introduction
Plan Procurement Management is the process of documenting project procurement decisions, specifying the approach, and identifying potential sellers.
The key benefit of this process is that it determines whether to acquire outside support, and if so, what to acquire, how to acquire it, how much is needed, and when to acquire it.
Concepts
The primary role of project manager in procurement processes is to provide understanding of project risk
Procurement Management Plan, answer questions like :
- how (make-or-buy) analysis will be performed
- what goods or services we need to buy for this project
- who will purchase this goods or services
- who are potential (vendor or manufacturer )to use
A procurement statement of work PSOW :
- is derived from scope baseline , and may be revised and refined as it moves through the procurement process.
Procurement documents
- like : RFQ RFP IFB
- must contain terms and conditions and selection criteria, as well as documentation of all the work that is to be done (which includes the procurement statement of work).
- This is so the seller can price the project and know what is most important to the buyer.
- Well-designed procurement documents can simplify comparison of responses
Contract VS Agreement
Contract VS Agreement
Contract :
- can be written or verbal ,
- typically created with external entity
- there is exchange of goods or services between entities
- form the legal relationship between entities
- provide framework if how failure by one side will be addressed in legal steps (terms and condition )
Agreement :
- encompass documents or communications that outline internal or external relationship
- contract could be considered as agreement (agreement contain contract )
- agreement could be used to outline intentions of project
- sample of agreements :letter of intent ,charter , email , verbal agreement
Actions of Plan Procurement
Action to be performed in Plan Procurement Management :
- performing (make-or-buy ) analysis
- creating procurement management plan
- create procurement statement of work
- select contract type for each procurement
- creating procurement documents
- determine the source selection criteria
Centralized VS Decentralized contract environment
Centralized contract environment VS Decentralized contract environment :
in centralized contract environment :
- there is procurement department and project manager get back to them regarding manage procurement
in decentralized contract environment :
- procurement manager is assigned to project full time and reporting to project manager
Fixed Price Contracts FP
Fixed Price FP specification
- sometimes called (Lump sum or Firm Fixed Price ):
- high risk on seller
- the seller is mainly concern of PSOW
- it’s NOT appropriate if seller and buyer don’t have much expertise of work involved in PSOW
- in this type , the seller will increase profit since there is high risk and buyer has to pay
- the seller will try to cut work to lowest level to increase profit since price is fixed
Type of Fixed Price FP :
FPIF fixed price Incentive Fees
- undetermined mount of incentive will be added to fixed price, which set depend on performance ,
- for example contract will be 100,000$ and 1,000$ for each week earlier
FPWF Fixed Price Award Fees:
- same like FPIF , but total amount of incentive is determined in contract ,
- for example I will pay 100,000$ and up to 10,000 as award is service is excellence
FPEPA Fixed Price Economic Price Adjustment
- used when price could be changed in markets as nature of good to be procured
Purchased Order PO .
- direct and signed only by buyer(unilateral rather than bilateral )
- (most common used in small contract)
Time & Material Contract
Time & Material Contract
- like hiring labor for civil work and pay per hour
- used in services effort when PSOW could NOT be defined will
- used for small amount of time to avoid high budget
- seller (labor or contractor ) is NOT concerned of quality or target of work to be done since payment just per hour
- buyer can put phrase “NOT TO EXCEED ” in contract to protect cost
Cost reimbursable Contract
Cost reimbursable Contract
- high risk on buyer
- seller send estimate of cost to buyer to be used for cost management plan , BUT it’s NOT binding
- used in research project and IT project which require to create something unknown
- incentive is used to bring seller in formula and motivate him to focus on enhance performance or save time and save cost
- Incentives are meant to bring the objectives of the seller in line with those of the buyer, so both are progressing toward the same objective (synchronized objective)
Type of Cost reimbursable CR:
CC Cost contract :
- give seller only cost without profit ,
- seller could be Nonprofit organizations
CPF Cost Plus Fees
- most dangerous to buyer since he will pay cost and percentage of fees and seller will get profit as cost much high
- NOT allowed in USA
CPFF Cost Plus fixed Fees :
- fixed percentage of estimated cost (before sign contract ) will be added to project cost an paid to seller as profit ,
- there is NO incentive for seller to enhance project constraints
CPIF Cost Plus Incentive Fees :
- seller will get cost plus incentive fees (variable NOT fixed) depend on how much he can save from cost without effect other constraints ,
- incentive fees calculated based on PTA formula
CPAF Cost Plus Award Fees :
- same like CPIF but seem to be award only while CPIF could be award or penalty ,
- award maximum value is determined before sign contract
PTA formula Point of Total Assumptions :
PTA formula Point of Total Assumptions :
- PTA is used with FPIF which refer where buyer stop bearing cost and the seller bears all cost overrun .
- the seller in a loss position only after costs exceed the ceiling price is.
- PTA =[ (ceiling price – target price )/buyer share ratio ] + target cost
Consideration
please consider the following Points
- letter of intent : negotiation for signing contract could take long time ,
- there for seller could ask for “letter of intent” so he can start to purchase equipment and hire people , But it’s NOT legally binding
- NON competitive procurement : sometimes buyer go direct to award one seller without competition or even without go through full procurement processes ,
- this could be done for one of the following reasons :
- buyer has NO time and extremely under schedule pressure
- seller is the only one qualified to do that work
- seller has patent for that product
- Performance requirements : describe what the product of the project should be accomplished , Performance requirements describe also the performance required by the customer, not the functionality. They do not precisely describe everything that needs to be done.
- the seller has more expertise than the buyer, the procurement statement of work should describe performance or function rather than a complete list of work. In any case, the procurement statement of work should be as detailed as possible. SO procurement statement of work should be detailed depend of project type
Conclusion
this was the concepts of plan procurements
next article we will discuss the inputs and techniques as well as outputs of process plan procurements management
please join us there
