TWELVE - Procurement Flashcards
What are contracts?
Can be written or verbal, typically created with an external entity, and involve an exchange of goods or services for some type of compensation. The contract forms the legal relationship, is mutually binding, and provides a framework for how a failure on one side will be addressed
What is an agreement?
Broader term that encompasses documents or communications that outline internal or external relationships and their intentions.
What is the relationship between agreement and contracts?
A contract is an agreement, but an agreement is not necessarily a contract.
What are examples of agreements?
The charter and PM Plans, memos of intent, letters of agreement, emails, and verbal agreements
what is a procurement strategy?
A plan for how each contract will be managed
What questions does the Plan Procurement Management process answer?
How will make-or-buy analysis be performed?
What goods/services do we need to buy?
How will we purchase them?
Who are potential sellers to consider?
What does plan procurement management process (P) involve?
Performing make-or-buy analysis
Creating a procurement management plan;
Creating a procurement strategy for each procurement;
Creating a procurement statement of work for each procurement;
Selecting the appropriate contract type for each procurement;
Creating bid documents;
Determining source selection criteria;
What is procurement management plan?
Plan for the overall procurement process
What are the Inputs to Plan Procurement Management?
Project Charter;
Business Documents - Benefits Management Plan, Business Case;
PM Plan - scope, quality, resource;
Project Documents - Milestone list, requirements traceability matrix, schedule, procurements already in place, project team assignments, requirements documentation, resource requirements, risk register, stakeholder register;
EEFs;
OPAs - Types of Contracts
What is the benefits management plan?
Lists the benefits of the project and details when they are to be delivered
What is the business case?
Outlines the reason the project was undertaken.
Project Team Assignments in Plan Procurement Management?
Includes info on who can help the PM with procurement planning.
Requirements Documentation in Plan Procurement Management?
PM will find scope-related requirements that will help define required end services, products, or results provided by a seller. Also includes requirements for compliance, safety, communications, PM practices, reporting, quality, and risk management that are likely to be used in procurement
What are EEFs relating to procurement?
Market conditions, services available to be purchased, and the culture and structures surrounding organizations approach to procurements
What factors will determine which type of procurement contract should be used?
What is being purchased;
Completeness of the statement of work;
Level of effort and expertise the buyer can devout to managing the seller;
Whether the buyer wants to offer the seller incentives;
The marketplace or economy;
Industry standards for type of contract to be used
What are the three broad categories of contracts?
Fixed price, Time and Material, Cost-reimbursable
Fixed Price
Used when well defined specifications or requirements. Need a clearly defined statement of work and competing bids will give you a fair price.
who has the least cost risk in fixed price?
The buyer.
What are the types of fixed price contracts?
Firm fixed price; Fixed price incentive fee; Fixed price award fee; Fixed price with economic price adjustments Purchase orders
Fixed Price Incentive Fee
Financial incentives can be adjusted based on seller meeting specified performance criteria (getting work done faster, cheaper, or better). Final price is calculated using a formula based on the relationship of final negotiated costs to the total target cost (bonus each month project is finished early)
Fixed Price Award Fee
Buyer pays fixed price plus an award amount (bonus) based on performance. (bonus each month project is finished early with a maximum award of …..)
Fixed price with economic price adjustments
If contract will cover multiyear period, may be uncertainties about future economic conditions. (A price increase will be allowed in year 2 based on US consumer price index report for year 1)
Purchase Order
Simplest type of fixed price contract. Normally signed by one party (unilateral) used for simply commodity procurements. Become contracts when the buyer accepts the terms.
Time and Material
Buyer pays on a per-hour or per-item basis. Frequently used for service efforts in which level of effort cannot be defined when contract is awarded. Elements of fixed price (ie fixed price per hour) and cost reimbursable contract (in material costs and that total cost is unkown). Normally simpler terms and conditions.
Best used for work valued at small dollar amounts and lasts short duration of time.
Not to exceed clause is common.
Medium amount of risk to buyer
($100/hr plus expenses and materials at cost)
Cost Reimbursable
Used when exact scope of work is uncertain and therefore costs cannot be estimated accurately enough to use fixed price. The buyer to pay the seller allowable incurred costs to extent prescribed in the contract.
Normally include additional fee or award amount to allow seller to profit.
The buyer has the most cost risk because total costs are unknown
Seller provides an estimate that is not binding.
What are the types of cost reimbursable contracts?
Cost, cost plus fixed fee, cost plus incentive fee, cost plus award fee, cost plus percentage of cost
Cost contract
Seller receives no fee (profit). Typically used by nonprofit organizations. Seller is reimbursed but does not make profit
Cost Plus Fixed Fee
Provides payment to the seller of actual costs plus a negotiated fee that is fixed before the work begins
Cost plus incentive Fee
Seller to be paid actual costs plus a fee that will be adjusted based on whether specific performance objectives are met.
An original estimate of the total cost is made (target cost)
A fee for the work is determined (target fee)
The seller gets a percentage of the savings if actual costs are less than target cost
If actual costs are more than target costs, the seller shares the cost overrun with the buyer. Ratio is often 80% to buyer and 20% to seller.
Cost plus Award Fee
Buyer pays all costs and a base fee plus an award amount based on performance. The incentive is a potential award, and there is no possibility of penalty. The award amount is determined in advance and apportioned depending on performance.
A type of incentive contract.
Will have a maximum award value
Cost plus a base fee plus award for meeting performance criteria. Maximum award value.
