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High-level Process Steps for Conducting Project Procurements
Obtaining Seller Responses
Selecting a Seller
The first step is to ensure that the short-listed bidders completely and correctly understand all the project requirements. The proper vehicle for this is the bidder conference (A Guide to the Project Management Body of Knowledge, 2008) where all information will be imparted and questions answered.
The client would then have to prepare to respond to proposals as they come in. It needs to come up with proposal evaluation techniques. It has to have a clear idea on the reasonable range of pricing by making its own independent estimates from the prices that are currently in the market. In the process of evaluating proposals, it may encounter material which looks relevant but is unfamiliar; it can approach impartial consultants to provide expert judgment.
In complex projects, it is a common practice to request for proofs of concepts which are product or functional demonstrations of the proposal or its key parts. Before investing any further, the client wants to verify the viability of the proposals.
Awarding a Contract
Once sellers have been chosen, work still has to be done to achieve a good contract. The client needs to secure these sellers legally so they will continue to engage until the final contract is signed. The binding is in the form of a teaming agreement (A Guide to the Project Management Body of Knowledge, 2008) where the mutual objective is to form the technical, financial and legal terms of the contract based on continuing negotiations and refinements of requirements.
For complex projects, negotiation is a distinct stage where the client brings in representatives from business, technical, financial, legal and project management. Price, quality and legal safety would be the major concerns. The major output would be the procurements statement of work which represents the technical product from the seller. Achieving signed contracts can trigger reviews and updates to existing project plans especially on delivery dates and activities from the contractors.
Contract Administration
Policies and Procedures
For clear communications and coordination, interfaces to contractors must be established and managed. For each contractor, the project manager or a project member will be assigned as the official coordinator reporting directly to the project manager in this capacity.
For any change in the contract, all affected functions (finance, legal, etc.) must be consulted and sought for official concurrence. The project manager will identify the affected groups and enjoin them in the deliberations for the changes.
Performance reporting (A Guide to the Project Management Body of Knowledge, 2008) must be in place to monitor the compliance to each and every term and obligation of the contract. Project reports must include a table showing contractual obligations and the status of related activities.
Tools and Techniques
Contract Change Control Process
The general change control process of the project can be applied to contracts as management products. The process would include a request for change, formation of a review board, impact analysis, decision, documentation and configuration change. The assessment of the change request is the responsibility of the project manager in consultation with concerned members. Personnel from affected groups outside of the project are called to join the review board who will conduct impact analysis. A decision will be made and approved changes to project management, product configuration and contract documents will be applied and signed-off.
Procurement Performance Review
This regular review aims to take stock of the progress of every term in the contract. The participants would be the project team, the contractors and all the people in the client company involved in the formation of the contract. Each term in the contract will have owners and they are responsible to see that the term is being implemented.
Inspections and Audits
Technical inspections are conducted on the contractors’ deliveries and works as they are received or completed. Comments can also be reflected in the procurement performance reports. These can come from the logistics receiving section, the project technical team and facilities management. The contractor may be invited to participate so it can answer questions and receive feedback. Audits are planned general inspections of specific areas like a financial audit or a technical audit.
Performance Reporting
This is valuable for the long-term management of the contractor and also of the client’s personnel in meeting the obligations of the contract. For large critical projects, reports can even reach C-level officers and if necessary, they can initiate a review that can replace an underperforming contractor midstream and rescind the contract. Positive review will maintain the contractor’s good standing.
Payment Process
Upon awarding, contractors basically become an integral part of the project team. It crucial that they be managed in terms of performance and morale just like regular project members and one critical aspect is the timeliness of payments. From a management and legal point of view, compliance to contract payment terms should also be linked with the project manager’s performance barring any issues of inadequacy in the company’s finances.
Records Management System
This is a centralized and controlled repository of all documents and information pertaining to the project’s contracts. It can be a subset or derivative of the Project Management Information System (A Guide to the Project Management Body of Knowledge, 2008) which houses all the project’s documents. It expedites the project’s progress by quickly providing any document that will be needed for planning, reviews and audits, even at a moment’s notice.
Conflict Resolution Techniques
It is important to handle contractual conflicts with the other eye on project success and supplier management. It is not desirable to win over an issue and cause the project to suffer or degrade a good supplier relationship. There are formal methods to resolve contractual conflicts like formal claims, third party interventions, inter-company tribunals, arbitration and trials. These are all acceptable but have corrosive effects on supplier relationships. What must be exhausted first is bilateral negotiation where the two sides can be allowed to be creative in getting into a win-win situation (Contract Management, n.d.). In a long-term relationship, remuneration can have extended time horizons. Contract revisions can be handled easily by the change control system.
Closing Project Procurements
Closing Process
Unresolved contractor claims must be acted on the soonest. Inability to resolve would escalate the issue to superiors and allow the project to close.
An audit on project documents must be conducted before the team and contractors are dismissed from the project.
A final contract procurement audit should be conducted to discover any loose ends. A new assets report will be passed to administration and accounting.
The project information file is to be archived.
Importance of Closing
Closing will provide the final benefits of the project in the form of lessons learned and contractor performance information. Both information will be valuable in the conduct of future similar projects and supplier solicitation. Closing also sets the process of review and audit which can wrap up a project cleanly.
Procurement Risk Management
External Influences
Suppliers can be affected by the business environment which could affect projects (How external factors can affect procurement, 2014). At the start, suppliers’ prices may have increased due to inflation or currency disadvantages. A potential or active contractor may have stumbled into a legal or regulatory impediment which will make it risky to engage him. Governments can increase taxes anytime and this would surely increase the prices of suppliers. Technological advances by competitors can make projects irrelevant and it would be a massive loss if all procurement had been done for that project.
Risk Response Plan and the External Influences
It is sometimes called the risk register (11.5 Risk Response Planning, n.d.) and its purpose is to list all the active risks that the project is carrying. Risks from external influences are usually more difficult for project managers to assess because they are outside the immediate concerns of the project. The risks are real nonetheless and they should be listed so there can be an awareness and readiness once the risk materializes. Economic stability can affect supplier prices; a buffer for procurement budgeting can be created. Reports on troubled suppliers can be noted for probing and possible disqualification in bids. Technological advancements can be monitored and effects on the project can be raised to upper management for review.
References
11.5 Risk Response Planning. n.d. Retrieved August 7, 2016 from http://www.cin.ufpe.br/~if717/Pmbok2000/pmbok_v2/wbs_11.5.html
A Guide to the Project Management Body of Knowledge, 4th Ed. 2008. Newtown Square, Pennsylvania: Project Management Institute, Inc.
Contract Management (n.d.). Retrieved August 7, 2016 from http://www.project-management-knowhow.com/contract_management.html
How external factors can affect procurement. (2014, August 6). Retrieved August 7, 2016 from http://www.achilles.com/en/about-achilles/industry-insights/1308-how-external-factors-can-affect-procurement
