Section 12: Project Procurement Management Flashcards
Purchase Order
unilateral contract - we’re going to buy from you
Contract
legal document between two separate entities (buyer and seller)
- should clearly state the deliverables
- anything not in the contract, cannot be enforced
- terms and conditions for buyer and seller
Seller Participation
- the buyer becomes the customer and therefore a key stakeholder
- the seller’s PM team will carry out project management
- the seller may be a buyer with subcontractors - contract outlines whether this is allowed or not
Evaluating Market Conditions
Sole Source - only one person who can provide what you want to buy
Single Source - there is a preferred option
Oligopoly - market conditions are so tight that what one party does, affects others - e.g. price of oil, price of airline tickets
Statement of Work or Terms of Reference
SOW and TOR
= define the work to be accomplished in this specific contract and used as the basis for drafting a contract
- does not define the product description as a whole
- if the whole project is being procured, the SOW and the product description are the same
- reference requirements documentation
Contract Types
2 Main Categories
Fixed-Price
- price is not going to change and the seller carries the overrun
Cost-Plus
- cost-reimbursable
- if scope of work can’t be defined early
- high risks may exist
- buyer carries risk of overruns
Time and Materials Contract
Fixed-Price Contracts
Firm Fixed-Price (FFP)
- most common
- seller carries the risk of cost overruns
- buys specifies exactly what they will purchase
- changes to scope may change price
Fixed-Price Invective Fee (FPIF)
- financial incentives for performance
- so fixed price + bonus (bonus typically has a ceiling)
- seller carries risk of overruns
Fixed-Price with Economic Price Adjustment (FP-EPA)
- long term contracts with potential for fluctuations in cost of materials
- pre-defined financial adjustments
- external conditions
Cost Plus Contracts
Cost Plus Fixed Fee (CPFF)
- all allowable costs
- fixed fee of the initial estimated costs
- fee is constant unless scope changes
Cost Plus Incentive Fee (CPIF)
- all allowable costs
- fee based on performance goals
- incentive sharing (80/20)
- contract defines measurements
Cost Plus Award Fee (CPAF)
- all allowable costs
- performance criteria for fee to seller
- subjective review by buyer
- award is determined by the buyer
Time and Materials Contract
- seller is paid an hourly fee plus the cost of materials
- usually not to exceed clause and a time limit
simple contract
Alternative Dispute Resolution ADR
- rather than going to court, a mediator assist with the negotiation
- outcome is a negotiated settlement
