Sie sind auf Seite 1von 59

Coleman University

Course Title
Project Management

Student Course Guide


Section ID: MBA 615
Course Number: Year: 2017 Session: 12 August 2017
Class meeting Time: Saturday 9:00 AM - 5 Sessions
8888 Balboa Avenue, San Diego, Ca 92123

Presented by:
Roger H. Mandel B.S.B.A., M.A.

July 2017 Edition


Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 1
Table of Contents
Project Procurement Management.............................................................................................................................3
Recommended Reading................................................................................................................................................3
Course Objectives.........................................................................................................................................................3
Terminal Course Objectives.........................................................................................................................................3
Homework.....................................................................................................................................................................4
Class Requirements......................................................................................................................................................4
Topics..............................................................................................................................................................................5

ATTACHMENT 1 - RFP ACTIVITIES.................................................................................................................... 9


ATTACHMENT 2 - FOUR-STEP SOURCE SELECTION PROCEDURES.......................................................10
ATTACHMENT 3 - WHAT COULD BE IN A RFP, RFQ, IFB, (BID)..................................................................11
ATTACHMENT 4 - GENERAL EVALUATION FACTORS FOR AWARD........................................................14
ATTACHMENT 5 - CASE ANALYSIS FORMAT20..............................................................................................20
ATTACHMENT 6 - TEAM MEMBER EVALUATION.........................................................................................21
ATTACHMENT 7 - COMPARISON OF MAJOR CONTRACT TYPES.............................................................22
ATTACHMENT 8 - Make Buy Decision... .... .... . 24
ATTACHMENT 8 - Mid-Term QUIZ..................................................................................................................... .25
Case #1: BLOZIS COMPANY...........................................................................................................................26
COMPANY
Case #2: THE MUENSTER PUMP COMPANY...............................................................................................28
COMPANY
Case #3: HYDROSUB'S UN-FLOATABLE AMPHIBIOUS ASSAULT VEHICLE........................................30
VEHICLE
ATTACHMENT 9 - FINAL EXAMINATION.........................................................................................................32
FLORIDA RETAIL COMPANY........................................................................................................................32
COMPANY
CASE STUDY 1 - CASE REGIONAL AIR SYSTEMS OF HUSTON..................................................................36
CASE STUDY 2 - COMPUTERIZED ADVANCED SYSTEMS OF HUSTON...................................................37
CASE STUDY 3 - WAN INNOVATED NATIONAL...............................................................................................38
CASE STUDY 4 - BLOED.........................................................................................................................................39
CASE STUDY 5 - DEMAND INTERCITY PROFESSIONALS...........................................................................40
CASE STUDY 6 - NORTHERN EQUIPMENT VALLEY ENERGY RESOURCES..........................................41
CASE STUDY 7 - NATIONAL UNDERWRITERS TECHNICAL.......................................................................42
CASE STUDY 8 - HEAVY OPERATIONAL UNINTERRUPTED SECURITY ELECTRONICS....................43

GLOSSARY.................................................................................................................................................................44

ABBREVIATIONS.....................................................................................................................................................
ABBREVIATIONS.....................................................................................................................................................57
57

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 2
Project Management
San Diego, California
Course Developer: Roger H. Mandel MA
E-mail: RMandel@PramsCo.com
Project Management
This course examines the process by which goods and services are acquired in the project
management environment. Also examined are legal issues project manager faces. Topics
include law; contract and procurement strategies; source selection; contract type identification;
product liability and risk; tender documents; invitation to bid; bid response and evaluation;
contract risk assessment; contract negotiation; and contract administration.
Required Text as Supplemental Reading: Information Technology Project Management,
Eighth Edition, by Kathy Schwalbe ISBN-13: 978-1-285-45234-0.
Recommended Reading:
1. Contract Pricing Reference Guides Vol. 4 - Advanced Issues in Contract Pricing Ch 1 -
Establishing and Monitoring Contract Type.
http://www.acq.osd.mil/dpap/cpf/contract_pricing_reference_guides.html
2. Work Breakdown Structures: https://acc.dau.mil/adl/en-US/482538/file/61223/MIL-STD
%20881C%203%20Oct%2011.pdf
3. Getting to Yes, Fisher, R. & Ury, W., Penguin Books, 1991. ISBN: 0-14-015735-2
4. Request for Proposal A Guide to Effective RFP Development, Bud Porter-Roth, Addison-
Wesley, 2001. ISBN: 0-201-77575-1
Course Objectives
YOU ARE HEREBY NOTIFIED THAT DURING CLASS MEETINGS NO REPRESENTATIVE HAS THE AUTHORITY TO
DIRECT YOU IN ANY WAY TO ALTER YOUR OBLIGATION OR CHANGE THE STATEMENT OF WORK IN THIS
GUIDE. FURTHER, IF THE INSTRUCTOR, AS A RESULT OF THE INFORMATION OBTAINED FROM ANY CLASS
DOES DESIRE TO ALTER YOUR CONTRACT OBLIGATION OR CHANGE THE CONTRACT STATEMENT OF WORK,
CHANGES WILL BE ISSUED IN WRITING AND SIGNED BY THE INSTRUCTOR. BY ACCEPTING THIS DOCUMENT,
YOU AGREE TO ALL TERMS AND CONDITIONS OF THE COURSE GUIDE / CONTRACT.

The overall objective of this course is to provide a through understanding of the actions that
project management should take to control each step in the procurement process for major
contracts.
Terminal Course Objectives
While the Professor will focus on helping you accomplish all the objectives, as with all
objectives, they can only serve as a guide. Every class is to some extent a unique interactive
experience, which may cause some variance from the stated objective, in either content or level.
The outcomes of the course will depend on the design of the course, the quality of the instruction,
and the motivation and capabilities of the students, including the time available for studying and
the effectiveness of that effort. This school is committed to continual improvement of, its
curriculum and instruction to meet the needs of students and employers in a rapidly changing
global economy. Students, faculty, and the school must all be actively involved to accomplish this
Schools objective, as well as the objectives of this particular course. Specific Terminal Course
Objectives are as follows:

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 3
A. Given a project situation, analyze the factors that are important in determining the goods and
services that should be produced internally and those that should be procured externally and
recommend a position.
B. Given a procurement situation for a major contract, examine the key factors that affect the
selection of the proper contract pricing approach and recommend an approach.
C. Given a procurement situation for a major contract, analyze and define the schedule and
budget requirements for the contract.
D. Given a situation to solicit a bid proposal, evaluate technical, management, and commercial
requirements and prepare a Request for Proposal (RFP).
E. Given the receipt of bids determine the important factors to use in evaluating the technical,
management, and commercial aspects of the bid proposals for the contract.
F. Given a project situation, analyze and select effective techniques to control the quality, cost,
and schedule performance of major contractors.
G. Given a contract claims situation, develop an effective negotiating strategy and execute it
using appropriate techniques of negotiation.
H. Given a contract claim that cannot be settled by negotiations, analyze the factors important to
proceeding with litigation and decide whether to litigate

Course Requirements
The weekly assignments will consist of readings, case analysis and/or review questions from the
text. This material, in addition to lectures, will provide the basis for discussion in class. Where
specific cases are identified, they will require a written analysis and will be graded. Classroom
participation is an integral part of the learning experience. All reading assignments must be
completed before class. Assignments shall be in a professional format when submitted.
Course / Class Requirements are:
Embedded Field Study: 100 points 10%
Final Examination: 200 points 20%
Midterm Examination: 80 points 8%
Case Studies 8: 320 points 32%
Participation: 100 points 10%
Discussion Thread 4: 200 points 20%
As part of this course, each student will be required to participate in one See page 7 of this guide.

Attachment 1: RFP ACTIVITIES


Attachment 2: FOUR-STEP SOURCE SELECTION PROCEDURES
Attachment 3: WHAT COULD BE IN AN RFP, RFQ, IFB, (BID)
Attachment 4: GENERAL EVALUATION FACTORS FOR AWARD
Attachment 5: CASE ANALYSIS FORMAT USE FOR ALL CASE STUDIES
Attachment 6: TEAM MEMBER EVALUATION SHEET
Attachment 7: COMPARISON OF MAJOR CONTRACT TYPES
Attachment 8: MID-TERM QUIZ
Attachment 9: FINAL EXAMINATION
CASE STUDIES 1 through 8

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 4
Topics
ALL HOMEWORK ARE DUE THE FOLLOWING WEEK

Session 1: In Class Assignments


Course introduction and requirements.
Reading: Information Technology Project Management (ITPM) Chapters 1-4. Pgs. 1-182
Assignment: Case Regional Air Systems of Houston (CRASH) Student Course Guide (SCG)
Case Study (CS) # 1 SCG Page 36
Use Case Analysis Form (CAF) found on page 20 of Student Course Guide (SCG)
Assignment: Computerized Advanced Systems of Houston CS #2, SCG Page 37

Session 2: In Class Assignments


Assignment: Wan Innovated National CS #3. Answer questions. SCG Page 380
Assignment: Read ITPM Chapters 5-6-7-8. Text Pgs. 183-342
Assignment: Develop an Executive Summary and Statement of Work for the RFP.
Assignment: Bloed CS #4, use CAF. SCG Page 39
Reading: Read ITPM Chapters 7-8. Text Pgs. 263-342
Assignment: Develop a Gantt chart of the RFP process.

Session 3: In Class Assignments


Assignment: Read ITPM Chapter 9-10. Text Pgs. 343-424
Mid-Term. Pgs. 24-30
Assignment: Demand intercity Professionals CS #5, use CAF. SCG Page 39
Assignment: Develop ranking factor criteria and procedures for selecting bidders.
Ranking factor criteria and procedures for selecting bidders.
Assignment: Northern Equipment Valley Energy Resources CS #6 uses CAF. Page 40

Session 4: In Class Assignments


Assignment: Read ITPM Chapters 11-12. Text Pgs. 425-494
Assignment National Underwriters Technical CS #7 uses CAF. SCG Page 41
Assignment: Heavy Operational Uninterrupted Security Electronics.
CS #8 uses CAF. SCG Page 42

Session 5: In Class Assignments


Assignment: Final Examination Attachment 9 SCG SCG Pgs. 31-33
o Final Examination shall be delivered to me no later than end of session 5.

Course Evaluation:
Course / Class Requirements are:
Embedded Field Study: 100 points 10%
Final Examination: 200 points 20%
Midterm Examination: 80 points 8%
Case Studies 8: 320 points 32%
Participation: 100 points 10%
Discussion Thread 4: 200 points 20%

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 5
Late assignments can have points reduction.
All assignments must be in a professional format and shall conform to the following:

On white paper with dimensions of 8by 11.


Assignment defined top center of each page.
Your name, on each page, under the assignment description.
One-inch boarder on the top, bottom and both sides.
All pages shall be numbered.

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 6
ATTACHMENT 1 - RFP ACTIVITIES

1. Start Project
2. Complete requirement analysis
3. Report on requirements
4. Approve requirements
5. RFP budget approval
6. RFP Team development
7. Start RFP development
8. Estimate project cost
9. Develop and publish information for bid Your Gantt
10. Industry conferences
11. Question mailing address, e-mail and point of contact
12. Vendor site visits
13. Complete RFP draft and conduct first review
14. Complete RFP evaluation criteria
15. Complete RFP
16. Final RFP review
17. Distribute RFP electronically to potential prime vendors
18. Vendor conferences
19. Vendor comment cut off
20. Amend RFP as needed
21. Set response date
22. Review vendor proposal
23. Hold evaluation meetings to eliminate vendors
24. Conduct reference site visits
25. Vendor site meetings one-on-one
26. Write final vendor selection report
27. Make management presentation for selection recommendations
28. Selection of winning proposal/vendor by senior management
29. Negotiate contract
30. Sign contract
31. Post award conference

Basic items that should be in the executive summary

Explain why the procurement is needed for the overall project.


Procurement procedure defined and number of line items to be procured from one vendor
and rough order of magnitude (ROM) in cost/price.
When will the pre-bid conference or conferences be held? Give dates and locations for
each conference, RFP submittal date, response required and award date.
Visit to potential vendors company facilities. When and why?
Type of contractual vehicle and why?
Criteria to evaluate the bidders and/or criteria for award.

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 7
ATTACHMENT 2 - FOUR-STEP SOURCE SELECTION PROCEDURES

(a) General - The four-step source selection procedures are designed for those situations where
the Contract Owner wishes to focus on technical excellence. Proposals shall be evaluated, a
competitive range established, and an apparent successful vendor selected without discussions of
proposal deficiencies (a deficiency is defined as that part of a Vendors proposal which would not
satisfy the Contract Owners requirements). Negotiations are conducted only in the final step
and only with the apparent successful Vendor.

(b) Applicability - Four-step source selection procedures may be used for:


(1) Competitively negotiated research and development acquisitions with an estimated value
of $2 million or more; or

(2) Other acquisitions as permitted by department/agency regulations, except those in


paragraph (c) of this subsection.

(c) Restrictions. Four-step source selection procedures shall not be used for acquisitions which-
(1) Will require extensive discussion and negotiations;
(2) Are solely for personal or non-personal services;
(3) Are for architect-engineer services; or
(4) Have an estimated value of less than $2 million.

(d) Pre-solicitation - Establish early and open dialogue with prospective Vendors to ensure their
understanding of the Contract Owners needs, since the evaluation will be conducted with
limited discussions and without disclosing deficiencies in Vendor proposals. Ways of
establishing this dialogue are-
(1) Pre-solicitation notices;
(2) Pre-solicitation conferences;
(3) Pre-proposal conferences;
(4) Solicitations for information or planning purposes; and
(5) Tailoring of specifications.

