BSBPMG51
8 Manage
Project
Procureme
nt
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Unit Information
Housekeeping
Emergency procedures
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This course is interactive – ask questions
Practise respect and confidentiality
Ground rules
Project Management
Processes
Plan procurement
management
Includes processes to purchase or acquire products or services from outside of the
project team
It also includes the contract management and change control processes required to
develop and implement purchase orders and contracts
The project procurement processes form the lifecycle of any contract that is
established as part of that process
A complex project can involve managing multiple contracts or subcontracts
simultaneously
Purchasing interactions with government departments and large organisations are
often dictated by complex and formal procurement policies and procedures
Plan procurement
management (cont.)
Project procurements often involve a formal contract, contracts are legal documents
between a buyer and a seller that are mutually binding
Sellers are obliged to provide the specified products or services
Buyers are obliged to provide monetary compensation
Some contracts are extremely complex and others can be very simple
Contracts will include terms and conditions specified by the buyer and negotiated with
the seller
Contracts normally require an extensive negotiation and approval process including
expert assistance form procurement and legal professionals
Procurement approaches
Quotation: Often requires three to five quotes and selecting the lowest or the one that best
fits the requirements
Closed Tender: Proposals are sought from a pre-selected group of potential suppliers
Open Tender: Proposals are sought from all potential suppliers
Previous Supplier: Recurring purchasing from a previously selected and well performing
supplier
Preferred Suppliers: Pre-qualified list of potential suppliers for different categories of
products or services
Tender process
Procurement processes for large organisations and government departments normally include
some form of tender process
Tender processes can be very complex and time consuming so they are normally reserved for
major procurement, often over a particular monetary threshold
There are different types of tenders available – open and closed
There are many different potential steps that can be included in the tender process depending on
the preferences and policies of the purchasing organisation
Tenders result in a legally binding contract between the buyer and the seller
Common tender
process
Tender
definitions
RFI – Request for Information
o An open enquiry that spans the market seeking broad data and
understanding
RFQ – Request for Quotation
o An opportunity for potential suppliers to competitively cost the final
chosen solution(s)
RFT – Request for Tender
o An opportunity for potential suppliers to submit an offer to supply
goods or services against a detailed tender
Tender definitions
(cont.)
RFP – Request for Proposal
o An opportunity for potential suppliers to submit a detailed
proposal on their ability to meet the requirements of the tender
Supplier Briefings
o Held by the buyer with all potential or short listed supplier to
answer questions and clarify requirements
EOI – Expression of Interest
o An opportunity for potential suppliers to show interest in
responding to a tender
Procurement policies and
procedures
There are many excellent procurement related websites and resources
available online:
www.tenders.gov.au – Federal government tenders
www.tenders.nsw.gov.au - NSW government tenders
www.tenders.vic.gov.au – VIC government tenders
www.vgpb.vic.gov.au – VIC purchasing board
www.finance.gov.au/procurement/ - Federal purchasing policy
www.apcc.com.au – AUS procurement and construction council
www.treasury.gov.au/procurement/ - Federal government
procurement guidelines and information
Plan procurement
management
The process of documenting project purchasing decisions, specifying the approach and
identifying potential suppliers.
It identifies project needs that are best met by acquiring products or services from
outside of the project organisation.
It considers potential suppliers and the contractual arrangements that may be required
to manage these external parties to achieve the project objectives.
Closely related to Risk Management
Occurs during Planning
Plan procurement
management (cont.)
Inputs to Plan Procurements: Inputs to Plan Procurements:
o Scope Baseline - Scope Statement o Enterprise Environmental Factors
and WBS
Marketplace conditions and
o Requirements documentation products/services available
o Project Schedule Suppliers past performance
o Teaming Agreements - with third Typical terms and conditions
parties
o Organisational Process Assets
o Risk Register
Formal procurements policies
o Activity Resource Requirements and procedures
o Activity Cost Estimates Preferred Supplier Agreements
o Cost Performance Baseline
Tools and techniques for planning
procurements
Make or buy analysis
Determines whether particular work can be accomplished by the project team
or must be purchased from outside sources
The capability may exist internally but may be committed to other projects
Budget constraints can influence make or buy decisions
Make or buy decisions need to cover the following:
o Purchase versus lease
o Related costs – direct costs and indirect support costs
Tools and techniques for planning
procurements (cont.)
Expert judgement
Consulting procurement and legal professionals
May be internal or external to the project organisation
Preferred supplier agreements
Many organisations (particularly government) negotiate agreements with pre-
qualified suppliers of regularly purchased products or services
The project team then needs to select the supplier from the preferred supplier
agreement
It makes it much easier to find reputable suppliers and reduces requests for
information within the market
Exceptions normally need to be approved by an internal Procurement Department
Tools and techniques for planning
procurements (cont.)
