Description: it is the process of documenting project procurement decisions, specifying the approach and identifying potential sellers. Goods and services may be procured from other parts of the organization or from external sources. he project manager should ensure that the project team is staffed with procurement expertise at the level required for the project. Typical steps:
Prepare the procurement statement of work (SOW) or terms of reference (TOR).
Prepare a high-level cost estimate to determine the budget.
Advertise the opportunity.
Identify a short list of qualified sellers.
Prepare and issue bid documents.
Prepare and submit proposals by the seller.
Conduct a technical evaluation of the proposals including quality.
Perform a cost evaluation of the proposals.
Prepare the final combined quality and cost evaluation to select the winning proposal.
Finalize negotiations and sign contract between the buyer and the seller.
The key benefit: it determines whether to acquire goods and services from outside the project and, if so, what to acquire as well as how and when to acquire to.
Frequency: once or at predefined points in the project. The process should be done early.
The Process / Asset Group
Input
The Process
Output
The Process / Asset Group
4.1 Develop Project Charter
Project charter
12.1 Plan Procurement Management
Procurement management plan
Project Management Plan
Project Management Plan
Scope management plan
Procurement strategy
Procurement Documentation
Quality management plan
Procurement statement of work
Resource management plan
Bid documents
Scope baseline
Make-or-buy decisions
Business Documents
Business Case
Independent cost estimates
Benefits Management Plan
Change requests
4.6 Perform Integrated Change Control
Project Documents
Milestone list
Source selection criteria
Project Documents
Project team assignments
Lesson learned register
Requirements documentation
Milestone List
Requirements traceability matrix
Requirements documentation
Resource requirements
Requirements traceability matrix
Risk register
Risk register
Stakeholder register
Stakeholder register
Enterprise / Organization
Enterprise environmental factors
Organization process assets update
Enterprise / Organization
Organizational process assets
12.1.1 Inputs
12.1.1.1 Project Charter
It contains the objectives, project description, summary milestones, and the preapproved financial resources.
12.1.1.2 Business Documents
Business case. The procurement strategy and business case need to be aligned to ensure the business case remains valid.
Quality management plan. The applicable industry standards and codes the project => RFP => the contract.
Resource management plan. Which resources will be purchased or leased. Assumptions or constraints that would influence the procurement.
Scope baseline. The scope statement, WBS, and WBS dictionary. The elements of the scope that are known are used to develop the statement of work (SOW) and the terms of reference (TOR).
12.1.1.4 Project Documents
Milestone list.
Project team assignments. It contains information on the skills and abilities of the project team and their availability to support the procurement activities.
Requirements documentation.
Technical requirements that the seller is required to satisfy,
Requirements with contractual and legal implications that may include
Health,
Safety,
Security,
Performance,
Environmental,
Insurance,
Intellectual property rights,
Equal employment opportunity,
Licenses, permits, and
Other nontechnical requirements.
Requirements traceability matrix. Specific needs such as team and physical resources.
Risk register. The list of risks, along with the results of risk analysis and risk response planning.
Stakeholder register. The project participants and their interests in the project, including regulatory agencies, contracting personnel, and legal personnel.
12.1.1.5 Enterprise Environmental Factors
Marketplace conditions;
Products, services, and results that are available in the marketplace;
Sellers, including their past performance or reputation;
Typical terms and conditions for products, services, and results or for the specific industry;
Unique local requirements, such as regulatory requirements for local labor or sellers;
Legal advice regarding procurements;
Contract management systems, including procedures for contract change control;
Established multi-tier supplier system of prequalified sellers based on prior experience; and
Financial accounting and contract payments system.
12.1.1.6 Organizational Process Assets
Preapproved seller lists.
Formal procurement policies, procedures, and guidelines.
Contract types.
Fixed-price contracts. This category of contracts involves setting a fixed total price for a defined product, service, or result to be provided. These contracts should be used when the requirements are well defined and no significant changes to the scope are expected. Types of fixed-price contract include:
Firm fixed price (FFP). The most commonly used contract type is the FFP. It is favored by most buying organizations because the price for goods is set at the outset and not subject to change unless the scope of work changes.
Fixed price incentive fee (FPIF). This fixed-price arrangement gives the buyer and seller some flexibility in that it allows for deviation from performance, with financial incentives tied to achieving agreed-upon metrics. Typically, such financial incentives are related to cost, schedule, or technical performance of the seller. Under FPIF contracts, a price ceiling is set, and all costs above the price ceiling are the responsibility of the seller.
Fixed price with economic price adjustments (FPEPA). This type is used whenever the seller's performance period spans a considerable period of years, or if the payments are made in a different currency. It is a fixed-price contract, but with a special provision allowing for predefined final adjustments to the contract price due to changed conditions, such as inflation changes or cost increases (or decreases) for specific commodities.