(e) Solicitations - Include the following special provisions in four-step source selection
solicitations-
(1) Explanation of the four-step concept and procedures;
(2) Statement regarding the relative importance of technical/system performance criteria;
(3) Notification that the contracting officer may reject proposals with unrealistic technical,
schedule, cost, or price commitments since unrealistic commitments reflect an inherent lack
of technical competence or indicate a failure to comprehend the complexity and risks of the
requirements;
(4) Schedule of planned source selection events, including specific dates for the sequential
submission of separate technical and cost proposal.
(5) Requirement for the technical proposal to include-

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 8
(i) Identification, when appropriate, of trade-offs (with illustrative cost estimate impacts)
among performance, production costs, operating and support costs, schedule and logistics
support factors; and
(ii) Information showing that the goals for design to cost and operating and support costs
(when used) will be achieved when the item enters production.
(6) Requirement for the cost proposal to include detailed cost information supporting the
technical proposal and the cost factors in the evaluation criteria;
(7) Statement that both technical and cost discussions will be limited as described in
paragraphs (f) and (g) of this subsection; and
(8) Notification that the contracting officer will only negotiate with the selected Vendor and
that Vendors initial technical and cost proposals should be their best offer.

(f) Step one-evaluation of technical proposals.


(1) The sequence of step one:
(i) Evaluate all technical proposals;
(ii) Conduct limited discussions with all Vendors; and
(iii) Ask for any necessary clarifications and additional supporting data when necessary
(normally, ask that this be submitted with the cost proposal).
(2) In conducting step number one-
(i) Limit discussions to only what is necessary to ensure that both parties understand each
other;
(ii) Do not tell Vendors about deficiencies in their proposals; and
(iii) Provide written clarification to all Vendors when it appears the Contract Owners
requirements have been misinterpreted.

(g) Step two-evaluation of cost proposals.


(1) The sequence of step two-
(i) Request cost proposals
(ii) Evaluate all cost proposals
(iii) Establish the competitive range
(iv) Eliminate those proposals outside the range and advise those Vendors
(v) Conduct limited discussions with remaining Vendors, and
(vi) Eliminate proposals which cannot be made acceptable and advice to the Vendors
(2) In conducting step two-
(i) Limit discussions to-
(A) Clarifying inconsistencies or correcting mathematical errors
(B) Correlating cost elements with technical effort in order to assess cost realism; and
(C) Ensuring a complete understanding of the Contract Owners requirements, the
Vendors offer, and other contract terms
(ii) Do not tell a Vendors that any of its cost elements are either too high or too low; and
(iii) Follow the guidelines in paragraph (f) of this subsection if further discussions of
technical proposals or clarifications are required

(h) Step three-common cut-off and selection of a Vendor for final contract negotiations.
(1) The sequence of step three-

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 9
(i) Notify Vendors of the common cut-off date for receipt of best and final offers
(technical and cost);
(ii) Evaluate the offers;
(iii) Select the best Vendor (see paragraph (h)(2)(iv) of this subsection for multiple
sources);
(iv) Tell the selected source that the decision is conditional based on negotiation of a
definitive contract within the time period prescribed by the source selection authority;
and
(v) Advise the other Vendors of the source selected.
(2) In conducting step three-
(i) Remind Vendors, when notifying them of the common cut-off date, that any changes
incorporated in the final proposal must be fully documented;
(ii) Do not accept lump sum reductions in final cost proposals without supporting data;
(iii) Do not request additional best and final offers without the approval required by
authorized representative of the Contract Owner (c); and
(iv) Do not select two or more Vendors, rather than a single source, for final contract
negotiations, unless the specifically authorized in writing by an authorized Contract
Owner representative. A written determination of the final selection of a single source
should not be made until the prospective contracts have been tentatively negotiated.

(i) Step four-final negotiations and contract award.


(1) The sequence of step four (single vendor)-
(i) Negotiate the final contract price, terms, and conditions; and
(ii) Award the contract.
(2) The sequence of step four (multiple vendors)-
(i) Negotiate tentative final contract terms and conditions;
(ii) Select the best source; and
(iii) Award.
(3) In conducting step four-
(i) Complete negotiations and award the contract within the time prescribed by the source
selection authority;
(ii) Terminate negotiations and make a new source selection decision if the condition in
paragraph (i) (3) (i) cannot be met ;(iii) Do not permit changes in the Contract Owners
requirements or the Vendors proposal which would affect the source selection decision.

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 10
ATTACHMENT 3 - WHAT COULD BE IN A RFP, RFQ, IFB, (BID)

1. Executive Summary Scope or outline of this Document


a. Project Charter.
b. Scope Overview and why.
c. Project Plan (Schedule).
d. Point of contract with formal address, phone number and E-mail address.
e. Estimated value of work to be performed.
f. Date to submit draft RFP, questions period and final RFP distribution date.
g. Date for return of proposals and estimated contract date.
h. Source selection criteria.

2. Introduction to Bidders Purpose of this Request


a. General Description of Work
b. General Guidelines for Proposal Submittal
c. What Must Be Included
i. Technical Data
ii. Procedures
iii. Quality
iv. Safety
v. Environmental
vi. Schedule
d. Schedule of Bid Period Activities
e. Location of Work
f. Pre-Bid Meeting
g. Owner Contact for Questions
h. Pre-Award Surveys
i. Sealed Bid Requirements
j. Basis for Bid Evaluation
i. Past Performance
ii. Technical
iii. Quality
iv. Schedule Control Capacities
v. Subcontracting
vi. Price
k. Ethical Standards
l. Post-Award Debriefings
m. Responsibility for Surety Bonds
n. Proposal Format
o. List of Bidders
p. Letter of Acknowledgment/Transmittal

3. Organizations Background
a. Principles of the business
b. Point of contact for Bid
c. Point of contact after contract award

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 11
d. Primary people working on this contract

4. Description of work or Basic Requirements


a. Background
b. Engineering Contract
i. Cost on return of investment
ii. Value added
c. Construction Contract
i. Cost on return of investment
ii. Value added
d. Location of Work
e. Waste Handling and Responsibilities

5. Environment
a. Land Conditions
b. Weather related possibilities
c. Labor Market

6. Proposal
a. Breakdown of Bid Price
i. Proposed type of Contract Financial
ii. Labor, Material, Indirect, Profit or Fee.
b. Revisions and Extra Work
c. Owner Furnished Materials
d. Supplier Furnished Materials
e. Escalation Formulas
f. Scheduled Completion Dates
i. Monitoring
1. Financial
2. Incentive Fee
ii. Product or Services
1. List of Subcontractors
2. List of Major Materials or Supplies
g. Key Suppliers or Contractor Personnel (Outsource requirements)
h. Length of Time Bid is Valid
i. List of Bid Document Addends Reviewed by Bidder
j. Notice of Conflicts or Errors in Bid Document
k. Clarification of Bids
l. Bidder Signature page.

7. Specifications and Drawings


a. General
b. Site Survey
c. Hazardous Materials
d. Permits
e. Owner Supplied Supplies, Services and Materials

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 12
f. Acceptance
g. Drawings, Procedures, Reports, and Owners Specifications

8. Special Conditions
a. Quality Requirements
b. Monitoring Requirements Performance Measurement
c. Deliverables
i. Technical
ii. Financial
d. Fault Measurement
e. Secure Management
f. Asset Management
g. Guarantee

9. General Conditions and Contract Agreement


a. Financial Information
b. Terms of Payments
c. Termination Charges
d. Incentives and Liquidated Damages
e. Proposal Expiration Date
f. Exceptions
g. Delays
i. Nuisance
ii. Onsite
iii. Offsite
iv. Corrective action Plan for delays
h. Commercial Terms
i. Contract Type
ii. Suspension
iii. Terminations
iv. Disputes

Deliverables:
All deliverables must be turned in at the designated time and place without exception. Late
material may be considered.
All deliverables, including copies of presentation slides will be turned in both on paper and
electronically
Paper deliverables will be in camera ready condition for reproduction
Unbound
Pages in desired order with page numbers and table of contents
No page to exceed 8 X 11.
All figures, tables and graphics suitably labeled or captioned

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 13
ATTACHMENT 4 - GENERAL EVALUATION FACTORS FOR AWARD

Except when it is determined in accordance with written direction from authorized Contract
Owner (CO) representative and determined not to be in the COs best interest, the CO will
evaluate offers for award purposes by adding the total price for all options to the total price for
the basic requirement. Evaluation of options will not obligate the CO to exercise the option(s).

EVALUATION FACTORS

Proposals will be evaluated on the basis of the factors, sub-factors, and sub-sub-factors listed
below. The technical approach and methodology factor are based on an acceptable rating in the
evaluation of the technical proposal.

A) Technical Approach and Methodology


1) Information Management/Information Technology
2) Administrative Services
3) Human Resources
4) Operations and Maintenance
5) Engineering and Support Services
6) Housing
7) Environmental
8) Supply Services
9) Transportation Services
10) Plans, Programs, Operations and Mobilization
11) Logistics Maintenance
12) Active Training
13) Training Management
14) Public Affairs Office
15) Resource Management
16) Security Support Services

B) Management
1) Program Management Plan
a) Management/Supervisory Functional Responsibilities
b) Key Personnel Resume Quality. Resumes of the Project Manager and key personnel
will be completed for submitted. Copies of certified position descriptions should be
available for contracting officer review.
c) Transitioning Approach and Plan
2) Resource Management Plan
a) Organizational Staffing and Reporting
b) Human Resource Management
c) Financial Resource Management
3) Quality Control Plan
a) Inspection System
b) Identifying and Correcting Deficiencies
c) Documentation and Reports

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 14
4) Subcontracting Plan
5) Contract Owner-Furnished Property Plan
6) Emergency Situations and Contingency Operations Support Plan

C) Past and Present Performance.


1) Relevant Contract Experience
2) Key Personnel Relevant Contract Experience
3) Past and Present Subcontract Management

D) Price Proposal - The Price Proposal will be evaluated using cost and price analysis
techniques. The total proposed price would be evaluated using the sub-factors below. The
following sub-factors will be used in the total price proposal evaluation.
1) Cost and Price Reasonableness
2) Cost and Price Realism
3) Cost and Price Accuracy
4) Cost and Price Completeness

BASIS FOR EVALUATION The solicitation will be evaluated using formal source selection
procedures. The Contract Owner (CO) will evaluate each potential vendor (PV) Technical
Proposal and Management Proposal, using the factors, sub-factors, and sub-sub-factors in
paragraph A and B above to determine technical acceptability. Past & Present Performance will
be evaluated using the factors; sub-factors listed in paragraph C above and will also be used in
determining technical acceptability. The Price Proposal will be evaluated using factors, sub-
factors in paragraph D above to determine the lowest probable total cost, based upon
reasonableness, realism, accuracy, and completeness. In determining the adjective rating
assigned to each factor, sub-factor and sub-sub-factor, the evaluators will assess the proposed
confidence and risk of each. Risk is defined as the likelihood of disruption of schedule,
increased price or degradation of performance even with special contractor emphasis.
Confidence is defined as the likelihood of successful performance of the required effort
regardless of the degree of CO oversight or intervention. The evaluation process is outlined
below.

A) The Technical Proposal and Management Proposal shall be evaluated and adjective ratings
assigned to determine technical acceptability. The evaluation factors, sub-factors, and sub-sub-
factors will be evaluated in accordance with the criteria explained below. Each functional area is
addressed in the proposal, as required:
1) Technical Proposal - The CO will assess the PV ability to meet the technical
requirements necessary for successful performance of the requirements of the solicitation. Each
PV technical approach will be evaluated on the PV demonstration of how its application of
personnel, equipment, and other resources will be utilized to accomplish services required in
each functional area (Section) of the Performance Requirements Document (PRD) in sequential
order. The PV will be evaluated on the explanation of its approach and its demonstration of how
the services in each of the functional areas (Sections) of the PRD will be accomplished. Items to
be considered shall include, but not be limited to, technical procedures, processes, control
methods, and new or innovative approaches. Additionally, each PV technical approach will be
evaluated on its description of the proposed use of subcontractors in performing services,

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 15
subcontract management, autonomy, and the potential vendor oversight process. The evaluation
will assess the manning charts relative to each functional area.
2) Management Proposal - Management Proposal will consist of the six sub-factors below.
The CO will assess the PV Management Proposal to ensure it meets the requirements and intent
of the Statement of Work as a whole. The CO will assess the PV ability to acquire and maintain
qualified staffing throughout the contract period.
(a) Program Management - The CO will assess the PV ability to meet overall program
management requirements necessary to ensure successful performance of the requirements of the
solicitation. The evaluation will consider the adequacy and quality of the levels of key
management and supervision relating to each Section of the solicitation to include assignment of
functional responsibilities for supervision, applicable procedures, and reporting relationships.
The manning charts shall identify the proposed management staff and relate the staff to the
functional areas of the solicitation. The evaluation will also consider the manner in which the
management functions interface with the quality control program. Additionally, the evaluation
will consider the depth of quality of proposed key personnel from an experience, certifications,
and education perspective. The evaluation will consider the sufficiency of the PV plans for
transitioning the current CO workforce to a contractor operation, schedules and milestones,
initial transition, training, service management and quality control, organizational structure and
management control, implementation of right of first refusal, out year transitions, and contract
termination transition.
(b) Resource Management - The CO will assess the PV ability to meet resource
management requirements necessary to ensure successful performance of the requirements of the
solicitation. The evaluation will consider each PV plan to manage labor, recruit and maintain
qualified personnel, CO-furnished property, contract changes, and contract costs. The evaluation
will also consider the adequacy and levels of management and supervision relating to resource
management, to include assignment of responsibilities for supervision, applicable procedures,
organizational staffing, reporting relationships, and proposed manning. Additionally, the
evaluation will consider the PV plan to manage work scope adjustments for new, changed or
emergency work requirements to include key program management personnel, personnel
administration, manning levels in response to fluctuations, and methods proposed to measure and
increase productivity. The evaluation will consider the adequacy and quality of each potential
vendor description of the methods and procedures to be employed in financial management,
including accounting, cost management, estimating systems, budget development, budget
analysis processes and corrective actions to control budget overrun/under-run pertaining to costs
(c) Quality Control - The CO will assess the PV ability to meet quality control
standards/requirements necessary to ensure successful performance of the requirements of the
solicitation. The evaluation will consider the adequacy and quality of each PV proposed
inspection system, methods for identifying and preventing deficiencies, and processes for
implementing corrective actions, proposed complaint feedback system, CO personnel interfaces,
and identification of inspection records.
(d) Subcontracting Plan - The CO will assess the large business PV ability to meet
subcontracting management requirements necessary to ensure successful performance of the
requirements of the solicitation.
(e) Contract Owner-Furnished Property - The CO will assess the PV ability to meet CO-
furnished property requirements of the solicitation. The evaluation will consider the adequacy
and quality of each potential vendor description of its plan outlining its policies, methods, and

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 16
procedures to control, accounts for, maintain, use, and dispose of CO-furnished property in its
possession in accordance with the requirements of the solicitation.
(f) Emergency Situations and Contingency Operations Support The CO will assess the
PV ability to meet the Emergency Situations and Contingency Operations Support requirements
of solicitation, specifically in the Plans, Programs, Operations, and Mobilization functional area.
The evaluation will consider the PV plan for supporting current, special, and emergency
operations and for providing logistical support for the installation with regard to mobilization,
deployment, contingency, and wartime missions. The evaluation will also consider the PV plan
to provide immediate response to all emergency operations directed efforts in support of current,
special, and emergency operations to ensure mission accomplishment and force survivability.
The evaluation will also consider the PV ability to apply appropriate mandatory and advisory
technical standards, resources, and priorities to fulfill product and service requirements, aiding
the customer in defining and quantifying his expectations of satisfactory quality, and perform any
rework necessary to yield a final product that ensures high customer satisfaction.