Procurement approach
Once the Buy decision has been made, many different approaches can be used to procure the
required products or services
Three Quotes – traditionally three quotes are obtained for certain trades and then the cheapest is
selected, depending on conditions
Previous Supplier – may be related to preferred supplier agreements, a well known
supplier that has been used in the past is automatically chosen
Tender Processes – can be open to the entire market or closed to specific suppliers often from the
preferred supplier list
Procurement policies and
procedures
Most large organisations and all government
departments will have extensive policies and procedures
to govern purchasing
These often include –
o Preferred Supplier Agreements
o Purchase Ordering and Supply processes
o Delegated authorities for approval of expenditure
Fixed Price contract
Involves setting a fixed total price for a defined product or service
Often include financial incentives for achieving or exceeding objectives
such as time, cost and quality
Suppliers assume much of the delivery risk and are legally obligated to
complete the contract
Financial and legal penalties are common if the contract conditions are
not met
Normally the most complex to negotiate and administer
Firm Fixed Price (FFP)
contract
Most common form of fixed price contract, favoured by most buying organisations
Price is set at the outset and only subject to change if the scope of work formally changes
Any cost increase due to poor performance is the responsibility of the seller
The buyer must precisely specify the requirements, any changes to the specification will
normally result in additional costs
Doesn’t normally result in the BEST price for the product or service
Buyer risk is LOW but must document detailed requirements
Seller risk is HIGH so normally charge a premium
Fixed Price Incentive Fee
(FPIF) contract
Similar to basic Fixed Price but with some flexibility based on performance
under the contract
Financial incentives and penalties are often negotiated based on time, cost and
quality
The Seller can receive additional payment if they outperform or may be subject
to addition costs if they under perform
Not popular with Sellers for new products or services, or high risk procurement
Under FPIF a price ceiling is set, all costs above this are the responsibility of the
Seller
Similar buyer and seller risk profiles to Fixed Price
Much more complex to negotiate and administer
Fixed Price with Economic Price
Adjustments (FP-EPA) contract
Normally used for long term contracts
Basic Fixed Price with clauses allowing for a variation in price should
economic conditions change
Price adjustments may be allowed due to inflation, commodity price
fluctuations and variations to exchange rates
Best if related to reliable, standard and externally calculated financial
indices
Should ideally allow for both price increases and price decreases, but
price decreases are often overlooked
Intended to protect both the Buyer and Seller from economic
conditions outside of their control
Lowest risk profile but complex to negotiate and administer
Cost reimbursable
contract
Involves paying the Seller for all legitimate actual costs incurred plus
an agreed fee for Seller profit
May also include financial incentive or penalty clauses
Delivery risk is shared between the Buyer and Seller
Gives flexibility to the Buyer to redirect the Seller whenever the
scope of work changes
Especially popular where the Buyer cannot define detailed
requirements or for high risk projects
Financial and legal penalties are harder to enforce if the contract
conditions are not met, simpler than Fixed Price to negotiate and
administer
Lowest risk profile but complex to negotiate and administer
Cost Plus Fixed Fee (CPFF)
contract
Seller is reimbursed for all allowable costs for performing the agreed
work
Seller receives a fixed fee payment calculated as a percentage of the
initial estimated project cost
The Fee is paid only for completed work and does not change due to
Seller performance – no incentives of penalties
The Fee can only be varied due to an agreed change in project scope
Low risk profile but complex to negotiate and administer
Loosely defined requirements can lead to disagreements over scope
Cost Plus Award Fee (CPAF)
contract
Seller is reimbursed for all allowable costs for performing the agreed work
The profit component of the fee is only earned based on the satisfaction of
broad subjective performance criteria defined and incorporated into the
contract
The amount of the fee is based solely on the subjective assessment of Seller
performance by the Buyer
Generally includes a clause where no appeals can be made on the amount of
the fee.
Very unpopular with sellers
Loosely defined requirements can lead to disagreements over scope
Low risk profile for buyer, high risk profile for seller
Time and Material (T & M)
contract
Hybrid type of contract containing both aspects of cost-reimbursable
and fixed-price contracts
Often used to acquire consultants, contract staff and subject matter
experts
Also used when the Buyer cannot, or doesn’t want to, specify the
statement of work or requirements in detail
Gives flexibility to the Buyer to redirect the Seller whenever the scope
of work changes
Many organisations will require not-to-exceed values or time limits on
such contracts in order to manage and monitor costs
VERY common for contract labour
Risk is shared between the buyer and seller
Plan procurement
management
Outputs of Plan Outputs of Plan
Procurement Procurement
Management include: Management include:
Procurement Management Plan Included as a table of decisions
in the Procurement
Detailed contents covered in 12.1
Management Plan
Plan Procurement Management
Procurement Documents
Procurement Statements of
Work Requests for Tender
Derived from the project scope Seller Evaluations
baseline
Contracts
That portion of project scope to
be included in the particular Source Selection Criteria
contract Change Requests
Make or Buy Decisions
The Procurement
Management Plan
The Procurement Management Plan describes how the procurement processes will be managed.
