Project Procurement Management
Project Procurement Management includes processes necessary to purchase or acquire products, services or results needed from outside the project team. The organization can either be a buyer or a seller. It includes change control processes and contract management processes that are needed to develop and administer contracts or purchase orders. It administers any contract issues by an outside organization (the buyer) that is acquiring the project from the performing organization (the seller). A procurement contract includes terms and conditions. Depending upon the application area, it can also be called an agreement, an understanding, a subcontract or a purchase order. Contracts generally have a more extensive approval process due to its legally binding nature. By actively managing contracts and carefully wording the terms and conditions, some identifiable project risks can be avoided, mitigated or transferred to a seller.
The 4 processes involved in Project Procurement Management are:
The 4 processes involved in Project Procurement Management are:
- Plan Procurements: This process documents project purchasing decisions, specifies the approach and identifies potential sellers. It distinguishes those project needs that can be fulfilled by the project team from those needs that can best be met by an outside organization. It basically involves figuring out whether to acquire outside support and, if so then what to acquire, how to acquire it, how much is needed, and when to acquire it. It considers the risks involved with each make-or-buy decision and also includes reviewing the type of contract to be used with respect to mitigating risks.
Tools and techniques:
Make-or-Buy Analysis: This technique is used to determine whether particular work can be accomplished by the project team or must be purchased from outside sources. Budget and Schedule constraints are taken into account when making a decision.
- Conduct Procurements: This process includes obtaining seller responses, selecting a seller, and then awarding a contract. As a part of this process, the team receives bids or proposals which are evaluated based on a pre-defined selection criteria and then one or more sellers are selected to perform the work.
Tools and techniques:
Bidder Conferences: Meetings between the buyer and all prospective sellers prior to submittal of a bid or proposal are called Bidder Conferences. They are also known by the names of contractor conferences, vendor conferences, and pre-bid conferences. They are used to ensure that all prospective sellers understand the needs and requirements of the procurement.
Procurement Negotiations: “Negotiations clarify the structure, requirements and other terms of the purchases so that mutual agreement can be reached prior to signing the contract.” While negotiating, it is imperative that subjects like responsibilities, authority to make changes, applicable terms and governing law, technical and business management approaches, proprietary rights, contract financing, technical solutions, overall schedule, payments and price are covered. This process concludes with a contract document.
- Administer Procurements: It is the process of managing procurement relationships, monitoring contract performance, and making changes and corrections as needed. Both buyer and seller should ensure that their legal right are protected and that they meet their contractual obligations. The process also has a financial component which includes monitoring payments to the seller which ensure that payment terms are met as defined in the contract and that seller compensation is linked to seller progress. The process also includes managing any early terminations of the contract.
Tools and techniques:
Claims Administration: Claims are contested changes that are requested when the buyer and seller cannot reach an agreement on compensation for the change, or cannot agree that a change has occurred. Claims are also called disputes or appeals. If the parties cannot resolve the claim themselves, it may be handled in accordance with Alternative Dispute Resolution (ADR), following the procedures written in the contract. Negotiation is the preferred method for the settlement of all claims.
- Close Procurements: This process is used to complete each project procurement. Finalizing open claims, updating records to reflect final results and archiving such information for future use are some of the activities performed in this process. A special case of procurement closure is early termination of a contract. The rights and responsibilities of the parties in the event of an early termination are contained in a terminations clause of the contract.