Project Procurement Management

285 Pages·2006·0.98 MB·English

Project
Procurement
Management
Contracting, Subcontracting, Teaming
QuentinW. Fleming
©Copyright2003 byQuentinW.Fleming
Allrights reserved.
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Fleming,QuentinW.
Projectprocurementmanagement--contacting,
subcontracting,teaming/QuentinW.Fleming.
p.cm.
Includesbibliographicalreferences.
LCCN2003095371
ISBN0-9743912-0-4
1.Projectmanagement. 2.Industrialprocurement.I.Title
HD69.P75F5552003 658.4'04
QBI03-200614
10 9 8 7 6 5 4 3 2 1
FirstEdition
This book is printed on acid-free recycled paper meeting the
requirementsoftheAmericanNationalStandardforPermanencein
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ManufacturedintheUnitedStatesofAmerica
Contents
Introduction v
Acknowledgements ix
ListofFigures xi
Chapter 1 WhatisProcurementManagement 1
Chapter 2 ProcurementCategories 13
Chapter 3 PlanningfortheProcurementofProjectScope 23
Chapter 4 CorporateTeamingArrangements 35
Chapter 5 ProcurementRisks 59
Chapter 6 SelectionofContractTypes 77
Chapter 7 The"ProjectProcurementManagementPlan" 115
Chapter 8 PlanningfortheSolicitations 143
Chapter 9 LegalAspectsofProjectProcurements 167
Chapter 10 SolicitationofSellerProposals 185
Chapter 11 SourceSelectionandContractAward 191
Chapter 12 TheManagementofProjectProcurements:
a.k.a.ContractAdministration 207
Chapter 13 Closing-outProjectProcurements 227
Chapter 14 InSummary-ManagingProjectProcurements 237
Appendix TeamingAgreementSupplements 241
GlossaryofProcurementTerms 258
AbouttheAuthor 272
SubjectIndex 273
iii
Introduction
T
his is anewbookonProject ProcurementManagement ...wellsortof.
A decade ago my son and I wrote a book on this same subject which
was entitled Subcontract Project Management: Subcontract Planning and
Organization. Our book covered the subject of project procurement
management, but it was targeted specifically to the aerospace and defense
industry, to those companies which had prime government contracts and
were subcontracting large segments of their work to other firms for
performance. By contrast this new book is intended to provide a more
general treatment on the subject, with application to any project, in any
industrywhichbuys their projectscope fromanother firm.
However, there were sections in our earlier book which continue to
apply nicely to projects in general. In particular the sections on teaming
arrangements, types of contracts, risk management, and possibly others.
These sections continue to be valid today. Therefore, I will incorporate
some text from our earlier work as it pertains to the broader issue of buying
projectscope.
As an author and management consultant, I have acquired many books
on my favorite subject of project management. I have collected a rather
extensive library of books on project management. Before starting with this
project I conducted a "non-scientific" survey of my books on project
management. The one thing that became obvious to me was that all of these
books, without exception, had one thing in common: they do not address
the subject of buying scope from another company. It was as if most
projects did all of their work themselves, with their own employees, within
theirownorganizations. We knowthatis not thecasewith manyprojects.
Typically, the more complex, the more challenging the project, the
more work will be sent outside of the company for performance. Yet there
is a lack of coverage of project procurement management. Even the big five
projectmanagementbooks (thebigsellers) donot address
V
vi Project Procurement Management
procurement management or even "make or buy" analysis. Question: how
could we adequately define the scope of work on a new project without
also doing a make or buy analysis? The answer: not very well.
Fact: it is common today for companies to procure major portions of
their projects from other companies. Some projects today buy as much as
80% of their project scope from other companies. And to compound the
issue further, often the items which are bought from other companies are
the high-risk portions of the project. After it's over, when management
assesses what went wrong with their project performance, they often will
find that it was the work which was contracted or subcontracted to
another company which adversely impacted their overall project
performance. My conclusion: how well we manage other firm's
performance to our projects will often determine how well, or how poorly
we do on our projects.
One of my pet concerns with how well procurement management
works on projects centers on the critical relationship of the project
manager to the procurement people, typically called buyers. We must
always keep in mind that it is the project manager who has the ultimate
responsibility for the project's technical performance, the cost and
schedule results. By contrast those individuals who have their company's
delegated procurement authority, the buyers, too often fail to recognize
that their mission in life . . . is to support their company's projects. They
buy things for projects within their established purchasing policies. Often
on the major complex procurements the project manager will elect to
appoint a technical specialist to manage a critical component, functioning
as a team leader in an integrated project team environment. In such cases
the assigned buyer must become a subordinate, a critical deputy to the
designated project team leader.
The point that many of these professional individuals fail to realize is
that they exist to support the projects, not to interfere in the management
of the project. Managing the project is the responsibility of the person
carrying the title of project manager. It is often only an attitudinal issue,
but one which can impede the maximum performance on projects.
