Contract/Procurement Management

Shakir H. Zuberi

Woodward-Clyde Consultants


Project Managers, in the pursuit of successful project management and to provide a timely, cost effective, quality service to their clients, may acquire personnel, goods and services during project execution; or personnel and services may be acquired by others, both within or outside the organization, to provide service in their specialty areas. In both cases, the objective is achieved by a contract, written or oral, which is a legally binding device which defines the relationship, duration, nature and extent of service, statement of work, consideration and terms and conditions. The process by which personnel/goods/services are acquired is called procurement.

Acquisition of personnel is carried out through the employment process in coordination with Human Resources Management.

During recent years, due to a general scarcity of resources, long project lead times and increasing complexities of the legal system under which projects operate, a contract document is required to legally bind the parties, and defined procurement procedures are implemented to ensure fairness in the aquisition process. As such, it has become very important for project managers to have a clear understanding of the theory, practices and processes of the entire discipline of contract/procurement management so that their personnel/goods/service acquisition activities may not become isolated incidents, but relate to an integrated whole upon which to build a successful project management practice.

Contract/Procurement strategy should first be determined during the project development phase at a point in time depending on a number of factors. These factors include corporate needs, environment, degree of scope definition, time and cost considerations and the quantity and location of available resources.

Procurement of personnel for the project are also subject to corporate policy which is an integral part of the Administrative process under Human Resources Management, with its own particular glossary of terms.

The backbone of Contract/Procurement Management, after the resolution of the strategy, is the Aquisition process whose activity sequence is as follows:

  • source selection/prequalification
  • contract types identification
  • procurement/tender documents
  • invitation to bid
  • bid responses
  • bid evaluations
  • contract risk assessment
  • procurement/contract negotiations
  • award
  • bid protest

It should be recognized that the procedures are greatly dependent upon the area of project application and the corporate environment. For example: R & D projects probably involve the use of internal resources necessitating the procurement of personal commitments within a matrix environment far more than, say, construction where most of the work is secured by contract established at arm's length. Similarly, due to political implications and regulatory considerations, government procurement requirements are far more rigid than those of the private sector.

International procurement has to recognize the varying environmental, social, political, legal and financial implications of performing work in another country.

The successful implementation of the acquisition process provides the favourable climate necessary for effective contract administration and subsequent post contract evaluation.

Glossary of Terms

Note: It must be recognized that different procurement practitioners use a variety of terms which are considered synonymous (e.g. supplier, vendor, contractor; quotation, tender, bid; etc.) for the purposes of this article.

