PMI PMP Project Management Professional – Introducing Project Procurement Management Part 3

9. Creating the Procurement Documents

There are many documents that you will need to be familiar with for your exam. And they’re not tough to understand or nail down, they just have some different characteristics here. So in this table are the documents you really need to know. This is in addition to the contracts. So let’s walk through these. Now. A bid said in a quotation are nearly identical. A bid is from the seller to the buyer. And it’s all about just a price. Same thing with a quote. It’s all about the price, that the price is what you’re going to pay. And whoever has the lowest bid or price is who you choose from.

A proposal is much more complex. A proposal is like a big idea. So I’m going to build a new house and I go to three different architects and I ask for a proposal. And so they create a proposal for this house and they all have different ideas of what I want. And then they present those proposals and then I choose the one that appeals the most to me.

So price could still be a factor. But it’s more than just price. It’s about the ideas and the proposed solution. I should say an invitation from bid. If I want you to bid, I would give you an IFB. So it’s a document that describes our statement of work and I’m interested in just a price. Same thing with an RFQ. I give you an RFQ. Here’s what we want. I want four tons of pea gravel. How much? Or here’s exactly the specs for this piece of software or this website, how much an RFP is. I want you to create a proposal for me.

So give me some ideas and solutions based on this statement of work. A request for information is I’m interested, but I may not be ready to buy. So an RFI is give me some white papers, give me some documentation, some brochures, some insight into the services and the products that you can offer that would help us out. So those are the documents you need to be familiar with for your exam.

10. Conducting Procurements

Now that we have a procurement management plan and we’ve done some buy versus build decisions, let’s talk about actually doing the procurement. What we’re after here is for the seller to give us a response, to give us a bid, a quote or a proposal. Then from that I choose the seller and I award them the contract. So to conduct procurements, we’re talking about doing these three processes or these three activities.

So let’s look at our EDOs for conduct procurement. First off, our inputs, you’ll need your project management plan, lots of plans here and documents. So scope requirements, communications, risk procurement, and configuration management. Those are all plans that we’re going to need because that’s where we’re finding requirements and that’s where we’re finding what the project needs that will affect procurement. Also your cost baseline project documents.

Lessons learned register your schedule again requirements documentation, the risk register and stakeholder register you’ll need the actual procurement documentation. To conduct procurement, you’ll need seller proposals and EEF and OPA tools and techniques, expert judgment, advertising, bidder conferences. You’ll do some data analysis, the proposal evaluation. You’re going to study the proposals to make a determination of who should get the contract, interpersonal and team skills. And then you may have some negotiation.

The outputs of conducting procurement, you choose your seller and you have a deal. The agreement you might have change request and then you’ll update your project management plan as needed. So requirements, quality, communications, risk procurement, all of those plans could be updated. You might also have to update your scope schedule and cost baselines project documents could be updated. Lessons learned, your requirements documentation, your RTM, the resource calendar, the risk register, and stakeholder registers and you might have OPA updates. Now let’s talk about the documents that we’ve already seen. We saw these in a previous lecture, but let’s talk about the process here.

So from the buyer, I’m going to be the buyer and you’re the seller now, so I’m going to give you a statement of work or a terms of reference, a tor. Along with that I will give you a request for quote or an invitation for bid, which means I just want a price. I might give you an RFP, a request for proposal, which means I want ideas and solutions and then you might have an RFI. An RFI just means give me more information.

We’re talking about buying stuff here though, for real. You would then look at that information and then you would respond with what I asked for. You would give me a quote, a bid okay, information. If I gave you an RFI and a proposal. So that’s what you would return to me. All of the different vendors that gave me a proposal or a bit or a quote, I’m going to have to look at that and say now which 01:00 a. m. I going to buy from? Which one is the best for our project? So I have lots of different things I can do here to choose. The first one is a waiting system.

