38+ Sample Procurement Plan
What Is a Procurement Plan?
A procurement plan, also termed a procurement management plan, refers to a document detailing processes of finding and selecting products, services, or results through outsourcing. It holds the purchase framework for the company’s next project. It serves as the management’s guide in managing procured products such as goods, services, or supplies throughout the timeline of a project, with updates on changes as the project goes along. The procurement plan justifies the need for an external source and describes what processes follow in searching for supplies, from identifying project requirements until the fulfillment of the contract. It also distinguishes which items must be obtained by the company, contracts that support the project accomplishment, approval processes, and the criteria for the decision making. The proper use of a procurement plan lowers overall costs for materials or services and supports a smoother business plan operation.
According to the annual statistical report on UN procurement collated by the United Nations Global Marketplace (UNGC), the 39 organizations used as sources record a cumulative amount of 19.9 billion US dollars in the procurement of goods and services. These organizations increased their procurement by 1.1 billion US dollars, 5.5 percent from 2018.
Components of a Procurement Plan
A procurement plan is an essential document describing the requirements and strategy of procurement by an organization about a program or project. It must detail what and when to obtain resources, as well as the sources of these materials. It must also define and explain the quality standard of effective procurement activity. Below are the components of a procurement plan that must be present in your document.
Roles and responsibilities: The procurement plan must highlight essential functions and obligations of individuals for the project or program. These include project managers that supervise the entire process and handle the project schedule, overall budget, and project risks. Meanwhile, technical managers define the scope of work and direct the technical specifications of contractors. Contract managers, on the other hand, supply contractual information and documentation based on the contract provisions. Corporate executives provide input and decision-making for potential contractual issues and analyze and approve relating documents to the contract. Lastly, professional lawyers are present to give proper assistance regarding legal requirements and other issues. Aside from defining each individual’s roles, it also limits their involvement in particular concerns and must be included in the roles and responsibilities.Project schedule: The procurement plan identifies the schedule implications, restrictions, and appropriations. A contractor must only work on the project one task at a time. Giving more responsibility to a sole contractor gives away the feeling of micromanagement. The only exception to this situation is when a single contractor works on two similar tasks. The statement of work also describes and identifies the required job, price, and schedule of the contractors and are managed under the task structure.Vendor control: Vendor control ensures that the work of vendors, suppliers, contractors, and service providers is up to par with the standards set by the hiring company. The vendor control provisions must be included in the procurement management plan and reflect in the statement of work for the concerned party. It covers the criteria for quality of deliverables, an inspection of sites and external production facilities, and regular project meetings. Project meetings must report comprehensive and necessary information for the sponsor company to receive accurate updates on their corporate hierarchy.Price estimates: An estimate is necessary before the project bidding because it guarantees that money is available. In the course of the project, imminent changes to the scope of work need to undergo estimates and budgeting as necessary. Only then the final cost is compiled and analyzed for referencing once the project is complete. However, when a project lasts for more than a year, the presence of a net present value and necessary capital budgeting techniques guarantees sufficient consideration of the budgeted time value and cost of capital. Cost-benefit analysis is also essential when it comes to non-tangible projects.Prequalification: Prequalification is a concept utilizing a process of contractor selection by creating a list of trusted contractors based on a request for qualifications posted by the hiring industry. It requests information relating to previous projects, team composition and description, and project methodology to comprise the list of probable candidates with a schedule of criteria. The use of requests for qualification can be for single or multiple projects. It is also advisable to check for a competent list in place for various types of vendors.Risk management: By utilizing outside contracting, there is always a risk of misunderstandings and discrepancies in the project. As much as it seems to be hyper impulsive, there is no disadvantage in excessive detailing. The level of precision regarding the work statement is enough only when the risk of possible disagreements diminishes by the time and expense of detailing in the plan. Conflicts that require funds to resolve are unnecessary internal and non-procured work. The procurement plan highlights the risk profile of the project with clarification to risk tolerance, level of detail, and type of contract. It also describes policies and procedures, risk probability and severity, and review and approval of requirements, among others.Legal authority: Any relating legal jurisdiction relating to the project must explicitly be stated and written in the procurement plan, reflecting in related contracts. Significant legal issues must be taken into account and addressed in the procurement plan. Payment: Payment schedules, methods, and currencies must show on the procurement plan, as most of the contracts are paid based on the project’s progression, whereby payments for a given term are periodical. It helps to include this section in the procurement plan because the possibility of conflicts arise despite the work going smoothly, especially when the contractor feels they have made a lot of progress over a specific period compared to an inspector’s investigations.Constraints and assumptions: Almost all contracts and plans operate under a variety of constraints and assumptions, including legal matters, standards and specifications, external stakeholders, schedule constraints, budget estimations, data quality, and security protocols, among others.
Types of Procurement Contracts
There are various types of contracts that an organization can use when procuring goods and services. Each type has its benefits and disadvantages, so project managers must show awareness of which ones to use. Below are the commonly used procurement contracts you can use to obtain products or services from vendors.
