Procurement

Definition

Procurement is the process by which products and services are acquired from an external provider for incorporation into the project, programme or portfolio.

General

In procurement, an external source represents anything outside the project, programme or portfolio. External sources will often be supplier or contractor organisations, but may also be another department or division of the host organisation.

Where the external source is a separate legal entity, the terms under which goods and services are procured will be the subject of a legal contract. When the source is part of the same organisation, a service-level agreement may be used.

Procurement typically covers the acquisition of:

  • standard ‘off the shelf’ goods and services;
  • goods or services that are designed and provided specifically for the purchaser;
  • professional advice or consultancy.

The work involved in procuring resources can be a significant project in itself. The way procurement is to be managed is set out in the resource management plan. This describes how to acquire and manage the goods and services required. The plan covers factors such as the:

  • ‘make’ or ‘buy’ decision;
  • use of single, integrated or multiple providers;
  • required provider relationships;
  • provider selection;
  • conditions and forms of contract;
  • types of pricing and methods of reimbursement.

In some projects, programmes or portfolios, procured resources can represent the majority of the cost, so a rigorous procurement process is vital to success. All procurement involves risk and all aspects of the resource management plan must be prepared with risk management in mind.

One example is the choice of payment methods, which include:

  • fixed price (low risk to the buyer but needs a detailed specification);
  • cost plus fee (used where scope is flexible but has greater risk of cost overrun);
  • per unit quantity (for use where units are well defined but numbers are indeterminate);
  • target cost (where risk is shared and the provider is rewarded for cost savings).

A package breakdown structure, based on a product or work breakdown structure, shows how the scope of work will be arranged in order to procure packages from different providers. The allocation of work to these packages is another important mechanism for managing risk.

For each package, the relative emphasis on time, cost, quality, and the tolerances on each, needs to be considered. For instance, if a package is on the critical path of the project, then there will be greater emphasis on time performance. Consciously addressing these factors greatly influences how contract incentives are designed.

Ethical procurement is also important. A P3 management team needs to be able to demonstrate that its procurement practices are ethical and transparent, and that good governance, corporate accountability and probity are being observed.

Project

Stand-alone projects may be able to take advantage of procurement arrangements set up by the host organisation. Similarly, those that are part of a programme or portfolio may find that much of the procurement is handled at the higher level.

When a project has specialist, or unique, requirements it will need access to procurement specialists and must consider procurement implications as early in the life cycle as is practicable. Waiting until the full approval of the project at the end of the definition phase may, for example, result in tender delays and long lead times having a detrimental effect on the schedule.

Programme

The size of a programme may enable economies of scale through consolidating and coordinating the procurement needs of multiple projects. An overall resource management plan for the programme will govern how projects acquire goods and services.

A programme may be able to make use of partnering and alliancing to create long-term relationships with providers. It may also be able to set up enabling contracts that agree unit prices for goods and services that can be called off by individual projects.

Portfolio

A portfolio, and all its component projects and programmes, should take advantage of organisational-level procurement resources. If such facilities do not exist, the scale of a portfolio may justify investment in e-procurement, for example, or creating lists of preferred providers.

Stakeholder management of providers, through conferences and regular communication to foster a partnership approach, can be justified at the portfolio level for the benefit of component projects and programmes.

 

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