Practice Exams:

CompTIA Project+ PK0-004 – Managing the Project Procurement part 3

  1. Controlling procurements

As with most areas of project management, you have to control that area. And procurement and project management knowledge area is no different. Both parties have responsibilities in the procurement process. To control procurement means that you manage the procurement relationships. So the vendor has a responsibility to do that and so does the buyer. This also means that you monitor contract performance. Is the vendor the seller? Are they living up to the terms of the contract, making changes and corrections to the contract as needed? But you have to follow a contract change control system. They have to be an agreement, they being the buyer and the seller must be an agreement to the terms. And then on the exam you could be the buyer or the seller.

Now, the process of control procurements for its inputs will use the project management plan. Those procurement documents like RFQ, RFP and the responses agreements, that is the contract type approved change request, work performance reports and work performance data. Some tools and techniques here contract Change Control system, procurement performance reviews, inspections and audits, payment systems, claims administration records, management System and Performance reporting. Now, the outputs of controlling procurement is you have work performance information, change request, project Management plan, project documents and organizational process assets updates, procurement and processes.

We’re talking about directing and managing project execution and then we control what’s related to that with procurement. So we’re talking about reporting performance, quality control, integrated change control. We’ve not talked about that yet, but this means that what I do in one area of the project can have effects throughout the project monitor and control risk is also a procurement activity. That is also a project management activity. Now, the procurement details payments to the seller. Sellers like to get paid, and often they need to get paid to have the cash flow to move forward with the project. So payments to the seller is important that both parties live up to that term. Seller compensation is often linked to progress.

So maybe at each milestone they get a percentage of the project payment or the procurement payment could be they get zero upfront 50% halfway through and the remainder at the end of the project. So whatever terms that you do, those will be defined in the contract and both parties have to live up to those terms. Seller performance review is throughout the project, you look to see how well that seller is performing and then you may document that as part of your seller rating system or your lessons learned, or in a report that you may have to give to management. And then of course, how well a seller performs on the project can affect consideration for future assignments. So these are all activities that you do to administer procurement details.

  1. Living up to the deal

On your exam you may face some questions where sometimes you are the buyer and other times you’re the seller. Regardless of which role you play in that question, you always have to live up to the deal. Adherence to of the contract is mandatory. So contract administration is not just for the buyer and it’s not just for the seller, it’s for both parties. One of the things we have to adhere to is a contract change control system. And what this means is that the seller and the buyer cannot make changes to what’s being created without approval of both parties. Now the buyer does a performance review and audit that they want to see that the seller is doing the work according to the contract. So the seller has a responsibility here to invite the buyer to do those reviews.

Now one thing about those reviews though, they should not get in the way of the seller continuing their work. So if in the project contract, we say that we’ll do reviews and audits at each milestone, we should also include how long those reviews and audits take. Because if I’m in in some type of an incentive fee contract your review, if you linger and take two or three weeks for that review, that could affect my ability to finish the project on time and to get that bonus. So we have to be aware that both parties going into the project, performance reporting, that’s going to be the results of my reviews and audits, how well the vendor is doing and in the payment system, we need to understand both the buyer and the seller, what the payment system is like.

Is it net 30, is it doing receipt? Do you work for one of those companies where it’s net 60 or net 90 to get paid? Maybe there’s a 1% net ten, which means I get a 1% discount if I pay the bill within ten days. Whatever the case may be, we define that in the contract and then both parties adhere to it. We also need a records management system. So it’s all of the communication, all the records about performance and payments invoices memos and so on are all documented for that vendor, for that contract on this project. Now a claim is when we have a dispute between the buyer and the seller. So often the buyer may feel like the seller didn’t live up to the terms of the contract and of course the seller may feel just the opposite.

So it’s where we have some type of an argument here or a discussion that is preventing the project from moving forward or payment or some other issue. A common issue is contested changes. Where we have a contract, you and I, the buyer and the seller have a contract and one party wants to change the scope and the other one says, no, we’re not going to do it. That’s not what was in the contract and we can’t do that. Or the seller makes changes without asking the buyer, and then the buyer receives the work and said, this is not what we asked for. You have to fix it. And so it’s a contested change. Obviously. Claims are all about disagreements. The terms of the contract should be the overriding decision maker for claims.

Now, there are times, though, where the contract is written so loosely or the scope wasn’t clearly defined, or who knows what the case may be that this has to be escalated. And the first step to escalation is alternative dispute resolution ADR. And that’s where we have a mediator that’s predefined that will come in and help solve the claims for the project. Now, alternative dispute resolution is a way of mediation. It’s preferred. It’s a negotiation. It’s preferred before. We have to escalate things to litigation where attorneys and courts and so on get involved. So claims administration affects both parties.

  1. Closing out the contract

You’re familiar with the project management lifecycle, the idea of a project moving through, initiating, planning, executing, controlling and closing. Closing includes closing out the project or phase, but also closing out a contract contract. So closing out a contract could come in the middle of the project lifecycle, but closing out the contract is part of the closing process group. So to close procurements, we’re talking about completing the procurement agreement that both records, or both parties rather are in agreement that we are done updating records to show results as part of closing procurement. So what was the outcome? Did the vendor do a good job? Did we get what we asked for? Did both parties come away with a good sense of how the project moved and both parties are happy with the other party? Now, if we don’t have that, we have some unresolved claims and remember that alternative dispute resolution or potentially litigation.