Cost-reimbursable contracts. Payments (cost reimbursements) to the seller for all legitimate actual costs incurred for completed work, plus a fee representing seller profit.
Cost plus fixed fee (CPFF). The seller is reimbursed for all allowable costs for performing the contract work and receives a fixed-fee payment calculated as a percentage of the initial estimated project costs. Fee amounts do not change unless the project scope changes.
Cost plus incentive fee (CPIF). The seller is reimbursed for all allowable costs for performing the contract work and receives a predetermined incentive fee based on achieving certain performance objectives as set forth in the contract. In CPIF contracts, if the final costs are less or greater than the original estimated costs, then both the buyer and seller share costs from the departures based upon a prenegotiated cost-sharing formula, for example, an 80/20 split over/under target costs based on the actual performance of the seller.
Cost plus award fee (CPAF). The seller is reimbursed for all legitimate costs, but the majority of the fee is earned based on the satisfaction of certain broad subjective performance criteria that are defined and incorporated into the contract. The determination of fee is based solely on the subjective determination of seller performance by the buyer and is generally not subject to appeals.
Time and material contracts (T&M). Time and material contracts (also called time and means) are a hybrid type of contractual arrangement with aspects of both cost-reimbursable and fixed-price contracts. They are often used for staff augmentation, acquisition of experts, and any outside support when a precise statement of work cannot be quickly prescribed.
12.1.2 Tools and Techniques
12.1.2.1 Expert Judgment
Procurement and purchasing,
Contract types and contract documents, and
Regulations and compliance topics.
12.1.2.2 Data Gathering
Market research (includes examination of industry and specific seller capabilities).
12.1.2.3 Data Analysis
Make-or-buy analysis. Factors to consider in the make-or-buy decision include
The organization's current resource allocation and their skills and abilities,
The need for specialized expertise, The desire to not expand permanent employment obligations, and
The need for independent expertise.
Evaluating the risks involved with each make-or-buy decision.
The method may use
Payback period,
Return on investment (ROI),
Internal rate of return (IRR),
Discounted cash flow,
Net present value (NPV),
Benefit/cost analysis (BCA), or
Other techniques.
12.1.2.4 Source Selection Analysis
It is necessary to review the prioritization of the competing demands for the project before deciding on the selection method. it is a good practice to include the evaluation method in the procurement documents so bidders know how they will be evaluated.
Least cost. The least cost method may be appropriate for procurements of a standard or routine nature where well-established practices and standards exist and from which a specific and well-defined outcome is expected, which can be executed at different costs.
Qualifications only. The qualifications only selection method applies when the time and cost of a full selection process would not make sense because the value of the procurement is relatively small. The buyer establishes a short list and selects the bidder with the best credibility, qualifications, experience, expertise, areas of specialization, and references.
Quality-based/highest technical proposal score. The selected firm is asked to submit a proposal with both technical and cost details and is then invited to negotiate the contract if the technical proposal proves acceptable. Using this method, technical proposals are first evaluated based on the quality of the technical solution offered. The seller who submitted the highest-ranked technical proposal is selected if their financial proposal can be negotiated and accepted.
Quality and cost-based. The quality and cost-based method allows cost to be included as a factor in the seller selection process. In general, when risk and/or uncertainty are greater for the project, quality should be a key element when compared to cost.
Sole source. The buyer asks a specific seller to prepare technical and financial proposals, which are then negotiated. Since there is no competition, this method is acceptable only when properly justified and should be viewed as an exception.
Fixed budget. The fixed-budget method requires disclosing the available budget to invited sellers in the RFP and selecting the highest-ranking technical proposal within the budget. Because sellers are subject to a cost constraint, they will adapt the scope and quality of their offer to that budget. The buyer should therefore ensure that the budget is compatible with the SOW and that the seller will be able to perform the tasks within the budget. This method is appropriate only when the SOW is precisely defined, no changes are anticipated, and the budget is fixed and cannot be exceeded.
12.1.2.5 Meetings
12.1.3 Outputs
12.1.3.1 Procurement Management Plan
It contains the activities to be undertaken during the procurement process. It should document whether international competitive bidding, national competitive bidding, local bidding, etc., should be done. If the project is financed externally, the sources and availability of funding should be aligned with the procurement management plan and the project schedule.
Include guidance for:
How procurement will be coordinated with other project aspects, such as project schedule development and control processes;
Timetable of key procurement activities;
Procurement metrics to be used to manage contracts;
Stakeholder roles and responsibilities related to procurement, including authority and constraints of the project team when the performing organization has a procurement department;
Constraints and assumptions that could affect planned procurements;
The legal jurisdiction and the currency in which payments will be made;
Determination of whether independent estimates will be used and whether they are needed as evaluation criteria;
Risk management issues including identifying requirements for performance bonds or insurance contracts to mitigate some forms of project risk; and
Prequalified sellers, if any, to be used.
