This document provides an overview of project procurement management. It discusses the key processes involved, which include planning procurements, conducting procurements, controlling procurements, and closing procurements. Different types of contracts are also outlined, including fixed-price, cost-reimbursable, and time and material contracts, along with their risks for buyers and sellers. Make-or-buy analysis and expert judgement are two techniques used in planning procurements. The outputs of the planning process include the procurement management plan, procurement statement of work, and procurement documents.

1. Chapter
10:
Project
Procurement
Management
Stevbros
Training
&
Consultancy
www.stevbros.edu.vn
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PMI,
PMP
and
PMBOK
are
registered
marks
of
the
Project
Management
Ins9tute,
Inc.

2. Overview
Ini%a%ng
process
group
Planning
process
group
Execu%ng
process
group
Monitoring
&
controlling
process
group
Closing
process
group
ent
ent
• Plan
Procurements
• Conduct
Procurements
• Control
Procurements
• Close
Procurements
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3. Overview
• The
process
necessary
to
process
and
acquire
product
or
services,
or
result
needed
from
outside
the
project
team.
• Involve
planning,
acquiring
the
product
or
services
from
sources,
choosing
a
source,
administering
the
contract,
and
closing
out
the
contract.
• Can
be
applied
to
internal
work
orders,
formal
agreements,
and
contracts
between
organizaOon
units
within
single
enOty.
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4. Plan
procurement
management
• The
process
of
documenOng
project
procurement
decisions,
specifying
the
approach,
and
idenOfying
potenOal
sellers.
The
key
benefit
of
this
process
is
that
it
determines
whether
to
acquire
outside
support,
and
if
so,
what
to
acquire,
how
to
acquire
it,
how
much
is
needed,
and
when
to
acquire
it.
Copyright@STEVBROS
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A
Guide
to
the
Project
Management
Body
of
Knowledge,
FiBh
Edi9on
(PMBOK®
Guide)
©2013
Project
Management
Ins9tute,
Inc.
All
Rights
Reserved.
Figure
12-­‐2
Page
358.

5. Inputs
1. Project
Management
Plan
– describes
the
need,
jusOficaOon,
requirements,
and
current
boundaries
for
the
project
2. Requirements
DocumentaOon
3. Risk
Register
4. AcOvity
Resource
Requirements
– contain
informaOon
on
specific
needs
such
as
people,
equipment,
or
locaOon.
5. Project
Schedule
– contains
informaOon
on
required
Omelines
or
mandated
deliverable
dates.
6. AcOvity
Cost
EsOmates
– cost
esOmates
developed
by
the
procuring
acOvity
are
used
to
evaluate
the
reasonableness
of
the
bids
or
proposals
received
from
potenOal
sellers.
7. Stakeholder
Register
– provides
details
on
the
project
parOcipants
and
their
interests
in
the
project.
8. Enterprise
Environmental
Factors
9. OrganizaOonal
Process
Assets
– the
various
types
of
contractual
agreements
used
by
the
organizaOon
(next
slides)
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6. Contract
Types
• Fixed-­‐price
(FP)
contracts
• Cost-­‐reimbursable
(CR)
contracts
• Time
and
Material
Contracts
(T&M):
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7. Fixed-­‐price
• Used
for
acquiring
goods
or
services
with
well
defined
specificaOons
or
requirements.
• Seller
is
most
concerned
with
the
SOW
• SomeOme
the
buyer
forces
seller
to
accept
a
high
level
risk
• Seller
would
need
huge
amount
of
reserves
• Seller
can
try
to
increase
profit
by
cu`ng
scope
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8. Cost
Reimbursable
• Used
when
work
is
uncertain
and,
therefore,
costs
cannot
be
esOmated
accurately
enough
• Requires
the
seller
to
have
an
accoun%ng
system
that
can
track
costs
• Buyer
requires
audiOng
seller’s
invoice
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9. Time
&
Material
• Used
for
service
efforts
in
which
the
level
of
effort
cannot
be
defined
at
the
%me
the
contract
is
awarded
• To
make
sure
the
costs
do
not
become
higher
than
budgeted,
the
buyer
may
put
a
"Not
to
Exceed"
and
%me
limits
clause
in
the
contract.
• Oden
used
for
staff
augmentaOon,
acquisiOon
of
experts,
outside
support.
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10. Contract
Types
vs.
Risk
Fixed Price
Time and Materials
Cost Reimbursable
• Effect
of
contract
type
on
buyer
&
seller
risk
SELLER
RISK
High
Low
BUYER
RISK
Low
High
T&M can be a high risk for buyer
if contract does not include a
“total not-to-exceed” (NTE)
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11. Tools
and
techniques
1. Make-­‐or-­‐Buy
Analysis
– is
a
general
management
technique
used
to
determine
whether
parOcular
work
can
best
be
accomplished
by
the
project
team
or
should
be
purchased
from
outside
sources
2. Expert
Judgment
– Expert
purchasing
judgment
can
also
be
used
to
develop
or
modify
the
criteria
that
will
be
used
to
evaluate
seller
proposals.
3. Market
Research
– includes
examinaOon
of
industry
and
specific
vendor
capabiliOes
4. MeeOngs
– By
collaboraOng
with
potenOal
bidders,
the
organizaOon
purchasing
the
material
or
service
may
benefit
while
the
supplier
can
influence
a
mutually
beneficial
approach
or
product.
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Project
Management
Fundamentals
11

