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12.1 Procurement Planning

Introduction

Procurement Planning is the process of identifying which project needs can be best met by procuring products and services outside the project organization. It involves consideration of whether to procure, how to procure, what to procure, how much to procure and when to procure it.

When the product or service is sourced from outside the organization, the processes from solicitation planning through contract closeout would be performed once for each item.

This process is also called the Pre-Award phase of the contracting process. There are two cycles within this phase - requirements cycle and requisition cycle.

Requirements cycle

  • The project manager is responsible for describing his/her need by means of specifications, drawings, schedule parameters, delivery dates, and for estimating the cost of goods or services in the context of its life cycle.

Requisition cycle

  • This involves reviewing the requisition documents for completeness
  • The contracting staff has the responsibility to review and possibly challenge the specifications.

12.1.1 Inputs

  1. Scope statement
  2. Product description
  3. Procurement resources
  4. Market conditions
  5. Other planning outputs
  6. Constraints
  7. Assumptions

12.1.2 Tools & Techniques

  1. Make-or-buy analysis
  2. Expert judgement
  3. Contract type selection

12.1.3 Outputs

  1. Procurement management plan
  2. Statement of work

 

 

 

 

 


12.1.1 Procurement Planning - Inputs

12.1.1.1 Scope statement

The scope statement describes the current project boundaries. It provides important information about project needs and strategies that must be considered during procurement planning.

 

12.1.1.2 Product description

The product description provides important information about any technical issues. It is normally broader than a statement of work (the latter represents the portion of the product to be provided by a seller to a project).

 

12.1.1.3 Procurement resources

If the performing organization does not have a contract group the project team will have to supply both the resources and the expertise to support project procurement activities.

 

12.1.1.4 Market conditions

The procurement planning process must consider what products and services are available in the market place, from whom, and under what terms and conditions.

 

12.1.1.5 Other planning outputs

Other planning outputs that must be considered during procurement planning include:

 

12.1.1.6 Constraints

These limit the buyer's options eg funds availability.

 

12.1.1.7 Assumptions

Refer assumptions.

 

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12.1.2 Procurement Planning - Tools and techniques

12.1.2.1 Make-or-buy analysis

This is a general management technique which can be used to determine whether a particular product can be produced cost-effectively by the performing organization. The "buy" side of the analysis should include the actual purchase cost as well as the indirect costs. It must also reflect the perspective of the performing organization as well as the immediate needs of the project.

 

12.1.2.2 Expert judgement

Refer expert judgement.

 

12.1.2.3 Contract type selection

The type of contract depends on the degree of uncertainty facing the project manager.

Contract Type Description Usage
Cost Plus Percentage of Costs (CPPC) The contractor is reimbursed allowablle costs and a percentage of the estimated cost as profit Prohibited for federal use but used in the construction industry.
Cost Plus Fixed Fee (CPFF) The contractor is reimbursed allowable costs and a fixed fee. Used in research projects where the effort required to achieve success is uncertain until well after the contract is signed.
Cost Plus Incentive Fee (CPIF) The contractor is paid for allowable performance costs along with a pre-determined fixed fee and incentive bonus. Used where contracts involve long performance period with substantial development of hardware development and test requirements.
Fixed Price Incentive (FPI) This is composed of a target cost, target profit, target price, ceiling price and share ratio. The savings will be shared by the buyer and seller based on a negotiated formula. Where the contracts are for a substantial sum and involve a long production time. This enables the seller to develop production efficiency during the life of the contract.
Firm Fixed Price (FFP) or Lump Sum No adjustment for performance costs. Where reasonably definite production specifications are available.

 

 

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12.1.3 Procurement Planning - Outputs

12.1.3.1 Procurement management plan

The procurement management plan should describe how the remaining procurement processes (from solicitation planning through contract close out) will be managed, for example:

 

12.1.3.2 Statement(s) of work

The statement of work (SOW) describes the procurement item in sufficient detail to allow prospective sellers to determine if they are capable of providing the item. "Sufficient detail" may vary based on the nature of the item, the needs of the buyer or the expected contract form.

It may be refined and revised as it moves through the procurement process. Each individual or group of procurement items requires a separate SOW.

The SOW must have the following characteristics:

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