Project Procurement Management

Unit 1

PLAN PROCUREMENT MANAGEMENT

Structure:

1.1 Introduction

1.2 Building the Project Procurement Foundation

1.3 Considering Procurement Practices for Projects

1.4 Tailoring the Procurement Processes

1.5 Planning for Purchases

1.6 Evaluating the Market Conditions

1.7 Planning for the Project Requirements

1.8 Reviewing the Procurement Management Plan

1.9 Creating the Procurement Documents

1.10 Project Procurement Management processes (As per PMBOK)

1.11 Trends and emerging practices in Procurement Management

1.12 Plan Procurement (Inputs / Tools and Techniques and Output)

1.1 INTRODUCTION:
Projects routinely require procurements. They need materials, equipment, consultants,
training, and many other goods and services. Project procurement management is the process
of purchasing the products necessary for meeting the needs of the project scope. It involves
planning, sourcing and acquiring the products or services administering the contract, and
closing out the contract. Procurement management, can include the practices from the point
of view of the buyer or the seller (for example, contractor, subcontractor, vendor, or
supplier). In some instances, you’ll have to answer the question from the perspective of the
buyer, and in others you’ll look at the scenario from the seller’s point of view.
Effective procurement is critical for effective project management. Depending upon the
specific type of project being managed, over 50 percent of the total project cost can be
attributed to parts, supplies, and services procured, and for many high-technology projects,
this procurement fraction can approach 90 percent. Further, because of long lead times,
procured items nearly always define the critical path through the project schedule network.
And dependence upon markets for procured items can create project management difficulties
n terms of agency (e.g., information asymmetries, incentives) and coordination (e.g.,
redundant project management organizations, interorganizational communications). In short,
if a project manager is not managing procurement, then he or she is only managing 50
percent or less of the project as a whole.

Despite this critical role, however, the term ‘‘procurement’’ remains broadly defined and is
used to describe a variety of entities (e.g., functions, organizations, systems, processes). The
term is also evolving through time, as the activities associated with procurement have become
increasingly important to enterprise success. For instance, procurement was once descriptive
of the simple clerical activities associated with purchasing well-specified items, but it has
evolved in some organizations to describe instead strategic partnering efforts made by senior
executives.

In the former case, all that is required is buying an item that has already been specified, from
a vendor that has already been selected, for a purpose that has already been determined (e.g.,
a part to be installed on an assembly line). But procurement also involves the activities
associated with deciding whether an item will be made in-house or purchased from outside
vendors (i.e., the make/buy analysis), and deciding from which vendor—or collection of
vendors—to purchase an item is commonly included within the responsibilities assigned to
procurement organizations. Procurement further represents a central activity in terms of
supply chain management, which seeks to integrate the processes and activities of vendors,
suppliers, producers, and customers, and procurement executives are routinely relied upon to
shape enterprise strategy based on opportunities to form partnerships, alliances, and joint
ventures with ‘‘vendors.’’
As implied, the project management professional has a number of different lenses through
which to view procurement. For instance, procurement has long been referred to in functional
terms, which depict a division of labor (e.g., buying items vs. making them), specific job
tasks (e.g., market research, obtaining vendor quotations), and worker skills (e.g., contract
interpretation, negotiation). As another instance, procurement is also referred to in
organizational terms, which depict a specific department or other organizational entity in the
enterprise, complete with its own managerial hierarchy, worker roles, and organizational
responsibilities.

Procurement is further referred to in terms of a system, which involves examination of its

inputs (e.g., requirements, information), outputs (e.g., purchase orders, received vendor
items), transfer function (e.g., vendor selection, vendor management), and environment (e.g.,
corporation, industry). But I find it particularly useful to describe procurement in terms of a
process—actually, a set of processes interlinking vendors, producers, and customers along the
supply chain—with its attendant work activities (e.g., requirements determination, source
selection), actors (e.g., market researchers, buyers), organizations (e.g., purchasing, contract
management), and technologies (e.g., electronic catalogues, communication networks).
Although every lens offers a unique perspective, the process view is inherently cross-
functional, interorganizational, and systemic, and it enables one to focus on those aspects that
are most important in terms of project management, even supporting analytical efforts that
can effect dramatic performance improvement.

Your organization may have a specific method established for procuring goods or services
from a vendor. For example, you may need to create a purchase order, a memoranda of
agreements (MOA), or a service level agreement (SLA) through the project organization
channels. For all of these instances, when you organization is buying anything from a vendor,
the buyer needs a contract, which becomes a key input to many of the processes that occur
within the project. The contract, more than anything else, specifies the rules and agreements
for the project.
Here’s a neat twist: When the seller is completing their obligations to supply a product, PMI
treats those obligations as a project itself. In other words, if ABC Electricians were wiring a
building for your company, ABC Electricians would be the performing organization
completing its own project. Your company becomes the customer of their project—and your
company is, of course, a stakeholder in their project. When the vendor is completing work for
a portion of your project, the contract-closing activities don’t wait until the end of the
project—they happen as needed.
In the scenarios described in this unit, the seller will be outside of the performing
organization. The buyer will be managing a project and procuring resources from a vendor.
However, all of the details in this chapter can be applied to internal work orders, internal
service level agreements, formal agreements, and contracts between organizational units
within a single entity.
You’ll need to be familiar with three processes dealing with project procurement
management. First, like all of the project management knowledge areas, is the associated
planning. Once the procurement management plan has been created, you’ll actually do the
procurement. You’ll control the procurement process to ensure that all parties are meeting the
terms of the agreement.

1.2 Building the Project Procurement Foundation

Procurement is a special project management knowledge area for many reasons, but a key
principle is that procurement may not be actually managed by the project manager, but by a
procurement office or centralized contracting. Procurement is also unique from the other
knowledge areas because your organization, through your project, is entering into a legal
agreement with another entity. The contract, which is key to procurement decisions, holds
both parties accountable for what’s being delivered by the seller and what’s being paid for by
the buyer.
Contracts define the obligations of both parties: the buyer and the seller. Contracts should be
written to define clearly what everyone in the relationship is required to do: services and/or
materials provided and in consideration of the payment. Contracts can stipulate timelines,
payment conditions, how disputes and claims are managed, the court that will be utilized
should the relationship go sour, and many other considerations.
Contracts must be signed by someone who has the authority to represent the organization in
the contract—this may be called the delegation of authority. In your organization, this person
may or may not be you, the project manager. More likely, a contracting officer or an attorney
for your organization will write the contract and someone higher in the organization will sign
the contract.

1.3 Considering Procurement Practices for Projects

One of the predominant changes over the past few years for project procurement management
has been the availability of online tools for managing the procurement process. Some
organizations, such as universities or government agencies, are required to advertise projects
that are open for bids. This can be much work for the organization to write and post the ad in
newspapers, online, and in magazines. Now software can streamline the process,
communicate with bidders, and provide a holistic view of the entire process. Organizations
are also adapting the construction industry’s building information model (BIM) to help cut
claims in construction projects, save time, and improve performance on costs and schedule.
Contracts can also address risks, so that organizations that specialize in managing certain
types of risks manage the risk for the client. The contract can specify the risk and set the risk
management process entirely upon the seller or management. Contracts can also be used for
positive risk agreements, as in sharing, by creating teaming agreements and joint partnerships
for specific projects.
Multibillion-dollar projects, sometimes called megaprojects, can span countries and introduce
threats and opportunities for buyers and sellers. Contracts can be written to address the span
of the project, currency exchange rates, and pricing for bulk purchasing. If the project does
span multiple countries, however, the complexity of the contracting increases; considerations
are given for international legalities, management of work in different countries, regulations,
and even holidays, language, and culture.
Large construction projects also address logistics and supply chain management through
contracting. Procurement lead times, lead time to produce the materials needed, and then
delivery of materials to job sites can become complex and will likely require expert judgment
to help guide the process, planning, and execution of the contracted work.

Logistics can include one- or two-year lead times for materials; the procurement processes
could start even before the entire design of the product is complete based entirely on the early
requirements in the project. Delays in delivery of the material can cost a project millions, so
there are often backup vendors and suppliers to alleviate the risk of missed opportunities. In
addition, some countries’ regulations require that the organization purchase materials from
suppliers in the country where the project work is occurring rather than importing goods from
suppliers outside the country.
A popular trend in public projects is transparency—regarding not only the projected cost of
the project, but also the actual cost of the project work. Right now, you can search the web to
view live webcams of construction projects, to access job reports, and to view web sites
dedicated to information about public projects. Webcams can serve not only as good public
relations by the seller for communities and taxpayers, but they can also alleviate claims,
because there’s video evidence of what has actually happened on the job site.
Organizations are also contracting with sellers on a trial basis, rather than committing to a
long contract on their first engagement. During the trial period, each party can learn how the
other works. Sellers would contribute to a portion of the project and, based on their
performance, could then go on to be awarded additional project work if their work is
acceptable to the buyer.
Agile projects have considerations for procurement, too. Often in agile projects, the project
team consists of both internal developers and contract-based developers. All members of the
project team, regardless of whether they are in-house or from the outside, should be treated as
part of the team and not succumb to an “us-against-them” mentality. Agile projects might
also be treated as a part of a master service agreement, where the agile project is an
addendum or supplement to the contract—this allows the change-driven approach to agile
while still abiding by the terms of the contract.
1.4 Tailoring the Procurement Processes
Of course, you can tailor the three procurement processes, because every organization is
different, and every project is different. You tailor the process to fit your organization, not the
other way around. There are four considerations for tailoring procurement:

■ Complexity: As the number of suppliers involved in a project increase, so, too, will
the complexity. Consider a general contractor in a house construction project: this
involves scheduling with the foundation company, framers, plumbers, electricians,
finishers, roofers, and more.
■ Physical location: here the project work takes place can affect the procurement
process, as can the locale of the supplier(s). Currency exchange rates, language barriers,
time zones, and other considerations come into play with this facet of the contract and
project.
■ Regulations: There may local, national, and international regulations and laws that
affect the procurement process and auditing process. Consider government-based
contracts, for example.

■ Contractor schedule: The availability of the contractors may, or may not, mesh with
your plans, and that needs to be addressed. A delay within your organization can also
affect the vendor, who may have scheduled the work or delivery according to your plan
for your current project and with consideration for their other customers.

1.5 Planning for Purchases

Procurement planning is the process of identifying which part of the project should be
procured from resources outside of the organization. Generally, procurement decisions are
made early on in the planning processes. Procurement planning centers on four elements:

■ Whether procurement is needed

■ What to procure

■ How much to procure

■ When to procure

When the project manager begins the procurement process, she’ll rely on more enterprise
environmental factors and organizational process assets than she needs for any other process.
For example, the project manager has to consider the marketplace conditions, the availability
of the needed items or services in the marketplace, and how the procurement process works
within the performing organization. If the project manager’s organization has forms, policies,
and management guidelines that direct the procurement process, she must follow those
established processes.
Please note that Sellers are also known as contractors, subcontractors, vendors, suppliers,
and service providers. Buyers are also known as clients, customers, prime contractors,
contractors, acquiring organizations, government agencies, service requestors, or
purchasers. When faced with procurement questions, you’ll need to identify who is buying
and who is selling, and then address the situtions.

Often, an organization will have resources for managing the procurement process, including
contracting and negotiating on behalf of the project. If, however, the performing organization
has no such resources for the project manager to rely upon, it is up to the project manager to
supply the procurement management resources, including capabilities for negotiating and for
obtaining, in a fiscally responsible way, the right products or services for a fair price on
behalf of the performing organization.

There are six inputs to procurement planning:

■ Project charter
■ Business documents (business case and benefits management plan)

■ Project management plan (scope management plan, quality management plan,

resource management plan, and the scope document)
■ Project documents (milestone list, project team assignments, requirements
documentation, requirements traceability matrix, resource requirements, risk
register, and stakeholder register)
■ Enterprise environmental factors

■ Organizational process assets

1.6 Evaluating the Market Conditions

Part of procurement management involves determining what sources are available to provide
the required products or services for the project. An evaluation of the marketplace is needed
to determine what products and services are available and from whom and on what terms and
conditions they are available.
Although in most free-market enterprise societies, multiple vendors offer comparable
products, there may be times when your choices of vendors are limited. The following are
three specific terms to know that you may encounter:

■ Sole source: Only one qualified seller exists in the marketplace.

■ Single source: The performing organization prefers to contract with a specific seller.

■ Oligopoly: There are very few sellers, and the actions of one seller will have a direct
effect on the other sellers’ prices and the overall market condition.
Referring to the Scope Baseline
The project’s scope statement, work breakdown structure (WBS), and WBS dictionary all
serve as input in making procurement decisions. Because the project scope baseline defines
the project work, and only the required work, to complete the project, it also defines the
limitations of the project work. Knowing the limits of what the project includes can help the
project manager, the contract specialists, and other procurement professionals determine what
needs to be purchased and what does not.