1. Objective: To define the method to follow and the service to be contracted or resource to be procured for the performance of work.
1.a Scope of Work: A narrative description of the work to be accomplished or resource to be supplied.
1.a.1 Specifications: Written, pictoral or graphic information which describes, defines or, specifies the services or items to be procured.
1.a.2 Relationship with CWBS (Contract Work Breakdown Structure) - The relationship with each other, with the overall work and their interface with any other project activities, of the goods/services to be procured.
1.b Strategy: A framework guiding those choices that determine the nature and direction to attain the objective.
1.b.1 Corporate Project Strategy: The overall direction set by the corporation of which the project is a part, and the relationship of specific procurement actions to these corporate directions.
1.b.2 Project Procurement Strategy - The relationship of specific procurement actions to the operating environment of the project.
1.c Procurement Environment: The combined internal and external forces, both individual and interacting with one another which assist or restrict the attainment of the objective. These could be business or project related or may be due to political, economic, technological or regulatory conditions.
1.c.1 Micro Procurement Environment - Consideration of firm, project or client imposed policies and procedures applicable in the procurement actions.
1.c.2 Macro Procurement Environment - Consideration, interrelationship and action of outside changes such as legal, social, economic, political or technological which may directly or indirectly influence specific procurement actions.
1.d Alternatives: Review of the means available and the impact of tradeoffs to attain the objectives.
1.d.1 Feasible Project Alternatives - Reviews of available alternate procurement actions which could attain the objectives.
1.d.2 Screening - Techniques used for reviewing, analyzing, ranking and selecting the best alternative for the proposed action.
1.e Project Risk Analysis: Analysis of the consequences and probabilities that certain undesirable events will occur and their impact on attaining the contract/procurement objectives.
1.e.1 Project Risk Characterization - Identifying the potential external or internal risks associated with procurement actions using estimates of probability of occurrence.
1.e.2 Risk Assessment - Review, examination and judgment whether or not the identified risks are acceptable in the proposed actions.
2. Information Systems: A structured, interacting, complex of persons, machines, and procedures designed to produce information which is collected from both internal and external sources for use as a basis for decision-making in specific contract/procurement actions.
2.a. Project Information Sources: Identification and listing of various available sources, internal as well as external, to provide relevant information on specific procurements.
2.a.1 Internal Project Sources - Intra-firm sources and records including historical data on similar procurements, cost and performance data on various suppliers and other data which could assist in proposed procurements.
2.a.2 External Procurement Sources - Extra-firm sources including industry contacts, market data, competitive intelligence and regulatory information which could aid procurement decision-making.
2.b Project Data Gaps: Indentification of data gaps in available information in reference to a particular procurement.
2.c Supplementary Information: Identification and collection of additional information from supplementary sources and, its review and analysis.
3. Procurement Identification: The identification of the different categories of procurement of which one or more may be required during project execution.
3.a Project Personnel: Those members of a project team employed directly by the organization responsible for a project.
3.b Project Goods: Equipment and/or materials needed to implement a project.
3.c. Project Services: Expertise and/or labour needed to implement a project not available directly from a project manager's organization.
4. Acquisition Process: The process of acquiring personnel goods/services for new or existing work within the general definitions of contracts requiring an offer and acceptance, consideration, lawful subject matter and competent parties.
4.a Acquisition Methods: The various ways by which goods/services are acquired from suppliers.
4.a.1 Procurement Advertising - Method of procurement where a contract results from solicitation of competitive bids through the media.
4.a.2 Procurement Invitation - Method of procurement where a contract results from selected invitation of competitive bids.
4.a.3 Contract Negotiation - Method of procurement where a contract results from a bid which may be changed through bargaining.
4.a.4 Purchase - Out-right acquisition of items, mostly off-the-shelf or catalog, manufactured outside the purchaser's premises.
4.b Procurement Sources Selection: The process of selecting organizations and/or individuals whose resources, credibility and performance are expected to meet the contract/procurement objectives.
4.b.1 Resource Identification: Identification of potential sources that could provide the specified material or services. These sources could be identified either from the internal firm/project list of vendors or by advertising the need for procurement.
4.b.2 Bid List: List of suppliers invited to submit bids for goods/services as specified.
4.b.3 Procurement Sole Source - Only one source which could fulfill the requirements of the procurement.
4.b.4 Procurement Pre-Qualifications: The experience, past performance, capabilities, resources and current work loads of the potential sources.
4.b.5 Project Data Review - Review of qualification data to determine its adequacy.
