Ghi chú học luyện thi PMP Project Procurement Management


Giới thiệu: Project procurement management là mảng kiến thức mô tả trong chương 12 của PMBOK, có tất cả 4 quy trình.

  • Procurement Statement of Work (SOW) is a legal document subject to legal reviews, legal advise should be sought throughout the whole procurement process
  • Sellers are external to the project team
  • Need to go through all 4 processes for each and every procurement
  • Contract elements: offer (seller offer buyer), acceptance (buyer criteria), capacity (physical/financial capabilities), consideration (seller receive), legal purpose (must be legal under law)
  • Best if contract is signed after PM is assigned
  • Project Manager needs to understand terms and conditions, identify risks, include procurement time in schedule and involve in negotiations
  • Centralized contracting vs decentralized contracting
  • Sole source, single source (preferred), oligopoly (very few sellers)
  • Procurement categories: major complexity (high risk), minor complexity (low risk, expensive), routine purchase (Commercial Off the Shelf Products COTS), goods and services (to perform part of our product)
  • A contract is not required to be written, it can be verbal or handshake, for internal projects, formal contract is best
  • Procurement applies to actors (as a service)
  • Immaterial breach is minor breach
  • Point of total assumption (PTA) = Target Cost + (Ceiling Price – Target Price) / % Share of Cost Overrun
  • Contract can be an agreement, but agreement may not be a contract. Agreement is a broader concept. Contract create with external relationships, agreement creates with internal or external relationship. Examples of agreement: SLA, memos of intent, letters of intent, letters of agreements, emails, verbals agreements… Contract can be written or verbal.

Plan procurement management 

  • Determine whether to obtain products/services outside of organization
  • Identify possible sellers and pre-meeting with them
  • Identify explicitly what is needed
  • Make-or-buy analysis is a compulsory process, needs to take risks into considerations
  • Carefully written terms and conditions can transfer/share risks
  • Teaming agreements or joint ventures
  • Procurement documents: request for proposal (RFP), invitation for bid (IFB), request for quote (RFQ), request for information (RFI), tender notice, invitation for negotiation, seller initial response
  • The procurement management plan specifies how a project will acquire goods/services from outside, includes: contract type, risk management, constraints and assumptions, insurance requirements, form and format, pre-qualified sellers, metrics used, etc.
  • Procurement Statement of Work (SOW) – performance (describe what can be accomplished), functional(convey the end purpose or result), design (convey precisely what are to be done), can be developed by the seller or buyer – detail enough to allow the potential sellers to decide whether they want/are qualified (at a minimum) to pursue the work
  • Contract Types:
    • Firm Fixed Price (FFP) – the price is fixed, specifications are well known, risk on the seller
    • Fixed Price Incentive Fee (FPIF) – incentives for faster/better than contracted
    • Fixed Price with Economic Adjustment / Economic Price Adjustment (FPEA / FP-EPA) – inflation are taken into account
    • Purchase Order (PO) – for off-the-shelf goods/services with published rates
    • Cost Reimbursable (CR) / Cost Plus – buying the expertise (not the products), outcome is not clear, risk on the buyer, little incentive to control costs on buyer, need invoice audits
      • Cost Plus Fixed Fee (CPFF)
      • Cost Plus Incentive Fee (CPIF) – incentive for performance, sharing of unused money if under/over contracted amount
      • Cost Plus Award Fee (CPAF) – award to be given based on agreed criteria, solely decided by the customer on the degree of satisfaction
      • Cost Plus Percentage of Costs (CPPC) – illegal for contracts with US Government
      • Cost Contract – no profit, for NGO
    • Best Efforts – obligates the seller to utilize best attempts, high uncertainty in meeting the goal
    • Time and Materials (T&M) – (hybrid type) when scope is not known, need constant monitoring to control schedule and cost, simple, for short duration, good for proof-of-concept type projects
  • Point of Total Assumption – (in fixed-price (incentive fee) contracts) in budget overrun, the point at which the seller assumes all additional costs for delivering the product/service
  • PTA = (Ceiling Price – Total Price) / Buyer’s Share Ratio + Target Cost
  • Target cost = total cost = estimated cost, total price = total cost + total profit
  • Request for Proposal (RFP) – cost reimbursable contract, functional/performance SOW
  • Invitation for Bid (IFB) / Request for Bid (RFB) – fixed-price contract, design SOW
  • Request for Quote – time and material, any type of SOW
  • Cancellation for Convenience – buyer can cancel and pay up to the point
  • Cancellation for Cause – default by either party, may result in legal actions
  • Escrow – survivability of seller in doubt, put the product in escrow (esp. if seller not give up intellectual properties)
  • Force Majeure – standard disclaimer refers to ‘Acts of God’
  • Indemnification / Liability – responsible party
  • LOI Letter of Intent – not legally binding
  • Privity – the contractor may use sub-contractor, no direct contractual relationship with buyer
  • Retainage – amount to be withheld to ensure delivery
  • Risk of Loss – how the risk is shoulder by the parties
  • Time is of the Essence – delay in delivery will cause cardinal breach of contract
  • Work Made for Hire – all work owned by the buyer
  • Sole Source vs Single Source (preferred vendor – for long-term relationship)
  • Evaluation Criteria: risk, understanding of need, life-cycle cost, technical capability, management approach, technical approach

