Procurement Management
FOR SOLE SOURCE - THERE IS ONLY ONE SELLER
Risk What if the seller owns a patent and goes out of business? What if the seller takes on too much business and can't complete all of the work on time?
Risk if the seller owns a patent and goes bankrupt, who owns the patent? How will you get what you need from the seller?
Quality you may have to take what you get rather than request a certain quality level.
Cost Multiple-year agreements may be required for the purchase of items to prevent a price increase in the future.
Schedule The seller has little incentive to agree to a schedule.
Customer satisfaction the seller has little incentive to be concerned with the buyer's needs and desires.
Scope You may have to change the work specified in the project to "take what you can get:' rather than "ask for what you want:'
Risk the overall risk may be weighted more toward the buyer unless the previous issues are investigated and resolved.
Make sure you read questions on the exam carefully. They might ask what to watch out for or what needs to be negotiated in noncompetitive procurements. They may simply ask about the procurement process. Do you understand how your efforts during the procurement process are different when there are not multiple companies to go to for the goods or service?
975. Let’s look at this concept together. Some possible answers include:
The seller will have a different company culture and different procedures than the buyer’s organization.
The buyer and seller have different objectives. The seller’s objective is to generate revenue, and the buyer’s objective is to complete the work.
It is not as easy to see” problems on the project because the procurement work is being done in different location,
There is a greater reliance on reports to determine if a problem exists.
There is a greater reliance on relationships between the buyers and sellers PROJECT managers to deal with issues that are not covered in the wording of the contract.
In instances in which there are many changes. It might be best to terminate the contract and start fresh through negotiating a new contract with the existing seller or finding a new seller. This is a drastic step to be done only when the existing contract no longer serves the purposes of defining .all the work, roles, and responsibilities.
Realize that contracts can be terminated, as described later in this chapter.
976. Contract interpretation is based on an analysis of the intent to the parties to the contract and a few guidelines. One such guideline is that the contract supersedes any memos, conversations. Or discussions that may have occurred prior to the contract signing. Therefore, if a requirement out in the contract, it does not have to be met, even if it was agreed upon prior to signing the contract. The following is an exercise on intent.
EXERCISE 20
In each row, circle the item on the left side or the right side that would win in a dispute over contract interpretation.
Contract language Or A memo drafted by one of the parties describing proposed changes after the contract is signed
Contract language Or A memo signed by both parties before the contract is signed that describes what was agreed to during negotiations
Contract terms and conditions
Or Procurement statement of work
Common definition Or The intended meaning (without supplying a definition) Industry use of the term Or Common use of the term
Special provisions Or General provisions Typed-over wording on
the contract
Or A handwritten comment on the contract that is also initialed
Numbers Or Words
Detailed terms Or General terms
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The correct answers (in bold) show more clearly the intent of the parties to the contract.
Contract language Or A memo drafted by one of the parties describing proposed changes after the contract is signed
Contract language Or A memo signed by both parties before the contract is signed that describes what was agreed to during negotiations
Contract terms and conditions
Or Procurement statement of work
The answer for the previous row depends on the Order of Precedence Clause in the contract that describes which terms and conditions take precedence over the others in the event of a conflict between them.
Common definition Or The intended meaning (without supplying a definition) Industry use of the term Or Common use of the term
Special provisions Or General provisions Typed-over wording on the
contract
Or A handwritten comment on the contract that is also initialed
Numbers Or Words
Detailed terms Or General terms
The key outputs of the Control Procurements process are work performance information, change requests (including changes to time and cost estimates, schedule, budget, resource needs, and risk responses), and updates to the project management plan and project documents.
977. One of the things some people find confusing is the difference between the Close Project or Phase process and procurement closure, ibis often seems to come up as a question on the exam. The answer is easy.
Though. If you think of project closure as closing out a project or phase and procurement closure as closing out a procurement.
Depending on what choices the exam gives you, the answer could be
There may be much procurement in one project. So there can be many procurement dousers, hut Close Project or Phase only happens at the end of the project or phase. All procurements must be closed before the final project closure. Therefore, upon completion of the contract for each procurement, the project manager performs a procurement audit and closes out the procurement. When the project as a whole is completed later, the project manager performs the administrative and financial closure and other processes required to close out the project.
To make a little more confusing, there can be questions that ask about the frequency of project closure and procurement closure. Read these questions carefully, as the way the questions are written will help you select the right answer. For projects that are managed by phases, such as a design phase, testing phase, and installation phase, the Close Project or Phase process occurs at the end of each project phase.
Therefore, project closure may be done at the end of each project phase and at the end of the project as a whole. Make sure you understand this for the exam. In contrast, procurement closure is done at the completion of each contract.
Procurement closure requires more record keeping and must be done more formally than is generally required for project closure, to protect the legal interests of both parties.
978. Make sure you remember these points for the exam.
Now let's think about the real world. What do you think needs to be done at the end of the procurement in order to say the procurement is indeed finished? Wouldn't it be substantially similar to what needs to be done when you close out a project in the Close Project or Phase process?