A waiting system is where I take all of the proposals and I say, well, the most important factor is price and that’s worth 80 points. The next is schedule. That’s pretty important. That’s worth 60 points. And so is the cost. We’ve got cost, so is their technical abilities and that’s worth 60 points. And then the solution and that’s worth 30 points and so on. So I could have all these categories that I defined up front and I give points to them. Then I take each proposal and I evaluate each one. Well, how are they on price? Okay, this guy gets 70 out of 80 points. How are they on their schedule? Oh, really good schedule. He gets 60 points. So in each one of those I grade them by these predefined categories that I know about or our organization knows of. And then whoever gets the most points, that’s the proposal that wins.

It’s called weighted because I’m putting more points towards the price in this instance. And each category can really have its own price, but it’s weighted where some are worth more than others. Some categories are, remember, independent estimates, screening systems. You have to have a PMP on board, you have to have a licensed PE on board, a professional engineer, or you don’t qualify, or X amount of years of experience or whatever you want to screen out people who don’t qualify. And then you go into contract negotiation and you negotiate the terms.

So you could go to two or three vendors you’ve narrowed it down to and negotiate for a better price or a better schedule or whatever you want. And that’s contract negotiation. A seller rating system is like Yelp. You ever go on Yelp to find a restaurant you want to go to, you look at the reviews and the ratings. Same idea here. When we’re purchasing internally, you might have a seller rating system where you look at what other people have their experiences from. That vendor will help you choose which vendor based on past experience from other people. Expert judgment. If you don’t know, you get a consultant to help you choose.

And then proposal evaluation is just that. Studying and reading, attention to detail, things like that. Here’s the entire procurement process we’ve talked about so far all the way to the contract. So anything in green deals with the buyer. Anything in blue is the seller. So the buyer I’m going to purchase from you, I give you that statement of work. An IFB, an RFQ or an RFP, I send that out to you. The seller, you, all the sellers are invited to come to a conference at our facility. And it’s a bidder’s conference. It’s an opportunity to ask questions about that statement of work. So you want some clarity here. So everybody has the same information. You’re all asking questions about what we are going to purchase after the bidders conference. I update the statement of work and redistribute that generally to only the people that showed up to the bidders conference. I make the assumption others don’t want to participate, but I only give it to the sellers that attended. The sellers then take that updated statement of work and now they have all the answers that they asked. And then that goes into their process to create the bid.

The quote or the proposal in kind with what I asked for. You give that back to me, the buyer. I do some analysis and study, and then I might negotiate with two or three of you two or three of you sellers out there. And then we go through this negotiation process and I finally make up my mind and I choose you. So you and I then have a deal and we write up a contract and we’re ready to get to work. So that’s the whole procurement process, the workflow of how we choose a vendor in the contract or agreement, as we’ve seen in our EDOs, we get a lot of information here. So just quickly, I’ll run through these. You have the requirements, you have your schedule, baseline, how you do reporting, what’s the time frame for this work? Like this contract is good for 60 days or whatever. What are the roles and responsibilities?

Where will the work happen, the pricing and payment? What about inspection? What’s that process like? Do you offer a warranty? If so, it’s in the contract. Will you support it? If so, it’s in the contract. Limitation of liability. At some point I own it, not you. So what’s the limitations of liability? Do I have to give you a fee just to get started or put you on like a retainer? Are there any penalties? So if you’re late, you could have a disincentive. If you’re early, you get a bonus, an incentive insurance and performance bonds if you want to hire subcontractors, do I get to approve those? Change request. And then if things don’t go well, how do we terminate the contract? And rather than go to court, we would first try to do an alternative dispute resolution where we tried try to work things out rather than getting the attorneys in the court system involved. So that’s always a good approach, but all of that’s defined in the contract. All right, great job, keep moving forward.

11. Selecting the Seller

Let’s talk a little bit more about selecting the seller. Some big picture things here and a few details you should be aware of. When I choose the seller, it’s based on the proposal, the bid or the quote. The documents are the things that you give me that support your bid, quote or proposal. Price can often be the predominant factor but not always. Sometimes it’s experience or the idea or the solution that’s proposed. Generally we think about seller selection criteria.

