A procurement management plan documents how a project will conduct its procurement (purchasing). In the Project Management Body of Knowledge (PMBOK Guide), it is the component of the overall Project Management Plan that deals with external purchasing for the project.
It is separate from the statement of work (SOW), also known as the terms of reference (TOR) which outline the technical requirements of the contractors. Rather, it deals with the overall strategy and management of vendors.
There are 9 main components of a Procurement Management Plan:
- Roles and Responsibilities
- Project scheduling
- Vendor control
- Estimating
- Prequalified Vendors
- Risk management
- Legal jurisdiction
- Payment
- Constraints and Assumptions
Roles and Responsibilities
Project procurement has several important roles which are required in order for the process to run smoothly. These roles are:
- Project managers oversee the process and manage the schedule, budget, and project risks.
- Technical managers determine the statement of work and manage the technical requirements of the contractors
- Contract managers provide contractual advice and documentation relating to the contract provisions.
- Corporate executives provide advice and decision making for contractual issues. They may also review and approve contract documents.
- Lawyers provide advice relating to legal requirements as well as contract documents.
Many of these roles overlap, hence the procurement management plan defines the boundaries of authority for each party.
Project Scheduling
External contractors, vendors, suppliers, and service providers often affect the project schedule. A project is divided into tasks, like this:
| Task | Start Date | Finish Date | Budget |
|---|---|---|---|
| Build Fence | March 1 | March 15 | $5,000 |
| Build House | March 2 | July 31 | $150,000 |
A contractor should be assigned to one and only one task on the project schedule, no more and no less. Any more and the contractor will feel they are being micromanaged leading to poor contractor relations. Any less, and the benefit of project management is lost when a contractor’s work is managed together with internal work to deliver a single task.
The exception to this rule is when the same contractor performs two parallel tasks, such as plumbing and electrical.
A statement of work (SOW), also known as terms of reference (TOR) is produced which describes the work the contractor is required to do, and the contractor provides a price and schedule. This price and schedule can be managed within the task structure just like the internal tasks.
The procurement management plan identifies the schedule implications, constraints and assumptions.
Vendor control
By definition, the project owner gives up day to day management of the portion of the project performed by a contractor. Hence, project control becomes an important function. Vendor control seeks to ensure that the work of vendors, suppliers, contractors and service providers is acceptable.
Vendor control techniques should be written into the procurement management plan and passed down into the statement of work or terms of reference. This can include:
- Measurement of product quality, for example size, shape, or quality of widgets being delivered
- Site inspections
- Inspections of external production facilities
- Regular project meetings
Regular project updates should be made from the vendor to the owner (usually through the project sponsor). These updates should be comprehensive and provide all of the information necessary for the project sponsor to properly update their corporate hierarchy.
Estimating
External procurement has a strong estimating component.
Almost always, an estimate will need to be produced prior to project tendering (bidding) to ensure the money is available. During the project, changes to the statement of work will need to be estimated and budgeted as necessary. After the vendor’s work is done, the final cost usually must be compiled and analyzed for future reference.
When projects last more than one year, net present value analysis and other capital budgeting techniques can ensure that the time value of money and the firm’s cost of capital are adequately accounted for. Often the project returns are non-tangible, such as a road construction project (or many government projects) in which case a cost benefit analysis is a handy estimating tool
Prequalified Vendors
Prequalification is a concept that is growing within many industries, and large corporations and governments often have an established prequalified list of vendors.
It is a contractor selection method whereby a list of “trusted contractors” is developed based on a “Request for Qualifications.” This document does not ask for price information. Rather, it requests information like past project information, project team descriptions, and project methodology to compile a prequalification list. There is usually a schedule of criteria for example:
- Project Team: 35%
- Project Methodology: 40%
- Past projects: 25%
The Request for Qualifications (not to be confused with Request for Quotation – RFQ) can be used to develop a short list for one single project or many.
If you are part of a large corporation, government agency, or non-governmental organization (NGO), it is important to check if a prequalified list is already in place for various types of vendors.
Risk Management
The use of external vendors introduces risks that aren’t present without the procurement activities.
Chief among these is the description of the work normally called the statement of work or terms of reference. Where does the contract work end? It is usually not possible to list every nail and screw to be used on the project. However, as much as it may seem hyper impulsive, there is no downside to listing every nail and screw if you can. The level of detail within the statement of work is enough only when the risk of potential misunderstandings is negated by the time and expense of writing it.
Contract legal disagreements most often involve the interface between project and non-project work. These disagreements require resources (funds) to resolve that are not necessary for internal, non-procured work. Also, the judgments can sometimes be very high relative to the project cost.
The procurement management plan should describe the risk profile of the project:
- Risk tolerance
- Level of detail of the statement of work
- Types of contracts
- Policies and procedures for contracts
- Risk probability
- Risk severity
- Review and approval requirements
Legal Jurisdiction
The proper legal jurisdiction of the project should be explicitly stated in the procurement management plan and translated into the contract documents.
Major legal issues should be addressed up front within the procurement management plan. For example, a bridge project over a wetland area may require major environmental requirements and regulatory review. Although the strategy to obtain environmental permits might involve more than purely the minimum legal requirements (relationships, monitoring wells, etc.) the minimum legal requirements should be addressed within the procurement management plan to ensure that all stakeholders are aware of them and acting accordingly.
Payment
Payment methods and currencies should be described within the procurement management plan. Most contracts are paid on a progress basis whereby payment up to a certain point is made periodically (monthly, etc.). This can lead to conflicts in spite of all of the work going smoothly, when the contractor feels they have completed more work than an inspector gives them credit for.
Constraints and Assumptions
Almost all contracts and procurements operate within an environment of many constraints and assumptions. These can include:
- Legal
- Standards and specifications
- External stakeholders
- Schedule constraints
- Budget assumptions
- Geographical restrictions
- Physical constraints (height, width, opening sizes. etc.)
- Ground conditions
- Air quality
- Data quality
- Security
As you can see, there are many factors to consider before a procurement management plan is finalized. A strong procurement management plan will translate into a strong procurement process, which will provide a foundation for effective contracting that results in project success.
Successful procurement equals successful projects.
Good luck.
