PMI PMP Project Management Professional – Introducing Project Procurement Management Part 4
- Preparing for Contract administration
Let’s talk about procurement administration. When we get into procurement administration, it’s things like making sure people are being paid on time and invoicing properly and using the right system to do a request for payment. The seller’s compensation might be linked to progress. So they hit these milestones, then they get paid. If that’s the case, as the buyer, I can’t stall. If they hit their milestones and it requires a review, then I need to get out there and review it and make sure they’re paid.
So both people have obligations here, both organizations. You might have to do a seller performance review as part of your EEF, that seller rating system. So if I’m working with the ABC Electric Company, then I need to review their work and put that in the seller rating system so that other PMS in the group in the organization can look at that and make a determination to buy from the ABC Electric company or not. It’s also a consideration for future assignments based on what happens in the current project. Thank you very much.
Performing contract administration, we think about contract change control. Do we need a new contract, an addendum? Is there an allowance for change in the contract? Buyer conducted performance reviews. So you build a house for me, I’m going to go inspect it, or the city inspector is going to do it on my behalf. It’s kind of like scope validation, but it allows me to close out the contract rather than the project performance reporting. Is there a payment system and records management system? All right, good job. Keep moving forward.
- Performing Claims Administration
Sometimes in a contractual relationship there is a claim. A claim means the two parties have a disagreement, so it’s rarely a very comfortable thing. It usually can be heated or a disagreement because one party is going to have to pay or redo work or something. And often we’re trying to make maintain that relationship with the vendor and with the buyer. So a claim has to be handled delicately and accurately and professionally. One way that can happen in a claim could be the contract is canceled. So it may be the quality of the performance is not good, so they aren’t living up to the terms of the contract. It’s canceled. It could be that the contract is no longer needed.
So we’re building a house and we’ve hired someone to come paint the house. Well, the customer we’re building the house for, they say, you know what, we don’t have any money after all, so we can’t finish building the house. Well, now there’s nothing to paint. So we canceled the contract for the painter. The terms of the contract would define the allowance to cancel the contract if there’s a penalty involved or not. That should all be in the Contract claims Administration we’re talking about.
A claim as the most common term could also be a dispute or an appeal. Contested changes are often where you have claims where the walls were to be painted eggshell white and the vendor painted them bone white or whatever. So it’s a change that wasn’t approved, so it has to be redone or can we live with it? But you’ve got to take a little bit off your fee because it’s still wrong rather than do all the work over. So a contested change, just a disagreement about anything that’s subjective.
We want a fast network that’s setting yourself up for trouble. What does it mean to be fast? So like those quality terms that we don’t want subjective terms here either. What are the terms of the contract for claims? How does it escalate? Do you try do this alternative dispute resolution? Do you have to go to a mediator or a moderator that will help you resolve this? Do you go right to court? What are the terms of the contract? What are your options? Negotiation, especially for your exam, is always the preferred method. You want to negotiate to settle the claim. All right, good job.
- Performing Contract Closure
When we have a contract, we want to get to the end of that. We want things to go smoothly, and at some point we get to close the contract. So let’s talk about contract closure. We close according to terms. So payment or review or liability or support, whatever it may be, that’s in the contract, you may be subject to a per performance review, have to do some EVM analysis or trend analysis, depending on the size of the contract and obviously the type of work you’re doing, your contracts may go through an audit process.
So the audit process is where the organization that’s the buyer would review the invoices, would review what was received, would confirm that what was paid for was actually received. And so audits really look at the whole procurement process.
In some cases, you may have a government official that will walk through or inspect, like the inspector for the electrician, that it has to be up to code so they act on behalf of the customer. Some different perspectives here. From the buyer’s perspective, we want to make certain that all the terms of the contract were lived up to and that we do have an audit prior to paying on large, complex projects, all the billing and deliverable has to reconcile, and then any variance is there. We have to identify and then do some root cause analysis.
Why is there a variance? What is missing in the equation here? So why is there a variance? So we want a reconciliation between what was purchased and what was received. And then again, the terms of the contract should even define what the audit process is like, so there aren’t any surprises or disruptions in the project with the vendor if for some reason the contract is canceled. So you may have a negotiated settlement.
So it’s some type of an agreement to work out the payment. So the goal here is to avoid litigation, but to be fair and equitable to the parties that you have a contract with and then completing contract closure, we want to sign off, sometimes called a certificate of contract closure. It’s an agreement by both parties that we have met the terms of the contract and we’re done. And then that becomes part of the procurement file. All right, good job. I’ll see you in the next lecture.
- Section Wrap: Project Procurement Management
All right. You really are making great progress. You’re doing a good job. You’re keeping that positive mental attitude that you can do this. I know there are a lot of terms, a lot of facts and things that you have to know for your exam. Procurement has a lot of special terms in it. So I really want to encourage you to spend some extra, extra time knowing these terms and procurement as a vendor, which I am the seller in our relationship, I just want to say thanks.
You have a lot of choices when it comes to preparing to pass your exam. And so I want to say thank you for choosing this course and for having some confidence in me and trusting me to get you this far. I know that you can do this, but you need to know that you can do this. So thank you. And once again, I’m going to tell you you can do this. Keep that positive mental attitude. Keep working towards earning your P and P. I know you can get it done. I know it’s a lot of work, but it’s definitely something within your grasp. See, that wasn’t so bad. You finished this section on project procurement management. I didn’t say it was fun. Right? Remember I told you it was a little bit boring, but you did it.
Procurement management is really important. To know for your exam, you have to know procurement, even if you’re not the person doing procurement in your organization. We talked about procurement in an adaptive environment and creating a procurement management plan and the different rules and policies that you have to follow where you work.
So it’s very important. We looked at determining the contract height, make or buy decisions and those procurement documents. Then once we select the seller, we have to control procurement that we want to make sure that both parties are living up to the terms of the contract. And we do contract administration. We talked about contract closure, and then we wrapped it up with this idea that you can’t buy the PMP. Okay, great job. Let’s keep moving forward. We’re almost there. We’re done with procurement management. So now let’s go talk about stakeholder management, something much more enjoyable.