The WBS and the WBS dictionary define the details and requirements for acceptance of the
project. This information also serves as valuable input regarding what needs to be procured
and what does not. The WBS defines what the end result of the project will be. When dealing
with vendors to procure a portion of the project, you must ensure that the work to be procured
supports the requirements of the project customer.
A statement of work (SOW) or terms of reference (TOR) may define the work to be
accomplished within the project, but it generally does not define the product description as a
whole. However, when an entire project is to be procured from a vendor, the SOW and the
product description become one and the same. Along with the SOW, you may need to
reference the requirements documentation to ensure that the procurement planning process
defines exactly what’s needed and adheres to any relevant laws, regulations, and standards.

Relying on the Project Management Plan

The project management plan is also needed during the procurement planning processes,
because it will guide how the project should progress, and each subsidiary plan may need to
be referenced for procurement guidelines. For example, the resource management plan, the
scope management plan, the quality management plan, and the staffing management plan
may all be needed for effective procurement planning.
One of the biggest things you’ll need to consider during procurement management is the
reliance on the risk response transference. Recall that transference is the assignment of a
risk to a third party—typically with a fee involved. Insurance and contractors for dangerous
work are two common examples of transference. The risk register will help identify the costs
associated with the identified risks, and the contractual agreements for transference will be
referenced as part of the project costs.
The project documents also include the project schedule and milestone list—and the project
manager needs to consider procurement leads, fulfilment time for vendors, and when
resources are needed to keep the project moving along. Couple the project schedule with the
activity cost estimate and the cost performance baseline, and the project manager can do cash
flow forecasting, communicate with management about upcoming expenses, and ensure that
vendors are paid on time.
Teaming with Other Organizations
If your organization and another organization agree to partner on an opportunity, it’s called a
teaming agreement. It’s a legally binding venture between two or more organizations that
plan to complete a defined set of work or to seize an opportunity or some other venture that
the parties involved couldn’t necessarily complete on their own. Teaming agreements end
when the venture ends. You might have heard these agreements loosely defined as “coop-
etition”—a fun way to describe cooperating with the competition, although teaming doesn’t
have to be just a partnership with the competition.

Teaming agreements should define in a contract the roles, buyer-and-seller relationships, and
how the teaming agreement ends. The parties must all be in agreement with one another as to
who does what, how communication occurs, and how decisions in the partnership will be
made.

1.7 Planning for the Project Requirements

When it comes to project procurements, you’ll specifically need the project requirements to
determine what you’ll purchase from vendors. The requirements are also needed to determine
whether any aspects may affect the contracting process, such as licenses, permits, intellectual
property rights, nondisclosure agreements, and insurance. Basically, anything that affects the
project’s performance, the project environment, or the people involved in the project should
be considered when it comes to project procurement and the project requirements.
You’ll also need to consider the risks within the project, the project schedule, the costs of the
activities within the project, and the overall project budget. The project schedule must be
considered because the vendor can affect the project schedule if they don’t complete their
contractual obligations on time. The project budget is needed because you’ll need to
determine how much you can afford to spend on the vendor—and whether your internal
project estimates are accurate or way, way off base.

Completing Procurement Planning

Procurement planning should occur early in the planning processes, with certain exceptions.
As needs arise, as project conditions change, or as other circumstances demand, procurement
planning may be required throughout the project. Whenever procurement planning happens
early in the project, as preferred, or later in the project, as needed, a logical approach to
securing the proper resources is necessary.

Determining to Make or Buy

The decision to make or buy a product is a fundamental aspect of management. Under some
conditions, it is more cost-effective to buy; in other cases, it makes more sense to create an
in-house solution. The make-or-buy analysis should occur in the initial scope definition to
determine whether the entire project should be completed in-house or procured. As the
project evolves, additional make-or-buy decisions may be needed.

The initial costs of the solution for the in-house or procured product must be considered, but
so, too, must the ongoing expenses of the solutions. For example, a company may elect to
lease a piece of equipment. The ongoing expenses of leasing the piece of equipment should
be weighed against the expected ongoing expenses of purchasing the equipment and the
monthly costs to maintain, insure, and manage the equipment.

Here’s an example: the following Figure -1 shows the mathematical approach for determining
whether it is better to create a software program in-house or buy one from a software
company. The in-house solution will cost your company $25,000 to create your own software
package and (based on historical information) another $2500 per month to maintain the
software.

FIGURE -1

The development company has a solution that will cost your company $17,000 to purchase,
but the development company requires a maintenance plan for each software program
installed, which will cost your company $2700 per month. The initial difference between
making the software and buying the software is $8000. The difference between supporting
the software the organization has made and allowing the external company to support their
software is only $200 per month.
The $200 per month is divided into the difference between creating the software internally
and buying the software—which is $8000 divided by $200—which equates to 40 months.

If the software is to be replaced within 40 months, the company should buy the software. If
the software will not be replaced within 40 months, it should build the software.
An organization may choose to make or buy for multiple reasons. The following table shows
some common examples or reasons for making and buying.

Using Expert Judgment

Procurement planning can rely on expert judgment. Roles and responsibilities for
procurement should happen during procurement management planning to ensure that you’ve
the right experts to make the best decisions for procurement. Yes, it may be beneficial to rely
on the wisdom of others—those in the performing organization or subject matter experts—to
determine the need for procurement. Expert judgment for procurement management planning
can come from the following:
■ Units or individuals within the performing organization

■ Consultants and subject matter experts

■ Professional, trade, or technical associations

■ Industry groups

Determining the Contract Type

There are multiple types of contracts when it comes to procurement. The project work, the
market, and the nature of the purchase determine the contract type. The following are some
general rules that project managers, should know:

■ A contract is a formal agreement between the buyer and the seller. Contracts can be
oral or written—though written is preferred.
■ Most developed countries back all contracts through the court system.

■ Contracts should clearly state all requirements for product acceptance.

 ■ Any changes to the contract must be formally approved, controlled, and documented.
■ A contract is not fulfilled until all of the requirements of the contract are met.

■ Contracts can be used as a risk mitigation tool, as in transferring the risk. All contracts
have some level of risk; depending on the contract type, the risk can be transferred to
the seller. If a risk response strategy is to transfer, risks associated with procurement are
considered secondary risks and must go through the risk management process.

■ Legal requirements govern contracts. In order for a contract to be valid, it must

■ Contain an offer

■ Have been accepted

■ Provide for a consideration (payment)

■ Be for a legal purpose

■ Be executed by someone with capacity and authority
■ The terms and conditions of the contract should define breaches, copyrights,
intellectual rights, and force majeure. Force majeure is French for superior force—
sometimes called “acts of God.” You might know these as tornados, earthquakes, and
hurricanes.

Fixed-Price Contracts
Fixed-price contracts (also known as firm fixed-price and lump-sum contracts) are
agreements that define a total price for the product the seller is to provide. These contracts
must clearly define the requirements the vendor is to provide. These contracts may also
provide incentives for meeting or exceeding contract requirements—such as meeting
deadlines—and require the seller to assume the risk of cost overruns, as Figure 2
demonstrates.
 FIGURE 2 Fixed-price contracts transfer the risk to the seller.

You should know three types of fixed-priced contracts:

■ Firm fixed-price contract: This contract type defines the exact amount for the goods
or services provided by the vendor. It’s the most common and most preferred contract
type for organizations, as the risk for the buyer is relatively low. For the seller,
however, the risk is that if their cost of materials, doing business, or completing the
work defined in the contract increases, they cannot pass on that cost to the customer. A
firm fixed-price contract is also known as a lump-sum contract.

■ Fixed-price incentive fee contract: This contract type is similar to the firm fixed-
price contract in that a lump sum amount is agreed upon between the buyer and the
seller for the work to be performed. However, this contract type allows the contract to
include incentives for the project, such as a bonus for completing the project work
early, saving costs in the project, or meeting other performance objectives. This
contract can also have penalties for the vendor if they’re late on the project work or
their performance is less than it should be.

■ Fixed-price with economic price adjustment: This contract type is for long-term
projects that may span years to complete the project work. The contract does define a
fixed price, with caveats for special categories of price fluctuation over the life of the
project, including inflation, electricity, shipping, labor costs, cost of materials, or other
resources that could affect the feasibility of the vendor completing the work. The
contract must define the financial indexes that will be used to determine the fluctuation
in the identified cost categories.
Cost-Reimbursable Contracts
These contract types pay the seller for the product. In the payment to the seller, there is a
profit margin—the difference between the actual costs of the product and the sales amount.
Cost-reimbursable contracts require the buyer to assume the risk of cost overruns. You might
use a cost-plus type contract if there are many unknowns in the project or many changes are
expected in the work. There are four types of cost-reimbursable contracts:

■ Cost plus fixed fee: The buyer is responsible for all costs the contracted work
incurs plus a predetermined fee for the vendor to manage and complete the contracted
work. The fee for the work is usually tied to a percentage of the estimated project
costs, but not always. For example, I’ll remodel your condo, but you have to pay for
all the materials and labor I’ll need, which should be close to $80,000. In addition,
you’ll have to pay me 15 percent of the costs, which will be $12,000. You’ll pay the
costs as the project progresses and pay my fee based on milestones completed in the
project. If I don’t finish the project, you don’t finish paying me. You do have some
risks, though—if I waste materials, you have to buy more and you’ll still have to pay
my fee for the work.
■ Cost plus incentive fee: This contract type requires that the buyer pay for all
the preapproved costs for materials and labor in the project plus an incentive fee for
completing the project early, saving on project costs, managing certain risks, or
meeting other performance objectives. The contract will define how the incentives are
determined. One popular method attaches dollar amounts to completed milestones and
dates. If the vendor delivers the milestones ahead of the promised dates on a
consistent basis, the value of the work increases and so will the incentive fee for the
vendor. If the contract is based on cost savings for the project and early completions
are cost savings, the contract must define how the cost savings are split between the
buyer and the seller. Usually, the seller receives 20 percent of the cost savings in
what’s called an “80/20 split.”
■ Cost plus award fee: This contract requires the buyer to pay for all the
project costs and gives the seller an award fee based on the project performance,
certain project criteria, or other goals established by the buyer. The award fee can be
tied to any factor the buyer determines, and the factor doesn’t have to be exact. For
example, the buyer can set an award fee of up to $100,000 for a $1 million project
based on the technical ingenuity of the project solution, the quality of the work, or the
actual cost savings the solution creates for the organization.
■ Cost plus percentage of costs: This contract type is the absolute pits for the
buyer, and most organizations won’t participate in these contracts. In this case, the
buyer has to pay for all of the costs of the materials plus a predetermined percentage
for the cost of the materials. The obvious risk is that the vendor can waste materials
and the buyer will have to buy new materials and pay the percentage of costs for the
 materials again. It’s easy for the vendor to run up the total project costs just by
wasting materials.

Note: The only time it might be appropriate, and we stress the word might, to use a
cost plus percentage of costs contract is when the vendor is working with a highly
specialized material and type of work. For example, imagine an artist who’s sculpting
a marble statue for the lobby of a building or a scientist who’s working with a highly
complex chemical. The nature of this type of work is so specialized that the artist and
the scientist are unlikely to waste materials on purpose just to crank up their project
costs. As a general rule, avoid the cost plus percentage of costs contract.

FIGURE 3 Time and materials contracts must be kept in check, or costs can skyrocket.

Time and Materials Contracts

Time and materials (T&M) contracts are sometimes called time and means contracts. Time
and materials contracts are considered a hybrid contract because they require the buyer to pay
for the costs and a fixed fee. They are ideal when an organization contracts out a small
project when smaller amounts of work within a larger project are to be completed by a
vendor. T&M contracts, however, can grow dangerously out of control as more work is
assigned to the seller. T&M contracts should have a not-to-exceed clause (NTE clause) to put
a ceiling on the procured work. Figure 3 shows an example of how T&M contracts can pose a
risk for the buyer.

Summary of Contract Types

Familiarize yourself with the information in Table 1.
 Table 1

Using the Statement of Work

In the contract SOW, the seller fully describes the work to be completed and/or the product to
be supplied. The contract SOW becomes part of the contract between the buyer and the seller.
The contract SOW is typically created as part of the procurement planning process, and it
allows the seller to determine whether they can meet the written requirements of the SOW.
You might also see the SOW called a TOR, for terms of reference.

