Unit 3. Class 2. Project Procurement Management.

Unit # 3

Class # 2

Plan Procurement Management Process

Eng. Róger Valverde Jiménez, MPM, M.Eng, Ph.D

Government Procurement

40%

According to economic studies, usually, a country (its government or public sector) spends 40% of its annual budget on procurement (services, products and researching), which is an indicator that in procurement management, it is valuable and necessary for everyone to understand the international principles and local regulations. What are the two main stakeholders of any public procurement? The buyer (public sector) and the seller (private sector).

Percentage of anual budget of a country is usually spent on procurement

BUYER AND SELLERS

The seller can be called during the contract life, first, as "the bidder" or "the offerer", then as "the selected source". After that, during the execution of the contract, the seller is known as "the provider or supplier" or "the vendor". On the other hand, the organization that promotes the procurement is the buyer.

Procurement International Principles

Integration

Accountability

Consistency

Integrity

Effectiveness

Competitive Supply

Fair-dealing

Legality

Efficiency

Responsiveness

Transparency

Informed decision-making

Plan Procurement Management

Working in procurement management planning implies not just how to define the sucessive project procurement management processes (inputs, tools and techniques, outputs for conduct and control procurements), but also developing a detalied plan itself, the "Procurement Management Plan".

PROBLEM-NEEDS, requirements and decisions

First of all, you have to identify the problem and the needs linked to it that your oganization can only solve by procuring, which means that the project team can´t support itself the solution, so project manager has to look for it outside the project boundaries. Once, the needs are identified, project team has to explore what the market offers and the available possibilities to work on them (market research). Then, project team has to organize and evaluate this data, in order to determine the requirements of the upcoming products or services, that you are going to acquire.

Procurement Statement of Work, SOW

The requirements of what you need to buy and what kind of work the vendor will have to do, must be defined in a document called “Procurement Statement of Work, SOW”. The SOW for each procurement is developed from the project scope baseline and defines only the portion of the project scope that has to be developed outside the boundaries of the available project team resources and capacities. The SOW describes the procurement items in sufficient detail to allow prospetive sellers to determine if they are able of providing the products, services or results requested. Information included in a SOW can define specifications, quantity desired, quality levels, performance data, delivery details, work location, etc.

Bid Documents

There are three ways to request information from sellers depending on the degree of knowledge of them and what they can provide to satisfy the procurement objectives. PMBOK Guide stablishes the next “Bid Documents”:

Request for quotation (RFQ)

Request for proposal (RFP)

Request for information (RFI)

An RFI is used when more information on the goods and services to be acquired is needed from the sellers. It means that there is still much to research and learn from possible solutions and vendors. After this, it will tipically be followed by an RFQ or RFP.

An RFQ is commonly used when more information is needed on how vendors would satisfy the requirements and mainly, how much it will cost.

This is the most formal of the “request for” documents and has strict procurement rules for content, timeline, and seller responses. It is usually followed by an evaluation of the bidders. Once an RFP is released, the plan project procurement management process ends.

*This is the most complete option when you have more information about what you are looking to procure.

contracts

Contracts are the legal framework of the relationships between buyer and seller. The contracts define the duties and responsibilities of the parties involved, as well as many details of the scope of the deliverables, delivery times, costs, product quality, payment method, penalties, guarantees, communication channels, risk management, etc. Let´s check the main categories of contracts and when each one applies:

Fixed-price contracts

This category involves setting a fixed total price for a defined product, service, or result to be provided. These contracts should be used when the requierements are well-defined and detailed. No significant changes to the scope are expected (usually, no more than 20% of the budget or schedule, according to Costa Rican regulations). For instance, in a infrastructure fixed-price contract, the buyer must provide not only a detailed list of requirements and technical specifications (SPECS), but also construction plans (design). The building process and its deliveries will be provided for a fixed price. Note that the vendor will have a lot of data as key inputs to make calculations. In this type of contract, the greatest risk falls on the vendor, since if the vendor fails to estimate the planned work, he/she will have to take in charge the extra cost. On the other hand, if the vendor can finish the job under budget, he/she will have earned that financial difference (savings). So, taking care of the uncertainty in estimation is neccesary for presenting a proposal in a procurement of a fixed-price contract, specially in aspects related to accuracy and precision.

