In this post i have explained about Project Procurement Management.
Chapter 11
Project Procurement Management
A Comprehensive Guide for PMP Certification by Parag Pal
Chapter 11 focuses on **Project Procurement Management**, which involves the processes necessary to purchase or acquire products, services, or results needed from outside the project team. It's crucial for managing external dependencies and relationships.
This guide will detail the three processes within Procurement Management, highlighting key concepts, contract types, inputs, tools & techniques, and outputs for each. The PMP exam generally tests this from the perspective of the buyer.
11.1 Contract Types
A **contract** is a legally binding agreement between a buyer and seller for products, services, or results. It can be terminated by both parties for non-performance or non-payment.
Common Contract Elements:
- Formal written document, Scope of work to be performed, Roles and responsibilities
- How to perform the work (locations, times), Terms and conditions, Warranties and penalties
- Payment terms, Termination clauses, Incentives, Insurance and performance bonds, Change request process
The three main types of contracts are:
- Fixed Price (Lump Sum): Buyer pays one flat price for all work. Used when scope is well-defined. Seller takes most risk.
- Firm Fixed Price (FFP): Price is fixed, cannot be changed.
- Fixed Price Incentive Fee (FPIF): Fixed price + additional fee for meeting a target.
- Fixed Price Economic Price Adjustment (FP-EPA): Fixed cost adjusted over contract life due to economic conditions (for longer periods).
- Cost Reimbursable: Buyer pays for work expenses + a fee for profit. Used when scope is not well-defined. Buyer takes more risk.
- Cost Plus Fixed Fee (CPFF): Buyer pays expenses + a fixed fee for profit.
- Cost Plus Incentive Fee (CPIF): Buyer pays expenses + additional fee if a target is met.
- Time and Material (T&M): Buyer pays for both labor (by the hour) and material. Used when scope is high-level. Buyer takes all risk of cost overrun for both labor and materials.
Contract Risk Distribution
The chart below illustrates how risk is typically distributed between the buyer and seller for different contract types.
Note: Buyer risk increases from Fixed Price to Time & Material.
Contract Summary Table
| Contract Name | Who Takes the Risk | When to Use It |
|---|---|---|
| Fixed Price | Seller | When the scope is defined |
| Cost Reimbursable | Buyer | When the scope is not well defined |
| Time and Material | Buyer | When the scope is high-level |
Exam Tip:
Always choose the best contract for the customer (buyer). Negotiate a price that is fair for both. Incentive fees could keep costs down. A contract can be legally voided if it breaks any local laws and regulations.
11.2 Project Procurement Management Processes Overview
Project Procurement Management includes the processes necessary to purchase or acquire products, services, or results needed from outside the project team.
The 3 Procurement Management Processes are:
- Plan Procurement Management (Planning)
- Conduct Procurements (Executing)
- Control Procurements (Monitoring & Controlling)
Procurement Management Processes by Process Group
This chart shows how the 3 Project Procurement Management processes are distributed across the Process Groups.
Note: Procurement processes span Planning, Executing, and Monitoring & Controlling.
11.3 Plan Procurement Management
This process documents project procurement decisions, specifies the approach, and identifies potential sellers. It outlines how the project manager would like to get the work done and the type of agreements to use.
11.3.1 Inputs
- Project Charter
- Project Management Plan
- Project Documents (Requirements Documentation, Risk Register, Activity Requirements, Stakeholder Register)
- EEFs, OPAs
11.3.2 Tools & Techniques
- Expert Judgment
- Data Gathering
- Source Selection Analysis: Analyzing different criteria to select a particular seller (e.g., licenses, certifications, experience, availability, cost).
- Meetings
- Make-Or-Buy Decisions: Documenting the decision of whether to acquire outside support or perform work internally.
- Independent Cost Estimates: An estimate from an external source to check if a seller is charging too much or too little.
11.3.3 Outputs
- Procurement Management Plan: Documents how procurements will be managed and controlled.
- Procurement Strategy: Outlines how the project manager would like to get the work done and the type of agreements to use.
- Bid Documents: Written by the buyer to inform sellers what is needed.
- Request for Proposal (RFP): Buyer's request for details of how work will be performed.
- Invitation for Bid (IFB) / Request for Bid (RFB): Buyer's request for a total price bid.
- Request for Quotation (RFQ): Buyer's request for a price quote per item, hour, or other unit.
- Procurement Statement of Work (SOW): Defines what will be procured from outside the project, outlining specifications and quality requirements.
- Source Selection Criteria: Criteria used to select a contractor (e.g., cost, location, license, experience).
- Change Requests, Project Documents Updates, OPA Updates.
Exam Tip:
It's critical to understand the difference between the Procurement Management Plan, Procurement Strategy, Procurement Statement of Work, and Bid Documents.
11.4 Conduct Procurements
This process obtains seller responses, selects a seller, and awards a contract. This is an executing process where the seller is actually selected.
11.4.1 Inputs
- Project Management Plan
- Project Documents (Requirements Documentation, Risk Register, Project Schedule, Stakeholder Register)
- Seller Proposals
- EEFs, OPAs
11.4.2 Tools & Techniques
- Expert Judgment
- Data Analysis
- Advertising: For certain contracts (e.g., government agency contracts).
- Bidder Conference (Contractor/Vendor/Pre-bid Conferences): Buyer invites sellers to explain project needs, ensuring equal information distribution.
- Interpersonal & Team Skills
11.4.3 Outputs
- Selected Sellers: The chosen contractors.
- Agreements (Contracts): The legally binding documents.
- Project Management Plan Updates, Project Documents Updates, OPA Updates.
Exam Tip:
You select the seller in the executing phase of the project, not in the planning phase.
11.5 Control Procurements
This process manages procurement relationships, monitors contract performance, and makes changes and corrections as appropriate. It ensures the seller does what is in the contract. If a seller doesn't perform, a default letter may be issued.
11.5.1 Inputs
- Project Management Plan
- Project Documents
- Work Performance Data
- Agreements
- Procurement Documents
- Approved Change Requests
- OPAs
11.5.2 Tools & Techniques
- Expert Judgment
- Data Analysis
- Claims Administration: Managing disagreements between the buyer and seller concerning money specified by the contract. Best resolved by negotiation.
- Inspections, Audits
11.5.3 Outputs
- Closed Procurements: Formal closing out of the contract after work is finished and all fees paid/work done. All claims should be settled before closing.
- Work Performance Information.
- Procurement Documentation Updates, Project Management Plan Updates, Project Documents Updates, OPA Updates.
Exam Tip:
Do not get confused between "Conduct Procurement" (select and award) and "Control Procurement" (ensure work is done per contract).
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