1. 9. Project Procurement Management
What is Procurement?
Project Procurement Management (PPM) includes the processes necessary to purchase
or acquire products, services, or results needed from outside the project teams. It also
includes the contract management and change control processes required to develop
and administer contracts or purchase orders issued by authorized project team
members.
Procurement of Items
-
Procurement means the activities related to purchase, subcontracted items
-
Procurement items are usually classified as goods, work or services (GWS)
- Goods represent raw material or produced items
- Work means contracted labor
- Service means consultation
Planning, budgeting, scheduling and follow-up control of all fall under
procurement management
Logistics plan includes everything related to the transport and storage of
materials for the projects. GWS items cannot be scheduled to arrive just-in-time
(JIT). Provision must be made to store and protect them until they are needed.
-
Procurement Management
Procurement management refers to planning and control of the followings;
- Equipment , material or components designed and provided by vendors specifically
for the project
- It may be portion of a work package or entire work package
- It may be off-the-shelf (OTS) equipment and components
- Bulk material, like cement, metal piping etc.
- Consumables items; nails, bolts, lubricants
- Support equipment for construction, cranes, lifts etc
- Administrative equipment, computers, project office facilities
The following table shows 4 processes of this knowledge area and groups they belong to
5 Process
Groups
Processes
Initiation
Planning
Execution
Monitoring
Control
&
9.1
Plan
Procurement
9.2
Conduct
Procurement
9.3 Administer
Procurement
By: Mohamed Salah ElDien Mohamed Aly, MSc, PMP®, DIT, MCAD
Closing
9.4
Close
Procurement

2. The Procurement Process
In Procurement three objects are very important;
Seller:
It is the person or contracting company who sells products or services for the project.
PMI in this particular chapter treats seller as any 3rd party who provides products or
services from outside of the organizations.
Buyer:
It is you, the project manager who purchases the services from Seller. The exam’s
perspective is testing you, the project manager, so in this case you will become buyer,
so all exam questions are on buyer perspective only.
Contract:
- It is a legal document between a buyer and a seller. It provides a mutual binding
agreement that obligates the seller to provide the specified product, service or
result and obligates the buyer to provide financial or other valuable consideration.
The agreement can be simple or complex.
By: Mohamed Salah ElDien Mohamed Aly, MSc, PMP®, DIT, MCAD

3. -
A procurement contract will include terms and condition also. A contract can be an
agreement, an understanding, a subcontract or a purchase order.
You can add any required clauses to the contract but following are important. To
remember those use “CCOLA”;
 Capacity: The authorities those will be provided to Seller to do the work.

Consideration: Clauses those will be considered by the Buyer.

Offer: Is provided to make a contract or deal.

Legal Purpose: Jurisdiction and legal bondage.

Acceptance: The time limit that the buyer has to make an agreement.
9.1 Plan Procurement
-
The process of documenting project purchasing decisions, specifying the approach
and identifying potential sellers.
Inputs
-
Scope Baseline
Requirements documentation
Risk Register
Risk-related Contract Decisions
Activity Resource Requirements
Activity Cost Estimates
Project Schedule
Teaming Agreements
Cost Performance Baseline
Enterprise Environmental
Factors
Organizational Process Assets
Tools
-
Make-or-buy
analysis.
Expert judgment.
Contracts Types
Outputs
-
estimates, suppliers)
-
Procurement statement of
work (specifications, quantity
desired, quality levels etc)
-
Make-or-buy decision
Procurement documents (RFI,
IFB, RFP, RFQ), tender notice,
invitation for negotiation)
-
Source selection criteria (If
there are number of sellers + Other
management factors)
-
-
Procurement management
plan (Types of contracts, RM issues,
Change request
Various contract types are tools for “Plan Purchasing and acquisition" process.
Which means when you are buying some services or Products for your Project you
can use these techniques to negotiate better options for your project.
By: Mohamed Salah ElDien Mohamed Aly, MSc, PMP®, DIT, MCAD

4. PMI categorizes contracts into 3 types.
1. Fixed prices contracts:
In this type, the Buyer pays EXACT amount for a defined product or service to be
provided. Incentives and Awards bring little bit variations to Fixed price contracts.
Seller bears the risk in fixed price contracts.



