PMI CAPM – Procure Goods and Services in a Project Part 5

7. Control Project Procurement

In tandem with project execution, we have project monitoring and controlling. So that holds up as well. Here in procurement, when we’re executing the contract, we have the other side of the coin, which is to control that project procurement. So both parties have to, by the terms of the contract, that both parties are controlled by the terms of the contract.

On your exam, this will be from the project management perspective. So we want to be aware of that. Sometimes you could be the buyer or the seller on the exam. So pay attention to that as you move through these questions about controlling procurement. So this is all about managing that procurement relationship. It’s all about monitoring contract performance. If there are changes or corrections to the contract, we have to use integrated change control to incorporate those.

As I mentioned, sometimes you’re going to be the buyer, sometimes you’re going to be the seller. So let’s take a look at our edo here for control procurements, several inputs. We have the project management plan, procurement documents, agreements approved, change request, work performance reports and work performance data.

Our tools and techniques the contract change control system, procurement performance reviews, inspections and Audits payment Systems Claims Administration the claim means there’s a disagreement between the buyer and the seller about some portion of the project records, management system and performance reporting.

Our outputs will have work performance information, change request, project management plan updates, project document updates, and OPA updates. Let’s talk about these different components in a little bit more detail. The goal of a relationship between the buyer and the seller is to get the contract done according to the terms. So we’re directing and managing project execution. That was one of our project integration management processes to direct and manage project execution. So when I hire someone to do work on the project, I’m wanting them to do the work according to the terms, to deliver it on time and with quality and of course, on budget what we agreed to pay.

So I’m ensuring here the control process that the vendor, that the seller is doing the work according to the terms of the contract. I’m also going to report performance. I want to know how they’re doing, how well are they adhering to the terms of the contract. So report performance. I will perform quality control. You’re going to inspect the work to make sure it’s of quality. But what if you don’t know how to inspect that work? Like if I hire an electrician, I don’t know how to inspect the electrician’s work. Well, we could hire another electrician or an inspector to do that for us.

What happens a lot in construction if you are the homebuyer and I’m building a home for you? I have to have the city inspect the electrical work and the plumbing and other facets of that construction project. So the city inspectors are acting on your behalf to do quality control. And that leads to also the scope validation perform integrated change control. And this is the biggie if I change something in my project scope that could affect the contract. So we have a contract to remodel this office space and instead of carpet in here, we decided we want tile. Our contract was for carpet. So now we’ve changed our scope, which affects what the vendor is to do.

And that could certainly cause some headaches for the vendor because tile is a whole different game than carpet. So integrated change control includes the contract, includes procurement. And then throughout the project, throughout the procurement relationship, we monitor and control risk. That’s always something that we’re going to be doing, administer procurement details. We want to make sure that the seller is getting paid.

You don’t want a disruption in the work. You don’t want the seller to get angry and to spend time chasing down invoices when they should be working on the project. So make certain that the seller is paid according to the terms of the contract. In some instances that seller compensation is linked to progress. Remember step funding that we talked about earlier in the project where if I’m going to build a house, you aren’t going to write me a check on day one for the whole cost of the house. You might give me 20% on day one, then that takes me all the way to when the foundation is approved, at which point you’ll give me another 10% and then that takes me to this next milestone, at which point you’ll give me another 10% and so on.

So seller compensation is often linked to progress rather than just one lump sum at the beginning or at the end. Seller performance reviews, I want to know how the seller is performing, are they doing a good job and I want to communicate that and maybe add that to our seller rating system. That’s also an input. All of this is an input for future assignments. If I like what someone’s doing on my project and they know they’re reliable and I get along with them, I want to work with that group more, I want to work with that vendor again. So it’s a consideration for future assignments. Part of this controlling the contract is to perform contract administration.

And as I mentioned, if there’s a change in my project that may introduce a change to the contract, so we may have a contract change control system. Generally the terms of the contract will be your contract change control system where the vendor may say how changes can be introduced to the contract. Will it be an addendum? Is it a whole new contract? Is it covered under the existing contract up to X amount of dollars in time? So all of those terms we need to be in agreement with. And then this is where we control it, that if there are changes, then this is the contract defines how that changes allow buyer conducted performance reviews and audits, as I mentioned. You’re going to go out and inspect it or someone’s going to do that on your behalf.

Performance reporting. I want to know if the vendor is are they hitting their goals, are they hitting our deadlines? Are they staying on time and on budget? So, performance reporting and yes, we can do earn value management in this component of performance reporting with a vendor, the payment system, how does the vendor submit invoices? What is your purchasing department? What are their policies? So we want to communicate that and really we just want to assure that both parties are living up to the terms of the contract, that both parties are doing what they promised, all communication, all of your records, that goes into a procurement file. And this is part of our records management system. So we want to be very organized when it comes to dealing with vendors. The reason why is not just so we can retrieve that information, but should things escalate into a claim, which now we’re going to look at, then we have to do some claims administration.

So it’s very important to have that communication or to have your records, a claim or a dispute or even an appeal. This means there’s some disagreement between the buyer and the seller. So things like a contested change where this was to be a yellow wall and it’s actually bone white or whatever. So we have a contested change and the vendor is saying, no, this is what you told me, and you’re saying, no it’s not, and it’s not good. So you have some type of a big disagreement. The terms of the contract will usually override any type of claim. If you have it in writing, then that is important. That’s really good.

