Project Procurement Management
The procurement process formalizes how organizations obtain goods and services from outside the organization. As a result, process can involve make or buy decisions, securing expertise not available within the organization, potential lease decisions, and the best type of contract to use when obtaining goods or services.
This can include the use of local sourcing or off-shore teams. If the resources are within the United States, the local, state and federal laws and regulations governing business transactions apply. In the case of obtaining off-shore procurement, understand the local laws and customs that are at work in these locales. What is illegal in the United States may be ethical (and expected) in another country.
Understand that the procurement activity involves the creation of a ‘Procurement Statement of Work’ (SOW). This is a legal document subject to legal reviews – breaches of contract may be addressed in the US court system. The seller is legally bound to what is contained in the contract SOW, and no more. Therefore, when establishing a contract SOW, it is in the best interests of the purchaser/buyer to make the document as detailed and accurate as possible, to avoid misunderstandings and misinterpretations that can lead to legal disputes.
There are usually specialized parts of the organization that deal with procurement activities regularly and that have developed significant expertise in these areas. If you have never dealt with these areas as a project manager, this aspect of the exam may prove to be more difficult than some of the other areas.
Procurement for the Exam
Unless stated otherwise, assume you are the buyer/purchaser of goods and/or services for your organization. The contract will include terms and conditions that specify what the seller is to deliver to the buyer, and it is the project team’s responsibility to insure that procurements meet the explicit needs of the project. On exam questions, sellers may be identified as prime contractors, sub-contractors, vendors, service providers or suppliers, and the seller is external to the project team. It is also assumed that the contract between the buyer and seller is a formal written agreement.
Project Manager's Role in Procurement
For the exam, you need to understand what role the project manager plays in the procurement process - there will be questions on the exam that will test your understanding of this critical role. Make sure you understand the following:
- It is best if the project manager is assigned to the project before the contract is signed. There is a strong risk that the deliverables or the completion dates for the project may be jeopardized if the contract is signed without any regard to what is needed for the project.
- Review your understanding of contract terms and conditions, so that there is no ambiguity when dealing with the contract.
- Ensure you have input to tailor the contract to the needs of the project as the contract is being written.
- Identify risks in a contract that may impact project deliverables or timelines.
- Make sure the project schedule can be adjusted to include enough time for the completion of the procurement process.
- Make sure you have access to procurement personnel to fully understand the procurement process for the project.
- Make sure you are also involved in contract negotiations to help protect the relationship with the seller.
There are two types of contracting mentioned on the exam that are not defined in the PMBOK® Guide,5th edition at all: centralized contracting and decentralized contracting. This will let you know how the procurement department is organized, and what authority the procurement manager has in executing a contract.
In a centralized environment:
- The procurement manager may manage many contracts
- The general advantages support procurement managers with higher levels of expertise, as well as standardized company practices and clearly defined career paths in the procurement area.
- General disadvantages can include difficulties in obtaining contract expertise for your project, as well as the lack of a dedicated procurement resource for the project.
In a decentralized environment:
- The procurement may be assigned specifically to the contract and may directly report to the project manager.
- General advantages are that the project manager has easier access to contracting expertise, and the procurement manager has more loyalty to the project.
- Disadvantages can include lack of contracting expertise, duplication of effort, no clearly defined career path for procurement personnel, or a duplication of effort.
Plan Procurement Management
As a reminder, the procurement process focuses on determining whether or not to obtain products and services from outside the organization, and to identify explicitly what is needed. This will frequently be identified as a ‘make or buy’ decision.
The schedule requirements of the procurement activities must be coordinated with the needs of the project so that the goods or services procured occur in a timely fashion. Risk considerations are reviewed with each make or buy decision – what are the risks the organization is taking by either doing the work in-house, or contracting a vendor to perform work or deliver a product?
Teaming agreements or joint ventures are an important input to the Plan Procurement process. They are legal contractual agreements between two or more parties that define the buyer-seller relationship, and only last for the duration of the agreement. These agreements are usually arranged to pursue a new business opportunity or to synergistically optimize the strengths of each organization to produce a better product.
Project Procurement - PMP Certification Exam - Memory Check
- ___Plan procurement management
- ___Conduct procurements
- ___Control procurements
- ___Close procurements
A. The process of completing each project procurement
B. The process of managing procurement relationships, monitoring contract performance, and making changes and corrections as appropriate
C. The process of documenting project procurement decisions, specifying the approach, and identifying potential sellers
D. The process of obtaining seller responses, selecting the seller, and awarding a contract
Question 1: You have engaged a sole source vendor to procure a critical product for your organization that is needed for your own product line. The vendor submits a contract which is reviewed by your legal team. While most of the provisions are agreeable, there are several questionable provisions that are clearly illegal and unenforceable in the state where the contract will be signed. The vendor has informed you that they will not provide the product or sign the contract without those questionable provisions included. The procurement of this product is critical to the health of your business, and time is of the essence. The vendor thinks they have your organization ‘over a barrel’. Aside from the questionable provisions in the contract, everything else in the contract is acceptable. As the buyer, your best option moving forward is to:
a. Initiate a legal action against the vendor for attempting to break the law
b. Point out that the questionable provisions are unenforceable in the state, and offer to sign the contract immediately if the provisions are removed or modified to be legal
c. Find a competing vendor that will provide an equivalent product
d. Sign the contract – you’ve got them over the barrel if the questionable provisions are legally unenforceable
Question 2: Which of the following are not advantages in a centralized contracting environment?
a. Access to contracting expertise
b. Procurement manager has more loyalty to the project
c. Standardized practices
d. Defined career path
Question 3: Which of the following occurs in the Conduct Procurement process?
a. Contract change control
b. Make-or-buy decisions
c. Bidder conferences
d. Source selection criteria
Answer: B – This is a somewhat tricky question and it must be read carefully. Answer A does not help you if time is of the essence - litigations and additional negotiations can take quite a long time. Answer C may or may not be possible and will also take considerable additional time. Answer D would probably work, legally, but may not support the idea of ‘protecting the relationship with the seller’. However, it might become your ‘fallback’ option if B does not work. The best option, Answer B, is to point out the legal problems with the contract and appeal to the vendor’s reason. Point out that if it comes down to legal wrangling or a court case, the illegality of the specific contract provisions will be exposed and deemed unenforceable in a court of law. (Most contracts will contain a phrase that states that if any provision of the contract is deemed unenforceable in a court of law, the remaining provisions are still in force.)
Answer: B – The Procurement manager is not loyal to your specific project but may be administering many procurements.
Answer: C – The bidder conference is a tool and technique of Conduct Procurements. PMBOK® Guide, 5th edition, p.356