EXERCISE21
Describe what work must be done during procurement closure.
Answers
Now tries this exercise. On the following charts, label the examples of each of the ten listed items by placing the item number next to be location on the chart(S).
As you read the answer, think about how similar the Close Procurements process is to the Close Project or Phase process. Procurement do sure includes all of the following:
Product validation this involves checking to see if all the work was completed correctly and satisfactorily was the product of the procurement the same as what was requested? Did the product of the procurement meet the buyer's needs?
Procurement negotiation the final settlement of all claims, invoices, and other issues may be handled through negotiations or through the dispute resolution process previously set up in the contract.
Financial closure financial closure is making final payments and completing cost records.
Procurement audit this is a review of only the procurement process. Do not think of this as an audit of costs, but as a lessons learned of the procurement processes that can help improve other procurements. Normally this is done by the procurement manager and project manager, but companies that want to improve their processes may also involve the seller. Remember, this is only talking about how the whole procurement process went. Issues that might be discussed include: How can we handle negotiations better? How can we make the bidding process? Easier for sellers? How could procurement documents be improved?
Updates to records this involves making sure all records of the project are complete and are accessible in the records management system. This information could include whatever has been recorded to date on the project. These records will become part of the procurement file (described later in this discussion). Final contract performance reporting Think of this as creating a final report. First you need to analyze and document the success and effectiveness of the procurement and the seller, and then tum that into a final report.
Lessons learned Procurement lessons learned are received from everyone involved in the project, even the seller, and become part of the lessons learned for the project. They often include a discussion of what went right, what went wrong, and what can be done better next time. Lessons learned are created as a result of the procurement audit. These then become part of the organizational process assets. Lessons learned are documented and disseminated throughout the organization. Could you imagine being able to access files from every project manager that has gone before you in your company, describing what they would do differently the next time? How valuable would that be? Thus, lessons learned provide input to help improve how the organization handles procurements in the future.
Procurement file creating the procurement file involves putting all e-mails, letters, conversation records, payment receipts, reports, etc., related to the procurement into an organized file. This file will be stored for use as historical records and will help protect the project in case of arguments or legal action regarding what was done and not done on the contract. The project manager, with the help of the procurement manager, decides what documents need to be kept. The file could include:
• Contract
• changes (approved and rejected)
• Submittals from the seller
• Seller performance reports
• Financial information
• Inspection results
• Lessons learned
Other Procurement do sure could also include the following activities:
• Arranging for storage of procurement records and drawings
• Creating and delivering legal documents, such as release of lien documents and formal acceptance letters
• Returning property used for the procurement to its owner
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979. Here is a trick for understanding the process without memorizing the whole thing-know only the outputs! If a question describes some activity and that activity occurs after the procurement documents are created and before the contract is signed then it must be taking place as part of the Conduct Procurements process. If it is taking place after the contract is signed but before the work is substantially done, it must be occurring during the Control Procurements process.
980. Comparing proposals received from sellers done in the Conduct Procurements.
981. Make payment to seller is done in the Administer Procurements as part of control procurement.
982. For an immediate work, a letter contract may be sufficient 983. Performance Measures are done in contract Administration
984. Product Verification, Procurement Audit and creation of a contract file are done in CONTRACT CLOSURE 985. T&M – has the characteristics of both Fixed and Cost reimbursement
986. Procurement Audit, Negotiated settlements and record management system are tool and Techniques of contract closeout process.
987. Records management system is using a specific set of processes and automation tools to manage contract and procurement documentation.
988. Procurement Audit, is used to identify successes to transfer the success to other procurements 989. Independent estimates are prepared to compare the cost to an estimate created
990. Solicitation is the process of obtaining quotations , bids , offer,
991. Payment bonds are specifically designed to ensure that the prime contractor provides payment of Subcontractors, laborers, and sellers of material
992. Anytime you have any communication having to do with the contract, it’s always formal written communication.
993. Project managers have a fundamental understanding of contract language
994. Several disadvantages of centralized contracting are that the procurement lead may be working on multiple projects so it may be difficult for the PM to obtain help.
995. The five elements of a contract are offer, acceptance, capacity, consideration, and legal purpose.
996. One of the key tools in the Plan Procurements process that analyzes whether to do the work in house versus having a third party provide the product or service is called a make-or-buy analysis.
997. Some advantages of decentralized contracting are that the PM has easier access to procurement expertise and that the procurement manager has more loyalty to the project.
998. The three fundamental procurement statements of work types are; performance, functional, and design.
999. Two forms of non-competitive procurement are called sole source, and single source.
1000. A non-legally binding document in which the buyer states they intend to hire the seller is called a letter of intent.
1001. Another term for a teaming agreement is called a joint venture.
1002. Networking is a type of sharing opportunities response strategy.
1003. The concept of lifecycle costing addresses the total cost of ownership of a product or service.
1004. The key output of the Conduct Procurements process is the procurement contract award and selected sellers.
1005. The prime contractor can use sub-contractors. Since the sub is contracted to the Prime and not to the buyer, the buyer has no contractual control over the sub. This is called privity.
