1. Introduction
One of the outputs of process 12.2 Conduct Procurements is the procurement agreement, usually put in the form of a contract, which contains the terms and conditions under which the seller produces the procurement for the buyer.
The purpose of this post is to list the major elements of the procurement agreement. Rather than listing them in a random, laundry-list fashion as appears in the PMBOK® guide itself, I plan to put them categories depending on the knowledge area they are related to.
2. Elements of the Procurement Agreement
| Category | Element of agreement | |
| 1. | Integration | Change request handling |
| 2. | Scope | Statement of work of deliverables |
| 3. | Time | Schedule baseline |
| 4. | Period of performance | |
| 5. | Cost | Pricing |
| 6. | Payment terms | |
| 7. | Fees and retainer | |
| 8. | Penalties | |
| 9. | Incentives | |
| 10. | Quality | Inspection and acceptance criteria |
| 11. | Warranty | |
| 12. | Limitation of liability | |
| 13. | Human Resources | Roles and responsibilities |
| 14. | Communications/
Stakeholder |
Performance reporting |
| 15. | Risk | Insurance and performance bonds |
| 16. | Procurements | Seller’s place of performance |
| 17. | Place of delivery | |
| 18. | Product support | |
| 19. | Subordinate subcontractor approvals | |
| 20. | Termination clause, Alternative Dispute Resolution (ADR) mechanisms |
Obviously, most of the elements deal with procurements, but many deal with the constraints within which the procurements must be delivered, in particular with regard to the scope, time and cost of the project.
Inspection and acceptance criteria are related to quality issues, but so are warranty and limitation of liability, as those are related to the cost of nonconformance that come under the costs of quality.
Insurance and performance bonds are considered part of risk management because they are a form of transferring the risk from the buyer to the seller. This is the overall risk of the product and its effect on the project; the cost risk of producing the product is handled by the various penalties and incentives under the cost management category.
Reporting of performance is part of communications management, but the management of the suppliers as stakeholders in the overall project must be also be considered. Finally, if the supplier needs to make a change in the scope of the product being produced, it must submit the change request to the buyer who will then consider it as part of the Integration Management process of Perform Integrated Change Control.
So it can be seen that not just the basic requirements of the product (the inspection and acceptance criteria, delivery deadline, and pricing), but also any effects of the product on the project as a whole must also be considered explicitly in the overall procurement agreement.
Once the procurement is set up, the next process is where the procurement process is monitored and controlled throughout the period of the project in which it is performed. That process, 12.3 Control Procurements, is the subject of the next post.
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Very helpful! Thanks