12.3 Control Procurements – A Guide to the Project Management Body of Knowledge (PMBOK® Guide), Fifth Edition

12.3 Control Procurements

Control Procurements is the process of managing procurement relationships, monitoring contract performance, and making changes and corrections to contracts as appropriate. The key benefit of this process is that it ensures that both the seller's and buyer's performance meets procurement requirements according to the terms of the legal agreement. The inputs, tools and techniques, and outputs of this process are depicted in Figure 12-6. Figure 12-7 depicts the data flow diagram of the process.

Both the buyer and the seller will administer the procurement contract for similar purposes. Each is required to ensure that both parties meet their contractual obligations and that their own legal rights are protected. The legal nature of the contractual relationship makes it imperative that the project management team is aware of the legal implications of actions taken when controlling any procurement. On larger projects with multiple providers, a key aspect of contract administration is managing interfaces among the various providers.

Due to varying organizational structures, many organizations treat contract administration as an administrative function separate from the project organization. While a procurement administrator may be on the project team, this individual typically reports to a supervisor from a different department. This is usually true if the performing organization is also the seller of the project to an external customer.

Control Procurements includes application of the appropriate project management processes to the contractual relationship(s) and integration of the outputs from these processes into the overall management of the project. This integration will often occur at multiple levels when there are multiple sellers and multiple products, services, or results involved. The project management processes that are applied may include, but are not limited to:

  • Direct and Manage Project Work. To authorize the seller's work at the appropriate time.
  • Control Quality. To inspect and verify the adequacy of the seller's product.
  • Perform Integrated Change Control. To assure that changes are properly approved and that all those with a need to know are aware of such changes.
  • Control Risks. To ensure that risks are mitigated.

Control Procurements also has a financial management component that involves monitoring payments to the seller. This ensures that payment terms defined within the contract are met and that seller compensation is linked to seller progress, as defined in the contract. One of the principal concerns when making payments to suppliers is that there is a close relationship of payments made to the work accomplished.

The Control Procurements process reviews and documents how well a seller is performing or has performed based on the contract and establishes corrective actions when needed. This performance review may be used as a measure of the seller's competency for performing similar work on future projects. Similar evaluations are also carried out when it is necessary to confirm that a seller is not meeting the seller's contractual obligations and when the buyer contemplates corrective actions. Control Procurements includes capturing the necessary details for managing any early terminations of the contracted work (for cause, convenience, or default) in accordance with the termination clause of the agreement. These details are used in the Close Procurements process to terminate the agreement.

Agreements can be amended at any time prior to contract closure by mutual consent, in accordance with the change control terms of the agreement. Such amendments are typically captured in writing.

12.3.1. Control Procurements: Inputs

12.3.1.1 Project Management Plan

Described in Section 4.2.3.1. The project management plan describes how the procurement processes will be managed from developing procurement documentation through contract closure.

12.3.1.2 Procurement Documents

Described in Section 12.1.3.3. Procurement documents contain complete supporting records for administration of the procurement processes; this includes procurement contract awards and the statement of work.

12.3.1.3 Agreements

Described in Section 12.2.3.2. Agreements are understandings between parties, including understanding of the duties of each party.

12.3.1.4 Approved Change Requests

Approved change requests can include modifications to the terms and conditions of the contract, including the procurement statement of work, pricing, and descriptions of the products, services, or results to be provided. All procurement-related changes are formally documented in writing and approved before being implemented through the Control Procurements process.

12.3.1.5 Work Performance Reports

Described in Section 4.4.3.2. Seller performance-related documentation includes:

  • Technical documentation. Seller-developed technical documentation and other deliverable information are provided in accordance with the terms of the contract.
  • Work performance information. The seller's performance reports indicate which deliverables have been completed and which have not.

12.3.1.6 Work Performance Data

Described in Section 4.3.3.2. Work performance data includes (1) the extent to which quality standards are being satisfied, (2) the costs that have been incurred or committed, and (3) identification of the seller invoices that have been paid. All data are collected as part of project execution.

12.3.2. Control Procurements: Tools and Techniques

12.3.2.1 Contract Change Control System

A contract change control system defines the process by which the procurement can be modified. It includes the paperwork, tracking systems, dispute resolution procedures, and approval levels necessary for authorizing changes. The contract change control system is integrated with the integrated change control system.

12.3.2.2 Procurement Performance Reviews

A procurement performance review is a structured review of the seller's progress to deliver project scope and quality, within cost and on schedule, as compared to the contract. It can include a review of seller-prepared documentation and buyer inspections, as well as quality audits conducted during seller's execution of the work. The objective of a performance review is to identify performance successes or failures, progress with respect to the procurement statement of work, and contract noncompliance, which allow the buyer to quantify the seller's demonstrated ability or inability to perform work. Such reviews may take place as a part of project status reviews, which would include key suppliers.

