PMGT1865 Chap.15 Procurement Planning and Contract Types
Procurement Planning and Contract Types
Procurement means getting hold of goods or services, whether by purchase or otherwise. Project procurement management is narrower: whatever has to be done to bring in products and services that deliver part of the scope but come from beyond the organisation running the job.
In practice it deals with the portion of the work that is contractually procured and performed by staff working for another organisation, and projects do it to reduce costs and enhance value or to leverage skills and knowledge they do not hold. The starting point is a decision made once per item of scope: make it in house, team through a contract between companies, or buy it from outside.
Everything not produced by the project team has to be procured, so the make, team or buy plan defines the whole procurement schedule, which records for each item when it is needed, how it will be procured, for how much and who is responsible.
This is also the one topic in the unit where the process is followed because the law requires it: engaging a supplier makes you the legal agent of your organisation, and the contracts you establish bind it.
What this chapter covers
- 01
Procurement management defined, and the two reasons a project buys rather than builds
- 02
Make, team or buy, and how the decision cascades into four other plans
- 03
Why buying changes who you argue with rather than removing the work
- 04
The procurement plan and schedule, and the source of each of its seven columns
- 05
Why the evaluation criteria column is filled before the market is approached
- 06
The four processes: planning, conducting, administering and closing procurements
- 07
The procurement statement of work and what it has to set out
- 08
The six essential elements of a contract, and the two a project manager can break
- 09
Fixed price, cost plus and time and material, ordered by who carries the cost risk
- 10
The three golden rules of tendering, and why over specification narrows what you may buy
Sourcing a specialist package and choosing its contract
- +1Choose the route. Make is unavailable because the skill is not held in house and cannot be acquired in a fortnight. Team implies a joint venture, which is disproportionate for one wall. The route is buy, so the item leaves the staffing plan and enters the procurement schedule.
- +1Test the scope against the contract types. Fixed price requires the buyer to specify the work precisely, and the extent of hidden damage is unknown until the render is removed, so a fixed price here buys a number and a variation claim.
- +2Look at what is actually known. The mortar mix and coursing are specified by the heritage consent, so the method is certain and the quantity is not, which is the shape time and material was designed for: rates agreed in advance, quantity reimbursed as incurred.
- +1Recommend and price the recommendation. Time and material at agreed daily rates, with the buyer carrying the quantity risk and therefore needing a daily record of hours and materials from week two onwards.
- +1Protect the critical path. Work the date required column backwards from week two by the supplier's lead time, add a special condition covering availability from a named week, and set any incentive against the completion date rather than against cost, since cost is being reimbursed anyway.
- +1Set the evaluation criteria before approaching the market: heritage experience, availability in the window, the daily rates and the proposed supervision. Publish them, then use them.
Key terms
- Make, team or buy
- The decision taken once per item of scope: produce it in house with employees, form a contractual partnership with another company, or procure it from outside. It determines what kind of work is involved in producing the item.
- Procurement schedule
- The table appended to the project plan listing what will be procured and, for each item, the budgeted cost, date required, responsibility, method, contract requirements and supplier evaluation criteria.
- Statement of work
- The document setting out the objectives, inclusions and exclusions of supply, quantity, quality and performance levels, work location, interfaces with other suppliers, and constraints of budget, time and resources.
- Fixed price contract
- A contract setting a total price for a defined product or service from the outset, with payments usually based on milestones. It suits work whose scope is known and whose risk is low.
- Cost plus contract
- A contract that repays whatever finished work has cost and adds a fee standing in for the supplier's profit, with payments usually at intervals. It suits work whose scope is unclear or dynamic and whose risk is high.
- Time and material contract
- A hybrid repaying outlays while billing hours at an agreed rate that carries the supplier's margin. It fits work where the method and rates are known and the quantity is not.
Procurement Planning and Contract Types FAQ
Why is over specification a legal problem rather than just an inefficiency?
Because it narrows what you are lawfully able to accept. The golden rule is to describe the need rather than over specify the solution: if you tender for one thing you may not accept an offer for something else, or even for that thing plus extras.
Competition only produces better answers if suppliers are free to propose them, so describing the outcome and the constraints leaves the market room while describing the solution reduces it to whoever can build your drawing.
What is wrong with putting a fixed price on work you cannot yet specify?
It is not risk transfer, it is a variation claim waiting to be lodged. The type only works if the buyer can specify the product, its scope and its quality requirements precisely, and a buyer who cannot has bought a low number and a dispute. This is the most common procurement error in student answers and, judging by the case study material, in practice as well.
Where the method is known and only the quantity is uncertain, time and material transfers less risk to the buyer than cost plus while still coping.
When do the evaluation criteria have to be written?
Before the market is approached, and published with the invitation. The first golden rule requires the decision to be made on the criteria you published, however good the reasons for changing your mind once proposals arrive. A criteria column completed after the responses are in is not an evaluation framework but a justification, and on a government tender it is the kind of thing that gets a process set aside.
Which parts of contract law can a project manager actually get wrong?
Mainly two of the six essential elements. Offer and acceptance goes wrong when a supplier is told to start before the contract is signed, which creates an agreement on terms nobody has written down. Consent goes wrong when a supplier is pressed into a date they have said is impossible, which leaves you with a contract and a counterparty looking for a variation from day one.
Legality, capacity, intent and consideration are usually somebody else's job.
Assessment move
Answers here have a fixed shape, so practise producing it: name the route and say why the other two were rejected, name the contract type and tie it to the specific thing that is or is not known about the scope, state what the choice costs the buyer since every type transfers risk somewhere, and then fill all seven columns of the schedule row.
Keep the schedule genuinely connected to the rest of the plan, with the budgeted cost traced to the cost estimate and the date required worked back from the schedule by the lead time, because a procurement schedule that is disconnected from both has become a separate document rather than a view of the project.
Learn the six essential elements of a contract as a list, since that is exactly how a short quiz item asks for them, and learn the three golden rules with the reason attached to each. Then rehearse one judgement: given a scope description, which of the three contract types fits, and what evidence in the description settles it.
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