Project Procurement Management
Concept explanation:
Project Procurement Management includes the process of procuring or obtaining products, services or results from outside the project team. Including the preparation, management and control of contracts.
Contracts are also known as: Purchase Order, Memorandum of Agreement (MOA), Service Level Agreement (SLA).
Authorized to procure project materials or obtain human resources are: members of the project team, management, or the organization's purchasing department.
Ideas for doing questions:
1. How to identify procurement issues: According to PM, it is the position of Party A, so the words " procurement ", " supplier , third party , outsourcing " appear in the title, which is the position of Party A, not Party B, and is a procurement issue.
2. Procurement management is from the perspective of Party A. Procurement questions must use the ITTO of procurement , such as quality audit or scope definition, etc. must not be used!
3. Party A’s perspective lies in the contract , and doing everything according to the contract is the main theme. Therefore, before the contract is signed, the PSOW is the main theme, which describes the needs of Party A; after the contract is signed, everything is done according to the contract.
4. To avoid supplier performance problems , performance review tools are needed .
5. When there is a disagreement between Party A and Party B, advocate:
a. Check the contract first .
b. Restart the negotiation (ADR) process.
c. The negotiation fails and the contract is terminated .
6. Claims management steps: the first step is negotiation , the second step is arbitration , and the third step is court prosecution .
type of contract
1. Lump sum contract:
Features: Fixed price contract with clear scope and not easy to change.
a. Fixed-price contract (FFP): the most commonly used and the buyer's favorite. In case of rework, etc., the cost shall be paid by the seller, and Party B shall bear all the risks. A change in scope requires an amendment to the contract.
b. Total price plus incentive fee (FPIF): flexibility, allowing a certain deviation from the target (it can be completed at 15w or 13w). Start to set performance goals. After the contract is fulfilled, the final price will be determined according to the seller's cost, progress, and technical performance. There is a price cap . Seller must complete work and bear full cost above price cap.
c. Total price plus economic price adjustment (FP-EPA): applicable to several years of construction period , or settlement in several currencies (contract signed for 3 or 5 years, or settlement in several currencies).
2. Cost compensation contract:
Features: The cost return contract has a scope, but it is often prone to changes . Where there is a huge risk to Party A, all legal costs will be reimbursed, plus a fee as the seller's profit, applicable to major changes in the scope of work that may occur .
a. Cost-plus-fixed-fee contract (CPFF) : full refund of costs, regardless of supplier performance. A fixed fee is usually a percentage of the initial estimated cost (not the actual cost), and the amount of the fee does not change unless the scope of the contract changes.
b. Cost Plus Incentive Fee Contract (CPIF) : It has all the characteristics of CPFF , all costs are refunded, and the bonus is based on the realization of the established goals. If there is a difference between the actual cost and the estimated cost at the beginning of the period, it will be shared by the buyer and the seller according to a predetermined ratio.
c. Cost Plus Incentive Fee Contract (CPAF): The cost is fully refunded, and the majority of the fee is contingent on meeting the subjective performance criteria specified in the contract . How much to give is subjectively judged by the buyer based on the performance of the buyer, and no appeal is allowed.
3. Material contract:
Features: unit price contract, time-material contract, scope no .
It is a mixture of fixed price contract and cost return contract. The unit rate and expected profit can be defined in advance in the contract, but the time and quantity required cannot be defined in the contract.
Use when expanding staff, hiring specialists, or seeking outside support when an accurate statement of work cannot be produced quickly.
In order to deal with the risk of infinitely rising costs, "cost ceiling" and "time limit" are often defined.
Core idea:
1. When there is a procurement demand, it is necessary to plan the procurement. When there are a bunch of documents output, the planned procurement ends.
2. When we are ready to bid, then our implementation procurement will start, and when the contract is signed, the implementation procurement will end.
3. When the contract is signed, it enters the process of controlling procurement, and when the contract ends, the process of controlling procurement ends.
Section 1: Planning Procurement Management
Concept explanation:
1. The process of recording project procurement decisions, clarifying procurement methods, and identifying potential sellers.
2. Determine whether to acquire goods and services from outside the project, and if so, determine what goods and services will be acquired when and in what way.
Key input:
1. Requirement documents : including the technical requirements that the seller needs to meet, as well as requirements with contractual and legal significance.
2. Resource requirements : Contains information about some specific requirements.
3. Risk register : Lists the risk list, as well as the results of risk analysis and risk response planning. Some risks should be transferred to third parties through the purchase agreement.
4. Stakeholder Register : Provides detailed information about project participants and their project project interests.
focus tool
data collection:
1. Market research : investigate the industry situation and the capabilities of specific suppliers.
data analysis:
1. Make/Buy Analysis : Make or Buy Analysis is used to determine whether a work or deliverable is best done by the project team itself or should be sourced externally.
Supplier selection criteria:
To formulate minimum standards for supplier selection, the evaluation method should be stated in the procurement documents, so that bidders can understand how they will be evaluated.
Meeting:
Information meetings with potential bidders need to be conducted in order to develop a procurement strategy.
Key output:
1. Procurement management plan : including various activities carried out in the procurement process, whether to carry out international competitive bidding, domestic competitive bidding, local bidding, etc. If the project is externally funded, the source and availability of funds shall be in accordance with the procurement management plan and project schedule.
2. Procurement strategy : In the procurement strategy, specify the project delivery method, contract payment type, and how to promote the procurement progress during the procurement phase.
3. Bidding documents : used to solicit proposals from potential sellers. The specific procurement terminology used may also vary by industry or procurement location. can be called:
Request for Information RFI : A Request for Information is used when the seller is required to provide more information about the goods and services to be procured
Request for Quotation RFQ : A Request for Quotation is used when the supplier is required to provide more information on how the requirement will be met and/or at what cost.
