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Project Management Professional


PMP

Memo No ( )

Projects Procurement Management &


Contracts Administration
using Primavera Expedition Software
by
Dr. Abdalla El Daoushy

Nov, 2010

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Contents
Theoretical Part
Page
Projects Procurement Management & Contracts Administration 3
 Procurement Planning . . . . . . 5, 12
 Solicitation Planning . . . . . . 6, 23
 Solicitation Process . . . . . . 7,28
 Determining Source Selection . . . . . 8, 34
 Contracts Administration . . . . . 9, 38
 Contracts Closeout. . . . . . . 10, 45
 Summary-1 . . . . . . . . 48
 Key Terms . . . . . . . . 52
 Summary-2 . . . . . . . . 53
 Self Test . . . . . . . . 55

Practical Part
Using Primavera Expedition for Contracts Administration --- Course 202A
 Introduction to Primavera Expedition . . . . 63
 Setting Up the Contract Directory . . . . 64
 Contract Drawings . . . . . . . 65
 Contracts and Purchase Orders . . . . . 66
 Recording Project Events . . . . . . 67
 Tracking and Statusing Submittals . . . . 68
 Communicating Project Information . . . . 69
Contracts Managements with Primavera Expedition --- Course 202B
 Managing Project Costs . . . . . . 70
 Distributing Contract Costs . . . . . 71
 Setting up Payment Requisitions . . . . 72
 Change Management . . . . . . 73
 Recording Progress for Payment requisitions . . 74
 Building Project Issues . . . . . . 75
References . . . . . . . . . 76
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Theoretical Part

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Projects Procurement Management &


Contracts Administration

 Projects usually require procurements. Projects need Materials,


Equipments, Consultants, Training, and Many Other Goods &
Services.

 Materials, Equipments, Consultants, Training, and Many Other


Goods & Services will generally be referred to as a Product.

 Projects Procurement Management is the process of Purchasing


Products necessary for meeting the needs of the Project Scope from
outside the Performing Organization (The Enterprise whose
Employees are most directly involved in doing the Work of the
Project).

 The major Processes of Projects Procurement Management involve:


1. Procurement Planning,
2. Solicitation Planning,
3. Solicitation Process),
Solicitation means obtaining “Quotations”, “Bids”, “Offers”, or
“Proposals” as appropriate
4. Choosing a Source (Choosing from among Sellers),
5. Contract Administration, and
6. Contract Closeout.

 Projects Procurement Management is discussed from the perspective


of the Buyer-Seller relationship.

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 The Seller can be seen as:


Contractor,
Subcontractor,
Vendor, or
Supplier

 When buying anything from a Seller, the Buyer needs a CONTRACT.

 A Contract becomes a key input to many of the processes within the


Project.

 The Contract specifies the rules and agreements for the Project.

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1. Procurement Planning:
Procurement Planning is the process of identifying which part
of the Project should be procured from resources outside the
Performing Organization. Procurement Planning centers on 4
elements:

1. Whether or not Procurement is needed


2. What to procure
3. How much to procure
4. When to procure.

1.1 Inputs

1.1.1 Project Scope Statement


1.1.2 Product Description
1.1.3 Procurement Resources
1.1.4 Market Conditions
1.1.5 Other Planning Outputs (Factors)
1.1.6 Constraints
1.1.7 Assumptions.

1.2 Tools & Techniques

1.2.1 Make-or-Buy Analysis


1.2.2 Expert Judgment
1.2.3 Contract Type Selection

1.3 Outputs

1.3.1 Procurement Management Plan


1.3.2 Statement(s) of Work
1.3.3 Other Planning Outputs (Schedule, Estimates, …)

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2. Solicitation Planning:

Solicitation Planning is the process of preparing to solicit (ask


for) Sellers to provide Products needed for the Project.

2.1 Inputs

2.1.1 Procurement Management Plan


2.1.2 Statement(s) of Work
2.1.3 Other Planning Outputs (Schedule,
Estimates, ...)
(output from preceding step)

2.2 Tools & Techniques

2.2.1 Standard Forms


2.2.2 Expert Judgment

2.3 Outputs

2.3.1 Procurement Documents


2.3.2 Evaluation Criteria
2.3.3 Statement(s) of Work Updates

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3. Actual Solicitation Process: (Obtaining “Quotations”, “Bids”,


“Offers”, or “Proposals” )

Once the Solicitation Planning has been completed, the actual


process of Solicitation can begin. The Seller (not the Buyer)
performs most of the activities in Solicitation --- usually at no
additional cost to the Project. The Sellers are busy trying to win
the business by providing Quotations, Bids, Offers, or
Proposals.

3.1 Inputs

3.1.1 Procurement Documents


3.1.2 Qualified Seller Lists

(output from Solicitation step)

3.2 Tools & Techniques

Solicitation is the processing of inviting Sellers to solicit the


business of the Performing Organization. There are 2 primary
tools needed to complete this process:

3.2.1 Bidder Conferences


3.2.2 Advertising

3.3 Outputs

3.3.1 Proposals (Documents from Seller to Buyer


responding to a Request for Proposal (RFP) or
other Procurement Documents).

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4. Determining Source Selection: Choosing from among Sellers..

4.1 Inputs

4.1.1 Proposals (output from Solicitation process)


4.1.2 Evaluation Criteria (output from Solicitation planning)
4.1.3 Organizational Policies

4.2 Tools & Techniques

4.2.1 Contract(s) Negotiation


4.2.2 Weighting System
4.2.3 Screening System (Refused Bids)
4.2.4 Independent Estimates

4.3 Outputs

4.3.1 Contract(s)

Contracts are known by many names:

o Contract
o Agreement
o Subcontract
o Purchase Order
o Memorandum of Understanding

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5. Contracts Administration:

It is the process of managing the relationship between Sellers


(Contractors, Subcontractors, Vendors, Suppliers. . .) and
Buyers.

It is the process of ensuring that the Buyer and the Seller both
perform to the specification with the Contract.

