Project Procurement Management: Definition and Processes

Typically, suppliers and vendors demand payments throughout the duration of the contract. The contractor will incur significant expenses on multi-month contracts and will want the project to pay for these expenses as soon as possible. A schedule of payments is typically created as part of the contract and is linked to the accomplishment of a specified amount of work or project milestones rather than waiting until the end of the contract. Progress payments are those payments based on the work’s progress that are made before the project’s completion. For instance, the contract might establish a payment schedule that pays for the creation of the curriculum first, then for its design, and finally for its completion and acceptance. In this case there would be three payments made. Before the contractor is paid for the work, there is a specified amount of work to be completed, a deadline for doing so, and a quality standard the work must meet.

Vendors and suppliers have a scope of work that specifies what they will produce or supply to the company, just as the project’s scope of work specifies what work is inside the project and what work is outside it. (Partners frequently collaborate on projects together and may not have their own separate scopes of work.) ) The project frequently experiences changes that necessitate modifying the contractor’s scope of work. Usually, the contract specifies how these changes will be handled throughout the duration of the project. To keep the project moving forward, it’s critical to identify these changes early, record what changed and how the change affected the contract, and create a change order (a change to the contract). When changes are not documented or when the team cannot agree on the change, conflict may develop between team members. This conflict and any potential project harm will be reduced by creating and implementing an efficient change management procedure for contractors and key suppliers.

Each of these steps can take hours or even weeks to complete, depending on the project’s level of complexity. The project master schedule also includes each of these actions. The length of the procurement cycle can affect the timing of crucial tasks, such as whether to perform the work internally or hire contractors. The project schedule includes the dates for equipment and material deliveries as well as the dates for when contracted work must be completed. It may be necessary to pay extra attention to any procurement tasks that cause a project delay or are on the project’s critical path.

Determining which party will take the most risk is a crucial consideration when choosing the contract approach. The team decides what risks will be transferred to the contractor and the amount of risk that will be managed by the project. Usually, the project management team wants to control the project risk, but occasionally, contractors have more knowledge or power, allowing them to control the risk connected to the contracted work more effectively.

Potential bidders are those individuals or entities that can provide the materials or carry out the work necessary for the project. On smaller, less complicated projects, the parent company typically has a list of vendors and suppliers who have delivered goods and services successfully in the past. The project has access to the track record of businesses on that list. On special projects where there are no supplier lists, the project team compiles a list of potential suppliers and qualifies them to submit a bid for the project. The names of qualified bidders are added to a list, and they are given a timeline for when the project will be put out to bid.

The capacity of a supplier to carry out the work in a manner that complies with project specifications and exhibits financial stability determines the supplier’s eligibility. Ability to complete the task includes the capacity to adhere to the project’s schedule and quality requirements. When a region’s economy is booming, a lot of suppliers get busy and use up all of their resources. Before adding potential suppliers to the list of bidders, the project team verifies their suitability and track record for meeting deadlines.

For the potential supplier to be listed on the bidders list, their financial situation must also be stable. The potential bidder’s financial standing will be disclosed to the project through a credit check or a financial report from Dun and Bradstreet (D&B), a reputable source of financial information about individual companies. D&B services include the following:

In an RFP, the project quality or schedule requirements take into account the cost. The project team shouldn’t issue an RFP to a business that is ineligible to win the bid because the process of developing a proposal in response to an RFP can be very expensive for the bidder.

Price is heavily weighted in the evaluation of bids submitted in response to RFQs for common goods and services. The contract will typically be awarded based on the lowest total price. The total cost will include the cost of the products or services, any delivery or shipping fees, the value of any warranties, and any supplemental services that enhance the project’s value.

The evaluation of bids based on RFPs is more complex. The evaluation of proposals takes into account both the price and the technical strategy that the bidder used. People with the knowledge to comprehend the technical facets of the various proposal options and the importance of each proposal to the project must be included on the project team evaluating the proposal. On more complicated projects, one team evaluates and scores the administrative portion of the proposal, and a different team evaluates the technical portion of the proposal. To choose the best proposal for the project, the project team combines the two scores.