Particular industries have different assumptions about what constitutes an SOW. What one
industry calls an SOW may be a statement of objectives (SOO) in another. An SOO is a
document describing a problem to be solved by the seller. The SOW, defines the project
specifications, requirements for vendor qualification, and details about the project work,
location, expected time frame, and similar conditions.
Determining the Source Selection Criteria
Another output of contracting planning is the evaluation criteria to determine which source
the organization will purchase from. The evaluation criteria is used to rate and score
proposals from the sellers. In some instances, such as a bid or quote, the evaluation criterion
is focused just on the price the seller offers. In other instances, such as a proposal, the
evaluation criteria can be multiple values: experience, references, certifications, and more.
It’s essential for the project manager and the project team to create selection criteria that will
guide their decision-making later in the project. Common questions that should be considered
prior to vendor selection include the following:
■ Does the vendor understand the project need?

■ What is the overall project and/or life-cycle cost?

■ What is the vendor’s technical capability?
■ What is the vendor’s management and technical approach to the project work?
■ What is the vendor’s financial capacity to complete the project work?
■ What risk is associated with the work and how will the vendor manage the risk?

■ Does the vendor qualify in areas that may help in rewarding the contract (such as a
small business, veteran-owned business, or minority-owned business)?
■ What are the proprietary rights and intellectual property rights associated with the
project work?
■ Will the vendor provide a warranty for the work they complete?
The source selection analysis is a review of the selection methods you’ll use when choosing a
seller for the project. Selection methods include the following:
■ Least cost:The lowest bid is awarded the contract.
■ Qualifications only: Based on a short list of sellers, the buyer chooses the vendor
with the best qualifications for the contract.
■ Quality-based/highest technical proposal score: Seller submits proposal for the
work and a proposed cost to do the work. If the buyer likes the technical proposal, the
seller and the buyer will negotiate the pricing.

■ Quality and cost-based: Cost and quality are considered important, though in
projects that are likely to have many risks and uncertainties, quality can take a higher
priority than cost in source selection.
■ Sole source: A specific seller is asked to do the work. This could be based on the
marketplace conditions or past experience with the vendor.
 ■ Fixed budget: The buyer shares the budget for the project work with the seller. The
seller then prepares a proposal based on the predefined budget—or declines to
participate as the fixed budget may not be realistic. In addition, the SOW must be well-
defined and little changes to the project are expected so the seller can work with the
expectation of exactly what’s needed to satisfy the contract requirement within the
fixed budget.

1.8 Reviewing the Procurement Management Plan

Procurement planning should happen early in the planning processes. The outputs of
procurement planning enable the project manager and the project team to proceed with
confidence in the procuring of products and services needed to complete the project
successfully. If it is determined early in the project that there is no need for procurements,
then, obviously, the balance of the procurement processes is not necessary for the project.

This subsidiary project plan documents the decisions made in the procurement planning
processes. It specifies how the remaining procurement activities will be managed. The
procurement plan details the following:

■ The coordination between sellers and the project team and among project activities,
project reporting, scheduling, business operations, and other project concerns
■ How vendors will be selected

■ The types of contracts to be used

■ The process of independent estimating (also known as should-cost estimates)

■ The relationship between the project team and the procurement office within the
performing organization (if one exists)
■ Planning for the timetable and lead time requirements between the vendor and the
organizational purchasing processes

■ Requirements for performance bonds and insurance requirements for the vendors
■ The procurement forms, such as contracts, that the project team is required to use

■ How multiple vendors will be managed to supply their contracted product

■ Metrics to be used to determine which vendors qualify for project work and to
complete vendor selection

■Requirements for vendors’ proof-of-insurance certificates, bonds, licenses, or other

risk-mitigation qualifications
■ Enterprise environmental factors that affect which vendors may participate in the
bidding process, vendor selection, and other internal rules and processes you’re
required to follow as the project manager
 ■ Roles and responsibilities for procurement, including the project manager, project
team, and procurement office

■ Definition of the legal jurisdiction and how the vendor will be paid and in what
currency
■ Constraints, assumptions, risk management, and prequalified sellers, if applicable

1.9 Creating the Procurement Documents

These documents guide the relationship between the buyer and the seller. Communication
between the buyer and the seller should always be specific as to the requirements and
expectations of the buyer and seller. In initial communications, especially when requesting a
price or proposal, the buyer should include the SOW, relevant specifications, and, if
necessary, any nondisclosure agreements (NDAs). A project may also include independent
cost estimates and source selection criteria, if applicable to the organization. Requests from
buyers to sellers should be specific enough to give the seller a clear idea of what the buyer is
requesting, but general enough to allow the seller to provide viable alternatives.

Following are some specific terms the project manager should be familiar with:
 As Per PMBOK - 6
1.10 Project Procurement Management processes include the following:
1 Plan Procurement Management— The process of documenting project procurement
decisions, specifying the approach, and identifying potential sellers.
2 Conduct Procurements— The process of obtaining seller responses, selecting a seller,
and awarding a contract.
3 Control Procurements— The process of managing procurement relationships,
monitoring contract performance, making changes and corrections as appropriate, and
closing out contracts.

Following figure provides an overview of the Project Procurement Management

processes.
The Project Procurement Management processes are presented as discrete processes with
defined interfaces while, in practice, they overlap and interact in ways that cannot be
completely detailed. As per PMBOK 6

Figure 1. Project Procurement Maangement Overview

KEY CONCEPTS FOR PROJECT PROCUREMENT MANAGEMENT
More than most other project management processes, there can be significant legal
obligations and penalties tied to the procurement process. The project manager does not have
to be a trained expert in procurement management laws and regulations but should be
familiar enough with the procurement process to make intelligent decisions regarding
contracts and contractual relationships. The project manager is typically not authorized to
sign legal agreements binding the organization; this is reserved for those who have the
authority to do so.

The Project Procurement Management processes involve agreements that describe the
relationship between two parties—a buyer and a seller. Agreements can be as simple as the
purchase of a defined quantity of labor hours at a specified labor rate, or they can be as
complex as multiyear international construction contracts. The contracting approach and the
contract itself should reflect the simplicity or complexity of the deliverables or required effort
and should be written in a manner that complies with local, national, and international laws
regarding contracts.

A contract should clearly state the deliverables and results expected, including any
knowledge transfer from the seller to the buyer. Anything not in the contract cannot be
legally enforced. When working internationally, project managers should keep in mind the
effect that culture and local law have upon contracts and their enforceability, no matter how
clearly a contract is written.

A purchasing contract includes terms and conditions and may incorporate other buyer
specifics 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 working with the procurement office to ensure organizational procurement policies are
followed. Depending on the application area, an agreement can be a contract, an SLA, an
understanding, an MOA, or a purchase order.

Most organizations document policies and procedures specifically defining procurement rules
and specifying who has authority to sign and administer such agreements on behalf of the
organization. Across the world, organizations use different names for departments or
divisions that deal with procurement, such as purchasing, contracting, procurement, or
acquisitions; however, the responsibilities are likely to be similar.

Although all project documents may be subject to some form of review and approval, the
legally binding nature of a contract means it will be subjected to a more extensive approval
process, often involving the legal department. In all cases, the primary focus of the review
and approval process is to ensure that the contract adequately describes the products,
services, or results that the seller is agreeing to provide, while being in compliance with the
laws and regulations regarding procurements. These sections are often separate appendices or
annexes, allowing standardized legal contract language to be used.
A complex project may involve managing multiple contracts simultaneously or in sequence.
In such cases, each contract life cycle may begin and end during any phase of the project life
cycle. The buyer-seller relationship may exist at many levels on any one project, and between
organizations internal to and external to the acquiring organization.

Depending on the application area, the seller may be identified as a contractor, vendor,
service provider, or supplier. The buyer may be the owner of the final product, a
subcontractor, the acquiring organization, a service requestor, or the purchaser. The seller can
be viewed during the contract life cycle first as a bidder, then as the selected source, and then
as the contracted supplier or vendor.

The winning bidder may manage the work as a project. In such cases:

 The buyer becomes the customer to subcontractors, suppliers, and service providers
and is therefore a key project stakeholder from the seller's perspective.

 The seller's project management team may be concerned with all the processes
involved in performing the work or providing the services.

 Terms and conditions of the contract and the procurement statement of work
 (SOW) become key inputs to many of the seller's management processes. The
contract can actually contain the inputs (e.g., major deliverables, key milestones, cost
objectives) or it can limit the project team's options (for example, buyer approval of
staffing decisions is often required on IT integration projects). The procurement SOW
may have other names, such as the technical statement of work.

 The seller itself may become a buyer of lower-tiered products, services, and materials
from subcontractors and suppliers.

In this section, it is assumed that the buyer of an item for the project is assigned to the project
team and/or is part of the larger organization. The seller is assumed to be providing services
and/or materials to the project and is usually outside the performing organization.
For some projects, the seller role may be filled by a group or function that is part of the
performing organization but external to the project. For larger, more complex projects, the
seller may become part of an integrated project team after the contract is awarded.

For smaller organizations or startup companies and those without a purchasing, contracting,
or procurement department, the project manager may assume the purchasing authority role to
negotiate and sign contracts directly (decentralized purchasing). For more mature
organizations, the actual procurement and contracting functions will be carried out by a
separate department with the specific role to purchase, negotiate, and sign contracts
(centralized purchasing).
In international contracting, the legal jurisdictions under which the contracts will be
administered are clearly spelled out in the contract. In most cases, the seller is an external
contractor who is bound by a formal contractual relationship.

1.11 TRENDS AND EMERGING PRACTICES IN PROCUREMENT

MANAGEMENT

There are a number of major trends in software tools, risk, processes, logistics, and
technology with different industries that can affect the success rate of projects. Trends and
emerging practices for Project Procurement Management include but are not limited to:

Advances in tools. There has been significant improvement in the development of

tools to manage the procurement and implementation phases of a project. Online tools
for procurement now give the buyers a single point where procurements can be
advertised and provide sellers with a single source to find procurement documents and
complete them directly online. In the construction/engineering/infrastructure field, the
increasing use of the building information model (BIM) in software tools has been
shown to save significant amounts of time and money on projects using it. This
approach can substantially reduce construction claims, thereby reducing both costs
and schedule. Major companies and governments worldwide are beginning to
mandate the use of BIM on large projects.

More advanced risk management. An increasing trend in risk management is to

write contracts that accurately allocate specific risks to those entities most capable of
managing them. No contractor is capable of managing all the possible major risks on a
project. The buyer will be required to accept the risks that the contractors do not have
control over, such as changing corporate other risks from outside the project.
Contracts may specify that risk management be performed as part of the contract.

Changing contracting processes. There has been a significant growth in

megaprojects in the past several years, particularly in the areas of infrastructure
development and engineering projects. Multibillion-dollar projects are now common.
A large proportion of these involve international contracts with multiple contractors
from many countries and are inherently more risky than projects using only local
contractors. Increasingly, the contractor works closely with the client in the
procurement process to take advantage of discounts through quantity purchases or
other special considerations. For these projects, the use of internationally recognized
standard contract forms is increasing in order to reduce problems and claims during
execution.

Logistics and supply chain management. Because so many large engineering,

construction infrastructure projects are done through multiple international
 contractors, the management of the flow of materials becomes critical to successful
completion. For long-lead items, both the manufacture of the items and their
transportation to the project site become schedule-drivers. In the IT field, a long-lead
item may require ordering 2 to 3 months in advance. In complex construction projects,
long-lead items may require ordering 1 to 2 years in advance or longer. For these
projects, long-lead items may be procured in advance of other procurement contracts
to meet the planned project completion date. It is possible to begin contracting for
these long-lead materials, supplies, or equipment before the final design of the end
product itself is completed based on the known requirements identified in the top-
level design. The management of the supply chain is an area of increasing emphasis
by the contractor's project team. Not only are primary sources of supplies identified
early in the project, but secondary, back-up sources are also generally identified.
Many countries around the world require international contractors to purchase certain
minimum percentages of material and supplies from local vendors.

Technology and stakeholder relations. Publicly funded projects are under

increasing scrutiny. A trend in infrastructure and commercial construction projects is
the use of technology including web cameras (webcams) to improve stakeholder
communications and relations. During construction, one or more webcams are
installed on the site, with periodic updates to a publicly available website. The
progress on the project can be viewed on the Internet by all stakeholders. Video data
can also be stored, allowing analysis if a claim arises.
Some projects have discovered that the use of webcams minimizes disputes relating to
the construction work on site, as the webcam has recorded the events, so there should
be no disagreement about the facts of the matter.
Trial engagements. Not every seller is well suited for an organization's environment.
Therefore, some projects will engage several candidate sellers for initial deliverables
and work products on a paid basis before making the full commitment to a larger
portion of the project scope. This accelerates momentum by allowing the buyer to
evaluate potential partners, while simultaneously making progress on project work.

TAILORING CONSIDERATIONS

Because each project is unique, the project manager may need to tailor the way that
Project Procurement Management processes are applied. Considerations for tailoring include
but are not limited to:
 Complexity of procurement. Is there one main procurement or are there multiple
procurements at different times with different sellers that add to the complexity of the
procurements?
 Physical location. Are the buyers and sellers in the same location, or reasonably
close, or in different time zones, countries, or continents?
  Governance and regulatory environment. Are local laws and regulations regarding
procurement activities integrated with the organization's procurement policies? How
does this affect contract auditing requirements?
 Availability of contractors. Are there available contractors who are capable of
performing the work?

