The project procurement management

• What is project procurement management?
• Placing procurements into generic categories
• Planning for the procurement of project scope
• Project procurements with corporate teaming agreements/alliances/arrangements
• The management of procurement risks
• Selecting the appropriate contract type
• The "Project Procurement Management Plan"
• Legal aspects of project procurements
• Solicitation of seller proposals
• Source selection and contract award
• The management of project procurements: a.k.a. contract administration
• Closing-out project procurements
• Teaming agreement project procurements

• 1. The different types of contracts used in project procurement:

The book outlines a variety of contract types, categorizing them into two main families: fixed-price contracts and cost-reimbursable contracts.

Fixed-price contracts:

• Firm Fixed Price (FFP): The most common and often preferred type, where the seller agrees to a fixed price for the entire scope of work. The risk of cost overruns lies with the seller. This type works well when the project's scope is well-defined and the risks are relatively low.
• Fixed-Price Incentive (FPI): A variant of FFP that includes incentives for the seller to meet certain performance goals. The contract price can be adjusted based on factors like early delivery or exceeding specific quality targets.
• Fixed-Price Incentive (FPIF): Similar to FPI but with a ceiling price. If the seller exceeds the ceiling price, they don't receive additional compensation.
• Fixed-Price Award Fee (FPAF): A contract where the seller receives a fixed price for the work, plus an award fee based on subjective performance criteria. This type incentivizes performance excellence and is common in government contracts.

Cost-reimbursable contracts:

• Cost-Plus Fixed Fee (CPFF): The seller is reimbursed for actual costs plus a fixed fee, regardless of the project's final cost. The buyer bears the primary risk of cost overruns.
• Cost-Plus Incentive Fee (CPIF): Similar to CPFF but includes incentives based on achieving specific performance targets. The fee can be adjusted based on cost overruns or underruns, within predefined limits.
• Cost-Plus Award Fee (CPAF): The seller is reimbursed for actual costs, plus an award fee based on subjective performance criteria determined by the buyer. This type provides strong incentives for performance excellence.
• Cost-Plus Percentage of Costs Fee (CPPCF): The seller's fee is a percentage of actual incurred costs. This is a less common type, as it can lead to higher costs if the seller doesn't prioritize cost control.
• Cost-Sharing: Both the buyer and seller contribute to the project's costs and share the risk. Often used in research and development projects.

2. The challenges of managing risk in procurement:

The book stresses that effective risk management is crucial for successful procurement. Key challenges include:

• Identifying Risks: Determining the potential risks associated with each procurement. Tools like brainstorming, risk analysis, and the Delphi technique are discussed.
• Assessing Risks: Evaluating the likelihood and impact of each risk. A qualitative risk analysis matrix is presented to prioritize risks.
• Mitigating Risks: Developing strategies to reduce the likelihood or impact of identified risks. Techniques like redundancy, transferring risks, and mitigation plans are discussed.
• Accepting Risks: Recognizing that some risks can't be eliminated and establishing contingency plans.

3. The importance of teaming agreements:

Teaming agreements, or alliances, are crucial in many projects, especially large-scale ones. The book highlights the benefits and challenges of this approach:

• Benefits: Pooling resources, expertise, and risk. Greater flexibility and collaboration. Increased access to specialized knowledge and capabilities.
• Challenges: Defining clear roles and responsibilities. Establishing effective communication and coordination. Balancing the power dynamics within the team.

The book delves into different models of teaming agreements:

• Superior-Subordinate: One company takes the lead role, while others support.
• Equal Partners: All companies contribute equally to the project and share the risk.
• Umbrella Contract: One company manages the overall project and contracts with various subcontractors for specific tasks.

4. How to effectively close out a contract:

This is a crucial but often overlooked aspect of procurement. The book emphasizes:

• Termination of the Contractual Relationship: Understanding the reasons for early termination and the legal implications. It outlines three scenarios: termination for cause, termination for convenience, and absolute right to terminate.
• Settlement of Seller Claims: Managing potential disputes and negotiating fair settlements. It discusses the various methods, from negotiation to arbitration and litigation.
• Project Close-out Checklist: Ensuring a systematic and thorough closure process, including project documentation, evaluation, and lessons learned.

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