Chapter 32: Procurement Management during Monitoring & Controlling the Project

Aim: To understand the Administer Procurements process

The administer procurements process is the blueprint for managing the procurements process and making any changes as necessary. It is the process of comparing vendor or service performance to the contractual service level agreements (SLA). Due to its implications and its potential effect across several sections of the project or the enterprise, all team members must be aware of the legal ramifications of any change in the contractual relationship. In addition, project-vendor disbursements tend to tie the SLAs, or performance agreements, and deliverables to direct cash expenditures.

At all cost, you must avoid any undocumented or unapproved cash disbursements or change that might go against your project deliverables.

The table below shows the inputs, tools and techniques, and outputs for the administer procurements process.

Administer Procurements
Inputs	Tools & Techniques	Outputs
Procurement documents Project management plan Contract Performance reports Approved change requests Work performance information	Contract change control system Procurement performance reviews Inspections and audits Performance reporting Payment systems Claims administration Records management system	Procurement documentation Organizational processes assets updates Change requests Project management plan updates

In general, the project procurements administrator is from the procurement management office and/or your legal department and has the authority to issue change requests or early terminations.

Remember that all communications pertaining to procurement administration must follow formal channels and be logged in your project log.

Your procurement administration process should include mechanisms that allow for contract renegotiation, management response, and payment terms definitions.

To know more about the Administer Procurements process Click Here


Prev: Chapter 31

Next: Chapter 33

Chapter 24: Procurement Management during Project Execution

Aim: To understand the Conduct procurements process

During the Planning phase, the approach to handle procurements is created. During project execution is when we actually conduct the procurements. This is done through the “Conduct Procurements” process.

Conduct Procurements

Using the procurement management plan and other procurement documents such as the invitation for bid, statement of work, or request for quotation, developed during planning, the project team seeks out potential sellers for the items being procured. The request might be made via a bidder conference, advertising, or through the use of a qualified seller list. The most important outputs from this process are the selected sellers list, procurement contract awards, and resource calendars.

The table below shows the inputs, tools and techniques, and outputs for the conduct procurements process.

Conduct Procurements
Inputs	Tools & Techniques	Outputs
Project management plan Procurement documents Source selection criteria Qualified seller list Seller proposals Project documents Make-or-buy decisions Teaming agreements Organizational process assets	Bidder conferences Proposal evaluation techniques Independent estimates Expert judgment Advertising Internet search Procurement negotiations	Selected sellers Procurement contract award Resource calendars Change requests Project management plan updates Project document updates

Exam Watch:

The bidder conference is also known as the contractor conference, vendor conference, or pre-bid conference. Don’t get confused if the exam uses either of these terms. They all mean one and the same.

With proposals in hand, the project team must select the seller(s) that are best able to deliver the product or service. In addition to the proposals, evaluation criteria were identified during planning that are used to evaluate the proposals.

The evaluation criteria used can include any of the following:

• Seller’s overall understanding of the need
• Price
• Overall life cycle cost
• History of seller with the company
• Seller capabilities and approach including technical, managerial, and financial
• Seller’s production capacity, business size, and interest in the product/service
• Seller’s desire to assert intellectual property or proprietary rights on the product or service.
• References

PMI lists other inputs with which you should be familiar, including the procurement management plan, procurement policies, the procurement document package, proposals, qualified seller list, and the project management plan.

There are a number of tools that are used during selecting sellers. They are:

1. Proposal Evaluation Techniques
2. Independent Estimates
3. Procurement Negotiation
4. Expert Judgment
5. Bidder Conference

The proposal evaluation technique should be able to take into account both objective and subjective criteria. The technique incorporates the weighting system for the evaluation criteria. The proposal evaluation is conducted by multiple reviewers.
The output of the whole process is the signing of the “Contract” between you and the vendor/seller who is selected as part of the process.

To know more about the Conduct Procurements process Click Here

Prev: Chapter 23

Next: Chapter 25

Points to Remember: Project Procurement Management

Sometimes you need to hire an outside company to do some of your project work. That’s called procurement, and the outside company is called the seller.

The PMP exam is based on contracting laws and customs in the United States. If you are someone who hasnt spent time in the states or worked with a customer from the states, it would be useful if you visit http://www.acquisition.gov/ and gather some knowledge about the same.

Procurement is pretty straight forward, and the Procurement Management processes follow a simple order that you can figure out with just common sense. First you plan what you need to contract; then you plan how you’ll do it. Next, you send out your contract requirements to sellers. They bid for the chance to work with you. You pick the best one, and then you sign the contract with them. Once the work begins, you monitor it to make sure the contract is being followed. When the work is done, you close out the contract and fill out all the paperwork.

