Procurement Management

Question 1

Plan procurement management process

Answer 1

Defining roles and responsibilities related to procurement should be done early in the Plan Procurement Management process. The project manager should ensure that the project team is staffed with procurement expertise at the level required for the project. Participants in the procurement process may include personnel from the purchasing or procurement department as well as personnel from the buying organization’s legal department.

Question 2

Statement of work (SOW)

Answer 2

The statement of work (SOW) for each procurement is developed from the project scope baseline and defines only that portion of the project scope that is to be included within the related contract. The SOW describes the procurement item in sufficient detail to allow prospective sellers to determine if they are capable of providing the products, services, or results.

Question 3

Time and material contracts (T&M)

Answer 3

Time and material contracts (T&M) (also called time and means) are a hybrid type of contractual arrangement with aspects of both cost-reimbursable and fixed-price contracts. They are often used for staff augmentation, acquisition of experts, and any outside support when a precise statement of work cannot be quickly prescribed.

Question 4

Cost-reimbursable contracts

Answer 4

Cost-reimbursable contracts. This category of contract involves payments (cost reimbursements) to the seller for all legitimate actual costs incurred for completed work, plus a fee representing seller profit. This type should be used if the scope of work is expected to change significantly during the execution of the contract.

Question 5

3 Cost-reimbursable contracts

Answer 5

Cost plus fixed fee (CPFF). The seller is reimbursed for all allowable costs for performing the contract work and receives a fixed-fee payment calculated as a percentage of the initial estimated project costs. Fee amounts do not change unless the project scope changes.

Cost plus incentive fee (CPIF). The seller is reimbursed for all allowable costs for performing the contract work and receives a predetermined incentive fee based on achieving certain performance objectives as set forth in the contract. In CPIF contracts, if the final costs are less or greater than the original estimated costs, then both the buyer and seller share costs from the departures based upon a prenegotiated cost-sharing formula, for example, an 80/20 split over/under target costs based on the actual performance of the seller.

Cost plus award fee (CPAF). The seller is reimbursed for all legitimate costs, but the majority of the fee is earned based on the satisfaction of certain broad subjective performance criteria that are defined and incorporated into the contract. The determination of fee is based solely on the subjective determination of seller performance by the buyer and is generally not subject to appeals.

Question 6

Bid documents

Answer 6

Bid documents are used to solicit proposals from prospective sellers. Terms such as bid, tender, or quotation are generally used when the seller selection decision is based on price (as when buying commercial or standard items), while a term such as proposal is generally used when other considerations such as technical capability or technical approach are the most important.

Question 7

3 Bid documents

Answer 7

Request for information (RFI). An RFI is used when more information on the goods and services to be acquired is needed from the sellers. It will typically be followed by an RFQ or RFP.

Request for quotation (RFQ). An RFQ is commonly used when more information is needed on how vendors would satisfy the requirements and/or how much it will cost.

Request for proposal (RFP). An RFP is used when there is a problem in the project and the solution is not easy to determine. This is the most formal of the “request for” documents and has strict procurement rules for content, timeline, and seller responses.

Question 8

Source selection analysis

Answer 8

It is necessary to review the prioritization of the competing demands for the project before deciding on the selection method.

The least cost method may be appropriate for procurements of a standard or routine nature where well-established practices and standards exist and from which a specific and well-defined outcome is expected, which can be executed at different costs.

The qualifications only selection method applies when the time and cost of a full selection process would not make sense because the value of the procurement is relatively small.

Quality-based/highest technical proposal score. The selected firm is asked to submit a proposal with both technical and cost details and is then invited to negotiate the contract if the technical proposal proves acceptable.

The quality and cost-based method allows cost to be included as a factor in the seller selection process. In general, when risk and/or uncertainty are greater for the project, quality should be a key element when compared to cost.

Sole source. The buyer asks a specific seller to prepare technical and financial proposals, which are then negotiated. Since there is no competition, this method is acceptable only when properly justified and should be viewed as an exception.

The fixed-budget method requires disclosing the available budget to invited sellers in the RFP and selecting the highest-ranking technical proposal within the budget. Because sellers are subject to a cost constraint, they will adapt the scope and quality of their offer to that budget.

Question 9

The procurement management plan

Answer 9

The procurement management plan contains the activities to be undertaken during the procurement process. It should document whether international competitive bidding, national competitive bidding, local bidding, etc., should be done. If the project is financed externally, the sources and availability of funding should be aligned with the procurement management plan and the project schedule.

Question 10

Procurement strategy

Answer 10

Once the make-or-buy analysis is complete and the decision is made to acquire from outside the project, a procurement strategy should be identified. The objective of the procurement strategy is to determine the project delivery method, the type of legally binding agreement(s), and how the procurement will advance through the procurement phases.

Question 11

Make-or-buy analysis

Answer 11

A make-or-buy analysis results in a decision as to whether particular work can best be accomplished by the project team or needs to be purchased from outside sources.

