5.4 Procurement Management
Key Takeaways
- Procurement management involves acquiring products, services, or results from outside the project team
- Common contract types include Fixed-Price (seller bears most risk), Cost-Reimbursable (buyer bears most risk), and Time and Materials (shared risk)
- The make-or-buy decision determines whether work should be done internally or outsourced
- Key procurement documents include RFI (Request for Information), RFQ (Request for Quotation), and RFP (Request for Proposal)
- The Statement of Work (SOW) describes the procurement item in sufficient detail to allow prospective sellers to determine if they can provide the items
Last updated: March 2026
Procurement Management
Procurement management involves the processes necessary to purchase or acquire products, services, or results needed from outside the project team.
Procurement Management Processes
| Process | Process Group | Purpose |
|---|---|---|
| Plan Procurement Management | Planning | Determine what to procure, when, and how |
| Conduct Procurements | Executing | Obtain seller responses, select sellers, award contracts |
| Control Procurements | Monitoring & Controlling | Manage procurement relationships and performance |
Contract Types
Fixed-Price Contracts
| Type | Description | Risk Bearer |
|---|---|---|
| Firm Fixed-Price (FFP) | Set price for a defined scope; no adjustments | Seller bears most risk |
| Fixed-Price Incentive Fee (FPIF) | Fixed price with incentive for meeting targets | Shared (mostly seller) |
| Fixed-Price with Economic Price Adjustment (FPEPA) | Fixed price with provisions for inflation/deflation adjustments | Shared |
Cost-Reimbursable Contracts
| Type | Description | Risk Bearer |
|---|---|---|
| Cost Plus Fixed Fee (CPFF) | Costs reimbursed plus a fixed fee regardless of performance | Buyer bears most risk |
| Cost Plus Incentive Fee (CPIF) | Costs reimbursed plus incentive fee based on performance | Shared (mostly buyer) |
| Cost Plus Award Fee (CPAF) | Costs reimbursed plus a fee based on subjective evaluation | Buyer bears most risk |
Time and Materials (T&M) Contracts
- Hybrid of fixed-price (rate) and cost-reimbursable (hours)
- Pre-set hourly/daily rate, but total cost depends on hours worked
- Risk is shared between buyer and seller
- Best for work where the scope is not clearly defined
Contract Type and Risk
Most Buyer Risk ←——————————→ Most Seller Risk
CPAF → CPFF → CPIF → T&M → FPEPA → FPIF → FFP
Exam Tip: Fixed-price contracts put the most risk on the seller (they must deliver within the fixed price). Cost-reimbursable contracts put the most risk on the buyer (they reimburse whatever costs the seller incurs).
Procurement Documents
| Document | Purpose | When Used |
|---|---|---|
| RFI (Request for Information) | Gather general information about products and sellers | Early market research |
| RFQ (Request for Quotation) | Obtain price quotes for well-defined deliverables | When scope is clear |
| RFP (Request for Proposal) | Soliciting detailed proposals including approach and pricing | Complex procurements |
| IFB (Invitation for Bid) | Formally request bids (usually lowest price wins) | Government/public sector |
| SOW (Statement of Work) | Describe the procurement item in detail | Part of procurement documents |
Make-or-Buy Decision
The make-or-buy analysis evaluates whether to produce work internally (make) or purchase externally (buy).
| Factor | Make | Buy |
|---|---|---|
| Core competency | Work is a core competency | Not a core competency |
| Availability | Resources are available internally | Resources are not available |
| Cost | Internal production is cheaper | External procurement is cheaper |
| Control | Greater control over quality and schedule | Less control |
| Capacity | Internal capacity exists | Internal capacity is insufficient |
| Risk | Lower risk with internal resources | Transfer risk to the seller |
Source Selection Criteria
When evaluating seller proposals, the project team considers:
- Cost/price — Is the proposal competitively priced?
- Technical capability — Can the seller deliver?
- Management approach — How will the seller manage the work?
- Past performance — Has the seller delivered successfully before?
- Financial capacity — Is the seller financially stable?
- Risk — What risks does this seller present?
Test Your Knowledge
Which contract type places the MOST risk on the buyer?
A
B
C
D
Test Your Knowledge
A procurement document that solicits detailed proposals including approach, methodology, and pricing for a complex project is called a:
A
B
C
D
Test Your KnowledgeMatching
Match each contract type with the party who bears the MOST risk:
Match each item on the left with the correct item on the right
1
Firm Fixed-Price (FFP)
2
Cost Plus Fixed Fee (CPFF)
3
Time and Materials (T&M)