Teaming Agreenents are partnership documents that describe the relationship between a buyer and a seller when they’re working together as a team. When a buyer and a seller have a teaming agreement in place, they act as partners. They make management decisions together, and both have an increased stake in the outcome.

Contracting adds an extra dimension of risk to your project because your seller will have different management and policies. So managing risks is especially important!

force majeure - is a kind of clause that you’ll see in a contract. It says that if something like a war, riot, or natural disaster happens, you’re excused from the terms of the contract.

The point of total assumption is the point at which the seller assumes the costs. In a fixed price contract, this is the point where the costs have gotten so large that the seller basically runs out of money from the contract and has to start paying the costs.

You always put together procurement documents and source selection criteria before you start talking to individual sellers who want your business.

Buyer-conducted performance reviews let buyers check all of the work that the sellers are doing.

Whenever you see “inspection” or “audit” it means that you’re looking at the products that the seller delivered to see if they meet your standards.


Points to Remember - Other Topics:

Introduction to Projects & Project Management
Relationship Between Knowledge Areas & Process Groups
Project Integration Management
Project Scope Management
Project Time Management
Project Cost Management
Project Quality Management
Human Resource Management
Project Communication Management
Project Risk Management
Ethics & Professional Responsibility

Chapter 61: Conducting Procurements

As you learned in the previous section, procurement refers to obtaining (purchasing or renting) products, services, or results from outside the project team to complete the project. Procurement management is an execution of a set of processes used to obtain (procure) products, services, or results from outside the project team to complete the project. Procurement planning was discussed in the previous section, and implementation of this plan, conducting procurement,
is what we are going to do now.

The picture below explains the conducting procurements process.

Inputs to Conducting Procurements

The input items to conducting procurements are:
Procurement management plan - The major input to conducting procurements is the procurement management plan developed during procurement planning. The procurement management plan may have the following items of interest:

• Prequalified selected sellers
• Procurement metrics to be used to manage contracts and evaluate sellers
• Types of contracts to be used and the format for the contract statement of work
• Assumptions and constraints that could affect planned purchases and acquisitions
• Scheduled dates for contract deliverables
• Directions to be provided to the seller on developing and maintaining a contract work breakdown structure

Procurement documents package - This is the set of procurement documents put together during procurement planning. The buyer structures these documents with two goals in mind:

• To facilitate an accurate and complete response from each prospective seller
• To facilitate easy evaluation of the responses

These documents include the following:

• A description of the desired form of the response
• A relevant contract statement of work
• Any required contractual provisions, such as a copy of a model contract, and non-disclosure provisions

Different terms are used for these documents for different purposes:

• A term such as bid, tender, or quotation is used when the seller selection decision will be based on the price, when buying commercial or standard items.
• A term such as proposal is used when multiple factors are considered, such as cost, technical skills, and technical approach.
• Common names for these different kinds of documents include invitation for bid, request for quotation, tender notice, request for proposal, and contractor initial response.

The procurement documents should be rigorous enough to ensure consistent responses from different sellers that can be fairly compared to one another and flexible enough to allow sellers to offer suggestions on better ways to satisfy the requirements.

How are the requests sent to the potential sellers? This is done according to the policies of the buyer’s organization; for example, publication of the request in the public media, such as newspapers, magazines, and the Internet.

Source selection criteria - Also called evaluation criteria, this is developed by the buyer during procurement planning to rate responses from the sellers. The evaluation criteria could be as simple as the price for off the shelf standard items, or it could be a combination of factors for a more complex proposal. Following is a list of some examples of evaluation criteria.

• Cost - To evaluate the overall cost, you should consider all cost-related factors, such as:

o Purchase price
o Delivery cost
o Operating cost

• Business aspects - This can include the following factors:

o Business size and type - Does the business size or type meet a condition set forth in the contract, such as being a small business or a disadvantaged small business?
o Financial capacity - Does the seller have the financial capacity to do the job, or is the seller in a position to obtain the necessary financial resources to do the job?
o Production capacity and interest - Does the seller have the capacity and the interest to meet future potential requirements?
o References - Can the seller provide reliable references (such as from previous customers) verifying the seller’s work experience and history of compliance with contractual requirements?