12. Outputs
1. Procurement
Management
Plan
2. Procurement
Statement
of
Work
(next
slides)
3. Procurement
Documents
(next
slides)
4. Source
SelecOon
Criteria
(next
slides)
5. Make-­‐or-­‐Buy
Decisions
6. Change
Requests
7. Project
Documents
Updates
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13. Procurement
SOW
• The
statements
of
work
may
include,
but
are
not
limited
to:
– SpecificaOons,
– QuanOty
desired,
– Quality
levels,
– Performance
data,
– Period
of
performance,
– Work
locaOon,
and
– Other
requirements.
Copyright@STEVBROS
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Management
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14. Procurement
document
• May
includes:
– InformaOon
for
Sellers
– Contract
statement
of
work
– Proposed
terms
&
condiOons
of
the
contract
– Non-­‐disclosure
agreement
(NDA)
-­‐-­‐
to
disclose
some
confidenOal
informaOon
• Procurement
documents,
examples:
– Request
for
InformaOon
(RFI)
– InvitaOon
For
Bid
(IFB)
– Request
For
Proposal
(RFP)
– Request
For
QuotaOon
(RFQ)
– Tender
noOce
– InvitaOon
for
negoOaOon
– InvitaOon
for
seller’s
iniOal
response
Copyright@STEVBROS
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Management
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15. Procurement
document
• Leker
of
Intent
(LOI)
– It
is
not
a
contract,
but
a
leker
without
legal
binding,
that
says
the
buyer
intends
to
hire
seller.
• Privity
of
contract
– A
contractual
relaOonship
– Example:
You
hired
a
contractor
A,
and
the
contractor
hires
another
sub-­‐contractor
B
to
deliver
part
of
your
work.
Even
though
B
is
performing
your
work,
he/she
is
contractually
not
bound
to
you,
because
B
contractually
bound
to
“A”
only.
So
you
need
to
talk
to
A
instead
of
B.
• Teaming
Agreements
(or
a
join
venture)
– Two
sellers
join
force
for
one
procurement
Copyright@STEVBROS
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16. NoncompeOOve
Form
of
Procurement
• Form
used
when
only
one
seller
awarded
without
a
compeOOve
procurement.
• Should
keep
follow
rules
of
bidding
process
and
laws
• Saving
Ome
on
procurement
process
• Would
be
implemented
in
the
following
condiOon:
– The
project
under
schedule
pressure
– A
seller
has
unique
qualificaOon
– There
is
only
one
seller
– A
seller
hold
a
patent
– Other
mechanism
exist
that
seller’s
prices
are
reasonable.
• Type
of
noncompeOOve
procurement
– Single
source:
contract
directly
to
preferred
seller.
– Sole
source:
there
is
one
seller;
might
be
a
company
owns
a
patent
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17. Source
SelecOon
Criteria(1/3)
1. Understanding
of
need.
How
well
does
the
seller’s
proposal
address
the
procurement
statement
of
work?
2. Overall
or
life-­‐cycle
cost.
Will
the
selected
seller
produce
the
lowest
total
cost
of
ownership
(purchase
cost
plus
operaOng
cost)?
3. Technical
capability.
Does
the
seller
have,
or
can
the
seller
be
reasonably
expected
to
acquire,
the
technical
skills
and
knowledge
needed?
4. Risk.
How
much
risk
is
embedded
in
the
statement
of
work,
how
much
risk
will
be
assigned
to
the
selected
seller
and
how
does
the
seller
miOgate
risk?
5. Management
approach.
Does
the
seller
have,
or
can
the
seller
be
reasonably
expected
to
develop,
management
processes
and
procedures
to
ensure
a
successful
project?
Copyright@STEVBROS
Project
Management
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18. Source
SelecOon
Criteria(2/3)
6. Technical
approach.
Do
the
seller’s
proposed
technical
methodologies,
techniques,
soluOons,
and
services
meet
the
procurement
documents
requirements
or
are
they
likely
to
provide
more
or
less
than
the
expected
results?
7. Warranty.
What
does
the
seller
propose
to
warrant
for
the
final
product,
and
through
what
Ome
period?
8. Financial
capacity.
Does
the
seller
have,
or
can
the
seller
reasonably
be
expected
to
obtain,
the
necessary
financial
resources?
9. ProducOon
capacity
and
interest.
Does
the
seller
have
the
capacity
and
interest
to
meet
potenOal
future
requirements?
10. Business
size
and
type.
Does
the
seller’s
enterprise
meet
a
specific
category
of
business
such
as
small
business
(disadvantaged,
specific
programs,
etc.)
as
defined
by
the
organizaOon
or
established
by
governmental
agency
and
set
forth
as
a
condiOon
of
the
agreement
award?
Copyright@STEVBROS
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18

