This chapter focuses on the topic of Project Procurement Management; like the other knowledge areas, it begins with a process of planning, which in this case produces a procurement management plan. It then uses this plan to carry out the procurement work, which involves making decisions about whether to procure goods, services, or resources from external sources and, if so, how to advertise and award the contract, and what form of contract to use. Procurement management also involves monitoring contractual terms for performance and includes a process for making sure all contracts are formally closed.
The PMBOK
®
Guide processes
Project Procurement Management
knowledge area
The four processes in the Project Procurement Management knowledge area are as follows:
- Plan Procurement Management (planning process)
- Conduct Procurements (executing process)
- Control Procurements (monitoring and controlling process)
- Close Procurements (closing process)
What Is Project Procurement Management?
Exam Tip
If you are familiar with the ISO 31000 Standard for Procurement Management, much of this section will be familiar to you. Additionally, much of this topic is based on formal government procurement processes.
Project procurement management is focused on planning for and making decisions about whether to procure goods and services needed on the project from external sources, which form of contact to choose, how to select sellers to deliver the work, and how to check that the work is being done in accordance with the agreed contracts.
The Plan Procurement Management process results in a procurement management plan, which guides the other procurement management processes. The organization looking to procure goods or services then performs a make-or-buy analysis
to determine whether it should complete the work internally or source the goods and services from external sources. After the decision has been made to go to external sources, the buying organization then decides what form of contract it will use, how it will inform potential sellers of its needs, and how it will select the successful seller.
When the contract has been signed, both parties take responsibility for checking that the agreed contract terms are being followed and that any changes to the contract are formally documented.
Finally, all contracts must be closed. Contractual closure does not mean project closure, because contracts can be closed at any time during a project. Remember, contractual closure must be performed before project closure.
In any contract there are buyers, the party looking to acquire the goods or services, and there are sellers, the parties with goods or services to sell. There can be multiple sellers, but generally there is a single buyer.
Exam Tip
On the exam, unless otherwise stated, you should assume that you are the buyer in any contract. But read the question thoroughly to ensure that you understand whether you are the buyer or seller, because your answer to the question may be different depending on which position you are in. You can also be both buyer and seller at different points in the project. Take your time reading the question to understand the perspective from which you are answering the question.
Plan Procurement Management
More Info
Plan Procurement Management
You can read more about the Plan Procurement Management process in the PMBOK Guide, 5th edition, in Chapter 12, section 12.1. Table 10-1 identifies the process inputs, tools and techniques, and outputs.
Table 10-1.
Plan Procurement Management Process
Inputs ➪ | Tools and Techniques ➪ | Outputs |
|---|---|---|
• Project management plan • Requirements documentation • Risk register • Activity resource requirements • Project schedule • Activity cost estimates • Stakeholder register • Enterprise environmental factors • Organizational process assets | • Make-or-buy analysis • Expert judgment • Market research • Meetings | • Procurement management plan • Procurement statement of work • Procurement documents • Source-selection criteria • Make-or-buy decisions • Change requests • Project document updates |
The Plan Procurement Management process is a planning process with the procurement management plan and procurement statement of work as its main outputs. The purpose of this process is, as with other planning processes, to enable you and your team to proactively plan your particular approach to procurement requirements on the project.
The Plan Procurement Management process covers the following planning domain task:
- Task 7: Develop the procurement management plan based on the project scope, budget, and schedule, in order to ensure that the required project resources will be available.
Inputs
The Plan Procurement Management process uses some or all of the following inputs as part of the development of the procurement management plan for the project.
Project Management Plan
The project management plan
is a key input into the Plan Procurement Management process because it contains vital information about the scope of work and elements of the scope of work that need to be considered for external procurement. These potential procurement elements are described in the scope baseline, which includes the scope statement, work breakdown structure (WBS), and WBS dictionary. The project management plan is an output from the Develop Project Management Plan process.
Requirements Documentation
The requirements documentation
includes information about specific project requirements that can be taken into consideration when looking at whether to make a requirement internally or procure it from external sources and, if the decision is made to procure it from external sources, what sort of contract is best to use. Requirements documentation
is an output from the Collect Requirements process.
Risk Register
The risk register
is an important input into the Plan Procurement Management process because it identifies specific risks around the decision to make goods or services internally versus the decision to procure them from external sources, and the risks associated with individual contract types. The risk register is an output from the Identify Risks process.
Activity Resource Requirements
Activity resource requirements
contain information about the resources required to complete individually identified activities; this information can be useful when making decisions about whether to procure goods and services externally and the type of contract to use. Activity resource requirements are an output from the Estimate Activity Resources process.
Project Schedule
The project schedule is
a key input into the Plan Procurement Management process because it outlines the planned deliverable dates of particular activities and tasks, and this information is used when negotiating contracts. The project schedule is an output from the Develop Schedule process.
Activity Cost Estimates
Activity cost estimates
include the cost estimates of individual activities, which can then be used to anticipate what likely contractual responses will be and assess whether they are reasonable and accurate. Activity cost
estimates are an output from the Estimate Costs process.
Stakeholder Register
The stakeholder register
identifies individual stakeholders and their interest in the project. Thus it is useful in terms of managing stakeholder expectations around which goods and services will be procured externally and the type of contract selected. The stakeholder register is an output from the Identify Stakeholders process.
Real World
The type of contract selected will have an impact on the stakeholders, particularly if stakeholders are to be intimately involved in the administration and execution of the contract. Many types of contracts set up an adversarial relationship with stakeholders, whereas other more modern forms of contract establish a relationship based on trust between stakeholders. Thus, having an in-depth knowledge of how your stakeholders will perceive and react to different contractual decisions is an important consideration in your procurement management process. A style of contract that works for one group of stakeholders may not work for another group of stakeholders. Also, keep in mind that many stakeholders will have preferred vendors and long-established types of contracts with them.
Enterprise Environmental Factors
The specific enterprise environmental factors
that are useful as inputs into the Plan Procurement Management process include any marketplace conditions that determine whether there will be a lot of interest in your procurement decisions, the specific types of products and services available in a particular marketplace, the size of the marketplace and whether you can stay local or have to go wider in your search
for suppliers, and the expected terms and conditions for contract types with particular industries.
Organizational Process Assets
The specific organizational process assets
that may be important inputs into the Plan Procurement Management process include any formal procurement policies the organization has that state what goods and services will be procured, how the decisions will be made, what sort of contract types are preferred, and who has responsibility in negotiating and administering the contracts.
Real World
I have found that most organizations have clear procurement policies that specify when external procurement can be or must be used, and the type of contract that the organization prefers. You should always endeavor to familiarize yourself with any procurement policies your organization has.