5.1 Inputs

5.1.1 Contract(s)
5.1.2 Work Results
5.1.3 Change Requests
5.1.4 Seller Invoices (Bills, Charges, debits)

5.2 Tools & Techniques

5.2.1 Contract Change Control System


5.2.2 Performance Reporting
5.2.3 Payment System

5.3 Outputs

5.3.1 Correspondence (Documents for legal actions of


disputes (disagreements) arise between the Buyer
& Seller ----)
5.3.2 Contract Changes
5.3.3 Payment Requests

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6. Contracts Closeout:
Completion and Settlement of the Contract, including
resolution of any open items.

6.1 Inputs

6.1.1 Contract Documentation

6.2 Tools & Techniques

6.2.1 Procurement Audits

6.3 Outputs

6.3.1 Contract(s) File(s)


6.3.2 Formal Acceptance & Closure

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All of the above Processes interact with each other. They may
overlap and interact in any ways.

Projects Procurement Management is discussed from the


perspective of the Buyer-Seller relationship.

The Seller will typically manage his work as a Project(s). In such


areas:

o The Buyer becomes the Customer, and thus becomes a key


Stakeholder for the Seller (Contractor, Subcontractor,
Vendor, or Supplier).

o The Seller’s Project Management Team must be concerned


with all Processes of the Projects Management, but not just
those of his knowledge area.

o The Terms & Conditions of the Contract becomes a key


input to many of the Seller’s Processes.

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In details,

1. Procurement Planning:

Procurement Planning is the process of identifying which


Project needs can be best met by procuring products
(Materials & Services). Procurement Planning centers on the
following elements:

1. Whether or not Procurement is needed,


2. What to procure,
3. How much to procure, and
4. When to procure.

The Project Management Team may want to seek support


from Specialists in the disciplines of Contracting &
Procurement when needed, and involve them early in the
process as a Member of the Project Team.

Procurement Planning should also include consideration of


Potential Sellers, particularly if the Buyer wishes to exercise
some degree of Influence or Control over Contracting
Decisions.

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1.1 Inputs to Procurement Planning:

1.1.1 Referring to Scope Statement:

The Project Scope Statement defines the current


Project Work, and only the required work, to complete
the Project. It also defines the boundaries of the Project.
It provides important information about project needs
and strategies that must be considered during
Procurement Planning. It determines what products
(Materials & Services) to be purchased and what does
not.

1.1.2 Referring to Product Description:

The Product Description provides important information


that would need to be considered during Procurement
Planning.

The Product Description is generally broader than a


Statement of Work.

A Product Description defines what the end result of the


Project will be.

A Statement of Work (SOW) may define the work to be


accomplished within the project, but it generally does
not define the product description as a whole.

However, when the Performing Organization chooses to


procure the entire Product, then the distinction between
the two terms (SOW & Product Description) disappears.

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1.1.3 Relying on Procurement Resources

o Often a Performing Organization will have


resources for managing the Procurement Process,
including Contracting & Negotiating on behalf of
the Project.

o If, however, the Performing organization has no


such resources for the Project Manager to rely
upon, then it is up to the Project Manager to
supply the Procurement Management Resources,
including capabilities for negotiating and for
obtaining in a financially responsible way the right
products (Materials and/or services) for a fair
price on behalf of the Performing Organization.

1.1.4 Evaluating the Market Conditions

o Part of The Procurement Management is to


determine what Sources are available to provide
the needed Products for the Project. An
evaluation of the marketplace is needed to
determine what Products are available and from
whom, and under what terms & when they are
available.

o While in most free market enterprise societies


there are multiple Vendors offering comparable
Products, there may be times when choices of
Vendors are limited.

o There are 3 specific terms to know;


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o Sole Source: Only one Qualified Seller


exists in the marketplace.

o Single Source: The Performing


Organization prefers to contract with a
Specific Seller.

o Oligopoly ‫ محتكر‬: There are very few Sellers


and the actions of one Seller will have a
direct effect on the other Seller’s Prices and
the overall market condition.

1.1.5 Other Planning Factors

Other Planning Factors that must often be considered


include Cost Estimates, Schedule Estimate, Quality
Management Requirements, Cash-Flow Projections, the
Work Breakdown Structure Components, Identified
Risks, and Staff Acquisitions and Development.

1.1.6 Constraints

Constraints are factors that limit the Buyer’s options.


One of the most common constraints for many projects
is Funds Availability.

1.1.7 Assumptions

Assumptions are Beliefs or Factors that (for planning


purposes) will be considered to be true, real, or certain.
1.2 Tools & Techniques for Procurement Planning:

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1.2.1 Make-or-Buy Analysis:

This is a general Management Technique that can be


used to determine whether a particular product is more
cost effective to buy or it makes more sense to create it
in-house.
Analysis should include both indirect and direct costs.
For example, the “Buy” side of the analysis should
include both the actual cost to purchase the product as
well as the indirect costs of managing the Purchasing
Process.
A Make-or Buy Analysis must also reflect the
perspective (future) of the Performing Organization, as
well as the immediate needs of the project.
For example, purchasing a Capital Item ‫( معمر‬anything
from a Construction Crane to a Personal Computer)
rather than renting or leasing it may or may not be cost
effective.
However, if the Performing Organization has a need for
the item, the purchase cost allocated to the project may
be less than the cost of the rental.

The Make-or-Buy Analysis should be made in the initial


Scope Definition to determine if the entire project
should be completed in-house or procured.
The initial costs of the solution for the in-house or
procured product must be considered.

For example:

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A company may elect to lease a piece of equipment. The


ongoing expenses of leasing the piece of equipment
should be weighed against the expected ongoing
expenses of purchasing the equipment and the monthly
costs to maintain, insure, and manage the equipment.

The following figure (Reference No 2 – page 478) shows


the mathematical approach of determining whether it is
better to create a SW Program in-house or buy one from
Software Company.

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 There are multiple reasons why an Organization


may choose to make or buy. The following
represents some common examples:

Reasons to Make Reasons to Buy

Less costly Less costly

Use in-house skills In-house skills not available


or don't exist

Control of work Small volume of work

Control of intellectual More efficient


property
Learn new skills Transfer risks

Available Staff Available Vendor

Focus on core project work Allows Project Team to focus


on other work items

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1.2.2 Expert Judgment

Such expertise may be provided by any group or


individual with specialized knowledge or training and is
available from many sources, including:

 Other Units within the Performing Organization.