A project representative verifies all terms of the bid and the contract with the prospective contractor after the project team has chosen the bidder who offers the best value for the project. For less complicated awards, like those for printed materials, the supplier must read and sign the contract to confirm that they understand its terms and the demands of the project schedule. The goals, potential obstacles to achieving those goals, the project schedule, crucial dates, and the procedures for resolving conflicts and enhancing work processes must all be discussed in detail for more complex projects.

The type of contract will determine the amount of work and the necessary expertise to manage the contract. The manager of supplier contracts creates comprehensive specifications and ensures that they are followed. The vendor contracts manager monitors the vendor’s performance in relation to the project needs, providing support and guidance as necessary, and ensures that the contractors submitting bids have the knowledge and capability to complete the work in accordance with the project schedule. The manager of partnering agreements creates alignment around shared objectives and operational procedures. Each of these methods calls for various abilities and levels of effort.

The project leadership gives long-lead items early attention because they take a while to procure. Equipment built especially for the project, training materials developed for a new workforce, and a specialized bioreactor for a biotech project are some examples of long-lead items. These products could take weeks, months, or even years to develop and finish. The project team identifies long-lead items in advance to start the procurement activities as soon as possible because those obtained through the regular procurement cycle may result in project delays.

The project team monitors the contractor’s performance against the contract’s performance criteria and his or her contribution to the project’s performance after the contract is awarded. Typically, contractors provide a good or service that satisfies quality standards and adheres to the project schedule. Usually, one or two contractors fall short of the standards set for the project. Some project managers will make reference to the contract and use it to try and get the contractor to perform better or face consequences. With the contractor, other project managers will look into innovative ways to boost performance and adhere to project specifications. The project team must determine which strategy is most likely to be successful in each circumstance, even though the contract management allows for both approaches to deal with non-performing contractors.

Transported, inventoried, stored, and frequently secured are the requirements for materials and equipment that are bought for the project. This area of expertise is called logistics. The project team may oversee project logistics or they may be outlined in the RFP or RFQ. Materials may be imported for international projects, and the procurement team oversees the customs procedure On smaller projects, the parent company frequently handles the logistics. On larger projects, logistical service providers are typically hired to perform these tasks. On more significant, intricate projects, the procurement team will have logistical experience.

The project’s work frequently depends on the materials that are purchased for it. The timing of the project is influenced by the delivery of these materials, and frequently, some materials are required earlier than would be the case under normal procurement procedures. The project schedule for long-lead items is part of the contracting plans, and contractors are required to detail how they will support the project schedule.

Critical items may be scheduled for delivery after they are required on large, complex projects. The procurement team then discusses options with the contractor to hasten the production or delivery of the materials or equipment. In order to meet the project schedule, the contract may frequently give fabrication and delivery of the equipment priority. The logistics team for the project can also look into ways to speed up transportation. For instance, to avoid several weeks of transit time, a project in Argentina chose to fly some essential equipment from Sweden rather than ship it there. Despite higher logistics costs, the project’s overall value was higher.

Project Procurement Management | Project Management | PMP Certification | Edureka

Who uses project procurement management?

For a variety of industries where projects requiring outsourced materials or services take place, project procurement management may be necessary. The following sectors frequently employ project procurement management to accomplish their project goals:

What is project procurement management?

The development and maintenance of connections with outside resources required to complete a project is known as project procurement management. A project procurement manager interacts with vendors to purchase, rent, or hire the goods and services required to complete the project. Most frequently, vendors are chosen after they have submitted bids to collaborate with companies looking for their goods or services. A project procurement manager then chooses which offer and alliances are most advantageous to their goals. To make sure that both parties’ interests are fairly represented, further discussion may be necessary.

Benefits of project procurement management

Projects of various sizes and degrees of complexity can benefit from adding procurement management for a number of reasons, including:

Increased quality

Project procurement management enables businesses to negotiate comprehensive service agreements that best meet their needs and might raise the likelihood that they will receive high-quality goods and services. An increase in quality assurance could give stakeholders more faith in a project’s success and encourage further funding and investment.

Decreased risk

By outlining costs, procedures, and service quality, the process of creating and negotiating service contracts can assist organizations in better understanding their vendor options. This can aid in lowering the possibility of contract terms being broken, which could delay or adversely affect the success of a project.