3) The Adjective ratings for the Technical Proposal and Management Proposal of
Acceptable, Marginal, or Unacceptable are defined as follows:

Acceptable: To receive this rating, potential vendors must present a proposal that:
Provides sufficient details for the CO to determine whether the proposal satisfactorily
meets the minimum requirements of the Performance Requirements Document (PRD)
and solicitation by addressing all the functional area services.
Shows that the PV fully understands and can perform the requirements as delineated
in its proposal for the total proposed price indicated in its proposal.
Submits manning charts that identify and crosswalks the manning to each solicitation
service.
Addresses in its Quality Control Plan, the specific methodology it shall employ to
ensure quality services are furnished the CO for the services outlined in the
solicitation.

Marginal To receive this rating, the PV approach or plan has been presented with minor
omissions, weaknesses and/or a misunderstanding of the requirements in the RFP that
could be corrected or expanded without a complete revision of the proposal. There is
reasonable risk of a proposal with these rating meeting requirements of the solicitation.
However, through exchanges, a proposal with this rating may achieve the acceptable
rating level.

Unacceptable An unacceptable rating will be assessed any factor, sub-factor or sub-sub-


factor that is presented with major omissions or misunderstandings or has been
completely omitted and has inadequate detail to assure the evaluator of an understanding
of the proposed approach. The proposal cannot meet requirements without major
revisions.

If after the initial evaluation of offers the contracting officer does not deem it necessary to
conduct exchanges with PVs, the lowest priced potential vendor who has received an adjectival

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 17
rating of Acceptable on all evaluation factors, sub-factors, and sub-sub-factors will be selected to
compete against the CO cost comparison.

If after the initial evaluation of offers, the contracting officer deems it necessary to conduct
exchanges with PVs, the contracting officer may identify a competitive range consisting of the
number of proposals deemed necessary by the contracting officer in order to conduct an efficient
competition. A proposal that receives an initial evaluation of Unacceptable on any factor, sub-
factor, or sub-sub-factor may be considered ineligible for the competitive range, if one is
established. A proposal that receives an initial evaluation of Acceptable on all factors, sub-
factors, and sub-sub-factors will be included in the competitive range if one is established. A
proposal that receives an initial evaluation consisting of Marginal on one or more factors, sub-
factors, or sub-sub-factors may be included in the competitive range, if one is established, at the
discretion of the contracting officer; however, to be chosen to compete in the cost comparison
with the CO, all factors, sub-factors and sub-sub-factors must be considered acceptable.

B) Past & Present Performance The CO will assess the PV Past and Present Performance to
ensure it is relevant to the requirements and intent of the solicitation. The evaluation will
consider the PV relevant CO contract experience depth, breadth, and quality. The evaluation will
also consider the PV relevant civilian contract experience depth, breadth, and quality. The
evaluation will consider the relevant experience of key personnel and identified subcontractors.
If a PV, proposed subcontractor, or the proposed employee of a PV, do not have a past
performance history relevant to this solicitation, the PV will receive a neutral rating for past
performance. A favorable past performance rating may be considered more favorable than a
neutral past performance rating. The absence of a relevant past performance record will not be
justification for disqualifying any PV. The adjective ratings used in the evaluation of past and
present performance are defined below:

Acceptable: The PVs performance clearly exceeds contractual requirements or there


exists only minor problems for which solutions were developed and implemented.
Marginal: Problems exist for which solutions have not been developed, but the problem
appears to be within the PVs ability to solve.
Unacceptable: Serious problems exist which may be outside the PVs ability to solve.
The PV is in danger of not being able to satisfy contractual requirements and timely
recovery is not likely.

C) The Price Proposal will be evaluated based on the sub-factors found in M.2, D. The
adjective ratings used in evaluation of the price proposal evaluation factors are defined below:

Acceptable: To receive this rating the PV must demonstrate that the proposed elements
are realistic for the work required in the solicitation, materially balanced and accurate
throughout the life of the contract, reflect a complete and clear understanding of the
requirements, are reasonable, verifiable, accurate, complete in that the PV submitted all
information required by the solicitation, the information tracks to the solicitation, and the
information supports the offer. In addition, the costs will be evaluated to determine
whether the price proposal is fair and reasonable both to the PV and the CO, considering

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 18
market conditions, technical and functional capabilities of the PV and risk involved, and
support performance motivation and cost savings.
Marginal: To receive this rating, the PV approach or plan has been presented with minor
omissions, weaknesses in the cost elements and/or supporting data that could be corrected
or expanded without a complete revision of the proposal. There is reasonable risk of a
proposal with these rating meeting requirements of the solicitation. However, through
exchanges, a proposal with this rating may achieve the acceptable rating level.
Unacceptable: An unacceptable rating will be assessed if the costs and/or support are
presented with major omissions or misunderstandings or have been completely omitted
and have inadequate detail to assure the evaluator of an understanding of the proposed
approach. The proposal cannot meet requirements without major revisions

A potential vendor (PV) price proposal shall represent the PV best efforts to respond to the
solicitation. Any inconsistency between promised performance and total proposed price shall be
explained in the price proposal. For example, if a unique, innovative approach is the basis for an
abnormally low cost estimate, the nature of these approaches and their impact on the total
proposed price must be explained. If a PV proposes to absorb a portion of costs, the PV must
also explain the impact on the total proposed price. Any significant inconsistency, left
unexplained will raise a fundamental question of the PV understanding have the nature and scope
of work required and the potential vendor ability to perform the contract within fiscal constraints
and may be render the proposal unacceptable. The threshold is met when the PV price proposal
demonstrates a realistic cost and price for each function within the solicitation and a total
proposed price estimate that reflects a clear understanding of all of the service requirements for
the transition period, base period, and any option periods.

BASIS FOR AWARD

The Contract Owner (CO) intends to evaluate proposals and award a contract without
discussions with potential vendors (PV). According, PVs are advised to submit initial proposals
that are fully and clearly acceptable without additional information or explanation that contain
the PV best terms. The CO may make a final determination as to whether a PV is acceptable or
unacceptable solely on the basis of the initial proposal. However, the CO reserves the right to
conduct discussions if the Contracting Officer later determines discussions to be necessary.

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 19
ATTACHMENT 5 - CASE ANALYSIS FORMAT

PRESENTED BY: PramsCo, Roger H. Mandel, B.S., M.A.

(CASE NAME)

I. Major Facts

(State here the major facts in bullet format, as you understand them. Make your statements
clear and concise for your own understanding as well as for the understanding of the other
students and the instructor.)

II. Major Problems

(State here the major problems, as you understand it. Emphasize the present major problem.
You may wish to phrase your statement in the form of a question. In a few cases, there may
be more than one problem. A good problem statement will be concise, usually only one
sentence.)

III. Possible Solutions

(List the possible solutions to the major problem. Let your imagination come up with
alternative ways to solve the problem. Do not limit yourself to only one or two possible
solutions. Briefly note the advantages and disadvantages of each possible solution. Try to
think outside the box.)

IV. Choice and Rationale

(State your choice from among your possible solutions and the detailed reasons for your
choice. You may also wish to state why you did not choose the alternatives.)

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 20
ATTACHMENT 6 TEAM MEMBER EVALUATION
Instructor: Roger H. Mandel School & Course:

Date:

Please rate each person in your group on the following items.


Do not share this information with them or any other member of any team.

Team Name: Team Member Evaluated:

Activity Participated Frequently Participated Seldom Did Not


Criteria Heavily Participated Adequately Participated Participate

Level of
Participation
on the Project

Quality Excellent Good Average Mediocre Poor


Criteria Quality Quality Quality Quality Quality

Quality of
Contribution
to the Project

General comments about this Team Member:

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 21
ATTACHMENT 7 COMPARISON OF MAJOR CONTRACT TYPES
Firm Fixed-Price Fixed-Price Economic Fixed-Price Incentive Fixed-Price Award- Fixed-Price
(FFP) Price Adjustment Firm fee Prospective Re-
(FPEPA) (FPIF) (FPAF) determination (FPRP)
Principal Risk None. Thus, the Unstable market prices Moderately uncertain Risk that the user will Costs of performance
contractor assumes for labor or material over contract labor or not be fully satisfied after the first year
to be Mitigated all cost risk. the life of the contract. material because of because they cannot be
requirements. judgmental estimated with
acceptance criteria. confidence.
Use When The requirement is The market prices at risk A ceiling price can be Judgmental The Contract Owner
well defined. are severable and established that standards can be needs a firm
Contractors are significant. The risk covers the most fairly applied by an commitment from the
experienced in stems from industry-wide probable risks Award-fee panel. The contractor to deliver the
meeting it. contingencies beyond the inherent in the nature potential fee is large supplies or services
Market conditions contractors control. The of the work. The enough to both: during subsequent
are stable. dollars at risk outweigh proposed profit Provide a meaningful years. The dollars at risk
Financial risks are the administrative sharing formula incentive. Justify outweigh the
otherwise burdens of an FPEPA. would motivate the related administrative administrative burdens of
insignificant. contractor to control burdens. an FPRP.
costs to and meet
other objectives.
Elements A firm fixed-price for A fixed-price, ceiling on A ceiling price A firm fixed-price. Fixed-price for the first
each line item or one upward adjustment, and Target cost Standards for period.
or more groupings of a formula for adjusting Target profit evaluating Proposed subsequent
line items. the price up or down Delivery, quality, performance. periods (at least 12
based on: Established and/or other Procedures for months apart).
prices. Actual labor or performance targets calculating a fee Timetable for pricing the
material costs. Labor or (optional) Profit based on next period(s).
material indices. sharing formula performance against
the standards
Contractor is Provide an Provide an acceptable Provide an Perform at the time, Provide acceptable
acceptable deliverable at the time acceptable place, and the price deliverables at the time
Obliged to: deliverable at the and place specified in the deliverable at the fixed in the contract. and place specified in
time, place and price contract at the adjusted time and place the contract at the price
specified in the price. specified in the established for each
contract. contract at or below period.
the ceiling price.
Contractor Generally, realizes Generally, realizes an Realizes a higher Generally, realizes an For the period of
an additional dollar additional dollar of profit profit by completing additional dollar of performance, realizes an
Incentive (other of profit for every for every dollar that costs the work below the profit for every dollar additional dollar of profit
than dollar that costs are are reduced. ceiling price and/or by that costs are for every dollar that costs
maximizing reduced. meeting objective reduced; earns an are reduced.
goodwill) 1 performance targets. additional fee for
satisfying the
performance
standards.
Typical Commercial supplies Long-term contracts for Production of a major Performance-based Long-term production of
and services. commercial supplies system based on a service contracts. spare parts for a major
Application during a period of high prototype system.
inflation
Principal Generally, NOT Must be justified. Must be justified. Must be negotiated. MUST be negotiated.
appropriate for R&D. Must be negotiated. Contractor must have an
Limitations in Contractor must have adequate accounting
FAR Parts 16, an adequate system that supports the
32, 35, and 52 accounting system. pricing periods. Prompt
Cost data must re-determinations.
support targets.
Variants Firm Fixed-price Successive Targets Retroactive Re-
Level of Effort. determination
Presented by: RMandel@PramsCo.com

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 22
Cost-Plus Incentive-Fee Cost-Plus Cost-Plus Cost or Time & Materials
(CPIF) Award-Fee Fixed-Fee Cost- Sharing (T&M)
(CPAF) (CPFF) (C or CS)
Principal Highly uncertain and speculative labor hours, labor mix, and/or material requirements (and other things) necessary
to perform the contract. The Contract Owner assumes the risks inherent in the contract benefiting if the actual
Risk to be cost is lower than the expected costlosing if the work cannot be completed within the expected cost of
Mitigated performance.
Use When An objective relationship Objective incentive Relating fee to The contractor No other type of
can be established targets are not feasible performance (e.g., expects substantial contract is suitable (e.g.,
between the fee and such for critical aspects of to actual costs) compensating because costs are too
measures of performance performance. would be benefits for low to justify an audit of
as actual costs, delivery Judgmental standards unworkable or of absorbing part of the the contractors indirect
dates, performance can be fairly applied.1 marginal utility. costs and/or expenses).
benchmarks, and the like. Potential fee would foregoing fee or
provide a meaningful The vendor is a non-
incentive. profit entity
Elements Target cost Performance Target cost Target cost Target cost A ceiling price
targets (optional) Standards for Fixed fee If CS, an agreement A per-hour labor rate
A minimum, maximum, evaluating on the Contract that also covers
and target fee. A formula performance. A base Owners share of the overhead and profit
for adjusting fee based on and maximum fee cost. Provisions for
actual costs and/or Procedures for reimbursing direct
performance adjusting fee, based No fee material costs
on performance
against the standards
Contractor Make a good faith effort to meet the Contract Owners needs within the estimated cost in Make a good faith effort
the Schedule. to meet the Contract
is Obliged Owners needs within
to: the ceiling price.
Contractor Realizes a higher fee by Realizes a higher fee Realizes a higher If CS, shares in the
completing the work at a by meeting rate of return (i.e., cost of providing a
Incentive lower cost and/or by judgmental fee divided by deliverable of mutual
(other than meeting other objective performance total cost) as total benefit
maximizing performance targets. standards. cost decreases.
goodwill)1
Typical Research and Large-scale research Research study Joint research with Emergency repairs to
development of the study. educational heating plants and
Application prototype for a major institutions. aircraft engines.
system.
Principal The contractor must have an adequate accounting system. The Contract Owner must Labor rates must be
exercise surveillance during performance to ensure use of efficient methods and cost negotiated. MUST be
Limitations controls. Must be negotiated. Must be justified. Fees that may be negotiated. justified. The Contract Owner
in FAR MUST exercise appropriate
Parts 16, surveillance to ensure
32, 35, and efficient performance.
52
Variants Completion or Labor Hour (LH)
Term.
Presented by: RMandel@PramsCo.com

Project Procurement Management, Developed by: Roger H. Mandel, July 2017 Page 23
Make or Buy Decision

How does make or buy decision effect a production process?

