Business, Accounting and Finance
BSBPMG518 Manage project procurement
Learner Materials and Assessment Tasks
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Table of Contents
About BSBPMG518 Manage project procurement ............................................................ 4
Identify procurement requirements with input from stakeholders as basis for
procurement planning ........................................................................................................ 8
Activity 1 .............................................................................................................................10
Activity 2 .............................................................................................................................12
Activity 3 .............................................................................................................................22
Activity 4 .............................................................................................................................25
Activity 5 .............................................................................................................................26
Establish and maintain, within delegated authority, agreed procurement management plan
............................................................................................................................................33
Activity 6 .............................................................................................................................34
Obtain information from suppliers capable of fulfilling procurement requirements .....37
Activity 7 .............................................................................................................................39
Determine or adopt established selection processes and selection criteria, and
communicate to vendors to ensure transparency ...........................................................40
Activity 8 .............................................................................................................................42
Obtain relevant approvals for procurement processes to be used ................................45
Activity 9 .............................................................................................................................47
Identify and act according to probity and project governance constraints ...................48
Communicate agreed proposals and/or specifications to prospective vendors to
ensure clarity of understanding of project objectives.....................................................50
Activity 10 ...........................................................................................................................50
Activity 11 ...........................................................................................................................52
Solicit vendor responses according to proposal requirements .....................................53
Evaluate responses and select preferred vendors according to current legal
requirements and agreed selection criteria .....................................................................54
Negotiate with preferred contractor or supplier, to agree on terms and conditions of supply
............................................................................................................................................55
Activity 12 ...........................................................................................................................57
Implement established procurement management plan and make modifications in line
with agreed delegations ....................................................................................................59
Activity 13 ...........................................................................................................................59
Review progress and manage agreed variations to ensure timely completion of tasks
and resolution of conflict within the legal framework of the supply agreement ............62
Activity 14 ...........................................................................................................................69
Identify and report procurement management issues and implement agreed remedial
actions to ensure project objectives are met ...................................................................69
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Conduct finalisation activities to ensure vendor deliverables meet contracted requirements
............................................................................................................................................83
Activity 15 ...........................................................................................................................84
Review project outcomes using available procurement records and information to
determine effectiveness of procurement processes and procedures ............................85
Document lessons learned and recommended improvements for application to future
projects ...............................................................................................................................87
Activity 16 ...........................................................................................................................91
Attachment 1 - Key terms in project contracting and procurement ...............................93
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About BSBPMG518 Manage, project procurement
Application
This unit describes the skills and knowledge required to undertake procurement in projects.
It applies to individuals responsible for managing and leading a project in an organisation,
business, or as a consultant.
No licensing, legislative, regulatory or certification requirements apply to this unit at the time
of publication.
Unit Sector
Management and Leadership – Project Management
Elements and Performance Criteria
ELEMENT
PERFORMANCE CRITERIA
Elements describe the Performance criteria describe the performance needed to
essential outcomes.
demonstrate
achievement of the element.
1. Determine
1.1 Identify procurement requirements with input from
procurement
stakeholders as basis for procurement planning
requirements
1.2 Establish and maintain, within delegated authority, agreed
procurement management plan
2. Establish agreed
2.1 Obtain information from suppliers capable of fulfilling
procurement
procurement requirements
processes
2.2 Determine or adopt established selection processes and
selection criteria, and communicate to vendors to ensure
transparency
3. Conduct
procurement activities
2.3 Obtain relevant approvals for procurement processes to be
used
3.1. Identify and act according to probity and project governance
constraints
3.2. Communicate agreed proposals and/or specifications to
prospective vendors to ensure clarity of understanding of project
objectives
3.3. Solicit vendor responses according to proposal requirements
3.4. Evaluate responses and select preferred vendors according
to current legal requirements and agreed selection criteria
3.5. Negotiate with preferred contractor or supplier, to agree on
terms
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4. Implement and
monitor procurement
and conditions of supply
4.1. Implement established procurement management plan and
make modifications in line with agreed delegations
4.2. Review progress and manage agreed variations to ensure
timely completion of tasks and resolution of conflict within the
legal framework of the supply agreement
4.3. Identify and report procurement management issues and
implement agreed remedial actions to ensure project objectives
are met
5. Manage
procurement
finalisation
procedures
5.1. Conduct finalisation activities to ensure vendor deliverables
meet contracted requirements
5.2. Review project outcomes using available procurement
records and information to determine effectiveness of
procurement processes and procedures
5.3. Document lessons learned and recommended improvements
for application to future projects
Foundation Skills
This section describes language, literacy, numeracy and employment skills incorporated in
the performance criteria that are required for competent performance.
Skill
Reading
Writing
Performance
Criteria
1.1, 2.1, 3.1, 3.4,
4.1,
5.2
1.2, 2.2, 2.3, 3.2,
3.4,
4.1, 4.2, 4.3, 5.2,
5.3
Description

Interprets, evaluates and critiques ideas and
information from a range of complex texts

Develops plans using vocabulary, structure
and conventions appropriate to text
Creates documents for internal and external
use, using vocabulary and structure suitable
for audience and context
Drafts
requests
for
approvals
using
organisational formats


Oral
Communicatio
n
Numeracy
1.1, 2.1, 2.2, 2.3,
3.2,
3.5, 4.2

1.1, 4.2


Participates in verbal exchanges using clear
language to seek and provide information, or
request approvals
Uses active listening and questioning
techniques to confirm understanding
Recognise cost parameters and interprets
s
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
Navigate the
world of
work
Interact
with others
1.2, 3.1, 3.4, 4.1

Understands responsibilities and boundaries
of own role
1.1, 2.1, 2.2, 2.3,
3.2,
3.3, 3.5, 4.2

Selects and uses appropriate conventions and
protocols when communicating with internal
and external stakeholders to seek or share
information
Uses interpersonal skills to negotiate
acceptable outcomes

Get the
work done
numerical information accordingly
Calculates changes to timelines resulting from
changes to plan
1.1,1.2, 2.1, 3.1,
3.3,
3.4, 4.1, 4.2, 4.3,
5.1,
5.2


Plans and organises complex activities,
monitors implementation and manages
relevant communication
Resolves problems and makes decisions
based on analysis of options against set
criteria and targets
Unit Mapping Information
Code and title
Code and title
Comments
Equivalence status
current version
BSBPMG518
Manage project
procurement
previous version
BSBPMG518
Manage project
procurement
Updated to
correct missing
elements
Equivalent unit
Release 2
Release 1
Assessment
requirements
Release
Modification History
Release 2
Comments
This version first released with BSB Business Services Training
Package Version 1.2.
Version created to correct missing elements
Release 1
This version first released with BSB Business Services Training
Package
Version 1.0.
Performance Evidence
Evidence of the ability to:
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




work with others to determine procurement requirements and produce a procurement
management plan for a project
carry out procurement and contracting activities according to agreed processes
monitor activities across a project's life cycle and resolve issues that could affect
achievement of project objectives
create and maintain procurement records and documentation according to
requirements of project and organisation
Document a review of procurement management processes and procedures.
Note: If a specific volume or frequency is not stated, then evidence must be provided at least once.
Knowledge Evidence
To complete the unit requirements safely and effectively, the individual must:





describe the general features of a procurement management plan
summarise procurement procedures and required documentation
identify criteria that could be used to select vendors or suppliers
explain the general conditions and legal obligations of contracts as they relate to
project procurement
Explain probity and project governance constraints that relate to project procurement
in a project and industry context.
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Identify procurement requirements with input from stakeholders as
basis for procurement planning1
Project management is a process of leading a team of capable people in planning and
implementing a series of related activities that need to be accomplished on a specific date
with a limited budget. Because of its nature, coordinating all these activities requires a
process approach.
Because many times development project take on unexplored territory, assumptions about
the project must be listed, evaluated, its risks assessed and contingency plans developed. It
also requires a close monitoring of the budget, scope and schedule to deliver the project
objectives under the expected quality. Each one of these elements needs to be managed in
a systematic manner with the development of plans to identify the roles and resources
needed.
There is also the complexity of development projects that require a different approach and a
new way at managing the limited resources and the increasing demands from all
stakeholders. To manage this complexity the project needs to be de-constructed into
manageable, interrelated parts; or processes, by separating the project into different
management process the project manager has a better chance to control the outcomes of
the project and manage the challenges that can never be fully predicted during its design.
Managing a project requires that organisations take in consideration a system approach to
manage the different elements of a project. A systems approach includes a holistic view of a
project environment, and an understanding that the project is made of a series of interacting
components working to meet an objective in order to obtain the desired benefits.
A systems approach requires the identification of the processes that make up the entire
project management framework. This framework helps understand the basic structure
required to properly manage a project, by identifying the most important elements that need
close supervision and careful analysis.
There are nine management processes on a development project. These are designed to
help manage the different elements of a project, different projects may have different needs
from each process; for example, a project that has identified that cost is a critical success
factor will spend more time and effort in developing a cost management plan. These
processes are the key knowledge areas or a project manager must master.
One of the most critical roles of the project manager is the integration of these nine
processes to ensure they all are properly coordinated. In many cases it could result in
making trade-offs among the different competing expectations from stakeholders. These
nine processes are all integrative, that is, they need to be managed in a combining and
coordinating manner to bring these diverse elements into a whole. The nine management
processes occur during the entire project life cycle and each one of them requires a cyclical
approach that consists of planning, doing, checking and learning to ensure process quality.
1
Source: Wise Geek, as at http://www.wisegeek.com/what-is-project-procurement.htm , as on 21st
October, 2016; PM4 Dev, as at www.pm4dev.com/.../doc.../48-the-project-managementprocesses.html, as on 21st October, 2016.
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The effort and detail required for each process depends entirely on the size, complexity and
risk of the project. Large, highly complex projects will require specialized resources to
manage each process making the role of the project manager as the coordination of these
processes.
Smaller less complex projects may not even need all nine processes, the project manager
after making an analysis of the project risks and constraints will decide which processes
require more effort than others
The nine project management processes are:
1. Scope Management
2. Schedule Management
3. Budget Management
4. Quality Management
5. Team Management
6. Stakeholder Management
7. Information Management
8. Risk management
9. Contract Management
Project procurement involves a systematic process of identifying and procuring, through
purchase or acquisition, necessary project services, goods, or results from outside vendors
who will carry out the work. It is usually a function of the project manager; however, some
organisations choose to select a person other than the project manager to handle these
duties. There are six processes widely recognized by the project management industry as
integral to project procurement management.
The first of these processes is planning purchases and acquisitions. In this step, needs that
require outsourcing are identified. Sources for obtaining the required goods, services or
results are differentiated through a market analysis. In planning the procurement, project
objectives are reviewed to ensure the acquisition does not stray from the stated objectives.
Completion of this step includes identification of the resources necessary for the acquisition,
determination of the contract type needed to secure the acquisition, and preparation of a
procurement management plan.
Contract planning, requesting seller responses and selecting the seller are the next three
processes that might be completed. In contract planning, it is necessary to describe in detail
the products or services requested. Requests for proposals and bids should be documented
to avoid problems.
When requesting seller responses and proposals, specific vendors are identified and placed
on a qualified sellers list. Selected vendors are considered qualified based on their ability to
provide the goods or services considering the constraints of the project, their interest in
providing the goods or services, and the reasonableness of their bids. Once the prospective
sellers have been set apart, the proposals of the selected sellers are evaluated in order to
determine the best vendor to deliver the goods or services. After the sellers are chosen,
contracts are negotiated.
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Administering contracts is critical to project procurement duties. Clearly outlining the
obligations, responsibilities, and performance goals is essential to completing this step.
Satisfactory performance of the contract entails tracking the execution of stated goals. At
times, the project procurement manager may need to correct processes in order to obtain
the desired results. Contract changes should be controlled and documented to prevent
unnecessary legal claims.
Once the contract is complete, the final step is to close the contract. The contract is audited
to make certain all terms of the contract were fulfilled. Contract closure involves evaluating
the performance of vendor and documenting any lessons learned in executing the contract.
Project procurement is not an exact science. Although this process is generally accepted
within the industry, actual execution may differ between organisations. Many courses are
available that teach the strategies used by project procurement managers.
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Activity 1
Provide a definition for the term "procurement".
Stakeholder Management
Stakeholder management is one of the areas that receives the least amount of thought and
planning in development projects, this is due to the limited understanding and agreement on
who are the stakeholders and their role in the project.
Stakeholders are all the people who have an interest in the project and they are the most
critical element for the success of the project. They include donors, beneficiaries, local
government, partner organisations and anyone who will be impacted by the project. Each
project has a different list of stakeholders, a range that can include the local press, local
organisations, institutions and even watchdog organisations.
Managing stakeholders is not an easy task; the project’s objective is to improve the way the
relationships between the project and the stakeholders are managed, this is achieved by
taking a proactive approach that builds trust.
Stakeholder management includes the processes of stakeholder analysis, planning, and
communication. Stakeholder Analysis is the technique used to identify who are the project
stakeholders, the next step is to identify their level of interest and influence in the project,
and identify their fears and concerns about the project. The final step is to develop a good
understanding of the most important stakeholders and develop a communications strategy
and a stakeholder map that will help manage the relationships.
Stakeholder management also helps manage expectations, each stakeholder has a different
idea or expectation of what the project is; this is common at the start of the project when
limited information about the project has been distributed.
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When beneficiaries are not involved in the planning or consulted on their needs and
expectations they can easily turn their back to the project and without beneficiaries the
project doesn’t have a reason to continue.
Failing to identify stakeholders can lead to difficult situations, especially when the project has
to deal with a key stakeholder who has the power to disrupt the project. By identifying early
in the project the needs, concerns and issues of the stakeholders, the project has developed
an advantage that can use to its favor. Insufficient involvement and infrequent
communication with stakeholders is a leading cause of project failure.
A project should never try to take stakeholders for granted, or assume they will all support
the project unconditionally; good stakeholder management helps manage the politics that
can often come with development projects. It helps win support for the projects and
eliminates a major source of project stress. The success or failure of the project is ultimately
judged by stakeholders, not project managers.
Activity 2
Who are project stakeholders? Provide specific examples.
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Activity 2
Procurement Requirement Determination2
All procurement requirements begin with the perception of a need. The need to cross a body
of water could create a requirement to build a bridge, a ferry, or other transportation
systems.
At this stage it is necessary to clearly define the need, and this may be done by way of a
study to determine the best mode to cross the body of water (given the present situation and
forecasted future need), then the type of bridge to be constructed, or a comparative
cost/benefit analysis to determine the best solution between a bridge and other alternatives.
The study should include if the need can be satisfied in-house or contracted out,
quantification of the initial budgetary estimate, and an idea of the procurement lead-time.
The conformation of the study team should be multidisciplinary in order to address the
different questions to be answered to facilitate a comprehensive understanding of the need
so as to clearly define the actual requirement.
The role of procurement practitioners at this stage is primarily to estimate the procurement
lead time given the most appropriate procurement method that would be suitable for such a
requirement.
Of course, the perceived need is not always as complex as in the example above. There are
also needs for goods and services, and those should also undergo an analysis to clearly
define requirements.
At the end of the requirements definition stage, a clear determination of the terms of
reference, technical specifications or statement of work (depending on the procurement
category) should be possible, including an estimate of the budget, and, most importantly, the
procurement lead-time.
This requirement definition analysis is essential not only for new procurement requirements,
and project initiation and concept development, but also for requirements needed for
maintaining existing operations.
The Procurement Process
2
Source: The Procurement Classroom, as at http://procurementclassroom.com/procurementrequirement- determination/, as on 21st October, 2016.
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Project procurement is a broad term to describe the processes to purchase and install the
products and services necessary to see that project goals are met. Procurement may be a
simple direct purchase, for example the one-off purchase of a piece of equipment, or it may
require a contract for the provision of products and services across a period of time. Each
project will require different products and services. The task of those responsible for
procurement is to see that all products and services purchased are fit for their intended
purpose and represent value for money.
Contracts guide the relationship between buyer and seller and must be managed by the
project team.
They are legal documents which are mutually binding, and set out the obligations of each
party. Contracts can be simple or complex – generally more complex contracts are
associated with higher payments and higher degrees of risk. Because of the legally binding
nature of contracts, they will generally be subject to more extensive development and review
processes either from within the project team or with assistance from legal experts.
Good procurement and contracting practice should deliver the following benefits:





value for money
increased client satisfaction
increased accountability
better strategic decision-making
savings in time and therefore costs.
Definitions and main activities involved in managing project procurement
Managing project procurement consists of five steps that are depicted in Figure 1 and
explained below:
Figure 1 – Managing project procurement
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Determining procurement requirements
Stage 1
Stage 2
Establishing agreed procurement processes
Conducting contracting and procurement activities
Stage 3
Implementing the contract and/or procurement
Stage 4
Managing contracting and procurement finalisation activities
Stage 5
1. Determining procurement requirements. The project manager is responsible
for identifying the procurement requirements for the project in consultation with
stakeholders, higher authorities within their organisation and the input from the
project team. The project manager also develops a procurement management
plan as well as developing a communication strategy to ensure stakeholders
clearly understand the project’s objectives.
2. Establishing agreed procurement processes. The project manager utilises
information from a variety of sources to assist them in determining how project
contracting and procurement requirements can be best met. Selection processes
and criteria are established, adopted and communicated to stakeholders and
prospective contractors or suppliers to ensure fair competition.
3. Conducting
contracting
and
procurement
activities.
Proposals
or
specifications are communicated to prospective contractors or suppliers so that
they have a clear understanding of project objectives. Responses are received,
evaluated and prioritised before a preferred contractor is selected in accordance
with legal requirements and previously agreed selection processes.
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Negotiations are then entered into with the preferred contractor or supplier to
agree contract terms and conditions, establish common goals and eliminate
uncertainty.
4. Implementing the contract and/or procurement. The activities established in
the procurement management plan are implemented. Procurement activities are
modified where necessary with higher project authority approval. Contractor
progress is
reviewed regularly against key performance indicators to ensure
tasks are completed as scheduled, resolve conflicts and ensure all parties comply
with any legal requirements contained in the contract’s terms and conditions.
5.
Managing contracting and procurement finalisation activities. The project
manager oversees finalisation activities to ensure project deliverables are met
and contractual requirements have been fulfilled. Procurement records and
documentation are reviewed to determine the effectiveness of contracting and
procurement activities, policies and procedures used throughout the project. Any
lessons learned from this review are reported to a higher project authority for
application in future projects.
The relationship between managing contracting and procurement and project phases
Project contract procurement is important at all stages of project operations. Figure 2 shows how
the contracting and procurement stages align with a project’s phases.
Figure 2 – The relationship between managing contracting and procurement and project
phases
Proponent Phase
Approval Phase
Determining procurement requirements
Establishing agreed procurement processes
Conducting contracting and procurement activities
Implementation Phase
Implementing the contract and/or procurement
Implementation Phase
Managing contracting and procurement finalisation activities
Completion Phase
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The summary below provides information on how contracting and procurement impacts on
each stage of the project life cycle.
Proponent phase – before a project proposal is submitted (initiation/concept phase)
All projects consume resources and prior to embarking on a project it is necessary to
determine what resources (products and services) will need to be purchased, and at what
stages. This helps with establishing the feasibility of the project. Budgets need to be
allocated for procurement and contracting. Criteria for requirements of products and services
should be researched, and preliminary market analysis should be undertaken to see that
suitable suppliers can be sourced for more obscure products or hard to source services. The
project manager determines procurement requirements after consultation with stakeholders
and the guidance of a higher project authority such as a program manager, as well as input
form their project team.
Approval phase – once a project is approved (planning/development)
Once the project is approved, the project manager must ensure that information is gathered
on how procurement requirements can be fulfilled so that project objectives are met.
Processes, procedures and documentation needed to implement procurement activities
need to be developed and approved.
Implementation phase – when the project is underway (delivery)
Prospective contractors are provided with specifications and information to facilitate a
response to the procurement documents. Responses are collated, analysed, evaluated, and
prioritised before a preferred contractor is selected. Negotiations are entered into at this
point to finalise a contract. Once the project is underway the policies, procedures and
documents developed in the approval phase need to be introduced and implemented. Staff
with procurement responsibilities will need to check that products and services are delivered
on time, that necessary quality requirements are met and that reporting, invoicing and
payment is properly processed. Contract management is ongoing across the implementation
phase and good relations with suppliers should be fostered.
Completion phase - review (finalisation)
At the completion phase there should be a review of the performance of suppliers and
contractors as well as a thorough examination of the efficacy of internal procurement
activities. Issues should be documented so that future projects will improve from lessons
learned.
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Responsibilities for managing procurement and contract management
Table 1 below shows the responsibilities for managing project contracting and procurement
for each member of the project team. The shaded area represents the responsibilities of
project managers, which is the focus of this Learning Guide.
Table 1 – Responsibilities in contracting and procurement
Personnel
Responsibility
Project manager
Has overall responsibility for project
procurement and contracting
Supervises the work of others who assist with
procurement and contracting
Leads the processes of planning, negotiating,
managing and reviewing procurement
and
Authorising agent/agency
contracting
Takes responsibility for overseeing
procurement and contracting across a range of
projects
Manages project manager/s who
supervise procurement and
contracting
Directs organisational processes to improve
Project team member(s)
procurement and contracting
Works with others to plan project procurement
and contracting
Assists in developing tendering and contract
documentation
Gathers information and participates in
selection of suppliers and contractors
Participates in contract negotiation and
contract management
Contributes to administering and managing the
contract
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Assists others to review contracts, contractor
performance and procurement processes
Stakeholder involvement in project contracting and procurement
Consultation and communication with stakeholders are important processes when making
purchasing decisions. Stakeholders may include those people who will use the products you
purchase – they will have clear ideas about what will be required and will be able to assist
you with developing your product specifications. Similarly when purchasing services, such as
consultant reports, your project team will depend on you to seek their expertise for tender
specifications and contract deliverables.
Other stakeholders may be people or groups who are not directly part of the project team,
but who have an investment in seeing that procurement takes certain factors into account.
Stakeholders may, for example, be concerned about where certain products were sourced,
whether people were paid award wages in the manufacture of the products, whether the
product will cause damage to the environment, whether the products have health and safety
risks to project workers or to the general community. It is helpful if your company or project
manager has policies and guidelines to assist when making procurement decisions, however
advice from, and communication with, stakeholders will always be important to procurement
activity.
Determining procurement requirements
The first step in managing project contracting and procurement is to decide what needs to be
procured. Once the decision is made regarding what needs to be acquired, a procurement
management plan is developed which forms the basis for subsequent contracting and
procurement activities. The shaded area in Figure 3 represents the determining procurement
requirements process.
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Figure 3 – Determining contracting and procurement requirements
Proponent Phase
Determining procurement requirements
Approval Phase
Establishing agreed procurement
processes
Implementation
Phase
Conducting contracting and procurement
activities
Implementation
Phase
Implementing the contract
and/or procurement
Completion
Phase
Managing contracting and
procurement finalisation
activities
What needs to be procured?
As project manager you need to determine, in conjunction with stakeholders, higher project
authorities and your project team, which products or services can be supplied from within
your organisation and which ones need to be obtained from external sources. In doing this,
you must decide whether products and services are already available, and which of those
should be acquired externally. A technique known as a ‘make-or-buy’ analysis is used to
help determine what needs to be procured.
There are many factors which influence the project team’s decision to purchase products
and services externally. For example, the project team may lack the capability or expertise to
produce a product or service and need to engage a contractor who has the necessary skills
to provide the desired product or service. An organisation may be capable of producing a
good or service, but not have the ability to produce sufficient quantities in line with the
client’s requirements. Or they may have the capability to produce the product or service, but
it would be inefficient for them provide it. When the decision is made to ‘buy in’ a product or
service, the project’s budget must be considered. Consideration should also be given to
whether the product or service should be purchased outright, leased or rented.
Documents to assist with determining procurement requirements
There is usually a range of documents to consider when planning project procurement. Here
are just a few:
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
Organisational policies and procedures - usually there will be
limits on whocan purchase what and what approvals are necessary, or
documents specifying preferred procurement methods.

The project scope statement - this will provide a clear picture of the
client’s expectations, the project’s outcomes and any constraints, which
may affect the contract and procurement process.

Activity Resource Estimates – these assist you in planning for the
required quantity that needs to be ordered.

Project Schedule and Work Breakdown Structure (WBS) - it may
be highly disruptive to have products delivered too early, especially if
and they may be fragile or spoilable. Alternatively the late arrival of
products or services can severely impact on the smooth running of a
project.

The risk register - the risk register may assist to identify issues
important o
t contract and procurement and certain insurances may
need to be purchased.

Specifications - these may specify functional requirements or quality
standards.

Stakeholder plan - who needs to be consulted when making
purchasing decisions,?

‘Lessons learned’ documentation from previous projects

Government legislation and policy
– when procuring goods or
services in the public sector there may be rules or policies that the
project team needs to comply with
Policies and procedures
Your organisation will have policies and procedures to guide procurement and contracting
activities. Typically policies will help you to determine approval processes, when contracts
are required and if so what type of contract to use and levels of delegation, for example.
Because of organisational policy you may also need to consider:

issues of sustainability or environmental impact of products you are
purchasing
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
occupational health and safety implications of your purchases

compliance with national standards or legislation

whether products or services are locally manufactured, or
manufactured interstate or overseas

Whether there are companies with employment practices you wish to
avoid, for example the use of underage labour or under-award wages.
Activity 3
Locate the policies and procedures that are relevant to planning procurement in your
organisation, or an organisation you have access to. Make a list of these documents below:

Are there any policy gaps you have identified?
If so, what action do you plan to take to fill these gaps?
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Activity 3
Procurement management planning
Another important stage in managing project procurement is planning how your project team
is going to go about procuring the products and services required. Planning provides a
structured approach to deciding how to conduct project procurement. To successfully
manage procurement and contract planning you will need to have an informed grasp of the
project and its objectives. Procurement and contract planning is best done as a team where
all team members contribute to the process. Good purchasing decisions happen because
people take care and effort at the outset in planning the procurement and contract
management strategy.
When planning a project it is necessary to identify what products and services will be
required. Procurement planning should establish which products or services are needed the
availability of suppliers to provide these products and services, who will be procuring the
products or services, which procedures and policies need to be followed and what
procurement methods will be used (for example, direct purchase, quotes, selected tender,
public tender or other methods used by your organisation). At the conclusion of the planning
process, your plan should provide answers to the following questions:

What needs to be procured?

What competitive processes will be used to drive value for money?

How much of the products or services are required?

When will the products or services be required?

From where will the products or services be procured?
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
What risks are associated with the procurement?

How will the products or services be procured?

Who is responsible for contracting and procurement?

How will the contracting and procurement process be administered?

How will the contracting and procurement process be finalised and
reviewed?

Who needs to be consulted during the contracting and the
procurement process?
You will now go through each of these questions in more detail and practise some learning
activities which will help you to develop a contracting and procurement plan.
The selection of the supplier provides an opportunity to use competitive processes to drive
value fro money. In some cases, such as in the government sector, there may be rules and
guidelines about tendering and purchasing processes to be used.
How much?
It is important to determine the correct quantity of products and services required to
complete project activities. Procuring too few of a product or service will delay completion of
a project activity. Procuring too many products or services may result in storage problems or
cost overruns, all of which could negatively impact on the project’s budget.
In determining the correct quantities required the project’s Activity Resource Estimations
(made when constructing the project’s schedule) need to be considered. These estimates
are usually made after performing a Work Breakdown Structure (WBS) in the project time
management plan. You can also use the expert judgement from other experienced project
managers or team members in your organisation to assist you in determining the required
quantities of products and services. These concepts are discussed in more detail in the
Learning Guide BSBPM503A Manage project time. You are encouraged to read this
Learning Guide for further information on how Activity Resource Estimations can assist you
in deciding quantities of products and services required for a project.
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Activity 4
Imagine you are the catering manager for the company which is providing the food and
beverages for the Asian tsunami benefit cricket match in Case Study 1. You need to decide
how many chips to order to stock the food outlets in the stadium
 How would you go about deciding how many chips you will need to order for the stadium?
 What documents and records would you use to assist you in making the decision?
 What else would you do to help you make the decision?
What would be the consequences if you ordered too few chips? What about if you ordered
too many?
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Activity 4
When will the products or services be procured?
In determining when products and services will be procured the project team should consult
the project’s schedule. Having necessary products and services available at the time they
are needed helps to avoid project delays. Failure to acquire products and services when
they are required can impact heavily on project objectives. For example, early delivery of
products and services may create problems with storage, necessitating removal and storage
elsewhere, at increased cost. Alternatively, if products or services are delivered too late then
they may be unusable, especially if they spoil. The aim of procurement is to obtain required
products and services exactly when they are required, no earlier or no later, so that costs
associated with early or late delivered are avoided.
The length of manufacturing and lead times for required products and services must also be
considered when deciding when to order products or services.
Activity 5

How do you plan when to acquire products and services needed to complete project
activities?

