Project Management guide · Cost and resources
Project Procurement Management: Process, Contracts and Example
Project procurement management covers buying the goods, services and results a project needs from outside the team. It includes deciding what to buy, choosing suppliers, agreeing contracts and managing those contracts until the work is accepted and closed.
Key takeaways
- Procurement management covers planning, conducting and controlling purchases.
- Use make-or-buy analysis with multi-year costs before deciding to procure.
- Contract type decides who carries cost risk.
- A clear statement of work and fair selection criteria prevent disputes.
The procurement processes
PMBOK 6 describes three procurement management processes:
| Process | What happens | Key outputs |
|---|---|---|
| Plan procurement management | Decide what to buy, how, and when; carry out make-or-buy analysis | Procurement management plan, statements of work, bid documents, selection criteria |
| Conduct procurements | Issue bid documents, receive responses, evaluate and select suppliers, negotiate | Selected sellers, signed agreements |
| Control procurements | Manage the contract, monitor performance, handle changes and claims, close the contract | Accepted deliverables, closed procurements, updated records |
Many organisations add a clear close step: confirm all work is accepted, settle final payments and record supplier performance for lessons learned.
Make-or-buy analysis: a worked example
A project needs a customer booking system. The team can build it or buy a hosted product. The comparison covers three years of use.
| Cost item | Make (build in house) | Buy (hosted product) |
|---|---|---|
| Initial cost | 600 hours x $90 = $54,000 | Setup and configuration $8,000 |
| Annual running cost | Maintenance $12,000 | Subscription $1,500 x 12 = $18,000 |
| Three-year total | $54,000 + 3 x $12,000 = $90,000 | $8,000 + 3 x $18,000 = $62,000 |
Over three years buying is $28,000 cheaper. The make option only catches up when $54,000 + $12,000t = $8,000 + $18,000t, which gives t = $46,000 / $6,000 = about 7.7 years. Unless the system is expected to last much longer than that, or needs features no product offers, buying is the better choice on cost.
Non-financial factors matter too: control over features, data ownership, supplier lock-in, internal skills and time to market. A cost-benefit analysis or net present value calculation can refine the comparison.
Contract types
| Type | How payment works | Risk mainly with | Best when |
|---|---|---|---|
| Firm fixed price (FFP) | One agreed price for defined scope | Seller | Scope is clear and stable |
| Fixed price incentive fee (FPIF) | Fixed price plus or minus an incentive tied to performance | Shared, mostly seller | Performance targets can be measured |
| Fixed price with economic price adjustment (FP-EPA) | Fixed price adjusted for inflation or commodity prices | Shared | Long contracts with volatile input costs |
| Cost plus fixed fee (CPFF) | Actual allowable costs plus a fixed fee | Buyer | Scope is uncertain |
| Cost plus incentive fee (CPIF) | Costs plus a fee that varies with performance against targets | Shared | Uncertain scope but measurable targets |
| Cost plus award fee (CPAF) | Costs plus a fee awarded on subjective performance judgement | Buyer | Performance is hard to measure objectively |
| Time and materials (T&M) | Agreed rates per hour or day plus materials | Buyer | Small or urgent work, staff augmentation |
Procurement documents
| Document | Purpose |
|---|---|
| Request for information (RFI) | Learn what the market offers before deciding how to buy |
| Request for quotation (RFQ) | Get prices for clearly specified goods or services |
| Request for proposal (RFP) | Invite suppliers to propose a solution and price for a more complex need |
| Procurement statement of work | Describe what the supplier must deliver; see statement of work |
| Source selection criteria | Define how bids will be scored, such as price, capability, experience and risk |
How to run a procurement step by step
- Confirm the need and complete the make-or-buy decision.
- Choose the contract type and write the statement of work.
- Agree weighted selection criteria before seeing any bids.
- Issue the RFI, RFQ or RFP and answer supplier questions fairly and to all bidders.
- Evaluate bids against the criteria, shortlist and negotiate.
- Sign the contract and hold a kick-off meeting with the supplier.
- Monitor delivery, quality, invoices and changes through change control.
- Accept the deliverables, close the contract and record lessons learned.
Tips and common mistakes
- Write a precise statement of work; vague scope leads to disputes and claims.
- Fix selection criteria and weights before bids arrive to keep the process fair.
- Do not choose on price alone; weigh capability, risk and support.
- Allow for procurement lead times in the project schedule.
- Keep records of all communications and changes.
- Involve legal and finance teams early for anything significant.
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Frequently asked questions
What is project procurement management?
The processes for buying goods, services or results from outside the project team, from planning and supplier selection to contract management and closure.
What are the project procurement management processes in PMBOK?
PMBOK 6 lists plan procurement management, conduct procurements and control procurements.
What is a make-or-buy analysis in project procurement?
A comparison of the costs, risks and benefits of producing something in house against buying it from a supplier, used to decide whether to procure.
What are the main types of contracts in project procurement?
Fixed-price, cost-reimbursable and time-and-materials contracts, each with variants that share risk differently between buyer and seller.
In project procurement, which contract type carries the most risk for the buyer?
Cost-reimbursable contracts, because the buyer pays the seller's actual allowable costs, which may rise.
In project procurement, which contract type carries the most risk for the seller?
A firm fixed-price contract, because the seller must deliver the agreed scope for the agreed price even if costs rise.
What is the difference between an RFP and an RFQ in project procurement?
An RFQ asks for a price for a clearly defined item; an RFP asks suppliers to propose a solution as well as a price.
What is a statement of work in project procurement?
A description of the work, products or services the supplier must deliver, detailed enough for suppliers to price and for the buyer to accept.
What are source selection criteria in project procurement?
The factors and weights used to evaluate bids, such as price, technical approach, experience, capacity and financial stability.
What is a time and materials contract in project procurement?
A contract paying agreed rates for time worked plus the cost of materials, often used for small or urgent work or extra staff.
Who is responsible for project procurement management?
The project manager defines the need and manages performance, while a procurement or contracts team usually runs the formal process and signs contracts.
How is project procurement closed?
By confirming all deliverables are accepted, settling final payments and claims, archiving records and noting supplier performance.