When you are involved in the production process you will definitely come across such a
scenario. In such a situation, you will have to decide up on producing the item or goods
internally or outsourcing it. It is this decision when made correctly will definitely help
you save a lot of money and time, and at the same time a wrong choice will leave a very
drastic influence in every future production decision you make. It the ability of the
person to make the timely decision of whether to make or buy will distinguish the one
from the others.

Other factors that are involved in the make or buy decisions are:

1. Cost of production
2. Cost of raw materials
3. Cost of labor
4. Time spent in the research and development stage.
5. The duration that the final product will take to be fully completed
6. The financial capability of the organization (both own organization and outsourced
organization)
7. The in-house expertise
8. The volume requirements
9. The critical nature of the item
10. The desired standard of output and quality
11. Need for and updated technology and up gradation of the product
12. The special requirements for the item
13. Need of the customers.
14. The secret nature of the product may demand the product to be made in house.
15. The reliability of the suppliers or work force
16. To maintain the standard quality of the organization
17. Political, environmental or social reasons may influence the make or buy decisions
18. To control the additional expenses that might occur in warehouse cost,
transportation cost and many more
19. A need to have a stable work force

Based on the issues and needs in an organization the factors influencing the make or
buy decision will definitely vary. The factor which will make the organization to buy the
goods needed might also cause the other organization to make the goods needed. As
the make or buy decision is totally based on the subject, the analysis on the issue will
definitely give you a deep insight of all the issues that you might be likely to face.

http://classof1.com/homework_answers/operations_management/make_or_buy_decision/

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 24
ATTACHMENT 8 - Mid-Term QUIZ

Project Procurement Management


Instructor: Roger H. Mandel
Covering material from class sessions 1 through 4

Print Student Name: __________________________


Examination notes:
Total points: 94 points.
Take Home Examination.
Have all questions on your paper followed by your answers. Take your time and be decisive, to
the point, summaries if possible. Treat this as an upper management review report.
READ ALL QUESTIONS AND THE ATTACHMENTS BEFORE ANSWERING THE
QUESTIONS.
I. Blozis Company Case. (12 points)
1. At what points does this purchasing department exhibit weak control over (i) materials
and (ii) overall purchasing performance? (4 points)
2. Considering his talents, the current expediter should be considered responsible for what
position and responsibilities? (4 points)
3. What is the purchasing department's responsibility in establishing and interpreting
technical specifications? (4 points)
II. The Muenster Pump Company. (35 points)
1. What other information would be useful in arriving at this make-or-buy decision? (5
points)
2. Who should take part in the make-or-buy decision process? (5 points)
3. What role should be purchasing department play? (5 points)
4. Should Muenster make or buy its casting housings (support your decision with what
issues must be addressed to make the decision)? (20 points)
III. Hydrosubs Unfloatable Amphibious Assault Vehicle. (47 points)
Note: You might discover a number of items that we did not cover that could be useful in
developing your answers.
Ensure understanding
Pre-award conference
Supplier reporting requirements
Motivation
Punishment
Rewards
1. Who is responsible for the poor performance of the Bolger contract? (2 points)
2. What caused the production delays and cost miscalculations? (10 points)
3. What can Kathleen Johnson do now to ensure completion of the project and prevent
further problems? (20 points)
4. How should Hydrosub's staff have prepared for negotiations with suppliers on this initial
contract? (15 points)

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 25
Case #1: BLOZIS COMPANY
(12 points)

The Blozis Company was a manufacturer of highly technical equipment. The $16 million
gross sales of the company consisted primarily of units designed to customer specifications by
the engineering department and produced on a job-shop basis by the production department. The
engineering department also designed highly complex control equipment of general industrial
application to be sold by the Blozis Company on an off-the-shelf basis.
The purchasing department consisted of the purchasing manager, a buyer, and two clerks
who handled typing and filing. Although many of the items purchased were of a highly technical
nature, the purchasing manager had no technical training. Through the years, he had picked up a
fair grasp of the engineering terminology used in the field, but had made no attempt to keep up
with the specialized design problems of the company. The buyer was a woman who was known
in the trade as "hard-boiled but big-hearted" and was generally considered a competent general
supplies buyer. Without great ingenuity, the buyer also successfully handled technical items if
detailed specifications are supplied by engineering or production.
An expediter was attached to production. He formerly had been one of the technicians in
the production shop and had picked up some technical training in the Army. Because he could
understand verbal descriptions, of items needed by engineering and production personnel, these
groups, often contacted him on ordering problems, before submitting a requisition to purchasing.
He frequently would suggest substitute components that could be drawn immediately from the
stock room; or he would convert the oral description into a commercial specification, type a
requisition, and submit it to purchasing. The expediter had two primary responsibilities: to pick
up rush orders and supervise the stock room. He spent about 50 percent of each day picking up
items at nearby suppliers, truck terminals, airports, or carrying materials to subcontractors, to
platters, or to various carriers for shipment. In the stock room, a clerk kept up the facilities,
issued supplies to engineering and production personnel, and secured stock records. The clerk
reported to the expediter, who reviewed the stock records, prepared requisitions for items at their
reorder points, and disposed of items that were turning too slowly or had deteriorated.
Frequent problems had arisen when suppliers claimed long overdue payments on
materials that had been received by the Blozis Company. In these cases it always developed that
someone had forgotten to make up a receiving report. Since purchasing only passed bills for
payment after receipt of the receiving report, several sizable discounts had been missed and the
company had been substantially tardy in meeting the net date on several bills. In these cases, the
expediter was always sure that the item had come over the receiving dock, and the receiving
clerk was just as sure that the expediter had brought it into the plant in the back of his station
wagon.
A particularly unfortunate incident had occurred when two special micrometers
disappeared within the plant after the Blozis Company had waited six months to receive them.
The supplier could prove receipt by the bill lading signed by the receiving clerk. The receiving
clerk claimed the expediter had picked up the micrometers on the receiving dock to carry them to
the engineers as quickly as possible. The expediter claimed he had never seen the micrometers.
Both the production and plant maintenance managers had backed their respective men to the
fullest. No disciplinary action had been taken since there were no signatures on the receiving
reports to prove either case.
The expediter periodically typed up purchase orders for rush items. In other cases he
picked up the desired items and informed the suppliers that they would receive "confirming
Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 26
orders" from the Blozis Company purchasing department. When the expediter forgot to ask
purchasing for a confirming order, the purchasing department was occasionally distressed to be
processing invoices for which it had no corresponding orders. Some suppliers were also mildly
petulant when a promised purchase order was not forthcoming. Although suppliers had been
warned not to honor an order from the Blozis Company unless it bore the purchasing manager's
signature, it was considered poor business to penalize the suppliers who had honored the
expediter's request in good faith. Consequently, purchase orders were often made up to match
invoices if the material had obviously been received from the supplier.
The president liked to operate "informally" and allowed anyone in the company to initiate
requisitions. The only approval signature required, on orders up to $10,000, was the purchasing
manager's. Orders over $10,000 required the president's approval on requisitions, but, in practice,
all orders for more than $10,000 were approved by the president either in the materials budget or
the capital budget long before requisitions was made out.
The president had heard something of the micrometer incident from his brother, but had
dismissed the whole matter as "one of those unfortunate interdepa1 intent squabbles." However,
when his engineering manager and his production manager began to complain of the difficulties
of staying within the materials budget, he looked further into the matter. In subsequent talks with
both men he drew up the following summary list of complaints:

1. The managers did not know what materials were being charged to their departments until
the monthly accounting statement came out.
2. The engineering and operating personnel were not notified when materials came in unless
the expediter dropped the material on the desk of the person making the requisition.
3. The purchasing department was entirely too slow in processing orders. It took almost a
full day just to get the order to the telephone.
4. The purchasing department did not understand technical specifications, and the expediter
was being overworked by handling all technical orders.

The president presented these complaints to the purchasing manager and asked him for a
solution.

QUESTIONS TO THE BLOZIS COMPANY (12 points)

1. At what points does this purchasing department exhibit weak control over (i) materials and
(ii) overall purchasing performance? (4 points)

2. Considering his talents, the current expediter should be considered responsible for what
position and responsibilities? (4 points)

3. What is the purchasing department's responsibility in establishing and interpreting technical


specifications? (4 points)

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 27
Case #2: THE MUENSTER PUMP COMPANY
(35 points)

The Muenster Pump Company has manufactured high-quality agricultural pumps for over
forty years. The firm's only plant is located in the small mid-western city of Muenster. The
company is Muenster's largest employer. Bob Dorf, president of the firm, is the grandson of Emil
Dorf, the founder. Bob and his family, along with all key personnel, live in or near the city of
Muenster. Cordial relations exist between the firm and the city officials.
Since its founding, the firm has always been as self-sufficient as possible. Shortly after
setting up business, Emil Dorf established a foundry to cast pump housings and related items.
Today, the foundry provides virtually all of the required pump housing.
Bob's cousin, Terry, is the purchasing manager for Muenster Pump. After graduating from
State University, Terry worked as a buyer at a large appliance manufacturer in the southwestern
corner of the state. But after two years of life in the big city, Terry returned to Muenster. Bob was
delighted to have Terry back in town. He established the position of purchasing manager by
consolidating the buying functions previously performed by himself and other members of the
firm. As seen in Exhibit 1, Terry reports to her Uncle Ned, who is the vice president for
manufacturing.
Terry is an aggressive and conscientious buyer. Materials costs have come down from 60
percent of the cost of sales to 50 percent in the two years since she assumed responsibility for
purchasing.
Recently, a representative of Union Foundry a firm located in the southeastern part of the
state, called on Terry. The rep was aware that Muenster Pump made its own cast pump housings.
But he claimed that new developments in casting pouring allowed his firm to offer extremely
attractive prices.

Muenster Pump Company

President and Chief Executive Officer


Robert A. Dorf (Bob)

VP Engineering VP Manufacturing Comptroller VP Sales


Samuel Dorf Nathaniel Dorf (Ned) Judy Dorf James Dorf

Operations Purchasing Receiving Quality


Theodore Dorf Terry Dorf Judy Dory Anneta Dorf

Terry requested a price on the L-1012 casting housing, Muenster's most popular size. The L-1012
represents 60 percent of Muenster's demand for casting housing. The pump that incorporates the
L-1012 is sold to distributors for $500. Within a week of the meeting, a letter arrived from Union
Foundry, quoting a price $90 F.O.B. Muenster. Delivery was promised in 120 days after receipt
Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 28
of the first order. Thereafter, delivery would be made in sixty days after receipt of an order.
Minimum orders were established as 100 units. Terry contacted two other foundries and obtained
quotations for the L-1012 housing. The prices were $94 and $98 F.O.B. Muenster.
Terry met her Uncle Ned, discussed her findings with him, and asked how much it cost
Muenster to produce the casting housings internally in its own foundry.
Ned Dorf was not at all enthusiastic about Terry's efforts in this area of the business. He
said, "Terry, I appreciate your interest and efforts at reducing cost. But a lot more is involved
here than meets the eye. We produce a quality housing that is not equaled in the industry. It's one
of the primary keys to our success? Furthermore, we can respond to requirements much quicker
than those city boys."
Terry responded, "Ned, let's assume that all your doubts could be overcome. How much
does it cost us to make the housings?" Ned replied, "Terry, there is something else involved. We
have sixteen men working in that foundry. If we stop making our own housings, we'll have to
close down the foundry. And there's no other place in the firm where these men could work."
At this point, Terry thought that discretion would be the better part of valor. She thanked
her Uncle Ned for the information and returned to her office.
Later that day, her cousin Bob stopped by. In the ensuing conversation, she learned that
the L-1012 housing cost Muenster about $180. Total overhead at Muenster was calculated to be
approximately 200 percent; hence, direct costs for materials and labor for the housings would be
about $60. Approximately 70 percent of the overhead is for fixed costs such as depreciation,
taxes, and executive salaries.
Cost Breakdown:
Direct cost $60
Fixed O/H $84
Variable O/H $36

QUESTIONS TO THE MUENSTER PUMP COMPANY (35 points)

5. What other information would be useful in arriving at this make-or-buy decision? (5


points)

6. Who should take part in the make-or-buy decision process? (5 points)

7. c. What role should purchasing play? (5 points)

8. Should Muenster make or buy its casting housings (support your decision with what
issues must be addressed to make the decision)? (20 points)

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 29
Case #3: HYDROSUB'S UN-FLOATABLE AMPHIBIOUS ASSAULT VEHICLE
(47 points)

Kathleen Johnson started her new job as chief buyer at Hydrosub in San Francisco. Her day was
without incident until she received the following telephone call.