Exam Tip
You must always conduct procurement in accordance with the relevant organizational procurement guidelines. Don’t be tempted to act outside of the guidelines: if the guidelines are wrong, you can seek to change them; but until they are changed, you must adhere to them.
Tools and Techniques
The following tools and techniques are available to be used to develop the inputs in this process in order to produce the procurement management plan.
Make-or-Buy Analysis
The
make-or-buy analysis
is a comprehensive description of the decision-making process an organization goes through when deciding whether it should make the goods or services it requires itself or seek to acquire goods or services from external sources. There are a number of ways of making the decision and a number of factors to take into account.
Of the factors that can be taken into account when making a make-or-buy decision, the following are the most important:
- The organization’s risk profile and risk tolerance
- Ownership of intellectual property
- Availability of suitable sellers
- Availability of internal resources capable of delivering a good or service
- Timeframes for delivery of a good or service
- Length of time the resource required for the good or service is needed on the project
- Ability to support ongoing changes and technical support
The make-or-buy process should follow established procedures that take into account the relevant factors. You can even assign weights to various factors to enable you to score factors differently.
In making make-or-buy decisions, you may also want to use more quantitative methods such as the decision tree analysis used in Chapter 9 in the Quantitative Risk Analysis section.
Expert Judgment
Expert judgment is
an excellent tool to use when planning your approach to procurement management. Using the knowledge and experience of subject matter experts will be invaluable not only in your overall procurement management plan, but also in identifying and completing an analysis of procurements. Suitable experts who may provide judgment include senior management, stakeholders with relevant experience, external subject matter experts such as procurement professionals, industry groups, and professional associations.
One particularly
useful type of expert that you should consider using in your procurement management decisions is the legal expert. Your procurement decisions will be supported by legally enforceable contracts, so it is highly recommended that you involve experts with legal experience in the formation, negotiation, execution, and administration of any procurement contracts.
Real World
I have always found that referring decisions about contracts to legal experts is a good investment. The wording of contracts can be complicated, and it often takes somebody with particular experience in an area to be able to effectively negotiate a contract that is easy to understand and enforce and doesn’t place an undue amount of work on one or the other of the parties involved. Certainly any changes or variations to contracts should involve people with legal expertise.
Market Research
Market research
is carried out to determine the capability and availability of potential sellers in the market and their interest in responding to your procurement requests. Additionally, any market research you carry out may reveal additional ways of delivering goods and services; as such, it is an important tool in the Plan Procurement Management process.
Meetings
Meetings are a great
way to bring together project team members, stakeholders, and other experts to consider how procurement will be managed on the project. There are a number of ways you can run these meetings in order to efficiently obtain the information you require. They can be run formally with defined agendas and examination of reports, or they can be run as creative brainstorming sessions. The style of meeting you choose to use will reflect the participants and your intended outcomes.
Outputs
After the appropriate tools and techniques have been applied to the selected inputs, the Plan Procurement Management process has the following outputs.
Procurement Management Plan
The Plan Procurement Management process
has the procurement management plan as its major output. Similar to other management plans, the procurement management plan provides a guide for completing the procurement management activities in the project. The procurement management plan will probably contain information about the types of contracts to be used, whether independent estimates will be used to check responses received, any methods for identifying and selecting sellers, and any other important procurement information that can be used in the other three procurement processes. The procurement management plan goes on to be used as an input into the Conduct Procurements process. Given that it is also a subsidiary plan of the project management plan, is used as an input into the Control Procurements process and Close Procurements process.
Procurement Statement of Work
The procurement
statement of work
is an output that describes each good or service that will be procured externally in enough detail to allow potential sellers to determine whether they are interested in and able to provide the goods or services sought. You should spend as much time as possible defining the procurement statement of work because it will form the basis of your procurement contracts, and any omissions or areas that are not sufficiently defined may cause conflict in the administration of the
contract.
Exam Tip
You can think of the procurement statement of work as a type or subset of the project scope of work specifically focused on the work to be done as part of a contract for goods and services.
Procurement Documents
A variety of key procurement documents are produced as a result
of the Plan Procurement Management process. They are useful in soliciting responses from prospective sellers and will form the basis of the contracts that will eventually be agreed on. Some of the more common types of procurement documents include the following:
- Request for information (RFI)
- Expression of interest (EOI)
- Invitation for bid (IFB)
- Request for proposal (RFP)
- Request for quotation (RFQ)
- Tender
Real World
If you have ever been involved in any formal seller-selection process, you will find this section very straightforward. However, if you have not been involved in formal contractual negotiation processes, pay particular attention. It is not uncommon for a project manager to receive negotiated contracts without being involved in the make-or-buy decisions, seller selection, and contractual negotiations.
Source-Selection Criteria
The point of source-selection criteria is to enable the buyer to rate
individual seller responses. They can include both objective and subjective criteria. The source-selection criteria reflect the criteria that are important to you and your decision-making process for selecting sellers. In addition to the prices submitted, you may also want to take into account a variety of other factors and give them a particular weight to reflect their importance. Examples of the types of criteria you may want to take into account include how well the seller understands your needs beyond what you may have described in the procurement statement of work, their technical ability to deliver the requested solution, the financial stability of the organization, their previous experience doing this type of work, and references from other buyers who may have used this seller. You can use the source-selection criteria during the Conduct Procurements process.
Real World
There are certain occasions when your only source-selection criterion will be the lowest price; however, in many instances you will want to take into account other criteria in selecting a seller. Typically, you should look at their experience, their financial stability, the staff members who are allocated to do the work, and other factors such as health and safety and environmental record.
Make-or-Buy Decisions
The output from the make-or-buy analysis
will be make-or-buy decisions. These documented decisions outline how you decided to either make the goods or services internally or go to external sources. Make-or-buy decisions are used as an input
into the Conduct Procurements process.
Change Requests
As a result of carrying
out the Plan Procurement Management process, you may want to change some elements and subsidiary plans or baselines of the project management plan via a change request. All change requests go on to be used as inputs into the Perform Integrated Change-control process.
Project Document Updates
The types of project documents
that may be updated as a result of completing the Plan Procurement Management process are the project scope, requirements documentation, risk register, and stakeholder register.
Quick Check
1.
What is the main focus of the Plan Procurement Management process?
2.
What are some of the factors you take into account when conducting a make-or-buy analysis?
3.
What are some typical factors included in source-selection criteria?
Quick Check Answers
1.
The main focus of the Plan Procurement Management process is to make decisions and provide a documented guideline for the rest of the procurement management processes. This information is contained in the procurement management plan, which is a subsidiary of the project management plan.