19. Source
SelecOon
Criteria(3/3)
11. Past
performance
of
sellers.
What
has
been
the
past
experience
with
selected
sellers?
12. References.
Can
the
seller
provide
references
from
prior
customers
verifying
the
seller’s
work
experience
and
compliance
with
contractual
requirements?
13. Intellectual
property
rights.
Does
the
seller
assert
intellectual
property
rights
in
the
work
processes
or
services
they
will
use
or
in
the
products
they
will
produce
for
the
project?
14. Proprietary
rights.
Does
the
seller
assert
proprietary
rights
in
the
work
processes
or
services
they
will
use
or
in
the
products
they
will
produce
for
the
project?
Copyright@STEVBROS
Project
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19

20. Conduct
procurement
• The
process
of
obtaining
seller
responses,
selecOng
a
seller,
and
awarding
a
contract.
The
key
benefit
of
this
process
is
that
it
provides
alignment
of
internal
and
external
stakeholder
expectaOons
through
established
agreements.
Copyright@STEVBROS
Project
Management
Fundamentals
20
A
Guide
to
the
Project
Management
Body
of
Knowledge,
FiBh
Edi9on
(PMBOK®
Guide)
©2013
Project
Management
Ins9tute,
Inc.
All
Rights
Reserved.
Figure
12-­‐4
Page
371.

21. Inputs
1. Procurement
Management
Plan
2. Procurement
Documents
3. Source
SelecOon
Criteria
4. Seller
Proposals
– Seller
proposals,
prepared
in
response
to
a
procurement
document
package,
form
the
basic
informaOon
that
will
be
used
by
an
evaluaOon
body
to
select
one
or
more
successful
bidders
(sellers).
5. Project
Documents
– include
the
risk-­‐related
contract
decisions
included
within
the
risk
register.
6. Make-­‐or-­‐Buy
Decisions
7. Procurement
Statement
of
Work
8. OrganizaOonal
Process
Assets
– Include
lisOngs
of
prospecOve
and
previously
qualified
sellers,
informaOon
on
relevant
past
experience
with
sellers,
both
good
and
bad,
and
prior
agreements
Copyright@STEVBROS
Project
Management
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21