Question 12

Control Procurements

Answer 12

Control Procurements is the process of managing procurement relationships; monitoring contract performance, and making changes and corrections as appropriate; and closing out contracts.

Question 13

Claimes administration

Answer 13

Contested changes and potential constructive changes are those requested changes where the buyer and seller cannot reach an agreement on compensation for the change or cannot agree that a change has occurred. These contested changes are called claims. When they cannot be resolved, they become disputes and finally appeals.

Question 14

Inspection

Answer 14

An inspection is a structured review of the work being performed by the contractor. This may involve a simple review of the deliverables or an actual physical review of the work itself. On a construction/engineering/infrastructure project, inspections involve walkthroughs of the site by both the buyer and the contractor to ensure a mutual understanding of the work in progress.

Question 15

Closed procurement

Answer 15

Project procurements may be closed at any phase of the project life cycle upon completion of the procurement or when early termination is invoked.

Requirements for formal procurement closure are usually defined in the terms and conditions of the contract and are included in the procurement management plan. Typically, all deliverables should have been provided on time and meet technical and quality requirements, there should be no outstanding claims or invoices, and all final payments should have been made. The project management team should have approved all deliverables prior to closure

Question 16

Organizational process assets that can be updated as a result of the Control Procurements process

Answer 16

Payment schedules and requests. All payments should be made in accordance with the procurement contract terms and conditions.

Seller performance evaluation documentation. Seller performance evaluation documentation is prepared by the buyer and documents the seller’s ability to continue to perform work on the current contract, indicates whether the seller can be allowed to perform work on future projects, or rates how well the seller is performing the project work or has performed in the past.

Prequalified seller lists updates. Prequalified seller lists are lists of potential sellers who are previously qualified (approved). These lists will be updated according to the Procurement Control process outcomes because sellers could be disqualified and removed from the lists based on poor performance.

Lessons learned repository. Lessons learned should be archived in the lessons learned repository to improve procurements on future projects.

Procurement file. A complete set of indexed contract documentation, including the closed contract, is prepared for inclusion with the final project files.

Question 17

Alternative dispute resolution (ADR)

Answer 17

If the parties themselves do not resolve a claim, it may have to be handled in accordance with alternative dispute resolution (ADR) typically following procedures established in the contract. Settlement of all claims and disputes through negotiation is the preferred method.

Question 18

Negotiations

Answer 18

Negotiation is a discussion aimed at reaching an agreement. Procurement negotiation clarifies the structure, rights, and obligations of the parties and other terms of the purchases so that mutual agreement can be reached prior to signing the contract.

Question 19

Procurement strategy

Answer 19

Delivery methods. Delivery methods are different for professional services versus construction projects.

• For professional services, delivery methods include: buyer/services provider with no subcontracting, buyer/ services provider with subcontracting allowed, joint venture between buyer and services provider, and buyer/ services provider acts as the representative.
• For industrial or commercial construction, project delivery methods include but are not limited to: turnkey, design build (DB), design bid build (DBB), design build operate (DBO), build own operate transfer (BOOT), and others. uu Contract payment types.

Contract payment types are separate from the project delivery methods and are coordinated with the buying organization’s internal financial systems. They include but are not limited to these contract types plus variations: lump sum, firm fixed price, cost plus award fees, cost plus incentive fees, time and materials, target cost, and others.

• Fixed-price contracts are suitable when the type of work is predictable and the requirements are well defined and not likely to change.
• Cost plus contracts are suitable when the work is evolving, likely to change, or not well defined.
• Incentives and awards may be used to align the objectives of buyer and seller.

Procurement phases. The procurement strategy can also include information on procurement phases.

-Sequencing or phasing of the procurement, a description of each phase and the specific objectives
of each phase.
-Procurement performance indicators and milestones to be used in monitoring
-Criteria for moving from phase to phase
-Monitoring and evaluation plan for tracking progress
-Process for knowledge transfer for use in subsequent phases

Question 20

Procurement administrator

Answer 20

Collection of data and managing project records, including maintenance of detailed records of physical and financial performance and establishment of measurable procurement performance indicators

Refinement of procurement plans and schedules

Set up for gathering, analyzing, and reporting procurement-related project data and preparation of periodic reports to the organization

Monitoring the procurement environment so that implementation can be facilitated or adjustments made

Payment of invoices

Question 21

Change request

Answer 21

Requested but unresolved changes can include direction provided by the buyer or actions taken by the seller, which the other party considers a constructive change to the contract. Since any of these constructive changes may be disputed by one party and can lead to a claim against the other party, such changes are uniquely identified and documented by project correspondence.

Question 22

Independent estimate

Answer 22

For large procurements, the procuring organization may elect to either prepare its own independent estimate or have a cost estimate prepared by an outside professional estimator to serve as a benchmark on proposed responses.