In Procurement Management, the basic knowledge and skills of a project manager should include being able to help create, read and manage contracts. The PMP exam assumes that you have a close working relationship with departments such as procurement and legal and that procurement process cannot occur without your involvement. A formal process to obtain goods and services is known as Procurement. Procurement Management Plan, Procurement Statement of Work (SOW), procurement documents, change requests, additional procurement documentation and lessons learned are the outputs of a Procurement Management Process.
Procurement department is the most common name for the department that handles and controls procurements. In some companies, these departments are also called contracting, purchasing or legal departments. A few skills required for managing procurements include possessing legal knowledge, negotiation skills and understanding procurement process. In case of a project requiring to buy goods or services, the procurement department comes into action. A project manager is expected to understand what procurement experts will need from them, provide the experts with that information, and then work with the procurement department throughout the life of the procurements.
Post the decision of procuring goods or services, the procurement manager should:
Facilitate to create a Procurement Management Plan
Create Procurement Statement of Work (SOW)
Determine type of contract
Determine procurement document:
Request for Proposal (RFP)
Invitation for Bid (IFB)
Request for Quotation (RFQ)
Send the documents to the seller
Seller Reviews the documents, seeks additional information (if needed), sends required documents
Negotiations take place with the seller and contract is signed with right seller
Procurement administration is the next step
Monitoring and Control of Procurement administration is done
Procurement closure involves procurement audit and lessons learned
Final Payment is made
Buyers And Sellers
Sellers are also called as a contractor, sub-contractor, designer, vendor, etc. However, for the exam, a seller will be termed as a seller only. Similarly, buyer is termed as buyer only.
Important Points Related To Procurement Management
All project management requirements should be specifically stated in the contract
A Change Management Procedure is the only way to include any activity in the contract if that activity is not already in the contract
Contracts are legally binding, the seller has no choice but to perform as agreed in the contract. Contracts help mitigate project risks
Most government contracts fall within their jurisdiction by providing a court system for dispute resolution
The Project Managers Role In Procurement
1. A project manager should be able to read and understand the contracts
2. A project manager should ensure that scope of work and project management requirements should be included in the contract
3. Identify risks and create appropriate risk response plans for risk mitigation
4 .Project manager should tailor the contract to the unique needs of the project
5. Project manager should be involved during contract negotiations to maintain the relationship with the seller
6. Project manager should protect the integrity of the contract
7. A Project manager should ensure all work such as reporting, inspections and legal deliverables are met. The release of liens and ownership of materials is another critical activity of the project manager.
8. Project Manager works with the procurement manager to manage changes to the contract.
Centralized / Decentralized Contracts
In a centralized contracting environment, there is one procurement department, and a procurement manager handles multiple procurements for different projects
In a decentralized contracting environment, a procurement manager is assigned to one project full-time and reports directly to the project manager