2.
The types of factors that can be taken into account when conducting a make-or-buy analysis include the risk profile of the organization, the issue of ownership of intellectual property, the timeframe in which the work must be done, the current capability of internal resources, and the cost differential between choosing to make a good or service internally and procuring it externally.
3.
In addition to including the price in the source-selection criteria, you may choose to include how well the seller understands your needs, their proposed response and the life-cycle cost, their technical ability to deliver the solution, the staff they have allocated to do the work and their experience, any warranties they offer on the work being completed, the financial capacity and stability of the performing organization, their past performance in doing this type of work, references from others who have used them, and who owns the rights to the work done.
Conduct Procurements
More Info
Conduct Procurements
You can read more about the Conduct Procurements process in the PMBOK Guide, 5th edition, in Chapter 12, section 12.2. Table 10-2 identifies the process inputs, tools and techniques, and outputs.
Table 10-2.
Conduct Procurements Process
Inputs ➪ | Tools and Techniques
➪ | Outputs |
|---|---|---|
• Procurement management plan • Procurement documents • Source-selection criteria • Seller proposals • Project documents • Make-or-buy decisions • Procurement statement of work • Organizational process assets | • Bidder conference • Proposal evaluation techniques • Independent estimates • Expert judgment • Advertising • Analytical techniques • Procurement negotiations | • Selected sellers • Agreements • Resource calendars • Change requests • Project management plan updates • Project document updates |
The Conduct Procurements process is an executing process that seeks to carry out the initial identification of prospective sellers, effectively pass on to them information about the work required, get responses from the sellers, evaluate and select the best seller for the job, and sign an agreement or contract.
The Conduct Procurements process covers the following executing domain task:
- Task 1: Acquire and manage project resources by following the human resource and procurement management plans, in order to meet project requirements.
Inputs
The Conduct Procurements process uses some or all of the following inputs.
Procurement Management Plan
The procurement management plan
is an important input into the Conduct Procurements process because it outlines exactly how the Conduct Procurements process will be carried out. The procurement management plan is an output from the Plan Procurement Management process.
Procurement Documents
The procurement documents
are an output from the Plan Procurement Management process and include a range of different documents for soliciting information from prospective sellers. As such, they are an important input into the Conduct Procurements process.
Source-Selection Criteria
Source-selection criteria
are used during the Conduct Procurements process to enable an evaluation of sellers against predetermined criteria that are important to the organization buying the goods or services. Source-selection criteria are an output from the Plan Procurement Management process.
Seller Proposals
Seller proposals
are documents received from interested sellers in response to a particular procurement documents package that you have put out to the market. They are in the form prescribed in the procurement documents and contain enough information for the buyer to evaluate the response and decide whether the seller is to go on to the next stage in the procurement process.
Exam Tip
Did you notice that seller proposals are not an output from any other process? Instead, they are an independent input into this process.
Project Documents
The specific types of project documents
that are useful as inputs into the Conduct Procurements process include risk-related contract decisions captured by the risk register, which is an output from the Plan Risk Responses process.
Make-or-Buy Decisions
The documented make-or-buy decisions
are used as an input into the Conduct Procurements process to enable verification of the decisions made about which goods or services to procure externally. Make-or-buy decisions are an output from the Plan Procurement Management process.
Procurement Statement of Work
The procurement statement of work
is required as an input into the Conduct Procurements process because it forms the basis of any procurement documents to go out to the market for sellers to review and respond to. The procurement statement of work should be as detailed as possible, because sellers’ responses will only be as detailed as the procurement statement of work. The procurement statement of work is an output from the Plan Procurement Management process.
Real World
A poorly worded procurement statement of work will lead to assumptions about what work is included and what is excluded from the contract, and these assumptions can lead to requests to change the contract or to contractual disputes. It is a good idea to make the procurement statement of work as detailed as possible to avoid these potential problems.
Organizational Process Assets
The specific types of organizational process assets
that assist in the Conduct Procurements process include any historical information about market conditions, databases of prospective or prequalified sellers, and any other information about previous experience with sellers.
Real World
Many organizations keep lists or databases of prequalified sellers that have already gone through a selection process and met defined requirements to be able to provide goods or services to the organization. Usually the organization will simply issue procurement requests to these prequalified sellers and only go to the wider market when none of the prequalified sellers is able to provide the required good or service.
Tools and Techniques
The following tools and techniques are used on the inputs to deliver the Conduct Procurements process outputs.
Bidder Conference
A
bidder conference
is any type of formal meeting between the buyer and all prospective sellers for the purpose of exchanging further information and answering questions. Bidder conferences are generally fairly formal with rules to ensure fairness to all sellers participating in the process. They are also increasingly held virtually, with Internet forums being used to solicit questions and provide answers.
It is extremely important
that you keep all bidder conferences fair and equitable to all sellers involved in the process. This means if a seller asks you a question, you must provide the answer to all bidders. As a general rule, you should refuse to go into private talks with any seller during this process unless it is for commercially confidential information. This is not merely a good suggestion but also often a legal, commercial, or organizational requirement in
many countries, and failure to follow it could result in your decision being challenged in court.
Proposal Evaluation Techniques
Proposal evaluation techniques
include a range of methods for evaluating and scoring the different responses received from individual sellers. They can use the source-selection criteria to provide a weighted-attribute selection model. They can also take into account any other important elements useful in differentiating and distinguishing between seller responses.
Independent Estimates
Independent estimates
are used as a technique to ensure that the seller responses in relation to cost are reasonable. You will want to carry out your own independent estimates to ensure that sellers are not bidding either far too high or too low, both of which indicate potential problems. Sellers bidding high can indicate either collusion between sellers or more commonly, incorrect information contained in the procurement statement of work, or information that is being misinterpreted.
A range of prices lower than your independent estimates could indicate once again that the procurement statement of work and procurement documents provided are inaccurate, or that an organization is deliberately bidding low in order to win the work. The risk in this case is that the organization may go out of business trying to complete the work or that it is relying on variations to the contract to make the job profitable.
Expert Judgment
Expert judgment
is an excellent tool to use in evaluating seller proposals. The range of experts you will use during this process include people with experience in the procurement response process, contract negotiation and administration process, legal process, finance process, and any other relevant areas of expertise.
Advertising
Advertising
is a tool you may choose to use in order to take your procurement proposals to a wider market. You may choose to advertise in specific industry publications or more broadly in public newspapers. The type of advertising you choose will reflect the audience you are trying to reach.