CONSIDERATIONS FOR AGILE/ADAPTIVE ENVIRONMENTS

In agile environments, specific sellers may be used to extend the team. This collaborative
working relationship can lead to a shared risk procurement model where both the buyer and
the seller share in the risk and rewards associated with a project.

Larger projects may use an adaptive approach for some deliverables and a more stable
approach for other parts. In these cases, a governing agreement such as a master services
agreement (MSA) may be used for the overall engagement, with the adaptive work being
placed in an appendix or supplement. This allows changes to occur on the adaptive scope
without impacting the overall contract.

1.12 PLAN PROCUREMENT MANAGEMENT

Defining roles and responsibilities related to procurement should be done early in the
Plan Procurement Management process. The project manager should ensure that the project
team is staffed with procurement expertise at the level required for the project.
Participants in the procurement process may include personnel from the purchasing or
procurement department as well as personnel from the buying organization's legal
department. These responsibilities should be documented in the procurement management
plan.
Typical steps might be:
 Prepare the procurement statement of work (SOW) or terms of reference
 (TOR).
 Prepare a high-level cost estimate to determine the budget.
 Advertise the opportunity.
 Identify a short list of qualified sellers.
 Prepare and issue bid documents.
 Prepare and submit proposals by the seller.
 Conduct a technical evaluation of the proposals including quality.
 Perform a cost evaluation of the proposals.
 Prepare the final combined quality and cost evaluation to select the winning proposal.
 Finalize negotiations and sign contract between the buyer and the seller.
The requirements of the project schedule can significantly influence the strategy during the
Plan Procurement Management process. Decisions made in developing the procurement
management plan can also influence the project schedule and are integrated with the Develop
Schedule process, the Estimate Activity Resources process, and make-or buy decisions.
 Unit 2

Conducting Procurements

Structure:

2.1 Introduction

2.2 Conduct Procurement- Inputs

2.3 Procuring Goods and Services - Tools and Techniques

2.4 Conduct Procurement -Outputs

2.4.1 Preparing for Source Selection

2.4.2 Completing the Seller Selection Process

2.4.2 Examining the Results of Conducting Procurement

2.5 Agreements
2.1 INTRODUCTION:
Conduct Procurements is the process of obtaining seller responses, selecting a seller, and
awarding a contract. The key benefit of this process is that it selects a qualified seller and
implements the legal agreement for delivery. The end results of the process are the
established agreements including formal contracts. This process is performed periodically
throughout the project as needed. The inputs, tools and techniques, and outputs of the
Conduct Procurements process are depicted through the following figure:

2.2 Conduct Procurement- Inputs:

Once the contracting planning has been completed, the actual process of contracting can
begin. Fortunately, the sellers, not the buyers, perform most of the activity in solicitations—
usually at no additional cost to the project. The sellers are busy trying to win the business.
The process of conducting procurements has six inputs:

■ Project management plan (scope management plan, requirements management plan,

communications management plan, risk management plan, procurement management
plan, configuration management plan, and cost baseline)
 ■ Project documentation (lessons learned register, project schedule, requirements
documentation, risk register, and stakeholder register)

■ Procurement documents (Bid documents, Procurement statement of work,

Independent cost estimates and Source selection criteria)
■ Proposals from sellers: Seller proposals, prepared in response to a procurement
document package, form the basic information that will be used by an evaluation body
to select one or more successful bidders (sellers). If the seller is going to submit a price
proposal, good practice is to require that it be separate from the technical proposal. The
evaluation body reviews each submitted proposal according to the source selection
criteria and selects the seller that can best satisfy the buying organization's
requirements.
■ Enterprise environmental factors:

The enterprise environmental factors that can influence the Conduct Procurements
Process include:

 Local laws and regulations regarding procurements;

 Local laws and regulations ensuring that the major procurements involve local
 sellers;
 External economic environment constraining procurement processes;
 Marketplace conditions;
 Information on relevant past experience with sellers, both good and bad;
 Prior agreements already in place; and
 Contract management systems.

 Organisational Process Assets:

The organizational process assets that can influence the Conduct Procurements
process include but are not limited to:
 List of preferred sellers that have been prequalified,
 Organizational policies that influence the selection of a seller,
 Specific organizational templates or guidelines that will determine the way
agreements are drafted and built, and Financial policies and procedures
regarding invoicing and payment processes.

2.3 Procuring Goods and Services: Tools and Techniques

There are five tools and techniques used to conduct procurement within an organization:
 ■ Expert judgment: A consultant or expert from your organization can often help you
make the best decision as to which seller you should select. Reviewing bids and
proposals can be a cumbersome task as you’ll often need to compare and contrast
proposals, delivery dates, pricing, experience, and other factors that will affect your
decision.

Expertise should be considered from individuals or groups with specialized knowledge

or training in the following topics:

 Proposal evaluation;
 Technical or subject matter;
 Relevant functional areas such as finance, engineering, design, development,
 supply chain management, etc.;
 Industry regulatory environment;
 Laws, regulations, and compliance requirements; and
 Negotiation.

■ Advertising: In many circumstances, advertisements inviting bidders are expected.

These advertisements can run in newspapers or trade journals specific to the industry of
the organization. Some government agencies require advertisements inviting sellers to
acquire the project work, attend a bidder conference, or present a proposal for the
described work.
■ Bidder conferences: A bidder conference, also called a contractor conference, pre-
bid conference, or vendor conference, is a meeting with prospective sellers to ensure
that all sellers have a clear and common understanding of the product or service to be
procured and are on equal footing. Bidder conferences enable sellers to query the buyer
on the details of the product to help ensure that the seller’s proposal is adequate and
appropriate for the proposed agreement. At this point of the process, all sellers are
considered equal.
■ Data analysis: When you create an invitation for bid, request for quote, or request for
proposal and send that out to sellers, you’ll likely receive lots of information back from
the sellers. Data analysis is the sorting, comparing, and contrasting of the information
to help you make the best decision. This is really proposal evaluation and may be done
with the tool and technique of expert judgment to help you make the best decision.
■ Interpersonal and team skills: The big category of interpersonal and team skills is
really, for this process, negotiation. Negotiation is the act of seeking a fair agreement
for both parties in the contract. Negotiation is more than just finding a price; it can
include negotiation materials, resources, access to the site, the schedule, and any other
condition for the contracted work. Negotiation should be led by someone within the
organization who has the authority to sign the contract.
Note: A standard of procurement is that bids and quotes are looking for sellers to provide a
price. Proposals are asking the sellers to provide solutions.
2.4 CONDUCT PROCUREMENTS: OUTPUTS
Examining the Results of Contracting
The end result of contracting, as expected, is a collection of proposals, bids, and quotations.
These documents indicate the sellers’ ability and preparedness to complete the project work.
The proposals should be in alignment with the buyer’s stated expectations, and they may be
presented orally, electronically, or in hard-copy format. Of course, the relationship between
the buyer and the seller—and the type of information being shared—will determine which
modality is the best choice for communication.

Selecting the Seller

Once the sellers have presented their proposals, bids, or quotes (depending on what the buyer
requested of them), their documents are examined so that the project manager or the
organization’s decision-maker can select which sellers are the best choice for the project
work. In many instances, price may be the predominant factor for choosing a particular
seller—but not always. Factors other than price may also be taken into consideration:

■ The cost of an item may not reflect the true cost to the performing organization if the
item cannot be delivered in a timely manner. If a seller promises to have a product on
site by a specific date and fails to do so, the project can be delayed, costing the
organization thousands—or more—in losses.

■ Proposals can be separated into two categories: technical and commercial. The
technical category describes the approach and methodology to complete the project
work, and the commercial category delves into the price to complete the project work.
An evaluation takes into consideration both categories to determine the best choice for
the project.

■ Critical, high-priority projects may rely on multiple sellers to complete the project
work. This redundancy can balance risk, cost, and opportunity among multiple vendors.

2.4.1 Preparing for Source Selection

Source selection weighs and evaluates the proposals, bids, and quotes for the procured
portions of the project and then makes a determination as to which seller is the best for the
project work. The source selection decision-making process involves three inputs:

■ Proposals: The proposals, bids, and quotations provided by the sellers are key inputs.
These are the documents the performing organization will evaluate to determine which
seller is the best provider for the project.
■ Evaluation criteria: The evaluation criteria, such as referrals, samples of previous
work, and references, are considered. The evaluation criteria are evidence of the
 quality, depth, and experience of work the seller has performed in the past and,
hopefully, is capable of performing on the current project. Evaluation criteria are
developed in contracting planning and are applied in source selection.

■ Organizational policies: The performing organization likely has procurement

policies and procedures that the project manager is expected to follow in regard to
source selection. The organizational policies should be known before starting the
source selection process to avoid any discrepancies, conflicts of interest, or other
breaches of policies. For example, some organizations’ procurement policies do not
allow project managers to accept any gifts worth more than $25 in value.

2.4.2 Completing the Seller Selection Process

For the performing organization to finalize the process of seller selection, there must first be
eligible sellers. Assuming more than one seller can satisfy the demands of the project, the
project manager can rely on several tools and techniques when making a selection:
■ Weighting system: A weighting system takes out the personal preferences of the
decision-maker in the organization to ensure that the best seller is awarded the contract.
A weighting system creates a matrix, as shown in Figure 12-4. Weights are assigned to
the values of the proposals, and each proposal is scored. Because the weights are
determined before the decision-maker reviews the proposals, the process is guaranteed
to be free of personal preferences and bias. The seller with the highest score is awarded
the contract.

■ Independent estimates: These estimates are often referred to as “should-cost”

estimates. They are created by the performing organization or by outside experts to
predict what the cost of the procured product should be. If there is a significant
difference between what the organization has predicted and what the sellers have
proposed, the statement of work was inadequate, the sellers misunderstood the
requirements, or the price provided by the sellers is too high.

■ Screening system: A screening system can remove sellers from consideration if they
do not meet given conditions. For example, screening could require that sellers be
certified by a specific organization, have prior experience with the project technology,
or meet other values. Sellers that don’t meet the requirements are removed from the
selection process and their proposals are not considered.
 FIGURE 4 Weighting systems remove personal preference from the selection process.

■ Contract negotiation: The performing organization creates an offer, and the seller
considers it. The contract negotiation process is an activity to create a fair price for the
work the seller is to complete. The performing organization and the seller must be in
agreement on the expectations, requirements, authorities, terms, technical and business
management approaches, price, and any other pertinent factors covered within, and by,
the contract prior to signing it.
■ Seller rating systems: How the vendor has performed in the past may guide current
and future project procurement decisions. Consider a vendor that has offered poor
performance in quality, delivery, and contractual compliance versus a vendor that has
scored high marks in quality, delivery, and contract compliance; which should the
project manager choose? That’s the goal of the seller rating system: to collect and
disseminate information on the performance of sellers in order to guide project
decisions.
■ Expert judgment: Often, the project manager and the project team may not be
knowledgeable in the discipline the vendor is offering and that the project requires. In
these instances, the project manager can rely on expert judgment to help make the best
decisions regarding the project’s welfare.
■ Proposal evaluation techniques: There are many different approaches to evaluating
vendors’ proposals—from weighting systems to screening systems—but all will rely on
expert judgment and some sort of evaluation criteria.

2.4.2 Examining the Results of Conducting Procurement

The primary output of conducting procurement is a contract between the buyer and the seller.
A contract is a legally binding agreement between the buyer and the seller in which the seller
provides the described product and the seller pays for the product. Contracts are known by
many names:

■ Agreement
■ Subcontract
■ Purchase order

■ Memorandum of understanding

Contracts have to be signed by a person with the power to authorize the requirements and
payment specified in the contract. This role is called the delegation of procurement authority.
Whether or not this person is the project manager depends on the procurement policies of the
performing organization.

In some organizations, all contracts flow through centralized contracting. Centralized

contracting requires all contracts for all projects to be approved through a central unit within
the performing organization. Other organizations use a decentralized contracting approach,
which assigns a contract administrator or contract officer to the project. Agreements will
include the following:

■ Procurement SOW
■ Schedule and milestones for the seller
■ How performance is reported and tracked

■ Pricing and payment agreements

■ Inspection of the work and what constitutes success

■ Warranty
■ Incentives and penalties

■ Insurance and performance bonds

■ Subcontractor permissions and approvals for subcontractors

■ General terms and conditions

■ How change requests will be managed

■ Termination and alternative dispute resolution terms

Should there be any changes to the project manager plan, the schedule, or the project
documents, the changes should flow through the project’s integrated change control process.
For example, a contract could be created for services in the project, but the date the vendor
can do the work is a week later than what was planned in the project. Through negotiations,
the organization has agreed to this date and will need to change its project management plan
and schedule to accommodate this contracted agreement.
Updates to project documents can include updating the lessons learned register, but also,
more importantly, the requirements documentation. Through the contracting process,
technical and legal requirements could be added to the requirements documentation and
requirements traceability matrix. You might also need to update the resource calendars to
reflect any new resources brought onto the project through the contract, update the risk
register for any newly identified risks, and update the stakeholder register by adding the
selected seller.

