Project Procurement Management

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1 Project Procurement Management Presented by: Michael G. Judd, Ph.D., M.P.A., PMP Adjunct Professor of Project Management Computer Information Systems Department Brigham Young University- Idaho

2 Michael G. Judd Education Post Doctoral Diploma in Defense Program Management Ph.D. Engineering Management Masters of Public Administration Bachelors of Science in Criminal Justice Professional Certifications Certified Project Management Professional Member of the Army Acquisition Corps Certified Project Manager with U.S. Department of Energy Professional Recognition Experience Introduction Outstanding Young Men of America-1987 United Who s s Who in Executives & Professionals Retired from Federal Government after 27 years Senior level positions includes: Executive Office of the President (U.S.) Department of Administration DOE Liaison to the Under Secretary Defense (Environmental Security) DOE Principle Investigator and member of the Paldiski International Expert Reference Group PIERG Program Analyst- Air, Space, and Land Combat Systems- U.S. Department of Army Program Manager- DOE Environmental Security Office Vice President (Education and Certification) Project Management Institute s-college of Performance Management Project Manager- National and Environmental Security Systems Project Control Manager- Multiple Major System Acquisition Projects Professor of Program Management U.S. Department of Defense- Defense Acquisition University Professor of Project Management (Adjunct Faculty) Brigham Young University-Idaho 2

3 Outline Procurement Terms & Concepts Review PMBOK s Procurement Process Groups Current Issues in Procurement Management Questions and Answers 3

4 Procurement Terms and Concepts 4

5 Procurement The fancy word for "purchasing" purchasing." The procurement department within an organization manages all the major purchases. Source: 5

6 Procurement Plan The document that describes how procurement processes from developing procurement documentation through contract closure will be managed. Source: PMBOK 3 rd Edition, P

7 Make-or or-buy Decision A A business decision that compares the costs and benefits of manufacturing a product or product component against purchasing it Source: 7

8 Contract Administration The process of managing the contract and the relationship between the buyer and seller, managing contract related changes and, when appropriate, managing the contractual relationship with the outside buyer of the project. Source: PMBOK 3 rd Edition, p.355 8

9 Invitation For Bid Refers to a method of soliciting offers and are used when negotiations are not anticipated.. Bids are typically read aloud in public at the time and place specified in the solicitation. Source: U.S. Army Contracting Agency Customer Desk-side Dictionary 9

10 Request For Proposal A type of solicitation that is used typically with large dollar contracts when negotiations are anticipated.. Offers in response to RFPs can be accepted without negotiations and become legally binding. Source: U.S. Army Contracting Agency Customer Desk-side Dictionary 10

11 The Contract A contract is a mutually binding agreement that obligates the seller to provide the specified products or services - obligating the buyer to pay for them. Contracts should clarify responsibilities and define key deliverables. Contracts are used because they are legally binding,, there is more accountability! There is a trend to outsource work! Source: IT Project Management-Schwabe

12 Contract Types Fixed Price (Lump Sum) Contracts: Firm Fixed Price Fixed Price Incentive Fee Cost Reimbursement Cost Plus Award Fee (CPAF) Cost Plus Fixed Fee (CPFF) Cost Plus Incentive Fee (CPIF) Cost Plus Percentage of Cost (CPPC)- [Feds don t t use] Time and Materials Source: PMBOK 3 rd Edition, P. 277&278 12

13 Statement of Work (SOW) A A narrative description of products, services, or results to be supplied. Source: PMBOK, 3 rd Edition, P

14 PMI s PMBOK: Procurement Process Groups 14

15 12.1- Plan Purchases Process Group: And Acquisitions Inputs Enterprise environmental factors Organizational process assets Project scope statement Work breakdown structure WBS dictionary Project management plan Risk register Risk-related contractual agreements Resource requirements Project schedule Activity cost estimates Cost baseline Make-or or-buy analysis Expert judgment Contract types Outputs Procurement management plan Contract statement of work Make-or or-buy decisions Requested changes Tools & Techniques Copyright: JSPM

16 12.2- Plan Contract Process Group: Inputs Procurement management plan Contract statement of work Make-or or-buy decisions Outputs Procurement documents Evaluation criteria Contract statement of work (updates) Project management plan Risk register Risk-related contractual agreements Resource requirements Project schedule Activity cost estimate Cost baseline Standard forms Expert judgment Tools & Techniques Copyright: JSPM

