SESSION I

12- PROCUREMENT
MANAGEMENT
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 12 - Project Procurement Management

Project Procurement
Management includes the
processes to purchase or
acquire the products, services,
or results needed from outside
the project team to perform the
work
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 PROCUREMENT PROCESS

PROJECT MANAGER
INITIATOR CUSTOMER
(BUYER)
SOW PROJECT MANAGEMENT PRODUCT
(38/42 PROCESSES)

PROJECT
MANAGER
CONTRACT CONTRACT
SOW PRODUCT

(SELLER)
PROJECT
MANAGEMENT
(38 PROCESSES)

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• Decide to buy or do it yourself
• Plan (How to select, how to evaluate, How to tender) How to procure
(procurement Management Plan)
• Separate cost estimate
• SOW (product scope description)
• Tender Documents
• To whom you will tender? Short list
• Tendering
• Evaluation
• Selection
• Contract
• Monitoring and controlling
• Payments
• Claims and disputes
• Documents
• Deliverables acceptance
• Final acceptance
• Closing

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 PROCUREMENT PROCESS

PLAN Conduct

Administer Close

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 Project Manager’s Role
in Procurement
The project manager must be involved in the creation of contracts
and fulfills the following key roles:
• Know the procurement process
• Understand contract terms and conditions
• Make sure the contract contains all the project management
requirements such as attendance at meetings, reports, actions and
communications deemed necessary
• Identify risks and incorporate mitigation and allocation of risks into
the contract
• Help tailor the contract to the unique needs of the project
• Fit the schedule for completion of the procurement process into
the schedule for the project
• Be involved during contract negotiation to protect the relationship
with the seller
• Protect the integrity of the project and the ability to get the work
done
• Uphold the entire contract not just the contract statement of work
• Work with the contract manager to manage changes to the
contract
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 Project Procurement Management
Plan Procurement
1. Study The Scope
2. Make or Buy Decision
3. Prepare Contract SOW
4. How to buy?
5. Contract Type
6. Proc. Mgmt. Plan

Documenting project purchase

decisions, specifying the approach and
identifying potential sellers.
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 Exercise
• You are trying to decide whether to
lease or buy an item for your project.
The daily lease cost is $120. To
purchase the item the investment cost
is $1,000 and the daily cost is $20. How
long will it take for the lease cost to be
the same as the purchase cost?

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 ANSWER
• Answer Let D equal the number of days when
the purchase and lease costs are equal.
• $120D = $1,000 + $20D
• $120D - $20D = $1,000
• 100D = $1,000
• D = 10 days.
• The lease cost will be the same as the purchase
cost after ten days.
• If you think you will need the item for more than
ten days, you should consider purchasing it to
reduce total costs.
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 CONTRACT TYPES*
TYPE
Type Cost Reimbursable Time & Material Fixed Price
(CR) (T&M) (FP)
Criteria
Risk Buyer Shared Seller
Scope Simple Not important Well Defined

Statement of Work Performance

Any Design
SOW Functionality

Procurement Request for Request for

Invitation for Bid
Documents proposal quotation

Budget Unknown Unknown Known

"Unknown“
Profit % of Seller Known Unknown
Included in the rate

CPPF / CPFF / Unit Price / Lump Sum / Firm

Sub Types
CPIF / CPAF ** Re-Measure BOQ Fixed Price
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* Categorized based on the risk being assumed by buyer and seller.
 Exercise
• In a cost reimbursable contract, the
cost is estimated at $210,000 and the
fee at $25,000.
If the seller beats that cost they will
share the savings; 80 percent to the
buyer and 20 percent to the seller.

If the actual costs come in at $200,000,

what is the final fee and final price?

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 ANSWER

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 Evaluation Criteria
Criteria Relative
Seller 1 Seller 2
Weight

1- Understanding of Needs 90 80

2- Overall or Life Cycle Cost 30 50

3- Technical Capabilities 40 70

4- Financial capabilities … …

5- Production Capacity & Interest … …

6- Business Size & Type … …

7- References … …
8- Intellectual Property Rights … …

9- Proprietary Rights … …

Total
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100 % 90 % 81 %
 Project Procurement Management
12.2-Conduct Procurement
PREPARE
1. Responses
2. Evaluation Criteria
3. Contract

Obtaining seller responses, selecting a

seller and awarding a contract.

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 What Do You Need
To Have a Legal Contract?
• An offer
• Acceptance
• Consideration Something of value, not
necessarily money
• Legal capacity Separate legal parties,
competent parties
• Legal purpose You cannot have a
contract for the sale of illegal goods

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 Project Procurement Management
12.3-Administer Procurement

Managing Procurement Relationships,

monitoring contract performance, and making
changes and corrections as needed.

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 CONTRACT INTERPRETATION

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 Project Procurement Management
Close Procurement

The process of completing each project

procurement.

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