PMI CAPM – Procure Goods and Services in a Project Part 4

6. Execute the Project Procurement Management Plan

All right, welcome back to our procurement conversation. Now that we’ve created a Procurement Management Plan and we’ve made those buy or build decisions, we’re ready to execute that plan. So we’re moving from planning over into execution. And this is really where the bulk of your project’s time and money are spent will be in execution.

So it makes sense that this is where we’re actually buying things, where we’re executing the Procurement Management Plan. So let’s take a look at the first process in this section or about execution, and that is to conduct procurements. So we are obtaining seller responses. We’re going to choose a seller and then we’ll award a contract or edo for this process. Several inputs, tools and techniques and outputs.

Inputs the Procurement Management Plan, procurement documents, source selection criteria, seller proposals, project documents, make or buy decisions. The Procurement Statement of Work and OPA Tools and Techniques will host a bidder conference. We’ll talk about that in 1 minute. Proposal evaluation techniques. How will you choose which vendor? Independent estimates. Those are those third party or should cost estimates, expert judgment advertising, analytical techniques and procurement negotiations. The outputs of this process. We choose the seller. We have a contract or an agreement. Resource calendars.

You may have change request PM plan updates and project document updates. There are some things that we need to just define right at the start of our conversation here. The first one is a qualified seller list. Your organization may have a preferred vendors list or an approved vendors list. That’s a qualified seller’s list. So it’s who you must purchase from. When it comes to purchasing, that can be a constraint because it limits your options as to which vendor is approved by your organization to buy from.

A bidder conference is an opportunity for all of the bidders to come to a meeting that you’ll host if you are the buyer and they get to ask questions about the sow the Statement of work, the thing that they’re bidding on. And then in this meeting, if there are updates or clarifications, the last point on this slide is that you will update the Statement of Work and then redistribute that it’s so that everyone has the same information. So it’s fair when people create a bid or an estimate, advertising is not the buyer looking through the phone book or the Yellow Pages or the Internet more likely to find someone to purchase from it’s. If you’re a government agency, you have to advertise that you have a bid available, that there is an opportunity to bid on a project.

So a lot of times in your Sunday paper, if you go to the classifieds, you’ll see public notice open for bid and then a quick description about it. In fact, if you read those, they’ll even talk about when a bidder conference may be or how you can get a Statement of work. We’re going to walk through this purchasing process so we’re going to play two different roles here. The first one is from the buyer. So let’s pretend that I’m the seller and you are the buyer. So you want to buy something from me. You would first give me a statement of work. So you’re the buyer. You’ll create a statement of work. The Sow defines what it is that you would like to purchase.

So along with this statement of work you would give me a request for, quote, an invitation for bid or request for proposal. And in some instances you might have a request for information, a request for, quote, an RFQ or an IFB invitation for bid. Those two are pretty much the same thing. For exam purposes. Both of those mean you only want me to give you a price. You don’t need any ideas, you don’t need any extras, just a price that you want to purchase. 1200 laptops. How much? Here’s an RFQ. Or you want to purchase five tons of pea gravel. How much? Here’s an invitation for bid. So it’s very straightforward. You only want a price. Then we have a request for proposal. An RFP means you want a lot more information, that you want some ideas on how you would do the solution. So by creating a website you might have an RFP because you’re open for ideas.

You want to see what we can come up with for you. And then we have requests for information. A request for information means I’m interested in the services you provide. I may not be ready to buy just yet. So give me some information about what your company can do. So it’s kind of early in the purchasing process. The three big ones here RFQ and invitation for bid and RFP. RFP takes the longest for me, the seller, to create RFQ. And IFP means just a price. So you send one of those documents to me with your statement of work. So now I’m the seller and I would respond with a quote here’s. How much? Just a price. A bid. Again, just a price.

If you asked for information, I would give you an RFI or you would give me an RFI and I would send you a brochure and a sales letter and just kind of introduce our company and what we could do for you. And then if you asked for a proposal through an RFP, I would give you a proposal proposals. As I mentioned, they take the longest for the seller to do. I don’t know if you watch any of those home improvement shows on the different channels. My wife and I like one where the homeowner has a big backyard or whatever and two or three different designers come in.

They kind of pitch the idea of how they would make over the backyard. And so they all come up three different ideas. And then the homeowners, you know, they’re up late worrying about what burba they’re going to put in their backyard or whatever. And so then they decide on which proposal will they choose for their backyard landscape. And then it’s beautiful, of course, and it’s a fun little show. Anyway, that is a proposal. So we have to think though, those other two or three designers that didn’t get the opportunity, didn’t get the gig, they invested a lot of time coming up with that proposal. So that’s why I say RFPs and proposals, they take a lot more time and then you may not even get the job. So proposals are off. These, to a seller sometimes are good news, bad news.

Let’s talk about seller selection. So we have the proposals, we have the bids or the quotes as the buyers is what you would have. And then you have to think about, well, which seller am I going to choose? Like those homeowners, which landscape company are we going to choose for our backyard? So seller selection, there’s a lot of different things we can use or a combination of these to come up with the best decision of which seller will we purchase from. A waiting system is a way to score different characteristics of each seller. So that’s what we’re seeing.