 Consultants.
 Professional & Technical Associations.
 Industry Groups.

1.2.3 Contract Type Selection

A Contract is a formal agreement between the Buyer &


Seller. Contracts can be oral or written --- though
written is preferred.

Contracts generally fall into one of 3 broad categories:

1. Fixed-Price or Lump-Sum Contracts. These Contracts


involve a fixed total price for a well-defined product.
If the product is not well defined, both the Buyer and
Seller are at risk --- the Buyer may not receive the
desired product and the Seller may need to incur
(acquire) additional costs to provide it. These type of
Contracts require the Seller to assume the risk of
cost overruns.

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2. Cost-Reimbursable (Compensation) Contracts ---


These types of Contracts involve payment
(reimbursement) to the Seller for its actual costs, plus
typically a fee representing Seller Profit.
Costs are usually classified as direct costs or indirect
costs. Direct Costs are costs incurred for the project
(e.g., salaries of full-time project staff). Indirect Costs
also called overhead costs and usually calculated as a
percentage of Direct Costs.

3. Time & Material (T&M) Contracts --- T&M Contracts


are open ended, because the full value of the
arrangement is not defined at the time of the award.
Thus, T&M Contracts can grow in contract value as if
there were cost-reimbursable-type arrangement.

Conversely, T&M Contracts can also be similar to


Fixed-Unit Contracts when, for example, the unit
rates are preset by the Buyer and Seller, as when (for
example) both parties agree on the rates for the
category of “Senior Engineers”.

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1.3 Outputs from Procurement Planning:

1.3.1 Procurement Management Plan:

The Procurement Management Plan should describe


how the remaining procurement processes (from
Solicitation Planning through Contract Closeout) will be
managed. For example:

 What type of Contracts will be used?

 If independent estimates will be needed as


Evaluation Criteria, who will prepare them and
when?

 The relationship between the Project Team & the


Procurement Office within the Performing
Organization (if one exists).

 If Standardized Procurement Documents are


needed, where can they be found?

 How multiple Providers will be managed?

 How procurement will be coordinated with other


project aspects, such as scheduling and
performance reporting?

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1.3.2 Statement(s) of Work:

The Statement of Work (SOW) describes the


Procurement Item in sufficient detail to allow future
Sellers to determine if they are capable of providing the
Item.

The SOW should be clear, complete, and concise. It


should include a description of any products required
such as performance reporting or post-project
operational support for the procured item.
In some application areas, there are specific content and
format requirements for a SOW.

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2 Solicitation Planning:

Solicitation Planning is the process of preparing to solicit (seek –


ask for) Sellers to provide products needed for the project.

It is straightforward business as shown (Reference No 2):

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2.1 Inputs to Solicitation Planning:

2.1.1 Procurement Management Plan

This plan sets out the methodologies and expectations


of procurement within the Performing Organization.

2.1.2 Statement(s) of Work

The SOW provides detailed information on what the


Seller will be providing for the Performing Organization.
This document allows the Seller to determine if
Procurement can provide the product and meets the
requirements of the Project Team.

2.1.3 Other Planning Outputs

Other details within the Project Plan, such as the


Schedule, Estimates, Constraints, and Assumptions may
have direct influence on the Solicitation Process.

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2.2 Tools & Techniques for Solicitation Planning:

2.2.1 Standard Forms:

Within the Performing Organization, there may be many


different Standard Forms that include Standard
Contracts, Standard Descriptions of Procurement Items,
Bid Documents, and other Procurement related
Documents.

2.2.2 Expert Judgment:

Expert Judgment may be needed to review and help the


Project Manager to select the best Source for the
Procured Product.

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2.3 Outputs from Solicitation Planning:

Solicitation Planning guides the Solicitation Process. The


output of Solicitation Planning helps the Project Manager,
Project Team, and Sellers clearly communicate. The
expectations between Buyer & Seller are often not met
because a lack of Solicitation Planning.

2.3.1 Procurement Documents:

Procurement Documents guide the relationship


between Buyer & Seller. Requests from Buyers to Sellers
should be specific enough to give the Seller a clear idea
of what the Buyer is requesting, but general enough to
allow the Seller to provide practical (possible)
alternatives.

Common names for different types of Procurement


Documents include (detailed discussion in Practical
Part):

o Invitation for Bid (IFB),

o Request for Proposal (RFP),

o Request for Quotation (RFQ),

o Invitation for Negotiation (IFN), and

o Contractor Initial Response.

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2.3.2 Evaluation Criteria:

Evaluation Criteria is used to rate or score proposals


from Sellers. They may be objective (e.g., “The Proposed
Project Manager must be a certified PMP) or subjective
(e.g., “The Proposed Project Manager must have
documented previous experience with similar projects.”)
Evaluation Criteria are often included as part of the
Procurement Documents.

Other Evaluation Criteria must be identified and


documented to support an assessment. For example:

o Understanding of Need --- as demonstrated by the


Seller’s Proposal.

o Overall or Life-Cycle Cost --- Will the selected


Seller produce the lowest total cost (purchasing
cost + operating cost)?

o Technical Capability --- Does the Seller have the


technical skills and knowledge needed?

o Management Approach --- Does the Seller have


the necessary financial resources?

2.3.3 Statement(s) of Work Updates

Modifications to one or more Statements of Work may


be identified during Solicitation Planning.

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3 Solicitation Process:

Once the Solicitation Planning has been completed, the actual


Process of Solicitation can begin.

Solicitation involves obtaining Quotations, Bids, Offers, or


Proposals from prospective Sellers to make Project Needs be
met.

The Seller (not the Bayer) perform most of the activity in


Solicitation --- usually at no additional cost to the project.
Sellers try to win the business.

3.1 Inputs To Solicitation Process:

3.1.1 Procurement Documents

These are the Invitation to Bid, Request for Proposal,


and request for Quotations.

3.1.2 Qualified Seller Lists

Some Organizations maintain lists or files with


information on prospective (likely) Sellers (generally
information on relevant past experience and other
characteristics of the prospective Sellers)
If such lists are not available, the Project Team will have
to develop its own Sources.
General Information is widely available through the
Internet, Library Directories, Relevant Local Associations,
Trade Catalogs, and similar sources.

