About Project Procurement Management
Project Procurement Management deals with the processes which project managers usually follow to acquire required material for the successful completion of the project. In this knowledge area, project managers come up with the plan for conducting procurements, controlling the procurements and closing out the procurements. Project Procurement Management is the process of purchasing products and services for the project. Procurement management includes contract management and change control processes required to develop and administer contracts.
Project managers should create a procurement management plan and a procurement statement of work (including the terms and conditions), and send these documents to prospective sellers. 4 processes are there in this knowledge area
Following are the important points to keep in mind.
- A fair contract shares a reasonable amount of risk between the buyer and the seller.
- A bonus to complete the work by August 30 is an incentive.
- Privity is a confidential agreement between the buyer and seller.
- An SOW can be a contract if both parties agree to the SOW and sign the document as a contract.
- A single source seller means there is only one seller the company wants to do business with.
- An IFB is typically a request for a sealed document that lists the seller’s firm price to complete the detailed work.
- Procurement documents detail the requirements for the work to ensure complete proposals from sellers.
- For immediate work, a letter contract may suffice. The intent of the letter contract is to allow the vendor to get to work immediately to solve the project problem.
- A unilateral form of a contract is simply a purchase order.
- We decompose the Project using a WBS.
- The product description defines the details and requirements for acceptance of the project. This information also serves as a valuable input to the process of determining what needs to be procured. The product description defines what the end result of the project will be. When dealing with vendors to procure a portion of the project, the work to be procured must support the requirements of the project’s customer.
- Contracts are legal documents and, therefore, generally require more sign-offs.
- In a fixed price contract, the seller has the cost risk and therefore wants to completely understand the contract statement of work before bidding.
- Look again at the question. Ask yourself “How many computers does the contract say?” Did you read it as twenty (25)? This is an example of a conflict in the contract. The intent of the contract can be determined by remembering that words are more binding than numbers. Therefore, you should return the five extra computers.
- You need to encourage the client to realize that they have a problem and to finalize their requirements.
- As the project manager, you know what the project risks are. You need to make sure that provisions are included in the contract to address these risks.
- The requirement to provide PMP certified project managers is a screening system. A system to minimize personal prejudice is a weighting system.
- This is an example of privity. Because Companies A and C have no legal relationship, Company A cannot direct Company C. The smart thing to do is for the project manager of Company A to call the project manager from Company B, and have him communicate the directive from Company A.
- The project manager should attend the bidder conference.
- Procurement is a very formal process. Changes need to be fully documented and signed by both parties.
- Remember that PMI’s definition of an audit is different. According to PMI, audits are used to improve the processes.
- Changes in resources used would generally not be part of a fixed price contract.
- If the seller completes the work specified in the procurement statement of work, the contract is considered complete. That does not mean the same thing as the procurement being closed. The Close Procurements process must still occur. However, in this situation, the contract work is completed. Tricky!
- Contract that limits fees for large projects with limited scope definition is cost plus fixed fee.
- There are certain basic things that should go into all contracts; an arbitration (or dispute resolution) clause is one of them. Imagine a situation where you have a dispute, but no plan already agreed to in the contract!
- If the contract is terminated, the project needs to enter closure. You need those results for historical purposes.
- It is not common for alternatives to be discussed at the bidder conference. They may be included in bids or proposals and discussed later.
- A customer’s meeting minutes have no impact on disputes that arise; therefore, they are not required.
- A seller cannot issue a change order (although he could request one). Generally, only the buyer can terminate a contract.
- Terms and conditions should be the result of a risk analysis. This means the project manager has been assigned and has completed the risk management process before the contract is drafted. Contracts are risk mitigation tools!
- T & M Contract: Profit is factored into the hourly rate. Therefore, profit is increased for each hour worked. If many hours are used, profit can be higher than a fixed bid contract.
- The team members should not be requesting deliverables from the seller. However, since they did, you must pay for them and review the procedures with the team.
- Special provisions take precedence over general provisions.
- Any time that a seller does not perform according to the contract, the project manager must take action. The preferred choice might be to contact the seller and ask what is going on, but that choice is not available here. Therefore, the best choice is to let him know he is in default .
- The only way to change the cost plus fixed fee contract is to negotiate a change to the contract, normally in the form of change orders. Change orders should include an additional fee if additional work is added to the contract.
- Sellers are generally required under contract to keep working unless told otherwise.