Who is involved in deciding when products and services are ordered?

What documents do you refer to when deciding on when to order products or services?

What are the effects of a product or service arriving early? What about if they arrive late?
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Activity 5
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Where will the products and services be acquired?
Research needs to be conducted to determine where required products and services are
going to come from. The project team needs to conduct market analysis. In some instances
you may find there is a wide range of suppliers you can draw from who are capable of
providing the required products and services. In other instances, such as when purchasing
highly technical or sophisticated machinery, there are only a few suppliers. You may decide
about who you buy from based on several criteria, such as price, product range and variety,
customer services, back up and support, location, and availability.
Typically the amount of time and effort you spend in deciding where the products or service
will be purchased from should match the value of the products or services you are
purchasing. It is not reasonable to spend large amounts of time getting the best price for lowcost items that are not often used. For high volume items, products or services that carry
high risk, or very expensive items, it is worth spending extra time researching the market.
When procuring goods and services in the public sector, there may be government rules and
policies to guide procurement.
When dealing with large amounts of money there may be other government agencies that
have a statutory role and therefore be a stakeholders in the procurement action.
Where competitive procurement processes are used, it is important to ensure that processes
and fair and do not favour any one un\duly.
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What risks are associated with procurement?
Whenever a product or service is acquired from outside your organisation there are risks
associated with this. Examples of the types of risks you may experience are:

the supplier cannot deliver the required quantity

the quality of the products and services is not directly under your control

you may overstate or overestimate the quality of products or services
required

you may not comply with rules and guidelines
relating
to
procurement inthe public sector
Each of these risks may significantly affect the project’s objectives if they are realised. Risks
can also occur which affect the contracting and procurement process. For example, in the
procurement planning phase, the timeframe given to provide the desired good or service
may be impractical, meaning the delivery schedule is not met. A narrowly defined
specification in the bid document may reduce competition or discourage innovation or
alternative solutions. Selection of an inappropriate seller may result in a failure to fulfil
contractual requirements.
Risks associated with project contracting and procurement can occur throughout the project
life cycle. It is therefore important that risks specific to procurement are identified and are
documented in the project’s overall project plan and reviewed regularly. Your organisation
will most likely have a document or template for identifying and managing risks and perform
a risk analysis for each individual product or service being procured from external sources.
How will the products or services be procured?
Determining how the products or services will be procured may be relatively simple for oneoff purchases, or highly complex if the products and services are to be acquired over an
extended period of time. Highly complex or long-term contracts may also involve several
sub-contracts. It is therefore critical that policies, procedures and management systems are
put in place during the planning phase to coordinate the procurement process. Documents
need to be prepared which will be used in the selection phase of the procurement process.
Your organisation probably already has standardised versions of these documents.
Please note that when purchasing in the public sector there may be rules or policies about
who can manage the procurement activity.
At the conclusion of the planning phase, your project team should have developed the
documents to be distributed to prospective sellers. Some of the more frequently used terms
to refer to this documentation include “invitation for bid”, “tender notice”, “invitation for
negotiation”, “expression of interest”, “request for proposal”, “contractor initial response” and
“request for quotation”.
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When writing contracting documents, you should structure the document to facilitate an
acceptable response from the prospective sellers and facilitate easy evaluation of the bids.
The contracting document should contain elements such as:

a description of the form of response required

statements of the work required

specifications and requirements

Contractual provisions.
In the planning phase you should also consider the criteria you will use to evaluate the
responses to the contracting documents you will distribute to potential suppliers.
This will be discussed in greater detail in section 2.3 when you are looking at how you can
contribute to the contractor selection process. The type of contract must also be given
consideration when planning contracting. There are several different types of contracts:

Fixed price contracts – also known as ‘lump sum’ contracts, a
fixed totalprice is paid for a well-defined product. A purchase order is an
example of a fixed price contract.

Cost reimbursable contracts – involves payment to reimburse the
seller’s cost plus a fee representing the seller’s profit. There are various
forms of cost reimbursable contracts, whereby the seller’s profit is
paid by one of the percentage of the costs, a fixed fee or an incentive
fee.

Time and material contracts – contains characteristics of fixed and
cost reimbursable contracts. They are usually open ended, and often
used when the exact quality and cost of a contract is not fully know
when the contract is signed.
The selection of the type of contract may be imposed by organisational policies, or the
project scope statement. The type of contract used will also depend on the amount of
control your organisation wishes to exert over the seller, how much risk you want to
transfer to the seller, and the type of business your organisation is involved in.
The complexity and level of detail contained in the documents your project team prepares
should be consistent with the value and risk associated with the products and services
required. They should also allow prospective sellers to submit alternative proposals which
could add value and be issued in accordance with your workplace policies and procedures.
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Who is responsible for contracting and procurement?
The whole project team is responsible for a project’s contracting and procurement. As
project manager, you will allocate a specific area of the contracting and procurement
process to you. It is important that you allocate a particular team member primary
responsibility for the various contracting and procurement activities to facilitate the
smooth running of the process.
How will contracting and procurement be administered?
During the contracting and procurement planning stage, you must decide in conjunction with
your project team must decide how the contract will be administered. Contract administration
is all about ensuring both the buyer and seller meet their contractual obligations and that
their rights are protected.
As a manager, you will need to encourage your team members to contribute ideas and
suggestions on ways to administer the contract, such as:

setting key performance indicators to monitor how well the contractor
performs

how often reports must be provided about contractor performance

what the key milestones and deliverables of the contract are

what process will be followed if the contract is modified

Whether inspections, tests or audits of the contractor’s work will occur
during the contract.
How will the contracting and procurement process be finalised and reviewed?
Although it may seem a little strange to be thinking about finalising contracting and
procurement before it has started, you must consider how the contract will be finalised and
reviewed. Projects that do not plan how they will be finalised run the risk of running past their
scheduled completion date because loose ends are not tied up. Among the things to
consider when planning how to finalise a contract are:

what records need to be completed at the conclusion of the project

what reports will need to be written

who reports need to be sent to

what terms and conditions are needed if the contract ends early

When the contract is considered over.
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Planning for how the contracting and procurement process will be reviewed throughout and
after the project is also required. The review process should plan to evaluate the
performance of the contractor selected to provide the products and services, as well as
evaluate the effectiveness of the process your project team used. You should decide, in
conjunction with your project team, on the following sorts of issues in planning how to review
project contracting and procurement:

whether a procurement audit takes place

what meetings will be held to review the progress of contracting and
procurement

how often these meetings should occur

who should be involved in these meetings

How issues identified during the review process will be reported
and usedto improve organisational performance.
Who needs to be consulted during the contracting and procurement process?
A plan must be drawn up for how the project’s stakeholders will be consulted about the
progress of contracting and procurement activities. The plan should determine who needs to
be consulted, how often and by what methods. As project manager, you are ultimately
responsible for any procurement decision you make. Your organisation’s policies and
procedures will assist you in finding out the value of purchases you are authorised to
procure. You will also need to consult with higher project authorities throughout the project
such as a program director, board member, chief executive officer or steering committee.
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Establish and maintain, within
procurement management plan
delegated
authority,
agreed
The next stage of the contacting and procurement process is to establish how the
procurement activities in the procurement management plan are actually going to be
implemented. . Processes need to be developed for such things as how you will go to the
marketplace, request responses and submissions, how they will be evaluated, and the
process used to make a final selection for the preferred supplier. The procedure for how a
contract will be monitored and reviewed as well as the planned processed for reviewing the
overall effectiveness of the procurement activities conducted in the project will also need to
have processes established.
Establishing agreed procurement processes is closely integrated with the procurement
planning process discussed in detail in section 2.2. Many of the procedures, processes and
policies used to conduct procurement are identified and agreed upon when formulating the
procurement management plan. While establishing the agreed procurement processes has
been listed as a separate section in this Learning Guide, in practise you are likely to
establish procurement processes at the same time as formulating the procurement
management plan.
Figure 4 depicts this stage in relation to the all contracting and procurement stages.
Figure 4 – Establishing agreed procurement processes
Proponent Phase
Approval Phase
Implementation Phase
Determining procurement requirements
Establishing agreed procurement processes
Conducting contracting and procurement activities
Implementation Phase
Implementing the contract and/or procurement
Completion Phase
Managing contracting and procurement finalisation activities
As project manager you will be responsible for supervising the selection process. When your
project team go to the market to receive quotes, bids, tender submissions or proposals you
should aim to make the process as streamlined and efficient as possible. Your objective will
be to save on project costs by being efficient and promoting competition.
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A well-organised and transparent process will assist suppliers to understand exactly what
you seek to purchase so that they can offer a competitive price or proposal.
Options when procuring or contracting
When purchasing a range of products or services it may be preferable to source more than
one supplier.



Single suppliers offer the advantage of a fixed and stable
relationship. Working closely with the supplier offers the
opportunity to build trust and improve performance. It can also
reduce the costs of administration. However the reduced
competition may lead to higher prices and poorer performance.
Several suppliers can make the process more competitive
however; suppliers may feel less loyalty and commitment.
Supply panels can be helpful and efficient as they avoid the
costs associated with ongoing tendering and sourcing prices.
Activity 6
What documented procedures do you normally follow in your organisation (or an organisation
you have access to) for:








Going to the market with a request for tender?
Evaluating responses?
Selecting preferred contractors?
Developing key performance indicators for a contract?
Monitoring contractor performance?
Making changes to the procurement management plan?
Conducting reviews of procurement activities?
If your organisation does not have these documents, how does it affect the ease with
which you conduct procurement in your organisation?
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Activity 6
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The Procurement Management Plan3 is a part of the overall Project Management Plan. The
document describes how items will be procured during the project and the approach you will
use to managing vendors on the project. Specific areas to describe include:
Procurement process. This section provides a brief overview of the process requirements
necessary to manage procurement of the identified needs. This process should include:








Initiating a request
Development of requirements (technical, timing, quality, constraints)
Request approval
Purchasing authority
Bid / proposal review
Contract management responsibility
Contract closure requirements
Procurement process flowchart
Roles and responsibilities. This section describes the various roles on the project that
have some connection to procurement. This section should describe who could request
outside resources, who can approve the requests, any secondary approvers, etc.
Identified procurement needs. This section details the material, products or services
identified for outside procurement. Each listed item should include a justification statement
explaining why this should be an outside purchase if there is the possibility of inside sourcing
(make vs. buy decision).
Timing. This section will describe the timeframe that resources are needed. This will provide
a better sense for when the procurement process needs to be started for each item.
Change review and approval process. Describe how changes are made to procurement
documents to ensure the changes are valid, understood and approved by the appropriate
people.
Vendor processes. Describe the processes that the vendors should use for timesheet
approval, invoice processing, contract renegotiation, status reporting, scope change
requests, etc.
There may be additional information in the plan as well to ensure the procurement process is
understood and managed effectively.
Planning of project procurements is carried out within the procurement process and results
in developing a plan4. A procurement plan is a convenient tool for organizing and managing
activities and tasks related to the procurement management process. A template of the plan
is to be designed by the purchasing department in cooperation with the project manager. A
project procurement plan should be reviewed and approved by the project manager before
any supplier relationships get started.
3
Source: Method 123, as at http://blog.method123.com/2015/05/04/six-components-of-aprocurement- management-plan/#!prettyPhoto, as on 21st October, 2016.
4 Source: My Management Guide, as at http://www.mymanagementguide.com/projectprocurement- management/, as on 21st October, 2016.
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A project procurement plan template documents:








Deliverables to be procured by proposed agreements/contracts.
Effective resource management strategies for negotiating and managing the
agreements/contracts.
The need for staged delivery and desirability of testing the procured items before
introducing them into the implementation process (this item is optional).
The chosen procurement method (payments, expressions of interest, request for
price/quote, request for tender).
Key stages of the process for selecting suppliers and vendors.
The model of procurement funding.
The sample of procurement contract/agreement.
References to quality approvals, quality assurance and risk management.
Obtain information from suppliers capable of fulfilling
procurement requirements
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Conducting contracting and procurement activities
Once the procurement needs have been identified and procurement processes agreed, the
next step is to manage the contracting and procurement activities. Conducting contracting
and procurement activities is depicted in the shaded area in Figure 5 below:
Figure 5 – Conducting contracting and procurement activities
Determining procurement requirements
Proponent Phase
Approval Phase
Establishing agreed procurement processes
Implementation Phase
Conducting contracting and procurement activities
Implementation Phase
Implementing the contract and/or procurement
Completion Phase
Managing contracting and procurement finalisation activities
Procurement activities that need to be managed may include:




obtaining quotes from potential suppliers
identifying OHS issues which form part of the contract requirements
obtaining approvals form higher project authorities
receiving products or services






providing formal notice of delivery of products and services
planning, specifying and or conducting test and acceptance procures
maintaining registers and lists
processing payment documentation
liasing with clients, contractors and subcontractors
Conducting transfer and disposal actions.
Your project team may gather information on potential suppliers in a range of ways. A tender
asks prospective suppliers to provide you with the information you specifically request. This
is usually done at no charge to the buyer. Depending on the size of the purchase and your
organisation’s procurement policies, you may decide to gather information for purchasing
decisions by:
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







phoning and making enquiries
asking the options of experienced personnel about particular or
products or contractors
reviewing national standards and checking for compliance
doing site inspections
asking for sample products and deliverables for examination
site visits
consulting existing databases or catalogues
Asking prospective sellers to make a presentation.
Activity 7
Select a product or service you will be buying for a project you are currently managing (or a
fictitious project). Delegate the responsibility for sourcing suppliers to a member of the
project team. After they have presented you with alternative suppliers analyse their
performance using the tasks and questions listed below.
Describe the product or service you will be buying.
 How did the project team member find the suppliers?
 What documents did they use to assist them in sourcing suppliers?
 Describe what you know about each supplier and any issues that arose during the
sourcing process that may have improved or reduced their chances for selection.
 How well did the project team member complete this task? What advice would you give
to ensure improved outcomes next time?
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Activity 7
Calling for submissions
Many organisations source potential suppliers by going to the marketplace by using a
tender. Tender submissions are known as a “Request for Tender” (RFT). Among the ways
that organisations release tenders are:

advertising in newspapers, trade magazines or Internet procurement
websites


using lists of pre-qualified suppliers
Approaching prospective sellers directly.
The documents sent to each prospective supplier are those that were developed in the
contracting and procurement planning stage. The quality of the documentation you provide
potential suppliers with will, in part, determine the quality of their submissions or tenders.
Some organisations hold briefings prior to the tender submission date and provide a contact
person to clarify any queries about the RFT document to encourage higher quality responses
from prospective suppliers. RFTs should be released in accordance with your organisation’s
policies and procedures. Responses and submissions received should be acknowledged,
usually in writing, as they are received, as they constitute a formal legal offer to provide the
products and services specified in the RFT document. Once the deadline for submission has
been passed, the next step is to evaluate each submission.
Determine or adopt established selection processes and selection
criteria, and communicate to vendors to ensure transparency
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The evaluation criteria
Received tender submissions should be evaluated against the criteria established in the
contracting and procurement planning stage.
Typically selection criteria will check for:






the organisation’s ability or capacity to provide the specified products
and services
technical knowledge, qualifications or experience of relevant personnel
ability to meet budgets and timelines
innovation or the ability to ‘add value’
insurances, such as professional indemnity
Experience in having provided similar products or services for a
similar project or organisation.
Some criteria will also include a request for information about occupational health and
safety, policies and procedures and financial viability which may be mandatory. Failure to
satisfy these mandatory criteria means that the prospective supplier is immediately
disqualified from the selection process.
In your evaluation process you should:




disqualify suppliers or contractors who clearly do not meet your criteria
review the suitability of the products and services the suppliers or
contractor offers
compare price and value for money
Consider and rate them against the criteria using a weighting system
to assign a ranking for each submission.
Weighting Systems
Some evaluation criteria are naturally more important than others when evaluating tenders.
Quality would be especially important if your organisation was purchasing aircraft engines
and would outweigh the price criteria in importance. The ability to deliver products or
services on time may be crucial criteria if you are purchasing food, which may spoil and
become unusable. Organisations often develop a weighting system as a method to prioritise
the more important criteria, quantify qualitative data and increase the objectivity of the
evaluation process. They are also a way to minimise the risks associated with obtaining
products and services from an external supplier.
Price is often excluded from the weighting system. While price is an important consideration
in selecting suppliers, it is not the only criterion that must be satisfied. Organisations often
look for “value for money” before considering the supplier’s price.
Consequently, price is often excluded from the weighting system and is only considered after
a short list of suppliers has been established after the submissions have been evaluated.
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In a weighting system, each evaluation criteria is assigned a numerical figure based on their
importance. Mandatory evaluation criteria are not usually included, because suppliers who
do not meet them have already been excluded in the first stage of the evaluation process.
Each potential supplier is assigned a rating against each of the criteria. The results may be
added or multiplied to establish a ranking for each supplier. The supplier with the highest
ranking is usually selected as the preferred supplier.
If the rankings are close, you may ask the suppliers to present more information, make a
presentation or meet with them to discuss their proposal in more detail to assist you in
selecting the preferred supplier. Sometimes organisations will ask an independent panel of
experts or people outside the organisation to provide advice to assist, particularly if it is a
large or complex supply contract.
Other tender documentation
There are many documents that are developed in the course of a tender. You have
already reviewed some tender evaluation criteria. Two other key documents arising from
the selection process are:


The selection report which details short listed tenders and makes
recommendations about who is the preferred tenderer and why. Evaluation
or selection criteria are used as the basis for recommendations.
The contract which will detail what products and services are to be
provided, standards that must be met or maintained, terms and conditions,
payment schedules, dispute resolution processes.
Advice on running a tender
Most organisations develop a body of knowledge about how to run a good tender and
what methods are likely to provide them with the best products and services at
competitive prices. Speaking with experienced people about how best to run a
tender, and what pitfalls to avoid, will help to build your skills and knowledge about
procurement and contracting.
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Activity 8
Interview a senior project or program manager and ask them to walk your through a tender
selection process. Ask the following questions:
 What were the key stages or milestones and the timeframe for the tender?
 Who was on the tender selection panel and why?
 What documentation was involved in the process (documentation from both the
organisation seeking tenders and the tenderers in their responses)?
 What are the key things to remember when running a competitive tender?
 What are the pitfalls that need to be avoided?
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Activity 8
Supplier qualification screening process5
To avoid the dire outcomes of supplier non-performance, buyers typically take proactive
steps to verify a supplier’s qualifications prior to awarding them a contract. The primary goal
of “supplier qualification screening” is to reduce the likelihood of supplier non-performance,
such as late delivery, non-delivery, or delivery of non-conforming (faulty) goods. A secondary
goal is simply to ensure that the supplier will be a responsible and responsive partner in the
day-to-day business relationship with the buyer. Supplier qualification screening involves
many aspects, which are outlined below.
Reference checks
The buyer may contact previous customers and ask about the supplier’s
Delivery performance, adherence to contract terms, what (if any) problems arose and how
they were resolved, etc.
Financial status checks
The buyer may use published supplier ratings (e.g., Dunn and Bradstreet) to determine the
supplier’s financial status and likely financial viability in the short to medium term. For
example, if the supplier has recently assumed significant debt, this may raise red flags about
the possibility the supplier will declare bankruptcy before fulfilling its obligations to the buyer.
Surge capacity availability
The supplier’s capacity to increase delivery quantities within short lead times is important as
the buyer may be uncertain about their exact quantity needs over the life of the contract.
This is particularly true for long-term contracts where demand for the buyer’s product may be
heavily tied to unforeseen market events (e.g., demand for an airplane manufacturer’s
products are highly dependent on the overall economy, which in turn periodically goes
through periods of growth and contraction). Surge capacity is available when a supplier has
access to second or third shifts, overtime, underutilized facilities, etc.
Indications of supplier quality
The buyer might require that suppliers have ISO 9000 certification (or similar), indicating that
the supplier has policies, procedures, documentation, and training in place to ensure
continuous adherence to quality standards. However, in some cases the certification
documents can be misleading and/or easily forged. To actually see if an adequate level of
quality is achievable, the
5
Source: University of Michigan, as at http://wwwpersonal.umich.edu/~dbeil/Supplier_Selection_Beil- EORMS.pdf, as on 21st October, 2016.
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buyer may have to look deeply into the supplier’s organisation to ensure the supplier is capable and
competent to meet the buyer’s specifications.
Ability to meet specifications
To rigorously check the supplier’s capabilities the buyer might:
(i) Request samples of supplier products and test the m to ensure conformance to the buyer’s
requirements.
(ii) Visit the supplier’s production facility and interview line workers and engineers to ensure
that all members of the supplier team understand the critical features of the product in their
charge. For example, a buyer seeking to purchase tires from a supplier may interview the
design engineers to ensure they understand each aspect of the tire’s design (for instance,
the role of gum strips in preventing tread separation at high speeds).
(iii) Audit the production facilities to ensure that production can and will only proceed in a
manner approved by the buyer. For instance, the buyer may require the supplier to restrict
their production to small batch sizes in order to prevent contamination outbreaks from
spoiling the entire production run.
Buy-in from internal customer(s)
Because the buyer typically acts on behalf of an internal customer within the buyer’s
organisation, buy-in from this internal customer is a crucial step prior to contracting. For
example, suppose the buyer is purchasing a complex circuit board on behalf of the
engineering department (which owns responsibility for this component). To ensure that the
internal customer has confidence in the supplier and is willing to work with the supplier, the
buyer will set up meetings between the buyer firm’s engineers responsible for the part and
the supplier’s engineers who would be responsible for producing it.
Supplier qualification processes are costly and can be time-consuming. As described above,
the processes can involve travel to distant supplier sites. Interviews with suppliers and
suppliers’ customers are time-consuming. Moreover, the entire process involves not only the
buyer but also internal customers throughout the buyer organisation. Consequently,
qualification can take weeks or months — even for commodity-type parts such as printed
circuit boards.
Obtain relevant approvals for procurement processes to be used
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Having selected the preferred supplier, the final stage of the selection process is to negotiate
a contract with the supplier. Contracts can be relatively simple, such as a purchase order, or
highly complex. In some instances, having made the decision about which supplier to use,
the procurement is simple:

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The product is ordered
The product is received
The product is registered as received
The product is checked for quality
Payment is authorised.
Good documentation is essential to this process and in your organisation you should be able
to locate examples of standard forms such as reconciliation orders, purchase orders, or
supplier files which document what is ordered from suppliers, and provide authorisation for
payment. If the purchase is not simple then a contract is required to ensure the supply of the
products or services over a longer period of time. Outside experts may be used to write and
negotiate contracts. However, project team members are often present during the
negotiation process.
Whatever the level of the complexity, contracts are mutually binding legal agreements which
detail the obligations of the buyer and the seller. The seller is obliged to provide the products
and services specified in the contract, and the buyer is obliged to provide assistance where
required, and to pay the seller. Other obligations may be placed on either party, depending
on what is contained in the contract’s terms and conditions.
Contracts are subject to legal remedies in the courts. Therefore, it is good practice to put a
lot of effort into writing a contract that has clear terms and conditions. Most contracts will
provide information on:
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the work to be completed
time for completion
roles and responsibilities of the buyer and seller
price of products and services
payment schedule
acceptance criteria
warranties
product support and after sales services
liability limitation statement
fees
retainers
penalties for non-compliance
incentives
insurances
change request processes
termination
Dispute resolution mechanisms.
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Having a well written contract helps to pre-empt problems from occurring during the contract
such as delays, disputes or other issues which impact on project objectives. Not only will
these go a large way to avoiding breaches of contract which may result in costly litigation,
but it also facilitates smooth contract administration. Common problems with poorly written
contracts that should be avoided include:

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a poorly defined specification
poorly defined acceptance criteria
failure to specify how contractor performance will be monitored
unclear dispute resolution processes
Lack of change control processes.
Activity 9
Outline what you think are the most important characteristics of a good contract.

What assistance do you normally seek or require when writing contracts?

