Lecture 45

VU

Project Procurement, Contract Management, and Ethics in

Project Management
By
Dr. Ali Sajid
 “Self-pity is our worst
enemy &
if we yield to it,
we can never do anything
wise in this world”
Helen Keller

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“To be prepared
is half the
victory”
 Miguel de Cervantes Saavedra

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“Treat people as if they were
what they ought to be,
& you
help them to become
what
they are
capable of being.”

Johann Wolfgang von Goethe

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The quality of a person's
life is in direct production
to their commitment to
excellence,
regardless of their chosen
field of endeavor.

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The race is not always
to the swift,
but to those
who keep
on running.
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 In three words,
I can sum up
everything I've
learned about life:
It goes on.
Robert Frost
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Action in Your Project
“Action may not
always bring
happiness,
but there is
no happiness
without Action.”

Benjamin Disraeli
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 Procurement

 Acquisition of
goods/services.
 Procurement (&
contracting) is a Process
that involves:
Two Parties with different
objectives who Interact in a
given market segment. 9
 Good Procurement Practices
include:
 Corporate profitability by
Taking advantage of:
1.Quantity discounts
2.Minimization of cash flow
Problems
3.Seeking out Quality Suppliers
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 As Procurement
Contributes to
Profitability, Procurement
is Often Centralized.
 It Results in “Standardized

practices”.
-”Lower Paper work of
Cost”. 11
 Objective of Procurement Planning is
to select one of the following:
 Procurement of all goods and services:
1. From Single Source.
2. From Multiple sources.

1. Procure only small portion of goods

and services.
2. Procure none of goods and services.

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 Environment in which Procurement
Takes Place is a critical factor to
Environment: Macro & Micro.
 Macro environment includes general
external variable that can Influence
“How & When” we do Procurement.
 It Includes:
 Recessions
 Inflation
 Cost of borrowing money
 Unemployment

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 Micro environment -Internal to Firm includes
“Procurement/control system” which has five
cycles:
 Requirement cycle: Defines boundaries
of Project.
 Requisition Cycle: Analyze sources.
 Solicitation Cycle: Bidding process.
 Award cycle: Contractor, selection &
contract award.
 Contract administrative Cycle:
Managing sub contractor until
completion of contract.
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 Several Activities of
Procurement Process overlap
several cycles.
 Cycles conducted in parallel,
especially “Requisition &
Solicitation”.

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 Requirement Cycle
 First step in
procurement Process.
 “Definition of Project
Specifically
‘Requirements.”
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Requirement Cycle includes:
1. Project need definition.
2. Development of Statement of work,
Specification and work breakdown
structure.
3. Analysis of make or buy.
4. Layout of major milestones, timing &
Schedule.
5. Cost estimation including LC costing.
6. Obtaining authorization & approval to
Proceed.
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 Specs
Written Pictorial or graphic
information which describe,
define or specify service/item to
be procured:
1. Design (physical
Characteristics).
2. Performance (measurable
capabilities).
3. Functional ( sub set of
performance specs). 18
 Requisition Cycle

Once the “Requirement is

identifies”,
‘Requisition form’ is
sent to procurement to
begin
“Requisition Process”.
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Requisition cycle includes:
1. Evaluating/confirming spec.

2. Confirming sources.

3. Reviewing past performance

of sources.
4. Producing Solicitation Package
(S/P).

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Solicitation Package includes:
1. Bid Document (Standard form for
compliance).
2. Listing of Qualified vendors
(expected to bid).
3. “Proposal evaluation Criteria.”
4. Bidder conferences.
5. Chang Request management.
6. Supplier Payment Plan.
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 Solicitation Cycle
 Selection of “Acquisition
Method” is a Critical element in
“Solicitation Cycle”.
 Three acquisition Methods are:
Advertising
Negotiation
Small Purchases (off supplies)

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 Advertising- Company
goes out for sealed bids.
 Competitive market forces
determine Price & award
goes to “Lowest bidder”.

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 Negotiation
 When Price is determined through
bargaining process.
 In such situation, customers go out
for a:
 Request 4 information (RFI)
 Request 4 Quotation (RFQ)
 Request 4 Proposal (RFP)
 RFP most costly endeavor for vendor.

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Large contracts Negotiation Process
 Also includes Price, Quantity,

Quality & Timing.

 Vendor Release is critical during

contract negotiations.
 Can Shorten Process due to:

1. Integrity of relationship
2. Previous history

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 Award Cycle (A/C)
 Results in a “signed contract”.
 There are several types of
contract, so negotiation
process also include
“selection” and type of
Contract.
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 Objectives of A/C
 To negotiate a contract for Type
& Price.
 Results in reasonable
“Contractor risk” & provide
Contractor with greatest
incentive for efficient &
economic Performance.
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 Basic elements of Most contracts
1. Mutual agreement must be on “offer & its
acceptance”.
2. Consideration: Must be down Payment.
3. Contract capability: Binding only if
contractor capable to perform.
4.Legal Purpose: Must be for a Legal purpose.
5. Form provided by law: Must Reflect “Contractor’s
Legal Obligation” or its Lack to “Deliver end
product.”

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 Two Common Contract forms
1. Completion Contract: Contractor is required to
deliver.
 A “Definitive End Product” after formal

“Acceptance by customer.”
 After Contract Completion, final-“Paymnt is

made”.