1006. The RFP is best used for a cost reimbursable contract while the IFB or RFB is best used for a fixed price contract.
1007. The key output of the Plan Procurements process is the procurement statement of work .
1008. A bidder’s conference invites all bidders to a Q&A session in which bidders can ask clarifying questions regarding the buyers RFP.
1009. A screening system establishes minimum criteria to eliminate non-qualified vendors.
1010. Fait Accompli, deadline, missing man and limited authority are all examples of contract negotiation tactics.
1011. A weighting system is usually implemented as a grid that lists all the proposal criteria and assigns a numeric weight each of the criteria.
1012. Contract closure always occurs before administrative closure when completing a project or project phase.
1013. Force majeure, assignment, escrow, time is of the essence, retainage and confidentiality are all contract elements generally grouped in a category called terms and conditions.
1014. A key output of the Control Procurements process is change requests.
1015. A contract change control system defines the process by which procurements can be modified.
1016. Technical Capability, management approach and technical approach are some of the elements that are assessed in vendor evaluation criteria.
1017. In practice, the company or person who provides services and/or goods can be called a “contractor,”
“subcontractor,” “designer,” or other titles. The PMBOK ® Guide 5th edition uses only one term, “seller,”
but the exam may use any of these terms to describe the seller. The company or person who purchases the services is called the “buyer.”
1018. Remember that the contract change control procedures are usually documented in the procurement agreements.
1019. Always remember that negotiation is the preferred procurement conflict resolution technique.
1020. In conduct procurement negotiations, the PM not necessarily leading.
1021. Conduct Procurement negotiations include:
Subjects covered may include responsibilities, authority to make changes, applicable terms, and governing law.
For complex procurement items, contract negotiations can be an independent process with inputs and outputs of its own.
Negotiations should clarify the structure, requirements, and other terms of the purchases 1022. Negotiated settlement` is a process of reaching final equitable settlement of all outstanding issues,
claims, and disputes through negotiation.
1023. Procurement Negotiations clarify the structure, requirements, and other terms of the purchase so that mutual agreement can be reached prior to signing the contract. Procurement Negotiations is a tool and technique for the Conduct Procurement process.
1024. Procurements audit is a structured review of the procurement process originating from the Plan Procurement Management process through the Control Procurements.
1025. Early termination of contract is a special case of procurement closure that can result from mutual agreement by both parties, from the default of one party, or for convenience of the buyer if provided for in the contract.
1026. Early termination of contract cannot take place for convenience of the seller or if they cannot deliver as per the contract statement of work.
1027. The buyer can terminate the project in three cases:
Convenience; the buyer must compensate the seller for the done work and work under progress.
Contract breach; the buyer compensate the seller for the done works only.
Default; the buyer compensate the seller for the done works only.
1028. The seller can terminate the project if the buyer breaches the contract or mutually agreed upon.
1029. A contact breach means a contract clause is not met.
1030. Nonpayment is not a reason to terminate a contract.
1031. Time-and-materials contracts resemble cost-reimbursable contracts in that both are open-ended.
1032. Contract documents include: project audits, transition criteria and project performance information.
1033. If the sellers submitted wide range estimates, do your own independent estimate.
1034. The main purpose of control procurement is to ensure both parties meet their contractual obligation.
1035. OPA is updated during procurement control and closure.
1036. Procurement audit is a tool to document the contract administrative lessons learned.
1037. Contract Administration is the Monitoring & Controlling process for Procurement Management.
1038. The intent of the contract can be determined by remembering that words are more binding than numbers
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1039. Independent estimates provide an organization with the ability to obtain an initial estimate of the cost of the work in question. This can serve as a benchmark for proposals submitted by vendors for the same work. Independent estimates can either be created using the organization's internal staff or can be solicited from an expert outside of the organization.
1040. Procurement Selection Criterion: Select seller based solely on quantitative criteria like: assign a numerical weight to each requirement.
1041. You use analytical techniques in conduct procurement to examine the readiness and the previous performance of vendors to identify any risks areas
1042. You are the customer if procuring services from an external vendor unless stated 1043. Procurement Documents will be used to solicit proposals from prospective sellers.
1044. (Vendor bid analysis) will take long and procurement details are not stated in the question, so this is not a valid option.
1045. Weighting system is a method for quantifying qualitative data to minimize the effect of personal bias on seller selection. This is a part of the source selection criteria
1046. Alternative dispute resolution (ADR), which includes mediation and arbitration, is preferable to litigation after negotiations.
1047. Single source seller means – there is only one seller the company wants to do business with 1048. Analytical Tech is used to examine the potential vendors' previous performance.
1047. Single source seller means – there is only one seller the company wants to do business with 1048. Analytical Tech is used to examine the potential vendors' previous performance.