What are some of the common problems you may experience or have experienced as a
result of a poorly written contract?
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Activity 9
Identify and act according to probity and project governance constraints
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The next stage in contracting and procurement after you have contracted the preferred
supplier (now known as the “contractor”) is to manage the contract. Figure 5 shows how
contract management relates to the overall contracting and procurement process.
Figure 5 – Implementing the contract
Proponent Phase
Approval Phase
Implementation Phase
Determining procurement requirements
Establishing agreed procurement processes
Conducting contracting and procurement activities
Implementation Phase
Implementing the contract and/or procurement
Completion Phase
Managing contracting and procurement finalisation activities
Contract management, also known as contract administration, ensures that both you and the
seller meet your contractual obligations and have your rights protected. The legal
ramifications of contract management mean that you will require access to specialist legal
advice, particularly on larger, more complex projects. Contract management is therefore a
vital component of the contracting and procurement process. To a certain extent, contract
management is only as good as the terms and conditions of the contract.
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Communicate agreed proposals and/or specifications to
prospective vendors to ensure clarity of understanding of project
objectives
Effective contract management
However, effective contract management is not the only factor besides having a clearly
defined, well written contract to ensure contract management runs smoothly. Investing some
time in planning how the contract will be managed also goes a long way to ensuring a
successful contract management process.
Effective contact management involves:
 checking that specified products and services are delivered on-time in
the right quantities
 checking the contractor’s performance against any key performance
and quality measures
 monitoring the progress of the work
 paying the seller according to the terms and condition of the contract
 reporting any performance problems, and seeing they are rectified
 dealing with change or variations to the contract that may be necessary
 maintaining all documents so there is a clear record of contractor
performance
 managing the risks arising throughout the contract
 Following defined procedures to manage early terminations.
The contract management plan should contain actions, documents, policies and procedures
which indicate how each of these points will be managed. As project manager, you will most
likely work closely with a specialist contract manager. You will need to develop key
performance indicators for delivery timelines and quality of the products and services to be
provided. You may also conduct inspections, audits or reports to reviewing the contractor
performance. You may also need to present any such review report to the project manager
or more senior executives.
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Activity 10
Think back to a contract you managed, or have been exposed to, in the past. Answer the
following
questions about how effective the contract management process was:
 What was the contract for? Were the key performance indicators for the contract?
 What were the key performance indicators for the contract?
 How did you monitor the contractor’s performance?
 Who was involved form your project team in the contract management process?
 How well did your project team members manage the contract?
 What worked well?
 What went wrong or could have worked better
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Communication
Another crucial factor in contract management is the communication between the buyer and
seller. Contracts are easier to manage if you approach the buyer/seller relationships as a
partnership where you are trying to accomplish mutually beneficial goals. A characteristic of
smoothly managed contracts is frequent, effective and open communication between the
buyer and seller. Communication can be both formal and informal, spoken or written, or
conducted face to face, via telephone or email. Usually, a combination of these types of
communication is used.
Contract terms and conditions will often require written
documentation for certain types of communication, such as warning of unsatisfactory
performance, contract change requests, or invoices.
Activity 11
For the same contract you discussed in the previous activity, answer the following questions
about the communication process you used with the contractor throughout the contract:
 What methods did you use to communicate throughout the contract?
 How often did you communicate to discuss the contract?
 What thins did you need to express in writing under the terms and conditions of the
contract?
 What do you think are the most important things to remember when communicating with
a contractor?
 How well did your project team members manage the contract?
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Activity 11
Solicit vendor responses according to proposal requirements
Creating a supply base
Suppliers who have passed the qualification requirements and are eligible for contract award
are commonly referred to as “pre-qualified” suppliers. If the buyer utilizes short-term
contracts and frequently re-procures the same item, it typically makes sense to establish a
cohort of pre-qualified suppliers who will compete for these contracts. Even if the buyer uses
long-term contracts for individual items (meaning contracts for individual items are
infrequently re-bid), it might still make sense to use a pre-qualified supply base: If the supply
base members can potentially supply many
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different items, they can compete to produce whichever item’s long-term contract is up for rebidding. Finally, using a supply base not only reduces qualification screening costs but also
allows for the development of standardized contracts, terms and conditions for pre-qualified
suppliers, thereby streamlining administrative processes involved in contracting.
Information requests to suppliers
Once the buyer has identified potential suppliers, the next step in supplier selection is to
formally request that the suppliers provide information about their goods or services. While
there is no agreed-upon terminology, generally the buyer makes one of three types of
information requests to suppliers. The request types, each appropriate for a different
situation, are described below.
Request For Information (RFI)
is issued when the buyer seeks to gain market intelligence regarding what alternatives and
possibilities are available to meet the buyer’s needs. Typically the buyer asks suppliers what
goods and services they could potentially provide, what differentiates them from other
vendors in the marketplace, etc. With an RFI the buyer does not state a particular intention
to award a contract. However, since responding to an RFI is time-consuming for suppliers,
generally suppliers will only respond to the RFI if they expect that the buyer will eventually
issue an RFP or RFQ, which is discussed below.
Request for Proposal (RFP) is issued when the buyer has a sense of the marketplace and
has a statement of work which contains a set of “performance” requirements which it needs
fulfilled. For example, the RFP may describe a formed part with certain strength, flexibility,
and fire resistance requirements, but not specify the particular composition of the material.
Suppliers respond to the RFP with details on how they would satisfy the buyer’s performance
requirements and the price they would be willing to accept to do so.
Upon learning the supplier’s proposed pricing, the buyer may revise its requirements and/or
negotiate exact terms with suppliers. Thus, the process is generally iterative. An RFP is
appropriate for procurement of items that are non-standard or highly complex, requiring
supplier input and expertise about the best way to meet the requirements set forth in the
RFP.
Request For Quote (RFQ) is issued when the buyer can develop a statement of work that
states the exact specifications of the good or service needed. This is the case, for example,
if the buyer seeks a part made of a particular plastic and formed to a specific set of
thickness, density and shape specifications. RFQs are often used in conjunction with highly
structured competitive tendering processes. Typically there is no need for detailed
negotiations with suppliers after bid receipt, as lowest price or some other objective criteria is
used to evaluate bids. Due to their up-front specification requirements, RFQs are appropriate
for procurement of items that are standard and well-known in the marketplace. For example,
in the electronics industry this would include commodity components such as cables,
connectors, and circuit boards.
Evaluate responses, select preferred vendors according to current
legal requirements, and agreed selection criteria
The supplier selection process culminates in a contract between the buyer and one or more
suppliers. The information received from suppliers via the requests ultimately must be
translated
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into formal contractual terms before contracting can occur. A contract with a supplier
specifies what the supplier should do and how they will be paid by the buyer. At the highest
possible level, contract terms relate to either monetary transfers (payment terms) or how the
contract will be executed (non-payment terms). Contracts can specify any number of
payment and non-payment arrangements. A few common ones are listed here to provide the
reader with a sense of what types of contract terms the buyer might consider during
negotiations and when making a contract award decision.
Payment terms
In a fixed-price contract, the price term specifies what the supplier will be paid regardless of
the actual cost to execute its contractual obligations.
In a cost-plus contract, a formula is specified which determines how much the supplier will
be paid; for example, under a cost-plus contract the supplier could receive a fixed
percentage (e.g.107%) of the total cost incurred, or simply receive payments for time and
materials. Various payments can also be specified as contingent on certain actions by the
supplier (these can also take the form of penalties). Examples include a payment made only
upon delivery or upon maintaining a certain target inventory service level, an award fee
granted for meeting budget targets in a cost-plus contract, an award fee for completing the
project within a certain timeline, etc. Liquidated damages clauses can be used to specify an
amount that either the buyer or supplier must pay to the counterparty upon breaching the
contract.
Non-payment terms
The contract can specify all kinds of details related to how the contract will be executed, for
instance, delivery quantities, delivery frequencies, delivery locations, service level, quality
level, technical specifications, duration of the contract, etc.
Contracts where goods must be transported typically assign “incoterms” (see [12]) defining
the precise point at which the buyer takes control of the shipment (and hence the associated
costs and risks).
Negotiate with preferred contractor or supplier, to agree on terms
and conditions of supply
Negotiating the contract
Contract negotiation is all about clarifying the terms and conditions of the contract so that the
buyer and seller reach mutual agreement prior to signing the contract. When conducting
contract negotiations, your goal should be an agreement where the goals of both yourself
and the seller are achieved. Otherwise known as a ‘win win’ approach, a contract negotiation
achieving this outcome facilitates a cooperative working relationship which will be crucial in
the contract administration phase.
If you negotiate a contract with your preferred supplier and you end up ‘winning’ more than
they do, then this may potentially lead to resentment towards you by the seller. This is known
as a ‘win-lose’ approach. The seller’s motivation to perform may suffer. If you negotiate a
contract in which you drive a very hard bargain, your preferred supplier may become so
resentful they may walk away
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from negotiations completely. This is called a ‘lose-lose’ situation. Both ‘win-lose’ and ‘loselose’ approaches, apart from breeding resentment and ill-feeling between you and your
preferred supplier, cause delays in signing the contract and obtaining the required products
and services, which may delay a project’s progression and impact heavily on project
objectives.
Resolving contract management problems
As a project manager contract disputes or difficulties will probably be yours to solve. You will
need to develop very good communication, negotiation and dispute resolution skills to help
you through the process.
Negotiation process
When making contract award decisions the buyer considers each supplier’s qualifications as
well as the contract terms they offer (e.g., price). A supplier’s qualifications are generally
considered exogenous, for example, a supplier’s reputation is based on historical
performance and is not alterable in the short term. Contract terms, on the other hand, can be
“negotiable” between the buyer and supplier. In a negotiation the buyer attempts induce
favorable terms from suppliers, and likewise the suppliers attempt to induce favorable terms
from the buyer. There are many different
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possible negotiation processes. For convenience we adopt the viewpoint of a buyer when
discussing negotiations.
For better or worse, negotiations often are viewed as zero-sum games where the buyer
gains what the supplier gives up. An extreme example of this is the take it or leave it offer
approach whereby a powerful buyer essentially dictates the terms to the suppliers. For
instance, the buyer might demand a certain price and simply refuse to consider the supplier
unless they agree to this price. Take-it-or- leave-it offers are rather draconian, and buyers
may be reluctant to utilize them for short-term gains if suppliers perceive them as unfair.
Furthermore, take-it-or-leave-it offers require the buyer to credibly commit to not renegotiate
with the supplier should the supplier choose to reject the buyer’s offer. If the buyer cannot
make such a commitment, the threat imputed in a take-it-or-leave-it offer is meaningless.
Competitive tendering is an alternative way to extract concessions from suppliers whereby
suppliers are played off one another. Typically, suppliers simultaneously submit bids (in
response to an RFP or RFQ). Competitive tendering approaches differ in the amount of
visibility that suppliers have regarding competitors’ bids. At one extreme is the dynamic
open-descending-bid format. In this format, suppliers see all bids submitted and can respond
by lowering their own bid, until all but one bidder has dropped out. At the other extreme is
the sealed-bid format in which each bid is known only to the buyer and the supplier who
submitted it.
It is also possible that the buyer can utilize neither competition nor take-it-or-leave-it offers.
Instead, the buyer and a single supplier might bargain in some general and unstructured
way. Negotiation processes in practice may combine take-it-or-leave-it offering, competitive
tendering, and bargaining. For instance, the buyer could employ price-based competitive
tendering with a reserve price (the reserve price imposes an upper bound on the amount the
buyer is willing to pay for the contract and thereby acts like a take-it-or-leave-it offer) to home
in on the most promising supplier, then bargain with this supplier to finalize the contract
terms.
Negotiations do not always take a zero-sum approach. The buyer and supplier can
potentially both benefit if they realize their incentives are aligned rather than in conflict.
Research to help buyers and suppliers realise shared interests has led to numerous
advances in software-enabled “expressive bidding” in combinatorial auctions. For instance,
in transportation auctions for truckload procurement, both the shipper (buyer) and the carrier
(supplier) benefit if the shipper’s lanes up for bid complement the carrier’s existing
transportation networks in a way that minimizes empty truck movements.
Activity 12
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Activity 12
Describe one negotiable term of a supplier contract.
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Implement established procurement management plan and make
modifications in line with agreed delegations
Dispute resolution
Not all contracts are easy to manage, particularly if a disagreement arises as a result of a
variation, claim, dispute or appeal. Despite comprehensive planning, the future is impossible
to predict, and unforeseen events occur which necessitate modification to the contract. You
should therefore not only have well defined change control and dispute resolution
mechanisms in place, but be prepared to be flexible to accommodate reasonable change
requests and modify the contract accordingly. Even if the contract is on your side, sticking to
the letter of the law can be counter-productive if you take a tough stance on the suppler, who
may begin to resent you, damaging you relationship. Litigation should be used as a last
resort, as it is expensive and time consuming. You may end up winning a legal dispute, but
still negatively, impact on the project’s schedule, and costs may be significantly affected. In
such circumstances, you have to wonder whether resorting to legal action is really worth all
the effort or time.
Activity 13
Think of a time when you found yourself in dispute with a contractor.
Answer the
following questions about the dispute:
 How did the dispute arise?
 Who was involved?
 How did you manage the dispute?
 What policies and procedures were available to assist you in handling the dispute?
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Activity 13
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What was the outcome?
What actions did you ask your project team members to take to resolve the dispute?
Contract award
Once the buyer has a sound methodology for evaluating suppliers, the process of contract
awarding can begin. During this phase the buyer determines which supplier or suppliers to
award a contract to. Supplier evaluation is a key ingredient in this process, but award
decisions can hinge on more than just how the buyer evaluates the supplier.
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For example, even if suppliers are closely matched the buyer may choose to award the
contract to just one of them. Sole award contracting may be favourable if the scope of work
is best accomplished by a single supplier. For example, the contract may require significant
capital investments on the part of the supplier and/or buyer, creating strong economies of
scale effects. Sole-award contracting may also be used if it is unduly costly or risky to deal
with multiple suppliers. For example, the buyer may be sourcing an item with intellectual
property value (e.g., fabricating a proprietary part) and need to closely monitor the supplier
to prevent leakage of this intellectual property. A buyer outsourcing sensitive back-office
operations (e.g., processing of client data) may need to invest a tremendous amount to train
its supplier to ensure robust security measures.
Likewise, even if one supplier dominates another, the buyer might choose to give business
to both of them. Multiple-award contracting can be useful if the buyer wishes to diversify its
supply sources to mitigate disruption risks, or if suppliers have insufficient capacity or
reverse economies of scale. There are also more strategic reasons for multi-sourcing. For
example, a buyer might wish to prevent any supplier from becoming a monopolist, meaning it
is the only viable supplier for a particular good or service needed by the buyer. This would
happen, for example, if all the supplier’s competitors exited the market due to bankruptcy. A
buyer facing a monopolist supplier cannot leverage competition. To avoid this fate, the buyer
may award contracts to several suppliers to keep them solvent and thereby encourage their
continued presence in future contract competitions.
In general, there are many considerations which might tip the scales in favour of one
supplier or another. The buyer might deliberately favour incumbent suppliers to foster trust
and loyalty or, for example, to avoid the administrative costs of training a new supplier on the
buyer’s invoicing and payment procedures. Supplier location may also be a concern in a way
not manifested in logistics costs. For instance, if the buyer is potential customers are
governments, these customers may be more likely to purchase the buyer’s products when
the government’s home suppliers benefit from the purchase. The buyer might also consider
supplier diversity objectives when making award decisions. If the buyer organisation has
supplier diversity goals, preference is given to historically underrepresented or
disadvantaged businesses, such as small businesses, minority- and woman- owned
businesses, sheltered work-shops and non-profit organisations, etc. Supplier diversity is
typically not legally mandated in private industry, and the amount of preference the buyer
grants to under-represented or disadvantaged businesses in any one supplier selection
event is typically situation-dependent.
However, specifically mandated preferences may apply to government contracts.
Regardless of which award criteria are used by the buyer, making such criteria transparent
makes it easier for the buyer organisation to monitor its contract award decisions, to ensure
the reasons for contract award are sound (e.g., due to the merits of the bid). For example, a
“low price wins” rule makes it difficult for procurement managers to “cheat” the buyer
organisation by negotiating a sweetheart deal with a supplier in return for a bribe.
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Review progress and manage agreed variations to ensure timely
completion of tasks and resolution of conflict within the legal
framework of the supply agreement
Many contracts specify the provision of goods over an extended duration of time, ranging
from weeks to years. Monitoring supplier performance during the life of the contract has
several aims. For example, it supports quality if the buyer inspects incoming goods to ensure
they conform to quality specifications. Monitoring also supports cost containment: if there is a
problem with quality, it can be identified and charged back to supplier. For supplier selection
itself, however, monitoring is most important in so far as it helps the buyer make more
informed supplier selections in the future.
In particular, during supplier evaluation the buyer may consider factors which influence the
total cost of doing business with the supplier. Such costs can include, for example, the
conformance and non-conformance costs which the buyer anticipates incurring during the
life of the contract (e.g., costs of inspections and defect correction, respectively).
The buyer may forecast these costs for each supplier. These forecasts can be constructed
using historical performance data collected through supplier monitoring. For instance, the
supplier’s historical percentage of defective items can inform the buyer’s forecast for nonconformance costs during the life of a contract. (If, on the other hand, the supplier is new and
thus the
buyer’s protocols require more careful inspection of incoming material
(conformance costs), this also needs to be taken into account by the buyer at the time of
supplier evaluation. Historical information about supplier performance can also be leveraged
during the negotiation process with suppliers.
The buyer may choose to directly incorporate this information into a competitive bidding
process via a bid mark-up or some other means to send a clear signal to the supplier about
the importance of performance.
Control Procurement6
Control Procurements is the process of managing procurement relationships, monitoring
contract performance, and making changes and corrections as needed. Both the buyer
and the seller will
6
Source: Whizlabs, as at http://www.whizlabs.com/blog/procurement-management-part-2/, as
on 21st October, 2016.
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administer the procurement contract for similar purposes. Each must ensure that both
parties meet their contractual obligations and that their own legal rights are protected. The
Administer
Procurements process ensures that the seller’s performance meets procurement requirements and
that the buyer performs according to the terms of the legal agreement.
Control Procurements includes application of the appropriate project management
processes to the contractual relationship(s) and integration of the outputs from these
processes into the overall management of the project.
Control Procurements also has a financial management component that involves
monitoring payments to the seller.
This ensures that payment terms defined within the contract are met and that seller
compensation is linked to seller progress, as defined in the contract. One of the principal
concerns when making payments to suppliers is that there is a close relationship of
payments made to the work accomplished
Inputs
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Tools & Techniques
Project
Management
plan
Procuremen
t documents
Agreements
Approved
change request
Work
performance
reports
Work
performance data
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Contract change
control system
Procurement
performance reviews
Inspection and audits
Performance reporting
Payment systems
Claim administration
Records
management
system
Outputs
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