It is critical that it is linked to relevant industry regulations and organisational policies and procedures.
Common inclusions in the Procurement Management Plan –
o Links to organisational procurement management policies and procedures
o Types of contracts to be used and contract templates
o Delegated authorities and required involvement from internal purchasing, finance and legal
experts/departments
o Tender document templates
o Assumptions, constraints and risks related to procurement
o Schedules of contracted deliverables
o Preferred supplier lists
o Procurement metrics and performance measurements
The Procurement Planning
Register
It is often very useful to document all procurement approaches and decisions in a table known
as the Procurement Planning Register
Includes information about the sourcing approach, type of contract, selection criteria,
requirements, risks etc.
Content can be tailored to organisational policies and procedures
Selection criteria
Selection criteria are often included as part of tender
documents and are used to rate or score different suppliers
Facilitate and provides justification for procurement decisions
Can be limited to purchase price for commodity type items or
can also include other selection criteria such as reputation,
financial viability, fit with requirements etc
Often weighted based on relative importance
Selection criteria (cont.)
Understanding of requirements
Overall or lifecycle costs
Technical capability
Risk
Technical approach and capability
Management approach
Business size and type
Financial viability
Industry experience
Intellectual property
Production capacity
Past performance and references
Warranty
2. Establish agreed
procurement processes
Procurement risk Management responses
Vendor may go out of business within the time - Conduct a financial background check on the
frame of the project without delivering, or only vendor - Build terms into the contract to allow
partially delivering, on their commitments the buyer to take over human resources and
equipment from vendor
Vendor may take on too much work and not be Build incentives and penalties into contract to
able to meet the agreed deadlines encourage good vendor performance or to
provide additional funds should the vendor not
be able to meet their commitments
Vendor may not correctly interpret the - Document the requirements in as much detail
requirements and cause issues for project as possible - Carefully manage the quality and
scope, time and cost completeness of deliverables along the way so
that so that change requests ad defects can be
resolved early - Build detailed change control
processes into the contract
Conduct procurement
The process of obtaining seller responses, selecting a seller and
awarding the contract
The team applies selection criteria to the bids or proposals received
from the various sellers
The process is sometimes repeated in more detail for major
procurements once a short list of qualified vendors is identified
Often referred to as the tender process
Occurs during Execution
Conduct procurement (cont.)
Inputs to Conduct Procurements:
o
o Project Management Plan
o Procurement Management Plan
o Procurement Planning register
o Procurement Documents
o Source Selection Criteria
o Seller Short List
o Seller Proposals
o Risk Register
o Teaming agreements with external companies
o Organisational Process Assets –
o Preferred supplier lists
o Preferred supplier agreements
o Lessons learned on past procurements
Conduct procurement (cont.)
Bidder Conferences
o Also known as Contractor Conferences, Vendor Conferences, Pre-Bid
Conferences
o Meetings with all prospective sellers and representatives from the buyer
o Used to clarify requirements and answer questions prior to the
submission of bids or proposals
o Ensure that all sellers have a clear and common understanding of the
requirements and that no bidder receives preferential treatment
o Buyers must ensure that all prospective sellers hear every question and
receive every answer
Conduct procurement
(cont.)
Expert Judgement
o Consulting procurement and legal professionals
o May be internal or external to the project organisation
o Establishing multi disciplined review team for the proposals
Proposal Evaluation Techniques
o Used for complex purchasing decisions where the selection is made using
pre-defined and weighted selection criteria
o Requires complex spreadsheet and calculations of the responses of a
selection committee
o The selection committee normally consists of project team members, key
stakeholders and subject matter experts who independently rate the
selection criteria
o Results are then calculated and presented to the selection committee who
may alter the outcome based on other considerations
Conduct procurement
Independent Estimates and Review
o The purchaser may elect to have an independent specialist
prepare an estimate of costs to provide a benchmark for the
seller responses
o Significant variations in the cost estimates of the different
proposals can indicate deficiencies with the requirements or
statement of work
o Can also use independent experts to review the outcomes of
selection processes
Advertising
o Advertisements for prospective sellers are often placed in major
newspapers or on specific websites that are regularly reviewed
by the providers of commonly purchased products and services
o Low cost means of expanding the pool of prospective sellers
Conduct procurement
Internet Search
o Now a major tool and influence on the availability of prospective sellers
and the outcomes of procurement decisions
o Many commodities and off the shelf items can be quickly located and
secured at a fixed price on the internet
o Not very useful for high risk and complex procurements, except for the
location of potential sellers
Procurement Negotiations
o Many large organisations and government departments will have a
specific negotiation process to ensure a fair outcome
o Can include assistance from legal and purchasing professionals
o Can also include pro forma contracts and mandatory clauses
Conduct procurement (cont.)
