Project Procurement

Management
 Importance of Project
Procurement Management

• Procurement is the acquisition of goods, services or works from an

external source.
• It is favourable that the goods, services or works are appropriate and that
they are procured at the best possible cost to meet the needs of the
purchaser in terms of quality and quantity, time, and location.

• Other terms include purchasing and outsourcing

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Reasons to require procurement

• you don’t have the expertise to carry out the job.

• You don’t have the capability to do it on your own.
• You lack the capacity to handle the requirement.
• A resource can be procured outside your firm at a significant
discount.

Information Technology Project Management, Eighth

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Edition
Why Outsource?

• To access skills and technologies

• To reduce both fixed and recurrent costs
• To allow the client organization to focus on its core business
• To provide flexibility
• To increase accountability

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Contracts
• A contract is a mutually binding agreement that obligates the seller to
provide the specified products or services and obligates the buyer to pay
for them
• Contracts can clarify responsibilities and sharpen focus on key deliverables
of a project
• Because contracts are legally binding, there is more accountability for
delivering the work as stated in the contract

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Project Procurement Management
Summary

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1. Buying for the Government of Canada
Pre-contractual phase: Planning

• Verify the requisition form for goods and services, the funding and
the security requirements
• Review the requirement and analyze options
• Verify the statement of work
• Develop the procurement strategy
• Review the evaluation criteria
• Develop the solicitation document
• Determine the appropriate contractor selection methodology
• Approve the procurement process

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2. Buying for the Government of Canada
Contracting phase : Bidding and awarding of contract

• Solicit competitive bids

• Respond to inquiries from potential bidders
• Hold Bidders' Conferences
• Conduct Site Visits
• Evaluate competitive bids
• Confirm security clearances
• Award a contract
• Debrief unsuccessful bidders
• Respond to challenges to procurement decisions

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3. Buying for the Government of Canada
Contract management phase: After the contract is
awarded

• ‘Kick off’ meeting

• Task Authorizations
• Follow-up on the progress of the work
• Resolve disputes
• Amend the contract

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4. Buying for the Government of Canada
Post-contract phase: Close out, warranty and audit
• Final amendment on contract
• Approval on last payment
• Final payments
• Proof of delivery
• Return contract financial security and holdbacks
• Initiate an audit of a cost-reimbursable contract
• Address Contractor claims
• Ensure your file is properly documented
• Archive your file

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 Planning Procurement Management
• Identifying which project needs can best be met by using products or
services outside the organization

• If there is no need to buy any products or services from outside the

organization, then there is no need to perform any of the other
procurement management processes

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 Types of Contracts
• Fixed-Price Contract
• Firm Fixed-Price Contract (FFP)
• Fixed Price Incentive Fee Contract (FPIF)
• Fixed Price with Economic Price Adjustment Contracts (FP-EPA)
• Cost Reimbursable Contract (With a cost-reimbursable contract
you pay the vendor for the actual cost of the work. This could be
materials, equipment, whatever and will normally include direct
and indirect costs)
• Cost Plus Fixed Fee Contract (CPFF)
• Cost Plus Incentive Fee Contract (CPIF)
• Cost Plus Award Fee (CPAF)
• Cost Plus Percentage of Cost (CPPC)
• Time and Materials Contract (Time and materials contracts see
the vendor being reimbursed for materials purchased plus a per
day or per hour rate for time spent.)
• A single contract can actually include all four of these categories, if
it makes sense for that particular procurement
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Contract Types Versus Risk

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Contract Clauses

• Contracts should include specific clauses to take

into account issues unique to the project
• Can require various educational or work experience
for different pay rights
• A termination clause is a contract clause that allows
the buyer or supplier to end the contract

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Tools and Techniques for Planning
Purchases and Acquisitions
• Expert judgment
• Market research
• Make-or-buy analysis: General management technique
used to determine whether an organization should
make or perform a particular product or service inside
the organization or buy from someone else

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 Make-or-Buy Example
• Assume you can lease an item you need for a project for $800/day.
To purchase the item, the cost is $12,000 plus a daily operational
cost of $400/day

• How long will it take for the purchase cost to be the same as the
lease cost?

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 Make-or Buy Solution

• Let d be the number of days to use the item:

$12,000 + $400d = $800d
Subtracting $400d from both sides, you get:
$12,000 = $400d
Dividing both sides by $400, you get:
d = 30
• If you need the item for more than 30 days, it is more
economical to purchase it

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Procurement Management Plan

• Describes how the procurement processes will be managed, from

developing documentation for making outside purchases or
acquisitions to contract closure

• Contents varies based on project needs

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 Contract Statement of Work (SOW)
• A statement of work is a description of the work required for the
procurement
• If a SOW is used as part of a contract to describe only the work required
for that particular contract, it is called a contract statement of work
• A SOW is a type of scope statement
• A good SOW gives bidders a better understanding of the buyer’s
expectations

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 Statement of Work (SOW) Template
I. Scope of Work: Describe the work to be done to detail.
II. Location of Work: Describe where the work must be performed.
III. Period of Performance: Specify when the work is expected to start and end,
working hours, number of hours that can be billed per week, where the work must
be performed, and related schedule information.
IV. Deliverables Schedule: List specific deliverables, describe them in detail, and
specify when they are due.
V. Applicable Standards: Specify any company or industry-specific standards that
are relevant to performing the work.
VI. Acceptance Criteria: Describe how the buyer organization will determine if the
work is acceptable.
VII. Special Requirements: Specify any special requirements such as hardware or
software certifications, minimum degree or experience level of personnel, travel
requirements, and so on.

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