PROCUREMENT

MANAGEMENT

M. Tech. (PLE)
SEM II

12 April, 2017
 Project Management - Modules
1 2 4
2 Project 3 Project
Foundation Life Cycle Initiation
Stakeholder
Concepts Management

5 7 Project 10 Project
6 Project Quality
Organization Scope
Planning Management
Structures Management

8 Project 12 Project
11 Project 9 Project
Time Executing,
Risk Cost
Management Monitoring &
Management Management
Control

14
13 Communicatio 15
16 Project
Procurement Behavioural
Management ns Closing
Management Competencies

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 Procurement
3

Procurement is acquiring of goods and services

required for the project
from outside the performing organization

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 Procurement Process
4

Planning for the procurement

Identifying prospective sellers

Reviewing seller responses

Selecting the seller

Administering the contract

Closing the contract

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 Procurement Planning
5

Determine what to procure and when to procure

Make or Buy analysis

The scope of work required in each contract

Contract statement of work

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 Identify Prospective Sellers
6

Identify all the prospective sellers of the required

procurement
Determine and finalize an evaluation criteria for selecting
appropriate sellers
Complete relevant documents for sellers
Bids, offers, proposals
Work details
Seller evaluation criteria
Response forms, procedures
Proposed contract terms and conditions

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 Review and Award
7

Review Process:
Review the seller responses
Evaluate the seller responses against pre-determined
evaluation criteria
Select the seller(s)

Award Process:
Call the selected seller(s) for negotiation
Sign the contract

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 What is a Contract
8

A Contract is an agreement between two or more parties that

is binding on all the parties.
A contract comprises:
An offer by one party for performance of a service,
procurement of supplies or a combination of both service
and supplies

The Acceptance of the offer by the buyer

The Consideration normally in terms of money is paid

in return for providing the product or service

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 What is a Contract
9

Other necessary factors of a contract are:

Capacity to contract the persons entering into the

contract must be legally capable of doing so
Legal purpose the parties must be willing to be legally
bound
Legality of form The form of agreement must be
enforceable. They must follow the law of the land and must
not for performance of an illegal act.
Consent to contract All parties must voluntarily agree
to enter into the contract

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 Contents of Contract
10

Contracts normally include details of:

Contract Statement of Work (CSOW)
Performance requirements
Schedule
Payment terms, pricing adjustments for inflation
Acceptance criteria
Penalties, Retainage, Liabilities
Handling charges
Warranties and guaranties
Contract termination rules, applicable country laws
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 Administering the Contract
11

Contract is administered by the buyer for:

changes
progress
check contractor meeting cost, schedule and quality
requirements by monitoring using various reports,
meetings, quality checks performance reviews and audits

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 Closing the Contract
12

Formal contract closeout is necessary to verify that

all the work and the contract deliverables are
acceptable to the buyer

Get a formal acceptance from buyer

Deal with any pending contract issues/claims
Update each contract file
Record the lessons learned from each contract
for future use and learning

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 Choosing a Contract
13

Selecting appropriate contract essential for successful

contract performance
Type of contract chosen will determine the cost and
performance risks placed on the contractor and will impact
his performance
The amount of monitoring required by buyer will depend
on type of contract selected

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 Types of Contracts
14

Three broad types of contract:

Fixed Price contracts

Cost Reimbursable contracts

Time and Material contracts

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 Fixed Price or Lump Sum Contract
15

Also known as FP or LS or LSTK contract

The seller understands the total work required in the

contract and quotes a price including his profit

Maximum risk is faced by the seller

Can have a Fixed Price contract known as Fixed Price

Incentive Fee (FPIF) where seller is given an incentive by
Buyer for exceeding required performance

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 Cost Reimbursable Contract
16

Required when project is uncertain and difficult for

contractor to estimate a fixed fair price with sufficient
accuracy
End result to be achieved is clear but work required to be
done not very clear
Buyer cannot give a detailed CSOW
Contractor faces minimum risk he is only required to give
his best effort

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 Time and Materials Contract
17

Based on the seller completing a fixed amount of work

agreed to by the seller and buyer

The seller is paid on the basis of time taken to complete the

fixed work

Fixed rate paid for services rendered

Cost of materials reimbursed to seller by buyer

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 Contract Differences
18

Fixed Price contracts

Contractor will provide required product or services at
a previously fixed price

Cost reimbursable contracts

Contractor agrees to use best effort to perform work
within estimated contract cost. Cost overruns borne by the
buyer

Time & Materials contracts

Value of the contract will depend on the
quantity/hours of work needed to fulfill the contract
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 Procurement Audits
19

A structured review done to assess whether procurement

processes followed were suitable

Audit should cover the entire procurement process including

contract administration

Procurement areas that can be improved are identified and

the process can be improved with lessons learned in future
projects.

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