9.1: Procurement Contract Administration

Procurement management follows a logical order. First, you plan what you need to contract; then you plan how you’ll do it. Next, you send out your contract requirements to potential suppliers via bid solicitation. Here, they can bid for the chance to work with you. You pick the best one, and then you sign the contract with them. Once the work begins, you monitor it to make sure that the contract is being followed. When the work is done, you close out the contract and fill out all the paperwork.

In this chapter, we will focus on contract management and the closeout phase of the procurement process. In managing the contract, the procurement officer’s role will need to start with a plan for the whole project. Before doing anything else, you need to consider all the work you will contract out for your project. You will want to plan for any additional purchases and acquisitions. Here’s where you take a close look at your needs to be sure that contracting is necessary. You figure out what kinds of contracts make sense for your project, and you try to define all of the parts of the project that will be contracted out.

Contract planning is where you plan out each individual contract for the project work. You work out how you’ll manage the contract, what metrics it will need to meet to be considered successful, how you’ll pick a seller, and how you’ll administer the contract once the work is happening.

The procurement management plan details how the procurement process will be managed. It includes the following information:

• The types of contracts you plan to use and any metrics that will be used to measure the contractors’ performance.
• The planned delivery dates for the work or products you are contracting.
• The company’s standard documents you will use.
• The number of vendors or contractors involved and how they will be managed.
• How purchasing may impact the constraints and assumptions of the project plan.
• The coordination of purchasing lead times with the development of the project schedule.
• The identification of prequalified sellers (if known).

The procurement management plan, like all other management plans, becomes a subsidiary of the project management plan. Some tools and techniques you may use during the procurement planning stage include make-or-buy analysis and the definition of the contract type.

Make-or-Buy Analysis

A make-or-buy analysis helps you figure out whether or not you should be contracting the work or doing it yourself. It could also mean deciding whether to build a solution to your problem or buy one that is already available. Most of the same factors that help you make every other major project decision will help you with this one. How much does it cost to build it as opposed to buying it? How will this decision affect the scope of your project? How will it affect the project schedule? Do you have time to do the work and still meet your commitments? As you plan out what you will and won’t contract, you must carefully think through your reasoning.

There are some resources (like heavy equipment) that your company can buy, rent, or lease, depending on the situation. You’ll need to examine leasing-versus-buying costs and determine the best way forward.

Managing the Contracts

The contract type determines the level of effort and the skills needed to manage the contract. The detailed specification is developed in the planning procurement phase, and contract administration ensures compliance with these specifications. The procurement team ensures that the contractors bidding on the work have the skills and capacity to accomplish the work according to the project schedule, tracks the vendor’s performance against the project needs, and supplies support and direction when needed. Procurement ensures the contract is in alignment with legal agreements and public procedures.

Items that take a long time to acquire—long-lead items—receive early attention from the procurement team. Examples of long-lead items are equipment that is designed and built specifically for the project, a curriculum that is created for training a new workforce, and a customized bioreactor for a biotech project. These items might require weeks, months, or years to develop and complete. Long-lead items are identified early to begin the procurement activities as soon as possible because those procured through the normal procurement cycle may cause delays in the project.

After the contract is awarded, the procurement team tracks the contractor’s performance against the performance criteria in the contract and their contribution to the project’s performance. Usually, contractors deliver a product or service that meets quality expectations and supports the project schedule. Typically, there are also one or two contractors that do not perform to project expectations. When monitoring performance, the contract can be reviewed and used to persuade the contractor to improve performance or be penalized. Ongoing contract management is required to deal with non-performing contractors, and the project team must assess the method most likely to work in each situation.

Managing contractor performance on a project is as important to the overall project outcomes as the work performed by the project team.

Logistics and Expediting

Equipment and materials purchased for use on the project must be transported, inventoried, warehoused, and often secured. This area of expertise is called logistics. The procurement officer can manage the project’s logistics or include them in the Request for Proposal (RFP) or Request for Quotation (RFQ). On international projects, materials may be imported, and the procurement team manages the customs process. On smaller projects, the parent company often provides logistical functions. On larger projects, these activities are typically contracted to companies specializing in logistical services. The procurement team will include logistical expertise on larger, more complex projects.

The project work often depends on materials procured for the project. The delivery of these materials influences the scheduling of the project, and often, some materials are needed earlier than normal procurement practices would deliver. For projects with longer lead items, the project schedule is included in the contracting plans, and contractors must explain how they will support the project schedule.

On large, complex projects, critical items might be scheduled for delivery after they are needed on the project. The procurement team then explores ideas with the contractor to expedite the manufacturing or transportation of the equipment or materials. The contract can often place a priority on the fabrication and delivery of the equipment to meet the project schedule. The project logistics team can also explore ways of shortening transportation times. For example, a project in Argentina flew in some critical equipment from Sweden rather than transporting the equipment by ship to save several weeks in transit. The logistics costs were higher, but the overall value to the project was greater.

Attributions

“9.1: Procurement Contract Administration” is adapted from “Chapter 13: Procurement Management” in Project Management, copyright © 2014 by Adrienne Watt, licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

The multiple choice questions in the Checkpoint boxes were created using the output from the Arizona State University Question Generator tool and are shared under the Creative Commons – CC0 1.0 Universal License.