FFP “Firm Fixed Price”: This is the preferred contract type by most buying
organizations. It can only be changed if the scope changes or there is a change in
specifications. Any cost increase due to adverse performance is the responsibility
of the seller.
FPI “Fixed Price + Incentive Fee”: In this type of contract an addition incentive
will be given to the seller when he beats the project expectations. Either it can
be time, quality or features. So Seller will be motivated to deliver better product
in shorter time. Under such contract, a Price ceiling is set and all costs above the
price ceiling are the responsibility of the seller, who is obligated to complete the
work.
FPEPA “Fixed Price + Economic Price Adjustment”: These types of contracts are
used if the contract is spanned for a considerable period of time. It caters for
inflation, cost increase / decrease of specific commodities. It is attached with
some reliable financial index. Buyer bears the extra burden of Economic
fluctuation which is a risk.
2. Cost reimbursable contracts:
Buyer will reimburse all costs spent by the seller for the project. This is open
ended contract used especially when the scope of work cannot be preciously defined
at the start and needs to be altered. So Buyer bears the risk. Awards, incentives bring
variances in this category.



CPFF “Cost plus fixed fee”: Buyer reimburses all expenses to the seller and adds
a fixed fee as a seller’s profit. The seller is reimbursed for all allowable costs for
performing the contract work and receives a fixed fee payment calculated as a
percentage of the initial estimated project cost. Fee is paid only for completed
work and doesn’t change due to seller performance.
CPIF “Cost plus Incentive fee”: In this type the buyer reimburses all expenses to
the seller and adds a predetermined incentive fee upon achieving certain
performance objectives. The final costs are less or greater than the original
estimated costs.
CPAF “Cost plus Award fee”: This type of contract is very similar to CPIF, but the
majority of the fee is only earned based on the satisfaction of certain broad
subjective performance criteria defined previously in the contract.
3. Time and Material contracts:
These are cusp between FP and CR and have features of both. Work will quoted as
per unit price or charges for per hour service and costs for materials will be reimbursed.
Sellers and Buyers share the risk.
By: Mohamed Salah ElDien Mohamed Aly, MSc, PMP®, DIT, MCAD

5. The following table shows major difference between above three types of contracts;
Work
Risk
Term
FP
Known
Seller
Short
T&M
Unknown
Both
Short
CR
Unknown
Buyer
Long
9.2 Conduct Procurement
- The process of obtaining seller responses, selecting a seller and awarding a
contract.
Inputs
Tools
-
Project Management Plan
Procurement document
Source Selection Criteria
-
(Who qualifies to be a supplier)
-
-
Qualified Seller List
Seller Proposals
Project Document (Risk
register & risk related contract
decisions)
-
Bidder conference
Proposal evaluation
techniques
Independent estimates
Expert judgment
Advertising
Internet search
Procurement negotiations.
Outputs
-
Selected sellers
Procurement contract
award
Resource calendars
Change request
Project management plan
updates
-
Project document updates
Make-or-buy decision
Teaming agreement
OPA
Procurement Documents:
- These documents are useful for the Buyer (You the Project Manager) to communicate the
need in most possible efficient way to all prospective sellers. If Sellers can understand your
needs, your process and clauses, they can clearly quote and meet your expectations.
Advertising:
-
Advertising is very much required to attract more bidders for your project. You
should advertise extensively to gather more responses. Few of known formats are internet, local papers, different print media like magazines, Conferences, vendor
shows and so on. But all of those might not be necessary together. As
advertisement is cumbersome and expensive normally companies establish
preferred vendors list over the time.
By: Mohamed Salah ElDien Mohamed Aly, MSc, PMP®, DIT, MCAD

6. Bidders Conference:
-
-
Once you advertise and collected many responses from various bidders you should
organize a conference to bring all bidders to same understanding page. You should
clarify all technical questions. Each bidder will be beneficiary of other questions and
can understand your requirements much better.
You should document all questions and answers and send those to all bidders.
You should prepare your own Qualified Sellers list which is one of the outputs of
this process.
Buyer prepares few documents for bidders like;
RFP (Request for Proposal)
- In this document you can ask for detailed plan for project execution and
price. If it is a long term project and the scope is not developed completely
you can use these types of documents.
IFB (Invitation for Bid) or RFB (Request for Bid):
- You have developed the scope and you know the work and willing to get it
done by vendor then you will use this type of documents.
RFQ (Request for Quotation): This is Price per item or hour labor.
These documents can be used with different contract types as follows;
FP
IFB / RFB
T&M
RFQ
CR
RFP
-
For Unit price contracts you will ask a quotation at unit level. And you would ask
bidders for a proposal where scope is not yet prepared or unknown.
-
As we discussed all of 4 processes of this knowledge area occur sequentially. It
follows traditional waterfall model. By the time of this process you, the Project
Manager, might have completed Procurement & contract planning and might have
requested and collected Seller Responses (Quotations/Bids/Proposals).
Tip: Bids are for– FP; Quotations are for – T&M; Proposals are for – CR;
By: Mohamed Salah ElDien Mohamed Aly, MSc, PMP®, DIT, MCAD

