Examining the Results of Procurement Planning

Procurement planning is a process that should happen early in the planning processes. The outputs of procurement planning allow the project manager and the project team to proceed with confidence in the procuring of products and services needed to successfully complete the project. If it is determined early in the project that there no need for procurements, then, obviously, the balance of the procurement processes is not necessary for the project.

Figure 12-3

Time and materials must have a not-to-exceed clause to protect the buyer.

Cost

Cost

Materials

Contract Type

Acronym

Attribute

Risk Issues

Cost Plus Fixed Fee

CPFF

Actual costs plus profit margin for seller.

Cost overruns represent risk to the buyer.

Cost Plus Percentage of Cost

CPPC

Actual costs plus profit margin for seller.

Cost overruns represent risk to the buyer. This is the most dangerous contract type for the buyer.

Cost Plus Incentive Fee

CPIF

Actual costs plus profit margin for seller.

Cost overruns represent risk to the buyer.

Fixed-Price

FP

Agreed price for contracted product. Can include incentives for the seller.

Seller assumes risk.

Lump-Sum

LS

Agreed price for contracted product. Can include incentives for the seller.

Seller assumes risk.

Firm Fixed-Price

FFP

Agreed price for contracted product.

Seller assumes risk.

Fixed-Price Incentive Fee

FPIF

Agreed price for contracted product. Can include incentives for the seller.

Seller assumes risk.

Time and Materials

T&M

Price assigned for the time and materials provided by the seller.

Contracts without "not-to-exceed" clauses can lead to cost overruns.

Unit Price

UP

Price assigned for a measurable unit of product or time. (For example, $130 for engineer's time on the project.)

Risk varies with the product. Time represents the biggest risk if the amount needed is not specified in the contract.

Table 12-2 Common Contract Types

Table 12-2 Common Contract Types

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Project Management Made Easy

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