How to Develop a Procurement Management Plan for Outsourced Projects

June 11, 2010 | Author: PM Hut | Filed under: Procurement Management, Procurement Plannning

How to Develop a Procurement Management Plan for Outsourced Projects
By Michael D. Taylor

Since those who are assigned to a Procurement Management Team are often nonplused with their role, it is incumbent upon the project manager to facilitate the development of a comprehensive procurement management plan. The plan is to be directed to the PMT, not to the outsourced organizations, and its purpose is to ensure that the PMT understands how it will operate within the project environment, how it will establish subcontracts, and how it will manage and monitor the subcontractors. This plan should include the following aspects:

  • Procurement goals
  • Team roles (RAM)
  • Competitive vs. sole-source rationale
  • List of potential bidders
  • Subcontractor selection method
  • Procurement risk management plan
  • Subcontractor monitoring and control methods

Procurement goals. The specific goals of the eventual subcontract will define not only the objectives of the subcontract around the constraints of time, cost, and scope, but it should include their relative priorities.

Team roles (RAM). Since the role of a PMT is different than that of the other project teams confusion can easily set in. The most pragmatic way to address this unique role is to develop a PMT responsibility allocation matrix.

Competitive vs. Sole-source Rationale. Even though a make-or-buy decision has been made at this point, the project manager and the PMT must determine if it is more beneficial to outsource to one bidder or to many. Traditionally, the tendency has been to submit a request-for-proposal to several firms with the understanding that this will create a competitive situation and the bidders will put their best foot forward in order to gain the business. However, competitive outsourcing takes more time than going to one bidder. Reviewing, fact-finding, and selecting the best of several bidders can be very time consuming and will require a larger budget to support these efforts as compared to sole source procurements. Sole-sourcing, on the other hand, offers a quicker way to get subcontractors on board but has the disadvantage of negotiating with a corporation that knows it is the only source. Sole-sourcing has become very popular today and is generally the adopted practice when both the primary contractor and the subcontractor have a proven record of mutual support and trust.

List of Potential Bidders. If it is decided to compete the outsourced portion of the project, the next step is to locate potential bidders. Formal business services such as Dunn and Bradstreet, the Thomas Global Register, and Hoover’s Database can provide names and contact information for potential bidders. Informal resources such as internal lists of approved vendors and subcontractors and online newspaper searches can also aid the process of locating and researching potential bidders.

Subcontractor Selection Method. Personal biases on the part of the PMT can create both ineffective and sometimes unethical selections of subcontractors. For this reason the project manager must ensure that a fair subcontractor selection method is used. If for some reason a bidder which lost the completion may conduct “saber rattling” by challenging the selection decision. When this happens, the PMT must be capable of fully defending its decision. Techniques such as Analytic Hierarchy Process, Kepner-Tregoe Decision Analysis, and Rank-Rate models can be used to minimize improper human biases during the bidder selection process.

Procurement Risk Management Plan. Most outsourced projects will contain significant risks. Bidders may be strong in the technical areas yet weak in schedule or cost management. Additionally, when outsourcing to firms that are located in other countries the risks become greater than outsourcing to local firms. Communication barriers, licensing agreements, and time differentials can impose serious risks. Prior to issuing RFPs, the PMT should evaluate these risks before reaching any legal agreements with another firm. These types of risks should also be surfaced when making the make-or-buy decision.

Subcontractor Monitoring & Control Methods. When portions of a project are outsourced, the methods for monitoring and controlling the work of another firm can become very challenging. Instead of relying solely on the institutional authority of the project manager, control is based on a written contract. Internal monitoring of project teams is much easier than monitoring and controlling a firm that located somewhere else in the world. This necessitates having unique skills on the part of the PMT members.

MICHAEL D. TAYLOR, M.S. in systems management, B.S. in electrical engineering, has more than 30 years of project, outsourcing, and engineering experience. He is principal of Systems Management Services, and has conducted project management training at the University of California, Santa Cruz Extension in their PPM Certificate program for over 13 years, and at companies such as Sun Microsystems, GTE, Siemens, TRW, Loral, Santa Clara Valley Water District, and Inprise. He also taught courses in the UCSC Extension Leadership and Management Program (LAMP), and was a guest speaker at the 2001 Santa Cruz Technology Symposium. His website is www.projectmgt.com.

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2 people have left comments

Could you please decipher ‘RFP’, as in “Prior to issuing RFPs, the PMT should evaluate these risks”?

Anatoly I. Tatarco wrote on June 11, 2010 - 10:58 am | Visit Link

Hi Anatoly,

RFP is “Request For Proposal”.

PM Hut wrote on June 25, 2010 - 11:06 am | Visit Link

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