12.1.3.2 Procurement Strategy
The objective of the procurement strategy is
To determine the project delivery method,
For professional services, delivery methods include:
Buyer/services provider with no subcontracting,
Buyer/services provider with subcontracting allowed,
Joint venture between buyer and services provider, and
Buyer/services provider acts as the representative.
For industrial or commercial construction, project delivery methods include but are not limited to:
Turnkey,
Design build (DB),
Design bid build (DBB),
Design build operate (DBO),
Build own operate transfer (BOOT), and
Others.
The type of legally binding agreement(s). Contract payment types are separate from the project delivery methods and are coordinated with the buying organization's internal financial systems. They include but are not limited to these contract types plus variations:
Lump sum,
Firm fixed price,
Cost plus award fees,
Cost plus incentive fees,
Time and materials,
Target cost, and
Others.
How the procurement will advance through the procurement phases:
Sequencing or phasing of the procurement, a description of each phase and the specific objectives of each phase;
Procurement performance indicators and milestones to be used in monitoring;
Criteria for moving from phase to phase;
Monitoring and evaluation plan for tracking progress; and
Process for knowledge transfer for use in subsequent phases.
12.1.3.3 Bid Documents
To solicit proposals from prospective sellers. Terms such as bid, tender, or quotation are generally used when the seller selection decision is based on price (as when buying commercial or standard items), while a term such as proposal is generally used when other considerations such as technical capability or technical approach are the most important. Depending on the goods or services needed, the bidding documents can include a request for information, request for quotation, request for proposal, or other appropriate procurement documents.
The conditions:
Request for information (RFI). An RFI is used when more information on the goods and services to be acquired is needed from the sellers. It will typically be followed by an RFQ or RFP.
Request for quotation (RFQ). An RFQ is commonly used when more information is needed on how vendors would satisfy the requirements and/or how much it will cost.
Request for proposal (RFP). An RFP is used when there is a problem in the project and the solution is not easy to determine. This is the most formal of the “request for” documents and has strict procurement rules for content, timeline, and seller responses.
12.1.3.4 Procurement Statement of Work (SOW)
The statement of work (SOW) for each procurement is developed from the project scope baseline and defines only that portion of the project scope that is to be included within the related contract. The SOW describes the procurement item in sufficient detail to allow prospective sellers to determine if they are capable of providing the products, services, or results. Sufficient detail can vary based on the nature of the item, the needs of the buyer, or the expected contract form. Information included in a SOW can include specifications, quantity desired, quality levels, performance data, period of performance, work location, and other requirements. It includes a description of any collateral services required, such as performance reporting or post-project operational support for the procured item.
Terms of reference (TOR) includes:
Tasks the contractor is required to perform as well as specified coordination requirements;
Standards the contractor will fulfill that are applicable to the project;
Data that needs to be submitted for approval;
Detailed list of all data and services that will be provided to the contractor by the buyer for use in performing the contract, if applicable; and
Definition of the schedule for initial submission and the review/approval time required.
12.1.3.5 Source Selection Criteria
It may include:
Capability and capacity;
Product cost and life cycle cost;
Delivery dates;
Technical expertise and approach;
Specific relevant experience;
Adequacy of the proposed approach and work plan in responding to the SOW;
Key staff's qualifications, availability, and competence;
Financial stability of the firm;
Management experience; and
Suitability of the knowledge transfer program, including training;
Local country content.
12.1.3.6 Make-or-Buy Decisions
12.1.3.7 Independent Cost Estimates
Significant differences in cost estimates can be an indication that the procurement SOW was deficient or ambiguous, or that the prospective sellers either misunderstood or failed to respond fully to the procurement SOW.
12.1.3.8 Change Requests
12.1.3.9 Project Documents Updates
Include:
Lessons learned register. Regulations and compliance, data gathering, data analysis, and source selection analysis.
Milestone list. Shows when the sellers are expected to deliver their results.
Requirements documentation. May include:
Technical requirements that the seller is required to satisfy, and
Requirements with contractual and legal implications that may include health, safety, security, performance, environmental, insurance, intellectual property rights, equal employment opportunity, licenses, permits, and other nontechnical requirements.
Requirements traceability matrix. Links product requirements from their origin to the deliverables that satisfy them.
Risk register. Each approved seller comes with its own unique set of risks, depending on the seller's organization, the duration of the contract, the external environment, the project delivery method, the type of contracting vehicle chosen, and the final agreed-upon price.
Stakeholder register. The stakeholder register is updated with any additional information on stakeholders, particularly regulatory agencies, contracting personnel, and legal personnel.
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