• Management approach - If the procurement itself involves a project, does the seller have the ability to execute management processes and procedures to run a successful project?
• Rights - The following rights can be considered:

o Intellectual property rights - Will the seller own the intellectual property rights for the work processes or services that will be used to produce the deliverables?
o Proprietary rights - Will the seller have the proprietary rights for the work processes or services that will be used to produce the deliverables?

• Technical aspects - This includes the technical approach and capability:

o Technical approach - Will the technical methodologies, techniques, solutions, or services proposed by the seller meet the procurement requirements, or will they provide more than the expected results?
o Technical capability - Does the seller have or is the seller capable of acquiring the technical skills and knowledge required to produce the deliverables?

Partner agreements - You might be considering some sellers that already have some contracts or agreements signed with your organization. These agreements, also called teaming agreements, must also be honored while conducting procurements.

Organizational process assets - The organizational process assets relevant to requesting seller responses include the following:

• A preexisting list of prospective sellers
• A list of previously used or qualified sellers
• Information about past experiences with previously used sellers
• Organizational policies that could affect evaluating the responses and selecting the sellers.

Make-or-buy decisions made during procurement planning should also be considered during this process of conducting procurements. This topic was discussed in the chapter on procurement planning.

Tools and Techniques for Conducting Procurements

The first goal for the tools and techniques here is to find sellers and provide them with information about the requests for responses. The list of potential sellers can be developed from various sources, such as the World Wide Web, library directories, relevant local associations, trade catalogs, and the performing organization’s internal information base.
The Tools & Techniques used for conducting procurements are:

Bidder conferences - This refers to meetings with prospective sellers prior to preparation of a response to ensure that the sellers have a clear understanding of the procurement, such as the technical and contractual requirements. These meetings can generate amendments to the documents. All potential sellers should be given the same amount of information (or help) during this interaction so that each seller has an equal opportunity to produce the best response. These conferences are also called contractor conferences, vendor conferences, or pre-bid conferences.
Proposal evaluation techniques - Different techniques can be used to evaluate responses from sellers. All these techniques can use expert judgment and evaluation criteria. The common factors that can be considered in the evaluation include:

• Price - This can play a primary role in the selection of off-the-shelf standard items. However, you should consider that the lower price does not mean lower cost if the seller does not deliver on time.
• Multiple aspects - Proposals are usually evaluated for different aspects, such as technical and commercial. Technical refers to the overall approach, whereas commercial refers to the cost.
• Multiple sources - For products critical to the project, multiple sources (sellers) might be required. This redundancy will help mitigate such risks as failure to meet the delivery schedule or quality requirements.
Some techniques used to make the final selection of sellers are discussed in the following list:
• Independent estimates - The purpose of independent estimates is to have a check on the proposed pricing by the seller. The procuring organization prepares the independent estimate in house or has it done by a third party. Significant differences between the proposed price and the independent estimate mean that either the market has changed or the seller has failed to offer reasonable pricing due to such reasons as failure to understand the contract statement of work. The independent estimates are also called should-cost estimates.
• Seller rating system - A seller’s rating does not depend on a specific response that you are evaluating. Rather, the seller’s rating comes from the seller’s rating system, which is developed by multiple organizations based on multiple factors related to seller’s past performance, such as delivery performance, contractual compliance, and quality rating.
• Weighting system - The purpose of putting a weighting system in place is to have an objective evaluation as opposed to a subjective evaluation influenced by personal prejudice. The weighting system uses a method to quantify the qualitative data and typically involves the following steps:

1. Assign a numerical weight to each of the evaluation criteria according to its importance, such as w1, w2, and w3 for three criteria, and make these weights the same for each seller.
2. Rate the seller on each criterion, such as r1, r2, and r3. These ratings depend upon the seller.
3. Multiply the weight by the rate for each criterion.
4. Add the results in the previous step to compute an overall score, such as s1 for seller 1: s1 = r1 × w1 + r2 × w2 + r3 × w3.

• Expert judgment - Expert judgment is made by a committee that consists of experts from each of the disciplines covered by the procurement documents and the proposed contract. The committee can include experts from functional disciplines, such as accounting, contracts, engineering, finance, legal, manufacturing, and research and development.
Screening system - A screening system consists of minimum requirements as a threshold that must be met if the seller is to stay in the list of candidate sellers. It might, for example, consist of one or more evaluation criteria. The screening system can also use the weighting system and independent estimates.

