Existing formal and informal procurement-related policies, procedures, guidelines, and management systems that are considered in developing the procurement management plan and selecting the contract types to be used are provided by organizational process assets. In some application areas, organizations also have established a multi-tier supplier system of selected and pre-qualified sellers to reduce the number of direct sellers to the organization and establish an extended supply-chain.

Project Scope Statement

Project boundaries, requirements, constraints and assumptions related to the project scope are described in the project scope statement. Constraints are specific factors that can limit both the buyers and sellers options. One of the most common constraints for many projects is availability of resources. Other constraints can involve required delivery dates, available skilled resources and organizational policies. Assumptions are factors that will be considered to be true and which can include health, safety, security, performance, environmental, insurance, intellectual property rights, equal employment opportunity, licenses and permits.

 

The project scope statement provides the list of deliverables and acceptance criteria for the project and its products, services and results. Consideration is give to all such factors that may need to be included in the procurement documentation and flowed down within a contract to vendors.

Important information about any technical issues or concerns related to the products, services, and results of the project that are considered during the plan purchases and acquisitions process is provided by the product scope description component of the project scope statement, where as the structured and detailed plan for the projects scope is provided by the work breakdown structure (WBS) and WBS dictionary components of the project scope statement.

Work Breakdown Structure

The WBS establishes the relationship among all the components of the project and the project deliverables.

WBS Dictionary

It provides detailed statements of work that provide an identification of the deliverables and a description of the work within each WBS component required to produce each deliverable.

Project Management Plan

The overall plan for managing the project is provided in the project management plan. It includes subsidiary plans such as a scope management plan. Procurement management plan, quality management plan, and contract management plans provide guidance and direction for procurement management planning. To the extent that other planning outputs are available, those other planning outputs are considered during the plan purchases and acquisition process.

Risk Management

It contains risk-related information such as the identified risks, risk owners and risk responses mitigations strategies and contingency plans.

Risk-related Contractual Agreements

It includes agreements for insurance, services and other items as appropriate that are prepared to specify each party’s responsibility for specific risks should they occur.

Contract Types

There are various types of contracts for different types of purchases. The type pf contract used and specific contract terms and conditions set the degree of risk being assumed by both the buyer and seller. Contracts generally fall into one of three broad categories.

Fixed Price or lump-sum contracts

Fixed price or lump-sum contracts involve a fixed price for a well defined product. It can also include incentives for meeting or exceeding selected project objectivities such as scheduled targets. The simplest form of a fixed price contract is a purchase order for a specified item to be delivered by a specified data for a specified price.

Cost-reimbursable contracts

Cost-reimbursable contract involves payment (reimbursement) to the seller’s actual costs plus a fee typically representing seller profit. Costs are usually classified as direct costs or indirect costs. Direct costs are costs incurred for the exclusive benefit of the project (salaries of full time project staff, etc.). Indirect costs are usually calculated as a percentage of direct costs. Cost-reimbursable contracts often include incentive clauses where if the seller meets or exceeds selected projects objectives, such as schedule targets or total cost, then the seller receives an incentive or bonus payment. Three common types of cost-reimbursable contracts are CPF, CPFF and CPIF.

Cost-Plus-Fee (CPF) or Cost-Plus-Percentage of cost (CPPC)

Sellers receives a fee that varies with the actual cost, calculated as an agreed-upon percentage of the costs and also reimbursed for allowable costs for performing the contract work.

Cost-Plus-Incentive-Fee (CPIF)

The seller receives a predetermined fee and incentive bonus based upon achieving certain performance objective levels set in the contract and is reimbursed for allowable costs for performing the contract work. In some CPIF contracts, if the final costs are less than the expected costs, then both the buyer and seller benefit from the cost savings based upon a pre-negotiated sharing formula.

Time and Material (T&M) contracts

Time and material contracts are a hybrid type of contractual arrangement that contains aspects of both cost-reimbursable and fixed-price type arrangements. These types of contracts resemble cost reimbursable type arrangements in that they are open ended. Buyer does not define the full value of the agreement and the exact quantity of items to be delivered at the time of the contract award. Thus, time and material contracts can grow in contract value as if they were cost-reimbursable type arrangements. Conversely, time and material arrangements can also resemble fixed-price arrangements. For example, the buyer and seller can preset unit rates when both parties agree on the rates for a specific resource category. The requirements (standard or custom product version, performance reporting and cost data submittals) that a buyer imposes on a seller, along with other planning considerations, such as the degree of market competition and degree of risk, will also determine which type of contract will be used. In addition, the seller can consider some of those specific requirements as items that have additional costs. Another consideration relates to the future potential of the product or service being acquired by the project team. Where such potential can be significant, sellers may be inclined or induced to charge prices that are less than would be the case without such future sale potential. While this can reduce the costs to the project, there are legal ramifications if the buyer promises such potential and is not, in fact, realized.

Plan Contracting

This process prepares the documents needed to support the request seller responses process and select seller’s processes.

Project Management Plan

It provides other planning output documents which may need to be reviewed again or which may have been modified as part of the procurement documentation development. In particular, development of procurement documentation is closely aligned with scheduled delivery dates in the project schedule.

Risk Register

All risk-related information such as the identified risks, root causes of risks, risk owners, risk analyses results, risk prioritization, risk categorization, and risk responses generated by the risk management processes are documented in risk register.