When it comes to project management, there are a range of different areas that the project manager will need to oversee. These include the planning of the project, working with the project team and, of course, any procurement that is necessary for the project. Project procurement is a very interesting area of any project. However, it can also be the most time consuming and complex area if things go awry.
Procurement is necessary when there are constraints on the project. These might be as a result of the project team not having some of the necessary skills or expert knowledge for certain aspects of the project. Or it may be due to issues with resources that need to be located from an external source. One thing you will learn on any courses for professional project managers is that the procurement process can play a really important role in the success of your project. Therefore, it is vital to ensure that it is done properly.
The process for procurement management can be split into four separate and distinct parts, in much the same way as the process for project management itself. These are:
In order to understand the importance of each of these parts of the project management procurement process we will look at each of them separately in detail.
The procurement process – planning
The planning part of your project, no matter what type of project you are involved in, is when it is important to identify any procurement needs you may have.
Statement of Work (SOW)
For every contractor that you need to bring in from externally for your project you will need a Statement of Work. In this document, all of the work that they will be undertaking should be laid out. However, it is important to remember that before you can issue this documentation you will need to allow several different contractors to make proposals. You will need to receive more than one bid for the work. This way, you can select the one who is most suited to the needs of your project.
You need to be very clear on what exactly it is that you are trying to procure and how you intend to do so. You’ll also need to define how long you are going to give the procurement process for any particular element and what the end dates of your project are likely to be. Anyone bidding for the work will want to know this when they make their offer to you.
When selecting the most appropriate contractor for your project you should of course be comparing like for like in the bids that you receive. If one bid is significantly lower than the other, then there is often a reason for this. Remember, this is far more likely to be missing information rather than a cheap bid for all the work that you require. When asking for bids for the work make sure you look as far and wide as possible. And, if you have worked with contractors before who you would be ideal for the work you may find it is worth asking them to bid.
Whilst you obviously want to ensure that you get the best deal for the work involved, don’t delay too long. Not only will this have an impact on your project, but contractors will be bidding on a number of contracts for different projects. They are unlikely to wait around for you to decide if they get a response from someone else in the meantime.
Once you have made your decisions, you will need to make sure that you have signed agreements with your contractor and that you have updated the plans for your project. From this point onwards it is vital that you keep on top of things with your project.
Types of contract
Within your procurement management plan, you will need to make sure that you have any information regarding the types of contracts that you may wish to use in the project. There are a number of different types of contracts that you may want to consider:
- Fixed Fee – this type of contract needs the contractor to give you a single price for each piece of work. They are then responsible for any changes in terms of the project risk and any prices. In other words, if something that they need to use rises in price the responsibility for that increase is born out by the fee they have charged you. That way you will not be responsible for finding the additional money. This is sometimes also referred to as a lump sum fee.
- Time and materials – this type of contract does not have a fixed profit. This doesn’t mean that the contractor won’t make a profit, but that this is already budgeted into the rates that they charge for any people and equipment than might be needed for the project. This is a variable fee and will be billed to you, the project manager, when money has been spent out. This type of contract can be rather opened ended. So, it is important to prevent your budget getting out of hand. Adding a limit which cannot be exceeded without the contractor having a discussion with you is a wise move in these circumstances.
- Cost Plus – this type of contract is one that contains both a fixed part (plus) and a variable one (cost). The contactor can be paid for the costs that they incur, and the fixed component of the contract refers to any profit. It is up to the contractor to invoice the project for any costs. These should be actual costs and not bids. The fixed part is the money that they receive regardless.
The procurement process – execution
During the execution phase of any project, the procurements that you have already identified will need to be put into practise. Every project is of course different, and this is where project management skills will stand you in good stead. But, as they will usually follow the same important steps it is important to consider this as a basis for the execution part of your project.
Statement of work
We have already covered what this entails. However, it is important to consider that you make sure your documentation contains every detail possible. This will include a list of the deliverables and tasks that you have put together. These will assist your chosen contractor when it comes to ensuring that all of the required work for the project takes place. Ensure that there is nothing missing from this documentation. If there is, then your contractor may be able to ask for more money in order to do the work that was not included on the documentation. If anyone has asked for clarification during the bidding process, then you may already have clarified some of these issues so make sure these clarifications have been written into your documentation. If you have received lower bids, it may be that they are as result of this missing information. They result in this contractor hoping you will select them and that they may be able to gain an increase to the project budget further down the line.
