes. Procurement planning centers on four
each make or buy decision .
elements:
 Whether or not procurement is needed ?
•It also includes reviewing the type of contract planned to be
 What to procure ? used with respect to mitigating risks , sometimes transferring
 How much to procure ?
risks to sellers
 When to procure ?

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Plan Procurements: Inputs

•Scope Baseline: Describes the need, justification, requirements and
current boundaries for the project. It contains: The scope statement (The
project scope statement defines the project work, and only the required
work, to complete the project, it also defines the limitations of the project),
WBS, and the WBS Dictionary

•Requirements Documentation: may include:

•Imp information about project requirements that is considered during
planning for procurements
•Requirements with contractual and legal implications that may include
health, safety, security, performance, environmental, insurance, intellectual
property rights, licenses, permits ,etc –all of which are considered when
planning for procurements
•Risk Register: Includes risk related information such as the identified
risks, risk owners and risk responses Risk related contract decisions

Plan Procurements: Inputs Plan Procurements: Inputs

•Teaming Agreements : are legal contractual agreements between •Cost Performance Baseline: provides details of the planned
two or more entities to form a partnership or joint venture, or some budget overtime
other arrangement as defined by the parties the agreement defines
•Enterprise Environmental Factors: include but are not
the buyer seller roles for each party . Whenever a teaming
limited to : market place conditions, products, services, and
agreement is in place for a project, the roles of buyer and seller are
results that are available in the marketplace, suppliers,
predetermined
including past performance and reputation, unique local
•Activity Resource Requirements : contains information on
requirements, typical terms and conditions for products,
specific needs such as people, equipment or location
services or results or for the specific industry (Sole Sources,
•Project Schedule : contains information on required timelines or
mandated deliverable dates Single Source & Oligopoly)

•Activity Cost Estimates: developed by the procuring activity are •Organizational Process Assets: How the procurement
used to evaluate the reasonableness of the bids or the proposals process work within the performing organization
received from potential sellers

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Plan Procurements: Tools and Techniques Contract Type

•Make-or-buy analysis: general management
•Fixed Price (Lump Sum) Contracts
technique used to determine whether an organization
should make or perform a particular product or •Cost-Reimbursable Contracts
•Cost Plus Fee (CPF)
service inside the organization or buy from someone
•Cost Plus Percentage of Cost (CPPC)
else •Cost Plus Fixed Fee (CPFF)
•Cost Plus Incentive Fee (CPIF)
•Expert judgment for procurement management
planning can come from the following: •Time and Material (T&M) Contracts
 Units or individuals within the performing organization Which type of contract is the highest risk for the Buyer? Seller?
 Consultants and subject matter experts
 Professional, trade, or technical associations
 Industry groups

Fixed Price Contract Fixed Price Contract

•In this type of contract one price is agreed upon for all the Firm Fixed Price Contracts (FFP):
work. •The most commonly used contract type because price of
the goods is set at the onset and not subject to change
•The buyer has the least cost risk, provided the buyer has a
unless the scope of work changes .
completely defined scope, because the risk of higher costs
•Any cost increase due to adverse performance is the
is borne by the seller.
responsibility of the seller.
•The seller is most concerned with the contract statement
•Under this type of contract the buyer must precisely specify
of work in this type of contract.
the product or services to be procured, and any changes to
the procurement specification can increase the costs to the
buyer

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Fixed Price Contract Cost-reimbursable Contract

•Fixed Price Incentive Fee Contracts (FPIF) •The seller's cost are reimbursed, plus an additional amount
•There are also incentives for fixed price contracts. •The buyer has the most cost risk because the total costs are
•Fixed Price Economic Price Adjustment (FPEPA) unknown.
•Sometimes a fixed price contract allows for price increases •This form of contract is often used when the buyer can only
if the contract is for multiple years. describe what is needed, rather than what to do.
•The seller will therefore write the detailed contract statement
work

Cost-reimbursable Contract Cost-reimbursable Contract

Cost plus Fixed Fee (CPFF) Cost Plus Fee (CPF) or Cost Plus Percentage of
•This is the most common type of cost reimbursable Costs (CPPC)
contract. •This type of cost reimbursable contract requires the buyer
•In this type, the buyer pays all costs, but the fee (or profit) to pay for all costs plus a percent of costs as a fee.
is fixed at a specific amount. •Sellers are not motivated to control costs because the
•This helps to keep the seller's costs in line because a cost seller will get paid profit on every cost without limit.
overrun will not generate any additional fee or profit. Fees
only change with approved change orders.

