Project procurement management allows a project to ascertain resources, materials, equipment, services, and other components needed to successfully complete the project. Raj Kalady, Managing Director, Project Management Institute (PMI) India writes about variety of tasks involved in Project Procurement Management process like planning, soliciting sources, choosing a source, administering the contract, and closing out the contract.
Today, different organizations employ various management techniques to carry out the efficient functioning of their departments. Procurement management is one such form of management, where goods and services are acquired from a different organization or firm.
All organizations deal with this form of management at some point in the life of their businesses. It is in the way the procurement is carried out and the planning of the process that will ensure the things run smoothly. Procurement management is known to help an organization to save much of the money spent when purchasing goods and services from outside.
Project Procurement includes the processes required to acquire goods or services from outside the project team. It also includes Contract Management and Change Control Processes. Projects routinely require procurements. Projects 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.
Procurement management involves planning, soliciting sources, choosing a source, administering the contract, and closing out the contract. Procurement management focuses on the practices from the buyer’s point-of-view, not the seller’s. The seller can be seen as a contractor, subcontractor, vendor, or supplier.
Project procurement management allows a project to ascertain resources, materials, equipment, services, and other components needed to successfully complete the project. It is the process of finding sellers that can supply the needed products or services at a fair rate and meet the quality, time, and cost expectations of the project. The product description will help the project manager and the vendor determine what the best solution for the procurement need is. One of the first activities the project manager and the project team complete together before procuring products is to determine the need to buy versus the ability to make the product. A decision tree can help the project manager determine which decision is most cost effective, reliable, and best for the project. A buy versus build analysis can compare the benefits of buying versus selling—including attributes other than just price and time.
Project Procurement Management includes a variety of tasks including the planning process where one decides what to acquire or purchase and how they will do so. Next, they plan the contract which provides a legal document of the exchange. After the legal documents are drafted, the seller can respond with variety inquiries such as a bid or proposal. After these answers are feedback to them, they will review the various offers and choose who will be awarded the project. The most important process of Project Procurement Management includes project management relations between both the buyer and seller via the contract.
Contract: Selecting the appropriate Contract Type
Contract is a mutually binding agreement that obligates the seller to provide the specified Products or services obligating the buyer to pay for them. Contracts should clarify responsibilities and define key deliverables. Contracts are used because they are legally binding, there is more accountability.
Administering contracts is critical to project procurement duties. Clearly outlining the obligations, responsibilities, and performance goals is essential to completing this step. Satisfactory performance of the contract entails tracking the execution of stated goals. At times, the project procurement manager may need to correct processes in order to obtain the desired results. Contract changes should be controlled and documented to prevent unnecessary legal claims.
A wide selection of contract types is available to the Government and contractors in order to provide needed flexibility in acquiring the large variety and volume of supplies and services required by agencies. The contract types are grouped into two broad categories: fixed – price contracts and cost –reimbursement contracts
Selecting the contract type is generally a matter of negotiation and requires the exercise of sound judgment. Negotiating the contract type and negotiating prices are closely related and should be considered together. The objective is to negotiate a contract type and price (or estimated cost and fee) that will result in reasonable contractor risk and provide the contractor with the greatest incentive for efficient and economical performance.
Once the contract is complete, the final step is to close the contract. The contract is audited to make certain all terms of the contract were fulfilled. Contract closure involves evaluating the performance of vendor and documenting any lessons learned in executing the contract.
Procurement Management Plan
As is the case with almost every aspect of the project management process, it is essential and imperative that the project management team and or the project management team leader implement an effective and succinct plan when it comes to the various components of procurement throughout the project’s life cycle. Specifically speaking, the procurement management plan refers to the plan that has been put into place that is meant to dictate and describe the entirety of the procurement process and how it is means to relate to and with the developing procurement documentation, and how contract closure will relate to all. The procurement management plan should be implemented and developed as early in the project life cycle as possible to assure that, to the extent possible, the procurement process is consistent throughout, however, in some cases, the plan may be altered once the project begins, particularly if budgetary reasons dictate.
Project Procurement PIan identifies products or services that can be acquired from outside the project organization Vs needs that can be accomplished by the project team. A procurement plan outlines the procurement strategy and market approach, the project brief and tender method. It builds on the business case/investment justification previously developed and includes a governance framework for the tender process and contract management.
It proposes how tenders will be selected, how the tender process will be managed and who will be responsible. It includes the basis for tender evaluation and a direct negotiations plan (if direct negotiations are involved). The procurement plan will also include key performance indicators for the proposed contract.
An effective project management passes through six phases for its implementation. These are:
• Procurement Planning: Find the requirements for what to purchase and when to purchase.
• Solicitation Planning: This includes proper documentation of product requirements and identification of potential resources.
• Solicitation: This is the process of obtaining the best possible quotations; bids, offers, or proposals suited to the project requirements.
• Source Selection: Choosing the best offer and seller within the available options.
• Contract Administration: Managing and maintaining a good relationship between the buyer and the seller.
• Contract Close-out: Final completion and closure of the contract, with the integration of some resolutions if required for any item.
In order to ensure that everything goes well through to the end, you would have to keep track of the progress of the procurement. This would mean that you should keep checking on the suppliers in order to ensure that they are abiding by the terms of the contract and will be able to supply you with the goods and services by the deadline. Should there be any discrepancies or any issues, you should always let the supplier know by means of the method of communication decided on at the time of making the contract. The organization must always be willing and open to change. This is in respect of all changes required in order to ensure the efficiency of the process. These changes could be in the form of technological advancements and even changes to the workforce, among other changes.
In terms of technology, any new equipment and machinery required to handle these goods may need to be purchased. Similarly, with regard to the workforce, you would need to employ workers, who are highly skilled and trained when it comes to dealing directly with suppliers. It is always best for an organization to have different teams within who are specialized in different fields. This would make procurement management even easier. Each team could then deal with the relevant areas of buying and will also have the expertise required. For example, those who have experience buying machinery may not have the same skill when it comes to getting particular services from another organization.
It should be kept in mind, however, that this procurement management system must run efficiently and smoothly for all benefits to be reaped. The key to this would therefore be an efficient system as well as the right supplier and resources. Project procurement is not an exact science. Although this process is generally accepted within the industry, actual execution may differ between organizations. Many courses are available that teach the strategies used by project procurement managers.
Source: Project Procurement Management – Contracting, Subcontracting, Teaming by Quentin W. Fleming.
(Raj Kalady was named Managing Director of PMI (India) in January 2008. In his current role he is responsible for the advancement and advocacy of project management and PMI in India. His key responsibilities include designing, developing and implementing the strategic and business plan in addition to outlining the corporate culture for PMI in India. A keynote speaker, Raj also delivers powerful messages about the criticality of project management in achieving success in today’s increasingly competitive business environment. Raj has held senior management positions in various companies in India dealing with large national and international clients during his tenure. An MBA in Marketing, Raj commands over 26 years of national and global experience in working closely with Indian Central and State Governments, Academia and large national as well as international clients.)