“How do you lay a jogging track, I wonder” said Kathy, flipping through requirements documents of the Landscaping project she is doing for Mammoth Constructions Company. She is in the planning phase and figuring out what skills she and her team already possess and what do they not.
“Oh, that is quite involved,” said Eliz, her colleague. “I got a similar work done for Lockhead Community over other side of the town. Let me give you a quick summary”, she offered.
“First you mark the width and course of the track, then pave at least 2 inches of asphalt on top of a compacted gravel foundation. Let it sit for about two weeks. Coat the surface of asphalt with tack coat, a tacky binder that helps to bind the first layer of rubber to the asphalt. Then mix the rubberized granules, strands of rubber, or recycled EPDM (ethylene propylene diene monomer) rubber with binder and spread out over the tack coat.”
“Allow the first layer to dry for approximately six hours to a day. Apply subsequent layers of rubber until the desired thickness is achieved. You would usually require 3/8 to 1/2 of an inch. There are about five layers for granule rubber particles and seven layers for strand rubber. It is quite a precision work, so to speak.”
“Wow, that seems quite a handful, I wonder if we have necessary skill available internally to get this done,” exclaimed Kathy.
“I don’t think so, I’d recommend you talk to Dan from United Sports Mart. He’d be able to help”, said Eliz.
“Looks like a job better done by experts. Let me talk to Todd from Legal about how we can call out for a proposal and deal with a vendor”, Kathy concluded after a pause.
Just as the output of a project is a product, service or result, procurement is also about acquiring a product, service or result from a seller.
If multiple items are procured from outside of the organization then all the Procurement processes are performed for each of those items.
Many a times it is better to let an outsider (of project) do the work that we do not have expertise for. You would recall from Planning Risk Responses project management activity that this is a good risk mitigation strategy as well. All the processes involved with finding a vendor, getting a contract, and getting the work done through chosen vendor, are covered in PMBOK® guide’s Project Procurement Management knowledge area.
The 4 Project Management Activities you can do –
- Planning For Project Procurements is to look at project scope and decide what work needs to be given out to a vendor, or which product is to be purchased, and deciding on the type of contract and defining how a potential vendor is selected.
- Awarding Procurements Contract is about asking potential vendors for proposals, evaluating their responses, deciding on the right vendor (also called seller), and awarding the contract.
- Administering Procurements Contracts is about managing vendor relationships, monitoring what they produce, resolving any issues, and making changes to contract as and when required.
- Closing Vendor Contracts is about verifying that deliverables are as per requirements, making sure that contractual obligations are honored by both you and vendor, making payments and closing each of the procurements.
Most of the projects may not have anything to contract out. However project manager should be open to any such possibilities where the risk and responsibilities are given out to expert vendors. The down side would be that project manager is still responsible to ensure that vendor (or seller) produces good quality work, and it comes at a premium. This reduces project’s overall profits.
You need to check the contractual terms with your customer before deciding on procurement. Some customers simply do NOT allow sub-contracting due to their Intellectual Property (IP) privacy concerns. In such cases it would be necessary to convince them to let you contract out part of the work. The same non-disclosure-agreement (NDA) you signed with customer will need to be signed with your vendor.
What is a contract?
Contract is a legal document between buyer and seller. It is a mutually binding agreement, that specifies a certain amount of work to be done by the seller, and the compensation to be given by the buyer. It also specifies terms, conditions, constraints and responsibilities of buyer and seller to facilitate smooth conduct of the work mentioned in it. The other information that a contract may contain are major deliverables, key milestones, and work acceptance criteria.
Typically performing organization’s legal team will chart out the contract and its terms and conditions. However as a project manager you need to make sure that the contract properly outlines the scope of work, and contains the right measures to ensure that seller’s work produced can be tested to meet the specified requirements. Also if the project has certain regulatory obligations (such as getting environmental clearance, or security certificate) then who will do that work, and make sure it is mentioned in the contract as a necessary condition to fulfill the terms of contract.
What is the difference of seller and buyer?
Remember that if you are contracting out work to a vendor then you become the buyer and vendor becomes the seller. If your customer gave you project to undertake you would have signed a contract with him, and you (or ‘performing organization’) become seller and your customer becomes buyer.
A seller is also known as contractor, subcontractor, vendor, service provider, or supplier – depending on the application area or domain. A buyer can be called a client, customer, prime contractor, acquiring organization, service requester, or purchaser.
Next, let us look at the first of the processes Planing Project Procurement, in the next lesson.