Voice on phone: Good afternoon, Ms. Johnson. I am Burt Lauderas, project supervisor at
Bolger Shipyards in Tacoma. The design changes for the A.A V. are not part of our current
contract. We need to renegotiate the contract before instituting the changes. Completion of the
A.A.V. will be delayed an additional four weeks.
Kathleen Johnson (mildly concerned): Is it really necessary to renegotiate the current
contract before beginning the work?
Voice on phone: Yes, Ms. Johnson, the contract states that every design change must be
renegotiated.
Kathleen Johnson (more concerned): Why will it take four additional weeks to complete
the project?
Voice on phone: It will take time to renegotiate the contract and hire replacement
welders, and approximately two weeks to do the rework.
Kathleen Johnson (completely bewildered): Thank you for calling, Mr. Lauderas. I'll
contact you tomorrow.
After recovering her composure, she opened the A.A.V. file and started the formation of
her first ulcer. Status reports showed that progress toward completion had been slow. The last
chief buyer had been retired" when costs exceeded the original estimate of $9 million. Revised
cost estimates revealed expected expenditures to exceed $23 million. Particularly despairing was
the fact that the completion date had already been revised four times and the current completion
date was listed as "unknown."
After hours of reviewing the A.A.V. project file, Kathleen understood Burt Lauderas's
concerns. The project involved building a prototype Amphibious Assault Vehicle for the U.S.
government. It had been Hydrosub's intent to build a premium product, without concern for cost.
If Hydrosub received the subsequent production contract, the company's financial stability would
be greatly enhanced. However, due to in-house capacity problems, Bolger Shipyards had been
contracted to build the prototype.
Hydrosub engineers designed the prints and specifications for the prototype. These
specifications incorporated the latest in high tech design and utilized the best materials available.
Design specifications had changed innumerable times over the project's life. Continual rework
and time delays had hampered progress. Bolger had reported design errors that necessitated the
refitting of complex equipment and rework of the aluminum welding.
Materials requirements included the use of welded aluminum. Bolger normally employed
only steel welders; aluminum welders were in short supply and impatient during work stoppages.
On the A.A.V. project, Bolger Shipyards currently employed 150 people on two shifts.
Often Bolger required overtime work. The Bolger contract was cost-based plus a fixed fee.
A particularly disturbing problem was Bolger's cost reporting system. Bolger contract
negotiators waited for up to three weeks for cost data. Weekly time cards, bimonthly reporting
and periodic analysis greatly hindered preparation for the contract talks.
As Kathleen Johnson reflected on the facts, her phone rang again.
Voice on phone: Hello, Ms. Johnson, welcome to Hydrosub. This is George Rope,
president of Hydrosub.
Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 30
Kathleen Johnson: Thank you, Mr. Rope.
George Rope: Ms. Johnson, I feel uneasy burdening you with the Bolger Shipyards
problem, but I haven't any other choice. Your hiring was based on your tremendous
qualifications. We had hoped to have you become confortable concerning your responsibilities;
unfortunately, there is no time. The A.A.V. project must be concluded soon. Over 100 Hydrosub
employees are currently working on this project; they are discouraged. The government is very
anxious, and we are competing for the future sales of this product. Utilize all your expertise and
finish the prototype.

QUESTIONS TO HYDROSUBS SCENARIO (47 points)

NOTE: you might find some items that we have not yet covered, useful in developing your
answers.
Ensuring understanding.
Pre-award conference.
supplier reporting requirements
Monitoring and controlling project progress
Motivation
punishment
rewards

1. Who is responsible for the poor performance of the Bolger contract? (2 points)

2. What caused the production delays and cost miscalculations? (10 points)

3. What can Kathleen Johnson do now to ensure completion of the project and prevent further
problems? (20 points)

4. How should Hydrosub's staff have prepared for negotiations with suppliers on this initial
contract? (15 points)

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 31
ATTACHMENT 9 - FINAL EXAMINATION
Project Procurement Management
Instructor: Roger H. Mandel
Covering all class materials (comprehensive)

Print Student Name: __________________________

Have all questions on your paper followed by your answers. Take your time and be decisive, to
the point, summaries if possible. Treat this as an upper management review report.
READ ALL QUESTIONS AND THE ATTACHMENTS BEFORE ANSWERING THE
QUESTIONS.

Examination notes:
Total points: 280 points.
Take Home Examination.

FLORIDA RETAIL COMPANY

Overview
The Florida Retail Company (FRC) is a collection of small consumer electronic retail
stores. The company is known for its personal and efficient service. Susan Bender, the Vice
President of Operations, prides herself on running one of the most efficient operations in the
retail electronic industry. One of the main tools for this efficiency is a computer system that
allows FRC to closely monitor sales progress and inventory turnover rates.
The computer system now in operation was bought and is currently maintained by Allen
Case Machine Electronics (ACME) Retail Computer Services. ACME and FRC have had an
excellent and mutually profitable relationship for the past 10 years. FRC maintains a small staff
of 3 people to run the ACME retail system.

New Strategy
FRC is planning a bold strategic move into the large consumer electronic retail industry.
FRC plans to phase out all of its current small retail stores and mold its business around large
super-stores. The first store will be the showcase and model for future stores. Jack Murphy, the
owner of FRC, has envisioned a futuristic computer system to support his new store concept.
The new computer system will provide all the functionality of the current system (accounts
payable, accounts receivable, general ledger, purchasing, inventory control, and sales analysis)
and have a fully integrated point-of-sale function. Jack envisions a paperless sales floor where
all transactions and merchandise reservations are handles by the computer system. Additionally,
the new computer system will have an optical bar code reading capability to facilitate customer
transactions.
The first super-store will open at this time next year. FRC plans to open at least two other
super-stores in the year following.

Need for New Systems


Susan realized that the current computer system supplied by ACME would not support
the larger operations of the future super-store. After some inquiries, Susan believed that ACME

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 32
was the only supplier capable of offering the software needed. ACME was currently in the
process of developing a software package that would provide all the functions of the current
systems for larger operations.
Susan contacted David Lansing, the Chief Executive Officer (CEO) of ACME to discuss
a possible deal. The two quickly agreed that ACME would supply the needed computer software
system for FRC. Susan would be involved initially to help develop the customized point-of-sale
system for FRC. Beyond that, ACME agreed to deliver a new software system capable of all
functions that the old system provided plus integrating the customized point-of-sale system.
FRC was to be the first ACME customer to use the new computer system. It was agreed that the
software was to be in place 2 weeks before opening day of the new super-store and that the
hardware needed for the software was to be in place 1 month prior to opening day.
A Fixed Price type contract was proposed by ACME for $350,000 for the software based
on a $3,000,000 estimate for total development costs. The price of the software was derived by
prorating the development costs (including the point-of-sale system) over the expected number
of customers and adding 15% profit. ACME required that 50% of the purchase price was to be
paid up front and the remainder was to be paid upon delivery of the software system.
Susan thought that the price was fair and the terms and deadlines of the agreement were
satisfactory. Close monitoring of ACMEs progress would not be necessary since Susan has
always relied on ACME to successfully solve FRCs computer system problems; besides, nobody
at FRC knew much about developing computer software systems.

Opening Day
Susan was a bit nervous this morning. Everything about the store was ready, but there
had been some problems with the computer system during these past 2 weeks. Her system
manager, Helen Cooley, as well as 2 ACME representatives has been spending many sleepless
nights fixing and tuning the system. Susan hoped all major problems were resolved.
Long lines of people were waiting to get into the store when the doors finally opened.
Right away there were problems with the computer software system supplied by ACME. The
first customer to be services at the cashiers station took 20 minutes to finally get out of the store
due to the slowness of the computer system. Salespeople were complaining about slow
computer response time when they tried to reserve merchandise through the system. Soon, there
was a long line of people at every cashier station and with every salesperson on the sales floor.
Customers were leaving the store due to long lines at the cashier stations and slow salespersons
response. The computer system finally crashed in mid-afternoon and became inoperable. The
employees of FRC had no idea what to do next.
That evening Jack had a meeting with Susan, Helen and the 2 ACME representatives.
Jack told them that the computer system was going to, put him out of business and that they had
better do something about it.

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 33
TAKE YOUR TIME AND BE DECISIVE, TO THE POINT, SUMMARIES IF POSSIBLE.
TREAT THIS AS AN UPPER MANAGEMENT REVIEW REPORT.

TOTAL POINTS 280


1. Florida Retail Company Case (135 points)
a. Do you believe that the Fixed Price type contract agreement between FRC and ACME
was appropriate way to procure the ACME computer system (state the reasons and what
improvements would you recommend for the contract)? (40 points)
b. Where did FRC go wrong (at least 5 ways) in purchasing the software system? (20
points)
c. What were the contents (4 of them) of the Statement of Work (SOW) in this case, and
was the SOW sufficient? (40 points)
d. What could or should (at least 8 items) have been included in the SOW? (16 points)
e. What are the generic problems (at least 8) encountered in purchasing a high technology
software system (need NOT be specific to the FRC case)? (8 points)
f. How would the problems (at least 4 ways) on opening day have been avoided? (11
points)

2. You are the project manager of a critical product-testing program. One of the key
milestones in your testing requires a fixture from an out-of-town supplier. The supplier is
now 3 days past the expected delivery date. If another 3 days pass, the program could be
seriously delayed costing your firm thousands of dollars. (70 Points)
a. Describe what actions the supplier should have taken to keep you informed. (30
points)
b. What actions should you have taken as the project manager? (20 points)
c. What actions could you take now? (20 points)

3. You are the administrator of a medium size metropolitan hospital. You are faced with a
decision concerning the acquisition of a new Magnetic Resonance Imaging machine that
can be used to provide detailed internal images of patients. There is a lab 10 miles from
your hospital that most patients are currently being referred to the existing lab. (75 points)
a. Discuss the key factors (at least 7) that need to be considered before developing a
proposal to the hospital Board of Directors. (35 points)
b. Who should be part of the team that would make the recommendations? (20 points)
c. Who should make the decision concerning the new equipment? (20 points)

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 34
NOTE PAGE

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 35
CASE STUDY 1 - CASE REGIONAL AIR SYSTEMS OF HUSTON

Case Regional Air Systems of Huston (CRASH) specializes in design, development and
installation of air traffic control systems at airports worldwide. CRASH has the capability to
fabricate most of the hardware for systems that they install. The company was recently awarded
a contract to design and install a new air traffic control system from Springfield International
Airport (SIP). Since the existing system is in need of serious upgrades and has failed numerous
times over the past few months the airport management has serious concerns for public safety.
The Federal Aviation Administration (FAA) has recommended to SIP to acquire an up-to-date,
state of the art, new system to replace the antiquated current system. The SIP contract with
CRASH has a $200,000 penalty if the contracted new system in not completed in less than four
months after contract award. There is also a day for day penalty of $10,000 per day after the
contracted for due (delivery) date.

Since the manufacturing department manager, Jon Sterling of CRASH, has most of his
departments resources committed to other existing contracts (projects), it is in doubt of
fabricating the needed hardware for the SIP contract in accordance with the contract schedule
requirements. Jon has suggested that certain key hardware components be procured from outside
vendors. Senior management of CRASH must decide whether or not to accept the
recommendations from Jon.

Develop your approach using the case analysis form: Major Facts, Major Problems, Possible
Solutions, Choice and Rational.
Management of Project Procurement, C. L. Huston, The McGraw-Hill Companies, Inc. CS 2-2

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 36
CASE STUDY 2 - COMPUTERIZED ADVANCED SYSTEMS OF HOUSTON

Lee Thomas is the Vice President of Computerized Advanced Systems of Houston (CASH).
CASH specializes in designing and installing computer systems for financial institution. The
computer equipments, for all projects, are procured from numerous suppliers since CASH has
limited manufacturing capabilities and the need for the computer equipment is not constant to
warrant internal manufacturing capabilities. Betty Smartts, CASHs Engineering Department
Manager, has handled much of the procurement responsibilities for obtaining this equipment in
the past since CASH is a relatively small company and Betty believes the technical nature of the
projects are very complex and can better be handled by her engineering personnel. Recent
quality and delivery problems with computer equipment delivered by its suppliers have created a
need to improve CASHs procurement process for this equipment.

Janet Theams, CASHs Procurement Manager recommends to Lee that CASH should develop a
comprehensive set of procurement procedures that define the role and responsibilities of the
different CASH Departments. Janet believes that a set of well defined policies and procedures
would eliminate the confusion in the existing socialized process and allow for CASH to procure
important items in a more timely and cost effective manner. Janet is of the opinion that Betty has
too much direct involvement with sub-contracting for the needed equipments causing delays and
cost overruns in equipments procured.

Betty recommends to Lee that since the current approach to procuring computer equipment has
contributed to CASHs significant growth in the past three years that there is no need for well
defined procedures and that the current minor problems will be overcome by direct negotiation
by per personnel and the current suppliers. Betty is opposed to preparing detailed procurement
procedures since she believes that this approach will overly restrict the ability of her personnel to
communicate with CASHs suppliers. Betty is of the opinion that the delivery problems
experienced for recent projects are the result of unrealistic schedule requirements in the contracts
with suppliers.