22. Tools
and
techniques
1. Bidder
Conferences
– someOmes
called
contractor
conferences,
vendor
conferences,
and
pre-­‐
bid
conferences
are
meeOngs
between
the
buyer
and
all
prospecOve
sellers
prior
to
submikal
of
a
bid
or
proposal.
2. Proposal
EvaluaOon
Techniques
(next
slides)
3. Independent
EsOmates
– the
procuring
organizaOon
may
elect
to
either
prepare
its
own
independent
esOmate,
or
have
an
esOmate
of
costs
prepared
by
an
outside
professional
esOmator,
to
serve
as
a
benchmark
on
proposed
responses
4. Expert
Judgment
– may
be
used
in
evaluaOng
seller
proposals
5. AdverOsing
6. AnalyOcal
Techniques
7. Procurement
NegoOaOons
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23. Proposal
EvaluaOon
Techniques
• Source
selecOon
will
be
made
based
on
seller
responses
to
previously
defined
weighted
criteria,
a
formal
evaluaOon
review
process
will
be
defined
by
the
buyer’s
procurement
policies.
The
evaluaOon
commikee
will
make
their
selecOon
for
approval
by
management
prior
to
the
award.
Copyright@STEVBROS
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Criteria Weight Rating(1-100) Score
# of years in business 5% 50 2.5
Understanding of need 25% 80 20
Price if LC cost 10% 90 9
Technical ability 25% 40 10
Ability to complete the work on time 20% 30 6
Project management ability 15% 30 4.5
Point for this seller 52

24. Outputs
1. Selected
Sellers
– are
those
who
have
been
judged
to
be
in
a
compeOOve
range
based
upon
the
outcome
of
the
proposal
or
bid
evaluaOon,
and
who
have
negoOated
a
drad
contract
that
will
become
the
actual
contract
when
an
award
is
made.
2. Agreements
– includes
terms
and
condiOons,
and
may
incorporate
other
items
that
the
buyer
specifies
regarding
what
the
seller
is
to
perform
or
provide
3. Resource
Calendars
– the
quanOty
and
availability
of
contracted
resources
and
those
dates
on
which
each
specific
resource
or
resource
group
can
be
acOve
or
idle
are
documented.
4. Change
Requests
5. Project
Management
Plan
Updates
6. Project
Documents
Updates
Copyright@STEVBROS
Project
Management
Fundamentals
24

25. Control
procurements
• The
process
of
managing
procurement
relaOonships,
monitoring
contract
performance,
and
making
changes
and
correcOons
to
contracts
as
appropriate.
The
key
benefit
of
this
process
is
that
it
ensures
that
both
the
seller’s
and
buyer’s
performance
meets
procurement
requirements
according
to
the
terms
of
the
legal
agreement.
Copyright@STEVBROS
Project
Management
Fundamentals
25
A
Guide
to
the
Project
Management
Body
of
Knowledge,
FiBh
Edi9on
(PMBOK®
Guide)
©2013
Project
Management
Ins9tute,
Inc.
All
Rights
Reserved.
Figure
12-­‐6
Page
379.

26. Inputs(1/2)
1. Project
Management
Plan
– describes
how
the
procurement
processes
will
be
managed
from
developing
procurement
documentaOon
through
contract
closure
2. Procurement
Documents
– contain
complete
supporOng
records
for
administraOon
of
the
procurement
processes;
this
includes
procurement
contract
awards
and
the
statement
of
work.
3. Agreements
– are
understandings
between
parOes,
including
understanding
of
the
duOes
of
each
party.
Copyright@STEVBROS
Project
Management
Fundamentals
26

27. Inputs(2/2)
4. Approved
Change
Requests
– can
include
modificaOons
to
the
terms
and
condiOons
of
the
contract,
including
the
procurement
statement
of
work,
pricing,
and
descripOons
of
the
products,
services,
or
results
to
be
provided.
5. Work
Performance
Reports
– seller
performance-­‐related
documentaOon
includes:
technical
documentaOon
and
work
performance
informaOon.
6. Work
Performance
Data
– includes
(1)
the
extent
to
which
quality
standards
are
being
saOsfied,
(2)
the
costs
that
have
been
incurred
or
commiked,
and
(3)
idenOficaOon
of
the
seller
invoices
that
have
been
paid.
Copyright@STEVBROS
Project
Management
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28. Tools
and
techniques(1/2)
1. Contract
Change
Control
System
– It
includes
the
paperwork,
tracking
systems,
dispute
resoluOon
procedures,
and
approval
levels
necessary
for
authorizing
changes.
The
contract
change
control
system
is
integrated
with
the
integrated
change
control
system.
2. Procurement
Performance
Reviews
– is
a
structured
review
of
the
seller’s
progress
to
deliver
project
scope
and
quality,
within
cost
and
on
schedule,
as
compared
to
the
contract.
It
can
include
a
review
of
seller-­‐
prepared
documentaOon
and
buyer
inspecOons,
as
well
as
quality
audits
conducted
during
seller’s
execuOon
of
the
work.
3. InspecOons
and
Audits
4. Performance
ReporOng
Copyright@STEVBROS
Project
Management
Fundamentals
28