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Detailed Information on specific Sources may require


more extensive effort, such as visits or contact with
previous Customers.
Procurement Documents may be sent to some or all of
the prospective (likely) Sellers.

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3.2 Tools & Techniques for Solicitation Process:

3.2.1 Bidder Conferences

Bidder Conferences (also called Contractor


Conferences, Vendor Conferences, and Pre-Bid
Conferences) are meetings with prospective sellers prior
to preparation of a Proposal. They are used to ensure
that all prospective Sellers have a clear, common
understanding of the Procurement (technical
requirements, contract requirements, etc.).
All potential Sellers must remain on equal standing
during this process.

3.2.2 Advertising

Existing “Lists of Potential Sellers” can often be


expanded by placing advertisements in general
circulation publications such as newspapers or specially
publications such as professional journals.

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3.3 Outputs from Solicitation Process:

3.3.1 Proposals, Bids, and Quotations

These documents indicate the Seller’s ability and


willingness to complete the Project Work. They are
prepared in accordance with the requirements of the
relevant Procurement Documents. Proposals may be
supplemented with an oral presentation.

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4 Determining Source Selection: ‫عملية فتح المظاريف‬


Source Selection involves the receiving of Bids or Proposals and
application of the Evaluation Criteria to select a Provider. Many
factors (aside from cost or price) may need to be evaluated in the
source selection decision process.

 Price may be the primary determinant item, but the lowest


proposed price may not be the lowest cost if the Seller
proves unable to deliver the product in a timely manner.

 Proposals are often separated into technical and


commercial (financial) sections with each evaluated
separately.

 Multiple Sources may be required for Critical Products.

 Select a single Source who will be asked to sign a Standard


Contract.

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4.1 Inputs to Source Selection

4.1.1 Proposals

The Proposals, Bids, and Quotations provided by the


Sellers are key inputs. These are the documents the
Performing Organization will evaluate to determine
which Seller is the Best Provider for the Project.

4.1.2 Evaluation Criteria

The Evaluation Criteria are evidence of the quality,


depth, and experience of work the Seller has performed
in the past and capable of performing on the current
project.
Evaluation Criteria are developed in Solicitation Planning
and applied in Source Selection.

4.1.3 Organizational Policies

Organizations concerned with Project Procurement


typically have formal policies that affect the evaluation
of proposals.

As an example, some Organizations’ Procurement


Policies do not allow Project Managers to accept any
gifts beyond $25 in value….

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4.2 Tools & Techniques for Source Selection:

In case of existing more than one Seller that can satisfy the
demands of the Project, there are many Tools & Techniques
the Project Manager can rely on:

4.2.1 Contract Negotiation

Contract Negotiation involves clarification and mutual


agreement on the structure and requirements of the
contract prior to the signing of the contract.
The final contract language should reflect all agreements
reached.
Subjects covered generally include (but are not limited
to, responsibilities and authorities) applicable terms and
law, technical and business management approaches,
contract financing, and price.
For complex Procurement Items, contract negotiation
may be an independent process with inputs (e.g., issues
or open items list) and outputs (e.g., memorandum of
understanding) of its own.

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4.2.2 Weighting System

A Weighting System is a method for qualifying


qualitative data to minimize the effect of personal
unfairness on Source Selection. Most such Systems
involve:

o Assigning a numerical weight to each of the


evaluation criteria.

o Rating the prospective (likely) Sellers on each


criterion.

o Multiplying the weight by the rating.

o Totaling the resultant products to compute an


overall score.

4.2.3 Screening System ‫العطاءات المرفوضة‬

A Screening System is a method to remove Sellers form


consideration if they do not meet given conditions.

For example, Screening could require that the Seller


must be certified by a Specific organization, and have
prior experience with the Project Technology.

Sellers that do not meet the requirements are removed


from the Selection Process and their proposals are not
considered.

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4.2.4 Independent Estimates

For many Procurement Items, the Procuring


Organization may prepare its own Independent
Estimates as a check on proposed pricing.

Significant differences from these estimates may be an


indication that the SOW was not adequate, or that the
Seller either misunderstood or failed to response fully to
the SOW.

`Independent Estimates are often referred to as “Should


Cost” Estimates.

These estimates are created by the Performing


Organization to predict what the cost of the procured
product should be. If there is a significant difference
between what the Organization has predicted and what
the Sellers have proposed, either the SOW was
inadequate or the Sellers have misunderstood the
requirements (Reference 2 --- page 564)

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4.3 Outputs from Source Selection:

4.3.1 Contract(s)

A Contract is a mutually obligatory agreement that


obligates the Seller to provide the specified product and
obligates the Buyer to pay for it.

A Contract is a legal relationship subject to remedy


(preparation) in the Courts.

The agreement may be simple or complex reflecting the


simplicity or complexity of the product.

Contracts may be called (among other names) a


Contract, an Agreement, a Subcontract, a Purchase
Order, or a Memorandum of Understanding.

Most Organizations have documented policies and


procedures specifically defining who can assign such
agreements on behalf of the Organization, typically
called a Delegation of Procurement Authority.

Although all Project Documents are subject to some


form of review and approval, the nature of a contract
usually means that it will be subjected to a more
extensive approval process.

In all cases, a primary focus of the review and approval


process should be to ensure that the contract language
describes a product (Materials & services) that will
satisfy the identified need.

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5 Contracts Administration:

Contract Administration is the process of ensuring that the


Seller’s Performance meets Contractual Requirements. The
Project Manager & the Contract Administrator must work
together to make certain the Seller meets his obligations.

In case of large Projects with multiple Product’ Providers, a key


aspect of Contract Administration is managing the interfaces
among the various Providers.

Another aspect of Contract Administration (especially on larger


Projects with multiple Sellers providing various products) is the
coordination between the Contractors.

Contract Administration includes application of the appropriate


Project Management Processes to the contractual relationship(s)
and integration of the outputs from these processes into the
overall Project Management. This integration and coordination
will often occur at multiple levels when there are multiple Sellers
and multiple Products involved.

Within the Contract, there must be the terms for payment.


Typically the performance and progress of the Contractor is
directly linked to payments it receives. The Project Manager must
track performance and quality to approve or decline (reject)
payment as needed.

