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Procurement documents are often used as a form of communication channel between bidders and sellers.
Your company may not be able to produce the components required by the project. It may procure goods and services from any other vendor who has capability to provide you the requested goods and services.
There are always at least two parties involved in the procurement contracts. The first who buy or opt for goods or services. And the second one is called as seller who provides the goods and services to the buyer.
As part of the procurement management cycle, buyer and supplier communication happens through various procurement documents. By the way supplier is another term used to represent the seller.
Procurement Management Process
In a very high level, the procurement process happens between the buyer and suppliers (sellers) as follows.
Identifying potential suppliers
A buyer first gathers information on the potential suppliers or sellers to provide the required goods and/or services to the buyer.
Shortlisting the suppliers
After identifying the supplier, buyer sends the solicitations to the supplier requesting their response on usually a template provided by the buyer.
This is phase mainly majority of the procurement documents are prepared and circulated.
The document includes request for information, invitation for bid and request for proposal or quotation are the common procurement documents that you see during this phase.
Buyers usually provides template where all the supplier has to comply to send their responses in the pre-defined information and format.
Buyer may also organize the bidder conferences at this stage, depending on the volume and complexity of the bid.
At the end of this phase usually buyer gets an idea on who will be in the race for bid. Meaning that buyer will shortlist the suppliers.
Negotiations
Once buyers has all the information from suppliers, they would compare them based on various parameters such as proposed solution, price, references, capability, flexibility, different alternate pricing models, etc.
Finally both the parties negotiate, in case if they wish the other party to agree on some inclusions or exclusions as part of the project.
At the end of the negotiation phase, usually both the parties sign the contracts.
Fulfillment or delivery
Once both the parties signs the contract, then the supplier has to start the fulfillment of delivery as per the contracts . Usually contracts will also have a structure for the payments. According to that payments will initiate between buyer and seller.
Expiry or Renewal
Contracts are always prepared for a finite period or duration. For example it could be for an year or a multiyear contract. Once the contract term is over, if the buyer wants the same supplier to continue, there would a renewal process for the contract. Otherwise the contract terminates or expire.
Procurement Documents
Procurement documents are the documents prepared by the buyer or seller to complete the procurement management process.
Solicitations are all invitations or requests from the buyer to seller. For example invitation for bid, request for information, request for quotation or proposal, etc. are solicitations.
And the proposal or solutions, quotations that the supplier offers to the buyers are termed as offerings.
Let us see now the most important procurement documents that are important for the PMP exam.
Procurement Statement of Work (SOW)
Buyer usually prepares the SOW towards the seller. SOW contains the actual work the seller needs to do as part of the procurement.
Request for Information (RFI)
Buyer asks all the selected suppliers to provide information related to them. For example information on supplier pertaining to organization capabilities, capacity, skill sets, references, etc.
Invitation for Bid (IFB)
Invitation for bid is a formal way of buyer asking suppliers to provide the bid. IFB is primarily used when buyer has a good understanding on what work is involved and solution is also more or less the same from all sellers and the prime differentiator is only the price.
Request for proposal (RFP)
On the other hand request for proposal (RFP) is similar to IFB and will be issued by the buyer to suppliers. However this involves buyer asking for sellers proposal to solve an issue or complete a project. This usually includes a solution to propose along with commercials, level of compliances, and other terms and conditions.
Invitation for Quote (IFQ)
Invitation for quote is a type of procurement solicitation in which buyer asks the suppliers or sellers for a fixed price quotation to bid for a project. Sometimes buyers asks the sellers for IFQ or RFQ to understand the cost of the project in very high level before issuing an RFP.
Purchase Order (PO)
Purchase order (PO) is type of fixed price agreement or contract from buyer to seller asking the seller to supply the products and services that are agreed by both the parties.
Procurement Management Process – Best practices or important concepts to understand
Here are some of best practices, during procurement management process, but not limited to
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