Lee schedules a meeting with Betty and Janet to resolve the approach that will be taken to
improve the procurement process for the computer equipment required by CASHs projects.

Develop your approach using the case analysis form: Major Facts, Major Problems, Possible
Solutions, Choice and Rational.
Management of Project Procurement, C. L. Huston, The McGraw-Hill Companies, Inc. CS 4-2

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 37
CASE STUDY 3 - WAN INNOVATED NATIONAL

The Board of Director for Wan Innovated National (WIN) has directed the development of a new
concept commercial transport to carry airfreight that is larger, faster, and more economical than
existing transports. The new plan is required to compete with planes recently offered for sale by
competitors in the industry. Since WIN is behind its competition in the development of such a
plane, it is essential that the new plane be developed as quickly as possible. Trina Watson is
selected as the project manager for the development of the new plane.

WIN must procure the jet engines for the new plane from an outside supplier since it does not
have the manufacturing capabilities for jet engines. The design and fabrication of the engines are
deemed to be on the project critical path for testing and completion and for FAA certification.

Trina meets with her Engineering and Procurement Managers for the project to determine a
realistic but aggressive schedule for the procurement process activities required to obtaining the
jet engines. Answer the following questions.

3.1. What RFP tasks should you select for the procurement activities?
3.2. Develop a Gantt chart of these activities and sequence.
3.3. What type of contract pricing approach will you recommend for the procurement of the
jet engines that will affect contract deliverable durations?
3.4. Within the contract for the engines what other than the engines themselves would you
recommend to be included with the engines?
3.5. What type of contract for these deliverables or other items?
3.6. What can be accomplished early on to expedite the completion of the technical
requirements for the engine RFP?
Management of Project Procurement, C. L. Huston, The McGraw-Hill Companies, Inc. CS 5-2

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 38
CASE STUDY 4 - BLOED

Vivian and Richard Bloed saved for years while living with his parents to be able to afford their
first home. They purchased a lot in March in an area of a community that three builders are now
building three different homes each. That correlates to nine different home models to choose
from. They want their home to be approximately 3,000 square feet of living space. They also
want the home similar to one that they had seen on the homes tour of the nine different homes.
They contact the general contractor in April that is associated with the home of their choice.

The contractor gives them an estimate of the cost per square foot at $150.00 to build the home on
their lot. They sign the contract form provided by the contractor in May, agreeing that he will
construct their home. The contract was for an estimated price of $450,000. That price contained
a 12.5% fee on all construction costs for the general contractors services. Estimated cost of the
home is $400,000 with a percentage fee of 12.5% or an estimated fee of $50,000.

Construction of the new home began in June. Each month the Bloeds receive an invoice from
the general contractor documenting the cost expended by the subcontractors working on the
home and the general contractors fee. The Bloeds pay each invoice assuming that the home
would not cost more than the original estimated cost plus the negotiated estimated fee totaling
$450,000. After three months (August 31) of construction work on the home, there was still a
substantial amount of interior work remaining to be completed. The amount of money invoiced
for the first three months (June, July and August) was 90% ($405,000) of the original estimated
total price of the home.

The invoice for the next month (month four, September) brought the total cost invoice cost to the
Bloeds of 115% of the total estimated price. The work on the home was still not complete.
When the Bloeds protested the amount of the invoiced dollar value of the home, the general
contractor responded that the Bloeds had requested a number of features that caused the cost of
the home to increase significantly from the original estimate. The home was completed in the
fifth month (October). The invoiced amount at the end of the fifth month brought the total price
of the home to 140% of the original estimated price.

Develop your approach using the case analysis form: Major Facts, Major Problems, Possible
Solutions, Choice and Rational.
Management of Project Procurement, C. L. Huston, The McGraw-Hill Companies, Inc. CS 6-2

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 39
CASE STUDY 5 - DEMAND INTERCITY PROFESSIONALS

The Demand Intercity Professionals (DIP) is a large communications company providing


telecommunications services to several major cities. DIP has recently received a large number of
customer complaints over improper charges on their phone bills. DIP Chief Operation Officer
Bill Smart authorizes a project to review the existing billing system and possibly develop a new
system that will result in accurate phone bills. Bill wants a management consultant to perform
the work on the project. Frank Young the Project Manager of DIP is responsible for selecting the
management consultant and coordinating its work with the current work of DIP departments.

Frank prepares the description of work for the RFP for the management consultant. Frank
defines the type of performance DIP expects to achieve with a new billing system. The DIP
procurement group issues the RFP to 3 bidders. Frank and Sam Haskins, the procurement
manager interviews the proposed key personnel from each of the 3 bidders. The personnel
interviewed from Billing Actions Development (BAD) appear to have the best experience in
performing this type of work. A Cost-Plus-Fixed-Fee is awarded to BAD in the 1 st of June. The
reimbursable costs are tied to hourly billing rates for different classifications of consulting
personnel.

After BAD had been working on the project for 6 weeks, the key personnel that were originally
interviewed have worked only a small percentage of time on the project. Several other less
experienced personnel (less costly) have been assigned full time to the project. Although DIPs
personnel have conducted many interviews, Frank is convinced that very little progress has been
made toward developing an improved billing system. Frank believes that the lack of progress is
due to the inexperience of the management consultants personnel that are assigned to the
project. Frank meets with the Sam to determine what can be done to expedite the completion of
the project.

Develop your approach using the case analysis form: Major Facts, Major Problems, Possible
Solutions, Choice and Rational.
Management of Project Procurement, C. L. Huston, The McGraw-Hill Companies, Inc. CS 12-2

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 40
CASE STUDY 6 - NORTHERN EQUIPMENT VALLEY ENERGY RESOURCES

Northern Equipment Valley Energy Resources (NEVER) has a contract to provide a substantial
amount of equipment for Wide International Plate (WIP) a large sheet metal factory. The
contract contains a penalty clause for late delivery and continual delays after the contracted
delivery date. The electric motors and miscellaneous electrical components required for WIP
have been procured from Simple Sell (SS), a subcontractor to NEVER, that is a major
manufacturer of electrical equipments. Jay Paul the Project Manager for NEVER is responsible
for monitoring the production of the sheet metal electrical equipment coming from SS.

The initial shipment of the electrical equipment from SS is late. About 30 days late. Jay and
Frank Buyor, the Procurement Manager from NEVER, meets with SS management and is told
that the only way to expedite the deliveries of the electrical equipment is to pay SS and
additional fee to assign a full-time expeditor to the order. Although Jay believes that the cost of
expediting of SS work should be the reasonability of SS, Jay reluctantly agrees to pay for the
expediting since the delivery of the electrical equipment is critical to the completion of the
assembly of WIP production equipment.

After the electrical equipment is received at NEVER, serious quality defects are noted in the
castings for the motors. SS refuses to correct the defected motor casting at the NEVER facilities
and requests that the motors are returned to SS facilities. Steve Manny is the manufacturing
manager from NEVER. He does not want to ship the motors back to SS since this would further
delay the completion of the sheet metal factory equipment. Jay meets with Steve and Frank to
determine what course of action to take.

Develop your approach using the case analysis form: Major Facts, Major Problems, Possible
Solutions, Choice and Rational.
Management of Project Procurement, C. L. Huston, The McGraw-Hill Companies, Inc. CS 14-2

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 41
CASE STUDY 7 - NATIONAL UNDERWRITERS TECHNICAL

National Underwriters Technical (NUT) provides architectural design and purchasing services
for large buildings and factories. NUTs procurement services past performance has performed
well on recently completed projects. It appears that NUT does not have a very effective cost and
scheduling control processes. Tony Antone, the CEO of NUT, reacts to this data by deciding to
hire a management consultant to develop a sophisticated cost and scheduling control program
that will impress his clients and the Board of Directors. Since the Board has heard that
consultants of this type are expensive, they request that a fixed price contract be used for the
contracted work. Stan Fink is the project Manager for NUT in charge of preparing the RFP and
managing the contract for the management consultants.

Stans internal team completes the technical and management requirements for the RFP and
gives them to Bert Parks, the Manager of Procurement of NUT who has the responsibility for
obtaining bid proposals for the work. The requirements for the cost and schedule control
program are vague since Stans team does not know how long an effort of this type should take.
Bert reviews the information that he receives from Stan and concludes that it is not sufficient to
support a fixed price type contract with a management consultant company.

Stan schedules a meeting with Bert to resolve what should be included in the RFP to support a
fixed price contracting approach.

Develop your approach using the case analysis form: Major Facts, Major Problems, Possible
Solutions, Choice and Rational.
Management of Project Procurement, C. L. Huston, The McGraw-Hill Companies, Inc. CS 15-2

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 42
CASE STUDY 8 - HEAVY OPERATIONAL UNINTERRUPTED SECURITY
ELECTRONICS

Heavy Operational Uninterrupted Security Electronics (HOUSE) designs and installs security
systems for commercial and industrial companies. HOUSE has a multi-million-dollar contract
with Oversea Underwater Transport (OUT), a conglomerate that has 3 major manufacturing
shipyards, to install extensive security systems to meet Federal Security requirements. Due to
recent security problems at these shipyards, OUT wants the new security systems installed as
soon as possible so they can bid on future Federal Government contracts. The contract between
OUT and HOUSE contains a liquidated damage amount of $100,000 for not meeting the
performance requirements on a specified completion date. Should HOUSE not meet that date
then every week late OUT will assess an additional $5,000 per week. Albert Pennyworth is the
Project Manager for HOUSE.

HOUSE procures the motion sensors required for its current design of the security system from
an outside supplier Northern Open Greenfield Operations Outsource Development (NG). Ted
Damsons Procurement Manager from HOUSE awards a FFP contract to NG for supplying the
motion sensors required for the new shipyard contract. NG has developed a new type of motion
sensor that appears to have much better detection capabilities than products offered by other
suppliers and is less expensive than what they have produced in the past. The delivery of the
motion sensors is a critical activity for the completion of the project since HOUSE has
substantial work that is performed after the installation of the motion sensors. The contract calls
for the motion sensors to be delivered 14 weeks after the date of contract award from HOUSE to
NG.

Tom Beck, the Construction Manager for HOUSE calls Albert and asks why the motion sensors
have not been delivered. The current date is 2 weeks after specified delivery date in the contract
for the sensors. Albert schedules a meeting with Ted to determine what can be done with NG to
expedite the completion of the sensors.

Develop your approach using the case analysis form: Major Facts, Major Problems, Possible
Solutions, Choice and Rational.
Management of Project Procurement, C. L. Huston, The McGraw-Hill Companies, Inc. CS 23-2

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 43
GLOSSARY

Accounts Payables. Bills or invoices received, approved yet not paid. Liabilities, the amount
owed to creditors for good or services bought, such as salaries, wages, taxes, and for goods or
services received yet not paid for as of yet. Accounts payables can also be considered
obligations and accruals.

Accrual Basis of Accounting. A method of accounting in which revenues are recognized in the
period earned and costs are recognized in the period incurred, regardless of when payment is
received or made. Definition is from Office of Secretary of Defense Controller.

Activities. Activities are defined operations contained in a work package.

Actual Cost Expended. See Expended

Advance Agreement (AA). An advanced agreement, between the contractor and the Contract
Administration Office, concerning the application of an approved earned value management
system shall be used for these contractual efforts.

Applied Direct Costs (ADC). The actual direct costs recognized in the time period associated
with the consumption of labor, material, and other direct resources, without regard to the date of
commitment or the date of payment. These amounts are to be charged to work-in-process when
any of the following takes place: labor, material, or other direct resources are actually consumed;
Material resources are withdrawn from inventory for use; Material resources are received that are
uniquely identified to the contract and scheduled for use within 60 days; Major components or
assemblies that are specifically and uniquely identified to a single serially numbered end item are
received on a line flow basis.

Apportioned Effort (AE). Efforts, that by it-self, are not readily divisible into short-span work
packages but which is related in direct proportion to measured effort.

Authorization to Proceed (ATP). The official written authority for the contractor to begin work
and is usually issued by the procuring contracting officer.

Authorized Work (AW). That effort which has been negotiated and permitted to execute
definitized and is on contract plus that effort for which definitized contract costs have not been
agreed to but for which written authorization has been received.

Bill of Material (BOM). A listing of material items required for the production of a task. When
actual or expected prices are applied, it becomes the Priced Bill of Material (PBOM).

Breakdown Structure (CWBS), and the Statement of Work (SOW). The IMS shall be used
to verify attainability of contract objectives, to evaluate progress toward meeting program
objectives, and to integrate the program schedule activities with all related components.

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 44
Business Area Lead. (BAL). Project/Program Manager for a specific business area.

Commitment of Funds. An administrative reservation of funds, based upon firm procurement


directives, orders, requisitions, authorizations to issue travel orders, or requests which authorize
the recipient to create obligations without further recourse to the official responsible for
certifying the availability of funds. The recording of a commitment reserves funds for future
obligations.

Contract Administration Office (CAO). The organization assigned responsibility for ensuring
that the contractor complies with the terms and conditions of the contract.

Contract Budget Base (CBB). The negotiated contract cost plus the estimated cost of
authorized un-priced work.

Contract Data Requirements List (CDRL). A written compilation, of all data requirements,
which the contractor is obligated to submit to the government.

Contract Work Breakdown Structure (CWBS). The complete work breakdown structure for a
contract. It includes the contract owners approved work breakdown structure for reporting
purposes and its discretionary extension to the lower levels by the contractor, in accordance with
MIL-HNDBK 881 (latest version) and the contract work statement. It includes all the elements
for the hardware, software, data or services that are the responsibility of the contractor.

Contractor. An entity in private industry that enters into contracts with the Government. In this
guide, the word also applies to Government-owned, Government-operated activities that perform
work on major defense programs.

