Procurement Management Contracts
If you have not worked with contracts before, I strongly suggest that you obtain from your company some sample contracts, requests for proposals and the resulting proposals and look at them before reading on. It might also be valuable to get in touch with your contract, procurement or legal department.
You have an opportunity to build an extremely worthwhile relationship when you ask them what you should know about contracts and then have an opportunity to tell them about project management. Try it!
The project manager should interact with a legal, contracting or procurement department to deal with contracts. In many cases, it is one of those departments that have the primary responsibility to create and administer contracts. They may also be the only ones who can approve a change to the contract.
People in these departments could be called the procurement manager, procurement officer, contract officer or contract manager. For brevity’s sake, I will just use the term contract manager in this lesson.
In the real world, there are terms such as contractor, subcontractor, owner, designer, etc. The PMBOK® Guide has narrowed all of these down to two; you are either a buyer or a seller in any procurement. Many companies are a buyer in one procurement and a seller in another. Be careful as this has also been an area that has troubled people on the exam.
Procurement Management Contracts – The Seller
If you are a seller in your real world work, it is an important trick to know that the questions are all written from the buyer’s perspective unless stated otherwise. The exam also assumes the seller is not supplying people to adjunct the buyer’s team, meaning that the seller remains external to the project team. Remember this and get four more questions right! Sellers should get used to thinking from the buyer’s perspective when answering practice questions.
Keep in mind the following general rules, especially if you find a question where the answer is not immediately apparent:
- Contracts require formality
- All product and project management requirements should be specifically stated in the contract
- If it is not in the contract, it can only be done if a change is issued
- If it is in the contract, it must be done or a change order, signed by both parties issued
- Changes must be in writing
- Contracts are legally binding
- Contracts should help diminish project risk
- Most governments back all contracts by providing a court system for dispute resolution
Note to Students Outside of the United States: The exam has very few references to international contracts, but you should be aware that government contracting specialists in the United States wrote many of these questions.
PMI’s process for procurement management closely follows what is done in the United States, but it is different from the way procurement is handled in many other parts of the world. In many parts of the world, the contract is an informal document and the relationship between the parties is more important than the contract.
If you are not from the United States, a key trick is to take a more formal approach to the procurement process when answering questions. The contract is most important. It must be followed and everything provided in it must be done. Study this lesson carefully.
Project Manager’s Role in Procurement
The project manager must be involved in the creation of contracts and fulfills the following key roles:
- Know the procurement process
- Understand contract terms and conditions
- Make sure the contract contains all the project management requirements such as attendance at meetings, reports, actions and communications deemed necessary
- Identify risks and incorporate mitigation and allocation of risks into the contract
- Help tailor the contract to the unique needs of the project
- Fit the schedule for completion of the procurement process into the schedule for the project
- Be involved during contract negotiation to protect the relationship with the seller
- Protect the integrity of the project and the ability to get the work done
- Uphold the entire contract, not just the contract statement of work
- Work with the contract manager to manage changes to the contract
The project manager must be assigned before a contract is signed! This allows the project manager to complete a risk analysis before a contract is signed. However, if yours is like many companies, this comes as something of a shock. In companies where projects are created through winning a contract from an outside client, sales and marketing will have handled the whole proposal process and signed a contract before the project manager is assigned.
The project manager then is handed a project that already may be in trouble because the contract, its terms and conditions, and even the contract statement of work may not be appropriate.
There are many ways a contract department can be organized. In a centralized contracting environment, there is a contracting department and a contract manager may handle contracts on many projects. In a decentralized contracting environment, a contract manager is assigned to one project full time and reports directly to the project manager.