Project Procurement

Question 1

What is the purpose of a procurement strategy?

Answer 1

Sets out high level approach of securing goods and services required from external suppliers.

It leads to the procurement section of the PMP

Makes decisions about:

• How much risk should be retained and shared
• Transactional or collaborative approach?

Question 2

What are the 6 Sections of the procurement Strategy?

Answer 2

1. Make or Buy Decision
2. Use of single, integrated or multiple suppliers

3.Conditions and forms of contract

4. Methods of supplier reimbursement
5. Types of contractual relationship
6. Supplier selection process

Question 3

Why is it important to have a procurement strategy?

Answer 3

• Decides most cost effective and productive way to proceed.
• Manages the tendering process.
• Supports time management of external suppliers.
• Roles and responsibilities in the contract
• Specifies who owns the risk
• Can drive productive behaviour through incentivised relationship.

Question 4

What is meant by Make or Buy Decision?

Answer 4

Whether the goods should be made in house or be procured elsewhere at a lower cost or better quality.

Must understand specific needs or risk impact on cost or quality.

Question 5

Explain:
- Single Supplier
- Integrated Supplier
- Multiple Suppliers

Answer 5

Single Supplier:
Chosen to supply all requirements for the project. (high Risk)

Integrated:
the supplier sits on the project team alongside those deliver it. (quick action, difficult to speak up if unhappy)

Multiple suppliers:
have multiple suppliers working on 1 project fulfilling various activities towards the end product. (lower risk higher cost)

Question 6

List the contents of the conditions and forms of contract section. (7)

Answer 6

1. Responsibilities
2. Timeline
3. Quality
4. Payment
5. Property
6. Risk Assignment
7. Disputes management

Question 7

Explain the 4 types of supplier reimbursement

Answer 7

1. Fixed price - supplier funds the difference (high risk for supplier)
2. Cost plus fee - customer pays costs plus fee for service (high risk for customer)
3. Time and material/ Per unit quantity - difficult to budget high risk for customer
4. Target Cost - If underspent target the benefit is shared.

Question 8

5 types of contractual relationship

Answer 8

1. One comprehensive contract.
   (easier to manage but risk of relying on 1)
2. Sequential contract. Suppliers who work in sequence on the likes of a building project. Risk of defaults by one supplier being blamed on another.
3. Parallel contract - can be used to create competition but risks impact on quality and safety.
4. Sub contracts - multiple suppliers managed by one main supplier who outsources. Risks motivation of sub contractors who don’t see a future relationship.
5. Joint Venture - for extremely complex projects parties will go in to joint venture setting up separate company to fulfill the project. High risk and benefit for all in the partnership.

Question 9

List the supplier selection process (6)

Answer 9

1. Research
2. Pre-qualification
3. Tender analysis
4. Award
5. Manage
6. Close