One additional important point. In our 1994 book, my son and I
subdivided the project procurement activities into three distinct
Introduction vii
processes: "planning", "procurement", and "performance." This sub-
division of work made sense to us at the time.
However, since that time the Project Management Institute (PMI)
issued their 1996, and later their year 2000 Edition to A Guide to the
Project Management Body of Knowledge-PMBOK. In this landmark
document which has since become the de facto world standard for project
management, they elected to subdivide the project procurement effort into
six distinct processes:
B What we had called "planning" the PMBOK Guide broke into two
processes described as "Procurement Planning" and "Solicitation
Planning."
■What we had called "procurement" the PMBOK Guide
divided into "Solicitation" and "Source Selection."
■And finally, what we had referred to as "performance" the
PMBOK Guide uses the terms "Contract Administration" and
"Contract Closeout."
I fee! very comfortable with the subdivision of project procurement
management into these six distinct processes, as is described in the
Project Management Institute's PMBOK Guide. Thus, in this book I will
follow the model of the PMBOK Guide and describe project procurement
management as having six distinct processes. As I look back on my
industrial career, every major subcontract I worked followed these six
distinct processes.
One additional point on the PMI PMBOK Guide. It was my distinct
privilege to serve on the eight person core team which updated this
document for the year 2000 edition. I was assigned responsibility by our
project manager Ms. Cynthia A. Berg, PMP, for all "earned value
management" content, and for Chapter 12 covering Project Procurement
Management.
In the 2000 update we elected to standardize the terms used to
describe the two relationships of the "project" versus the performing
"contractor/supplier/vendor." The 2000 PMBOK Guide now refers to
viii Project Procurement Management
the buying of project scope as the work done by the project's "Buyer." And
the outside organization performing such work is now referred to
consistently as the "Seller." This change was made to better improve the
understanding of these two critical relationships. In this book we will also
use these same two terms.
Quentin W. Fleming
Tustin,California,USA http:
//www.QuentinF.com
Acknowledgements _______ _____
B
eginning in 1995 I started a long-term relationship with the
University of California at Irvine to assist them to deliver a series of
courses to the public and corporations to help them better perform on
their projects. It has been a successful series and has reached thousands
of individuals, literally around the world. The UCI director of this series
has been Lori Munoz-Reiland, and her work has been outstanding.
One of the two courses I developed for UCI is entitled: Project
Procurement Management-Contracting, Subcontracting, and Teaming.
We have qualified six instructors to deliver this course. Each of these
individuals took time from their busy schedules to read my draft
manuscript and provide their comments, concerns, and suggestions.
We need to give them a "special thanks" for their help.
■JanBirkelbach,PMP,
■EdFern,PMP,
■DavidJacob,
■JanicePreston,PMP,
■FredSamelian, PMP,
■Cyndi Snyder, PMP
Lastly, my son Sheldon J. Fleming is a practicing attorney here in
California and he reviewed the materials on the legal aspects of pro-
curement. Thanks Shel.
Quentin W. Fleming
ix
List of Figures
FIGURE # TITLE PAGE#
1.1 ProjectProcurementManagement:BuyingProjectScope 4
1.2 TwoCriticalProjectRelationships:asBuyerorSeller 6
1.3 CentralizedversusDecentralizedPurchasingAuthority 9
1.4 ProjectProcurementManagement:SixDistinctProcesses 11
2.1 PlacingProcurementsIntoFiveGenericCategories 22
3.1 ScopeDefinitionmustinclude"make"or"buy"choices 26
3.2 Theproject"make"or"buy"process 28
3.3 ScopeDefinition:Identification&classificationofallbuys 34
4.1 TeamingwithaSuperior-SubordinateRelationship 41
4.2 Superior-Subordinate:sometimesfirmschangeplaces 43
4.3 TeamingArrangementwithEqualPartners 44
4.4 Anumbrellacontractforoneproject-withoutteaming 46
5.1 Informationflowusing"TheBrainstormingTechnique" 65
5.2 Informationflowusing"TheDelphiTechnique" 67
5.3 QualitativeRiskAnalysis:probabilitytimesconsequences 70
5.4 QualitativeRiskAnalysis:therankingofprojectrisks 70
6.1 TheArtofSelectingaContractType 79
6.2 ContractTypes:twogenericfamilies 83
6.3 IncentiveFeeversusAwardFeeRelationships 86
6.4 Variouscontracttypesareavailable 87
6.5 FixedPriceIncentive(FPI)Contracts 91
6.6 CostPlusFixedFee(CPFF)Contracts 98
6.7 CostPlusIncentiveFee(CPIF)Contracts 102
6.8 BalancingRisksbetweenBuyerandSeller 113