7. In the procurement documents you can include;
- Your company information.
- Project information.
- Criteria which are important for the project and on which you will evaluate.
- Terms and conditions for the project, legal implications.
- Contract terms.
Other documents you will need to develop are:
NDA (Non-Disclosure agreement): To perform the Project work buyer has to disclose
some confidential information to the sellers or even prospective sellers.
Letter of Intent: This document intention is to communicate that the buyer, you are
intended to purchase services or products from the seller. But this document is not
legally binding document, means you can even decline to purchase in future date based
on your changing criteria.
Note: if you hired a contractor “A”, and the contractor hires another sub-contractor “B”
to deliver part of your work. Even though “B” is performing your work, he/she is
contractually not bound to you, because B contractually bound to “A” only.
The major goal/purpose of “Conduct Procurement” process is Selecting Sellers for your
project and making a contract with them. PMI provided several Tools and Techniques to
fulfill this requirement;
-
-
Weighing System: Ranking all filtered prospective sellers.
Independent Estimate: Few companies call this estimation group as Shadow IT.
Rough estimate within your company.
Screening System: Weed out Sellers who doesn’t even meet bare minimum
criteria
Seller Rating System: Is an aid to Weighing System. You will provide your own
rating system based on your project environment. Seller’s financial stability might
be important aspect for a long term Project but that might not be true for a
smaller project which will finish in 6 months. So each project has to establish its
own rating system.
Proposal Evaluation techniques: This is also another aid for weighing system.
Expert Judgment: You will inherit this quality based on your experience and
exposure.
By: Mohamed Salah ElDien Mohamed Aly, MSc, PMP®, DIT, MCAD

8. Example of Weighing System:
1. Step1 you will define what all criteria are important for your project.
2. Then you will quantify those criteria by giving a weight, based on a scale – from
1to5 or from 1to10- and then, These weights go in respective columns.
3. By using different evaluation techniques and rating system, you will provide a
rate to each seller and enter those in to appropriate cells.
4. By multiplying weight and rate you will determine a score for each seller.
5. By adding all scores for a particular seller you will get the total score for that
seller.
-
Finally you will prepare a list of Selected Sellers and Ranks next to them. You
have to keep this list as one of your company process asset to use it for next
time. But rankings on this list will not stay the same over years. You need to reevaluate all your sellers based on situation and time. The best Seller will not
remain the best all the time. They might change their policies or another best
seller might emerge. But having a company asset is easy to start.
By: Mohamed Salah ElDien Mohamed Aly, MSc, PMP®, DIT, MCAD

9. 9.3 Administer Procurement
- The process of managing procurement relationships, managing contract
performance and making changes and corrections as needed.
Inputs
-
Procurement document
Project management plan
Contracts
Performance Reports
Approved change requests
Work performance
information
Tools
Contract change control
system
Procurement performance
review
Inspection and audits
Performance reporting
Payment systems
Claim administration
Record management
system (manage contract &
-
Outputs
-
Procurement
documentation
Change requests
Project management plan
updates
-
Organizational process
assets updates
Procurement documents)
Contract Administration is an important process of Procurement management and as a
Project Manager you have greater responsibilities to manage activities under this
process. You need to monitor the progress of your investment and see if you are getting
what you are paying for or not.
Change requests are important expected outcome of this process. Tools like Change
control system helps to monitor this process. All Changes need to be monitored all
across either for schedule, or for scope or for costs or contracts. Those needed to be
evaluated to know how they are affecting other aspects of the project. They should be
well documented and should be approved by key stakeholders.
9.4 Close Procurement
- The process of completing each project’s procurement.
Inputs
-
Project management Plan
Procurement
documentation
Tools
-
Procurement audits
Negotiated settlements
Record management
systems
Outputs
-
Closed procurements
Organizational process
updates
By: Mohamed Salah ElDien Mohamed Aly, MSc, PMP®, DIT, MCAD