Analytical Techniques
Analytical techniques
involve a detailed analysis of the seller responses to examine them for completeness and accuracy to ensure that the seller is able to carry out the work. You may choose to bring in independent experts to carry out audits of the seller responses and even of the sellers’ organizations, particularly in relation to financial capability and stability.
Procurement Negotiations
Procurement
negotiations
can be simple and straightforward, or they can be highly complex affairs requiring teams of experts and a long period of time to work out. The end result is a contract that both parties are happy to commit themselves to.
Real World
Like project management, the world of contract negotiation requires a distinct set of skills and experience. I have found that if you are entering into complex negotiations, you should enlist the help of experts with both technical expertise and negotiation expertise.
Outputs
The Conduct Procurements process has the following outputs.
Selected Sellers
After carrying out the Conduct Procurements process and advertising for sellers, carrying out bidder conferences, evaluating seller responses, and negotiating contracts, you will choose the
selected sellers
to provide the goods or services required for the project.
Agreements
A procurement
agreement
is generally reflected in a contract between the organizations involved in buying or selling the goods or services for the project. It is important to keep in mind that a contract is a legally binding document with conditions that must be understood by both parties. Most agreements or contracts feature the following content in their terms and conditions:
- Description of the parties to the contract
- The outline of the work to be done as part of the contract
- The timeframe for delivery
- How and where the work is to be performed
- The agreed price
- A description of incentives used
- The terms of payment
- Penalties for nonperformance
- Termination clauses
- Dispute resolution procedures
- Ownership of intellectual property
- Audit, inspection, and acceptance criteria
- How variations will be handled
Real World
I’ve found that many project managers do not take the time to read a contract in its entirety. I strongly recommend that if you have any contracts for work on a project, either as a buyer or seller, you take the time to read the entire contract and understand the terms and conditions it contains. If you do not understand certain parts of the contract, you should seek clarification from experts who do.
There are several forms of contract you can use. The differences between the forms reflect the risk apportioned to the buyer or the seller. Table 10-3 lists the types of contracts and indicates where risk is apportioned.
Table 10-3.
Types of Contracts
Type of Contract | Description | Risk Apportionment |
|---|---|---|
Fixed-price contract (also known as lump sum contract) | A form of contract that includes an agreed, fixed price for the delivery of goods and services. There are several variations, as follows: 1. Firm fixed-price contract (FFP) with no provision at all for cost overruns 2. Fixed-price incentive fee contract (FPIF), which offers an incentive fee for meeting cost or time targets 3. Fixed-price with economic price adjustment contract (FP-EPA), which is often used on longer contracts and allows prices to be amended to reflect changes in inflation rates or exchange rates
| Seller has the risk. If the cost to deliver the goods or services is greater than the fixed price, the seller bears the extra costs. |
Cost-reimbursable contract | A form of contract that requires the seller to pass on the actual cost of the work to be done. There are several variations, including the following: • Cost plus fixed-fee contract (CPFF), which reimburses the seller for actual costs incurred and provides an additional fixed fee • Cost plus incentive fee contract (CPIF), which reimburses the seller for actual costs incurred and offers an incentive fee for meeting or exceeding agreed cost or time targets | Risk is split between buyer and seller, depending on the actual form and wording of the contract. |
Time and material contract (T&M) | A form of contract where the seller charges for all time spent and materials used with no agreed maximum. This form of contract is typically used on projects that are either small and of low complexity or emergency works, or where there is a poorly defined scope of work.
| Buyer has the risk because there is no agreed maximum price. |
A method for determining where risk lies between buyer and seller cost is to use the calculation for point of total assumption (PTA)
, particularly when using fixed-price incentive fee (FPIF)
forms of contract. The point of total assumption is the point in the contract where the seller assumes total responsibility for all cost increases. In order to calculate this, you need a contract that has an agreed maximum ceiling price, target
cost to the seller, target price to the buyer, and agreed ratio between buyer and seller of the percentages of costs over the target cost each party is responsible for.
For example, consider a fixed-price incentive fee contract with a seller that sets a maximum price the buyer will pay (ceiling price) for the contract of $50,000, a target cost to the seller of $42,000, and a target price to the buyer of $46,000. There is also an agreement that the buyer will pay 60% of the cost overrun above the target cost. Using these figures, you can use the following formula to calculate the point of total assumption:
For this example:
Point of total assumption = $42,000 + (($50,000 – $46,000)/0.6)
= $42,000 + ($4 000/0.6)
= $42,000 + $6,666.67
= $48,666.67
The point at which
the seller assumes total responsibility for all cost increases is $48,666.67. After this price is reached, the buyer has no further obligation.
Resource Calendars
A resource calendar
is a useful output from the Conduct Procurements process because it documents the resources committed to delivering the goods and services as part of the contract and the dates on which those resources are or are not available. The resource calendar goes on to be used as an input into the Estimate Activity Resources, Estimate Activity Duration, Develop Schedule, Determine Budget, and Develop Project Team processes.
Change Requests
As a result of carrying out the Conduct Procurements process, you may discover that changes need to be made to the project management plan, subsidiary plans, or baselines to reflect work that has been negotiated and agreed to. Any change requests
will be used as inputs into the Perform Integrated Change-control process.
Project Management Plan Updates
The specific parts of the project management plan
that may be updated as a result of carrying out the Conduct Procurements process are the cost baseline, scope baseline, and schedule baseline, to reflect any amendments made as a result of contractual negotiations.
Project Document Updates
The specific project documents
that will be updated include requirements documentation, the risk register, and any historical information.
Quick Check
1.
What is the main focus of the Conduct Procurements process?
2.
Why is it important to keep bidder conferences fair to all prospective sellers?
3.
Why is it important to carry out your own independent estimates?
4.
Who should be involved in procurement negotiations?
5.
What form of contract most favors a buyer in terms of risk?
6.
Under what conditions would you generally choose to use a time and materials contract?
Quick Check Answers
1.
The Conduct Procurements process is focused on carrying out the process documented in the procurement management plan. This involves going to prospective sellers with information about the required goods and services, carrying out a fair and transparent process for selecting the sellers to do the work, and negotiating contracts.
2.
In order to solicit professional and fair responses to your procurement process, it is important to treat all potential sellers or bidders equitably and provide them all with the same information.
3.
There are several benefits to carrying out your own independent estimates. The first is to ensure that the estimates you are being provided with by potential sellers are neither too high nor too low, perhaps indicating incorrect or insufficient information contained in the procurement statement of work. Another benefit of carrying out your own independent estimates is to independently check the accuracy of responses received from sellers.
4.
The project manager should take responsibility for carrying out procurement negotiations, with the assistance of people with technical, legal, financial, and negotiation skills.
5.