Work
performance
information
Change requests
Project management
plan updates
Project
documents
updates
Organisational
process assets
updates
Inputs
Project Management plan
The Project management plan describes the need, justification, requirements and
current boundaries for the project. It includes:
Project Scope Statement: It contains product scope description, service description and
result description, the list of deliverables, and acceptance criteria, as well as important
information regarding technical issues or concerns that could impact cost estimating,
identified constraints may include required delivery dates, available skilled resources and
organisational policies.
WBS: Components of work that may be resources internally.
WBS dictionary: The WBS dictionary and related detailed statement of work provide
identification of the deliverables and a description of the work in each WBS component
required to produce each
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deliverables.
Procurement
documents
Procurement documents contain complete supporting records for administration of the
procurement processes. This includes procurement contract awards and the statement
of work.
[restrict]
Agreements
A document that includes terms and condition and other items that buyer specifies
regarding what seller is to perform or provide.
Approved change request
Approved change requests can include modifications to the terms and conditions of the
contract including the procurement statement of work, pricing, and description of the
products, services, or results to be provided.
Work performance reports
Work performance reports including the extent to which quality standards are being satisfied,
what costs have been incurred or committed, and which seller invoices have been paid, are
all collected as part of project execution.
A work performance report includes:


Technical Documentation: Seller-developed technical documentation and other
deliverable information provided in accordance with the terms of the contract.
Work performance information: indicate which deliverables have been completed and
which have not.
Work performance data
Work performance data includes



The extent to which quality standards are being satisfied
The cost that have been incurred or committed
Identification of seller invoices that have been paid
Tools & Techniques
Contract change control system
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A contract change control system defines the process by which the procurement can be
modified. It includes the paperwork, tracking systems, dispute resolution procedures, and
approval levels necessary for authorizing changes. The contract change control system is
integrated with the integrated change control system.
Procurement performance reviews
A procurement performance review is a structured review of the seller’s progress to deliver
project scope and quality, within cost and on schedule, as compared to the contract. It can
include a review of seller-prepared documentation and buyer inspections, as well as quality
audits conducted during seller’s execution of the work.
Inspection and audits
Inspections and audits required by the buyer and supported by the seller as specified in the
procurement contract can be conducted during execution of the project to verify
compliance in the seller’s work processes or deliverables.
If authorized by contract, some inspection and audit teams can include buyer
procurement personnel.
Performance reporting
Performance reporting provides management with information about how effectively the
seller is achieving the contractual objectives.
Payment systems
Payments to the seller are typically processed by the accounts payable system of the
buyer after certification of satisfactory work by an authorized person on the project team.
All payments should be made and documented in strict accordance with the terms of the
contract.
Claim administration
Contested changes and potential constructive changes are those requested changes where
the buyer and seller cannot reach an agreement on compensation for the change, or cannot
agree that a change has occurred. These contested changes are variously called claims,
disputes, or appeals.
Claims are documented, processed, monitored, and managed throughout the contract life
cycle, usually in accordance with the terms of the contract. If the parties themselves do
not resolve a claim, it may have to be handled in accordance with alternative dispute
resolution (ADR) typically following procedures established in the contract.
Records management system
A records management system is used by the project manager to manage contract and
procurement documentation and records. It consists of a specific set of processes, related
control functions, and automation tools that are consolidated and combined as part of the
project management
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information system.
Outputs
Work performance information
It provides a basis for identification of current or potential problem to support later claims
or new procurements. Performance information increase knowledge of the performance of
the procurement, which support improved forecasting, risk management and decision
making, reports also assist if there is dispute with the vendor.
Change requests
Change requests to the project management plan, its subsidiary plans and other
components, such as the cost baseline, project schedule and procurement management
plan, may result from the Administer Procurements process. Change requests are
processed for review and approval through the Perform Integrated Change Control
process.
Project management plan updates
Following element of the project management plan that may be updated includes:


Procurement management plan: The procurement management plan is updated to
reflect any approved change requests that affect procurement management,
including impacts to costs or schedules.
Baseline schedule: If there are slippages that impact overall project
performance, the baseline schedule may need to be updated to reflect the
current expectations.
Project documents updates
Organisational process assets
updates
Elements of the organisational process assets that may be updated include, but are not limited to:
Correspondence: Contract terms and conditions often require written documentation of
certain aspects of buyer/seller communications, such as the need for warnings of
unsatisfactory performance and requests for contract changes or clarification.
Payment schedules and requests: All payments should be made in accordance with the
procurement contract terms and conditions.
Seller performance evaluation documentation: Seller performance evaluation
documentation is prepared by the buyer. Such performance evaluations document the
seller’s ability to continue to perform work on the current contract, indicate if the seller can
be allowed to perform work on
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future projects, or rate how well the seller is performing the project work.
Close Procurement
Close procurement is the process of completing each procurement. This process
documents agreements and related documentation for future reference. This process
involves activities like Finalizing open claims, records updating and archiving information
for future use. In case of termination of project procurement closure that can result from
a mutual agreement by both parties.
Additionally, it is important that all documents regarding change orders and other related
details are organized and delivered with any other reports regarding the final product. When
closing out a project, it is important to make a good record of any changes in procedure that
might be helpful in any of your future projects. Keeping good personal records on projects
can
This process involves activities like Finalizing open claims, records updating and
archiving information for future use. In case of termination of project procurement
closure that can result from a mutual agreement by both parties.
Additionally, it is important that all documents regarding change orders and other related
details are organized and delivered with any other reports regarding the final product.
When closing out a project, it is important to make a good record of any changes in
procedure that might be helpful in any of your future projects. Keeping good personal
records on projects can help identify areas where advanced training, or professional
mentoring might bolster already strong project management skills.
Inputs


Project
Management
Plan
Procuremen
t documents
Tools & Techniques
 Procurement Audit
 Procuremen
t negotiation
 Records
management
system
Outputs


Closed procurements
Organisational process
asset updates
Inputs
Project Management Plan
The Project management plan describes the need, justification, requirements and
current boundaries for the project. It includes:
Project Scope Statement: It contains product scope description, service description and
result description, the list of deliverables, and acceptance criteria, as well as important
information regarding technical issues or concerns that could impact cost estimating,
identified constraints may
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include required delivery dates, available skilled resources and organisational
policies. WBS: Components of work that may be resources internally.
WBS dictionary: The WBS dictionary and related detailed statement of work provide
identification of the deliverables and a description of the work in each WBS component
required to produce each deliverables.
Procurement documents
To close the contract, all procurement documentation is collected, indexed, and filed.
Information on contract schedule, scope, quality, and cost performance along with all
contract change documentation, payment records, and inspection results are cataloged. This
information can be used for lessons learned information and as a basis for evaluating
contractors for future contracts.
Tools & Techniques
Procurement Audit
A procurement audit is a structured review of the procurement process originating from the
Plan Procurements process through Administer Procurements. The objective of a
procurement audit is to identify successes and failures that warrant recognition in the
preparation or administration of other procurement contracts on the project, or on other
projects within the performing organisation.
Procurement negotiation
In all procurement relationships the final equitable settlement of all outstanding issues,
claims, and disputes by negotiation is a primary goal. Whenever settlement cannot be
achieved through direct negotiation, some form of alternative dispute resolution (ADR)
including mediation or arbitration may be explored. When all else fails, litigation in the
courts is the least desirable option.
Records management system
A records management system is used by the project manager to manage contract and
procurement documentation and records. It consists of a specific set of processes, related
control functions, and automation tools that are consolidated and combined as part of the
project management information system.
Outputs
Closed procurements
The buyer, usually through its authorized procurement administrator, provides the seller with
formal written notice that the contract has been completed. Requirements for formal
procurement closure are usually defined in the terms and conditions of the contract and are
included in the procurement management plan.
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Organisational process asset updates
Following Elements of the organisational process assets that may be updated includes:
Procurement file: A complete set of indexed contract documentation, including the closed
contract, is prepared for inclusion with the final project files.
Deliverable acceptance: The buyer, usually through its authorized procurement
administrator, provides the seller with formal written notice that the deliverables have been
accepted or rejected. Requirements for formal deliverable acceptance, and how to address
non-conforming deliverables, are usually defined in the contract.
Lessons learned documentation: Lessons learned, what has been experienced,
and process improvement recommendations should be developed for the project
file to improve future procurements.
Activity 14
A seller is working on a cost reimbursable (CR) contract when the buyer decides he would
like to expand the scope of services and change to a fixed price (FP) contract. All of the
following are the seller’s options EXPECT:
A. Completing the original work on a cost reimbursable basis and then negotiating a
fixed price for the additional work.
B. Completing the original work and rejecting the additional work.
C. Negotiating a fixed price contract that includes all the work.
D. Starting over with a new contract.
Identify and report procurement management issues and
implement agreed remedial actions to ensure project objectives are
met7
Risk is omnipresent in business today. But without it, business as we know it might not exist
either. To compete, grow, and capture benefit, companies need to take chances; it's what
businesses do. Although business risk has existed as long as there has been commerce, the
situation is clearly different in the 21st century.
7
Source: 2 Degrees Network, as at https://www.2degreesnetwork.com/groups/2degreescommunity/resources/25-questions-ask-yourself-about-your-procurement-risk-managementapproach/, as on 2st October, 2016.
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However, few companies translate this concern into a formal procurement risk management
capability. Most do have risk-management structures within their finance organisations,
though this is not necessarily sufficient.
Risk should not be measured "opportunistically" (i.e. on a "case by case basis"). There
needs to be a structured risk management capability within the procurement organisation.
Given today's turbulent supply markets and volatile global business environment,
procurement professionals need to make well thought out and robust decisions to not only
compete but to survive as well.
Procurement has to develop a formal, structured risk management capability which creates
visibility into supplier performance and supply risk issues and enable more supplier
collaboration. Through active management, procurement must mitigate risk and enable
agility.
Relevant questions to
ask An overview is
important
1) You'll want to create an overall risk picture of the risk to your suppliers. Exactly how do
you define suppliers to the business? Do you split your business risk and procurement risk
into separate silos or are they merged?
2) Is your supply chain dynamic? Have you developed flexible operations, a diversified
supplier portfolio, global visibility, and options to scale?
3) Do you know who your partners are and how their operational and financial risk profiles
looks like? Which third party vendors and counterparties are there?
4) If you are counting on supplies from a vendor, what happens if you don’t get those raw materials?
5) What risks should be captured? How are they going to be assessed and measured? Do
you link your risks with your company's dark spots and general business objectives or is it
purely done to ensure compliance?
Management plays an important role
6) Do you have buy-in from the top of the organisation? Have you integrated risk
management practices across all business functions to ensure understanding, commitment,
and alignment?
7) Have you embedded risk considerations into all business operations and linked them with
important business processes?
8) Do you consider detectability, detection lead-time, and time to recover, and cost to
recover? How do you separate resilience success from failure?
9) Do you have clear risk ownership: a well-defined organisational structure with explicit
roles and responsibilities to manage risk? Alternatively, do you have a risk committee?
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Basically, you should have resources who review emerging trends, progress and results.
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Through active management, procurement must mitigate risk and enable agility.
Focus on processes is critical
10) Is there a process for identifying critical supply categories?
11) Are vendors segmented to identify and prioritize those critical to business continuity?
12) How is the action planning process implemented and monitored? What monitoring
activities are in place to ensure risks are being managed and action plans are followed? Is
your action plan funded with appropriate resources to address the core of the risk issues and
implement treatment, not just symptomatic relief?
13) Are there proactive risk aggregation activities to ensure 1) risk interdependencies are
taken into account and are managed? 2) Costs for managing risks are leveraged effectively?
14) Are risk management processes consistent throughout the organisation and are they
linked with other important business processes?
15) Is your company communicating your efforts and results on risk management in procurement?
Data is essential (if it is correct)
16) Do you capture enough data to recommend profitable strategies?
17) Does your organisation simulate potential scenarios?
Metrics matter
18) Do you have the right analytical tools to identify, measure, and monitor operational risks?
These tools should quantify the impacts of the uncertainty, sharpen the company’s view, and
correlate to management initiatives.
19) Do you know which kind of supply chain risks you are able to manage well?
If not done properly, reporting can be a waste
20) Are your reports focused and relevant? Do they deliver key information in a timely way?
21) What data do you need to capture to produce those reports?
22) Once the data is captured, what types of analytics are necessary to predict and identify risks?
23) Does your reporting include metrics on current risk management efforts, changes in the
risk environment, and indicate when intervention is required?
24) Is the reporting visible to the top management?
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25) Is the reporting structured so it creates visibility on key risk and mitigation strategies and
perhaps an overall risk management strategy?
What do high performers in procurement risk management do?




