Project Procurement Management
Procurement management involves the planning, negotiating, buying, administration, and payments to vendors for supplies and services provided from outside your project team. They buyer-seller relationship can exist at many levels on one project.
It is important to understand types of procurement contracts, source selection approaches, negotation techniques, payment systems, legal rights, and associated ethical issues. Learn how to negotiate effectively, minimize your project risk through effective planning, and build good communications with your vendors.
Types of Contracts
|Type of Contract||Pros||Cons|
|Firm Fixed Price (aka Lump Sum)||Good budget confidence for the buyer.||Increased cost risk for the seller. Often not acknowledged, but often increased quality risk to the buyer.|
Cost Plus Fixed Fee
|Protects the seller.||Increased cost risk for the buyer|
|Cost Plus Percentage of Cost||Protects the seller.||Increased cost risk for the buyer|
|Cost Plus Incentive Fee||Protects the seller while providing reward for the buyers goals.||Increased cost risk for the buyer|
|Time and Material||The quickest form of contract to agree upon. Can be benefitial for quality issues||Risky price to the buyer.|
Types of Procurement Documents
- Purchase Order
- Letter of Intent
- Definitive contract (the final approved contract)
- Request for Proposal (RFP)
- Request for Information (RFI)
- Request for Bid (RFB)
- Statement of Work (SOW)
Once tactics are recognized, they can be reduced or eliminated. The fait accompli is one of three common tactics that managers should be aware of, including the frontal attack and divide & conquer. The fait accompli tactic is a dirty trick and it is unfair, but one project managers should be proactive against. The term comes from the French term “an accomplished fact” and is defined a few different ways:
- A scheme which has been already carried out with success.
- A fait accompli refers to an action which would be difficult to undo and which therefore becomes the basis for future negotiations and discussions.
- Too late, we’re already past that.
- You don’t have any say in this matter.
- Companies mailing you an invoice for products and services that you did not agree to buy.
- The tactic is often used by people who overstep their authority or by those who don’t want to discuss an issue, because they know they won’t like the other parties response. They just proceed pretending that negotiations were decided in their favor.
- The tactic is also often used by larger companies to dominate smaller ones.The method involves drawing the smaller party into a mutually advantageous endeavor, then changing the terms, after the smaller party is committed. By then the costs associated with backing out are worse than accepting the new terms.
- One party may inappropriately commit money and resources that when they have no authority to do so.
- The purchasing department sends a cheque for a lower payment than is due for goods and services, and a note marked “Full and final settlement”. Terms of payment are 2% discount if paid in 7 days. The firm pays in 30 days but deducts the 2% anyway.
- Taking action outside your authority and acting like you “didn’t want to bother” the other party with it such as removing someone else’s property, trimming your neighbor’s trees, spending someone else’s money, etc.
- They may pretend that an authority figure told them to do something, when they did not.
The best way to deal with this is to be proactive and to know if the party plays dirty in other ways – especially if this is a tactic the party has used before. If so, you need to be proactive to get formal agreement that before certain things are done, both parties will come to agreement on them – and define how that agreement will be formalized. This will defuse the “I thought I could proceed without discussing it with you” excuse. And it will put you in a position to be granted damages if they are still dirty enough to proceed using the tactic.