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 Term contract
 Required to “Deliver Specific” “Level of effort“,
“not an end product”.
 Effort is expressed in ”Man-Days” (month/years)
over a “Specific period of time” using “Specified
Personnel Skills”.
 When contracted effort is performed, final payment
is made “Irrespective of What” actually
“Accomplished Technically”.

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 Final Contract is also called
“Definitive contract”.
 It follows normal Contracting
Procedures.
 Negotiation of all Contractual
“Terms & Conditions” on Cost &
Schedule prior to “Initiation of
Performance”.

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 Negotiating of contract require
months of preparation but customer
needs work to begin immediately or
if “Long-lead procurement” is
necessary, then “customer provides to
contractor” with “letter of contract” or
letter of Intent (L o I).
 “Preliminary written instrument”
authorizes Contractor to begin
immediately:
 Manufacturing of supplies
 Performance of services
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 Final contract price must be
negotiated after performance
begins.
 ‘Definitive contract” must still
be negotiated.

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 Type of contract selection based upon following:
1. Overall degree of Cost & Schedule risk.
2. Type & complexity of requirement (technical Risk).
3. Extent of Price Competition.
4. Cost/Price Analysis.
5. Urgency of Requirements.
6. Performance period.
7. Contractor's Responsibility (& Risk).
8. Contractor's Acntng System (Report EV?).
9. Concurrent Contract (contract take a back seat to
existing work?).
10.Extent of sub contracting.
11.(how much work contractor out/sourced?).
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General 6 types of contracts :
 Fixed-price (FP)

 Cost -plus-fixed-fee (CPFF)

 Cost-plus-percentage-fee (CPPF)

 Guaranteed Maximum Shared

Savings (GMSS),
 Fixd-price Incentive- Fee (FPIF)

 Cost-Plus-Incentive-Fee (CPIF)

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 Fixed-price or
Lump-sum contract

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 Lump-sum provides
“maximum Protection to
owner” for ultimate “Cost of
Project”.
 Disadvantage :
Requires a long period for
preparation & adjudications of
Bids.
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Cost-Plus-
Fixed-Fee
(CPFF)
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Cost-Plus-Percentage
– fee Contract

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“Guaranteed
Max-Share Savings”

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Fixed-Price-
Incentive-fee
Contracts

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 “Cost-Plus-
Incentive-
Fee Contracts”
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 Societal Ethics
Standards - Members of
Society
use when dealing with
each other
Based on
“Values & standards”. 43
 Societal Ethics
Found in Society’s
Legal Rules,
Norms.
Codified in the
“Form of Law”
& Society’s Customs.
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 Norms dictate how
people Should behave.
 Societal ethics vary based
on a given Society.
 Strong beliefs in one
country differ
elsewhere.
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 Professional
Ethics: “Values &
standards used by group of
managers in workplace”.
 Applied when decision is not
“Clear-Cut Ethically”.
 Physicians/Lawyers,
Professional Associations.
(PMA, Bar Council)
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 Values

An individual’s Basic
convictions of
what is “right &
wrong”.
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 Values
Basic beliefs about what
one should or
should not do
& What is &
is not important?
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 Individual Ethics
Values of an individual
resulting from their
family & upbringing.

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 Behavior is
not illegal,
Yet people still
disagree
if not
ethical.
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 Ethics of top
project manager
set the tone for
the project.

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 Ethics Codes
& policies
Provide signs of top
management’s desires in
Project based
organizational culture.

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 Why Behave Ethically?
 Project Manager should
behave ethically to avoid
Harming others.
 Managers are Responsible for
“protecting & nurturing
resources” in their Charge.

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 “Leadership, Culture,
Incentive
Compensation Plans”
help Shape
“Individual Ethical
behavior”
in Project Management. 54
Ethicalculture: firms
increasingly seek to
make good ethics part
of norms &
organizational culture.

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 Views of Ethical Decision-Making

Decisions are Decision makers

Decisions made concerned with seek to impose
solely on the basis respecting and
protecting basic
and enforce rules
of outcomes or
rights of fairly and
consequences
individuals impartially

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 Code of Ethics
 Professional
organizations PMI is
taking a serious look at
developing requirements
for a Professional Project
manager.
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Ethics obligation matrix.

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CODE OF ETHICS FOR PROJECT MANAGERS
 PREAMBLE: Project Managers, in the pursuit of

their profession, affect the quality of life for all

people in our society.
 Therefore, it is vital that Project Managers

conduct their work in an ethical manner to earn

and maintain the confidence of team members,
colleagues, employees, clients and the public.

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 ARTICLE I: Project Managers shall
maintain high standards of personal
and professional conduct.

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 ARTICLE II: Project Managers
shall, in their work:
 Provide the necessary project leadership to promote
maximum productivity while striving to minimize
costs.

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ARTICLE III: Project Managers shall, in their
relations with employers and clients Act as
faithful agents or trustees for their employers or

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 ARTICLE IV: Project Managers shall, in
fulfilling their responsibilities to the
community:
 Protect the safety, health and welfare of the
public and speak out against abuses in those
areas affecting the public interest.
 Seek to extend public knowledge and
appreciation of the project management
profession and its achievements.

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