4.b.6 Project Data Verification - Verification of qualification data to check its accuracy.
4.b.7 Procurement Supplier Valuation: Assessment of the suppliers' qualifications in order to identify those from whom proposals/bids are to be requested on those who are to be invited to enter negotiations for the award of a contract.
4.b.8 Project Pre-Selection Meetings - Meetings held to clarify supplement and/or verify qualifications data and specifications.
4.b.9 Supplier's Ranking- Qualitative and/or quantitative determinations of prospective suppliers' qualifications relative to the provision of the proposed goods/services.
4.c Contract Types: The various forms of contracts by which the goods/services can be acquired.
4.c.1 Cost Plus Percentage of Cost (CPPC) - Provide for a reimbursement of allowable cost of services performed plus an agreed upon percentage of the estimated cost as profit.
4.c.2 Cost Plus Fixed Fee (CPFF) - Provide reimbursement of allowable cost plus a fixed fee which is paid proportionately as the contract progresses.
4.c.3 Cost Plus Incentive Fee (CPIF) - Provide the supplier for cost of delivered performance plus a predetermined fee as a bonus for superior performance.
4.c.4 Fixed Price Plus Incentive Fee (FPPIF) - Provide the supplier with a fixed price for delivered performance plus a predetermined fee for superior performance.
4.c.5 Firm Fixed Price (FFP) - A lump sum contract where the supplier agrees to furnish goods or services at a fixed price.
4.c.6 Unit Price (UP) - A fixed price contract where the supplier agrees to furnish goods/services at unit rates and the final price is dependent on the quantities needed to carry out the work.
4.d Procurement/Tender Documents: The documents issued to prospective suppliers when inviting bids/quotations for supply of goods/services.
4.d.1 General Conditions: General definition of the legal relationships and responsibilities of the parties to the contract and how the contract is to be administered. They are usually standard for a corporation and/or project.
4.d.2 Supplementary Conditions: Modifications, deletions and additions to standard General Conditions developed for particular goods/services.
4.d.3 General Requirements: Non-technical specifications defining scope of work, payments, procedures, implementation constraints, etc., pertaining to the contract.
4.d.4 Technical Specifications - Documentation which describes, defines or specifics the goods/services to be supplied.
4.e Invitation to Bid: The invitation issued to prospective suppliers to submit a bid/quotation/proposal for supply of goods/services.
4.e.1 Request for Proposal - A formal invitation containing a scope of work which seeks a formal response (proposal) describing both methodology and compensation to form the basis of a contract.
4.e.2 Request for Quotation - A formal invitation to submit a price for goods and/or services as specified.
4.e.3 Intention for Bid (IFB) - Communications, written or oral by the prospective organizations and/or individuals indicating their willingness to perform the specified work. This could be a letter, statement of qualifications or response to a request for proposal quotation.
4.f Bid Response: Communications, positive or negative from prospective suppliers in response to the Invitation Bid.
4.f.1 Verbal Bid - Undocumented quotation by telephone or by other verbal means of communication.
4.f.2 Formal Bid - Bid/quotation/letter/proposal submitted by the prospective suppliers in response to the Request for Proposal, Request for Quotation.
4.g Bid Evaluations: Review and analysis of responses to determine supplier's ability to perform the work as requested. This activity may include an evaluation of suppliers financial resources, ability to comply with technical criteria and delivery schedules, satisfactory record of performance and eligibility for award.
4.g.1 Bid Technical Considerations - Suppliers technical competency, understanding of the technical requirements and capability to produce technically acceptable goods or services. Generally this evaluation ranks highest among all other evaluations.
4.g.2 Bid Cost Considerations - Include a consideration of supplier's approach and reasonableness of cost, cost realism, forecasted economic factors affecting cost and cost risks used in the cost proposal.
4.g.3 Bid Time Considerations - Evaluation of supplier's offer with regard to dates identified for completion of phases of the work and/or total work.
4.g.3 Bid Time Considerations - Evaluation of supplier's offer with regard to dates identified for completion of phases of the work and/or total work.
4.g.4 Other Bid Consideration - Include an evaluation of personnel and financial resources, facilities, performance record, responsiveness to contract terms and conditions and a general willingness to perform the work.
4.g.5 Contract Preaward Meetings - Meetings with prospective suppliers before final award determination to aid ranking and/or finalize terms of agreement between parties.
4.g.6 Contract Award Ranking - Qualitative and/or quantitative determinations of prospective supplier's bid/tender/proposal/quotation relative to each other measured against a common base
4.h Contract Risk: The potential and consideration of risk in procurement actions. Generally the forces of supply and demand determine who should have the maximum risk of contract performance but the objective is to place on the supplier the maximum performance risk while maintaining an incentive for efficient performance. In a fixed price contract, the supplier accepts a higher risk than in a cost type contract in which supplier's risk is lowest.
4.i Procurement/Contract Negotiations: Process of communication, discussions, and agreement between the parties for supply of goods/services in support of the procurement objectives.
4.i.1 Best and Final Contract Offer - Final offer by the supplier to perform the work after incorporating negotiated and agreed changes in the procurement documents.