2.5 AGREEMENTS
A contract is a mutually binding agreement that obligates the seller to provide the specified
products, services, or results; obligates the buyer to compensate the seller; and represents a
legal relationship that is subject to remedy in the courts. The major components in an
agreement document will vary, and may include but are not limited to:

 Procurement statement of work or major deliverables;

 Schedule, milestones, or date by which a schedule is required;
 Performance reporting;
 Pricing and payment terms;
 Inspection, quality, and acceptance criteria;
 Warranty and future product support;
 Incentives and penalties;
 Insurance and performance bonds;
 Subordinate subcontractor approvals;
 General terms and conditions;
 Change request handling; and
 Termination clause and alternative dispute resolution mechanisms.

ORGANIZATIONAL PROCESS ASSETS UPDATES

Elements of the organizational process assets that can be updated as a result of the
Conduct Procurements process can include:

 Listings of prospective and prequalified sellers; and

 Information on relevant experience with sellers, both good and bad.
 Unit 3

Controlling Procurements

Structure:

3.1 Introduction:

3.2 CONTROL PROCUREMENTS: INPUTS

3.3 CONTROL PROCUREMENTS: TOOLS AND TECHNIQUES

3.3.1 Preparing for Contract Administration

3.3.2 Completing Contract Administration

3.3.3 Inspecting and Auditing the Procurement Process

3.3.4 Reviewing the Results of Procurement Control

3.4 CONTROL PROCUREMENTS: OUTPUTS

3.5 Procurement Guidance

Summary
Keywords

Check your Progress

Answers to check your progress
3.1 Introduction:

Controlling procurement is the process of ensuring that the seller and the buyer live up to the
agreements in the contract. The project manager and the contract administrator must work
together to make certain the seller meets their obligations. If the seller does not fulfil their
contractual requirements, legal remedies may ultimately be pursued. This process is based on
the terms of the contract—the contract overrides everything else between the buyer and the
seller.
Another aspect of controlling procurement, especially on larger projects with multiple sellers
providing various products, is the coordination between the contractors. The project manager
or contract officer schedules and confirms the performance of the sellers so that the
deliverables, schedule, and performance of a contractor do not infringe or adversely affect the
performance of another contractor.

Both the buyer and the seller administer the procurement contract for similar purposes.
Each is required to ensure that both parties meet their contractual obligations and that their
own legal rights are protected. The legal nature of the relationship makes it imperative that
the project management team is aware of the implications of actions taken when controlling
any procurement. On larger projects with multiple providers, a key aspect of contract
administration is managing communication among the various providers.

Because of the legal aspect, many organizations treat contract administration as an

organizational function that is separate from the project. While a procurement administrator
may be on the project team, this individual typically reports to a supervisor from a different
department.

Control Procurements includes application of the appropriate project management processes

to the contractual relationship(s) and integration of the outputs from these processes into the
overall management of the project. This integration often occurs at multiple levels when there
are multiple sellers and multiple products, services, or results involved.

Administrative activities may include:

 Collection of data and managing project records, including maintenance of detailed
records of physical and financial performance and establishment of measurable
procurement performance indicators;
 Refinement of procurement plans and schedules;
 Set up for gathering, analyzing, and reporting procurement-related project data and
preparation of periodic reports to the organization;
 Monitoring the procurement environment so that implementation can be facilitated or
adjustments made; and
 Payment of invoices.

The quality of the controls, including the independence and credibility of procurement audits,
is critical to the reliability of the procurement system. The organization's code of ethics, its
legal counsel, and external legal advisory arrangements including any ongoing anti-
corruption initiatives can contribute to proper procurement controls.

Control Procurements has a financial management component that involves monitoring

payments to the seller. This ensures that payment terms defined within the contract are met
and that compensation is linked to the seller's progress as defined in the contract. A principal
concern when making payments is to ensure there is a close relationship of payments made to
the work accomplished. A contract that requires payments linked to project output and
deliverables rather than inputs such as labor hours has better controls.

Agreements can be amended at any time prior to contract closure by mutual consent, in
accordance with the change control terms of the agreement. Such amendments are typically
captured in writing.
3.2 CONTROL PROCUREMENTS: INPUTS
There are eight inputs to control procurements:
■ Project management plan

■ Project documents
■ Agreements

■ Procurement documentation
■ Approved change requests

■ Work performance data

■ Enterprise environmental factors

■ Organizational process assets

3.3 CONTROL PROCUREMENTS: TOOLS AND TECHNIQUES

1. EXPERT JUDGMENT
Expertise should be considered from individuals or groups with specialized knowledge or
training in the following topics:

 Relevant functional areas such as finance, engineering, design, development, supply

chain management, etc.;
 Laws, regulations, and compliance requirements; and
 Claims administration.

2. CLAIMS ADMINISTRATION

Contested changes and potential constructive changes are those requested changes where the
buyer and seller cannot reach an agreement on compensation for the change or cannot agree
that a change has occurred. These contested changes are called claims. When they cannot be
resolved, they become disputes and finally appeals. Claims are documented, processed,
monitored, and managed throughout the contract life cycle, usually in accordance with the
terms of the contract. If the parties themselves do not resolve a claim, it may have to be
handled in accordance with alternative dispute resolution (ADR) typically following
procedures established in the contract. Settlement of all claims and disputes through
negotiation is the preferred method.
3 DATA ANALYSIS

Data analysis techniques that can be used to monitor and control procurements include but
are not limited to:
 Performance Reviews. Performance reviews for contracts measure, compare, and
analyze quality, resource, schedule, and cost performance against the agreement. This
includes identifying work packages that are ahead or behind schedule, over or under
budget, or have resource or quality issues.
 Earned Value Analysis (EVA). Schedule and cost variances along with schedule and
cost performance indexes are calculated to determine the degree of variance from
target.
 Trend Analysis. Trend analysis can develop a forecast estimate at completion (EAC)
for cost performance to see if performance is improving or deteriorating.

4. INSPECTION

An inspection is a structured review of the work being performed by the contractor.

This may involve a simple review of the deliverables or an actual physical review of the work
itself. On a construction/engineering/infrastructure project, inspections involve walkthroughs
of the site by both the buyer and the contractor to ensure a mutual understanding of the work
in progress.

5. AUDITS
Audits are a structured review of the procurement process. Rights and obligations related to
audits should be described in the procurement contract. Resulting audit observations should
be brought to the attention of the buyer's project manager and the seller's project manager for
adjustments to the project, when necessary.

3.3.1 Preparing for Contract Administration

Perhaps the most important consideration is the contract. The contract must also include the
terms of payment. Typically, the performance and progress of the seller is directly linked to
payments they receive. The project manager must track performance and quality to approve
or decline payment as needed. The contract should define the metrics for acceptance to avoid
disagreements on performance and to ensure that vendors get paid on time.
The contract and the procurement management plan are needed to guide effective contract
administration. The contract dictates the requirements and expectations of the seller and the
buyer. The obligations of both parties should be in alignment with the contract—if they are
not, disagreements, delays, and even work stoppage can ensue. Contract administration
includes the following:

■ Performance reports: Within the contract, the terms for acceptance are defined.
Reports on the seller’s performance are needed to compare with the requirements of the
contracted work.
■ Records management: Date of the work performed, quality of the work, financial
records, performance, and other procurement data is gathered and documented.
■ Invoice payment: According to the terms of the contract, the vendor will submit an
invoice and the buyer will pay the invoice.

■ Change requests: Change requests can complicate contract administration. The

performing organization’s change control system must somehow mesh with the seller’s
change control system. Changes to the project that affect the contracted work require
changes to the contract, addendums to the contract, or a new contract for the additional
or changed work. In some instances, the seller and the buyer may disagree about the
cost of the changes. These differences may be labeled as claims, disputes, or appeals,
and may ultimately slow the project’s progress if not remedied.

Note: If the seller’s performance is unacceptable and a resolution to the problem cannot be
found, the performing organization may elect to cancel the contract. This termination of the
contract is also handled as a change request within the change control system. The contract
should include the terms for how cancellation can occur and alternative dispute resolution
methods, such as a mediator, may happen.

IMPORTANT POINTS:

Project procurement management first begins by determining which facets of the project can
best be served through procurement. This decision often focuses on a make-or-buy analysis
that asks the following questions:
Is it more cost-effective to make or buy the product or service?
Is it more time-efficient to make or buy the product or service?
Are the resources available within the organization to make the product or service?
If the decision has been made to buy the product or service, a SOW is needed to detail
exactly what product or service the organization is buying. The SOW will be given to
potential sellers so that they can prepare their offers in alignment with what is needed by the
performing organization.
To find potential sellers, the performing organization issues an SOW to the sellers with the
appropriate procurement documents. Sellers can be found through a preferred vendor list,
advertisements, industry directories, trade organizations, or other methods. The initial
communication from the buyer to the seller is a request. Specifically, the seller issues one of
the following documents:
 Request for proposal: This is used when there are multiple factors in
addition to price to determine which seller is awarded the contract. The
buyer is looking for a solution to a need.
 Request for quotation: This is used when the deciding factor is price.
 Invitation for bid: This is used when the deciding factor is price.

The seller can host a bidder conference to ensure that all sellers have equal opportunity to
gain information about the procured work or service and that the information they do get is
the same. After the seller conference, the selection process is based on several things:
 Procurement documents from the sellers
 Company policies and procedures
 Screening systems to sift out sellers that do not qualify for the work
 Weighting system to make an unbiased selection of a seller
Once the seller has been selected, the contract is created between the buyer and the seller.
This formal, preferably written, agreement between the buyer and the seller defines all
requirements of both the buyer and the seller. The seller’s requirements specify how and
when the work will be completed. The buyer’s requirements, on the other hand, specify the
terms and conditions that the seller is expected to maintain. The contract may also include
information on resolving claims, how changes to the contract are to be made, and who are the
authorities within the buyer’s organization and the seller’s organization.
Contract administration is the process of ensuring that the seller meets the obligations and
requirements specified in the contract. If changes arise in the project that affect the contract,
there may be additional negotiation for payments based on the added or removed components
of the procured work.
At the completion of the contract, the seller and the buyer complete product
verification, which is much like administrative closure, to confirm that the seller has met their
obligations. Documentation of the procurement experience is created so that the information
can be applied to other procurement activities on the current projects and to other projects
within the organization.

3.3.2 Completing Contract Administration

The actual process of completing contract administration relies heavily on communication
among the project manager, the contract officer, and the seller. The communications plan
may have considerations for how and when the communication between the buyer and the
seller should take place and what the purpose of the communication should be. There are six
primary concerns, in addition to communication, within contract administration:

■ Integrated change control: Changes to the contract will follow the terms of the
contract as this defines the procedures for how the contract may be changed. The
 process for changing the contract includes the forms; documented communications;
tracking; conditions within the project, business, or marketplace that justify the needed
changes; dispute resolution procedures; and the procedures for getting the changes
approved within the performing organization.

■ Performance reviews and audits: As the vendor completes the contracted work, the
seller will need to inspect the work for progress, compliance with contract
requirements, and adherence to agreed-to schedule, cost, and quality constraints.

■ Performance reporting: Performance reporting is the communication between the

project manager and management on how the seller is performing with regard to the
guidelines in the contract. This is part of communications and should be documented
within the communications management plan. Earned value analysis and trend analysis
can be used to monitor performance of the seller.
■ Payment system: Sellers like to be paid when they have completed their obligations.
How the sellers are paid is controlled by the payment system, which includes
interactions between the project manager and the accounts payable department. The
performing organization may have strict guidelines for how payment requests are
submitted and approved, and how payments are completed. On larger projects, the
project management team may have specific procedures for submitting the payment
requests.

■ Claims administration: This is not fun. Claims result from contested changes, such
as disagreements about a change that has occurred and who should pay for that change.
Although these go by various names—claims, disputes, and appeals—they all mean the
same thing: The buyer and the seller are in disagreement over who should pay for the
changes to the project work. Resolution may come through negotiation, mediation, or
arbitration, as defined by the contract.

■ Records management system: This is part of the project management information

system that is designed to track all contracting documentation. This is essential, since it
assists the project manager in managing procurement documents and records, and
serves as a point of reference regarding communications and procurement paperwork.