In this chart, we have seller one through four. And in the bar chart are how each seller scored on these different categories, like cost, experience, schedule, staffing certifications, or whatever you want. So you can predefined an available amount of points. So like cost, you might say, well, that’s worth 100 points in experience, well, that’s worth 80 points. And scheduling is worth, oh, we’ll say it’s going to be worth 50 points. And so you give these different points based on the proposal, the bid or the quote, whatever you asked for. And then that leads to which vendor will you purchase from an independent estimate. We’ve seen this a couple of times now.

It’s the same thing as a third party estimate, a should cost estimate. It’s where we have a mean that’s created by one company. So they do an estimate. We usually pay them for that estimate for that process, and that will serve as our mean, what it should cost. And then others, when they bid whoever’s closest to that, they’re going to get the deal. Screening systems is a way to filter out all the different sellers. So you don’t have 100 bids to filter through.

You might say if you can’t do the work in the month of November, you don’t qualify. Or if you don’t have a PMP on staff, you don’t qualify. Whatever you want to screen out companies. So it helps you narrow down your choices very quickly. Then you might narrow it down to two or three different vendors and you do contract negotiation, so you and the vendor begin to hammer out the contract details.

Seller rating systems is like what you find on Yelp or Google or even Facebook. Now, it’s a way that you can go and look to see how sellers have performed. Your organization may have an internal seller rating system that if other people in your company have worked with these vendors on your approved vendor list, you can go in and see how they did on other projects. So a seller rating system is just a way of looking at how well a vendor has performed in the past. Of course, expert judgment going to bring in your project team, maybe a consultant or SME.

I’m going to have people help me make the best decision as to which vendor, which seller will I buy from. And then we have proposal evaluation where we study the proposals and we compare and contrast and that helps lead us to the choice of which vendor are we going to purchase from. Let’s walk through the whole procurement process. So we’re going to start with the buyer. The buyer creates a Statement of work, what it is that they want to buy. And along with that Statement of work they’re going to create an invitation for bid, a request for quote or request for proposal and they will send the Statement of work in one of these items, let’s just say it’s an RFP to the sellers. So they have a group of sellers they’re going to send this out to. The sellers would then come to the bidder conference. In this conference they’re going to ask all sorts of questions about the Statement of Work. So for clarifications that would mean that the buyer would update the Statement of Work to reflect the clarifications in the bidders conference. In this Statement of work they’re going to update it, put a new date on it so it’s versioned and then return that to the sellers. The sellers then will create a bid, a quote or a proposal based on what the buyer, what the buyer asked for.

So they’re going to return, let’s say a proposal. So they give that back to the buyer. Now the buyer will do things like that screening system or the waiting system or proposal evaluation or a combination of those to narrow the choices down to three or four vendors. They’ll go into negotiation, they’re going to see how they can get the best fair and equitable deal for both parties and then they’ll choose the vendor, the seller, and that will create the process of starting the contract. So that’s the whole process you should be familiar with for your exam. So it’s pretty logical.

You’re going to start from the buyer all the way through to the contract. So now that we’ve talked about contracts, let’s take a little look at some contract details here. This is the agreement. So the contract details should define the Statement of Work and or the deliverables a schedule baseline for the seller. What’s the performance expectations on time? How will you report on performance? So intermittent updates or inspections or audits, how long does this deal last? So your period of performance the roles and responsibilities. Where will the work take place? The pricing and payment terms, inspection and acceptance criteria, really important to define that in the contract, is there a warranty or product support? What’s the limitation of liability? At some point, this solution has to leave the seller’s responsibility and it becomes the buyer’s responsibility.

So there’s a limitation of liability. What about fees and retainage? So a fee could be if you’re late, you have to pay a fee, or if you’re late paying the seller, if you’re the buyer and you’re late paying on invoices, there might be a fee. Is there a retainage? What about penalties? Kind of the same idea if you’re late. Incentives. Sometimes if you pay early, you get a discount. Insurance and performance bonds requirements. Subordinate subcontractor approvals. This is always something you see in contracts where the buyer tells the seller, if you are going to use subcontractors, I get to approve the subcontractors, not you. So that’s something to watch for in your contract. How will change requests be managed and termination? Alternative dispute resolution.

This is a little exam tip right here. Sometimes you have to end contracts early because of poor performance, so the vendor is not doing a good job, or you no longer need the technology or the thing that the vendor is creating. So termination the contract defines how the contract can be terminated. Like sometimes it might say or outside of 30 days notice or within 30 days notice, you have to pay as if it were 30 days for the labor. Whatever the case may be. ADR. Alternative dispute resolution means that we have a claim or we have some disagreement in the project that’s halting the project, or maybe it’s caused a real conflict. So alternative dispute resolution in the contract would say, rather than go to litigation, we’ll go to this third party mediator should there be any claims or disagreements about the project work. So the contract defines how it can be terminated.

So a great example is, let’s say that you’ve hired a contractor to come in and do software development, and your contract is for a year. When you get down early, you get done at month ten. And then you say, hey, all right, we’re done, so we don’t need you for those other two months. The contract may say you might still be liable for those other two months for a year of payment. So you need to pay attention to the idea of termination. And then alternative dispute resolution, you go to mediation before you would go to court that you don’t want to go to court. We really don’t want to get into litigation because that’s just very expensive. Good job finishing this lecture. A lot of information about executing our procurement management plan. Keep moving forward. You’re making great progress.