At some point of time in your project you will need to acquire something from an organization outside of your project team. To acquire such goods and/or services requires the group of Activities called Procurement.
You might need to acquire the use of office space. You might need materials for assembly. Perhaps you need to acquire a labour force. All of these are procurements.
Goods and/or services used in creating the project deliverables are called "direct" procurements and those used to support the project (such as office stationery, legal services) are called "indirect" procurements.
The required goods/services can be acquired by:
1. Purchase
2. Rental
3. Lease
4. Partnership
Less formal arrangements of Procurement such as borrowing or trading will not be dealt with in this discussion.
The legally binding nature of a contract usually means Procurement will be subject to closer scrutiny than most other Project Management activities. Within your organization or Project Management Team, there might be a department called Procurement, Purchasing, Supply Chain Management, or similar. As a Professional Project Manager you need to come to a working understanding about roles and responsibilities (R&R) with this department as part of your Project Team. Your organization probably dictates most of these R&R already. With good interpersonal skills and mutual respect, you can develop a relationship with this department to benefit your project.
CLICK HERE for a very good set of Procurement definitions.
PROCUREMENT PITFALLS
Procurement is a necessary but risky business. This is why it is important to have good Planning, Monitoring, and Controlling. Some of the procurement pitfalls to avoid are:
>Unclear selection criteria
>Pushing sellers so hard that they cannot make a profit. This is a lose-lose situation
>Over ordering or over-delivery which leads to overstocking
>Under ordering or under-delivery which leads to work stoppages
>Unreliable sub-contractors, even though the prime contractor might be excellent
>Focusing only on purchase price instead of total cost of ownership
>Inadequate policies and procedures
>Conflicts of interest
Every procurement follows the same processes. We will deal with each process individually. They are:
1. Plan Procurement: includes decisions,
approach, and potential sellers
2. Conduct Procurement: includes obtain vendor
responses, select seller, award contract
3. Control Procurement: includes manage
relationships, monitor performance, make
changes
4. Close Procurement: includes complete, file,
lessons learned
A Flow Diagram of Procurement processes is shown here.
PLAN PROCUREMENT
Some planning and decision making is required before any procurement can be made. You might choose to have an informal plan, when you work on repetitive projects with the same people. For larger, more complex projects with different team members, you can develop a detailed, written Procurement Management Plan; and an excellent template is given here, as a download.
Decisions are needed for make vs buy vs rent; roles and responsibilities; templates; handling long lead items; and type of contract payment; to name a few. Often these decisions have been made already, and are part of the corporate processes. As Project Manager you need to be aware of, and work within, prescribed corporate processes. You should document these decisions in your Procurement Management Plan.
Sometimes, especially in very large projects, these decisions are project-specific and need to be created. As Project Manager you need to ensure Procurement Planning serves your project well. You will be stuck with the decisions made!
In most organizations, the people doing procurement will need a description of what to buy, rent, lease. This Procurement Statement of Work (P-SOW) download is a form to clearly and completely describe the goods/services to be acquired, as well as collateral services such as instruction books, training, as-built drawings, spare parts, and so on. Think of 5W+2H to help you provide a complete P-SOW. For simpler procurements, you can embed the P-SOW on the purchase requisition.
For procurements where more than one vendor will be considered, vendor selection criteria (found on this download) are needed to select the successful bidder or proponent. These criteria normally go out with the invitation to bid or the request for proposal so the vendors know how they will be evaluated.
Determine what variables you will measure as key performance indicators of the procurement. Some possibilities are:
> Quantity delivered. This relates to your project Scope plan
> Quality of delivered goods, services, or results. This relates to your Quality Management plan
> Alloted cost. This relates to your project Cost plan
> Actual cost. This also relates to you your project Cost plan
> Vendor Performance Evaluations.
The last step in Planning Procurement is to put your request for goods/services on the market. It might be issued as a Request for Tender, a Request for Proposal, a Request for Quotation or in another form.
CONDUCT PROCUREMENT
Once you have a Procurement Management Plan and your Request for goods/services has been issued, you are ready to:
+ obtain vendor responses
+ evaluate vendor responses
+ select a vendor
+ award a contract
Acceptable procedures for conducting procurements are generally governed by the law of the land. If the local procurement laws are unfamiliar to you, it is best to seek expert advice. If mis-managed, the process of Conduct Procurements can be very expensive for your project and your organization, even resulting in litigation!
Vendor selection will be in accordance with your vendor selection criteria.
Some organizations allow negotiation with the successful vendor. This might occur prior to award, during contract execution, or at close out. Negotiation is an important interpersonal skill so look here for negotiation tactics and strategies.
The contract awarded can be a simple purchase order or a more complex contract. The contract should not contain any new conditions (no surprises) for the successful vendor. Unsuccessful vendors should be advised they were not selected.
ABOUT CONTRACTS
Contract Law is a subject often requiring qualified legal advice but about which all Professional Project Managers should have some working knowledge. A few key points are listed:
Contracts must be written. Verbal contracts are very difficult to arbitrate and leave room for gross misunderstandings.
Changes to contracts must be approved by the signing parties.
Any signed agreement prior to the signing of the contract (such as a memo of understanding) is superseded by the contract and becomes unenforceable after contract signing.
Every Procurement contract carries some risk, either to the Seller, or the Buyer, or both. Make sure the risk is acceptable to you before signing.
A letter of intent is not a contract, not an agreement, and not a commitment. You can have from the other party a letter of intent to sign your contract, and they can legally change their mind.
The five elements required to make a contract that will upheld in a court of law are:
1. Offer
2. Acceptance of the offer
3. Consideration (usually money exchanged)
4. Legal purpose. The Procurement Scope of
Work cannot be illegal.
5. Competent parties. Each party must be
competent to carry out their contracted
obligations.
When preparing a contract, there are many important items to remember. This Checklist for Contracts will help you do that.
CONTROL PROCUREMENT
After planning, you will want to begin Monitoring and Controlling the outcomes of your project. CLICK HERE and follow the links to find out how to monitor and control Procurements.