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Cost-reimbursable Contract Time and Material or Unit Price

Cost Plus Incentive Fee (CPIF) •This type of contract is usually used for small amounts.

• This type of cost reimbursable contract pays all costs and •The contract is priced on a per hour or per item basis and
an agreed upon fee, plus a bonus for beating the has elements of fixed price contract (in the fixed price per

performance objectives stated in the contract. hour) and a cost reimbursable contract (in the material
costs and the fact that the total cost is unknown).

•In this type of, the buyer has a medium amount of cost risks
compared to CR and FP because the contract is usually for
small amounts and for a shorter length of time.

Plan Procurements: Output Plan Procurements: Output

Procurement Statements of Work
Procurement Management Plan
•A procurement statement of work (SOW) contains the details of the
•How vendors will be selected, the type of contracts to be used
procurement item in clear, concise terms. It includes the following
•The process of independent estimating (also known as should-cost
elements:
estimates)
•The project objectives
•The relationship between the project team and the procurement office
•A description of the work of the project and any post-project operational
within the performing organization (if one exists)
support needed
•The procurement forms, such as contracts, that the project team is
•Concise specifications of the product or services required
required to use
•The project schedule, time period of services, and work location
•How multiple vendors will be managed to supply their contracted product
•Change Requests : change requests to the project management plan,
•The coordination between sellers and the project team and among project
its subsidiary plans, or other components may result from this process
activities, project reporting, scheduling, business operations, and other
project concerns •Procurement Documents : are used to solicit proposals from the

•Risk management issues prospective sellers

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Procurement Documents Procurement Documents

•Procurement documents may include the following: •Non-Disclosure Agreement
•This is an agreement between the buyer and any prospective sellers stating
•Information for Sellers what information or documents they will hold confidential and control, and who
•Background information in their organization will gain access to the confidential information.
•Procedures for replying •Standard Contract
•Guidelines for preparation of the response •Companies frequently have standard, preauthorized contracts for the purchase
•Form of response required of goods or services. These types of standard contracts need no further legal
review if used as they are.
•Evaluation Criteria
•Special Provisions (Special Conditions)
•Pricing forms
•The project manager should determine what needs to be added, changed or
removed from the standard provisions, so that the resulting contract addresses
•Contract Statement of work the particular needs of the project.
•Proposed terms and conditions of the contract (legal and •Letter of Intent
•NOT a contract but a letter, without legal binding, that says the buyer intends
business) to hire the seller.
•Privity
•Contractual relationship.

Procurement Documents Plan Procurements: Output

•Source Selection Criteria :

•Request for Proposal (RFP) •Source Selection criteria are included in the procurement
•Asks for the price and how/who will do the work document to give the seller an understanding of the buyer's

•Invitation for Bid (IFB) needs and help them decide if they should bit or make a
•One simple price to do the work proposal on the work.

•Request for Quotation (RFQ) •During Select sellers, this criteria become the basis by which
•Price per unit quote the bids or proposal are evaluated by the buyer.
•Selection criteria can be limited to purchase price if the
procurement item is readily available from a number of
acceptable sellers .

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Conduct Procurement Conduct Procurement

•Is the process of obtaining seller responses, selecting a Tools & Techniques
Project
seller and awarding a contract. Management Plan
Procurement Inputs Output Selected Seller
Bidder Conference s
•In this process the team will receive bids or proposals and Documents Procurement
Proposal Evaluation Contract Award
Source Selection
Techniques
will apply preciously defined selection criteria to select one Criteria Resource Calendars
Independent Estimates
Qualified Sellers List Change Requests
Seller Proposals Expert Judgment
or more sellers who are qualified to perform the work and Project Documents Advertising
Project Management
Plan Updates
Make-or-Buy Analytical techniques
acceptable as a seller Decisions Procurement Negotiations
Project Document
TeamingAgreements Updates
Organizational
Process Assets

