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What is a description of work to be done by the seller?
Procurement statement of work
What is a Noncompetitive bidding situation?
Work might be so specialized that there is only one potential seller.
Regarding make-or-buy analysis, it is better to make if:
- you have an idle plant or workforce
- you want to retain control
- the work involved proprietary information or procedures.
The daily lease cost $120.
To purchase the item, it cost $1,000 and $20 per day for maintenance.
How long will it take for the lease cost, to be the same as the purchase cost?
$120(D) = $1,000 + $20(D)
The 3 broad categories of contracts are:
- Fixed price (FP)
- Time and material (T&M)
- Cost-reimbursable (CR)
What type of contract does the buyer have the least cost risk?
Fixed price (FP)
Ex: Contract = $1,100,000
Fixed Price Incentive Fee
Ex: Contract = $1,100,000. For every month early the project is finished, an additional $10,000 is paid to seller.
Fixed Price Award Fee
Ex: Contract = $1,100,000. For every month performance exceeds the planned level by more than 15%, an additional $5,000 is awarded to the seller, with a maximum award of $50,000.
Fixed Price Economic Price Adjustment
Ex: Contract = $1,100,000, but a price increase will be allowed n year two based on the US Consumer Price Index report for year one
Contract = $1,100,000, but a price increase will be allowed n year two to account for increases in specific material cost.
This type of Fixed Price contract is used for simple commodity procurements, ____________.
Ex: Contract = 30 linear meters of wood at $9 per meter.
When is it best to use T&M contract?
Its best used for work valued at small dollar amounts and lasting short amount of time.
Ex: Contract = $100 per house plus expenses or materials at cost.
Contract = $100 per house plus materials at $5 per linear meter of wood.
(CPF) or (CPPC)
Cost Plus Fee or Cost Plus Percentage of Cost
Ex: Contract = cost plus 10% of cost fee
Cost Plus Fixed Fee
Ex: Contract = Cost plus a fee of $100,000
Cost Plus Incentive Fee
Ex: Contract = $500,000 target cost plus $50,000 target fee. The buyer and seller share any cost savings or overruns at 80% to the buyer and 20% to the seller.
Cost Plus Award Fee
Ex: Contract = cost plus a base fee plus award for meeting buyer-specified performance criteria. Maximum award available $50,000.
Who has the risk in a cost-reimbursable contract, buyer or the seller?
The buyer. If the cost increase, the buyer pays added cost.
Who has the cost risk in a fixed-price, buyer or the seller?
The seller. If cost increase, the seller pays the cost and makes less profit.
What things must a PM watch out for at a bidder conference?
- Sellers not asking questions in front of the competition
- Making sure all questions and answers are put in writing and issued to all potential sellers by the buyer as addenda to the procurement documents
Negotiations are not normally needed in a ______________ contract because the scope is complete and the lowest bidder is selected based on price.
What happens in the Control Procurement process group for a fixed-price contract?
- Watch for the seller cutting scope
- Watch for the seller cutting quality
- Watch for overpriced change orders
- Check for scope misunderstandings
What happens in the Control Procurement process group for a Time & Material contract?
- Provide day-to-day direction to the seller
- Attempt to get concrete deliverables
- Make sure the project length is not extended
- Make sure the number of hours spent on work is reasonable
What happens in the Control Procurement process group for a Cost-reimbursable contract?
- Audit every invoice
- Make sure all cost are applicable and chargeable to your project
- Make sure the seller's work is progressing efficiently
- Watch for seller charges that were not part of original plan
- Reestimate the cost of the project
How is project control different in a procurement environment?
- The seller will have a different company culture and different procedures than the buyer's organization
- The buyer and seller have different objectives
- It's not easy to see problems because the work is being done at a different location
- There is a greater reliance on reports to determine if a problem exists
- There is a great reliance on relationships between buyer and seller project managers to deal with issues that are not covered in the wording of the contract
Close Project or Phase vs Close Procurements
- All procurements must be closed before the final project closure
- Projects managed by phases the Close Project or Phase process will be performed at the end of each phase
What are the key outputs of the Plan Procurement Management process?
- Make-or-buy decisions
- Procurement Management Plan
- Procurement Statement of Work
- Source selection criteria
What are the key outputs of the Conduct Procurement process?
- Selected sellers
- Signed contracts
- Resource calendars
- Change requests
What are the key outputs of the Close Procurement process?
- Formal acceptance
- Final payments made (when made can vary)
- Closed procurements
- Lessons learned and records update
The profit is not disclosed to the buyer in what contract type:
Target Cost + Target Fee =
Point of total assumption (PTA) only refers to _______ contracts
Fixed Price Incentive Fee (FPIF)
Single Source vs Sole Source
Single you contract with a preferred seller without going through full procurement process, in Sole you deal with the only seller who can do the work.
What are Independent Estimates?
When the buyer creates their own estimate to compare with seller's cost estimates to check for reasonableness.
Objectives of Negotiation
- Obtain a fair & reasonable price
- Develop a good relationship with the seller
Normal activities (tools) in the Control Procurement process include:
- Contract Change Control System
- Procurement Performance Review
- Claims Administration
- Records Management System (record keeping)
Close Procurements consists of:
- tying up all the loose ends
- verifying all work & deliverables are accepted
- finalize open claims
- paying witheld retainage
This is a structured review of only the procurement process, a way to gain lessons learned of the procurement process itself. What is this step?
Negotiation occurs in what Procurement Management process(s):
- Conduct Procurements
- Close Procurements
Contract Change Control System includes:
- change procedures
- dispute resolution processes
- tracking systems