PROJECT
PROCUREMENT
PROCUREMENT
◆ Most projects require some form of external purchasing
(procurement) in order to meet their goals. Executing these
procurements to fulfill the needs of the project falls under
the knowledge area of Project Procurement Management.
◆ Contractors usually have better expertise or experience and
can provide a higher quality product. But often they are not
motivated by the same factors as the project team. Delivering
their portion of the work on time or under budget requires the
active involvement of the project manager.
2
PROCUREMENT
◆ Successful sub-contracting requires knowledge of the types of
contracts available, as well as how to write them. Requests for
Proposals, Invitations to Tender, and the like must be drawn
up, as do the contracts themselves. This is a significant
amount of knowledge, and many firms outsource even those
tasks to law firms, engineers, etc.
◆ There are four processes:
1. Plan Procurement Management
2. Conduct Procurements
3. Control Procurements
4. Close Procurements
3
PROCUREMENT
4
PROJECT PROCUREMENT MANAGEMENT
PROCESS
◆ processes involve agreements, including contracts, which are
legal documents between a buyer and a seller. A contract
represents a mutually binding agreement that obligates the seller
to provide something of value (e.g., specified products, services,
or results) and obligates the buyer to provide monetary or other
valuable compensation. An agreement can be simple or complex,
and may reflect the simplicity or complexity of the deliverables or
required effort.
5
PROCUREMENT CONTRACT
◆ A procurement contract includes terms and conditions, and may
incorporate other items that the buyer specifies as to what the
seller is to perform or provide. It is the project management
team’s responsibility to make certain that all procurements
meet the specific needs of the project while adhering to
organizational procurement policies. Depending upon the
application area, a contract can also be called an agreement, an
understanding, a subcontract, or a purchase order. Most
organizations document policies and procedures specifically
defining the procurement rules and specifying who has authority
to sign and administer such agreements on behalf of the
6
organization.
PLAN PROCUREMENT MANAGEMENT
◆ During the project planning phase the procurement needs of the project are
identified. For each external vendor requirement, a Statement of Work is
composed which is known by many names (Terms of Reference, Scope
Statement, etc.) but serves as a written statement of what work the
contractor will do. Procurement documents normally consist of a Request for
Proposal, Invitation to Tender, or the like, with the Statement of Work
included as an attachment. Thus it is the guiding document to the project
team and the more specific it is, the better the boundaries of each
organization’s work is defined. Additionally, the procedures used to solicit
proposals and/or bids as well as the decision making criteria are determined
at this stage. Potential sellers are identified and preferred vendors might be
contacted. All of this information is compiled into a Procurement
Management Plan, a subset of the overall Project Management Plan.
7
CONDUCT PROCUREMENTS
◆ Once the procurement needs of the project are identified and procurement
procedures are determined, the procurements are executed. Requests for
Proposal (RFP’s) or Invitations to Tender are sent out, and responses are
analyzed. Selection criteria should be determined in advance. Agreements are
signed and the project management plan is updated with the new
cost/budget and schedule information obtained from the vendor.
8
CONTROL PROCUREMENTS
◆ Poor subcontractor management can cause budgets and schedules to
spiral out of control and derail projects when everything else has been
executed flawlessly. During regular project status intervals, the project
manager must review subcontractor agreements, progress updates, and
work performance information as necessary to ensure that subcontractors
are on pace to meet their budget and schedule commitments. It is not
enough to assume that subcontractors are “good at what they do” and will
meet their contractual obligations. When subcontractors mismanage their
work, everyone loses, including the contracting organization. Thus, project
managers should be aware of the status of subcontractor work and make the
appropriate change requests and project management plan updates as early
as possible.
9
CLOSE PROCUREMENTS
◆ Close Procurements is the process of completing each procurement. The key
benefit of this process is that it documents agreements and related
documentation for future reference.