3.3.3 Inspecting and Auditing the Procurement Process

Like controlling quality and scope validation, inspection is also needed for the goods and
services the seller provides to the buyer. An inspection, depending on the size of the procured
work and services, might be a walk-through or an in-depth inspection of the work and its
quality. In some projects, a government official may act on behalf of the customer and
inspect the work, such as electrical and plumbing work in construction.
The successes and failures within the procurement process of the project are reviewed from
the procurement planning stage through contract administration. The intent of the audit is to
learn what worked and what didn’t during the procurement processes. This knowledge can
then be applied to other areas within the current project and to other projects within the
performing organization. The documentation of the procurement process should become part
of the records management system, which in turn will become part of organizational process
assets.

Audits examine the entire procurement process to ensure that all parties are abiding by the
terms of the contract. From the buyer’s perspective, they want to make certain that all is
delivered according to the terms of the contract prior to payment terms. On large, complex
projects and contracts an audit may examine the billing and the deliverables by the seller, and
identify any variances that exist. A reconciliation happens to ensure that what was purchased
was actually delivered. The terms of the contract define up front the audit process and sets
expectations for both parties.

3.3.4 Reviewing the Results of Procurement Control

Once the deliverables have been accepted and the contract has been closed, it’s essential to
collect all of the contract information and record it in the contract file. A contract file is a
complete indexed set of records of the procurement process and is incorporated into the
administrative closure process. These records include financial information as well as
information on the performance and acceptance of the procured work.

Assuming the procured work is acceptable and meets the requirements of the contract, the
contract can be closed. The formal closure of a project comes in a written notice from the
contract officer to the seller. The notice informs the seller that its work is acceptable and that
the contract is considered closed. The formal closure process may vary according to the size
of the project. The requirements for contract closeout should be documented within the
contract. Closing procurement is an enterprise process and is an output of the control
procurement process.
Within the contract, the terms for payment are specified. The terms for payment may stipulate
under what conditions the seller will provide an invoice for the work completed. In addition,
the buyer may specify when and how the invoices are paid (for example, “Net 30 days from
receipt of the invoice”). If the project is using an external payment system, there will be
communication between the buyer and the seller, and between the buyer and the external
payment system. If the performing organization is handling its own payment processing, this
output would simply be payments.
Termination of the contract may not always be caused by something the vendor did wrong.
The buyer may no longer need the goods or services being provided, but the buyer may still
be contractually obligated to pay the vendor. The contract overrides everything. When there
is a dispute, technically a claim, the contract even directs the claims administration process.
Should the buyer and the seller not be able to work out their differences themselves, things
are escalated. This means the buyer and the seller will participate in alternative dispute
resolution—a nice way of not having to say, “Here come the attorneys!” Alternative dispute
resolution includes mediation, arbitration, and aims to avoid litigation.

Both approved and declined changes are documented as to their cost, time, and effect on the
project and the procured work. Changes that are approved require updates to the project plan,
subsidiary plans, and possibly to other project documentation. Remember that all changes
must flow through the project’s integrated control system. Changes to the project
management plan can include updates to the following:

■ Risk management plan

■ Procurement management plan
■ Schedule baseline

■ Cost baseline
■ Project documents

The performance of the contracted work, the contract obligations, and the procedures of the
performing organization generate correspondence between the buyer and the seller. The
correspondence often takes the form of warnings, letters of discontent, and project
performance reviews from the buyer to the seller. This correspondence can serve as
documentation for legal action if disputes arise between the buyer and the seller. All of the
invoices, seller performance information, and lessons learned are updated and become part of
the organizational process assets updates. You’ll also include a procurement file that includes
all contract documentation as part the final project files for archiving.

3.4 CONTROL PROCUREMENTS: OUTPUTS

1 CLOSED PROCUREMENTS
The buyer, usually through its authorized procurement administrator, provides the seller with
formal written notice that the contract has been completed. Requirements for formal
procurement closure are usually defined in the terms and conditions of the contract and are
included in the procurement management plan. Typically, all deliverables should have been
provided on time and meet technical and quality requirements, there should be no outstanding
claims or invoices, and all final payments should have been made. The project management
team should have approved all deliverables prior to closure.

2. WORK PERFORMANCE INFORMATION

Work performance information includes information on how a seller is performing by
comparing the deliverables received, the technical performance achieved, and the costs
incurred and accepted against the SOW budget for the work performed.

3. PROCUREMENT DOCUMENTATION UPDATES

Procurement documentation that may be updated includes the contract with all supporting
schedules, requested unapproved contract changes, and approved change requests.
Procurement documentation also includes any seller-developed technical documentation and
other work performance information such as deliverables, seller performance reports and
warranties, financial documents including invoices and payment records, and the results of
contract-related inspections.

4. CHANGE REQUESTS
Change requests to the project management plan, its subsidiary plans, and other components
such as the cost baseline, schedule baseline, and procurement management plan, may result
from the Control Procurements process.
Change requests are processed for review and disposition through the Perform Integrated
Change Control process
Requested but unresolved changes can include direction provided by the buyer or actions
taken by the seller, which the other party considers a constructive change to the contract.
Since any of these constructive changes may be disputed by one party and can lead to a claim
against the other party, such changes are uniquely identified and documented by project
correspondence.

5. PROJECT MANAGEMENT PLAN UPDATES

Any change to the project management plan goes through the organization's change control
process via a change request. Components that may require a change request for the project
management plan include but are not limited to:
 Risk management plan.. Each agreement and seller has its own set of risks that may
require updates to the risk management plan. If significant unexpected risks occur
during the execution of the contract, the risk management plan may require updating.
Specific risks are incorporated into the risk register.
 Procurement management plan. The procurement management plan contains the
activities to be undertaken during the procurement process. Updates may be required
depending on the results of the performance of the sellers during execution of the
work.
 Schedule baseline. If there are significant schedule changes created by sellers that
impact overall project schedule performance, the baseline schedule may need to be
updated and approved to reflect the current expectations. The buyer should be aware
of any cascading impacts of schedule delays created by a seller that impact other
sellers.
 Cost baseline. Contractor and material costs can change frequently during the delivery
of a project. These changes can occur because of fluctuating materials and labor
prices created by the external economic environment and need to be incorporated into
the cost baseline.
6 PROJECT DOCUMENTS UPDATES
Project documents that may be updated as a result of carrying out this process include but are
not limited to:
 Lessons learned register. The lessons learned register can be updated with techniques
that were effective in maintaining the scope, schedule, and cost of the procured items.
Where variances occurred, the register should show the corrective actions that were
used to respond to variances and how effective those actions were. If there are any
claims, information should be documented to avoid recurrences. Additional
information on how to improve the procurement process can also be recorded.
 Resource requirements. As the work progresses by the contractors, there may be
changes to the resource requirements resulting from work being done that is not in
accordance with the planned work schedule.
 Requirements traceability matrix. The requirements traceability matrix is updated
with information on requirements that have been satisfied.
 Risk register. Each approved seller comes with its own unique set of risks, depending
on the seller's organization, the duration of the contract, the external environment, the
project delivery method, the type of contracting vehicle chosen, and the final agreed-
upon price. Changes are made to the risk register during the execution of the project,
as early risks may no longer be applicable and new risks occur.
 Stakeholder register. As the work progresses through the execution phase, the
contractors and suppliers may change. These changes should be reflected in the
stakeholder register.

7 ORGANIZATIONAL PROCESS ASSETS UPDATES

Organizational process assets that can be updated as a result of the Control
Procurements process include but are not limited to:
 Payment schedules and requests. All payments should be made in accordance with the
procurement contract terms and conditions.
 Seller performance evaluation documentation. Seller performance evaluation
documentation is prepared by the buyer and documents the seller's ability to continue
to perform work on the current contract, indicates whether the seller can be allowed to
perform work on future projects, or rates how well the seller is performing the project
work or has performed in the past.
 Prequalified seller lists updates. Prequalified seller lists are lists of potential sellers
who are previously qualified (approved). These lists will be updated according to the
Procurement Control process outcomes because sellers could be disqualified and
removed from the lists based on poor performance.
 Lessons learned repository. Lessons learned should be archived in the lessons learned
repository to improve procurements on future projects. At the end of a contract, the
actual results of the procurement are compared with the projected results in the
original procurement management plan. These lessons learned state whether the
project objectives were achieved and, if not, provides the reasons they were not.
  Procurement file. A complete set of indexed contract documentation, including the
closed contract, is prepared for inclusion with the final project files.

3.5 Procurement Guidance

The current state of procurement practice reflects dynamic interaction between two opposing
forces, and as such it remains in considerable flux. On the one hand, strong drivers both
internal (e.g., increased corporate accountability) and external (e.g., electronic commerce) to
the project organization press for change. On the other hand, procurement has been practiced
by organizations for hundreds if not thousands of years, and through a Darwinian process, the
systems and techniques in practice today are proven in terms of efficacy. Indeed, most
organizations have volumes of procedures describing the procurement process in
considerable detail, and resources such as the PMBOK lay out all the basic process steps. So
what should the project manager think about the state of procurement today? What advice can
we give for keeping the best of the old without missing opportunities of the new? Based on
continuing research into advancing the practice of procurement, following seven project
management heuristics or rules of thumb are suggested:

1. Don’t tinker with procurement systems. The colloquialism ‘‘if it ain’t broke, don’t fix it’’
is not an exemplar of good grammar, but it captures an important consideration in terms of
project procurement: Most systems and procedures serve a useful purpose and are understood
by the people in your organization. Unless there is compelling reason for change, the project
will likely be better off if you refrain from tinkering with the procurement process. Many
managers seem compelled to involve themselves in every detail of a project, and such
detailed involvement is clearly warranted in many areas (e.g., maintaining political support
for the project, assessing complex technical/financial tradeoffs). But system change is costly,
as people’s performance levels decrease reliably when they are required to learn new systems
and procedures. Particularly in mature organizations with stable environments and
established procedures, procurement systems is likely to be the last area requiring detailed
project management attention.

2. Do manage the critical path. Notwithstanding the guidance in the preceding heuristic, we
noted at the beginning of the chapter that procurement often lies on the critical path of a
project, and we discussed exchange point analysis as an approach to systematically
identifying opportunities for process enhancement. As such, any significant improvement in
procurement efficiency or efficacy can effect direct improvement to the project as a whole,
and the project manager sits in a prime position to view potential improvements.
However, it’s important for the project manager to balance the potential for performance
gains through procurement enhancement with project risk. Many techniques for decreasing
procurement cycle time (e.g., concurrent vendor development, close increase project risk.
Reducing the most likely project duration (e.g., by accelerating procurement schedules) only
makes sense so long as management is also willing to accept the worst-case scenario that
may emerge if coordination fails and vendor projects spin out of control.
3. Question the matrix. Most modern projects are organized using matrix management; that
is, most people working on modern projects belong to two organizations: a functional group
and a program or product group. In the case of procurement, the question is whether and how
to integrate procurement people into the project organization. On the one hand, where
standard commodities are required for a project, and specifications and schedules can be
developed well in advance of their need, there is little advantage to having procurement
specialists join the project team. Indeed, excluding procurement specialists from the project
team reduces the number of people requiring direct supervision by and attention of the project
manager. On the other hand, many project organizations depend critically upon certain key
vendors, and understanding specific vendors’ capabilities in detail can be central to project
success. In such cases, procurement specialists on the project team may be indispensable.

4. Balance efficiency with flexibility. Efficiency is key to controlling costs and earning
profits.
But so is developing a product that sells and adapting to marketplace shifts. Efficiency is
often obtained through standardization of procedures, specialization of labor, and buying in
quantity with long lead time. However, standardized procedures are not generally flexible to
change; specialized personnel require time and money to train for different tasks; and large-
quantity, long-lead time contracts can be expensive to change or break. The project manager
must maintain a balance between efficiency and flexibility, and such balance is likely to shift
over the life cycle of a project, from one project to the next, and certainly across different
technologies and industries.

5. Benchmark. Procurement systems and processes tend to be quite visible outside of

organizations, and the astute project manager can periodically scan the environment to
ascertain how various other organizations (e.g., competitors, partners, suppliers, customers)
conduct their procurement processes (e.g., in terms of the four previous heuristics).
Through such periodic looks, one’s own procurement processes can be compared to those of
other organizations to assess where one stands. Such assessment is commonly referred to as
benchmarking, and it represents a relatively simple and inexpensive source of ideas for
potential improvement—as well as confirmation that one’s own processes are performing
well (or at least adequately). Specialists and managers within the procurement organization
are likely to perform benchmarking on a continuous basis, so procurement benchmarking
information is often as close as a telephone call.

