Domain 2 of 3 · Chapter 5 of 10

Planning and Managing Procurement

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Included in this chapter:

  • Plan procurement: make-or-buy, then a strategy
  • Choosing a contract type by cost-risk allocation
  • Execute: solicit fairly, select on criteria
  • Negotiate the agreement to a plan
  • Manage the agreement through delivery
  • Exam-pattern recognition

Choosing a contract type by scope certainty and cost-risk allocation

DimensionFirm fixed-price (FFP)Cost-reimbursable (CR)Time-and-materials (T&M)
Best whenScope is well-defined and stableScope cannot be fully defined up frontSmall or urgent work of unknown extent
Who carries cost riskSeller (the buyer's price is fixed)Buyer (reimburses the seller's actual costs)Shared (buyer pays hours and materials at set rates)
Typical useA deliverable the buyer can specify exactlyResearch or evolving requirementsStaff augmentation or urgent gap-filling
Performance-fee overlayIncentive or award fee ties fee to cost, schedule, or quality targetsIncentive or award fee shares savings or pays against measured targetsNot typical; bound the total with a not-to-exceed cap instead

Decision tree

Make in-houseor buy?Keep in-houseScope well-definedand stable?Firm fixed-price(FFP)Small, urgent workof unknown extent?Time-and-materials(T&M)Cost-reimbursable(CR)makebuyyesnoyesnoAdd an incentive or award fee to a fixed-price orcost-reimbursable contract to tie the fee to targets
Cheat sheet

Cheat sheet

  • A make-or-buy analysis decides what to procure before soliciting
  • The procurement strategy defines the delivery method and contract approach
  • Fixed-price fits well-defined scope and shifts cost risk to the seller
  • Cost-reimbursable fits uncertain scope and keeps cost risk with the buyer
  • Time-and-materials suits small or urgent work of unknown extent
  • Incentive and award fees align the seller's motivation with project outcomes
  • Source selection criteria are defined before proposals are evaluated
  • A bidder conference gives every prospective seller the same information
  • Vendor performance is measured against the agreement's terms
  • Confirm the agreement's objectives are being met while delivery is underway
  • A vendor dispute is worked through the contract's terms first
  • A negotiation strategy and its limits are set before negotiating
  • Procurement negotiation aims for a fair, workable, lasting agreement

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References

  1. Procurement Online Planning Blog
  2. PMP Examination Content Outline (June 2026)
  3. Contracts--from the vendor and the buyer point of views Blog
  4. Project managing the RFP process for software acquisition, a structured approach Blog
  5. Vendor selection process as predictor of project success Blog
  6. Five Things Every Project Manager Should Know about Negotiation Blog
  7. PMs Add Value Contract Management Blog
  8. Managing outsourced projects Blog