◆ The Close Procurements process also involves administrative activities such as
finalizing open claims, updating records to reflect final results, and archiving
such information for future use. Close Procurements addresses each contract
applicable to the project or a project phase. In multiphase projects, the term of a
contract may only be applicable to a given phase of the project. In these cases,
the Close Procurements process closes the procurement(s) applicable to that
phase of the project. Unresolved claims may be subject to litigation after
closure. The contract terms and conditions can prescribe specific procedures for
agreement closure. The Close Procurements process supports the Close Project
or Phase process by ensuring contractual agreements are completed or
terminated.
10
PUBLIC VS PRIVATE SECTOR
◆ PUBLIC SECTOR PROCUREMENT
Public sector procurement is the process of acquiring goods
and services for the operation of government and to provide
public services. It is carried out within a specific legal
framework based on certain principles aimed at making the
fulfillment of public procurement requirements
competitively available to qualified firms and individuals in
a transparent and nondiscriminatory manner based on pre-
established selection criteria. The goal of public procurement
is to provide everything necessary for the operation of
government and, specifically, public services to the
11
population within a country.
PUBLIC VS PRIVATE SECTOR
◆ PRIVATE SECTOR PROCUREMENT
Private sector procurement, on the other hand, is the process
of acquiring goods and services to satisfy the needs of a
particular private entity (usually a business, for profit or not).
These are goods and services needed for (i) the operation of
the business or (ii) the business to use in the process of
production of goods and/or services they provide to their
customers. Respecting the former, a primary example are
goods such as stationary, furniture, office equipment, etc.
needed for a business to operate, and respecting the latter,
are all the goods and services needed to satisfy customer
12
demands.
PUBLIC VS PRIVATE SECTOR
TRANSPARENCY
◆ Public sector organizations are run by a higher government
entity. Everything that they do must be easily visible to the
public eye. There must be a distinct audit trail, with all
information clear and accessible.
◆ Information such as a contract opportunity, contract award,
pricing, and timing are all included in reports made at
regular intervals. There must be an equal opportunity
provided by the government to each entity wishing to do
business with them that meets the requirements. Bid
openings are, therefore, public events.
13
PUBLIC VS PRIVATE SECTOR
TRANSPARENCY
◆ Private sector transparency is not as clear cut. While private
entities do have complete visibility requirements placed
upon them, private entities do not need to provide equal
opportunities, and will often withhold information that is
not necessary to the bidding suppliers. They do not reach
out to every company, and they do not need to publish their
contract awards in the same way that public entities do.
14
PUBLIC VS PRIVATE SECTOR
BUDGET
◆ Considering public procurement is typically driven by government
entities, there is limitations to the flexibility in their spend and
methods of funding. It is more typical for public sector’s limitations
to arise in the sense of earmarked money. Meaning, public
procurement budgets are more likely to be delegated preemptively
and tougher to alter their course of distribution.
◆ As for the private sector, there is much more room for flexibility
and agility within budgeting. “Private organisations can easily
transfer money from one department to another if business
conditions change”
15
PUBLIC VS PRIVATE SECTOR
BUDGET
◆ Considering public procurement is typically driven by government
entities, there is limitations to the flexibility in their spend and
methods of funding. It is more typical for public sector’s limitations
to arise in the sense of earmarked money. Meaning, public
procurement budgets are more likely to be delegated preemptively
and tougher to alter their course of distribution.
◆ As for the private sector, there is much more room for flexibility and
agility within budgeting. “Private organisations can easily transfer
money from one department to another if business conditions
change”
16
PUBLIC VS PRIVATE SECTOR
GETTING VALUE
◆ Private and public organizations share a similar objective in
getting value for money in all procurement activities. They
focus on purchasing goods and services at the right prices
and often engage in cost-reduction negotiations with
suppliers. Secondly, organizations in the public and private
sectors serve the public -- but differently. Public entities
serve the public through provision of free or low-cost
services, while private organizations do so by selling
products and services at higher rates based on competition,
which can lead to superior service.
17
PUBLIC VS PRIVATE SECTOR
REGULATIONS OF PUBLIC SECTOR:
18
19
20
21
22
Assignment:
1. What is Make-or-Buy Analysis, Expert Judgement, Market Research
2. Create a sample of Risk Register for Procurement Process
