Kerzner (2009) defines procurement and contracting as the "process that involves two parties with different objectives who interact on a given market segment." (p. 840) As with every phase of project management, proper planning is key to the success of any project by ensuring the project gets the most out of any supplier relationships. This paper will define the project procurement planning process and how risk management affects that process.
There are several pieces to the procurement planning process that include documenting the procurement requirements, identifying goods and services to procure, approach specification, and seller identification. The process is also used to identify if acquiring goods or services outside the organization or producing them within will better meet the needs of the project. This is referred to as a make-or-buy decision.
If a decision is made to step outside the organization to acquire goods or services, this process will determine the how, how much, and when to acquire it. The project schedule can significantly influence the when and should be carefully considered during the planning.
Risk shared between the buyer and the seller determine contract types. The most common, and often demanded, type of contract is a firm-fixed-price but there are situations which another contract type may be better suited to the requirements of the project.
There are generally two families of legal contractual relationships; fixed-price or cost reimbursable. A third , hybrid type of contract used commonly is the time and materials contract.
In fixed-price contacts, price for the products or services provided are fixed at the onset. These contracts can often integrate financial...