It is also important to have an estimate in place prior to any tendering. This will ensure that when you receive tenders you already have the money in place.
In addition to your statement of work, and also considered a terms of reference document which will set out any of the requirements relating to technical work, you will need to prepare bid documentation as part of the project management procurement. This is the paperwork that makes a very detailed list of any logistical information that contractors will require in order to help them submit their bids. There are other terms by which you may find this referred to. These include Request for Proposal Invitation to Tender and Request for Quotation.
Once this documentation has been completed as fully as possible it is necessary to advertise your tender. This advertising should take place in a way that makes it accessible to a wide number of contractors. From the tenders that you receive for the contract you will need to select the one who you feel is the best fit for your project. In much the same way as the information contained in a job application is used to select someone, so too is the information you are provided with in a tender.
Doing the work
Once you have a contract in place it is time for the work to begin. As the project manager it is particularly important that you check the quality of the work and also the timing promptly at regular intervals. This doesn’t always have to be in person, and if the contractor is working in an offsite location, it may not be practical for this to be done any other way than by regular virtual update meetings. Any larger aspects of the project that a contractor is working on should be checked early on in the process in case there are any issues, and they need to be rejected.
In cases where the contractor feels there is work that is outside of the project remit that needs to be completed it is important for them to report this to the project manager before they go ahead. This type of work should not be completed without approval. Approval is sometimes not that easy to give, however sometimes it may be exactly what is holding the project up. This can have significant implications for the budget of the project.
This third step of the project management procurement process involves the quality control inspections that will need to be carried out on the work that the contractor has completed. The documentation that has already been completed between the project manager and the contractor will have specific instructions that the contractor will need to follow in order to complete the work they have been given. This information may have included specific specifications. Unfortunately, these will need to be rigorously checked as there is always the possibility that these could have been inaccurately misrepresented – this is why regular checking is a must.
The final step is of course closure. In the case of work carried out by a contractor this is usually in the form of a certificate which states that the work carried out has been fully and legally completed.
When it comes to planning future projects, many companies look back over past projects. They can assess the work that has been carried out by contractors. This often offers a very good starting point for considering how the cost of the work that was carried out pans out in terms of the work that may actually have been done on the project. It will also throw up information about any things that didn’t work well and should maybe be avoided in the future. In addition, it will highlight those things that went particularly well. Even bad things that occurred on a previous project can have their benefits and that is that they offer a very valuable learning opportunity for future projects.
Project management procurement can be a difficult and complex field. However, for the project manager with an eye for detail and the ability to chase things often and keep an eye on them it can also be incredibly rewarding.
The key things that anyone working in the field needs to remember are that details, especially the little ones are incredibly important. If a small detail is missed at the tender stage of the project, it offers the opportunity for the contractor to ask for more money later in order to complete that part of the work. This can have a significant impact on the project budget. It is also vital to keep checking on all of the small details that the contractor is working on to ensure that it follows the specifications of the project. A failure to do this also has the potential to add to the cost of the project.
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Besides the Statement of Work (SOW), there are also plenty of documents to be submitted to the procurement team such as Purchase Requisition Forms, Purchase Orders, Invoices, etc. Obtaining, filling, and submitting these documents takes a long time that nobody can afford in the modern competitive world. For that reason, managers should consider the way of automating this process. There are two ways:
1. Hiring a person, who will be responsible for the procurement process for a certain project, which is a time-consuming process with all procedures of onboarding and so on.
2. Consider developing automation software in-house/outsourcing or burying ready-to-go solutions for automating procurement workflow.
At this stage, everything is up to the company’s executives.
The details of the procurement process and the level of paperwork required vary from sector to sector. Certainly, for public procurement, the process has legal requirements and regulations. You are right that it need to be planned and executed carefully. I am not to sure I agree with your point about software solutions. They can be a double edge sword, imposing requirements that are not relevant to every situation.
@Fluix I have updated the post based on you feedback. I hope you find it useful.
Very useful blog that provides an overview of this complex aspect of project management