Procurement negotiations - Procurement negotiations, also called the contract negotiations, have the following two-pronged goal:

• Clarify the structure and requirements of the contract
• Reach an agreement

Subjects covered during the negotiations might include:

• Applicable terms and laws
• Authorities, rights, and responsibilities
• Business management and technical approaches
• Contract financing
• Payments and price
• Proprietary rights
• Schedule
• Technical solutions

The conclusion of contract negotiations is a document, the contract, which can be signed by both the buyer and the seller. The final contract signed by both parties can be an offer by the seller or a counteroffer by the buyer. Sometimes for simple procurement items, the contract is nonnegotiable.

Trivia:
A contract is a mutually binding legal relationship subject to remedy in court. The project manager might not be the lead negotiator on the contract. However, the project manager might be required to be present during negotiations to provide any necessary clarification on the project requirements.

Advertising - The request for seller responses can be advertised in the public media or in relevant professional journals. Whether to use advertising depends on the organization’s policy. However, some government jurisdictions require public advertising of pending government contracts.

Internet search and expert judgment are other tools that can also be used during conducting procurements.

Output of Conducting Procurements

The output of conducting procurements includes the list of selected sellers and the contract awards for the selected sellers.

Selected sellers - This is the list of sellers that you have selected as a result of response evaluations.
Procurement awards - These are the contracts awarded to selected sellers. A contract is a legal document that obligates the seller to provide the specified products, services, or results and obligates the buyer to make the payment to the seller. The contract can be a simple purchase order or a complex document, depending on the nature of the procurement. A contract can include, but is not limited to, the following sections:

• List of deliverables and statement of work
• Schedule
• Acceptance criteria
• Change-request handling
• Inflation adjustments
• Insurance
• Limitation of liability
• Penalties and incentives
• Pricing and payment
• Product support
• Roles and responsibilities
• Termination and dispute-handling mechanism
• Warranty

Resource calendars - This contains information on the quantity and availability of the contracted (procured) resources—for example, the dates on which a resource will be active or idle.
Changes and updates - Conducting procurements can generate changes and updates such as the following:

• Change requests - The selection process can generate change requests for the project management plan and its subsidiary plans and components, such as the project schedule and the procurement management plan. These change requests must be processed through the integrated change control system before implementation.
• Updates to the procurement management plan - If a procurement-related change request is approved, the procurement management plan should be updated to reflect the change. This may include the scope baseline, schedule baseline, cost baseline, and procurement management plan. These changes or updates arise from the fact that procurement and the rest of the project are related to each other. For example, a change in the procurement fulfillment date will affect the schedule that depends on that fulfillment.

Prev: Performing Quality Assurance

Next: Summary - Managing Project Work

Important Terms and Definitions - Project Resource Planning

We have successfully completed all the topics in the section on “Planning for Project Resources”. Let us wrap up the section by going through the important terms and definitions we learnt in these chapters.

• Budget - Aggregation of cost estimates with a timeline assigned to it.
• Contingency reserve - Funds or time reserved in addition to the calculated estimates to deal with the uncertainties in the duration used in the schedule and the cost used in the budget and to deal with overruns of the project objectives to meet the stakeholder expectations.
• Contract - A mutually binding agreement between a buyer and a seller that obligates the seller to provide the specified product, service, or result and obligates the buyer to make the payment for it.
• Cost baseline - Approved budget used as a baseline to determine the project progress.
• CPFF - Cost plus fixed fee; a contract type.
• CPIF - Cost plus incentive fee; a contract type.
• CPPC - Cost plus percentage of cost; a contract type.
• FP - Fixed price; a contract type.
• Human resource plan - A document that describes roles and responsibilities, reporting relationships among the roles, and staffing management.
• Procurement management plan - A document that describes how procurements will be managed.
• Procurements - Purchases and acquisitions that are needed to complete the project but that cannot be produced by the in-house project team.
• RAM - Responsibility assignment matrix; a matrix used to specify the relationships between schedule activities, roles to perform those activities, and team members assigned to the roles.
• Role - A defined function to be performed by a team member, such as a programmer or a tester.
• Staff management plan - A document that describes when and how human resource requirements for a project will be met.
• T&M - Time and material; a contract type.


Prev: Procurement Management Plan

Next: Introduction to Quality & Risk Management

Chapter 45: Procurement Management Plan

In the previous chapter, we learnt that the outcome of the procurement planning process is the procurement management plan. In this chapter, we are going to understand what this document is.

So, lets get started!!!

What is Procurement Management Plan?