29. Tools
and
techniques(2/2)
5. Payment
Systems
– Payments
to
the
seller
are
typically
processed
by
the
accounts
payable
system
of
the
buyer
ader
cerOficaOon
of
saOsfactory
work
by
an
authorized
person
on
the
project
team.
All
payments
should
be
made
and
documented
in
strict
accordance
with
the
terms
of
the
contract.
6. Claims
AdministraOon
– Contested
changes
and
potenOal
construcOve
changes
are
those
requested
changes
where
the
buyer
and
seller
cannot
reach
an
agreement
on
compensaOon
for
the
change
or
cannot
agree
that
a
change
has
occurred.
These
contested
changes
are
variously
called
claims,
disputes,
or
appeals
(next
slides)
7. Records
Management
System
– is
used
by
the
project
manager
to
manage
contract
and
procurement
documentaOon
and
records.
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Management
Fundamentals
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30. Claims
AdministraOon
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Management
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31. Outputs
1. Work
Performance
InformaOon
– provides
a
basis
for
idenOficaOon
of
current
or
potenOal
problems
to
support
later
claims
or
new
procurements.
2. Change
Requests
3. Project
Management
Plan
Updates
– include
procurement
management
plan,
cost
baseline,
schedule
baseline.
4. Project
Documents
Updates
5. OrganizaOonal
Process
Assets
Updates
– include
correspondence,
payment
schedules
and
requests,
seller
performance
evaluaOon
documentaOon.
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Management
Fundamentals
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32. Close
procurements
• The
process
of
compleOng
each
procurement.
The
key
benefit
of
this
process
is
that
it
documents
agreements
and
related
documentaOon
for
future
reference.
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Management
Fundamentals
32
A
Guide
to
the
Project
Management
Body
of
Knowledge,
FiBh
Edi9on
(PMBOK®
Guide)
©2013
Project
Management
Ins9tute,
Inc.
All
Rights
Reserved.
Figure
12-­‐8
Page
386.

33. Inputs
1. Project
Management
Plan
– contains
the
procurement
management
plan,
which
provides
the
details
and
guidelines
for
closing
out
procurements.
2. Procurement
Documents
– all
procurement
documentaOon
is
collected,
indexed,
and
filed.
InformaOon
on
contract
schedule,
scope,
quality,
and
cost
performance
along
with
all
contract
change
documentaOon,
payment
records,
and
inspecOon
results
are
cataloged.
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Management
Fundamentals
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34. Tools
and
techniques
1. Procurement
Audits
– the
objecOve
of
a
procurement
audit
is
to
iden%fy
successes
and
failures
that
warrant
recogniOon
in
the
preparaOon
or
administraOon
of
other
procurement
contracts
on
the
project,
or
on
other
projects
within
the
performing
organizaOon.
2. Procurement
NegoOaOons
– in
all
procurement
relaOonships,
the
final
equitable
seklement
of
all
outstanding
issues,
claims,
and
disputes
by
negoOaOon
is
a
primary
goal.
3. Records
Management
System
– is
used
by
the
project
manager
to
manage
contract
and
procurement
documentaOon
and
records.
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Management
Fundamentals
34

35. Outputs
1. Closed
Procurements
– the
buyer,
usually
through
its
authorized
procurement
administrator,
provides
the
seller
with
formal
wriken
noOce
that
the
contract
has
been
completed
2. OrganizaOonal
Process
Assets
Updates
– Procurement
file
– Deliverable
acceptance
– Lessons
learned
documentaOon.
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Management
Fundamentals
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36. Summary
• Contract
types
• Sole
source,
single
source
• Procurement
document,
procurement
SOW,
source
selecOon
criteria
• Procurement
audits,
procurement
negoOaOons,
claim
administraOon.
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Management
Fundamentals
36

37. QuesOons
for
review
Copyright@STEVBROS
Project
Management
Fundamentals
37
• You
did
the
good
job
at
this
chapter.
Please
complete
quesOons
for
review
before
moving
to
next
chapter.