6. Time carefully advancing information technology. As noted, procurement is an exchange

oriented process, and information represents by far the principal object of exchange.
Thus, advancing information technology offers omnipresent potential to enhance the
procurement process, and because information technology advances so rapidly (e.g., annual
doubling in terms of performance/price), last year’s infeasible approach may very well
develop into this year’s competitive advantage and next year’s crisis. Unfortunately,
information technology improvements to a procurement process generally take substantial
time for implementation, so one must anticipate promising new technologies well in advance
of their integration into the project organization. Further, information technology
implementations often represent complex projects themselves, so the project manager can
find him- or herself managing two projects (i.e., one concerning information technology and
one concerning the organization’s products) simultaneously. Careful timing is required here,
as a project manager cannot generally afford to get too far ahead or too far behind in terms of
information technology.

7. Manage software procurements closely. For over 50 years, software projects have been
consistently underestimated in terms of cost, schedule, and complexity, and the success rate
of large software projects in particular is dismally low. All projects clearly share many
similarities, but it is important to note those aspects of software projects that make them
unique (e.g., software is intangible, quality is difficult to evaluate, requirements are hard to
specify and keep static) and manage them separately. Further, organizations rely increasingly
upon vendors for software expertise, so the project manager depends upon the procurement
system to select a capable vendor and establish means for effective coordination. As software
becomes increasingly complex and products become increasingly software-intensive,
managing the procurement of software can only become more critical to project success.
There is no substitute for people with software (procurement) experience, and your project
may benefit from one or more specialists if it meets the criteria above.

SUMMARY
Effective procurement is critical for effective project management; if a project manager is not
managing procurement, then he or she is only managing 50 percent or less of the project as a
whole. The project management professional has a number of different lenses through which
to view procurement, but I find it particularly useful to describe procurement in terms of a
process, as it enables one to focus on those aspects that are most important in terms of project
management, even supporting analytical efforts that can effect dramatic performance
improvement.

Project procurement management enables a project to obtain resources, materials, equipment,

services, and other components needed to complete the project successfully. It is the process
of finding sellers that can supply the needed products or services at a fair rate and that meet
the quality, schedule, and cost expectations of the project. The product description will help
the project manager and the vendor determine the best solution for the procurement need.
One of the first activities the project manager and the project team complete together before
procuring products is to decide the need to buy versus the ability to make the product in-
house. A decision tree can help the project manager determine which decision is most cost-
effective, reliable, and best for the project. A make-or-buy analysis can compare the benefits
of buying versus creating in-house—including attributes other than just price and time.
Bidder conferences allow the bidders to meet with the project managers and other officials
representing the seller to confirm the details of the contract statement of work. Recall that the
statement of work (SOW) is provided to all vendors that may be creating bids or proposals
for the seller. The bidder conference enables the bidders to obtain any additional information
they may need to create a full and complete bid, quote, or proposal and for all bidders to hear
the same information. It is part of the contracting process and proceeds to source selection.

Students must be familiar with the different contract types and when to use each one. Here’s
a recap of the most common contract types:
■ Cost plus fixed fee: Details the fixed cost of the contract, which includes a profit
margin for the seller.
■ Cost plus percentage of cost: Has a price for the contracted product or service, but
cost overruns are assigned to the buyer.

■ Cost plus award fee: Requires the buyer to pay for all the project costs and give the
seller an award fee based on the project performance, including meeting certain project
criteria or other goals established by the buyer. The award fee can be tied to any factor
the buyer determines, and the factor doesn’t have to be exact.
■ Cost plus incentive fee: The seller determines a price for the product or service but
includes an incentive reward for completing the procured work on time or ahead of
schedule.
■ Fixed-price: A simple fixed price for the contract. This can also include incentives
for the seller to complete the project early or ahead of schedule, or for other savings
shared between the buyer and the seller.

■ Fixed-price with economic price adjustment: Ideal for long-term projects that may
span years to complete the project work. The contract defines a fixed price, with
caveats for special categories of price fluctuation.
■ Time and materials: A price is assigned for the time and materials provided by the
seller.

Planning for Purchases

❑ Procurement planning involves determining which aspects of the project can
best be fulfilled by procuring the specified products or services.

❑ A clearly defined product description is needed to procure the product

successfully.

❑ A make-or-buy analysis calculates and predicts which is better: for the

performing organization to make the product in-house or to hire an entity outside of the
organization to make the product.

❑ Some contracts can transfer the risk to the seller, while other contract types
require the buyer to retain the risk of cost overruns.
 ❑ The procurement management plan describes the procedures for procuring
work or products.

❑ Bids and quotes are needed when the decision will be made based on price.
Proposals are needed when decisions are based on other factors, such as experience,
qualifications, and approaches to the project work.

❑ The buyer should provide the seller with an SOW; details on the type of
response needed such as a proposal, quote, or bid; and any information on contractual
provisions, such as nondisclosure agreements or a copy of the model contract that the
buyer intends to use.

❑ Contracting is requesting the potential sellers to provide bids, proposals, or

quotes to complete the project work or supply the described product.

❑ An organization may retain a qualified sellers list from which the project team
is forced to select a vendor. In other instances, the project team can rely on trade
associations, industry directories, and other resources to locate qualified sellers.

❑ Advertisements for the procurement needs in newspapers and trade

publications can increase the list of sellers from which the buyer can choose. Many
government entities must publish procurement opportunities.

❑ Bidder conferences enable sellers to meet with the buyer to query the buyer on
details of the procurement process. The goal of the bidder conference is to ensure that
all prospective sellers have the same information and all the needed information to
complete an accurate bid or proposal.

Conducting Procurements
❑ Samples of the sellers’ previous related products or services can serve as
evaluation criteria.

❑ Contract negotiation focuses on finding a fair and reasonable price for both the
buyer and the seller.

❑ Weighting systems are unbiased approaches to determine which seller has the
best offer to complete the procured product or service.

❑ Screening systems enable an organization to screen out sellers that do not

qualify for the procured product or service.

❑ “Should-cost” estimates are completed by the performing organization to

determine whether sellers completely understand the requirements of the project work.
Controlling Procurements
❑ Controlling the contract ensures that the sellers are meeting their contractual
obligations.

❑ Change requests may require updates to the contract between the buyer and
the seller. Contract change requests are part of the integrated change control system.

❑ The project manager must document and report to the seller and management
on how the seller is meeting its contract obligations.

❑ Procurement audits are intended to review, document, and share the successes
and failures of the current project’s procurement process. The information can be
applied to other projects within the organization.

❑ A contract procurement file is created and is included with the project records
as part of the historical information of the current project.

Keywords:
 Bid: A document presented by the seller to the buyer. Used when price is the
determining factor in the decision-making process.

 Bidder conference: A meeting with prospective sellers to ensure that they all have a
clear and common understanding of the product or service to be procured. Bidder
conferences enable sellers to query the buyer on the details of the product to help
ensure that the proposal the seller creates is adequate and appropriate for the proposed
agreement.

 Centralized contracting: All contracts for all projects need to be approved

through a central contracting unit within the performing organization.

 Contract: A legal, binding agreement, preferably written, between a buyer and

the seller, detailing the requirements and obligations of both parties. Must include an
offer, an acceptance, and a consideration.

 Contract administration: The process of ensuring that the buyer and the seller
both perform to the specifications within the contract.
 Contract change control system: Defines the procedures for how contracts may
be changed. Includes the paperwork, tracking, conditions, dispute resolution
procedures, and procedures for getting the changes approved within the performing
organization.

 Contract closeout: A process for confirming that the obligations of the contract
were met as expected. The project manager, the customer, the key stakeholders, and,
in some instances, the seller complete the product verification together to confirm that
the contract has been completed.

 Contract file: A complete indexed set of records of the procurement process

incorporated into the administrative closure process. These records include financial
information as well as information on the performance and acceptance of the procured
work. This is also known as the procurement file and it becomes part of
organizational process assets.

 Cost plus award fee contract: A contract that requires the buyer to pay for all
the project costs and gives the seller an award fee based on the project performance,
meeting certain project criteria, or meeting other goals established by the buyer. The
award fee can be tied to any factor the buyer determines, and the factor doesn’t have
to be exact.

 Cost-reimbursable contracts: A contract that pays the seller for the product. In the
payment to the seller is a profit margin of the difference between the actual costs of
the product and the sales amount.

 Direct costs: Costs incurred by the project in order for it to exist. Examples include
equipment needed to complete the project work, salaries of the project team, and other
expenses tied directly to the project’s existence.

 Evaluation criteria: Used to rate and score proposals from sellers. In some
instances, such as a bid or quote, the evaluation criterion is focused just on the price
the seller offers. In other instances, such as a proposal, the evaluation criteria can be
multiple values: experience, references, certifications, and more.
 Fixed-price contracts: Fixed-price contracts are also known as firm fixed-price
and lump-sum contracts. These contracts have a preset price for which the vendor is
obligated to perform the work or to provide materials for the agreed-upon price.

 Fixed-price with economic price adjustment contract: A contract for long-term

projects that may span years to complete the project work. The contract does define a
fixed price, with caveats for special categories of price fluctuation.

 Force majeure; A powerful and unexpected event, including “acts of God,”

such as a hurricane or another disaster.

 Invitation for bid: A document from the buyer to the seller that asks the seller to
provide a price for the procured product or service.

 Letter of intent: A document that expresses the intent of the buyer to procure
products or services from the seller. Not equivalent to a contract.

 Make-or-buy analysis: Used in determining what part of the project scope to

make and what part to purchase.

 Oligopoly: A market condition in which the actions of one competitor affect the
actions of all the other competitors.

 Procurement: The process of a seller soliciting, selecting, and paying for products or
services from a buyer.

 Procurement audit: Reviews what worked and what did not work during the
procurement processes. The successes and failures within the procurement process are
reviewed from procurement planning through contract administration.

 Procurement management plan: A subsidiary project management plan that

documents the decisions made in the procurement planning processes. It specifies
how the remaining procurement activities will be managed.
 Proposal: A document from the seller to the buyer responding to a request for
proposal or other procurement document.

 Qualified sellers list: A list that generally includes contact information, history of
past experience with the seller, and other pertinent information. The performing
organization may have lists of qualified sellers, preferred sellers, or approved sellers.

 Quote: A document from the seller to the buyer; used when price is the determining
factor in the decision-making process.

 Request for proposal: A document from the buyer to the seller that asks the
seller to provide a proposal for completing the procured work or for providing the
procured product.

 Request for quote: A document from the buyer to the seller asking the seller
 Should-cost estimates: Estimates created by the performing organization to
predict what the cost of the procured product should be. If there is a significant
difference between what the organization has predicted and what the seller has
proposed, the statement of work was inadequate, the seller has misunderstood the
requirements, or the price is too high.

 Single source: A specific seller that the performing organization prefers to contract
with.

 Sole source: The only qualified seller that exists in the marketplace.

 Statement of work: A document that fully describes the work to be completed, the
product to be supplied, or both. The SOW becomes part of the contract between the
buyer and the seller. It is typically created as part of the procurement planning process
and is used by the seller to determine whether they can meet the project’s
requirements. This is also known as a TOR, terms of reference.
  Time and materials: A contract type whereby the seller charges the buyer for the
time and materials for the work completed. T&M contracts should have a not-to-
exceed (NTE) clause to contain costs. These contracts are also called time and means
contracts. They are considered a hybrid contract because they require the buyer to pay
a fixed fee for the time and a variable fee for the materials purchased.

Check your Progress:

1. You are the project manager of the GHY Project for your organization. A portion of
this project includes dangerous work; although members of the project team could likely
complete the work, your sponsor doesn’t want to accept the risk. In this situation, which of
the following may be used as a risk mitigation tool?

A. A vendor proposal
B. A contract

C. A quotation
D. Project requirements

2. You must understand the provisions of project procurement even if your typical
projects do not include procurements. Based on the information in this chapter, a contract
cannot have provisions for which one of the following?

A. A deadline for the completion of the work

B. Illegal activities
C. Subcontracting the work

D. Penalties and fines for disclosure of intellectual rights

3. You are the project manager for the 89A Project. You have created a contract for your
customer. The contract must have which two things?
A. An offer and consideration

B. Signatures and the stamp of a notary public

C. The value and worth of the procured item
D. A start date and an acceptance of the start date
4. The WBS and the WBS dictionary can help a project manager plan for purchases and
acquisitions. Which one of the following best describes this process?
A. The WBS defines the specific contracted work.
B. The WBS defines the requirements for the specific contracted work.