Controlled cost

Negotiating procurement terms carefully is a great way to cut costs and manage spending. Organizations may benefit from procurement management if they want to better understand the costs associated with a project and find vendors who can provide them with the goods and services they need without going over their budget.

Processes in project procurement management

There are four key processes involved in product procurement management:

1. Planning procurement

A process called planning procurement helps an organization determine the resources it will require to complete a project and the size of its budget. When making plans for procurement, project procurement managers frequently take the following factors into account:

The majority of the time, managers create a written project procurement plan that includes the aforementioned factors as well as any other pertinent information, like how to handle alterations to delivery dates or contract terms.

2. Conducting procurement

Project procurement managers evaluate vendor bids and choose partnerships based on their project needs after conducting procurement planning. During this stage of the procurement process, vendor negotiations frequently take place, and everyone involved signs the contracts that have been agreed upon. At this time, project procurement managers may also make payments for goods and services.

3. Controlling procurement

Once contracts are in effect, procurement management and control are crucial to preserving vendor relationships and guaranteeing that the services and goods are used as intended throughout the project. Controlling procurement often includes:

4. Closing procurement

Taking all necessary actions to end a partnership or contract is known as “closing procurement.” This frequently entails an evaluation of the work or services rendered, renegotiation of any modifications to the terms of the original contract, and confirmation of payments made and received. Upon the conclusion of a procurement, organizations may also submit a formal release of liability. This agreement certifies that the vendor has complied with the terms of the original agreement and is no longer liable for any further participation in the project.

Project manager responsibilities during procurement

Throughout project procurement, there are several responsibilities of project managers. Project procurement managers typically perform the following five tasks, though they may differ depending on the project and its goals:

1. Project initiation

During project initiation, a project procurement manager may start the procurement process. To discuss project goals and deadlines, they frequently speak with management, executives, and team members. Discussing the budget, internal resources, and high expectations may also be part of this.

2. Procurement planning

A procurement plan is crucial for organizing processes and coordinating expectations. Project managers frequently make lists and documents outlining necessary supplies and materials, deadlines and milestones, and potential ways to get in touch with vendors during procurement planning. Additionally, they may use online networking sites, classified ads, and their professional networks to publicize their need for contractors.

Project procurement managers could collaborate with management and executives to talk about post-purchasing requirements and procedures.

3. Stakeholder coordination

Various stakeholders are frequently involved in projects, including business owners, management, executives, project teams, liability experts, and consultants. These teams and individuals must be coordinated by the project procurement manager to ensure that everyone is on the same page regarding the project’s goals and objectives. May they do this by identifying all significant stakeholders and involving them as needed throughout the project.

4. Vendor coordination

Often, multiple vendors may engage in a single project. Project procurement managers must efficiently coordinate the work of various contractors. A project manager may schedule vendor demonstrations or group meetings throughout this process and, as needed, help contractors communicate with one another.

5. Communication of progress

A project procurement manager updates all stakeholders on changes and developments as a project develops and moves forward. This can ensure that everyone involved in the project, including teams and individuals, is aware of deadlines and schedule changes. Project procurement managers frequently identify the information that needs to be shared, gather it from vendors and stakeholders, and distribute it to the appropriate people. In order to keep the team members updated on project statuses, they could also send weekly email updates.

FAQ

What is project procurement management?

Procurement is the act of obtaining goods, supplies, and/or services. Project procurement is therefore the process of acquiring all of the supplies and services needed for the project. The procedures used to ensure successful project procurement are included in project procurement management.

What are the 4 main processes of project procurement management?

There are four key processes involved in product procurement management:
  • Planning procurement. A process called planning procurement helps an organization determine the resources it will require to complete a project and the size of its budget.
  • Conducting procurement. …
  • Controlling procurement. …
  • Closing procurement.

What are the 5 steps of the process project procurement management?

Establishing connections with external vendors and suppliers for the goods and services required to complete a project is known as project procurement management. There are five steps to this process: initiating and planning, choosing, writing contracts, overseeing, and closing and completing.

What are the 3 types of procurement?

3 Main Types of Procurement
  • Direct purchasing: Direct purchasing entails making direct purchases of raw materials, equipment, and wholesale goods that directly impact the company’s finished goods.
  • Office supplies and other items can be purchased through indirect procurement.

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