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The Project Management Processes that must be applied within


Contract Administration include:

 Project Plan Execution to authorize the Contractor’s Work


at the appropriate time.

 Performance Reporting to monitor Contractor Cost,


Schedule, and Technical Performance.

 Quality Control to examine and verify the sufficiency of the


Contractor’s Product.

 Change Control to insure that Changes are properly


approved.

Contract Administration also has a Financial Management


Component. Payment Terms should be defined within the
Contract and must involve a specific linkage between Seller
Progress Made and Seller Compensation Paid.

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5.1 Inputs to Contract Administration:

5.1.1 Contract(s)

The Contract is needed as a guide for effective Contract


Administration. The Contract states the requirements
and expectations of the Seller and Buyer.
The obligations of both parties should be in association
with the Contract; if not, disagreements, delays, and
even work stoppage can arise.

5.1.2 Work Results

The Seller’s Work Results must be completed according


to the requirements of the Contract.

The Seller’s Work Results (which deliverables have been


completed and which have not, to what extent quality
standards are being met, what costs have been incurred
or committed, etc.) are collected as part of Project Plan
Execution.

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5.1.3 Change Requests

Change Requests may include modifications to the terms


of the contract or the description of the product or
service to be provided.

In some instances, the Seller and Buyer may disagree


about the cost of changes. These differences may be
labeled as claims, disputes, or appeals (demands) ---
they can ultimately slow the project progress if they are
not solved.

If the Seller’s Work is unsatisfactory, then a decision to


terminate the contract would also be handled as a
Change Request.

Contested (Disputed) Changes --- those where the Seller


and the Project Management Team cannot agree on
compensation for the change are called claims,
disputes, or appeals.

5.1.4 Seller Invoices

The Seller must submit invoices from time to time to


request payment for Work Performed.

Invoicing Requirements (including necessary supporting


documentation) are defined within the Contract.

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5.2 Tools & Techniques for Contract Administration:

5.2.1 Communication Plan


The actual process of completing Contract
Administration relies heavily on communication
between Project Manager, the Contract Officer, and the
Seller.
The Communications Plan may have consideration for
how and when the communication between the Buyer
and Seller should take place and what the purpose of
the communication should be.

5.2.2 Contract Change Control System

A Contract Change Control System defines the process


by which the contract may be modified. It includes the
Paperwork, Tracking Systems, Dispute Resolution
Procedures, and Approval Levels necessary for
Authorizing Changes.

The Contract Change Control System should be


integrated with the Integrated Change Control System.

5.2.3 Performance Reporting

Performance Reporting provides management with


information about how effectively the Seller is achieving
the contractual objectives.

Contract Performance Reporting should be integrated


with the Integrated Project Performance Reporting.

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5.2.4 Payment System

Payments to the Seller are usually handled by the


Accounts Payable System of the Performing
Organization.

On larger Projects with many or complex Procurement


Requirements, the Project may develop its own System.
In either case, the Payment System must include
appropriate reviews and approvals by the Project
Management Team.

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5.3 Outputs from Contract Administration:

5.3.1 Correspondence

Contract Terms & Conditions often require Written


Documentation of certain aspects of Buyer/Seller
Communications, such as Warnings of Unsatisfactory
Performance and Contract Changes or Clarifications.

Correspondence can serve as documentation for legal


action if disputes arise between the Buyer and Seller.

5.3.2 Contract Changes

Changes (Approved and unApproved) are fed back


through the appropriate Project Planning and Project
Procurement Processes and the Project Plan or other
relevant Documentation is updated as appropriate.

5.3.3 Payment Requests

This assumes that the Project is using an External


Payment System. If the Project has its own Internal
System, the output here would simply be “Payments”.

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6 Contract Closeout:

Contract Closeout involves both Product Verification (was all


work completed correctly and satisfactory?) and Administrative
Closeout (Updating of Records to reflect final results and archiving
of such information for future use).

Contract Closeout can also be linked to Administrative Closure,


because it is the process of confirming the work was completed.

The Contract Terms & Conditions may prescribe specific


procedures for Contract Closeout.

6.1 Inputs to Contract Closeout:

6.1.1 Reviewing Contract Documentation

Contract Documentation includes (but is not limited to)


the Contract itself along with all supporting Schedules,
Requested & Approved Contract Changes, and Seller-
Developed Technical Documentation, Seller
Performance Reports, Financial Documents such as
Invoices and Payment Records, and the results of any
Contract-Related Assessments.

The Project Manager should review and consider the


following:
 Schedules of Procured Work
 Contract Change Request --- Approved & Declined
 Financial Documents, invoices, and Payment
Records
 Results of Contractual Inspections (Assessments)

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6.2 Tools & Techniques for Contract Closeout:

6.2.1 Procurement Audits

A Procurement Audit is a structured review of the


Procurement Process from Procurement Planning
through Contract Administration.

The objective of a Procurement Audit is to identify


successes and failures that deserve transfer to other
Procurement Items on this Project or to other Projects
within the Performing Organization.

The purpose of the audit is to learn from what worked


and what did not work during the Procurement Process.
This knowledge can then be applied to other areas
within the current project and to other projects within
the Performing Organization.

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6.3 Outputs from Contract Closeout:

6.3.1 Contract File

A Contract File is a complete set of indexed Records that


should be prepared for inclusion with the final Project
Records.

These Records include Financial Information as well as


Information on the Performance and Acceptance of the
Procured Work.

6.3.2 Formal Acceptance & Closure

The Person or Organization responsible for Contract


Administration should provide the Seller with Formal
Acceptance and Closure that usually defined in the
Contract.

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Summary-1:

Procurement Planning
 Procurement Planning is determining which aspects of the project can
best be fulfilled by procuring the specified Products (Materials and/or
Services.

 The Project Scope serves as a key input to describe the work ( and
only the required work) needed to complete the Project.

 A clearly defined Product Description is needed in order to


successfully procure the product.

 Make-or-Buy Analysis calculates and predicts which is better for the


Performing Organization to make the Product or to hire an entity
outside of the Organization to make the Product.

 Some Contracts can transfer the risk to the Seller; other Contract types
require the Buyer to retain the risk of cost overruns.