C. The WBS defines the specific contracted work, which must support the requirements
of the project customer.

D. Both parties must have and retain their own copy of the WBS.

5. Yolanda has outsourced a portion of the project to a vendor. The vendor has
discovered some issues that will influence the cost and schedule of its portion of the project.
How must the vendor and Yolanda update the agreement?
A. As a new contract signed by Yolanda and the vendor

B. By submitting the change request to the contract change control system

C. As a memo and SOW signed by Yolanda and the vendor
D. By submitting the change request to the cost change control system

6. You are the project manager of the HHQ Project for your company. You have hired a
vendor to complete a portion of the project, but the vendor doesn’t seem to have met the
project requirements as defined in the contract. You have tried alternative dispute resolutions
to no avail, and you think the claims administration may have to be escalated. The United
States backs all contracts through which of the following?
A. Federal law

B. State law
C. Court system

D. Lawyers

7. Terry is the project manager of the MVB Project. She needs to purchase a piece of
equipment for her project. The accounting department has informed Terry that she needs a
unilateral form of contract. Accounting is referring to which of the following?
A. The SOW

B. A legally binding contract

C. A purchase order
D. An invoice from the vendor
8. Bonnie is the project manager for the HGH Construction Project. She has contracted a
portion of the project to the ABC Construction Company and has offered a bonus to ABC if
they complete their portion of the work by August 30. This is an example of which one of the
following?
A. A project requirement

B. A project incentive
C. A project goal

D. A fixed-price contract

9. You are a project manager for your organization and are progressing through the
procurement management processes. Who should receive the procurement document
package?
A. Your client

B. Your project sponsor

C. Your accounting/finance department

D. Each seller that will participate in the bidding

10. You are the project manager for a company that completes the installation of
electrical fixtures in manufacturing environments. Part of your typical contractual agreement
included coverage of intellectual rights and privity. Privity is what?
A. The relationship between the project manager and a known vendor

B. The relationship between the project manager and an unknown vendor

C. The contractual, confidential information between the customer and vendor

D. The professional information regarding the sale between the customer and vendor

11. Sammy is the project manager of the DSA Project. He is considering proposals and
contracts presented by vendors for a portion of the project work. Of the following, which
contract is least dangerous to the DSA Project?
A. Cost plus fixed fee

B. Cost plus percentage of cost

C. Cost plus incentive fee
D. Fixed-price

12. Bennie is the project manager for his company and he’s working with his project
stakeholder to determine the pros and cons of the different contract types for a portion of his
project. Of the following contract types, which one requires the seller to assume the risk of
cost overruns?

A. Cost plus fixed fee

B. Cost plus incentive fee

C. Lump sum
D. Time and materials

13. Benji is the project manager of the PLP Project. He has hired an independent
contractor for a portion of the project work. The contractor is billing the project $120 per
hour, plus materials. This is an example of which one of the following?

A. Cost plus fixed fee

B. Time and materials
C. Unit price

D. Lump sum

14. Mary is the project manager of the JHG Project. She has created a contract statement
of work (SOW) for a vendor. All of the following should be included in the contract SOW
except for which one?

A. The items being purchased

B. The signatures of both parties agreeing to the SOW
C. The expected quality levels

D. A description of the collateral services required

15. You are the project manager for a software development project for an accounting
system that will operate over the Internet. Based on your research, you have discovered it will
cost you $25,000 to write your own code. Once the code is written, you estimate you’ll spend
$3000 per month updating the software with client information, government regulations, and
maintenance. A vendor has proposed to write the code for your company and charge a fee
based on the number of clients using the program every month. The vendor will charge you
$5 per month per user of the web-based accounting system. You will have roughly 1200
clients using the system each month.

However, you’ll need an in-house accountant to manage the time and billing of the system, so
this will cost you an extra $1200 per month. How many months can you use the system
before it’s better to write your own code rather than hire the vendor?

A. 3 months
B. 4 months
C. 6 months

D. 15 months

16. You are the project manager of a project that will span six years in Columbus, Ohio.
You are negotiating with your project customer for considerations for inflation, cost of
utilities, and other cost factors that will likely fluctuate over the course of the project. What
type of contract should your project have?

A. Cost plus award fee

B. Fixed-price with economic price adjustments
C. Lump sum

D. Fixed-price incentive fee

17. A contract between an organization and a vendor may include a clause that penalizes
the vendor if the project is late. The lateness of a project has a monetary penalty. Thus, the
penalty should be enforced or waived based on which one of the following?

A. Whether the project manager could have anticipated the delay

B. Whether the project manager knew the delay was likely
C. Whether the delay was because of an unseen risk

D. Who caused the delay and the reason why

18. A project manager is considering the marketplace and how it may affect the pricing
on the procured portion of her project. She determines that in her market, there is only a
single-source seller. A single-source seller means what?
A. There is only one qualified seller.
B. There is only one seller the company wants to do business with.
C. There is a seller that can provide all aspects of the project procurement needs.

D. There is only one seller in the market.

19. Thomas is the project manager for his organization, and he is preparing the
procurement process for his project. Several enterprise environmental factors and
organizational process assets assist Thomas in making the vendor selection. In the enterprise
environmental factors are several evaluation criteria that Thomas must consider when he
chooses a vendor for the project. Which one of the following is not a valid evaluation
criterion for source selection?

A. The age of the contact person at the seller

B. The technical capability of the seller

C. Financial capacity
D. Price

20. Henry has sent the ABN Contracting Company a letter of intent. This means which
one of the following?

A. Henry intends to sue the ABN Contracting Company.

B. Henry intends to buy from the ABN Contracting Company.

C. Henry intends to bid on a job from the ABN Contracting Company.

D. Henry intends to fire the ABN Contracting Company.

21. Martha is the project manager of the MNB Project. She wants a vendor to offer her
one price to do all of the detailed work. Martha needs to prepare which type of document?

A. A request for proposal

B. A request for information
C. A proposal

D. An invitation for bid

22. In your organization, all project procurement must pass through a centralized
contracting office. All correspondence between you and the vendors must be recorded and
stored as part of the procurement records management system. These rules also provide
instructions for the project’s procurement document packages from procurement planning
through contract closure. Which one of the following is true about procurement document
packages?

A. They offer no room for bidders to suggest changes.

B. They ensure the receipt of complete proposals.
C. They inform the performing organization why the bid is being created.

D. The project manager creates and selects the bid.

23. A key component of the project procurement management knowledge area is the
actual seller selection. Seller selection is based on many inputs and enterprise environmental
factors by which the project manager must abide. From a PMP candidate’s perspective, in
what process group does source selection happen?

A. Initiating
B. Planning

C. Executing
D. Closing

24. Within your organization, all project managers are required to document the
performance quality ratings, delivery performance, and contractual compliance of each
vendor with which they interact. This is known as what?

A. A requirement
B. A seller rating system

C. Procurement selection
D. An incentive contract

25. You are the project manager for a seller, but you are managing another company’s
project as well. Things have gone well on the project, and the work is nearly complete. There
is still a significant amount of funds in the project budget. The buyer’s representative
approaches you and asks that you complete some optional requirements to use up the
remaining budget. You should do which one of the following?

A. Negotiate a change in the contract to take on the additional work.

B. Complete a contract change for the additional work.

C. Submit the proposed change through the integrated change control system.
D. Deny the change because it was not in the original contract.
ANSWERS TO CHECK YOUR PROGRESS

1. You are the project manager of the GHY Project for your organization. A portion of
this project includes dangerous work; although members of the project team could likely
complete the work, your sponsor doesn’t want to accept the risk. In this situation, which of
the following may be used as a risk mitigation tool?

B. A contract

2. You must understand the provisions of project procurement even if your typical
projects do not include procurements. Based on the information in this chapter, a contract
cannot have provisions for which one of the following?

B. Illegal activities

3. You are the project manager for the 89A Project. You have created a contract for your
customer. The contract must have what two things?

A. An offer and consideration

4. The WBS and the WBS dictionary can help a project manager plan for purchases and
acquisitions. Which one of the following best describes this process?

C. The WBS defines the specific contracted work, which must support the
requirements of the project customer.

5. Yolanda has outsourced a portion of the project to a vendor. The vendor has
discovered some issues that will influence the cost and schedule of its portion of the project.
How must the vendor and Yolanda update the agreement?
B. By submitting the change request to the contract change control system

6. You are the project manager of the HHQ Project for your company. You have hired a
vendor to complete a portion of the project, but the vendor doesn’t seem to have met the
project requirements as defined in the contract. You have tried alternative dispute resolutions
to no avail, and you think the claims administration may have to be escalated. The United
States backs all contracts through which of the following?

C. Court system

7. Terry is the project manager of the MVB Project. She needs to purchase a piece of
equipment for her project. The accounting department has informed Terry that she needs a
unilateral form of contract. Accounting is referring to which of the following?

C. A purchase order

8. Bonnie is the project manager for the HGH Construction Project. She has contracted a
portion of the project to the ABC Construction Company and has offered a bonus to ABC if
they complete their portion of the work by August 30. This is an example of which one of the
following?

B. A project incentive

9. You are a project manager for your organization and are progressing through the
procurement management processes. Who should receive the procurement document
package?

D. Each seller that will participate in the bidding

10. You are the project manager for a company that completes the installation of
electrical fixtures in manufacturing environments. Part of your typical contractual agreement
included coverage of intellectual rights and privity. Privity is what?

C. The contractual, confidential information between the customer and the vendor

11. Sammy is the project manager of the DSA Project. He is considering proposals and
contracts presented by vendors for a portion of the project work. Of the following, which
contract is least dangerous to the DSA Project?

C. Fixed Proce

12. Bennie is the project manager for his company and he’s working with his project
stakeholder to determine the pros and cons of the different contract types for a portion of his
project. Of the following contract types, which one requires the seller to assume the risk of
cost overruns?
C. Lump sum

13. Benji is the project manager of the PLP Project. He has hired an independent
contractor for a portion of the project work. The contractor is billing the project $120 per
hour, plus materials. This is an example of which one of the following?

B. Time and materials

14. Mary is the project manager of the JHG Project. She has created a contract statement
of work (SOW) for a vendor. All of the following should be included in the contract SOW
except for which one?

B. The signatures of both parties agreeing to the SOW

15. You are the project manager for a software development project for an accounting
system that will operate over the Internet. Based on your research, you have discovered it will
cost you $25,000 to write your own code. Once the code is written, you estimate you’ll spend
$3000 per month updating the software with client information, government regulations, and
maintenance. A vendor has proposed to write the code for your company and charge a fee
based on the number of clients using the program every month. The vendor will charge you
$5 per month per user of the web-based accounting system. You will have roughly 1200
clients using the system each month.

However, you’ll need an in-house accountant to manage the time and billing of the system, so
this will cost you an extra $1,200 per month. How many months can you use the system
before it’s better to write your own code rather than hire the vendor?

C. 6 months

16. You are the project manager of a project that will span six years in Columbus, Ohio.
You are negotiating with your project customer for considerations for inflation, cost of
utilities, and other cost factors that will likely fluctuate over the course of the project. What
type of contract should your project have?

B. Fixed-price with economic price adjustments

17. A contract between an organization and a vendor may include a clause that penalizes
the vendor if the project is late. The lateness of a project has a monetary penalty. Thus, the
penalty should be enforced or waived based on which one of the following?
D. Who caused the delay and the reason why

18. A project manager is considering the marketplace and how it may affect the pricing
on the procured portion of her project. She determines that in her market, there is only a
single-source seller. A single-source seller means what?

B. There is only one seller the company wants to do business with.

19. Thomas is the project manager for his organization, and he is preparing the
procurement process for his project. Several enterprise environmental factors and
organizational process assets assist Thomas in making the vendor selection. In the enterprise
environmental factors are several evaluation criteria that Thomas must consider when he
chooses a vendor for the project. Which one of the following is not a valid evaluation
criterion for source selection?

A. The age of the contact person at the seller

20. Henry has sent the ABN Contracting Company a letter of intent. This means which
one of the following?

B. Henry intends to buy from the ABN Contracting Company.

21. Martha is the project manager of the MNB Project. She wants a vendor to offer her
one price to do all of the detailed work. Martha is looking for which type of document?

D. An invitation for bid

22. In your organization, all project procurement must pass through a centralized
contracting office. All correspondence between you and the vendors must be recorded and
stored as part of the procurement records management system. These rules also provide
instructions for the project’s procurement document packages from procurement planning
through contract closure. Which one of the following is true about procurement document
packages?

B. They ensure the receipt of complete proposals.

23. A key component of the project procurement management knowledge area is the
actual seller selection. Seller selection is based on many inputs and enterprise environmental
factors by which the project manager must abide. From a PMP candidate’s perspective, in
what process group does source selection happen?
C. Executing

24. Within your organization, all project managers are required to document the
performance quality ratings, delivery performance, and contractual compliance of each
vendor with which they interact. This is known as what?

B. A seller rating system

25. You are the project manager for a seller, but you are managing another company’s
project as well. Things have gone well on the project, and the work is nearly complete. There
is still a significant amount of funds in the project budget. The buyer’s representative
approaches you and asks that you complete some optional requirements to use up the
remaining budget. You should do which one of the following?

C. Submit the proposed change through the integrated change control system.