Plan Conduct Control Close

Procurements Procurements Procurements Procurements

Conduct Procurements – Tools and Techniques Conduct Procurements – Tools and Techniques

•Bidder Conferences: Bidder conferences are meetings with prospective •Many projects go bad because of how negotiations were
vendors or sellers that occur prior to the completion of their response
handled.
proposal.
•Proposal evaluation techniques
•The objectives of negotiation are to:

•Independent estimates / Should-Cost Estimate: Comparing the cost to an  Obtain a fair and reasonable price

estimate created in-house or with outside assistance.  Develop a good relationship with the seller
•Expert judgement
•Advertising: Advertising is letting potential vendors know that an RFP is
available.
•Internet search
•Procurement Negotiations: The project manager may be involved during
negotiations to clarify project requirements, and if for no other reason than
to protect the relationship to clarify project requirements, and if for no other
reason than to protect the relationship with the other side.

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Conduct Procurements – Tools and Techniques

•Main Items to Negotiate Negotiating Tactics

Responsibilities •Attacks – Argue a point •Fair and Reasonable
Authority •Personal Insults – Attack other •Delay – Tabling issues
Applicable Law sides negotiator important to the other side
Technical and business management approaches •Good Guy/Bad Guy •Extreme Demands
Contract financing •Deadline – The offer stands •Withdrawal – Pretending
Schedule until… interest
Payment and price •Lying •Fait Accompli – Done Deal, this
•Limited Authority – I need to is how we have to do it…
check with
•Missing ManThese
– Sheareisall
out today,
tactics, but not necessarily good tactics!
I will have to get back tomorrow

Conduct Procurements - Outputs Conduct Procurements - Outputs

Procurement Contract Award: •What do you need to have a legal contract?

•Contracts are known by many names: Agreement, Subcontract, •An offer
Purchase order, Memorandum of understanding •Acceptance
•Consideration - Something of value, not necessarily money
•Is awarded to each selected seller.
•Legal capacity - Separate legal parties, competent parties
•A contract can be in the form of a simple purchase order or a
•Legal purpose - You cannot have a contract for the sale of
complex document.
illegal goods
•A contract is a mutually binding legal agreement that obligates
the seller to provide the specified products, services or results
and obligates the buyer to compensate the seller

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Conduct Procurements - Outputs Control Procurements

Resource Calendars: the quantity and the availability of contracted
•This process consists of assuring that the performance of both parties to
resources and those dates on which each specific resource can be active
the contract meets contractual requirements.
or idle are documented
•The Contract Administration process concerns monitoring the vendor’s
Change Requests
performance and ensuring that all the requirements of the contract are
Project Management Plan Updates: components of the plan that may get
met.
updated include, but are not limited to :
•Contracts are legal relationships, so it is important that legal and
•Cost baseline
contracting professionals be involved in writing and administering
•Scope baseline
contracts
•Schedule baseline
•Procurement Management Plan

•Project Document Updates: docs that may get updated include, but are
not limited to:
•Requirements documentation
•Requirements traceability documentation, and ,
•Risk register

Control Procurements Close Procurements

• Procurement
Tools & Techniques •This process consists of finishing all the loose ends
• Documents
Procurement Documentation
• Project Management Contract change control system
Organizational Process
of the contract.
Plan Procurement performance review
Inputs Outputs Assets Updates
• Contract Inspections and audits
Change Requests
•This process is part of the close project process
• Performance Reports Performance reporting
Project Management Plan
• Approved Change
Payment systems
Updates
described in integration.
Claims administration
Requests
Records management system
• Work Performance
Information
•Contract closure is done:
Plan Conduct Control Close  When a contract ends
Procurements Procurements Procurements Procurements
 When a contract is terminated before the work is completed

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Close Procurements Close Procurements

•This process is concerned with completing and settling the •Keep in mind that not all projects are performed under
terms of the contract. contract so not all projects require Contract Closure.
•It supports the Close Project process because the Contract •However, all projects do require the Close Project process.

Closure process determines if the work described in the •Since verification and documentation of the project outcomes

contract was completed accurately and satisfactorily. occur in both of these processes, projects that are performed
under contract need to have project results verified only one
•This is called product verification.
time.
•Close Project verifies and documents the project outcomes
just like the Contract Closure process.