Are more likely to address supplier and price volatility risks when developing their
procurement and category strategies
Are more likely to develop innovative ways to monitor risks and implement practices
and tools to mitigate risk
Are more likely to integrate risk management initiatives into the strategic sourcing
process (example: supplier evaluation)
Have deep supplier relationships. They collaborate with suppliers to rapidly detect
risk and neutralize risk-related issues before those issues become incidents
So how can you work with your risk actively?
You can develop strategies to avoid or minimize risk exposure (risk anticipation) by:



Integrating procurement risk management into each category strategy
(differentiation by category)
Use dual sourcing and regular negotiations with suppliers to anticipate supply
risks related to quality and supply chain disruptions
Look at alternative materials (re-engineering)
You can continuously track potential risks and raise alerts (risk monitoring) by:




Identifying and assessing the level of risk at key stages of the strategic sourcing process
Identify, assess, and continuously monitor key risks with critical suppliers at each
step of the supply chain
Adapt monitoring approaches to categories of suppliers and to different
geographies and cultures
Use external data sources for continuous monitoring of the supply markets,
suppliers' financial health, etc.
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
Collaborate with selected critical suppliers and agree on how they can create
"early warning systems"
You can act quickly and appropriately to minimize realized risks (risk mitigation) by:



Developing a process to measure impacts of incidents/alerts and continuously
improve risk management practices
Integrate the organisation in case of incidents in mitigation plans (who makes, who
decides)
Put emphasis on the development of mitigation plans for critical suppliers
CHECKLIST OF POTENTIAL RISKS IN THE GOODS AND SERVICES PROCUREMENT
PROCESS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
1.
Identifying the need and planning the purchase
Developing the specification
Selecting the purchasing method
Purchasing documentation
Inviting, clarifying and closing offers
Evaluating offers
Selecting the successful tenderer
Negotiations
Contract management
Evaluating the procurement process
Disposals
Identifying the need and planning the purchase
Risk
Understatement of
need
Likely consequences
the Purchase of
unsuitable
product or service
Money wasted
Need not
satisfied
Greater
Overstatement of the
expense Poor
need
competition
Misinterpretation of
user needs
Totally unacceptable
purchase or not most
suitable product or
service Time lost
Increased costs
Possible
downtime
Action
Analyse need accurately
Analyse need accurately
Use
functional
and
performance
requirements
Improve consultation
with users
Obtain clear statement
of work and definition
of need
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Insufficient funding
Delay in making
the purchase
Additional costs for
re- tender
Obtain appropriate
approvals before
undertaking
process
Improve planning
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2.
Risk
Impractical timeframe
Likely consequences
Inadequate
responses from
tenderers Reduced
competition
Delivery schedule not met
Probity issues
Increased
procurement costs
Misuse of resources
Most suitable product
not obtained
Unethical conduct
Developing the specification
Risk
Likely consequences
Narrow definition or
Fewer alternatives
commercial
Most suitable product
specification (eg. use
or service may not be
of brand name)
obtained
Increased costs
Definition of
Need not
inappropriate product or
satisfied Time
service
lost Increased
costs Possible
downtime
Biased specification
Inadequate
responses from
tenderers
Claims of unfair dealings
Action
Improve forecasting,
planning and
consultation with users
Improve
communication with
potential tenderers
Implement best
practice policies,
guidelines and
practices
Maintain ethical
environment
Improve training
of personnel
Put suitable controls
and reviews in place
Consider using a
probity adviser
Improve communication
with potential tenderers
Action
Define the specification
in terms of required
outputs Use functional
and performance
specifications
Ensure specification
is consistent with
needs analysis
Improve
market
knowledge
Use functional and
performance
specifications
Use functional and
performance
specifications Implement
a control mechanism to
review specification
before
release
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Inadequate statement
of requirements
Variety of offers
Insufficient
responses Products
offered not meeting
needs Difficult to
evaluate
Be familiar
with
requirements
Use functional and
performance
specifications Use an
Expression of
Interest or Request for
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Information to clarify
requirements (be
careful not to infringe
intellectual property
rights or
copyright)
3.
Selecting the purchasing method
Risk
Likely consequences
Failure to identify
Lack of offers from
potential sources
suitable tenderers
Selecting
inappropriate method
4.
Need to seek offers
again Possible cost
variations Failure to
obtain value for money
Purchasing documentation
Risk
Likely consequences
Action
Improve
procurement
planning processes
Improve market
knowledge
Seek industry
participation
Improve implementation
of procurement policies,
guidelines and practices
Improve tender
documentation and
clearly identify the
evaluation criteria in
Request for Tenders
Provide staff with
appropriate training
and
experience
Action
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Terms and conditions
unacceptable to
tenderers
Loading of costs in
offers Having to
modify tender terms
and conditions
Disruption
Low response
Use standard
documentation
prepared by Crown
Law
Select appropriate
documentation for
purchase type (ie.
goods, services, goods
and services, or
information technology
related) Improve
tender planning
Assess and allocate
risks appropriately
Consult with Crown
Law Use
commercially
acceptable terms
Provide staff with
appropriate tender
planning and procurement
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5.
Risk
Likely consequences
Providing
inadequate
information
Loading of costs in
offers Variations in
offers
Having to provide
clarifying information,
causing delays in tender
closing Additional costs
Inviting, clarifying and closing offers
Risk
Likely consequences
Failure to adequately
Claims
of
unfair
address enquiries
practices Offers with
from tenderers
qualifications
by
tenderers
Withdrawal of offers
Actual or perceived
favouritism in
providing information
Complaints from
tenderers Withdrawal of
offers
Action
skills
Ensure staff have
appropriate tender
planning and
documentation
training and
experience
Improve tender
planning and
preparation
Review tender
documents before
issuing them and
ensure evaluation
criteria contain the
critical factors on which
assessment of tenders
will be based
Action
Implement standardised
procedures for
responding to enquiries
Provide staff with
appropriate tender
management training
and experience
Respond in a timely
manner to enquiries
Allow adequate time
for tenderers to
respond
As above
Answer queries in
writing and provide
copies to all potential
tenderers Ensure that
all potential tenderers
are provided
with any addenda
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Actual or perceived
breach of confidentiality
Complaints from
tenderers Mistrust by
tenderers
Establish formal
security procedures
Train staff in their
obligations
Perform regular audits
and reviews of security
processes
Advise tenderers of
security measures
Insufficient number of
Need to undertake
process
Use appropriate tender
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6.
Risk
responses
Likely consequences
again
Increased
costs
Delayed delivery to
the client
Poor value for money
due to limited
competition
No response from
known quality suppliers
Reduced competition
Increased costs of
products or services
Evaluating offers
Risk
Failure to follow
effective evaluation
procedures
Breaches of security
Likely consequences
Inconsistent
evaluations Possible
complaints from
tenderers
Subjective not
objective evaluation
of offers
Claims of unethical
or unfair practices
Loss of faith with
tenderers
Action
advertisement strategy
to increase competition
(eg. consider
advertising tenders in
other publications as
well as the local paper)
Provide potential
tenderers with advance
notice of tender
requests Improve
tender documentation
and specifications
Allow sufficient time
for tenderers to
respond
Actions as above for
insufficient number
of responses
Improve your
market knowledge
Review specifications
or conditions
Seek feedback from
known suppliers on their
non- response
Action
Provide staff with
appropriate tender
assessment and
evaluation training and
experience Improve
tender assessment and
evaluation processes
Maintain, audit and
review evaluation
procedures Ensure that
Evaluation Committee
members declare any
conflicts of
interest
Maintain, audit and
review security
procedures Provide staff
with appropriate training
and experience and
monitor
performance
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7.
Risk
Likely consequences
Offers fail to meet needs
Need to call tenders
again Additional costs
Delay in delivery
Failure to identify a
clear winner
Decision made
on subjective
grounds
Claims of unethical and
unfair behaviour
Complaints from
tenderers
Selecting the successful tenderer
Risk
Likely consequences
Action
Ensure that
Evaluation
Committee
members
understand and sign
Confidentiality
Agreements
Improve
market
knowledge
Improve
tender
documentation
Conduct market
research Develop
functional and
performance
specifications
Ensure evaluation
criteria contain the
critical factors on which
the assessment of
tenders will be based
and that they are clearly
identifiable to tenderers
in tender documents
Ensure evaluation
criteria are appropriate
and measurable
Ensure that Evaluation
Committee members
sign Declaration of
Conflict and
Confidentiality
Agreements
Action
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Selecting an
inappropriate supplier
Failure to fulfil the
contract
Provide staff with
appropriate tender
evaluation, financial and
technical skills training
and commercial
expertise Improve
evaluation procedures
Improve evaluation
criteria and clearly
identify them to
tenderers in tender
documents
Reject unacceptable
offers Perform financial,
technical and company
evaluations before
awarding contract
Procurement Review
Committee to review
tender and selection
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8.
Risk
Likely consequences
Selecting
inappropriate product
Failure to meet the
client’s
need
Negotiations
Risk
Not matching the
expectations of buyer
and tenderer
Deadlock on details
of agreement
Likely consequences
Contract
disputes
Delivery delays
Cost variations
Reduction in value
for money
Purchase of less
suitable product
Inefficient use of
resources
Delays in
delivery Need
to restart
procurement
Possible cost of legal
action
Action
process prior to awarding
contract
Ensure users are
involved in the
evaluation/selection
process
Improve technical
evaluation procedures
and train staff as
appropriate
Procurement Review
Committee to review
tender and selection
process prior to
awarding
contract
Action
Improve
communication,
including ensuring that
Conditions of Contract
form part of the
Request for Tender
Provide staff with
training in contract
planning and
management
Define terms
carefully Record
each party’s
obligations
Clarify all ambiguities
before signing the
contract
Look at alternatives
to share risk
Distinguish between
essential and nonessential goals and
requirements
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Failure to secure
mandatory
conditions
Inability to finalise
contract Delays in
delivery Variations in
cost Inefficient use of
resources
Establish baseline
before negotiations
Distinguish essential
goals from others
Consider variations
to contract
Provide negotiators
with adequate training
Failure to secure
agreement in relation to
Inability to finalise
contract
Delays in delivery
Ensure potential suppliers
aware of Policy
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9.
Risk
Crown Contracts
Confidentiality
Policy
Likely consequences
Inefficient use of
resources Requirement
to negotiate with other
ranked suppliers
Unfair or onerous
requirements on the
tenderer in the
contract conditions
Contract disputes
Invalidity of contract
Legal action
Poor
supplier/customer
relationship
Failure to reflect the
terms offered and
agreed in the contract
Contract disputes
Legal action
Poor
supplier/customer
relationship
Inadvertently creating
a contract without the
delegate’s prior approval
Expense of negotiating
out of the contract and
paying damages
Committing to other
associated work prior
to
main contract existing
Contract management
Risk
Likely consequences
Variations in price
Cost overruns
and foreign
exchange
Unwillingness of the
supplier to accept
the contract
Delays in
delivery Need
to restart
procurement
Action
requirements before
submitting responses
Seek exemption from
Crown Contracts
Confidentiality
Standing
Committee
Provide negotiators
with adequate training
and support
Negotiate
commercial terms
Terms should be fair
and reasonable
Check final draft of
contract with
successful tenderer
Keep records of
all negotiations
and
agreements
Procedure in place to
ensure delegate’s
approval obtained first
Provide negotiators
with adequate training
Action
Agree on prices and
the basis of prices
Agree on a formula
for calculating
variations
Seek legal redress if
non- acceptance
causes loss Negotiate
but retain
integrity of the contract
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Failure of either party to
fulfil the conditions of
the contract
Contract disputes
Failure to satisfy
needs Delays in
delivery Downtime
Legal action
Ensure good contract
administration and
performance
management Hold
regular inspections /
meetings and ensure
progress reports
Ensure all staff
know
responsibilities and
conditions
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Risk
Likely consequences
Action
Ensure good
record keeping
and
documentation
Maintain up-to-date
agency procedures
and practices
Ensure all staff are
suitably trained and
experienced in contract
planning and
management
Confirm verbal
acceptance of contract
with written advice
Accept all contracts
in writing
Ensure approvals are
received before
allowing work to start
Inadequately
administering the
contract
Cost increases
Failure
of
contract
Full
benefits
not
achieved Delivery of
unsatisfactory product
Contract/supply disputes
Commencement of work
by the supplier before
contract is exchanged or
letter of acceptance
issued
Potential liability to pay
for unauthorised work
Possibility of legal action
for perceived breach of
contract
Unauthorised increase
in scope of work
Unanticipated
cost increases
Contract disputes
Ensure all contract
amendments are issued
in writing
Record all discussions
and negotiations
Confirm instructions
in writing
Loss of
intellectual
property
Loss of commercial
opportunity
Unwarranted reliance
on supplier for product
support
Ensure suitable clauses
are included in the
contract
Failure to meet liabilities
of third parties (eg.
royalties or third party
property insurance)
Legal action
Damage to the
agency’s professional
reputation
Check that all
obligations are covered
in the contract Agree on
responsibilities
Implement appropriate
safety standards and
programs
Loss or damage to
goods in transit
Delays in
delivery
Downtime
Liability
disputes
Include appropriate
packaging instructions
in specification
Agree on insurance
cover for supplier to
provide Accept delivery
only after inspection
Know when title of goods
is transferred to buyer
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10.
Risk
Fraud
Likely consequences
Misuse of
resources Legal
action
Disruption to
procurement activities
Key personnel
not available
Progress on
project disrupted
Less expertise
Evaluating the procurement process
Risk
Likely consequences
Failure to evaluate
Failure to improve
procurement and
procurement and
management
management
processes
processes
Failure to identify
and address
problems
11.
Disposals
Risk
Collusive bidding
at auction
Procurement
objectives not
achieved
Possible failure in
the future
Likely consequences
Not achieving best
return Claims of
unethical and unfair
practices
Action
Maintain an
ethical
environment
Follow and maintain
fraud control
procedures
Include requirement in
specification and
ensure compliance in
post-tender negotiation
Know the market
Accept risk and
manage
possible delay
Action
Develop systematic
evaluation methods,
techniques and
evaluation
criteria
Agree on performance
criteria (with supplier
and customer)
Develop good
relationships with
suppliers
Include evaluation
clause in the contract
Implement
performance
management
strategies
Action
Set reserve prices
Deal with reputable
firms Include disposal
clause in initial contract
Maintain
ethical
environment
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Inadequate
tender
management
Claims of bias and
favouritism to
organisations or
individuals Reduction in
value for
money
Sell by open tender
Document reasons
for decision
Provide staff with
appropriate training
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Conduct finalisation activities to ensure vendor deliverables meet
contracted requirements
Finalising and reviewing contracting and procurement
All projects eventually come to an end. However, projects do not simply stop of their own
accord. They require the project team to take active steps to ensure that the contracted
products and services are provided, and verified as complete and performing satisfactorily.
Accompanying this are administrative activities that must be completed before the project
can be declared over. A review of the effectiveness of contracting and procurement activities
and performance is also conducted so that lessons learned can be transferred to future
projects. Many organisations have checklists, policies or procedures to guide project teams
throughout the closure process. Figure 6 shows how finalising and reviewing contracting and
procurement fits onto the overall contracting and procurement process.
Figure 6 – Contract finalisation and review
Contracting and Procurement Planning
Proponent Phase
Approval Phase
Assisting with the selection of the supplier
Implementation Phase
Contract Management
Completion Phase
Finalising and reviewing the contracting and
procurement process
Finalising the contract
Some of the steps that might take place in the completion phase of contracting and
procurement include:






reviewing procurement documentation
updating and archiving records
completion of financial records
testing and inspections
fixing any minor defects
certificates of completion
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
writing to the contractor stating that the project is completed.
Activity 15
Describe the practices you would undertake to finalise contracts (in general).
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Activity 15
Review project outcomes using available procurement records and
information to determine effectiveness of procurement processes
and procedures
Reviewing contracting and procurement
There is now just one more step to be taken before the contracting and procurement process
is completed - conducting a review of the contracting and reviewing process.
The review should focus on three aspects:
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reviewing the contractor’s performance
reviewing your project team’s performance
reviewing the effectiveness of the contracting and procurement process.
The review should reflect on every stage of the contracting and procurement process. All
team members should be involved in the review process. Some key issues to consider when
evaluating the contracting and procurement process are:
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Was the contracting and procurement process well planned and
comprehensive?
Were enough suppliers sourced?
Was the project scope clearly specified?
Were the evaluation criteria, weighting and scoring system used to
select suppliers effective?
Was there accountability in all steps of the process?
Was the process objective?
Were suitably informed, experienced or qualified people involved in
the selection process?
Were methods such as presentations by potential suppliers, or
product samples utilised?
Did the products and services purchased delivered their desired
benefits to the project?
Was the contract was effectively managed?
Was sufficient research conducted of the market?
Was the relationship between contractor and the project team
managed appropriately
Did the team communicate well with the contractor?
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Was the project team flexible in accommodating change requests?
Most organisations develop a body of knowledge on how to review project contracting and
procurement. Policies, procedures and guidelines may exist which you can use to conduct
your review. Some of the methods you may use to conduct the review may include:
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an audit of the contracting and procurement process or contractor
performance
a review meeting where the project team discusses any issues,
problems that arose during the project.
It is vitally important that any lessons learned from the review are identified and reported so
that contracting and procurement can be improved for future projects.
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Document lessons learned and recommended improvements for
application to future projects
The final report of the project will include an analysis of the review of project processes and
products with recommendations for change and applications to future projects. All team
members should contribute to the review process and areas covered would include
considerations of all aspects of the projects.
Final Project Review8
"Completing a project" is not the same thing as ending the project management process.
Simply finishing doesn't ensure that the organisation benefits from the project's outcome.
For example, after completing a yearlong project to establish a new quality management
process for your organisation, you want to make sure that what you set out to do was
actually achieved. Your objective wasn't to simply deliver a process – but rather, to deliver
the process that addresses the specific business need you intended to meet. This is the real
measure of success.
To make the most of the benefits that the project can deliver, however, you also need to
check to see if further improvements will deliver still greater benefit.
You also need to ensure that the lessons learned during the project are not forgotten. You
can more effectively design and execute future projects when you take advantage of lessons
learned through experience of previous projects.
So how can you properly measure a project's success, and work toward continuous
improvement? This is where the process of Post-Implementation Review (PIR) is helpful. It
helps you answer the following key questions:
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Did the project fully solve the problem that it was designed to address?
Can we take things further, and deliver even bigger benefits?
What lessons did we learn that we can apply to future projects?
The PIR Process
The key to a successful PIR is recognizing that the time spent on the project is just a small
part of an ongoing timeline.
For people and organisations that will be working on similar projects in the future, it makes
sense to learn as many lessons as possible, so that mistakes are not repeated in future
projects.
8
Source: Mind Tools, as at https://www.mindtools.com/pages/article/newPPM_74.htm, as on 6th
October, 2016.
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And for organisations benefiting from the project, it makes sense to ensure that all desired
benefits have been realized, and to understand what additional benefits can be achieved.
When to Review
A good time to start thinking about the Post Implementation Review is when members of the
project team remember the most – shortly after the project has been delivered, and when
most of the problems have been ironed-out. Start to list ideas and observations while they
are still fresh in people's minds.
However, to adequately assess the quality of the implementation and complete this process,
you'll need to wait long enough for the changes caused by the project to truly take effect.
There will probably be a period of adjustment before you can finally review the solution as it
was intended to operate: you'll likely need to overcome some of the usual resistance to
change, hold people's hands while they operate new systems, and eliminate technical
problems that didn't emerge when deliverables were tested. You should therefore typically
allow a few weeks, or even a few months, before doing the full PIR. Where possible, allow
for at least one, full, successful cycle of business before reviewing lessons learned.
What to Review
Here are some tips for conducting the PIR:
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Ask for openness – Emphasize the importance of being open and honest in your
assessment, and make sure that people aren't in any way punished for being open.
Be objective – Describe what has happened in objective terms, and then focus on
improvements.
Document success – Document practices and procedures that led to project
successes, and make recommendations for applying them to similar future projects.
Look with hindsight – Pay attention to the "unknowns" (now known!) that may have
increased implementation risks. Develop a way of looking out for these in future
projects.
Be future-focused – Remember, the purpose is to focus on the future, not to assign
blame for what happened in the past. This is not the time to focus on any one person
or team.
Look at both positives and negatives – Identify positive as well as negative lessons.
When conducting the review, include the following activities:
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Conduct a gap analysis.
o Review the project charter to evaluate how closely the project results match
the original objectives.
o Review the expected deliverables (including documentation) and ensure
either that these have been delivered to an acceptable level of quality, or that
an acceptable substitute is in place.
o If there are gaps, how will these be closed?
Determine whether the project goals were achieved.
o Is the deliverable functioning as expected?
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o
o
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Are error rates low enough, and is it fit for purpose?
Is it functioning well, and in a way that will adjust smoothly to future operating
demands?
o Are users adequately trained and supported? And are there sufficiently
enough confident, skilled people in place?
o Are the necessary controls and systems in place, and are they working properly?
o What routine activities are needed to support the project's success?
o If there are problems here, how will these be addressed?
o How does the end result compare with the original project plan, in terms of
quality, schedule and budget?
Determine the satisfaction of stakeholders.
o Were the end users' needs met?
o Is the project sponsor satisfied?
o What are the effects on the client or end user?
o If key individuals aren't satisfied, how should this be addressed?
Determine the project's costs and benefits.
o What were the final costs?
o What will it cost to operate the solution?
o What will it cost to support the solution in the future?
o How do the costs compare with the benefits achieved?
o If the project has not delivered a sufficiently large return, how can this be improved?
Identify areas of further development.
o Have all of the expected benefits been achieved? If not, what is needed to
achieve them?
o Are there opportunities for further training and coaching that will maximize results?
o Could you make further changes, which would deliver even more value?
o Are there any other additional benefits that can be achieved?
Identify lessons learned.
o How well were the projects deliverables assessed, and how well were
timescales and costs assessed?
o What went wrong, why did these things go wrong, and how could these
problems be avoided next time?
o What went well, and needs to be learned from?
Report findings and recommendations.
o What have you learned from this review?
o Do you need corrective activity to get the benefits you want?
o What lessons have you learned that need to be carried forward to future projects?
o Does this project naturally lead on to future projects, which will build on the
success and benefits already achieved?
How to Review
As you perform the post-implementation review, certain methods and practices will help you
obtain the best possible information:

Define the scope of the review beforehand -The last thing you want to do is to
create a political problem. Given the number of people often involved in a project, it's
easy to hurt someone's feelings when reviewing the project's success. Clarify your
objectives for the
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review, and make your intentions clear – this will better ensure that people share their
experiences openly and honestly. Then make absolutely sure that you stick to these
intentions, and that people's egos aren't unnecessarily bruised by the process!
Review key documents – Gather together the key project documents. This will help
you assess the project planning process, as well as the actual benefits achieved
through the project.
Consider using independent reviewers – Where possible, use outside people in
your review process to get an objective, unclouded view of the project. Some people
recommend using only independent people in the review, however, you can learn a
lot from the perspectives of those who were directly involved in the project – this is
why the best strategy is probably to have a balance.
Use appropriate data collection – Collect information in the most appropriate way,
for example, by using interviews and surveys. Also, test the deliverableyourself; to
make sure you get firsthand information.
Deliver appropriate reports – Report your findings, and publicize the results.
Remember that the PIR is designed to help project managers conduct more effective
projects in the future, as well as to measure and optimize the benefits of the specific
project being reviewed.
Present recommendations – Present the detailed recommendations to the
organisation and the project leaders, as well as to customers and other stakeholders.
Include as many people as necessary so that you keep – and apply – the bestpractice information in the future.
Project Documentation to Archive
There are some key project documents that should be retained so that the lessons learned
can be easily passed to future projects. This documentation includes:
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Project Scope Statement
Project Team Structure
Project Plan (originally baselined and all subsequent re-baselined plans)
Issue Management Logs
Change Requests and Change Logs
Risk Management Report
Budget (originally vs. actual)
Close-out Project Evaluation
Close-out Project Team Evaluation
Final Reports and/or Recommendations
Transfer of Best Practices
An important responsibility for the Project Management Office is to capture and retain a
database of “Lessons Learned” from all projects for future reference. This is especially true
for new Project Management Offices. To accomplish this, bring project managers together to
discuss projects that they have been undertaken over the last 6-12 months. Hold discussions
about the lessons they want to pass on to other projects; what should be repeated and what
should be avoided as well as any other suggestions for other project teams.
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There are basically two ways of accessing “Lessons Learned and it is either through intranet
storage of the information that allows project managers to search the files stored in the
organisation’s intranet data bank or via shared network drives that may be accessed through
a Windows™ search.
Developing an Intranet storage system requires that the Project Management Office set up
keywords in the project’s “Lessons Learned” document so that the search tools can return a
percentage match, with the higher percentage match documents most likely containing the
information that is most relevant to the project manager’s search. Many of these tools will
even search inside word processor documents so the Project Management Office may not
even need to convert project lesson learned documents to an HTML format.
Almost every organisation has shared network drives that are used to keep files so that any
number of employees, within the organisation, can easily access the documents. One
approach the Project Management Office may take is to store all “Lessons Learned”
documents in a single folder or subfolders within one folder. Then, using the advanced
features of the search tool built into the Windows™ operating system, a project manager can
search that directory folder for specific terms and it will return a list of all of the documents
that contain those terms. It does not rank the documents; it just selects those that contain the
requested phrase. While this method involves more work to sift through the documents, it is
usually easier to start using because it rarely involves the system support staff to set-it up.
Activity 16
How would you record lessons learned such that they improve the effectiveness of
future
projects?
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Activity 16
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Attachment 1 - Key terms in project contracting and procurement9
Contract Management Plan
Contract Variation
Expression of Interest (EOI)
Evaluation Criteria
Intellectual Property
Probity
Purchase Order
Risk Management
Request for Tender (RFT)
Request for Quotation (RFQ)
Specification
Standing Offer Agreement
Tender
Tenderer
Tender Briefing
A document outlining strategies for management of a contract
including but not limited to roles and responsibilities, timelines,
performance management and financial matters.
A contract variation is an additional or alternation of the
products or services provided under a contract that is within
the general scope of original contract.
The first of a two stage publicly advertised tender process.
Registration of interest are invited, responses evaluated and
short- listed of possible providers identified. The second stage
is where
short-listed bidders are asked to respond for tender.
A list of measures used to assess the suitability of a tender
against
the tender specifications.
Legally protected property such as copyright, patents, and
registered designs, as well as ideas and information of
commercial value which an organisation has developed.
Honest, proper, fair and ethical conduct, especially in relation to
tendering processes.
A document generated by an organisation’s financial
management system which shows that purchase details have
been recorded and payment will be made.
The identification. Assessment, allocation, mitigation and
monitoring of risks associated with a project.
A publicly advertised method of seeking offers from providers
or suppliers based on a written statement or specification of
the required products and/or services.
An invitation to selected supplier to make an offer to supply
products or services. A RFQ is generally used for low value
purchases.
A statement which clearly and accurately describes the
essential requirements for products, products or services.
Specification may also include the procedures by which it will
be determined that the
requirements have been met.
A contract that sets out rates for products and services which
are available for the term of the agreement. However, no
commitment is made under the agreement to purchase a
specified value or
quantity of products or services.
The process of inviting parties to submit an offer by public
advertisement, followed by evaluation of offers and selecting a
successful bidder. The document containing an offer from an
organisation responding to a request for tender.
A party submitting the tender.
A forum held where project representative’s briefs prospective
tenderers regarding a tender process, and responds to
questions.
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9
Source: The Victorian Government Purchasing Board, available at http://www.vgpb.vic.gov.au.
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LEARNING OUTCOMES
After completion of this unit the student have better understanding of:
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work with others to determine procurement requirements and produce a procurement
management plan for a project
carry out procurement and contracting activities according to agreed processes
monitor activities across a project's life cycle and resolve issues that could affect
achievement of project objectives
create and maintain procurement records and documentation according to
requirements of project and organisation
Document a review of procurement management processes and procedures.
STUDENT FEEDBACK
We welcome your feedback as one way to keep improving this unit. Later this semester, you will be
encouraged to give unit feedback through completing the Quality of Teaching and Learning Survey
LEARNING RESOURCES
Other Learning Resources available to students include:

Candidate Resource: BSBPMG518 Manage project procurement

PPT Handout
TEXTBOOKS
You do not have to purchase the following textbooks but you may like to refer to them:
Unit Code(s) Unit Title
Reference Book/ Trainer & Learner Resource
BSBPMG518 Manage project
procurement
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Additional Reference Texts
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The Business Communication
Handbook 7th edition
The Principles of Project Management
(Merri Williams)
Project Management in Practice by
Neil D. Pearson
Trainer and Learner Resources by LRES
Training Management
The Business Communication
Handbook 7th edition
The Principles of Project Management
(Merri Williams)
Project Management in Practice by
Neil D. Pearson
Trainer and Learner Resources by LRES
Training Management
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STUDENTS’ RIGHTS AND RESPONSIBILITIES
It is the responsibility of every student to be aware of all relevant legislation, policies and
procedures relating to their rights and responsibilities as a student. These include:

The Student Code of Conduct

The College’s policy and statements on plagiarism

Copyright principles and responsibilities

The College’s policies on appropriate use of software and computer facilities

Students’ responsibility to attend, update personal details and enrolment

Course Progress Policy and Attendance

Deadlines, appeals, and grievance resolution

Student feedback

Other policies and procedures.

Electronic communication with students
International Students Please also refer to ESOS framework for further details
https://internationaleducation.gov.au/Regulatory-Information/Education-Services-forOverseas- Students-ESOS-Legislative-Framework/ESOS-Act
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