Contractor Performance Measurement (CPM) Monitor. That person within the Contract
Administrative Officer who is assigned responsibility for ensuring the proper and continuing
implementation of the approved integrated management system on contracts where it is
application is required.

Control Account (formerly called Cost Account). A management control point at which
budgets (resource plans) and actual costs are accumulated and compared to earned value for
management control purposes. A control account is a natural management point for planning and
control since it represents the work assigned to one responsible organizational element on one
program work breakdown structure element.

Contract Budget Base (CBB). The CBB, established based on the agreed-to value of
authorized work, must be strictly controlled in order to maintain a valid basis for project
performance. Changes to the CBB may only be made as a result of contractual changes. The
CBB should not be increased when a contract change (or portion thereof) is to provide funds to
cover valid CVs that have occurred.

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 45
Contract Line Item Number (CLIN). Within the contract there could be numerous work items,
deliverables or options. They are generally listed separately and could be have their own
schedule and contract value as well as different contract vehicles.

Contract Owner. Generally, the organization, or person within that organization, who is paying
for the good and or services. An example would be the Federal Government contracting for
good or services. Then the Government is the contract owner. Should a vendor sub-contract for
good or services then they are the contract owner.

Contract Work Breakdown Structure (CWBS). As defined within a contract that is a product-
oriented family tree division of hardware, software, services, and other work tasks that organizes
displays and defines the product to be developed and/or produced and relates the elements of the
work to be accomplished to each other and the end product(s).

Contract Performance Report (CPR). A contractually required report, prepared by the


contractor, containing information derived from the internal Earned Value Management System.
Provides status of progress on the contract. Previous title of this report was Cost Performance
Report.

Cost Accounting Standards (CAS). Established by the Cost Accounting Standards Board
(CASB) to ensure consistent and proper accounting for direct and indirect costs applied to
government contracts.

Cost Performance Index (CPI). The index calculated by Earned Value divided by Expended
value.

Cost plus Award Fee (CPAF).


(a) Description. A cost-plus-award-fee contract is a cost-reimbursement contract that provides for
a fee consisting of (1) a base amount fixed at inception of the contract and (2) an award amount
that the contractor may earn in whole or in part during performance and that is sufficient to
provide motivation for excellence in such areas as quality, timeliness, technical ingenuity, and
cost-effective management. The amount of the award fee to be paid is determined by the
Governments judgmental evaluation of the contractors performance in terms of the criteria
stated in the contract. This determination and the methodology for determining the award fee are
unilateral decisions made solely at the discretion of the Government.
(b) Application.
(1) The cost-plus-award-fee contract is suitable for use when
(i) The work to be performed is such that it is neither feasible nor effective to devise
predetermined objective incentive targets applicable to cost, technical performance, or
schedule;
(ii) The likelihood of meeting acquisition objectives will be enhanced by using a contract
that effectively motivates the contractor toward exceptional performance and provides the
Government with the flexibility to evaluate both actual performance and the conditions
under which it was achieved; and
(iii) Any additional administrative effort and cost required to monitor and evaluate
performance are justified by the expected benefits.

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 46
(2) The number of evaluation criteria and the requirements they represent will differ widely
among contracts. The criteria and rating plan should motivate the contractor to improve
performance in the areas rated, but not at the expense of at least minimum acceptable
performance in all other areas.
(3) Cost-plus-award-fee contracts shall provide for evaluation at stated intervals during
performance, so that the contractor will periodically be informed of the quality of its
performance and the areas in which improvement is expected. Partial payment of fee shall
generally correspond to the evaluation periods. This makes effective the incentive which the
award fee can create by inducing the contractor to improve poor performance or to continue
good performance.
(c) Limitations. No cost-plus-award-fee contract shall be awarded unless
(1) All of the limitations in 16.301-3 are complied with; and
(2) The contract amount, performance period, and expected benefits are sufficient to warrant
the additional administrative effort and cost involved.

Cost plus Fixed Fee (CPFF).


a) Description. A cost-plus-fixed-fee contract is a cost-reimbursement contract that provides for
payment to the contractor of a negotiated fee that is fixed at the inception of the contract. The
fixed fee does not vary with actual cost, but may be adjusted as a result of changes in the work to
be performed under the contract. This contract type permits contracting for efforts that might
otherwise present too great a risk to contractors, but it provides the contractor only a minimum
incentive to control costs.
(b) Application.
(1) A cost-plus-fixed-fee contract is suitable for use when the conditions of 16.301-2 are
present and, for example
(i) The contract is for the performance of research or preliminary exploration or study, and
the level of effort required is unknown; or
(ii) The contract is for development and test, and using a cost-plus-incentive-fee contract
is not practical.
(2) A cost-plus-fixed-fee contract normally should not be used in development of major
systems (see Part 34) once preliminary exploration, studies, and risk reduction have indicated
a high degree of probability that the development is achievable and the Government has
established reasonably firm performance objectives and schedules.
(c) Limitations. No cost-plus-fixed-fee contract shall be awarded unless the contracting officer
complies with all limitations in 15.404-4(c) (4) (i) and 16.301-3.
(d) Completion and term forms. A cost-plus-fixed-fee contract may take one of two basic forms
completion or term.
(1) The completion form describes the scope of work by stating a definite goal or target and
specifying an end product. This form of contract normally requires the contractor to complete
and deliver the specified end product (e.g., a final report of research accomplishing the goal
or target) within the estimated cost, if possible, as a condition for payment of the entire fixed
fee. However, in the event the work cannot be completed within the estimated cost, the
Government may require more effort without increase in fee, provided the Government
increases the estimated cost.
(2) The term form describes the scope of work in general terms and obligates the contractor
to devote a specified level of effort for a stated time period. Under this form, if the

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 47
performance is considered satisfactory by the Government, the fixed fee is payable at the
expiration of the agreed-upon period, upon contractor statement that the level of effort
specified in the contract has been expended in performing the contract work. Renewal for
further periods of performance is a new acquisition that involves new cost and fee
arrangements.
(3) Because of the differences in obligation assumed by the contractor, the completion form
is preferred over the term form whenever the work, or specific milestones for the work, can
be defined well enough to permit development of estimates within which the contractor can
be expected to complete the work.
(4) The term form shall not be used unless the contractor is obligated by the contract to
provide a specific level of effort within a definite time period.

Cost plus Incentive Fee (CPIF).


a) Description. The cost-plus-incentive-fee contract is a cost-reimbursement contract that
provides for the initially negotiated fee to be adjusted later by a formula based on the relationship
of total allowable costs to total target costs. This contract type specifies a target cost, a target fee,
minimum and maximum fees, and a fee adjustment formula. After contract performance, the fee
payable to the contractor is determined in accordance with the formula. The formula provides,
within limits, for increases in fee above target fee when total allowable costs are less than target
costs, and decreases in fee below target fee when total allowable costs exceed target costs. This
increase or decrease is intended to provide an incentive for the contractor to manage the contract
effectively. When total allowable cost is greater than or less than the range of costs within which
the fee-adjustment formula operates, the contractor is paid total allowable costs, plus the
minimum or maximum fee.
(b) Application.
(1) A cost-plus-incentive-fee contract is appropriate for services or development and test
programs when
(i) A cost-reimbursement contract is necessary (see 16.301-2); and
(ii) A target cost and a fee adjustment formula can be negotiated that are likely to
motivate the contractor to manage effectively.
(2) The contract may include technical performance incentives when it is highly probable that
the required development of a major system is feasible and the Government has established
its performance objectives, at least in general terms. This approach also may apply to other
acquisitions, if the use of both cost and technical performance incentives is desirable and
administratively practical.
(3) The fee adjustment formula should provide an incentive that will be effective over the full
range of reasonably foreseeable variations from target cost. If a high maximum fee is
negotiated, the contract shall also provide for a low minimum fee that may be a zero fee or,
in rare cases, a negative fee.

Cost Sharing (CS). (a) Description. A cost-sharing contract is a cost-reimbursement contract in


which the contractor receives no fee and is reimbursed only for an agreed-upon portion of its
allowable costs.
(b) Application. A cost-sharing contract may be used when the contractor agrees to absorb a
portion of the costs, in the expectation of substantial compensating benefits.

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 48
Cost Variance (CV). A metric for the cost performance on a contractor program. It is the
algebraic difference between earned value and actual cost (Cost Variance equals Earned Value
less Actual Cost). A positive value indicates a favorable position and a negative value indicates
an unfavorable condition.

Critical Path Analysis. See Network Schedule.

Critical Path Method Network (CPM). See Program Evaluation Review Technique. A graphic
portrayal of milestones, activities, and their dependency upon other activities for completion and
depiction of the critical path.

Cure Notice. Before terminating a contract for default because of the contractors failure to
make progress or to perform other provisions of the contract, the contracting officer will usually
give a written notice, called a "cure notice." That notice allows at least 10 days to cure any
defects. Unless the failure to perform is cured within the 10 days, the contracting officer may
issue a notice of termination for default. If there is not time for a cure, the contracting officer will
usually send a show-cause notice. That notice directs the contractor to show why the contract
should not be terminated for default. It ensures that the contractor understands his predicament,
and the answer can be used in evaluating whether circumstances justify default action.

Data Item Description (DiD). Generally a description and format of a contractual deliverable.

Defense Contract Audit Agency (DCAA). The organization tasked with monitoring a
contractors design and implementation of an acceptable accounting system.
Defense Contract Management Agency (DCMA). The organization tasked with monitoring a
contractors performance on contracts where surveillance is requested by the procuring activity.

Department of Defense Federal Acquisition Regulations (DoDFAR). DOD acquisition


regulations.

Direct Costs. Any costs that may be identified specifically with a particular cost objective. This
term is explained in the Federal Acquisition Regulation.

Direct Labor. Direct Labor cost is the expense incurred for people who can be specifically
identified with the contract work, or as we have termed it, can be conveniently charged to the
work. Examples are scientists, engineers, carpenters, welders, electronic technicians, and similar
persons.

Direct Materials. Direct Materials are products that become a part of the finished work or are
consumed in doing the work. Examples for construction work are steel beams, concrete blocks,
and roofing materials. Examples for an R&D contract to develop new aircraft could be sheet
metal, gauges to be used in the cockpit, tires, engines, and radio equipment. Again, the test is
whether the materials are specifically identifiable with (conveniently chargeable to) the contract.

Discrete Effort. Tasks which are related to the completion of specific end products or services
and can be directly planned and measured. (Also may be known as work packaged effort)

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 49
Earned Value (EV). The value of completed work expressed in terms of the budget assigned to
that work. Same as Budgeted Cost for Work Performed (BCWP).

Earned Value Management System (EVMS). An integrated management system that uses
earned value to measure progress objectively.

Earned Value Management System Criteria. The set of 32 statements, established by DOD
5000.2R, that define the parameters within which the contractor's integrated cost/schedule
management system must fit.

Estimate at Completion (EAC). Actual direct costs, plus indirect costs allocable to the
contract, plus the estimate of costs (direct and indirect) for authorized work remaining.

Estimated Cost Authorized Un-priced Work. Work that has been authorized in dollars but not
yet fully negotiated. Similar to not to exceed dollar authorization to proceed.

Estimate to Complete (ETC). That portion of the estimated cost at completion (EAC) that
addresses total expected costs for all work remaining on the contract.

Expended. The costs actually incurred and recorded in accomplishing the work performed
within a given time period, now titled Expended. Insure that all expended resources and accrual
are documented in the Expended column. Obligations and accounts payables (accruals). Same
as Actual Cost of Work Performed (ACWP).

Federal Acquisition Regulations (FAR). U.S. acquisition regulations.

Fee. The fixed fee once negotiated, does not vary with actual cost, but may be adjusted as result
of any subsequent changes in the scope of work or services to be performed under the contract.
Generally used with cost reimbursable contract vehicles.

Firm Fixed Price (FFP). A firm-fixed-price contract provides for a price that is not subject to
any adjustment on the basis of the contractors cost experience in performing the contract. This
contract type places upon the contractor maximum risk and full responsibility for all costs and
resulting profit or loss. It provides maximum incentive for the contractor to control costs and
perform effectively and imposes a minimum administrative burden upon the contracting parties.

Fixed Price Award Fee (FPAF).


a) Award-fee provisions may be used in fixed-price contracts when the Government wishes to
motivate a contractor and other incentives cannot be used because contractor performance cannot
be measured objectively. Such contracts shall
(1) Establish a fixed price (including normal profit) for the effort. This price will be paid for
satisfactory contract performance. Award fee earned (if any) will be paid in addition to that
fixed price; and
(2) Provide for periodic evaluation of the contractors performance against an award-fee plan.

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 50
(b) A solicitation contemplating award of a fixed-price contract with award fee shall not be
issued unless the following conditions exist:
(1) The administrative costs of conducting award-fee evaluations are not expected to exceed
the expected benefits;
(2) Procedures have been established for conducting the award-fee evaluation;
(3) The award-fee board has been established; and
(4) An individual above the level of the contracting officer approved the fixed-price-award-
fee incentive.

Fixed Price Economic Price Adjustment (FPEPA). A fixed-price contract with economic price
adjustment provides for upward and downward revision of the stated contract price upon the
occurrence of specified contingencies. Economic price adjustments are of three general types:
(1) Adjustments based on established prices. These price adjustments are based on increases or
decreases from an agreed-upon level in published or otherwise established prices of specific
items or the contract end items.
(2) Adjustments based on actual costs of labor or material. These price adjustments are based on
increases or decreases in specified costs of labor or material that the contractor actually
experiences during contract performance.
(3) Adjustments based on cost indexes of labor or material. These price adjustments are based on
increases or decreases in labor or material cost standards or indexes that are specifically
identified in the contract.

