Discuss the overview of procurement management process. What is the difference between procurement process of private companies as compared to government entities? Explain the following procurement terms: buyers and sellers, centralized/decentralized contracting and the role of a Project Manager in procurement.

12 PROJECT PROCUREMENT MANAGEMENT Project Procurement Management includes the processes necessary to purchase or acquire products, services, or results needed from outside the project team. Project Procurement Management includes the management and control processes required to develop and administer agreements such as contracts, purchase orders, memoranda of agreements (MOAs), or internal service level agreements (SLAs). The personnel authorized to procure the goods andlor services required for the project may be members of the project team, management, or part of the organization's purchasing department if applicable. Project Procurement Management processes include the following: 12.1 Plan Procurement ManagementThe process of documenting project procurement decisions, specifying the approach, and identifying potential sellers. 12.2 Conduct ProcurementsThe process of obtaining seller responses, selecting a seller, and awarding a contract. 12.3 Control ProcurementsThe process of managing procurement relationships, monitoring contract performance, making changes and corrections as appropriate, and closing out contracts. The procurement processes are presented as discrete processes with defined interfaces. In practice, procurement processes can be complex and can interact with each other and with processes in other Knowledge Areas in ways that cannot be completely detailed in the PMBOKP Guide. The processes described in this section are written from the viewpoint where goods or services are obtained from outside of the project. gure 12-1 provides an overview of the Project Procurement Management processes. The Project Procurement Management processes are presented as discrete processes with defined interfaces while, in practice, they overlap and interact in ways that cannot be completely detailed in the PMBOKP Guide. 459 18.1 Plan Procurement Management .1 Inputs .1 Project charter .2 Business documents .3 Project management plan .4 Project documents .5 Enterprise environmental factors .6 Organizational process assets .2 Tools &Tachniques .1 Expertjudgment .2 Data gathering .3 Data analysis .4 Source selection analysis .5 Meetings .3 Outputs .1 Procurement management plan .2 Procurementstrategy .3 Bid documents .4 Procurementstatement of work .5 Source selection criteria .6 Make-orbuy decisions .1 Independent cost estimates .8 Change requests .5 Project documents updates .10 Organizational process assets updates Project Procurement management Overview 18.8 Conduct Procurement: .1 Inputs .1 Projectmanagement plan .2 Projectdocuments .3 Procurement documentation .4 Seller proposals .5 Enterprise environmental factors .5 Organizational process assets .2 Tools &Techniques .1 Expertjudgment .2 Advertising .3 Bidder conferences .4 Data analysis .5 Interpersonal and team skills .3 Outputs .1 Selected sellers .2 Agreements .3 Change requests .4 Project management plan updates .5 Project documents updates .6 Organizational process assets updates 18.5 Control Procurement; .1 Inputs .1 Project management plan .2 Projectdocuments .3 Agreements .4 Procurement documentation .5 Approved change requests .5 Work performance data .7 Enterprise environmental factors .3 Organizational process assets .2 Tools & Techniques .1 Expertjudgment .2 Claims administration .3 Data analysis .4 Inspection .5 Audits .3 Outputs .1 Closed procurements .2 Work performance information .3 Procurement documentation updates .4 Change requests .5 Project management plan updates .5 Project documents updates .1 Organizational process assets updates Figure 12-1 Project Procurement Management Overview KEY CONCEPTS FOR PROJECT PROCUREMENT MANAGEMENT More than most other project management processes, there can be significant legal obligations and penalties tied to the procurement process. The project manager does not have to be a trained expert in procurement management laws and regulations but should be familiar enough with the procurement process to make intelligent decisions regarding contracts and contractual relationships. The project manager is typically not authorized to sign legal agreements binding the organization; this is reserved for those who have the authority to do so. The Project Procurement Management processes involve agreements that describe the relationship between two partiesa buyer and a seller. Agreements can be as simple as the purchase of a defined quantity of labor hours at a specified labor rate, or they can be as complex as multiyear international construction contracts. The contracting approach and the contract itself should reflect the simplicity or complexity of the deliverables or required effort and should be written in a manner that complies with local, national, and international laws regarding contracts. 