So the terms of the contract, though, may also define this idea of alternative dispute resolution ADR, where we will work with a mediator before we go to court, where we don’t really want to go to court. Court is expensive. Attorneys are expensive. So alternative dispute resolution means in advance, we say if there’s a problem, we’ll go to a mediator first. And this is the mediator that we’ll use. We both agree upon that upfront. Hopefully there’s never a problem, but it could escalate. And then you would go through mediation. And if that doesn’t work, you could go on to litigation.

Negotiation is preferred method that we don’t want to go to court. So that brings us to the end of our conversation about controlling the contract. So, great job. Lot of good information in here. I know we’re getting towards the end and procurement sometimes is a distant concept for a lot of PMS. Really know this for your exam, though. Going to beat you up on this stuff. All right, keep moving forward. We have one more lecture in this section about closing project procurement. So I’ll see you in the the next lecture.

8. Close Project Procurement

One of our two closing processes is to close project procurement. A lot of times when we think about closing, we think about we’re at the very end of the project, but actually we can close project procurement at any point in the timeline of our project. Any time that the vendor is done or we’re done with the vendor, that can lead to closing project procurement. So remember on your exam that there are only two processes there in closing. This is one of the two. This is a big portion of the closing objective on your exam. So really know this process.

Let’s look at twelve four in the Pinbox. Close procurements. We’re talking about completing the procurement. We’re updating records to show the results of what the vendor did. We’re going to archive that contract information. We don’t just throw it away.

It becomes part of a procurement file and that becomes part of our archive, which is part of organizational process assets. We can’t really close out the project officially. Well, we can’t close out procurement officially if we have open claims or litigation.

So we need to resolve that. That may be out of our hands as the project manager, but that portion of the project can remain open because we haven’t closed it out yet, we haven’t resolved the claim or any litigation. Sometimes in a project, if we’re dealing with a vendor, a seller, we might have to do an earlier early termination. So may not always be pleasant where you have the default of one party, so someone’s not doing a good job and we have to get rid of them. The terms of the contract will define how you can do early termination, sometimes just by mutual agreement, a seller.

9. Section Wrap

Great job finishing this Tedious section on project procurement management. Talked about a lot of information, a lot of terms here in this section. So you did a great job knocking this out. We began our conversation talking about planning procurement management, about documenting our procurement approach, defining our decisions, identifying sellers. This helped us create eight, the Procurement Management Plan, where we define what type of contract will we use, what about risk management issues and procurement documents that we’ll use in order to complete the procurement processes.

And what do we do if we have multiple sellers on the project, like if you’re a general contractor or a PM under a general contractor? We talked as well about coordinating the procurement activities, about lead time, what about constraints and assumptions and how do we schedule deliverables? All of that type of business is going to be defined in our procurement management plan, including a requirement of our sellers to have performance bonds or insurance that that would be defined in the plan. Very important. Then we looked at our three terms for market conditions.

And I know you got these right. You have a sole source? James Brown. Godfather of Soul. If you don’t know who that is, I feel sorry for you. Or go out and Google it and watch some videos on James Brown. You’ll feel better about yourself, I promise. So soul source. Only one james Brown. Single source. There are lots of singles out there, but you prefer your sweetie, so you have a single source. Only one vendor can provide what you need. And then oligopoly the market conditions are so tight, what one person or what one vendor does affects the actions of the others, like oil.

So that’s how you remember it. Kind of looks like oil. Oligopoly. Then we talked all about contracts, lots of different contract types and the characteristics of contracts. Contracts, we know, can be used as a risk mitigation tool. We saw that with transference. We looked at firm fixed price or fixed price contracts. Most common, the seller carries the cost of risk overruns. Pretty safe for you, the buyer. Then we looked at the other side of that, though. The cost reimbursable, where it’s a cost plus a fee, not always very safe, so there’s more risk that the buyer has to carry. The cost overrun so dangerous.

Usually for the buyer, the one we always want to stay away from is a cost plus percentage. Horrible. Don’t even do it. All right. We looked at build versus buy. There are little activity here where you got to do the difference of build and buy. You got to see how easy it was to make a math mistake. Make sure we pay attention when we’re doing that on the exam. So we did a little problem with build and buy and finding out how long would it take to break even on our own purchase.

Then we looked at conducting procurement, actually procuring, choosing your seller getting the contract. We went through those different portions of procurement, like starting with the buyer and the statement of work, the RFQ, the RFP, the IFB, or even that RFI for information. The sellers then will respond. We have the quote, the bid, the proposal, or information. Then we looked at all of the different pieces of a contract. A lot of stuff can go in a contract, so we have to define all of that upfront so both parties know what’s expected of them.

And then once that’s defined, we can go into controlling procurement, ensuring that both parties are living up to the terms of the contract. Remember, on the exam, you could be the buyer or the seller, so pay attention to your role and how that affects what you’re doing in the procurement process. We finally got to close procurements, our last process of the closing process group, and in this section. So we talked about completing it, updating our records, and archiving that information.

And if necessary, we had to terminate the contract early, maybe do some negotiated settlements, moving through alternative dispute resolution, or do you have to go to court, which we don’t want? We’re would rather do mediation than litigation. Great job. Really happy that you’re moving forward in the course. I know that you are as well. You’re getting closer and closer to hitting your goal, finishing this course, and then getting on to the PMP and then getting back to your life. I’m right there with you, all right? Supporting you all the way. You’re doing great. Let’s keep moving forward.