The form of contract that most favors a buyer in terms of risk is a fixed-price contract, because in this instance the risk is with the seller, particularly if they have developed estimates based on inaccurate or incomplete information.
6.
You would generally choose to use a time and materials form of contract when the work is small and ill defined, or under emergency conditions where the work must be completed quickly and there is not time to negotiate any other form of contract.
Control Procurements
More Info
Control Procurements
You can read more about the Control Procurements process in the PMBOK Guide, 5th edition, in Chapter 12, section 12.3. Table 10-4 identifies the process inputs, tools and techniques, and outputs.
Table 10-4.
Control Procurements Process
Inputs ➪ | Tools and Techniques ➪ | Outputs |
|---|---|---|
• Project management plan • Procurement documents • Agreements • Approved change requests • Work performance reports • Work performance data | • Contract change-control system • Procurement performance reviews • Inspections and audits • Performance reporting • Payment systems • Claims administration • Records management system | • Work performance information • Change requests • Project management plan updates • Project document updates • Organizational process asset updates |
The Control Procurements process is a monitoring and controlling process focused on the sometimes complex process of checking that your procurement process and contracts entered into comply with both your procurement management plan and the terms and conditions contained within the negotiated contracts and agreements.
Exam Tip
It is the responsibility of all parties to a contract to carry out work to ensure that the terms and conditions of the contract are being fulfilled.
The Control Procurements process covers the following monitoring and controlling domain task:
- Task 7: Monitor procurement activities according to the procurement plan, in order to verify compliance with project objectives.
Inputs
The following inputs are used in the Control Procurements process.
Project Management Plan
The project management plan
is a key input into the Control Procurements process, especially the procurement management plan, which is a subsidiary plan. Specific elements of the project management plan that are useful include the scope management plan, the schedule management plan, and the cost management plan. The project management plan is an output from the Develop Project Management Plan process.
Procurement Documents
The specific procurement documents
that are useful as inputs into the Control Procurements process include any documents from the Conduct Procurements process that result in legal agreements being signed. You need these documents in addition to the individual agreements to understand the full breadth of agreements you are monitoring. Procurement documents are an output from the Plan Procurement Management process.
Agreements
You require any and all binding agreements between parties to all contracts in order to understand the terms and conditions and performance criteria you are monitoring. Agreements
are an output from the Conduct Procurements process.
Approved Change Requests
Approved change requests
can affect and modify any agreed terms and conditions of agreements or contracts. They are often referred to as variations, and it is important that as part of the Control Procurements process you check not only that the changes have been approved or agreed to, but also that they are being carried out as per the agreed change. Approved change requests are an output from the Perform Integrated Change-control process.
Work Performance Reports
Work performance reports
are the result when work performance information interprets work performance data. Work performance reports are useful in determining whether the terms and conditions of individual agreements are being met by parties to the agreement. Work performance reports are an output from the Control Project Work process.
Work Performance Data
Work performance data
that specifically relates to whether quality standards are being met is important in any assessment of whether contractual obligations are being met. Work performance data is an output from the Direct and Manage Project Work process.
Tools and Techniques
The following tools and techniques of this process can be used on the separate inputs to deliver the Control Procurements process outputs.
Contract Change-Control System
A
contract change-control system
, which includes the processes, guidelines, and tracking systems for reporting all requested changes, all variations, and the decisions made about them, is essential when monitoring the performance or lack of performance of any procurement agreements.
Exam Tip
Any and all changes to a contract need to be recorded in formally and in writing to reflect the formal nature of a contract.
Procurement Performance Reviews
As part of the normal course of administering a negotiated contract, it is common for the buyer to carry out procurement
performance reviews
. This involves comparing the seller’s performance against the agreed and documented criteria in the contract. The purpose of the procurement performance reviews is to determine whether there is any variance between what was agreed to and what is actually occurring.
Exam Tip
A procurement performance review is essentially the quality assurance process for any negotiated contracts. It focuses on the agreed processes contained within the negotiated contract and not the actual deliverable.
Inspections and Audits
Other key tools and techniques that can be used in the Control Procurements process are inspections and
audits
. Inspections are used to check deliverables, whereas audits are used to check that any agreed processes are being followed. As with other areas that use audits as a tool, it is often a good idea for them to be completed by independent personnel.
Performance Reporting
Performance reporting
takes information gathered as part of procurement performance reviews, inspections, and audits and presents it to management so that the seller’s performance against agreed contractual objectives can be easily communicated. There are a number of methods and formats for reporting performance, including text, graphics, color coding, and pictures.
Payment Systems
Payment systems
are used to record invoices received and payments made to the seller, and to ensure that they are in accordance with the agreed payment terms in the contract.
Exam Tip
All payments made as part of a negotiated and agreed contract should be strictly in accordance with the contract. Don’t be tempted to make payments outside of the agreed terms.
Claims Administration
Claims administration
is used when there is a dispute about the amount charged or the work done as part of a contract. It is generally a result of poorly worded contracts or a poorly defined scope of work. Claims can be made by either the buyer or the seller in a contract and are usually made for something to be done outside of the agreed procurement statement of work. If agreement is reached, then the claim ceases and a change is made to the contract. Resolving claims often requires the use of dispute-resolution techniques.
Exam Tip
The word claim refers to a disputed cost or change. If you use this word in everyday language to mean something else, you must remember that for the exam, this is the correct definition.
Real World
The process of claims administration is unfortunately a very common and often complex reality of dealing with contracts, generally arising as a result of poorly negotiated or ambiguously worded contracts. Avoiding this potential minefield is a simple process of taking extra time when writing up the original contract and being as explicit as possible about as many potential scenarios as possible to avoid extra time spent disagreeing about what the costs were and whether work performed constituted an agreed change to the contract.
Records Management System
A comprehensive
records management system
is essential for dealing with and recording all contract-related agreements and variations. The records management system is a subset of the project management information system.
Real World
Given that contracts are formal, written legal documents, you should ensure that your records management system reflects the importance of this and captures information in such a way that it can be retrieved, that it is accurate, and that it will be useful if any disputes escalate to litigation.
Outputs
The Control Procurements process has the following outputs.
Work Performance Information
As with other monitoring and control processes, the Control Procurements process has work performance information
as a major output. The work performance information compiles information gathered as a result of using the Control Procurements tools and techniques and presents it in a way that the intended audience can easily obtain relevant information about the project performance, specifically in relation to contractual administration and compliance. Work performance information can also be used by one contractual party to inform the other party of any areas of noncompliance. Work performance information is used as an input into the Control Project Work process.
Change Requests
Change requests
are a common output from any monitoring and control process. For the Control Procurements process, change requests relate to both internal project processes and also to change requests for the negotiated contracts.