We think about cost could be only qualifications are the leading factor could be the quality based or a technical score based on our screening or weighted screening system or weighting averages here of we talked about cost, scope, schedule, different ideas. It might be quality and cost. A combination could be sole source. Remember soul source. There’s only one that can do it. So there you go, that’s the one we’re stuck with. It could also be I have a fixed budget so how much can I get for this? So I want to build a house but I only have 400,000. What kind of house would that get me? Or whatever the case may be, you have a fixed budget. As a reminder, know these for your exam.

The waiting system, independent estimates, screening system, contract negotiations, seller rating systems, expert judgment and proposal evaluation. All of those are tools and techniques of how do we choose which seller will get the contract. So know that for your exam another term you should be familiar with is a letter of intent.

So you’re going to get the contract. So what we have when we sit down, you and I, and we write this up, we got a deal. We may not have a contract today. What we have instead is a memorandum of understanding. This says this is what Joe will do and pay and this is what you will do and receive payment for. Then we give that to the attorneys and the attorneys then will write up the contract. Well, it might be two or three weeks before they have that contract ready or a month or two depending on your organization. So in that interim I write a letter of intent.

And a letter of intent we give to you and say yes, we have a deal. These are the terms from the buyer to the seller. And that lets you know that yes, you got the contract. It allows you to prepare to do the work. So you might have to do some hiring, maybe you have to turn down other opportunities because you’re going to go with us.

So that’s that idea of opportunity cost, you can only do one. So which one do you choose? The opportunity cost is the one you have to let go. All right. But a letter of intent is just it allows you then to begin pulling planning to do our contract. It’s not a legally binding contract. It’s just we intend to do business with you. The contract will come later from the attorney, so letter of intent often precedes the contract. All right. Good job. Keep moving forward.

12. Controlling Procurements

Now that we have a contract, we have a deal. It’s time to control the procurement. It’s time to make sure we’re both living up to the terms of the contract. So that’s what this is all about. The project manager and the contract administrator in the organization, they work together. So we’re talking about the contracting department or procurement department. It here. If the seller doesn’t live up to the terms of the contract, then we have some problems, right?

We might have legal remedies. We might have some alternative dispute resolution, or we might cancel it, whatever the contract allows us to say. The contract overrides everything else. So you have to have that clause in your contract about the what if. If we don’t live up to the terms? Well, what are we going to do now? The edo’s for controlling procurement. Lots of edo’s here. I’m just going to hit the headlines. A lot of this is the same for our planning procurement.

All right, you need your PM plan, you need your project documents. You can see the major stuff there. The milestone list and quality reports will be two key things. Are people hitting their milestones or getting deliverables for our milestones? And then is it of quality? Your agreement, the contract, the procurement documentations needed, approved change request, work performance data, EEF and OPA, tools and techniques, expert judgment, claims administration. A claim is a disagreement, so we’ve got to resolve that. Data analysis. So we’re talking about performance reviews, earned value analysis and trend analysis, inspection and audits, the outputs of controlling procurements. Your closed procurement, we’re done. You satisfied it. We sign off, everybody’s happy.

Work performance information, procurement documentation, updates, change request. And you may have updates to your plan, like your risk management plan, the procurement plan, the schedule baseline, the cost baseline. You could also have updates to your project documents, lessons learned, resource requirements, the RTM, the risk register, the stakeholder register, and even OPA. Those are all things that could be updated by controlling procurements. Some key things to look at here for preparing to control, obviously your PM plan. The project documents are needed as well. Really, though, the big thing will be our contract. What’s the agreement between the two parties? We need the procurement documentation, like the bid, the quote, the proposal, any approved change request, work performance data. So raw data about the performance that the vendor has done.

And EEF and OPA. You may have rules or policies on how you control procurement processes. Okay. We think about directing and managing project execution, how vendors affect that if they’re late or support quality, that’s going to affect us. US being we still have the rest of the project to do. We’re going to report performance.

So how does that done EVM or status or an inspection, how you report performance, how will you do quality control on what the vendor delivers? And then if there’s a change, you have to do integrated change control. And then does the vendor introduce any risk? So we have to monitor and control risk that may be caused because of the vendor’s work. All important things to know for your exam.