Procurement Policies and Procedures
o Most large organisations and all government departments will have
comprehensive policies and procedures
o It is critical that the project team are aware of these and that they are
followed, otherwise approval may not be obtained for purchasing
requirements and timeframes can be severely impacted
o These procedures will also impact the project schedule during the planning
stage as critical internal specialist may not be available when required by the
project
o It is often mandatory to engage internal purchasing professionals and either
internal or external legal professionals
o Purchasing decisions may need to be escalated to senior management or
even the Board for approval, depending on the overall cost. This can also
impact timelines.
Conduct procurement
(cont.)
Outputs of this process include:
o Selected Sellers
o Procurement Contract
Statement of Work, deliverables and requirements
Timeline and pricing
Performance and reporting procedures
Roles and responsibilities
Incentives and penalties
Acceptance criteria
Warranty and insurances
Confidentiality and intellectual property
o Resource Calendars
o Change Requests
o Project Management Plan updates
Cost, Scope and Schedule baseline
Procurement Management Plan
o Project Document Updates
Requirements documentation
Risk Register
Close procurement (cont.)
The process of Completing each project procurement
Part of the overall Close Project Phase
Involves the administrative activities related to claims, change requests and final
procurement results
Includes either the completion of each contract or the handover of contracts for on-
going administration for the life of the product or service that has been purchased
Early termination of a contract is a special case of procurement closure and can
occur by mutual agreement or when either the buyer or seller fails to meet agreed
terms and obligations
Legal action can occur on unresolved claims even after the contract has been closed
Close procurement
Inputs to Close Procurements:
o Procurement Documents
o Project Management Plan
o Contract
Tools and techniques to Close
Procurements:
o Procurement audits
o Negotiated settlements
o Records management system
Close procurement (cont.)
Procurement Audits
o A structured review of the procurement process that may have been
specified in the Plan procurements process and then carried out
during Administer Procurements and Close Procurements
o The objective is to identify successes, failures and lessons learned
Negotiated Settlements
o Final equitable settlement of all outstanding issues, claims and
disputes
o Direct negotiation between the buyer and seller is preferred, if not
possible then mediation, arbitration or legal action may be required
Close procurement (cont.)
Record Management Systems
o Used by the Project Manager to manage contract and
procurement documentation and records
o Contains a retrievable archive of all contract documentation,
correspondence and performance reports
Close procurement (cont.)
Outputs of this process include:
o Closed Procurements
Formal written notice of contract completion
Contract closure performed as per terms and conditions of
the contract and the Procurement Management Plan
o Organisational Process Assets
Procurement File
Deliverable Acceptance and Sign Off
Lessons Learned documentation
Summary and Feedback
Did we meet our objectives?
How did you find this session?
Any questions?
Academic Integrity
Student’s Responsibility
undertake studies and research responsibly and with honesty and integrity
ensure that academic work is in no way falsified
seek permission to use the work of others, where required
acknowledge appropriately the work of others
take reasonable steps to ensure other students can't copy or misuse your work.
Acade
Plagiarism
Plagiarism is taking and using someone else's thoughts, writings or inventions and representing them as
your own. Plagiarism is a serious act and may result in a learner’s exclusion from a course. When you have
mic
any doubts about including the work of other authors in your assessment, please consult your
trainer/assessor. The following list outlines some of the activities for which a learner can be accused of
plagiarism:
Integri Presenting any work by another individual as one's own unintentionally
Handing in assessments markedly similar to or copied from another learner
ty Presenting the work of another individual or group as their own work
Handing in assessments without the adequate acknowledgement of sources used, including assessments
taken totally or in part from the internet.
If it is identified that you have plagiarized within your assessment, then a meeting will be organized to
discuss this with you, and further action may be taken accordingly.
Collusion
Collusion is the presentation by a learner of an assignment as their own that is, in fact, the result in whole or
in part of unauthorized collaboration with another person or persons. Collusion involves the cooperation of
two or more learners in plagiarism or other forms of academic misconduct and, as such, both parties are
subject to disciplinary action. Collusion or copying from other learners is not permitted and will result in a “0”
grade and NYC.
Assessments must be typed using document software such as (or similar to) MS Office. Handwritten
assessments will not be accepted (unless, prior written confirmation is provided by the trainer/assessor to
confirm).