460 a A contract should clearly state the deliverables and results expected, including any knowledge transfer from the seller to the buyer. Anything not in the contract cannot be legally enforced. When working internationally, project managers should keep in mind the effect that culture and local law have upon contracts and their enforceability, no matter how clearly a contract is written. A purchasing contract includes terms and conditions and may incorporate other buyer specifics as to what the seller is to perform or provide. It is the project management team 's responsibility to make certain that all procurements meet the specific needs of the project while working with the procurement ofce to ensure organizational procurement policies are followed. Depending on the application area, an agreement can be a contract, an SLA, an understanding, an MOA, or a purchase order. Most organizations document policies and procedures specifically defining procurement rules and specifying who has authority to sign and administer such agreements on behalf of the organization. Across the world, organizations use different names for departments or divisions that deal with procurement, such as purchasing, contracting, procurement, or acquisitions; however, the responsibilities are likely to be similar. Although all project documents may be subject to some form of review and approval, the legally binding nature of a contract means it will be subjected to a more extensive approval process, often involving the legal department. In all cases, the primary focus of the review and approval process is to ensure that the contract adequately describes the products, services, or results that the seller is agreeing to provide, while being in compliance with the laws and regulations regarding procurements. These sections are often separate appendices or annexes, allowing standardized legal contract language to be used. A complex project may involve managing multiple contracts simultaneously or in sequence. In such cases, each contract life cycle may begin and end during any phase of the project life cycle. The buyer-seller relationship may exist at many levels on any one project, and between organizations internal to and external to the acquiring organization. Depending on the application area, the seller may be identified as a contractor, vendor, service provider, or supplier. The buyer may be the owner of the final product, a subcontractor, the acquiring organization, a service requester, or the purchaser. The seller can be viewed during the contract life cycle first as a bidder, then as the selected source, and then as the contracted supplier or vendor. 461 The winning bidder may manage the work as a project. In such cases: 6 The buyer becomes the customer to subcontractors, suppliers, and service providers and is therefore a key project stakeholder from the seller's perspective. 6 The seller's project management team may be concerned with all the processes involved in performing the work or providing the services. 9 Terms and conditions of the contract and the procurement statement of work (80W) become key inputs to many of the seller's management processes. The contract can actually contain the inputs (e.g., major deliverables, key milestones, cost objectives) or it can limit the project team's options (for example, buyer approval of staffing decisions is often required on IT integration projects). The procurement SOW may have other names, such as the technical statement of work. 0 The seller itself may become a buyer of lower-tiered products, services, and materials from subcontractors and suppliers. In this section, it is assumed that the buyer of an item for the project is assigned to the project team and/or is part of the larger organization. The seller is assumed to be providing services and/or materials to the project and is usually outside the performing organization. For some projects, the seller role may be lled by a group or function that is part of the performing organization but extemal to the project. For larger, more complex projects, the seller may become part of an integrated project team after the contract is awarded. For smaller organizations or startup companies and those without a purchasing, contracting, or procurement department, the project manager may assume the purchasing authority role to negotiate and sign contracts directly (decentralized purchasing). For more mature organizations, the actual procurement and contracting functions will be carried out by a separate department with the specific role to purchase, negotiate, and sign contracts (centralized purchasing). ln international contracting, the legal jurisdictions under which the contracts will be administered are clearly spelled out in the contract. In most cases, the seller is an external contractor who is bound by a formal contractual relationship. 462 a - Llle TRENDS AND EMERGING PRACTICES IN PROCUREMENT MANAGEMENT There are a number of major trends in software tools, risk, processes, logistics, and technology with different industries that can affect the success rate of projects. Trends and emerging practices for Project Procurement Management include but are not limited to: 6 Advances in tools. There has been significant improvement in the development of tools to manage the procurement and implementation phases of a project. Online tools for procurement now give the buyers a single point where procurements can be advertised and provide sellers with a single source to find procurement documents and complete them directly online. In the constructionlengineering/infrastructure eld, the increasing use of the building information model (BIM) in software tools has been shown to save significant amounts oftime and money on projects using it. This approach can substantially reduce construction claims, thereby reducing both costs and schedule. Major companies and governments worldwide are beginning to mandate the use of BIM on large projects. 