This document describes how the procurement will be managed throughout the project. The plan includes the following:

• How the make-or-buy decisions will be made and handled
• Contracts

o What types of contracts will be used for this project
o The form and format for the statement of work related to a procurement or a contract
o Metrics to be used to evaluate potential sellers and to manage contracts
o Requirements for performance bonds or insurance contracts that might be put in place to mitigate some project risks

• Management and coordination

o How to manage multiple sellers.
o How to coordinate procurement with other aspects of the project, such as the project schedule, scope, budget, and status progress reporting.
o Evaluation criteria for selecting sellers and measuring their performance. It is also called source selection criteria and will be covered in depth in future when we learn about conducting the actual procurements.

• A list of assumptions and constraints that could affect the procurement
• Any needed standardized procurement documents

In a nutshell, the major tasks of procurement planning are making make-or-buy decisions, preparing the procurement management plan, preparing the statement of work, determining a suitable type of contract, and preparing or acquiring the procurement documents. Once you have these elements in place, you are ready to implement the procurement plan, which will be discussed very soon…

Prev: Procuring Project Resources

Next: Important Terms & Definitions

Chapter 44: Procuring the Project Resources

In the previous chapters, we have identified how many people are required to work on our project and the amount of money we can spend on the project. But, it frequently happens that we don't have all the necessary expertise to complete a project by the resources within our organization. In such a case, we may have to procure the services from a third party service provider. A simple example will be procuring Weblogic Servers to run the in-house web applications we are developing for our company. In this chapter, we are going to take a look at how we are going to handle procurement management as a process.

So, lets get started!!!

What is Procurement and Procurement Management?

Procurement refers to obtaining; purchasing or renting products, services, or results from outside the project team to complete the project. Accordingly, procurement management is an execution of a set of processes used to obtain (procure) the products, services, or results from outside the project team to complete the project. There are two main parties involved in procurement management:

• Buyer - The party purchasing (procuring) the product or service.
• Seller - The party delivering the product or service to the buyer.

To understand the process, look at the picture below:

As illustrated in the picture above, procurement management includes the following:

• Plan procurements - This is the process of making and documenting purchasing decisions, identifying potential sellers, and determining the approach toward these issues.
• Conduct procurements - This is the process of soliciting seller responses, selecting sellers, and awarding contracts.
• Administer procurements - This is the process of monitoring the contract execution, making approved changes and corrections, and managing relationships among the parties involved in the procurement.
• Close procurements - This is the process of completing each project procurement and giving it a proper closure as planned.

Planning for Procurement

Planning procurements includes making and documenting purchasing decisions, identifying potential sellers, and developing a procurement approach. Although the procurement planning should be done early in the project, like any other planning, it might be necessary at any stage of the project as the need arises due to approved changes or other circumstances.
Procurement is planned by performing the Plan Procurements process.

As shown in the picture above, during procurement planning, you will be looking at lots of information, such as the scope baseline, stakeholder requirements, partner agreements, risk registers, activity resource requirements, and cost baseline. All this information will help you identify what needs to be done to complete the project, what the risks involved are, and what needs to be procured. Enterprise environmental factors, such as market conditions, availability of the product in the market, past performance of potential suppliers, and unique local conditions, must be considered as input to this process. The organizational process assets that can influence procurement planning include procurement policies and procedures of the performing organization, a supplier system of already established sellers that the organization currently deals with, and an information system that can be used to develop the procurement management plan. You will also need to know how to make make-or-buy decisions and what the different contract types are.

Make-or-Buy Decisions

Obviously, procurement refers to buying something as compared to making it in-house. The decision to buy or make can be based on one or more of the reasons explained below:

Factor	Reasons to make it In-House	Reasons to Buy
Cost	Less cost	Less cost
Skills availability	Use in-house skills	In-house skills don’t exist or are not available
Skills acquisition	Learn new skills that will be used even after this project	These skills are not important to the organization
Risks	Deal with the risk in-house	Transfer the risk
Work	Core project work	Not core project work
Human resource availability	Staff available	Vendor available

Buy can mean to purchase or to rent. The decision to purchase or to rent should be based on the effective cost in the long term. For example, if it is a piece of hardware that will be used only in this project, you do not anticipate its use in any future project, and renting is significantly cheaper than buying, you should probably rent it. You might decide to buy it if this hardware is of common use in the kind of work your organization does and therefore it will be used in other projects as well.

Trivia:
An output of the procurement planning process is the statement of work (SOW), which is a document summarizing the work to be performed. The SOW can be written by the buyer or the seller to specify what products will be delivered or what services will be performed. It is also called the contract statement of work.