Solicitation Planning
 The Buyer should provide the Seller with a SOW, details on the type
of response needed such as a Proposal, Quote, or Bid, and any
information on contractual provisions, such as non-disclosure
agreements or a copy of the model contract the Buyer intends to use.

 Bids and Quotes are needed when the decision is made on price.
Proposals are needed when decisions are based on other factors, such
as experience, qualifications, and approaches to the project work.

 The Procurement Management Plan describes the procedures for


procuring work or products.

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Solicitation Process
 Solicitation Process is requesting the Potential Sellers to provide Bids,
Proposals, or Quotes to complete the Project Work or supply the
described Product.

 An Organization may retain a Qualified Seller List from which the


Project Team is forced to select a Vendor. In other instances, the
Project Team can rely on Trade Associations, Industry Directories,
and other resources to locate Qualified Sellers.

 Advertisements for the procured process in Newspaper and Trade


Publications can increase the List of Sellers the Buyer can choose
from.

 Bidder Conferences allow Sellers to meet with the Buyer to query the
Buyer on details of the Procurement Process. The goal of the Bidder
Conference is to ensure that all Prospective Sellers have the same
information and all of the needed information to complete an accurate
Bid or Proposal.

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Source Selection
 Samples of the Sellers’ previous related Products can serve as
Evaluation Criteria.

 Contract Negotiation focuses on finding a fair and reasonable price for


both the Buyer and the Seller.

 Weighting Systems are unbiased approaches to determine which


Seller has the best offer to complete the Procured Product.

 Screening Systems allow an Organization to screen out Sellers that do


not qualify for the procured product or service.

 “Should Cost” Estimates are completed by the Performing


Organization to determine if Sellers completely understand the
requirements of the Project Work.

Contract Administration
 Contract Administration ensures the Sellers are meeting their
contractual obligations.

 Change Requests may require updates to the contract between the


Buyer and the Seller. Contract Change Requests are part of the
Integrated Change Control System.

 The Project Manager must document and report to the Seller and
Management on how the Seller is meeting Contract Obligations.

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Contract Closeout
 Contract Closeout is similar to Administrative Closure.

 Contract Documentation --- such as the Contract, Schedules, relevant


Documentation, Approved Contract Changes, Performance Reports,
and other pertinent information --- is needed to complete Contract
Closeout.

 Procurement Audits are intended to review, document, and share the


successes and failures of the current Project’s Procurement Process.
The information can be applied to other projects within the
Organization.

 A Contract File is created and is included with the Project Records as


part of the Historical Information of the current Project.

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Key Terms
Bid Direct Costs Proposal

Bidder Conferences Evaluation Criteria

Qualified Seller List

Centralized Contracting Fixed-Price Contracts

Quote Contract

Letter Contract (The intent of Letter Contract is to allow the Vendor to get to work
immediately to solve the Project Problem)

Letter of Intent (This letter describes how to buy from . . .)

Request for Proposal (RFP)

Contract Administration Indirect Costs

Request for Quote (RFQ) Contract Change Control System

Invitation for Bid (IFB) “Should Cost” Estimates

Contract Closeout

Single Source Contract File

Make-or-Buy Analysis Sole Source

Cost-Reimbursable Contracts

Procurement Statement of Work

Decentralized Contracting Procurement Audits

Time and Materials Procurement Management Plan

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Summary-2:
Project Procurement Management allows a Project to ascertain Resources,
Materials, Equipment, Services, and other Components needed to
successfully complete the Project. It is the process of finding Sellers that can
supply the needed Products or Services at a fair rate and meet the Quality,
Time, and Cost Expectations of the Project.

The Product Description will help the Project Manager and the Vendor
determine what the best solution for the Procurement Need is.

One of the first activities the Project Manager and the Project Team
complete together before procuring Products is to determine the need to Buy
versus the ability to Make the Product.

A Decision Tree can help the Project Manager determine which decision is
most cost effective, reliable, and best for the Project. A Buy-versus-Build
Analysis can compare the benefits of buying versus selling---including
attributes other than just price and time.

Bidder Conferences allow the Bidders to meet with the Project Managers
and other officials representing the Seller to confirm the details of the
Statement of Work.

Recall that the Statement of Work is provided to all of the Vendors that may
be creating Bids or Proposals for the Seller.

The Bidders’ Conference allows the Bidders to obtain any additional


information they may need to create a full and complete Bid, Quote, or
Proposal. It is part of the Solicitation Process and proceeds to Source
Selection.

PMP Candidates and Project Managers must be familiar with the different
Contract Types and when to use each one.

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Here’s a recap of the most common Contract Types:

 Cost Plus Fixed Fee: Details the fixed cost of the Contract which
includes a Profit Margin for the Seller.

 Cost Plus Percentage of Cost: Has a price for the contracted product
or service, but cost overruns areassigned to the Buyer.

 Cost Plus Incentive Fee: The Seller determines a price for the
Product or Service---but includes an incentivereward for completing
the procured work on time or ahead of schedule.

 Fixed-Price: A simple fixed price for the Contract---but it can include


an incentive for the Seller to completeearly, ahead of schedule, or
other savings shared between the Buyer and the Seller.

 Lump-Sum: The Contract has one price for all of the contracted
work.

 Time and Materials: Price assigned for the Time and Materials
provided by the Seller.

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Self Test (Reference No 2)


1. Which of the following may be used as a Risk Mitigation
(improvement) Tool?

A. Vendor proposal
B. Contract
C. Quotation
D. Project requirements

2. A Contract cannot have provisions (necessities) for which one of the


following?

A. A deadline for the completion of the work


B. Illegal activities
C. Subcontracting the work
D. Penalties and fines for disclosure of intellectual rights
(A contract cannot contain illegal activities)

3. You are the Project Manager for the 89A Project. You have created a
contract for your Customer. The contract must have what one thing of
the following?

A. Offer and Consideration


B. Signatures and the stamp of a notary (legal representative) public
C. Value and worth of the procured item
D. Start date and acceptance of start date

4. The Product Description of a Project can help a Project Manager


create Procurement Details. Which one of the following best describes
this process?

A. The product description defines the contracted work.


B. The product description defines the requirements for the contract
work.
C. The Product Description defines the contracted work, which
must support the requirements of the project’s customer.
D. Both parties must have and retain their own copy of the product
description.
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5. Yolanda has outsourced a portion of the project to a vendor. The


vendor has discovered some issues that will influence the cost and
schedule of its portion of the project. How must the vendor update the
agreement?