Request for Proposal RFP : A Request for Proposal is used when a problem arises in a project and the solution is difficult to identify. This is the most formal "invitation" document.
4. Procurement Statement of Work: Procurement SOW is a part of the overall scope baseline of the project, and each procurement SOW only describes the scope of the project related to the contract.
5. Supplier Selection Criteria: In determining the evaluation criteria, the buyer strives to ensure that the selected proposal will provide the desired service of the best quality.
6. Self-made or outsourced decision: Through the self-made or outsourced analysis, make a decision whether it is best for the project team to complete a certain work, or it needs to be purchased from external channels.
7. Independent cost estimation: For large-scale procurement, the procurement organization can prepare independent estimation by itself, or hire an external professional estimator to make cost estimation, and use it as a benchmark for evaluating the seller's quotation.
Section II: Implementation of Procurement
Concept explanation:
Procurement is the process of obtaining seller responses, selecting a seller, and awarding a contract.
Key input:
1. Procurement documents : including bidding documents (Invitation for Information, Invitation for Proposal, Invitation for Quotation), Procurement Statement of Work (clearly explaining the goals, needs and results to the seller), independent cost estimates (for evaluating the proposals submitted by bidders) Proposal justification), supplier selection criteria (such criteria describe how bidders' proposals will be evaluated), etc.
2. Seller's Proposal : A proposal prepared by the seller in response to the procurement documentation package.
focus tool
advertise:
Advertising is communication to users or potential users about a product, service or result.
Bidder meeting :
A meeting between the buyer and all potential sellers prior to the delivery of the proposal, primarily for questions and clarification. Ensure that bidders have a clear and consistent explanation of the purpose of the procurement. Also known as: Contractor Meeting , Supplier Meeting or Pre-Bid Meeting .
data analysis:
1. Proposal Evaluation : Proposals are evaluated to determine whether they are complete and adequate to the bidding documents, procurement specifications, supplier selection criteria and other documents contained in the bidding documents.
2. Weighting system : Quantify qualitative data to reduce the influence of personal bias on decision-making . The purpose is to select the only one seller, sort all the sellers, and list the order of negotiation.
Interpersonal and Team Skills:
1. Negotiation : Negotiation is a discussion to reach an agreement. The main negotiator of the procurement negotiation is not necessarily the PM. If necessary, the PM and members can attend to provide support.
Key output:
1. Selected Vendor : The Selected Vendor is the bidder judged to be the most competitive in the Proposal Evaluation or Bid Evaluation. For more complex, high-value, and high-risk purchases, the selected vendor is presented to the organization's senior management for approval prior to awarding the contract.
2. Agreement : A contract is a legal relationship, and its remedy should be carried out in court.
Section III: Controlling Procurement
Concept explanation:
Manage purchasing relationships, monitor contract performance, and make changes or corrections as needed.
Ensure that both parties can perform their contractual obligations and protect the rights that both parties have in the contract.
Key input:
1. Agreement : It is the understanding reached between the two parties, including the unanimous understanding of the obligations of each party.
2. Procurement documents : including work instructions, payment information, contractor work performance information, plans, drawings and other correspondence.
3. Approved Change Requests : May include modifications to contract terms and conditions, or any changes to work performance data related to procurement.
4. Work Performance Data : Contains seller data related to project status.
focus tool
data analysis:
1. Performance review : Measure, compare and analyze quality, resource, schedule and cost performance against the agreement to review the performance of the contract work. These include identifying work packages that are ahead or behind schedule, over or under budget, and if there are resource or quality issues.
2. Earned value analysis : Calculate schedule and cost deviations, and schedule and cost performance indices to determine the degree of deviation from the target.
3. Trend analysis : Trend analysis can be used to prepare an estimate at completion ( EAC ) on cost performance to determine whether performance is improving or deteriorating.
Claims Management:
If the buyer and seller cannot agree on compensation for the change, or disagree on whether the change occurred, then the requested change becomes a contested change or a potentially constructive change . Such contested changes are called claims. If not properly resolved, they can become disputes and eventually grievances. Claims are typically recorded, processed, monitored and managed in accordance with the terms of the contract throughout the contract life cycle . If the contracting parties are unable to resolve the claim on their own, they may have to use alternative dispute resolution (ADR) in accordance with the procedures stipulated in the contract. Negotiation is the preferred method of resolving all claims and disputes .
examine:
A structured review of the work being performed by the contractor may involve a simple review of the deliverables, or a physical review of the work itself . In construction, engineering, and infrastructure construction projects, inspections include joint buyer and contractor walkthroughs of the site to ensure that both parties have a common understanding of the work in progress.
audit:
An audit is a structured review of the procurement process . Audit-related rights and obligations should be clearly defined in the procurement contract. Both the buyer's project manager and the seller's project manager should pay attention to the audit results so that necessary adjustments can be made to the project.
key output
Purchasing closes:
The buyer, usually through its authorized procurement administrator, gives the seller formal written notice that the contract has been completed.
Requirements for the formal closing of procurement are usually specified in the terms and conditions of the contract and included in the procurement management plan.
Early termination of contract:
1. Termination : An action taken in accordance with the terms of the contract to terminate part or all of the work.
2. Facilitate termination : End the work in order to benefit the best interests of the buyer. If the buyer terminates the project, the seller must claim for the work that has occurred.
3. Termination by breach of contract : if one party fails to perform the contract in accordance with the terms of the contract, it shall be executed according to the terms of liability for breach of contract.
Job Performance Information:
Work performance information is the performance of the work being performed by the seller , including the completion of deliverables and technical performance compared with contract requirements, and the cost generation and approval of completed work compared with the SOW budget.