3176 Registered Users
Skip Navigation LinksHome > ITTO Section > Project Procurement Management > Plan Procurement Management

Introduction


- This process deals with documenting the procurement decisions made in the project. This not only deals with what must be procured but when, how and what is the criteria for the seller.
- This process also deals with any buy v/s build decision analysis and also market research involved in deciding what to procure and from where and whom to procure.
- This process documents the procurement SoW or the scope of the procurement inclusive of the product scope. It documents the source selection criteria as to what are the basic needs the seller must meet.
- This process is performed along with development of the schedule because that is when the buy v/s build is made.
- Also, the stakeholder opinions are taken into account. The risks play a vital role in this process if the team does not have the capability to handle the risks.
- The contract type, like fixed or cost reimbursable or time and material, is decided early on, mostly while developing activity cost estimates or while building the schedule.

Inputs


- Project Management Plan: As with all planning processes, holds all baselines and subsidiary plans to decide on procurement process.
- Requirements Documentation: Sometimes based on the requirements, it is possible on the need to follow procurement process.
- Risk Register: List of qualified risks needing to be analyzed if any of the risks can be transferred.
- Stakeholder Register: The list of stakeholders and their requirements help decide on the product features and also the required capabilities to decide on the procurement process.
- Project Schedule: Since procurement decision is made during schedule development, this is a vital input.
- Activity Duration Estimates: Since most of the schedule processes are overlapping, and duration estimation is one of the processes, procurement decision can be reached early on.
- Activity Resource Requirements: No. of resource and type required can help decide on procurement.
- EEF: Market standards, demands, industry standards.
- OPA: Along with lessons learnt in prior procurements, the types of procurements commonly used in the organization are useful in decision making. The types of contracts are -
> Fixed-price Contracts
> Cost-reimbursable Contracts
> Time and Material Contracts
- Fixed-price Contracts are advantageous to the buyer because there is a fixed-price attached to it and it mostly is decided when the contract is signed. Here are different types of Fixed-price Contracts –
- Firm Fixed Price Contracts: Most common type of FP Contract. Change in scope can result in change in price for the buyer. Disadvantageous to the seller if correct price is not negotiated right in the beginning because change in material costs cannot effect a change in fixed price of the contract.
- Fixed Price Incentive Fee Contracts: These have an incentive attached apart from the contract fixed price. The idea of this type of contract is to get better performance from the seller so, a ceiling price is set and any costs above the ceiling price are the responsibility of the seller to meet. Also, technical, cost or schedule performance targets are established in the beginning and the seller gets an agreed incentive on reaching the same.
- Fixed Price with Economic Price Adjustment Contracts: These are FP Contracts spanning multiple years so, the final price is adjusted for inflation though the contract is as such fixed price. The inflation rate is decided based on reliable financial index.
- While Fixed Price Contracts have a price decided right in the beginning, in case of cost-reimbursable contracts, the price cannot be decided in the beginning. There are three types of Cost-reimbursable contracts –
> Cost Plus Fixed Fee Contracts
> Cost Plus Incentive Fee Contracts
> Cost Plus Award Fee Contracts
- Cost Plus Fixed Fee Contracts: In this type of contract, the seller is reimbursed of all his expenses for material and resources and also provided a fixed fee (a percentage of the initially estimated cost) at the completion of the contract. There is no performance incentive except the first agreed fixed fee.
- Cost Plus Incentive Fee Contracts: In this type of contract, not only the cost of materials is reimbursed but also an incentive fee is provided and this incentive fee will be decided based on the final cost of the contract. If the final cost, goes above or below the planned cost, the amount is shared based on a percentage decided in the beginning.
- Cost Plus Award Fee Contracts: In this type of contract, apart from the cost incurred for the contract, the seller is provided an award fee based on his performance and this fee is determined by the buyer at the end of the contract and this fee is not subjective to any further appeal.
- Time and Material Contracts: This is similar to cost-reimbursable contracts but then the seller is paid for not only the material but also his time, which might be in the form of per hour or per day rates. E.g., staff augmentation

Tools & Techniques


- Make-or-Buy Analysis: Procurement decisions are made based on the trade-off between build v/s buy, organizational capability or existing project work etc. Not only technical capability but also the cost and time involved in build is considered in this technique.
- Market Research: Research about existing trends in technology, vendors
- Expert Judgment
- Meetings

Outputs


- Procurement Management Plan: This covers the processes for procurement as well as formats for procurement documentation, type of contract, risk management aspects, link with scheduling process, guidelines to the vendor or performance measurement aspects among others.
- Procurement Statement of Work: Boundaries of procurement, characteristics of the product.
- Procurement Documents: Used to solicit proposals from prospective sellers. Request for Bid, tender or quote are used when cost is primary while request for proposal is used when technical performance is gauged while soliciting proposals. Can include the format of response, SoW or contractual details.
- Source Selection Criteria: On what basis the sellers will be selected. E.g., Price quoted mostly. Other details might relate to references provided, prior experience, technical capability among others.
- Make-or-Buy Decisions: Procurement can be done from a different business unit within the organization if the decision is to make the product while buy can result in external procurement.
- Change Requests: If project schedule and other related constraints get affected, this can result in change requests.
- Project Document Updates

Match the Following


1. Cost Plus Incentive Fee Contracts - a. Technical Proposal
2. RFP – b. per-hour rate
3. Time and Material – c. Inflation Rate Adjustment
4. Fixed Price with Economic Price Adjustment Contracts – d. Cost-sharing

Match the Following (Answers)


1. Cost Plus Incentive Fee Contracts - d. Cost-sharing
2. RFP – a. Technical Proposal
3. Time and Material – b. per-hour rate
4. Fixed Price with Economic Price Adjustment Contracts – c. Inflation Rate Adjustment