Chapter 5: Procurement And Project Contract

Management
 Discussion(10 min)

1. What is Procurement?

2. Discuss Project Procurement Processes

3. What is Procurement Planning?

4. What are the key questions that procurement planning will answer?

5. Discuss the benefits of procurement planning

6. Discuss Project Solicitation

 Procurement

• Procurement means acquiring goods and/or services from an outside source

• Other terms include purchasing and outsourcing
• Benefits of Outsourcing
– To reduce both fixed and recurrent costs
– To allow the client organization to focus on its core business
– To access skills and technologies
– To provide flexibility
– To increase accountability

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Project Procurement Processes:

1. Procurement planning: determining what to procure and when

2. Solicitation : documenting product requirements and identifying potential sources and

obtaining quotations, bids, offers, or proposals as appropriate

3. Source selection: choosing from among potential vendors

4. Contract administration: managing the relationship with the vendor

5. Contract close-out: completion and settlement of the contract

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 1. Procurement Planning

Procurement planning is a management tool that involves in

• – identification of all procurement activities,

• – determining the magnitude,

• – categorizing into goods, works or services,

• – determining the estimated cost and

• – Determining the estimated delivery time.

• Statement of Work (SOW)

– A statement of work is a description of the work required for the procurement

– Many contracts, mutually binding agreements, include SOWs

– A good SOW gives bidders a better understanding of the buyer’s expectations

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 Statement of Work (SOW) Template
I. Scope of Work: Describe the work to be done to detail. Specify the hardware and
software involved and the exact nature of the work.
II. Location of Work: Describe where the work must be performed. Specify the
location of hardware and software and where the people must perform the work
III. Period of Performance: Specify when the work is expected to start and end,
working hours, number of hours that can be billed per week, where the work must
be performed, and related schedule information.
IV. Deliverables Schedule: List specific deliverables, describe them in detail, and
specify when they are due.
V. Applicable Standards: Specify any company or industry-specific standards that
are relevant to performing the work.
VI. Acceptance Criteria: Describe how the buyer organization will determine if the
work is acceptable.
VII. Special Requirements: Specify any special requirements such as hardware or
software certifications, minimum degree or experience level of personnel, travel
requirements, and so on.

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 2. Project Solicitation
• Solicitation planning involves preparing several documents:

– Request for Proposals: used to solicit proposals from prospective sellers where
there are several ways to meet the sellers’ needs

– Requests for Quotes: used to solicit quotes for well-defined procurements

• Solicitation involves obtaining proposals or bids from prospective sellers

• Organizations can advertise to procure goods and services in several ways

– approaching the preferred vendor

– approaching several potential vendors

– advertising to anyone interested

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3. Source Selection

• Source selection involves

– evaluating bidders’ proposals

– choosing the best one

– negotiating the contract

– awarding the contract

• It is helpful to prepare formal evaluation procedures for selecting vendors

• Buyers often create a “short list”

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Sample Proposal Evaluation Sheet

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4. Contract Administration

• A contract is an agreement between two or more parties in writing to do or not to do

certain things.

• The followings are types of project Contracts

– Turnkey Projects ( Design, Engineering, Procurement and Construction )

– Engineering, Procurement and Construction (EPC)

– Semi-Turnkey or Component Contracts

– Semi Design/Build Contracts

– Traditional Design/Bid/Build Contract

– BOOT(Buid-Own-Operate-Transfer)
Types of Contract Prices

• Fixed price or lump sum: involve a fixed total price for a well-defined product or
service

• Cost reimbursable: involve payment to the seller for direct and indirect costs incurred

• Time and material contracts: hybrid of both fixed price and cost reimbursable, often
used by consultants

• Unit price contracts: require the buyer to pay the seller a predetermined amount per
unit of service

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5. Contract Close-out

• Contract close-out includes

– product verification to determine if all work was completed correctly and

satisfactorily

– administrative activities to update records to reflect final results

– archiving information for future use

• Procurement audits identify lessons learned in the procurement process

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