Conduct procurements 

  • Identify the sellers and award the contracts
  • Project Manager may not be the lead negotiator on procurement, but may be present to assist
  • May need senior management approval before awarding the contracts
  • Bidder’s conference is a Q&A session with bidders, all bidders receive the same information (bidder are careful not to expose their technical approach during the session => may not have many questions)
  • NOT to have secret meetings or communications with individual vendors
  • May set up qualified sellers lists
  • Review seller proposals: weighting systems, independent estimates, screening systems (screen out non-qualified vendors), seller ratings systems (for past performance), expert judgement
  • Contract Negotiations and Tactics
    • Fait Accompli – not negotiable terms
    • Deadline – deadline for deliverables
    • Good Guy/ Bad Guy – one friendly, one aggressive
    • Missing Man – decision maker is missing
    • Limited Authority – not given authority
    • Fair and Reasonable – what is fair?
    • Unreasonable – making unreasonable demands
    • Delay – esp in critical moments
    • Attack – force compliance
  • Agreement is legally binding and should include (PM should NOT attempt to write the agreement):
    • Statement of work, schedule baseline, performance reporting, period of performance, roles and responsibilities, warranty, payment terms, fees and retainers, incentives, liability, penalties, etc.

Control procurements 

  • Performed by both seller and buyer
  • Manage procurement relationships, monitor contract performance, make change and corrections
  • The procurement administrator may be external to the project team
  • May identify early signs and capture details for pre-mature termination of contract
  • The claims administration process deals with changes/disputes, disputes is best to be settled through negotiation > ADR
  • May need Alternative Dispute Resolution (ADR) by 3rd parties in case disputes cannot be settled
  • For Fixed Price contracts, look out for Bait and Switch (replace with cheaper materials), look out for excessive change requests
  • For Cost Reimbursable contracts, audit all invoices, look out for additional charges, tie payment to milestones, make sure people with the required skill sets are doing the job
  • For Time and Materials contracts, ensure hours are not padded, follow the milestone dates
  • Contract Change Control System: for handling change requests (define who has the authority to approve changes (usually not the PM, but may be assigned the authority))
  • Work performance data includes: the cost incurred and the invoice needs to be paid
  • OPA may include the seller’s performance

Close procurements 

  • All work are completed, deliverables accepted, claims settled OR terminated by either party
  • At completion / termination of contract
  • Prior to administrative closure of Close Project or Phase
  • Unresolved claims may be left for litigation after closure
  • Settlement of claims/invoices, audit, archive, lessons learned
  • The contract is complete when all the specifications are satisfied, no matter the customer is satisfied with the product or not
  • Procurement Audit is the structured review of the procurement process from Plan Procurement Management through Control Procurements, is used to capture lessons learned from the procurement exercise
  • Once a procurement is cancelled, the next process will be the close procurements


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