A. As a new contract signed by Yolanda and the vendor.


B. As a contract addendum (addition) signed by Yolanda and the
Vendor.
C. As a memo and SOW signed by Yolanda and the vendor.
D. Project Management contracts have clauses that allow vendors
to adjust their work according to unknowns.

6. The United States backs (supports) all Contracts through which of the
following?

A. Federal law
B. State law
C. Court System
D. Lawyers

7. Terry is the Project Manager of the MVB Project. She needs to


purchase a piece of equipment for her project. The Accounting
Department has informed Terry she needs a unilateral (independent)
Form of Contract. Accounting is referring to which of the following?

A. SOW
B. Legal binding contract
C. Purchase Order
D. Invoice from the vendor

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8. Bonnie is the Project Manager for the HGH Construction Project.


She has contracted a portion of the project to the ABC Construction
Company. Bonnie has offered a bonus to ABC if they complete their
portion of the work by August 30. This is an example of which one of
the following?

A. Project requirement
B. Project incentive (encouragement)
C. Project goal
D. Fixed-price contract

9. The purpose of a contract is to distribute between the Buyer and Seller


a reasonable amount of which of the following:

A. Responsibility
B. Risk
C. Reward
D. Accountability
(A fair contract shares a reasonable amount of risk between the Buyer & the Seller)

10. Privity is what?

A. Relationship between the project manager and a known vendor


B. Relationship between the project manager and an unknown
vendor
C. Contractual, confidential information between customer
and vendor
D. Professional information regarding the sale between customer
and vendor
(Privity is considered agreement between the Buyer & Seller)

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11.Sammy is the Project Manager of the DSA Project. He is considering


proposals and contracts presented by vendors for a portion of the
project work. Of the following, which contract is least dangerous to
the DSA Project?

A. Cost plus fixed fee


B. Cost plus percentage of cost
C. Cost plus incentive fee
D. Fixed-price
( A Fixed-Price Contract contains the least amount of risk for a project. The Seller
assumes all of the risk)

12.In the following contract types, which one requires the Seller to
assume the risk of cost overruns?

A. Cost plus fixed fee


B. Cost plus incentive fee
C. Lump Sum
D. Time and materials
(A & B are incorrect because these contracts require the Seller to carry the risk of cost overruns. D
is incorrect because Time & Materials Contracts require the Buyer to pay for cost overruns on the
materials and the time invested in the Project Work)

13.Benji is the Project Manager of PLP Project. He has hired an


independent contractor for a portion of the project work. The
contractor is billing the project $120 per hour, plus materials. This is
an example of which one of the following?

A. Cost plus fixed fee


B. Time and Materials
C. Unit-price
D. Lump sum

14.Mary is the Project Manager of JHG Project. She has created a


Statement of Work (SOW) for a Vendor. For Mary’s SOW to be a
legal contract, what must be included?

A. Affidavit (official declaration – confirmation) of agreement


B. Signatures of both parties agreeing to SOW
C. Signature of vendor
D. Signature of Mary

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15.You are the Project Manager for a Software Development Project


for an Accounting System that will operate over the Internet. Based
on your research, you have discovered it will cost you $25,000 to
write your own code. Once the code is written you estimate you’ll
spend $3,000 per month updating the Software with Client
Information, Government Regulations, and Maintenance.

A Vendor has proposed to write the code for your company and
charge a fee based on the number of clients using the program every
month.
The Vendor will charge you $5 per month per user of the Web-Based
Accounting System. You will have roughly 1,200 clients using the
system per month.

However, you’ll need an in-house accountant to manage the time and


billing of the system, so this will cost you an extra $1,200 per month.

How many months will you have to use the system before it is better
to write your own code than to hire the vendor?

A. 3 months
B. 4 months
C. 6 month
D. 15 months
(The money invested in the Vendor’s solution would have paid for your own code in 6
months. This is calculated by finding your cash spend for the 2 solutions: $25,000 for
your own code creation, and zero cash spend for the vendor’s solution. The monthly cost
to maintain your own code is $3,000. The monthly cost of the Vendor’s is $7,200 (1200 *
5 + 1200). Subtract your cost of $3,000 from the Vendor’s cost of $7,200 and this equals
$4,200. Divide this number into the cash outlay (spend) of $25,000 to create your own
code and you will come up with 5.95 months. Of all the choices presented, C --6 months--
, is the best choice)

Vendor: $5/month/User * 1200 Users


$6000/month + extra $1200/month
$7000/month

In-House: $3000/moth

Difference = $7200 – $3000 = $4200

Therefore, 25000/4200 :=5.95 := 6 months

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16.You are completing the closeout of a project to Design a Warehouse


in Columbus, Ohio. The contract is a Cost plus Incentive Fee
Contract. The target costs are $300,000, with a 10 percent target
profit.
However, the project came in (executed) at $275,000. The incentive
split is 80/20. How much is the total contract cost??

A. $300,000
B. $275,000
C. $310,000
D. $330,000
The total contract cost is $310,000. Here is how the answer is calculated:
Target cost is $300,000. The 10% profit is $30,000. The finished cost was $275,000, a difference of
$25,000 between the target & the actual. The contract calls for an 80/20 split if the contract
comes in under budget.
The formula reads:
Finished Cost + Profit Margin + (0.20 * Under Budget Amount) ----
$275000+30000+5000 = 310,000 ----

17.A Contract between an Organization and a Vendor may include a


clause that penalizes the Vendor if the project is late. The lateness of a
project has a monetary penalty; penalty should be enforced or waived
(ignored) based on which one of the following?

A. If the project manager could have anticipated (expected) the delay


B. If the project manager knew the delay was likely
C. Whether the delay was because of an unseen risk
D. Who caused the delay and the reason why?
(The party that caused the delay is typically the party responsible for the delay. It would not be
acceptable for the project manager to willingly cause a delay and then penalize the contractor
because the project was late).

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18. A Single Source Seller means what?