Before you can buy, you need to get information from the sellers. In other words, you need to request seller responses. Make-or-buy analysis is a technique used in the plan purchases and acquisitions process. Also in this process, you need to use a technique to determine the type of contract you will use for the procurement.

Trivia:
Making a decision of choosing the vendor to procure the service is not usually in a project manager’s hand. We can try to influence the project sponsor to choose a certain vendor but ultimately it is their decision. And almost always, the cost at which the vendor offers the service is one of the overwhelming factors that affect the decision by the project sponsor.

Determining Contract Types

A contract is a mutually binding agreement between a buyer and a seller that obligates the seller to provide the specified product, service, or result and obligates the buyer to make the payment for it. Contracts generally fall into the three categories discussed in this list.
Fixed-price contracts - A fixed-price contract, also called a lump-sum contract or a firm fixed-price contract or a fixed-bid contract, is an agreement that specifies the fixed total price for the product, service, or result to be procured. An example of a fixed-price contract is a purchase order for the specified item to be delivered by a specified date for a specified price. This category of contracts is generally used for products and services that are well-defined and have good historical information. A fixed-price contract for a poorly defined product or a service with very little historical record is a source of high risk for both the seller and the buyer.

Cost-reimbursable contracts - A contract in this category includes two kinds of costs:
• Actual cost - This is the payment (reimbursement) to the seller for the actual cost of the item, which includes the direct cost and the indirect cost (overhead). An actual cost, such as the salary of the project staff working on the item, is incurred directly from the work on the item, whereas an indirect cost, such as the cost of utilities and equipment for the office of the staff member, is the cost of doing business. Indirect cost is generally calculated as a percentage of the actual cost. The actual cost is also called the project cost. The project here refers to the project of the seller to produce the items for the buyer.
• Fee - This typically represents the seller’s profit.
As discussed in the following list, there are three types of cost-reimbursable contracts:
• Cost plus fee (CPF) or cost plus percentage of cost (CPPC) - The payment to the seller includes the actual cost and the fee, which is a percentage of the actual cost. Note that the fee is not fixed; it varies with the actual cost.
• Cost plus fixed fee (CPFF) - The payment to the seller includes the actual cost and a fixed fee, which can be calculated as a percentage of the estimated project cost. Note that the fee is fixed and does not vary with the actual project cost.
• Cost plus incentive fee (CPIF) - The payment to the seller includes the actual cost and a predetermined incentive bonus based on achieving certain objectives.

Trivia:
Both fixed-price contracts and cost-reimbursable contracts can optionally include incentives; for example, a bonus from the buyer to the seller if the seller meets certain target schedule dates or exceeds some other predetermined expectations.

Because cost overrun can occur in any type of cost-reimbursable contract, and the cost overrun will be paid by the buyer, this category of contract poses risk to the buyer.

Time and material (T&M) contracts - This type of contract is based on the rates of time and materials used to produce the procured product. This is a hybrid that contains some aspects from both the fixed-price category and the cost-reimbursable category. The contracts in this category resemble the contracts in the cost-reimbursable category because the total cost and the exact quantity of the items is not fixed at the time of the agreement. The contracts resemble fixed-price contracts because the unit rates can be fixed in the contract. These types of contracts are useful when you do not know the quantity of the procured items. For example, you do not know how much time a contract programmer will take to develop a software program, so you determine the hourly rate in the contract, but not the total cost for writing the program. In this category of contracts, the risk is high for the buyer because the buyer agreed to pay for all the time the seller takes to produce the deliverables.

Before we wrap up this chapter, lets take a look at who bears the risk in these different types of contracts we just discussed.

Contract Type	Risk Bearer	Justificiation/Explanation
Fixed price (FP)	Buyer and seller	The cost overrun is borne by the seller, whereas the price fixed higher than the actual cost hurts the buyer.
Time and Material (T&M)	Buyer	The increased cost due to the increased quantity of resources, such as work hours by a contractor, is borne by the buyer.
Cost plus fixed fee (CPFF)	Buyer	Cost overrun is paid by the buyer.
Cost plus percentage of cost (CPPC)	Buyer	Cost overrun is paid by the buyer. Because the fee increases with the increase in cost, this type poses maximum risk to the buyer.
Cost plus incentive fee (CPIF)	Buyer	Cost overrun is paid by the buyer.

The major output of procurement planning is the procurement management plan which outlines the plan with which the process of Procurement of services for our project will be managed. We will cover this exclusively in the next chapter.

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