Cost-reimbursable contracts

This category of contract involves billing processes and payments (cost reimbursements) to the seller for all legitimate actual costs incurred for completed work, plus a fee representing seller profit (the fee is calculated according to local regulations). This type of contract should be used if the scope of work is expected to change significantly during the execution of the contract or when the scope is poor. It means that the project lacks of detail because: -Unknowns risks came true (such as emergency situations and natural disasters). -The BUYER doesn´t know what to do next (from a technical point of view). -The BUYER considers that it is impossible to define and estimate a work in a very changing and dynamic environment such as projects for hospitals in real time use. -The BUYER understands that there are a lot of unknowns variables to discover because the site hasn´t been researched yet, and, for instance, there is high uncertainty about where are located the electrical and mechanical tubes, what kind of foundations are buried, etc. In this type of contract, the greatest risk falls on the buyer. So it means, the BUYER must invest and apply more efforts in control actual costs.

Time and materials (T&M)

Time and material contracts (also called time and means) are a hybrid type of contractual arragement with aspects of both, cost-reimbursable and fixed-price contracts. They are often used for staff aumentation, acquisition of experts, and any outside support when a precise statement of work cannot be quickly prescribed. In this type of contract, the buyer must pay the service (hours per service, for instance) and the materials needed to provide that service (buyer can pay actual cost or actual cost plus any pre-defined fee). It usually involves contracts that assign different tasks periodically, like for example, maintenance and operation or a number of hours of professional labor (specially for consultants like lawyers, psychologists, etc.). In this type of contract, the greatest risk falls on both, the buyer and the contractor, in a relation 50:50.

Identify the type of contract that corresponds

2. Hiring a lawyer for two hours to review a file.

1. Develop the design and construction of a commercial building.

4. Build a temporary hospital in an area affected by an earthquake.

3. Develop an engineering software, applying agile methodologies, such as scrum.

5. Repair a very old house.

6. Develop software from a SOW. It will be reviewed if the final result is functional.

Source Selection Criteria and Analysis

Regarding the vendors, it is fundamental to determine, who and how many can achieve the required characteristics (experience, financial and cash flow capacity, competent staff, etc.). Also, it is important to define which economic proposals are reasonable in terms of price (if the price is excessive, it overruns the budget, but if the price is very low, it is considered ruinous and will be not enough sufficient to finish the tasks). Finally, the best proposal must be chosen. It usually has the lowest price as long as it is reasonable.

Sustainable procurement

A good practice in support of sustainable development is to carry out sustainable procurement. This means that as part of the bid qualification system, a significant percentage of the score will be allocated to compliance with a series of sustainable development aspects (in economic, social, environmental and innovation terms), in favor of the life cycles of the products or services that follow a circular economy and aligned with the UN Sustainable Development Goals. In this way, the contribution to sustainability of those vendors who have made significant efforts in their organizations to be sustainable is recognized. Through this type of acquisitions, access to competitiveness is given to small and medium-sized companies that normally see their participation limited by large corporations and propolsals are evaluated, regardless of who can provide the lowest price. As it is, the lowest price is not always the best, you have to consider, sustainable qualification criteria, too.

Where does sustainable procurement come from?

Sustainable Evaluation Criteria Examples

- Having a certified Environmental Management System, ISO 14.001. - Having an Environmental Management Plan that must be updated periodically. - Having a Recyclable Waste Management Program in the company. - Making products with environmental labels on them. - Having coworkers that are part of a minority, ethnic groups, people in extreme poverty, people with disabilities, etc. - Having women that sum equal or more than a third part of the company. - Promoting savings and income thanks to recycling and the circular economy. - Having awards or recognition for good environmental performance.

Procurement management

THANKS!