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Project Management from Simple to Complex

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Chapter 12Project Procurement and

Closure

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Learning Objectives

• Identify the factors that are considered when deciding whether to buy goods from within the organization or to obtain them from outsiders

• Identify what factors are considered when deciding to outsource or perform the work within the organization

• Describe the role of suppliers

• Describe the role of vendors

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Learning Objectives

• Describe the role of partners

• Identify factors that determine which type of contract to select

• Describe the types of fixed-cost contracts

• Describe the types of cost reimbursable contracts

• Describe the components of the procurement plan

• Identify the decisions made when selecting the type of contract

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Learning Objectives

• Describe how bidders are qualified, solicited, and chosen

• Identify the methods used to manage the contracts

• Describe the procedures for closing out contracts

• Describe the elements and purpose of the postproject review process

• Identify the types of documents that should be archived

• Identify the objectives of the project closeout celebration

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Identifying the Need for Resources Outside the Organization

• The project team decides what work that will be self-performed and what will be outsourced

• Primary factors that influence procurement are:

– Cost (Budget)

– Schedule

• Other factors that influence procurement are:

– Risk

– Quality

– Flexibility

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Identifying the Need for Resources Outside the Organization

• To determine whether to outsource or do the work within the organization, consider:

– Which option is less costly

– Which option can deliver the work on time

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Procurement Plan

• Suppliers: Source of commodities

• Commodities: Items that can be bought off the shelf with no special modification for the project

• Purchasing commodities from suppliers focuses on achieving the lowest cost

• On smaller, less complex projects — Supplies can be purchased from the supplier’s catalog

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Procurement Plan

• On larger, more complex projects — List of materials and supplies is developed from the project cost estimate

• The list is provided to suppliers as a request for quote

– Request for quote (RFQ): Requires a bidder to provide a price and additional information for a defined scope of work

• Organizations maintain a list of suppliers that meet the organization’s requirements

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Procurement Plan

• Bid: An offer to provide something of value for compensation

– Can be written or verbal and can be in response to a solicitation or unsolicited

• Key supplier: A person or organization supplying goods or services to the project that has a special relationship with the project or parent organization and might bypass the bidding process

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Procurement Plan

• Vendor: Provider of problem solutions

• They provide a unique product or service required for project, which cannot be readily purchased in the marketplace

• The project team issues a request for proposal

– Request for proposal (RFP): Requires a bidder to offer solutions and ideas on how to perform the scope of work and a price for performing that work

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Procurement Plan

• Vendors are encouraged to submit suggestions that will:

– Reduce total project cost

– Shorten the schedule

– Improve the performance

• A team member is assigned to:

– Monitor the relationship

– Provide support from project resources to help assure vendor success

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Procurement Plan

• Partnership: Formal arrangement to execute the project with each party contributing resources

• It is formed when the parent organization lacks key skills or relationships

• Factors critical to the success of a partnership

– Clear definition of roles and responsibilities on the project

– Common understanding of the project goals

– Scope of work for each partner

Procurement Plan — Exercise

12-15Level of Specification

Level of Complexity of

the Procurement

High

Low

Very Specific

Very General

?

?

?

Fill in the gaps with the appropriate providers of outsourced goods or services — Suppliers, Vendors, and Partners

1

2

3

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Selecting the Type of Contract

• Contract: An agreement that is legally enforceable

• Contracting plan: Defines the relationship between the project and the subcontractors and defines a process for making changes in the agreement

• Factors to consider when selecting the type of contract:

– Uncertainty of the scope of the work needed

– Which party assumes the risk of unexpected cost increases

– The importance of meeting the scheduled milestone dates

– The need for predictable project costs

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Selecting the Type of Contract

• The legal contracts that support the procurement plan consist of two general types of contract:

– Fixed price: A type of contract that pays a contractor an amount that is agreed upon at the start of the project

– Cost reimbursable: A contract in which the organization agrees to pay the contractor for the cost of performing the service or providing the goods

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Figure 12.7 - Table of Fixed Price Contracts and Characteristics

Table of Contract Types and Characteristics.PNG

Click below toview full-size

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Figure 12.9 - Table of Contract Types and Characteristics

Table of Contract Types.PNG

Click below toview full-size

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Procurement Process

• Components of the procurement plan:

– Selecting the appropriate relationships and contract approaches for each outsourced service or type of materials

– Preparing RFQs and RFPs and evaluating partnership opportunities

– Evaluating RFQs, RFPs, and partnerships

– Awarding and signing contracts

– Managing quality, timely performance, and contract changes

– Closing contracts

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Procurement Process

• Factors to be considered when determining the contracting approach

– Whether the required work/materials is a commodity, customized product or service, or unique skill or relationship

– Type of relationship required — Supplier, vendor, or partnership

– Type of approach required — RFQ, RFP, or personal contact

– Scope of work

– The risks involved and which party should assume which types of risk

– Affect of procurement on activities on the project schedule’s critical path and the amount of float on those activities

– The need for certainty of the cost

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Procurement Process

• Solicitation: Process of requesting a price and supporting information from bidders

• The eligibility of a supplier is determined by the ability to meet project requirements and demonstrate financial stability

– Quality specifications

– Project schedule

• RFQs and RFPs are sent to eligible suppliers

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Procurement Process

• Evaluation of bids in response to RFQs — The lowest total price will win the contract

• Evaluation of bids in response to RFPs — Includes the price and an evaluation of the technical approach chosen by the bidder

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Procurement Process

• A project representative validates all conditions of the bid and the contract with the potential contractor

• Less complex awards requires a reading and signing of the contract to ensure the supplier understands the contract terms and requirements of the project schedule

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Procurement Process

• More complex projects require detailed discussion of:

– Goals

– Potential barriers to accomplishing those goals

– Project schedule and critical dates for the contract to make

– Processes for resolving conflicts and improving work processes

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Procurement Process

• The manager of supplier contracts develops detailed specifications and assures compliance to these specifications

• The manager of vendor contracts:

– Assures the contractors have the skills and capacity to accomplish the work

– Tracks the vendor’s performance against the project needs

– Provides support and direction when needed

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Procurement Process

• The manager of partnering arrangements develops alignment around common goals and work processes

• Long lead items: Equipment or materials that will require a long time to acquire or build

• Logistics: Managing procurement, distribution, maintenance, and replacement of goods and services

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Project Closure

• To close contracts:

– Systems are tested

– Materials are inspected

– Punch lists of work to be completed are made

– Final payments are made

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Project Closure

• Postproject evaluations — To capture the lessons learnt which can be transferred to future projects

– Project profile evaluation

– Trust and alignment effectiveness

– Schedule management

– Budget management

– Risk mitigation

– Procurement contracts

– Customer satisfaction

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Project Closure

• The results of the postproject evaluations are summarized in reports for external (stakeholders) and internal (senior management) use

• The documents to be archived:

– Charter documents

– Scope statement

– Original budget

– Change documents

– DPCI ratings

– Manager’s summary

– Final DPCI rating

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Project Closure

• Project celebration is an opportunity to improve customer and team member satisfaction

• Awards may be given to individuals who made outstanding contributions to the project

• Celebration creates a positive memory of the project and reinforces the learning that can be transferred to future projects