4.j Contract Award: The final outcome of acquisition process in which generally the contract is awarded to one prospective supplier through acceptance of a final offer generally by either the issuance of a purchase order or the signing of a legally binding contract formalizing the terms under which goods/services are to be supplied.
4.k Bid Protests: The process by which an unsuccessful supplier may seek remedy for unjust awards.
5. Contract Administration: Monitoring and control of performance reviewing progress, making payments, recommending modifications and approving contractor's actions to ensure compliance with contractual terms during contract execution.
5.a Funding: The status of internal or external monies available for performing the work.
5.a.1 Payment Authorization - The process of allocated fund transfer to an account from which the supplier can be paid for delivered goods/services as per contractual terms.
5.a.2 Limitation of Funds - The value of funds available for expenses beyond which no work could be authorized for performance during the specified period.
5.b Notice to Proceed: Formal notification to the supplier requesting the start of work.
5.b.1 Work Authorization/Release - In case where work is to be performed in segments due to technical or funding limitations, work authorization/release authorizes specified work to be performed during a specified period.
5.c Contract Performance Control: Control of work during contract execution.
5.c.1 Inspection - Examination or measurement of work to verify whether an item or activity conforms to a specific requirement.
5.c.2 Work Acceptance - Work is considered accepted when it is conducted, documented and verified as per acceptance criteria provided in the technical specifications and contract document.
5.c.3 Quality-Assurance - Planned and systematic actions necessary to provide adequate confidence that the performed service or supplied goods will serve satisfactorily for its intended and specified purpose (See also Framework Glossary for expanded definition.)
5.c.4 Non-conformance - A deficiency in characteristics, documentation or procedure that renders the quality of material/service unacceptable or undeterminate.
5.c.5 Corrective Action - Measures taken to rectify conditions adverse to specified quality, and where necessary, to preclude repetition.
5.c.6 Stop Work Order -Request for interim stop-page of work due to non-conformance, funding, or technical considerations.
5.c.7 Supplier Expediting - Actions taken to ensure that the goods/services are supplied in accordance with the schedule documented in the contract.
5.d Contract Financial Control: Exercise of control over contract costs.
5.d.1 Progress Payments - Interim payment for delivered work in accordance with contract terms generally tied to meeting specified performance milestones.
5.d.2 Audits - A planned and documented activity performed by qualified personnel to determine by investigation, examination, or evaluation of objective evidence the adequacy and compliance with established procedures or the applicable documents and the effectiveness of implementation.
5.d.3 Duty and Tax Administration - Action taken to legally minimize duties and taxes applicable to the goods/services supplied.
5.d.4 Back Charge - The cost of corrective action taken by the purchaser chargeable to the supplier under the terms of the contract.
5.e Contract Order Modifications: Changes in a contract during its execution to incorporate new requirements or to handle contingencies that develop after contract placement. Changes may include price adjustments or changes in scope.
5.e.1 Supplementary Agreement - Contract modification which is accomplished by the mutual action of parties.
5.e.2 Change Order/Purchase Order Ammendment - Written order directing the contractor to make changes according to the provisions of the contract documents
5.f Contract Dispute: Disagreement between the parties. This may occur during contract execution or at completion and may include misinterpretation of technical requirements and any terms and conditions or due to changes not anticipated at the time of contract award.
5.f.1 Supplier Default - Failure on the part of supplier to meet technical or delivery requirements of the contract.
5.f.2 Dispute -Disagreements not settled by mutual consent which could be decided by litigation or arbitration.
5.g Contract Closeout: Contract Closeout activities which assure that the contractor has fulfilled all contractual obligations and has released all claims and liens in connection with work performed.
5.g.1 Substantial Completion - When the work is ready for or is being used for the purpose intended and is so certified.
5.g.2 Final Completion - When the entire work has been performed to the requirements of the contract, except for those items arising from the provisions of warranty, and is so certified.
5.g.3 Inventory Closeout - Settlement and credit of inventory if purchased from project funds.
5.g.4 Contractor Claims Release - Certificate to release and hold harmless from future claims by the contractor.
5.g.5 Final Payment - Final settlement paid at contract completion of the contractually obligated amount including retention.
5.g.6 Record Retention - The necessity to retain records for reference for a specified period after contract close-out in case they are needed.
6. Post Contract Evaluations: Objective review and analysis of both parties performance, realistic technical problems encountered and the corrective actions taken.
6.a Procurement Performance Evaluation: A comprehensive review of the original specification, statement of work, scope and contract modifications, for the purpose of avoiding pit-falls in future procurements.
6.b Contractor's Performance Evaluation: A comprehensive review of contractor's technical and cost performance and work delivery schedules.