Contract closure Close Procurements – Tools & Techniques

Inputs Tools & Techniques Outputs

Closed Procurements
•The Contract Closure process has three tools and
Project Management Plan Procurement audits
Procurement Documentation Negotiated Settlements
Organizational Process Assets
Updates
techniques:
Records management
 Procurement audits
system
 Records management system.
 Negotiated Settlements: In all procurement relationships

Plan Conduct Control Close

the final equitable settlement of all outstanding issues,
Procurements Procurements Procurements Procurements
claims, and disputes by negotiations is a primary goal.
Whenever settlement cannot be achieved by direct
negotiation, some form of alternative dispute resolution
(ADR) including mediation or arbitration may be explored.
When all else fails, litigation in the courts is the least
desirable option

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Procurement Terms Procurement Terms Cont’d…

•Arbitration – Third party dispute resolution •Retainage – Monies withheld to ensure performance at the
•Breach/Default – When a contract provision is not met end of the contract

•Force Majeure – Riots, wars, weather, or other “Acts of God” •Termination – Stopping the work before it is completed
•Indemnification – Who is liable •Waiver – Statements in the contract that indicate that rights
•Liquidated Damages – Estimated damages for specific cannot be ignored or modified without written agreement
types of defaults as defined in the contract between the two parties
•Material Breach – A violation of the contract of sufficient •Time is of the essence – Seller is placed on notice that
magnitude that the contract cannot be completed delivery agreements are strictly binding
•Work for Hire – At the end of the contract the work product
generated will be owned by the buyer

Methods of procurement Commissioning

•open tendering; •Project commissioning is the process of assuring that all

•two-stage tendering; systems and components of a building or industrial plant

•request for proposals; are designed, installed, tested, operated, and maintained

•restricted tendering; according to the operational requirements of the owner or

•request for quotations; final client.
•single source procurement. •A commissioning process may be applied not only to new
projects but also to existing units and systems subject to
expansion, renovation or revamping.

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… Cont’d Example of Tekeze

•Commissioning of this hydropower project started in June

•Commissioning activities, in the broader sense, are
2008 and continued until the inauguration of the project.
applicable to all phases of the project, from the basic and
The task is accomplished by the consultants
detailed design, procurement, construction and assembly,
– HARZA
until the final handover of the unit to the owner, including
– ENERGOPROJECT and
sometimes an assisted operation phase. – EEPCO staffs

Project evaluation

•Two techniques were applied for this purpose •As the project draws to a conclusion, the project manager
– Simulation especially to commission the system in must ensure that all work is formally closed out,
the power house commitments are met or compensated for, and all
– Operating to compare the parameters of each
remaining loose ends are tide up.
system against the standard. It is applied for the
dam system components like the intake and outlet •Three kinds of evaluation in a project
valves – Formative evaluation
– Summary evaluation
– Post installation

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Summary evaluation Evaluation should include

•Frequently over looked task •Review initial project objectives in terms of technical

•But it is an essential and valuable learning component of performance, schedule, and cost; and review the

a project. soundness of the objectives in view of the problem that

the system was to solve.

•Review the evolution of objectives through the end to

determine how well the project team performed with
respect to them; and review the reasons for changes,
nothing which changes were avoidable and which were
not.

•Review the activities and relationships of project team throughout

the project life cycle, including review of the interfaces,
performances, and effectiveness of project management; the •Identify areas of the project where performance was particularly
relationships among top management, the project team, the good, noting reasons for success and identifying processes that
functional organization, and the client; the cause and process of worked well
termination; customer reactions and satisfaction.
•Identify problems, mistakes, oversights, and areas of poor
•Review the involvement and performance of all stakeholders, performance and the causes
including sub-contractors and venders, the client, and outside
•Summarize the lessons learned from the project and give
support groups
recommendations for incorporating them in to future projects.
•Review expenditures, sources of costs, and profitability; identify
organizational benefits, project extensions, and marketable
innovations

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Assignment
•Study the following project delivery System
– Design Build Project
– Design Bid Build
– Design-Build-Operate-Maintain
– Build-Operate-Transfer (BOT)
– Integrated Project Delivery (IPD)

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