12.3.2.3 Inspections and Audits

Inspections and audits required by the buyer and supported by the seller, as specified in the procurement contract, can be conducted during execution of the project to verify compliance in the seller's work processes or deliverables. If authorized by contract, some inspection and audit teams can include buyer procurement personnel.

12.3.2.4 Performance Reporting

Work performance data and reports supplied by sellers are evaluated against the agreement requirements. Work performance information from this evaluation is then reported as appropriate. Performance reporting provides management with information about how effectively the seller is achieving the contractual objectives.

12.3.2.5 Payment Systems

Payments to the seller are typically processed by the accounts payable system of the buyer after certification of satisfactory work by an authorized person on the project team. All payments should be made and documented in strict accordance with the terms of the contract.

12.3.2.6 Claims Administration

Contested changes and potential constructive changes are those requested changes where the buyer and seller cannot reach an agreement on compensation for the change or cannot agree that a change has occurred. These contested changes are variously called claims, disputes, or appeals. Claims are documented, processed, monitored, and managed throughout the contract life cycle, usually in accordance with the terms of the contract. If the parties themselves do not resolve a claim, it may have to be handled in accordance with alternative dispute resolution (ADR) typically following procedures established in the contract. Settlement of all claims and disputes through negotiation is the preferred method.

12.3.2.7 Records Management System

A records management system is used by the project manager to manage contract and procurement documentation and records. It consists of a specific set of processes, related control functions, and automation tools that are consolidated and combined as part of the project management information system (Section 4.4.2.3). The system contains a retrievable archive of contract documents and correspondence.

12.3.3. Control Procurements: Outputs

12.3.3.1 Work Performance Information

Work performance information provides a basis for identification of current or potential problems to support later claims or new procurements. By reporting on the performance of a vendor, the organization increases knowledge of the performance of the procurement, which supports improved forecasting, risk management, and decision making. Performance reports also assist in the event there is a dispute with the vendor.

Work performance information includes reporting compliance of contracts, which provides procuring organizations a mechanism to track specific deliverables expected and received from vendors. Contract compliance reports support improved communications with vendors so that potential issues are addressed promptly to the satisfaction of all parties.

12.3.3.2 Change Requests

Change requests to the project management plan, its subsidiary plans, and other components, such as the cost baseline, schedule baseline, and procurement management plan, may result from the Control Procurements process. Change requests are processed for review and approval through the Perform Integrated Change Control process.

Requested but unresolved changes can include direction provided by the buyer or actions taken by the seller, which the other party considers a constructive change to the contract. Since any of these constructive changes may be disputed by one party and can lead to a claim against the other party, such changes are uniquely identified and documented by project correspondence.

12.3.3.3 Project Management Plan Updates

Elements of the project management plan that may be updated include, but are not limited to:

  • Procurement management plan. The procurement management plan is updated to reflect any approved change requests that affect procurement management, including impacts to costs or schedules.
  • Schedule baseline. If there are slippages that impact overall project performance, the schedule baseline may need to be updated to reflect the current expectations.
  • Cost baseline. If there are changes that impact overall project costs, the cost baseline may need to be updated to reflect the current expectations.

12.3.3.4 Project Documents Updates

Project documents that may be updated include, but are not limited to, procurement documentation. Procurement documentation may include the procurement contract with all supporting schedules, requested unapproved contract changes, and approved change requests. Procurement documentation also includes any seller-developed technical documentation and other work performance information, such as deliverables, seller performance reports and warranties, financial documents including invoices and payment records, and the results of contract-related inspections.

12.3.3.5 Organizational Process Assets Updates

Elements of the organizational process assets that may be updated include, but are not limited to:

  • Correspondence. Contract terms and conditions often require written documentation of certain aspects of buyer/seller communications, such as the need for warnings of unsatisfactory performance and requests for contract changes or clarification. This can include the reported results of buyer audits and inspections that indicate weaknesses the seller needs to correct. In addition to specific contract requirements for documentation, a complete and accurate written record of all written and oral contract communications, as well as actions taken and decisions made, are maintained by both parties.
  • Payment schedules and requests. All payments should be made in accordance with the procurement contract terms and conditions.
  • Seller performance evaluation documentation. Seller performance evaluation documentation is prepared by the buyer. Such performance evaluations document the seller's ability to continue to perform work on the current contract, indicate if the seller can be allowed to perform work on future projects, or rate how well the seller is performing the project work. These documents may form the basis for early termination of the seller's contract or determine how contract penalties, fees, or incentives are administered. The results of these performance evaluations can also be included in the appropriate qualified seller lists.