- A procurement statement of work may be revised and refined as it moves through procurement.
- This is a large effort. No procurement statement of work can be developed, and expertise cannot be found internally. CPIF would be an incentive to the vendor to perform on or ahead of schedule.
- The contract change control system includes a method for controlling cost on the procurement.
- This situation is outside ofyour authority to control. You should therefore bring enough information to management that they can make a determination as to what to do.
- Workers Strike: The situation described is probably a force majeure. The appropriate response to a force majeure is to extend the contract.
- If it is not in the contract (which includes the specifications), a change order is needed to acquire it.
- Procrastination or a lack of planning on the part of the project manager does not create an emergency situation for the procurement manager.
- The project manager must be involved to protect the relationship between the company and the seller.
- The key to answering this question is to understand that this is a severe situation with many problems-so many problems that it is clear the contract is not serving either party. When a contract no longer serves the needs it was intended to serve, it can be renegotiated if the appropriate parties agree to this.
- When the seller has more expertise than the buyer, the procurement statement of work should describe performance or function rather than a complete list of work. In any case, the procurement statement of work should be as detailed as possible.
- Bidder conferences are held to provide all bidders a clear and common understanding of the work required.
- When you must begin work immediately without a procurement statement of work, the most appropriate choice is time and material.
- Seller has the patent for an item: If the seller goes bankrupt, you will no longer have a source for that material. You must deal with this risk.
- The buyer has the right to terminate the contract for cause or if the seller breaches the contract by not performing accordingly. Therefore, the procurement would enter the Close Procurements process. Any disputed payments or terms would be handled according to the dispute resolution procedures in the contract.
- The independent estimate is most concerned with cost, comparing cost estimates with in-house estimates, or with outside assistance.
- The most important issue is the level of detail in the procurement statement of work. If you have a design contract statement of work, a fixed bid contract is possible. Without this level of detail, the risk is high for the seller and thus the price is higher.
- Recognize that the procurement manager has power regarding the contract, while the project manager needs to look out for the specific needs of the project. This will cause conflict when the project’s needs change and the procurement manager doesn’t want to make changes.
- A procurement audit includes what went right and wrong for the purposes of creating historical records and improving future performance.
- A letter of intent is not binding in a court of law, it does make the seller feel more comfortable about expending funds before a contract is signed.
- The time and material contract is the easiest to negotiate and allows for rapid turnaround. If you didn’t have the time constraint, you would select a fixed price contract
- Generally in procurement situations, a change control board might review and approve or reject a change, but only the procurement manager has the authority to sign a change.
- Quality is defined as conformance to requirements. If inspection work is not performed as required in the contract, the project’s quality standards are not being met.
- Due to the lack of detailed scope, you should not select a fixed price contract (choice A). Because the buyer wants to be in full control, the time and material contract (choice B) is the best option.
- In a procurement situation, generally only the procurement manager has the authority to sign changes. Sometimes the project manager has certain expanded authority to sign in the event of an emergency. However, an increase in cost is generally not considered an emergency.
- Once signed, a contract is binding. Generally, the inability to perform, get financing, or one party’s belief that the contract is null and void does not change the fact that the contract is binding. If, however, both sides agree to terminate the contract, the contract can move into the Close Procurement process. Once closure is completed, the project is considered completed.
- Incentives are meant to bring the objectives of the seller in line with those of the buyer. That way both are progressing toward the same objective.
- In a Fixed Price Contract, the fee or profit is : Unknown (To the seller, it is known, but this question is from the buyer’s perspective. You do not know what profit the seller included in the contract).
- The form of the deliverables for a specific portion of the project should have been reviewed and clarified during the Plan Procurements process.
- You always need to follow the change control process. You cannot arbitrarily decide to refuse to pay claims. Reserves should be used for identified risks and not used arbitrarily.
- The first thing that should come to mind is whether this is an ethical situation and whether it violates any company rules or laws. If it does not violate any of these, it would be best to check qualifications.
10 Knowledge areas specified by PMI:
This knowledge Area Project Procurement Management is covered in PMP Certification Prep course which contains following practice tests:
This course includes practice tests and articles, but it does not cover every exam question. Only the PMI exam team has access to the exam questions for PMP exam, and PMI regularly adds new questions to the exam, making it impossible to cover specific questions. You should consider this course a supplement to your relevant real-world experience