17 12.3- Request Seller Process Group: Responses Inputs Organizational process assets Procurement management plan Procurement documents Outputs Qualified sellers list Procurement document package Proposals Bidder conferences Advertising Develop qualified sellers list Copyright: JSPM Tools & Techniques

18 12.4- Select Sellers Process Group: Inputs Organizational process assets Procurement management plan Evaluation criteria Procurement document package Proposals Qualified sellers list Project management plan Risk register Risk-related contractual agreements Copyright: JSPM Weighting system Independent estimates Screening system Contract negotiation Seller rating systems Expert judgment Proposal evaluation techniques Tools & Techniques Selected sellers Contract Outputs Contract management plan Procurement management plan (updates) Resource availability Requested changes

19 12.5- Contract Process Group: Administration Contract Inputs Contract management plan Selected sellers Performance reports Approved change requests Work performance information Outputs Contract documentation Requested changes Recommended corrective actions Organizational process assets (updates) Procurement management plan Project management plan (updates) Contract management plan Contract change control system Buyer-conducted performance review Inspections and adults Performance reporting Payment system Claims administration Records management system Information technology Copyright: JSPM Tools & Techniques

20 12.6- Contract Closure Process Group: Inputs Procurement management plan Contract management plan Contract documentation Outputs Closed contracts Organizational process assets (updates) Contract closure procedure Procurement audits Records management system Copyright: JSPM Tools & Techniques

21 Current Issues in Procurement Management 21

22 The National Contract Management Association NCMA was formed in 1959 to foster the professional growth and educational advancement of its members. NCMA is an membership-based, based, professional society, whose Leadership is composed of volunteer elected officers. Offers professional certification program for contracting professionals NCMA is located at Beaumeade Circle, Suite 125, Ashburn, Virginia Source: NCMA Website: 22

23 Iraq contracting problems House appropriators on Thursday voiced dismay at the depth of contracting problems in Iraq Billions of reconstruction dollars wasted. The Defense Department, spent $151 billion on service contracts in fiscal 2006 Problem Companies- Parsons, DynCorp International, Haliburton (Kellogg, Brown and Root), Bechtel, Aegis Defense Systems, etc. Source: NCMA Website Article with same title, Washington Post Wednesday, July 6, 2005; Page D01 & GAO Report- GAO T 23

24 Cost Reimbursement Contracting Sector: National Laboratory- EG&G, Lockheed-Martin Idaho and Bechtel Situation: CPAF s used by DOE with AF ~5% of allocable cost based on performance against award fee criteria- C.O. sole decision-maker (theoretically). Observations: 1. Work scope poorly defined in contract % of work force remains the same. 3. Approximately 70% of award fee criteria were broad scope statements with no measurable objectives yet specific requirements were known in advance by DOE staff. R&D R work had virtually NO measurable milestones. 4. Most commercial companies could not afford to work with a 5% profit margin. 5. Companies drawn to such contracts probably are motivate by spin-off benefits Results: DOE Management compensated for contracting deficiencies awarding maximum fee (despite poor performance assessments) and profiting from technology developed at taxpayer expense. Source: Personal views of M. Judd at Idaho National Laboratory 24

25 Fixed Priced Contracting Sector: Residential Building Construction Situation: General development contractors prefer to use fixed price subcontracts to control costs. Observations: 1. There are many variables that subcontractors can t t anticipate (late material, weather, labor force, poor coordination, etc.). 2. No enforceable knowledge and skill level metrics have been established for some trades. 3. Understaffing,, no credentialing of inspectors, general corruption of the inspection process 4. Motivation is to make quick profits then move to new area. 5. Small subcontractors lack the sophistication or resources to protect themselves against unscrupulous General Contractors. 6. Serious lack of knowledge based & ethical licensing requirements of General Contractors. Results: Many general contractors focus on wind-fall profits resulting in highly inflated residential property with poor workmanship and many failed subcontractor businesses Source: Personal views of M. Judd at Trademark Woodworks, LLC, Bozeman, MT 25

26 Questions & Answers 26

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