Real World
It is very important that you document any and all changes, no matter how small, to any contract.
Project Management Plan Updates
As a result of carrying out the Control Procurements process, you may update specific elements of the project management plan
, which obviously include the procurement management plan and other plans and baselines such as the scope baseline, cost baseline, and schedule baseline.
Project Document Updates
The specific types of project documents that may be updated as a result of carrying out the Control Procurements process are generally focused on procurement documentation
, such as the initial description of work, processes relating to the selection of sellers, and any documents relating to how contracts are monitored.
Organizational Process Assets Updates
The specific organizational process assets
that will be updated as a result of the Control Procurements process are any historical information databases, correspondence files, records of payments made, and internal documentation regarding seller performance.
Quick Check
1.
What is the main focus of the Control Procurements process?
2.
What is the benefit of having a payment system in place?
3.
Why is it important to keep well-documented records of any claims made?
Quick Check Answers
1.
The Control Procurements process is focused on checking that the procurements process is being carried out as per the procurement management plan, and also that the terms and conditions of any contracts being used are being met by both parties.
2.
Having a payment system in place ensures that all payments required as part of the agreed contractual terms and conditions are paid on time and records are kept.
3.
If a claim has been made, that means there is a disagreement about performance on a contract. Disagreements can escalate and require dispute resolution. Having well-documented records will assist during any dispute-resolution process.
Close Procurements
More Info
Close Procurements
You can read more about the Close Procurements process in the PMBOK Guide, 5th edition, in Chapter 11, section 12.4. Table 10-5 identifies the process inputs, tools and techniques, and outputs.
Table 10-5.
Close Procurements Process
Inputs ➪ | Tools and Techniques ➪ | Outputs |
|---|---|---|
• Project management plan • Procurement documents | • Procurement audits • Procurement negotiations • Records management system | • Closed procurements • Organizational process asset updates |
The Close Procurements process is a closing process focused on ensuring that all contracts used in the project are either closed according to the documented terms and conditions, or closed as a result of nonperformance.
The Close Procurements process covers the following closing domain tasks:
- Task 1: Obtain final acceptance of the project deliverables from relevant stakeholders, in order to confirm that project scope and deliverables were achieved.
- Task 3: Obtain financial, legal, and administrative closure using generally accepted practices and policies, in order to communicate formal project closure and ensure transfer of liability.
Inputs
The following inputs are used in the Close Procurements process.
Project Management Plan
The project management plan
outlines the particular way in which you will carry out the closure of all contracts. Because contracts typically reflect many different aspects of the project, many subsidiary plans and baselines of the project management plan are required in order to successfully close procurements or contracts. The project management plan is an output from the Develop Project Management Plan process.
Procurement Documents
Obviously, in order to close any procurements, you require the relevant procurement documents that outline either the agreed terms and conditions for normal contractual closure or the processes for terminating a contract due to nonperformance. You also want procurement documents
that relate to how well the contractual terms have been met, how well the deliverables have been delivered, what payments have already been made and whether there are retention payments, and any other relevant material. Procurement documents are an output from the Plan Procurement Management process.
Tools and Techniques
The following tools and techniques of this process can be used on the separate inputs to deliver the Close Procurements process outputs.
Procurement Audits
Procurement audits
are structured reviews of how both the buyer and seller have carried out the procurement process. From the buyer’s point of view, the procurement audit checks that the procurement process has been carried out as planned and documented in the procurement management plan, right through to whether the seller met the terms and conditions of a negotiated contract. From the seller’s point of view, the procurement audit ill determines whether the procurement process as planned and documented has been followed for everything from responding to initial procurement requests through to product delivery and warranty requirements.
Exam Tip
Both buyer and seller should carry out procurement audits to ensure that there are no disagreements about which parts of the contract have been met and which haven’t, and also for the benefit of developing and documenting any lessons learned for future procurement processes.
Procurement Negotiations
Despite your best efforts at documenting and describing contractual processes that include a clear final resolution and closure process, it is not uncommon for all parties to a contract to have to enter into some form of procurement
negotiations
to terminate the contract fully. In this instance, procurement negotiations can result in negotiated settlements that place agreed obligations and agreements on both buyer and seller as to final payments, warranty obligations, and other matters to enable the contract to be fully closed. If any disagreements arise as a result of misunderstandings or poorly worded contracts, and negotiated settlements cannot be achieved through direct negotiation by all parties to a contract, some form of escalation and external dispute resolution may have to be used, such as mediation, arbitration, or litigation.
Negotiation
is when
two or more parties attempt to agree on a solution between themselves. Mediation is when the disagreeing parties bring in an independent person to help them reach an agreement. Arbitration is when the parties agree to allow an independent person to hear both sides of the story and make a binding decision. Litigation is when the parties resolve their disputes through the civil courts system.
Exam Tip
Contracts should spell out very clearly what the process is for negotiated settlements or dispute resolution. They should include a section on how mediation and arbitration will be carried out and also when and where litigation can occur.
Records Management System
The records management system
is a way to record and store all records relating to procurement on a project. It is a part of the project management information system, and it should reflect the formal and legal nature of the procurement process.
Real World
Many countries have statutory requirements for how long contractual documents must be stored. It pays to check the local requirements are and make sure you meet them.
Outputs
The outputs from the Close Procurements process are the following.
Closed Procurements
The key outputs from the Close
Procurements process are closed procurements, which include formal documented proof that the contract terms have been met, settlement has been agreed, and thus the contract is now closed. Given that contracts are formal, legal, written documents, you should have formal, legal, written proof that a contract has been closed. Contractual closure does not mean project closure. Contracts can be closed at any time in a project. You will want to be sure that before you close a project, all contracts are closed.
Exam Tip
All contracts on a project must be closed. They can be closed as part of normal and agreed processes, or they can be closed as a result of unusual circumstances. This also applies to the situation in which your project is suddenly terminated; you must still ensure that documentation records that contracts were closed under abnormal circumstances. You may get a question on the exam that presents a scenario in which you have been told to close a project immediately and but perhaps do not have the authority, money, or time to close contracts formally. This may certainly be the case in relation to formal contract closure, but you should still record that contracts have been closed as a result of abnormal circumstances.
Organizational Process Assets Updates
As a result of carrying out the Close Procurements process, you may want to update particular organizational process assets, including any templates, processes, or guidelines relating to how procurement is carried out and how deliverables are accepted; historical databases; and lessons-learned documentation to use in future procurements.
Quick Check
1.
What is the main focus of the Close Procurements process?
2.