6 More advanced risk management. An increasing trend in risk management is to write contracts that accurately allocate specific risks to those entities most capable of managing them. No contractor is capable of managing all the possible major risks on a project. The buyer will be required to acceptthe risks that the contractors do not have control over, such as changing corporate policies in the buying organization, changing regulatory requirements, and other risks from outside the project. Contracts may specify that risk management be performed as part of the contract. 0 Changing contracting processes. There has been a significant growth in megaprojects in the past several years, particularly in the areas of infrastructure development and engineering projects. Multibillion-dollar projects are now common. A large proportion of these involve international contracts with multiple contractors from many counties and are inherently more risky than projects using only local contractors. Increasingly, the contractor works closely with the client in the procurement process to take advantage of discounts through quantity purchases or other special considerations. For these projects, the use of internationally recognized standard contract forms is increasing in order to reduce problems and claims during execution. 463 6 Logistics and supply chain management. Because so many large engineering, construction infrastructure projects are done through multiple intemational contractors, the management of the flow of materials becomes critical to successful completion. For long-lead items, both the manufacture of the items and their transportation to the project site become schedule-drivers. In the IT field, a long-lead item may require ordering 2 to 3 months in advance. In complex construction projects, long-lead items may require ordering 1 to 2 years in advance or longer. For these projects, long-lead items may be procured in advance of other procurement contracts to meet the planned project completion date. It is possible to begin contracting for these long-lead materials, supplies, or equipment before the final design of the end product itsetf is completed based on the known requirements identified in the top-level design. The management of the supply chain is an area of increasing emphasis by the contractor's project team. Not only are primary sources of supplies identified early in the project, but secondary, back-up sources are also generally identified. Many countries around the world require international contractors to purchase certain minimum percentages of material and supplies from local vendors. 0 Technology and stakeholder relations. Publicly funded projects are under increasing scrutiny. A trend in infrastructure and commercial construction projects is the use of technology including web cameras (webcams) to improve stakeholder communications and relations. During construction, one or more webcams are installed on the site, with periodic updates to a publicly available website. The progress on the project can be viewed on the Internet by all stakeholders. Video data can also be stored, allowing analysis if a claim arises. Some projects have discovered that the use of webcams minimizes disputes relating to the construction work on site, as the webcam has recorded the events, so there should be no disagreement about the facts of the matter. 0 Trial engagements. Not every seller is well suited for an organization's environment. Therefore, some projects 464 will engage several candidate sellers for initial deliverables and work products on a paid basis before making the full commitment to a larger portion of the project scope. This accelerates momentum by allowing the buyer to evaluate potential partners, while simultaneously making progress on project work. a -l.l|e TAILORING CONSIDERATIONS Because each project is unique, the project manager may need to tailor the way that Project Procurement Management processes are applied. Considerations for tailoring include but are not limited to: 9 Complexity of procurement. Is there one main procurement or are there multiple procurements at different times with different sellers that add to the complexity of the procurements? 9 Physical location.Are the buyers and sellers in the same location. or reasonably close. or in different time zones. countries, or continents? O Govemance and regulatory environment. Are local laws and regulations regarding procurement activities integrated with the organization's procurement policies? How does this affect contract auditing requirements? 0 Availability of contractors. Are there available contractors who are capable of performing the work? CONSIDERATIONS FOR AGILEIAOAPTIIIE ENVIRONMENTS In agile environments, specific sellers may be used to extend the team. This collaborative working relationship can lead to a shared risk procurement model where both the buyer and the seller share in the risk and rewards associated with a project. Larger projects may use an adaptive approach for some deliverables and a more stable approach for other parts. In these cases, a governing agreement such as a master services agreement (MSA) may be used for the overall engagement, with the adaptive work being placed in an appendix or supplement. This allows changes to occur on the adaptive scope without impacting the overall contract. 465