A. There is only one qualified Seller.


B. There is only one Seller the company wants to do business
with.
C. Here is a seller that can provide all aspects of the Project
Procurement Needs.
D. There is only one Seller in the market.
(“B”. A single source seller means there is only one seller the company wants to do business with.
“A” describes a “sole source” seller. “C” is incorrect; there may be multiple sellers that can
satisfy the project needs. “D” is also incorrect; just because there is only one seller in the market
does not mean the seller can adequately and fully fill the project needs).

19.Which one of the following is not a valid Evaluation Criterion for


Source Selection?

A. Age of the Contact Person at the Seller


B. Technical Ability of the Seller
C. Contract Requirements
D. Price
(“A” The age of the contact at the seller should not influence the source selection. The experience
of the person doing the work, however, can. “B”, “C”, and “D” are all incorrect, as technical
ability, objective requirements (such as qualifications and certifications), and price can be valid
evaluation criteria).

20.Henry has sent the ABN Contracting Company a letter of intent


(aim). This means which one of the following?

A. Henry intends to sue (charge, go to court) the ABN Contracting


Company.
B. Henry intends to buy from the ABN Contracting Company.
C. Henry intends to bid on a job from the ABN Contracting
Company.
D. Henry intends to fire the ABN Contracting Company.
(B. Henry intends to buy from the ABN Contracting Company. A, C, and D are all incorrect;
these choices do not adequately describe the purpose of the letter of intent).

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21.Martha is the Project Manager of the MNB Project. She wants a


Vendor to offer her one price to do all of the detailed work. Martha is
looking for which type of Document?

A. RFP (Request For Proposal)


B. RFI (Request For information)
C. Proposal
D. IFB (Invitation for Bid)
(A and B, Request for Proposal and Request for Information, are documents from the Buyer to the
Seller requesting information on completing the work. C, a proposal, does not list the price to
complete the work, but instead offers a solutions to the Buyer for completing the project needs).

22.Which one of the following is true about Procurement Documents?

A. They offer no room for bidders to suggest changes.


B. They ensure receipt of complete proposals.
C. They inform the performing organization why the bid is being
created.
D. The project manager creates and selects the bid
(B. Procurement documents detail the requirements for the work to ensure complete proposals
from sellers. A is incorrect; procurement documents allow input from the seller to suggest
alternative ways to complete the project work. C is incorrect; informing the performing
organization on why the bid is being created is not the purpose of the procurement documents. D
is not realistic).

23.In what process group does source selection happen?

A. Initiating
B. Planning
C. Executing
D. Closing
(C. Source selection happens during the Execution process group. A, B, and D are all incorrect,
as these process groups do not include source selection).

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24.You have an emergency on your project. You have hired a vendor that
is to start work immediately. What contract is needed now?

A. T&M
B. Fixed fee
C. Letter Contract
D. Incentive contract
(C. For immediate work, a letter contract may suffice. The intent of the letter contract is to allow
the vendor to get to work immediately to solve the project problem. Choices A, B, and D are all
incorrect; these contracts may require additional time to create and approve. When time is of the
essence, a letter contract is acceptable).

25.You are the Project Manager for a Seller. You are managing another
company’s project. Things have gone well on the project, and the
work is nearly complete. There is still a significant amount of funds in
the project budget. The Buyer’s representative approaches you and
asks that you complete some optional requirements to use up the
remaining budget. You should do which one of the following?

A. Negotiate a change in the contract to take on the additional


work.
B. Complete a contract change for the additional work.
C. Gain the approval of the project stakeholder for the
requested work.
D. Deny the change because it was not in the original contract.
(C. Any additional work is a change in the project scope. Changes to project scope should be
approved by the mechanisms in the change control system. The stakeholder needs to approve the
changes to the project scope.
A, B, and D are not realistic expectations of the project. These questions border on the PMP
Code of Professional Conduct. Typically, when a project scope has been fulfilled, the project work
is done. The difference in this situation is that the additional tasks are optional requirements for
the project scope)..

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Practical Part

Using Primavera Expedition for Contract Administration

Course 202 A & Course 202 B

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Using Primavera Expedition for Contract Administration

Purpose & Objectives:


This section provides a comprehensive overview of Primavera Expedition
features that will enable to administrate Contracts.

It will introduce you to setting up a Project of Contract(s) recording events,


communicating Project Information, Cost Management, and Change
Management Process.

This section includes:


 Set up a Project
 Develop a Contract Directory
 Record and Distribute Contract Drawings
 Award Contracts & Purchase Orders
 Track Material Deliveries
 Record Meeting Minutes
 Log Daily Reports
 Manage Submittals
 Create Transmittals
 Produce Letters and Request for Information (RFI )
 Define the Cost Process
 Applying the Cost Worksheet
 Distribute Contract Costs
 Setup and Progress Payment Requisitions
 Define Change Management Process

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Introduction to Primavera Expedition:

Course 202A

Page 1-1

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Setting up Companies & Contacts Directory:

Course 202A

Page 2-1

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Contract Drawings:

Course 202A

Page 3-1

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Contracts & Purchase Orders:

Course 202A

Page 4-1

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Recording Project Events:

Course 202A

Page 5-1

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Tracking and Statusing Submittals:

Course 202A

Page 6-1

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Communicating Project Information

Course 202A

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Managing Project Costs:

Course 202B

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Distributing Contract Cost:

Course 202B

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Setting up Payment Requistions:

Course 202B

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Change Management:

Course 202B

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Recording Progress for Payment Requisitions:

Course 202B

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Building Project Issues:

Course 202B

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References

1. PMBOK Guide, A Guide to the Project Management of Knowledge


Project Management Institute, Four Campus Boulevard, Newtown
Square, PA 19073-3299 USA

2. Joseph Phillips, Project Management Professional – Study Guide


McGraw Hill

3. Using Primavera Expedition for Contract Administration, Course 202


A, Training Manual.

4. Contract Management with Primavera Expedition, Course 202 B,


Training Manual.

5. Dr. Abdalla El Daoushy,


Projects Time Management & Controlling using Projects
Management Software, Memo No. 971, Institute of National
Planning, Cairo, Egypt, 2008

6. Dr. Abdalla El Daoushy,


Projects Cost Management – Computer Software Oriented, Memo
No. 973, Institute of National Planning, Cairo, Egypt, 2009

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