Why is it sometimes necessary to use negotiated settlements to close contracts?
3.
What is the purpose of the records management system?
Quick Check Answers
1.
The main purpose of the Close Procurements process is to ensure that all contracts being used on the project are formally closed and recorded as being so.
2.
Not all contracts end without some form of difference of opinion about what constitutes full and final closure or termination. In these instances, a contract is often terminated or closed as a result of negotiated settlement between both parties.
3.
The primary purpose of the records management system is to store any documents relating to the procurement process for future use.
Chapter Summary
- The Procurement Management knowledge area is focused on the development of a plan to guide decisions around external procurement of goods and services and the execution, monitoring, and control of this plan.
- The Plan Procurement Management process provides a procurement management plan and the procurement statement of work, both of which provide guidance for the subsequent processes for the work to be done as part of agreements.
- The Conduct Procurements process is an executing process that seeks to carry out the procurement management plan in relation to the identification of sellers, the distribution of information about the procurement statement of work to sellers, the selection of sellers to carry out the work, and the type of contract that will be used.
- The Control Procurements process is a monitoring and control process that seeks to check both that the procurement process is being carried out as per the procurement management plan and that the contracts are being carried out as per the agreed terms and conditions.
- The Close Procurements process, which is a closing process, seeks to ensure that all contracts entered into as part of a project are formally closed, either as part of normal procedure or as a result of nonperformance or disagreement.
Exercises
The answers for these exercises are located in the “Answers” section at the end of this chapter.
1.
Unscramble the table below to match up the contract type with its description and the description of risk apportionment.
Type of Contract
| Description | Risk Apportionment |
|---|---|---|
Fixed-price contract | A form of contract that requires the seller to pass on the actual cost of the work to be done | Seller has the risk, and if the cost to deliver the goods or services is greater than the fixed price, the seller bears the extra costs. |
Cost-reimbursable contract | A form of contract where the seller charges for all time spent and materials used with no agreed maximum | Buyer has the risk, because there is no agreed maximum price. |
Time and material contract (T&M)
| A form of contract that includes an agreed, fixed price for the delivery of goods and services | Risk is split between buyer and seller, depending on the actual form and wording of the contract. |
2.
You are the project manager working on a construction project using a fixed-price incentive fee (FPIF) form of contract with a selected seller. The agreed contract sets a total ceiling price of $325,000, a target cost to the seller of $280,000, and a target price to you as buyer of $310,000. There is also an agreement that you will pay 70% of the cost overruns above the target cost. What is the point of total assumption?
Review Questions
Test your knowledge of the information in Chapter 10 by answering these questions. The answers to these questions and the explanation of why each answer choice is correct or incorrect are located in the “Answers” section at the end of this chapter.
1.
Which of the following processes produces the procurement management plan?
A.
Close Procurements
B.
Plan Procurement Management
C.
Conduct Procurements
D.
Develop Procurement Management Plan
2.
The organization seeking to procure external resources to provide goods or services on a project is known as what?
A.
Procurement specialist
B.
Seller
C.
Lawyer
D.
Buyer
3.
You are the seller of a potential good or service and are responding to an RFP document where there is a poorly defined scope of work. What type of contract would you prefer to enter into?
A.
Fixed-price
B.
Fixed-price incentive fee
C.
Cost-reimbursable
D.
Time and materials
4.
The document that describes and defines the portion of the project scope to be included in the related contract is known as what?
A.
Procurement management plan
B.
Organizational process assets
C.
Scope statement
D.
Procurement statement of work
5.
A technique that considers a variety of factors in order to determine whether the particular project work is best done by the project team or by external sources is known as what?
A.
Expert judgment
B.
Market research
C.
Proposal evaluation techniques
D.
Make-or-buy analysis
6.
All of the following could be included as part of your source-selection criteria except what?
A.
Intellectual property rights
B.
Technical capability
C.
Financial capacity
D.
Organizational process assets
7.
You have decided to engage the services of a quantity surveyor to review the prices received from sellers responding to your procurement requests. What tool or technique are you using?
A.
Delphi technique
B.
Independent estimates
C.
Analytical techniques
D.
Bidder conferences
8.
You and your team are in the process of negotiating a contract for a particular service required on your project. Which process are you in?
A.
Plan Procurement Management
B.
Conduct Procurements
C.
Control Procurements
D.
Close Procurements
9.
The seller you have engaged to carry out a contract for the provision of services on your project has started submitting multiple change requests, which are escalating into claims. What is the most likely cause of this?
A.
Incomplete risk register
B.
Poorly worded procurement statement of work
C.
Incomplete project management plan
D.
Lack of quality management
10.
Who is responsible for carrying out audits on contracts?
A.
Only the buyer
B.
Only the seller
C.
An independent legal professional
D.
Both buyer and seller
11.
Which tool or technique would be most useful for storing information about procurement documentation and records?
A.
Records management system
B.
Project management information system
C.
Contract change-control system
D.
Procurement performance reviews
12.
All of the following conditions can lead to early termination of a contract except what?
A.
Mutual agreement by both parties
B.
Default of one party
C.
Convenience of the buyer if provided for in the contract
D.
An incomplete procurement statement of work
13.
Which of the following is not a form of alternative dispute resolution?
A.
Mediation
B.
Arbitration
C.
Litigation
D.
Audit
Answers
This section contains the answers for the Exercises and Review Questions in this chapter.
Exercises
1.
Unscramble the table below to match up the contract type with its description and the description of risk apportionment.
Type of Contract | Description | Risk Apportionment |
|---|---|---|
Fixed-price contract
| A form of contract that includes an agreed, fixed price for the delivery of goods and services | Seller has the risk, and if the cost to deliver the goods or services is greater than the fixed price, the seller bears the extra costs. |
Cost-reimbursable contract | A form of contract that requires the seller to pass on the actual cost of the work to be done | Risk is split between buyer and seller, depending on the actual form and wording of the contract. |
Time and material contract (T&M) | A form of contract where the seller charges for all time spent and materials used with no agreed maximum | Buyer has the risk, because there is no agreed maximum price. |
2.
You are the project manager working on a construction project using a fixed-price incentive fee (FPIF) form of contract with a selected seller. The agreed contract sets a total ceiling price of $325,000, a target cost to the seller of $280,000, and a target price to you as buyer of $310,000. There is also an agreement that you will pay 70% of the cost overruns above the target cost. What is the point of total assumption?
Therefore, the point of total assumption is
= $280,000 + (($325,000 – $310,000)/0.7)
= $280,000 + ($15,000/0.7)
= $280,000 + $21,428.57
= $301,428.57
Chapter Review
1.
Correct Answer: B
A.