Now in some instances there may be early termination where the seller is not doing a good job. So basically they’re fired or both parties agree, look, this is not a good relationship for either one of us or you no longer need this or whatever the case may be. So we have mutual agreement that we both should just walk away from the contract and then you have the convenience of the buyer. And this may be a term in the contract. So the convenience of the buyer could be that they terminate it. Now an example of this would be an organization hires a subject matter expert to be a consultant on this project. So they do a contract that says, okay, we’re going to have you be a contractor, a subject matter expert for a year and that’s what the term of the contract is.

However, we can cancel this contract within a 30 day notice or 14 day notice. So while it’s scheduled for one year, we might get done at month ten or month eleven. We’re not going to keep this guy around or just pay him for another month to do nothing. So that’s the idea of the convenience of the buyer. Now it could be used for anything. The buyer could have that and say we don’t like that guy and get rid of him. And so that’s convenience of the buyer. Usually early termination is fair, that both parties agree, one party has been at fault or we no longer need the services and it’s an honest release of that service. Like a contractor, this process uses theproject management plan and procurement documents as the input, the tools and techniques.

Here the procurement audits, procurement negotiations, and the records management system. It creates two things closed procurements and then you take that information. That’s part of historical information. So it is organizational process, assets updates. An important part of closing out the project may be a negotiated settlement where we have a disagreement or we want to end the contract early or whatever the case may be. So we have an equitable settlement for all outstanding issues, disputes, claims, even difference of opinion. And this is where we have mediation or arbitration or eventually litigation. So negotiated settlement is where maybe a seller didn’t live up to the terms of the contract, but they finished it.

And the buyer says, well, I don’t feel like we should pay you everything because you’re late or you didn’t you had to do all this rework or you were hard to work with or whatever. So they work back and forth, and the buyer pays the seller perhaps a smaller amount than what was originally agreed upon. Now, if the seller rejects that and says, no, you owe me the terms of the contract, then things can escalate. Now, closing procurement outputs. So we’re all done with procurement. There’s a formal written notice that says the vendor is done. Often the vendor will give a certificate of completion and expect the seller, or rather the buyer, to sign it for the seller. Then both parties get that that we’ve completed our contract, we’re both in agreement and happy, and we’re done.

And then that documentation, and all related documentation becomes part of the archives for the project. It’s a procurement file. A procurement file is just everything related to a particular vendor and that is kept with the project archives. And then usually there’s some type of an acceptance and sign off that the deal is done and we can both go our separate ways. And then you, the project manager, may have some lessons learned documentation about the vendor or the processes, or if you’re the vendor, you might have it about the buyer. So lessons learned documentation should happen throughout the project.

  1. Section wrap

Great job getting to the end of this session on procurement management. I know it was a lot of fun. You’re probably so excited about finishing this section on procurement that you want to go back and do it again. All right, maybe not. What you need to know procurement management for your exam. Let’s just walk through the flow of how a buyer interacts with a seller to get to the contract. So if I’m going to buy from you, I’m the buyer and you’re the seller. So I would create a statement of work, and I would give that to you along with a document asking for either a quote, a proposal, a bid, or in some cases, I might ask for a request for more information, an RFI.

So we have an RFP, an RFQ, and an IFB that I would give to you along with that statement of work. Now, because I’m going to have multiple bidders and we’ll allow multiple people to bid on this, I’m going to have a bidders conference. So you would come along with all your competition, and we would all meet at the same time, and all of the bidders could ask me information about my statement of work. So really, for clarity, so it allows you to present an accurate bid or quote or proposal, depending on what I’ve asked for, and that all of the bidders have the same information. Now, once I narrow it down, let’s say I narrow down to two or three bidders that I’m likely to buy from one of these.

Then we get into negotiations. And negotiations was where you and I work together for a win win between both parties. It’s not that I’m trying to wrestle you out of a good deal. It’s a good deal means that we both win.You do the work for a fair price, and I agree to that. Now, I’ve decided I’m going to go with you as my vendor, so I’m going to buy from you. That’s the decision I’ve made. Now we have to get into the contracts. Recall that we had really just three types of contracts, even though there are a lot of varieties. The first one was just time and materials, where you’re going to bill me for your time and the material that you use in this project.

And that’s fine for smaller projects or smaller procurements as long as there is an NTE clause not to exceed clause. And then we had the cost plus contracts. And those are really dangerous for me, the buyer, because if you waste materials, then I have to pay for those materials. Again, what I like and what’s the lowest risk for my project is a fixed price contract. And so you say, Joe, I’ll do that work for you for $25,000 even. So, if you have waste or cost overruns, all that I’m going to pay is 25,000 that those overruns come out of your profit margin.

So you carry the risk in a fixed price. And then once we have a deal and both of us sign off on that contract, then you go about doing the work and I go about contract administration. Contract administration means that both parties live up to the deal, that you’re doing the work according to what we agreed upon in that statement of work and our contract. And I’m paying you accordingly. I’m signing off and inspecting the work that I’m not holding you up in your endeavor. All right. Great job reaching the end of this section on procurement. You.