PROCUREMENT MANAGEMENT

This section deals with obtaining products and services outside the organisation which are required to achieve project goals. The process of make/buy decision is also discussed elaborately to understand why it is necessary to procure certain services.

THE PROCESS OF PROCUREMENT

Products and services are procured for the following reasons:

Performance Improvement
Cost Reduction
Flexibility
Specialisation
Access to innovation

The following process is followed:

TYPE OF CONTRACT

Once the procurement decision is made, it is important to understand the type of contract to be used.All legal contractual relationships fall in either Fixed- Price or Cost Plus Contracts ( PMBOK, 2013).

FIXED PRICE

Buyers need to specify the prices.

Scope changes lead to increase in contract price (PMBOK, 2013).

Firm Fixed Price Contracts (FFP)- Most commonly used contract. Any cost increase due to adverse performance is paid by the seller.
Fixed Price Incentive Fee Contract (FPIF)- Some flexibility is set. ceiling is set, any costs over that would be borne by the seller if performance target is not achieved.
Fixed Price with Economic Adjustment Contracts (FP-EPA)- This is usually for long term relationships wherein a financial index is used to adjust final price.

COST PLUS

Involves all the legitimate actual costs that are incurred by seller + fee representing seller profit. Scope can be altered in the contract (PMBOK, 2013).

Cost Plus Fixed Fee Contracts (CPFF)- Fee does not change as per performance, it is fixed.
Cost Plus Incentive Fee Contract (CPIF)- Seller receives a pre determined incentive fees based on performance.
Cost Plus Award Fee Contracts (CPAF)- All legitimate costs are paid to seller but the fees is awarded only if a certain broad subjective criteria is fulfilled.

RISK MITIGATION TOOL

The Purchasing Process

(Gulandris, 2016)

PROJECT MANAGER ESSENTIALS