Incorrect: The Close Procurements process is focused on the administrative and legal closure of all contracts.
B.
Correct: The Plan Procurement Management process has the procurement management plan as its primary output.
C.
Incorrect: Conduct Procurements uses the procurement management plan.
D.
Incorrect: Develop Procurement Management Plan is a made-up process name.
2.
Correct Answer: D
A.
Incorrect: A procurement specialist may be an expert that you choose to use as part of your decision to procure from external sources.
B.
Incorrect: The seller is the organization or individual who is responding to a request from a buyer for the provision of goods and services.
C.
Incorrect: A lawyer can act for either buyer or seller.
D.
Correct: The buyer is the organization that is requiring goods or services to be performed and is asking for external sources to do the work via a negotiated contract.
3.
Correct Answer: D
A.
Incorrect: A fixed-price contract would represent the greatest risk to the seller in the face of a poorly defined scope of work.
B.
Incorrect: A fixed-price incentive fee contracts does little to remove the risk to the seller with a poorly defined scope of work.
C.
Incorrect: A cost-reimbursable form of contract may be preferable to a fixed-price form of contract where there is a poorly defined scope of work, but it still represents more risk to the seller that a time and materials contract.
D.
Correct: Given that there is a poorly defined scope of work, you would want to enter into the type of contract that represented the least risk to you, the seller, and this is the time and materials contract.
4.
Correct Answer: D
A.
Incorrect: The procurement management plan provides guidelines for carrying out the entire procurement management process.
B.
Incorrect: Organizational process assets include templates, historical information, and other guidelines of use in carrying out the procurement management process, but they do not describe or define the work to be done as part of the contract.
C.
Incorrect: The project scope statement defines and describes all the work to be done as part of the project; the procurement statement of work is a subset of the project scope statement specifically related to the work to be done as part of a contract.
D.
Correct: The procurement statement of work describes and defines the portion of the project scope to be completed as part of a negotiated contract.
5.
Correct Answer: D
A.
Incorrect: Expert judgment is used as a tool and may contribute to the make-or-buy analysis, but it is not the best answer.
B.
Incorrect: Market research is a technique that examines the number of potential sellers and their interest in responding to your procurement documents.
C.
Incorrect: Proposal evaluation techniques are used after sellers have responded to your requests, in order to determine which sellers advance in the procurement process.
D.
Correct: Make-or-buy analysis is the technique that takes into account a variety of factors to determine whether you should complete the work in house or outsource it.
6.
Correct Answer: D
A.
Incorrect: Intellectual property rights are an important consideration in your source-selection criteria, to determine who ultimately owns the work performed as part of a contract.
B.
Incorrect: Technical capability will be considered as part of your source-selection criteria, in order to ensure that the selected seller has the technical capability to perform the required work.
C.
Incorrect: Financial capacity will be considered as part of your source-selection criteria, to ensure that the sellers selected are of sufficient financial strength to be able to complete the work.
D.
Correct: Organizational process assets may help you with the procurement management processes, but they would not be included as part of your source-selection criteria.
7.
Correct Answer: B
A.
Incorrect: The Delphi technique is a tool used to solicit information from participants anonymously in order to reach consensus.
B.
Correct: Independent estimates are a technique used to determine whether prices received from sellers are accurate.
C.
Incorrect: Analytical techniques are a tool used to evaluate a variety of elements and seller responses, not just prices.
D.
Incorrect: Bidder conferences are used to provide information to prospective sellers on a fair and equitable basis.
8.
Correct Answer: B
A.
Incorrect: The Plan Procurement Management process is focused on the production of the procurement management plan and the procurement statement of work, which will assist with the Conduct Procurements process, which negotiates contracts.
B.
Correct: The Conduct Procurements process uses the project management plan and seeks to negotiate contracts with potential sellers.
C.
Incorrect: The Control Procurements process monitors the negotiated contracts but does not actually negotiate them.
D.
Incorrect: The Close Procurements process closes contracts after they have been negotiated and the terms and conditions have been fulfilled.
9.
Correct Answer: B
A.
Incorrect: An incomplete risk register may expose your project to unforeseen risks. But that would not contribute to multiple change requests and an escalating number of claims.
B.
Correct: The scenario is most likely the result of a poorly worded procurement statement of work, creating ambiguity and disagreement about the work to be performed as part of the contract.
C.
Incorrect: An incomplete project management plan may affect several other areas of your project but would not be directly responsible for multiple contractual change requests and claims.
D.
Incorrect: A lack of quality management on your project may cause a number of problems but would not be the most likely cause of multiple contractual change requests and claims.
10.
Correct Answer: D
A.
Incorrect: The seller is also responsible for carrying out audits on contracts to ensure that both they and the buyer are meeting the agreed terms and conditions.
B.
Incorrect: The buyer also has responsibility for carrying out audits of the contracts because they initiated the process and have obligations as well.
C.
Incorrect: An independent legal professional may be engaged by either buyer or seller, but the ultimate responsibility lies with both buyer and seller.
D.
Correct: Both buyer and seller are responsible for carrying out audits on contracts, because they are both parties to the contract and have responsibilities under the negotiated terms and conditions.
11.
Correct Answer: A
A.
Correct: The records management system is a subset of the project management information system devoted to storing information about procurement documentation and records.
B.
Incorrect: The project management information system includes the records management system, which is the better answer this question because it specifically focuses on storing information about procurement documentation and records.
C.
Incorrect: The contract change-control system records information about requested contractual changes and the status.
D.
Incorrect: Procurement performance reviews gather information about whether each party to a contract is carrying out their obligations and responsibilities. Information gathered from procurement performance reviews is stored in a records management system.
12.
Correct Answer: D
A.
Incorrect: Both parties can, by way of mutual agreement, agree to terminate the contract early.
B.
Incorrect: The default of one party to a contract is considered sufficient cause for early termination of a contract.
C.
Incorrect: Some forms of contract have written into them that early termination can occur if it is convenient to the buyer. These contracts normally include some form of compensation to the seller.
D.
Correct: An incomplete procurement statement of work may lead to disagreements, change requests, and claims, but not generally to an early termination of the contract except under extreme circumstances.
13.
Correct Answer: D
A.
Incorrect: Mediation is a form of alternative dispute resolution that seeks to have both parties reach an agreement.
B.
Incorrect: Arbitration is a form of alternative dispute resolution that brings in a third party to make a decision that is binding on both parties.
C.
Incorrect: Litigation is a form of alternative dispute resolution that involves some form of court involvement.
D.
Correct: An audit is used to determine whether parties to a contract are carrying the contract out as per the agreed terms and conditions.