Fixed Price Contracts: These contracts are best applicable when a specific scope of work is readily available. It is also known as a lump sum contract, and it is the ideal one to use to keep costs low. This type of contract is perfect for turnkey or outsourced projects.Cost Reimbursable Contracts: Also known as cost dispersable contracts or cost-reimbursement contracts. This type of contract fits for projects wherein the scope of work is prone to changes or modifications. It keeps things on schedule and under budget, with the idea of reimbursing the seller for project costs upon the project’s completion while earning a profit fee. Time and Materials Contract: The frequent use of time and materials contract happens when the seller provides services or labor. The risk is even on both parties, and the contract hires outside vendors or experts and identifies the desired qualifications and experience needed by the business.
How to Create a Procurement Plan
Procurement plans are unique and depend on the type of contract and specifications required by the hiring party. The creation of these plans is through a step-by-step process identifying the various components of the procurement process. By creating a dependable procurement plan and being knowledgeable of the following steps below, implementing project managers understand their roles better.
Step 1: Identify Roles and Responsibilities Distinctly
The initial step to creating any procurement plan is to guarantee that the parties engaged in the process understand their respective responsibilities and scope of work. The procurement management plan must precisely identify and define the roles of the individuals within the project, including the project managers, corporate executives, and contract managers. It must also declare and determine the boundaries of each of these functions to reduce the overlapping of responsibilities.
Step 2: Create an Estimate of the Schedule
The procurement management plan must also identify and contain scheduling details to guarantee that the processes are complete within the estimated period. It is also helpful to create a plan that breaks down the projects into particular tasks and timeframes with corresponding start dates and supposed end dates.
Step 3: Identify and Mitigate Risks Through Proper Management
In every project, program, and task, risks are inevitable. It is difficult to recognize them as they lie latent in procurement processes until they come to light. It is why it is beneficial for a procurement plan to understand the possible risks and create a simple list that details them. Upon the completion of the list, you can now identify ways to mitigate them. It is also helpful to assign an individual for specific teams to mediate these risks.
Step 4: Determine the Budget
Determining costs is a crucial step in creating a procurement plan as it directly affects determining the project budget. This step of the procurement process includes issuing a request for a proposal (RFP) that allows vendors to propose bids for their products or services. The RFPs purpose covers the demanding scheduling dates and details on the vendors’ work arrangements, previous experience, and projects. The hiring party must obtain these facts to make the best possible decision to secure the project.
Step 5: Establish the Criteria, Approval Workflow and Vendor Management
A part of the procurement plan must outline the approval workflow for various contracts. It details which elements are necessary before the final approval, including the proposal reviews and cost analysis. A detailed workflow ascertains that each contract undergoes a thorough investigation before the approval stage. The decision criteria must be present in the plan for vendors to comprehend the standards for their designated contracts. The guidelines must indicate the vendor’s capability to follow a given schedule, along with the quality of the products and services provided. The plan must also specify necessary procedures and etiquettes to manage involved vendors. Through it, businesses assure that vendors deliver acceptable goods and services within a determined timeline. It can also identify methods for processing invoices, status reports, and timesheet approvals.
Step 6: Final Review and Approval Process
Finally, the procurement management plan must explain the processes for reviewing and approving modifications in the procurement documents. Inclusion of these processes guarantees that any justifiable change and amendment gets approval.
What makes a procurement plan important for businesses?
A well-written procurement plan saves money and time, and at the same time, increases organizational compliance. The procurement plan must be on fact-based information to manage the procurement needs of the company effectively. It serves as a requirement for the successful implementation of projects. It also limits the extent of disagreement through acknowledged procurement procedures and enhances transparency and predictability. The procurement plan also gives a secure basis for monitoring and ensures efficient and effective budget management through consistent procurement activities based on the business’ needs and resources.
What are the possible consequences due to the lack of procurement planning?
The lack of procurement planning causes delays in project implementations due to inconsistent or incomplete planning. It can also produce inappropriate procurements that the company does not need costing resources, money, and time. There is also a possibility of using unsuitable procurement methods and procedures that can significantly impact the business, especially if these processes are unlawful. The lack of procurement planning also proves to increase project or production costs relating to the project.
How do bids relate to procurement plans?
The bidding process in the procurement plan selects a vendor for a subcontract project or purchasing products and services required to utilize the program. The bid records or list contain specifications for a project or details of the product or service concerning purchasing and also carries a possible vendors list.
Why is it necessary to use the correct type of procurement contract?
The use of the correct type of procurement contact is critical to the success of any project. It is imperative to understand the nuances of each classification as they bring about advantages and disadvantages to the project. The project managers and the procurement experts stay updated on the availability of various contracts. It is advantageous for them to know when and what to use to ensure the successful execution of projects. The procurement contracts describe the basics of each bid for a particular project, and mistakenly using the wrong contract will cost the organization more money and resources in the long run.
Procurement covers plenty of facets, and the company needs to create a procurement plan that helps make a project successful. Procurement plans detail every aspect of the procurement process and serve as the management’s guide to managing the procured products or services from a potential vendor. It helps the company to prepare, solicit, and process payment from various sources. A procurement plan generally helps the company to manage its resources accordingly. In the words of Benjamin Franklin, “By failing to prepare, you are preparing to fail.”. It is necessary to give a thorough process of planning, especially in business decisions. Check out the available procurement plan samples above and be ready for your organization’s next big project.