Figure G-1 Function Chart Contract/Procurement Management

Function Chart Contract/Procurement Management
Function Impact Matrix Chart CONTRACT/PROCUREMENT

Figure G-2 Function Impact Matrix Chart CONTRACT/PROCUREMENT


  1.    Cavendish, P. & Martin, D.M. Negotiating and Contracting for Project Management. 1982.

  2.    Dobler, D.W., Lee, L., Jr. & Burt, D.N. Purchasing and Materials Management. NY: McGraw Hill Book Co., 4th Ed., 1984.

  3.    Martin, T.M., Teagarden, C.C., & Lambreth, C.F. Contract Administration for the Project Manager. 1983.

  4.    Procurement Associates. Subcontract Management and Advanced Purchasing Techniques, Seminar Notes, 1985.

  5.    Touche Ross. Government Contract Cost Recovery. Lecture Notes, 1985.

  6.    U.S. Defense Contract Audit Agency. Contract Audit Manual. 1979.

  7.    U.S. Department of the Army. Procurement Law. 1983.

  8.    U.S. Federal Register. Federal Acquisition Regulations. 1983.

  9.    Wilbur, B.E. Modern Procurement Management, 1970.

10.    _____. Proceedings of the Annual Seminar/Symposiums. Drexel Hill, PA: The Project Management Institute.

11.    _____. Project Management Journal (Quarterly), Drexel Hill, PA: The Project Management Institute.

12.    Purchasing Handbook. G. Aljian, edit. McGraw Hill, 4th Edition. 1981.

THE PM NETWORK August, 1987



Related Content

  • Project Management Journal

    Navigating Tensions to Create Value member content locked

    By Farid, Parinaz | Waldorff, Susanne Boche This article employs institutional logics to explore the change program–organizational context interface, and investigates how program management actors navigate the interface to create value.

  • Project Management Journal

    Project-Based Organizations’ Pursuit of Production Efficiency and Legitimate Power member content locked

    By Wang, Rui | Lu, Wenxue | Wei, Yuxin This article aims to investigate how owners’ project-based organizations (PBOs) can promote production efficiency and legitimate power under the influence of legal enforceability.

  • Project Management Journal

    Revisiting Organizational Design in the Light of Isomorphism and Equifinality member content locked

    By Aubry, Monique | Richer, Marie-Claire | Lavoie-Tremblay, Mélanie | Fortin, Claude | Fortin-Verreault, Jean-François This article examines how governance mechanisms were put in place in three organizational transformation projects undertaken in university hospital centers.

  • PMI Sponsored Research

    Governance of Interorganizational Project Networks member content open

    By Müller, Ralf | Alonderienė, Raimonda | Chmieliauskas, Alfredas | Drouin, Nathalie | Ke, Yongjian | Minelgaite, Inga | Mongeon, Mylène | Šimkonis, Saulius | Unterhitzenberger, Christine | Vaagaasar, Anne Live | Wang, Linzhou | Zhu, Fangwei | Pilkiene, Margarita This project suggests a shift in perspective in the study of interorganizational networks from the temporary organization, that is, a project, to a semi-permanent network of organizations and their…

  • A Roadmap to PMO Excellence member content open

    By Farid, Sam In the world of the PMO, strategic thinking is not enough—agility and adaptability are crucial for overall survival and sustainable growth.