Procurement Management for PMP

Procurement management covers acquiring goods and services from external sources. It's a tested topic in the Process domain — especially contract types and risk allocation. This guide breaks it down.

The Procurement Management Process

1. Plan Procurement Management — decide what to buy and how
2. Conduct Procurements — select sellers and award contracts
3. Control Procurements — manage seller performance

Make-or-Buy Analysis

Before procuring, decide whether to make or buy:

• Make: Core capability, strategic control, cost-effective at scale
• Buy: Specialized expertise, faster, lower upfront investment

Contract Types

Fixed-Price Contracts

Seller agrees to deliver for a fixed price. Risk on seller.

Type	Description
Firm Fixed Price (FFP)	Fixed price, no adjustment
Fixed Price Incentive Fee (FPIF)	Fixed price plus incentive for performance
Fixed Price with Economic Price Adjustment (FPEPA)	Adjusts for inflation over long contracts

When to use: Well-defined scope, buyer wants cost certainty.

Cost-Reimbursable Contracts

Buyer reimburses seller's actual costs plus a fee. Risk on buyer.

Type	Description
Cost Plus Fixed Fee (CPFF)	Reimburse costs plus fixed fee
Cost Plus Incentive Fee (CPIF)	Reimburse costs plus incentive based on performance
Cost Plus Award Fee (CPAF)	Reimburse costs plus subjective award fee

When to use: Uncertain scope, research work, flexibility needed.

Time and Material (T&M)

Hybrid — hourly rate with a ceiling. Risk shifts based on usage.

When to use: Small scope, uncertain duration, staff augmentation.

Risk Allocation

Contract Type	Risk on Buyer	Risk on Seller
Fixed-price	Low	High
Cost-reimbursable	High	Low
T&M	Medium	Medium

Procurement Documents

• Request for Information (RFI): Seek information, no commitment
• Request for Proposal (RFP): Seek detailed proposals — used for complex procurement
• Request for Quotation (RFQ): Seek price quotes — used for commodity procurement

Source Selection Criteria

Buyers evaluate sellers on:

• Technical capability
• Cost
• Schedule
• Past performance
• References
• Financial stability
• Approach and methodology

Conducting Procurements

1. Issue RFP/RFQ to qualified sellers
2. Receive proposals
3. Evaluate against source selection criteria
4. Select seller (often via weighted scoring)
5. Award contract

Controlling Procurements

• Monitor seller performance against contract terms
• Manage changes through change control
• Inspect deliverables before acceptance
• Close out contracts formally (administrative and financial closure)

The PMI Mindset for Procurement

1. Define scope clearly — vague scope leads to disputes
2. Choose contract type based on risk — match to situation
3. Document everything — contracts, changes, performance
4. Inspect before accepting — verification is the buyer's responsibility
5. Close contracts formally — don't leave loose ends

Common Procurement Exam Traps

• Picking fixed-price when scope is uncertain (should be cost-reimbursable)
• Forgetting that cost-reimbursable puts risk on the buyer
• Confusing RFI (information) with RFP (proposal) with RFQ (quote)
• Missing that T&M needs a "not-to-exceed" ceiling to limit buyer risk

Final Thoughts

Procurement rewards clear thinking about risk allocation: fixed-price shifts risk to the seller, cost-reimbursable keeps it on the buyer, T&M splits it. Match the contract type to the scenario's risk profile, and you'll handle procurement questions with confidence.