Fixed Price Incentive Firm (FPIF). A fixed-price incentive contract is a fixed-price contract
that provides for adjusting profit and establishing the final contract price by a formula based on
the relationship of final negotiated total cost to total target cost.

Fixed Price Prospective Re-Determination (FPRP). A fixed-price contract with prospective


price re-determination provides for
(a) A firm fixed price for an initial period of contract deliveries or performance; and
(b) Prospective re-determination, at a stated time or times during performance, of the price for
subsequent periods of performance.

Float. A period of time that an activity may be delayed without becoming a critical activity or
effect a subsequent activity.

Free On-Board (FOB). Shipping Industry. Commerce: without charge to the buyer for good
placed on board a carrier at the point of shipment: automobiles shipped f.o.b. Detroit.

GANTT Chart. Henry L. Gantt developed the chart that shows planned and actual progress for
a number of tasks displayed against a horizontal time line. It is a particularly effective and easy-
to-read method of indicating the actual current status for each set of tasks compared to the
planned progress for each item of the set.

Indirect Costs. Costs that, because of their incurrence for common or joint objectives, are not
readily subject to treatment as direct costs. This term is further defined in FAR 31.203.

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 51
Initial Compliance Review (ICR). A government review done at a contractors facility to
assess contractor application of Earned Value Management System principles.

Integrated Master Schedule (IMS). The IMS is a time-based schedule containing the
networked, detailed tasks necessary to ensure successful program/contract execution. The IMS is
traceable to the integrated master plan, the contract work breakdown structure, and the statement
of work. The IMS is used to verify attainability of contract objectives, to evaluate progress
toward meeting program objectives, and to integrate the program schedule activities with all
related components. The Integrated Master Schedule (IMS) is an integrated schedule containing
the networked, detailed tasks necessary to ensure successful program execution. The IMS is
vertically traceable to the Integrated Master Plan (IMP) (if applicable), the Contract Work

Integrated Management System (IMS). The management system and related sub-systems
which establish the relationship between the cost, schedule and technical aspects of the work,
and to measure progress, accumulate actual costs, analyze deviations from plans, forecast
achievement of milestones and completion of contract events and incorporate changes to the
contract in a timely manner.

Integrated Master Plan (IMP). All work to be performed including but not limited to labor,
materials, sub-contractual efforts and other direct costs. Similar to Integrated Master Schedule
(IMS).

Letter of Delegation (LOD). A document assigning contract administration functions from one
Contract Administrative Officer (CAO) to another, usually in a prime-subcontractor relationship.

Level of Effort (LOE). Effort of a general or supportive nature that does not produce definite
end products.

Management Reserve (MR). An amount of the total allocated budget withheld for management
control purposes rather than designated for the accomplishment of a specific task or set of tasks.
It is not a part of the Performance Measurement Baseline.

Negotiated Contract Cost (NCC). The estimated cost negotiated in a cost-plus-fixed-fee


contract or the negotiated contract target cost in either a fixed-price incentive contract or a cost-
plus-incentive-fee contract.

Network Schedule (NS). A scheduled format in which the activities and milestones are
represented along with the interdependencies between the activities. It expresses the logic of
how the program will be accomplished. Network schedules are the basis for critical path
analysis, a method for identification and assessment of schedule priorities and impacts.

Novation - (law). The replacement of one obligation by another by mutual agreement of both
parties; usually the replacement of one of the original parties to a contract with the consent of the
remaining party.

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 52
Obligations. Concerned with Earned Value Management, obligations and accrual are the same.
The value is determined by goods or services received yet not paid for as of time of close of
accounting period. Such could be materials received for a specific task yet not invoiced by
vendor. Amount of obligation or accrual is then the purchase order value or there part of material
or services dropped ship to another vendor, by our contract order, and vendor has not invoiced
for such services is also an obligation and an accrual. Obligations and also be considered as
account payables.

Obligation of Funds. Amounts of orders placed, contracts awarded for services received, or
other similar transactions during a given period, which will require outlays during the same or
some future period.

Organizational Breakdown Structure (OBS). A functionally-oriented division of the


contractors organization established to perform the work on a specific contract.

Other Direct Costs. Although direct labor and direct material are the most commonly encounter
direct costs, sometimes others appear. Direct costs are legitimate if they are incurred specifically
for the contract effort and are conveniently chargeable to it. Some common examples are
consultant fees, cost for special equipment, and travel costs.

Overhead. (See Indirect Cost definition.)

Performance Measurement Baseline (PMB). The time-phased budget plan against which
contract performance is measured. It is formed by the budgets assigned to scheduled control
accounts and the applicable indirect budgets. For future effort, not planned to the control
account level, the performance measurement baseline also includes budgets assigned to higher
level Contract Work Breakdown Structure (CWBS) elements, and undistributed budgets. It
equals the total allocated budget less management reserve.

Performing Organization (PO). A defined unit within the contractor's organization structure,
which applies the resources to perform the work.

Planned Value (PV). The sum of the budgets for all work packages, planning packages, etc.,
scheduled to be accomplished (including in-process work packages), plus the amount of level of
effort and apportioned effort scheduled to be accomplished within a given time period. Same as
Budgeted Cost for Work Scheduled.

Planning Package (P/P). A logical aggregation of work within a control account, normally the
far-term effort, that can be identified and budgeted in early baseline planning, but cannot yet be
defined into work packages.

Principle Investigator. Technical lead for a specific task or contract.

Program Evaluation Review Technique (PERT). PERT is basically a method for analyzing
the tasks involved in completing a given project, especially the time needed to complete each
task, and identifying the minimum time needed to complete the total project.

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 53
Post-Acceptance Review. A government review performed on a specific element of the
contractors Earned Value Management System (EVMS) that has displayed a lack of discipline in
application or no longer meets the intent of the EVMS Guidelines.

Procuring Activity. The subordinate command to which the Procuring Contracting Officer
(PCO) is assigned. It may include the program office, related functional support offices, and
procurement offices.

Profit. The excess amount realized from the sales of goods over the cost thereof in a given
transaction or over a given period. Generally used with fixed price contractual vehicles.

Program Work Breakdown Structure (PWBS). The work breakdown structure (WBS) that
covers the acquisition of a specific defense materiel item, is related to contractual effort, and
includes all applicable elements consisting of at least the first three levels which are then
extended by the Department of Defense (DoD) Component (program manager) and or
contractor(s).

Re-Planning. The redistribution of budget for future work. Tractability is required to previous
baselines and attention to funding requirements needs to be considered in any re-planning effort.

Responsibility Assignment Matrix (RAM). A depiction of the relationship between the


Contract Work Breakdown Structure elements and the organizations assigned responsibility for
ensuring their accomplishment.

Responsible Organization. A defined unit within the contractor's organization structure that is
assigned responsibility for accomplishing specific tasks

Schedule. A plan which that when specified work must be done to accomplish program
objectives on time. Same as Budget Cost for Work Scheduled

Schedule Performance Index (SPI). The index calculated by Earned Value divided by Planned
Value.

Schedule Variance (SV). A metric for the schedule performance on a program. It is the
algebraic difference between earned value and the budget (Schedule Variance equals Earned
Value less Planned (Scheduled) Efforts). A positive value is a favorable condition while a
negative value is unfavorable.

Significant Variances. Those differences between planned and actual performance that require
further review, analysis, or action.

Slack. (See Float)

Sub-Contract Line Item Number. Secondary contract Line Item Number.

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 54
Summary Effort Control Package (SECP). An aggregation of work for far-term efforts, not
able to be identified at the control account level, but which can be assigned to higher level WBS
elements (and is therefore not undistributed budget).

Statement of Work (SOW). The document that defines the work scope requirements for a
program.

Third Party Certification. Approval of an EVMS, to a standard recognized by DoD as


equivalent to the EVMS Criteria, by an independent organization accredited by the standards
authority and recognized by Department of Defense.

Time and Materials (T&M).


a) Description. A time-and-materials contract provides for acquiring supplies or services on the
basis of
(1) Direct labor hours at specified fixed hourly rates that include wages, overhead, general and
administrative expenses, and profit; and
(2) Materials at cost, including, if appropriate, material handling costs as part of material
costs.
(b) Application. A time-and-materials contract may be used only when it is not possible at the
time of placing the contract to estimate accurately the extent or duration of the work or to
anticipate costs with any reasonable degree of confidence.
(1) Government surveillance. A time-and-materials contract provides no positive profit
incentive to the contractor for cost control or labor efficiency. Therefore, appropriate
Government surveillance of contractor performance is required to give reasonable assurance
that efficient methods and effective cost controls are being used.
(2) Material handling costs. When included as part of material costs, material handling costs
shall include only costs clearly excluded from the labor-hour rate. Material handling costs
may include all appropriate indirect costs allocated to direct materials in accordance with the
contractors usual accounting procedures consistent with Part 31.
(3) Optional method of pricing material. When the nature of the work to be performed
requires the contractor to furnish material that it regularly sells to the general public in the
normal course of its business, the contract may provide for charging material on a basis other
than at cost if
(i) The total estimated contract price does not exceed $25,000 or the estimated price of
material so charged does not exceed 20 percent of the estimated contract price;
(ii) The material to be so charged is identified in the contract;
(iii) No element of profit on material so charged is included as profit in the fixed hourly
labor rates; and
(iv) The contract provides
(A) That the price to be paid for such material shall be based on an established
catalog or list price in effect when material is furnished, less all applicable discounts
to the Government; and
(B) That in no event shall the price exceed the contractors sales price to its most-
favored customer for the same item in like quantity, or the current market price,
whichever is lower.

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 55
(c) Limitations. A time-and-materials contract may be used (1) only after the contracting officer
executes a determination and findings that no other contract type is suitable; and (2) only if the
contract includes a ceiling price that the contractor exceeds at its own risk. The contracting
officer shall document the contract file to justify the reasons for and amount of any subsequent
change in the ceiling price.

To Complete Performance Indices (TCPI). The calculation used to determine efficiency to


complete remaining work with the remaining resources.

Total Allocated Budget (TAB). The sum of all budgets allocated to the contract. Total allocated
budget consists of the performance measurement baseline and all management reserve. The total
allocated budget will reconcile directly to the contract budget base. Any differences will be
documented as to quantity and cause.

Undistributed Budget (UB). Budget applicable to contract effort that has not yet been
identified to CWBS elements at or below the lowest level of, reporting to the Government.

Variance at Completion (VAC). The difference between the total budgets assigned to a
contract, WBS element, organizational entity or cost account and the estimate at completion.
Variance at Completion equals Budget at Completion less Estimate at Completion. It represents
the amount of expected overrun or under run.

Work Breakdown Structure (WBS). A product-oriented family tree division of hardware,


software, services, and other work tasks that organizes displays and defines the product to be
developed and/or produced and relates the elements of the work to be accomplished to each other
and the end product(s).

Work Package (WP). Detailed jobs, or material items, identified by the contractor for
accomplishing work required to complete the contract. A work package has the following
characteristics: It represents units of work at levels where work is performed; It is clearly
distinguished from all other work packages; It is assigned to a single organizational element; It
has scheduled start and completion dates and, as applicable, interim milestones which are
representative of physical accomplishment; It has a budget or assigned value expressed in terms
of dollars, man-hours, or other measurable units; Its duration is limited to a relatively short span
of time, or it is subdivided by discrete value milestones (activities) to facilitate the objective
measurement of work performed, or it is level of effort; It is integrated with detailed engineering,
manufacturing, or other schedules.

Work Package Budgets. Resources that are formally assigned by the contractor to accomplish a
work package, expressed in dollars, hours, standards or other definitive units.

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 56
ABBREVIATIONS

AA: Advance Agreement


ACE: Actual Cost Expended
ACO: Administrative Contracting Officer
ACO: Actual Cost Obligated
ADC: Actual Direct Costs
AE: Apportioned Effort
ATP: Authorization to Proceed
AW: Authorized Work
BAC: Budget at Completion
BAL: Business Area Lead
BOM: Bill of Material
CA: Control Account
CAM: Control Account Manager
CAO: Contract Administration Officer
CAS: Cost Accounting Standards
CBB: Contract Budget Base
CDRL: Contract Data Requirements List
CPFF: Cost Plus Fixed Fee
CPIF: Cost Plus Incentive Fee
CPAF: Cost Plus Award Fee
CS: Cost Sharing
CPI: Cost Performance Index
CPM: Contractor Performance Measurement
CPR: Contract Performance Report
CV: Cost Variance
CWBS: Contract Work Breakdown Structure
DCAA: Defense Contract Audit Agency
DCMA: Defense Contract Management Agency
ETC: Estimate to Complete
EV: Earned Value
EVMS: Earned Value Management System
FFP: Firm Fixed Price
FPAF: Fixed Price Award Fee
PFIF: Fixed Price Incentive Firm
FPEPA: Fixed Price Economic Price Adjustment
FPRP: Fixed Price Prospective Re-determination
FOB: Free On-Board
ICR: Initial Compliance Review
IMS: Integrated Management System
LOD: Letter of Delegation
LOE: Level of Effort
MR: Management Reserve
NCC: Negotiated Contract Cost
NS: Network Schedule

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 57
OBS: Organizational Breakdown Structure
PBOM: Price Bill of Materials
PI: Principle Investigator
PMB: Performance Measurement Baseline
PO: Program Office
PO: Performing Organization
PM: Project/Program Manager
PP: Planning Package
PV: Planned Value
PWBS: Program Work Breakdown Structure
RAM: Responsibility Assignment Matrix
SOW: Statement of Work
SPI: Schedule Performance Index
SV: Schedule Variance
TAB: Total Allocated Budget
TCPI: To Complete Performance Indices
T&M: Time and Material contract type
TD: Technical Director
UB: Undistributed Budget
VAC: Variance at Completion
WBS: Work Breakdown Structure
WP: Work Package

Project Procurement Management, Developed by: Roger H. Mandel July 2017 Page 58