Procurement planning and make-or-buy

Few projects do everything themselves. Project Compass buys design services, construction, furniture, RFID tags, kiosks and security gates, and possibly app development and tagging labour. Each purchase brings a supplier with its own interests into the project, and each contract shapes who carries which risks. This lesson covers procurement planning: deciding what to buy, writing the procurement management plan and procurement strategy, the make-or-buy analysis, statements of work and solicitation documents, and the legal and ethical context. Lesson 8 compares contract types and lesson 9 covers selecting sellers and managing contracts. CON-330 applies the same ideas to construction buyout and subcontracts in more depth.

Procurement on a project

Procurement management covers the processes needed to purchase or acquire products, services or results from outside the project team. The buyer is the organization acquiring them, here the library; the seller is the supplier, contractor, vendor or service provider. The legal basis is an agreement: a contract, purchase order, memorandum of understanding or, between departments, a service level agreement. A contract is a mutually binding agreement that obliges the seller to provide what is specified and the buyer to pay for it. Because it is legally binding, contract language deserves more care than most project documents, and project managers usually work with procurement specialists and legal advisers rather than alone.

In many organizations the project manager does not have authority to sign contracts. That authority sits with a procurement or contracting officer. The project manager's role is to make sure the project's needs are described correctly, that the timing of procurement fits the schedule, that risks are allocated sensibly and that seller performance is managed once the contract is signed. Exam questions often test this: when a seller asks for a change, the project manager does not simply agree, but follows the contract's change process with the person who has contracting authority.

The procurement management plan and procurement strategy

The procurement management plan describes how the project will acquire goods and services. It is part of the project management plan and typically covers how procurement will be coordinated with scope, schedule and budget, key dates and lead times, who has authority to approve and sign, standard documents to use, legal jurisdiction and currency, independent estimates, risk management issues such as bonds and insurance, how sellers will be prequalified, and how performance will be measured.

The procurement strategy, developed for each significant purchase, decides three things: the delivery method (for example, a professional services agreement for design; for construction, design-bid-build, design-build or construction management, as CON-340 explains), the contract payment type (fixed price, cost-reimbursable or time and materials, lesson 8) and the procurement phases (for example, prequalification, then invitation, then award).

Make-or-buy analysis

A make-or-buy analysis decides whether work is done by the project team or bought from outside. Cost is one factor, compared fairly: direct costs of making (staff time, equipment, training) against the price of buying plus the costs of managing the contract. Other factors are often decisive: capacity and skills, schedule, control over quality and intellectual property, confidentiality, the strategic value of building internal capability, and risk. Buying transfers some risks to the seller but creates others, such as dependence on the seller and contract disputes.

# Make or buy: tag the opening collection in-house or use a vendor tagging service ($, invented)
items = 38_000                     # opening collection (PMP-130, lesson 6)
rate, rework = 110, 0.03           # items per person-hour and second-pass share from the pilot
wage = 42.0                        # library's loaded hourly cost for temporary tagging staff
in_house_fixed = 9_000             # training, supervision and setting up the two stations
in_house_per_item = wage * (1 + rework) / rate
vendor_fixed = 2_500               # vendor mobilization and data mapping
vendor_per_item = 0.72             # vendor quote per item; tags are supplied separately either way
inhouse = in_house_fixed + in_house_per_item * items
vendor = vendor_fixed + vendor_per_item * items
breakeven = (in_house_fixed - vendor_fixed) / (vendor_per_item - in_house_per_item)
print(f"In-house cost per item {in_house_per_item:.3f}")
print(f"In-house total {inhouse:,.0f}   Vendor total {vendor:,.0f}")
print(f"Break-even volume {breakeven:,.0f} items; above it, in-house is cheaper")
effort = items * (1 + rework) / rate
for who, people in (("In-house, 3 staff on 2 stations", 3), ("Vendor, 6 staff on 6 stations", 6)):
    print(f"{who}: about {effort / (people * 6.5):4.1f} working days")

In-house cost per item 0.393
In-house total 23,944   Vendor total 29,860
Break-even volume 19,894 items; above it, in-house is cheaper
In-house, 3 staff on 2 stations: about 18.2 working days
Vendor, 6 staff on 6 stations: about  9.1 working days

In-house tagging is cheaper by about $6,000 for 38,000 items, because the vendor's unit price is higher than the library's labour cost per item; the vendor's lower set-up cost wins only below about 20,000 items. The vendor would finish in about 9 working days instead of 18, because it brings more encoding stations. PMP-130 found that the tagging activity has 35 days of total float, so the extra speed is not needed for the schedule, and in-house tagging builds staff familiarity with the system they will use every day. The team recommends making, with one condition: if float falls below 15 days, for example because of further permit delays, the vendor quote remains available as a contingency response. Make-or-buy decisions are rarely about cost alone, and the analysis should say which other factors tipped the balance.

The app is a different case. The library has no app developers and building that capability would take longer than the project allows, so the team buys development services. The library keeps ownership of the source code and the right to use another supplier later, which the contract must state explicitly.

Statements of work and terms of reference

Each procurement needs a procurement statement of work (SOW) describing the item to be bought in enough detail for prospective sellers to decide whether they can provide it and to price it. It is drawn from the project scope baseline and covers only the part of scope included in the contract. For services, a terms of reference document plays the same role, describing tasks, deliverables, standards, reporting and acceptance.

A clear SOW reduces disputes. Vague phrases such as "industry standard" or "fully functional" invite arguments; measurable acceptance criteria, linked to the quality metrics from lesson 1, prevent them. The Eastgate kiosk SOW also includes the lesson from the central library pilot: the firmware version must be stated, updates must be approved by the library before installation, and the seller must test updates against the library's system first.

Solicitation documents and source selection criteria

Bid documents invite sellers to respond. Their names vary by organization and country, but three types appear in exam questions. A request for information (RFI) gathers information about the market and possible solutions before requirements are firm. A request for quotation (RFQ) asks for prices for well-defined goods or services, where the decision is mainly about price. A request for proposal (RFP) asks for proposed solutions and prices when the buyer needs to compare approaches, capability and value, not just price. Public bodies may also use an invitation to tender, invitation for bid or call for tenders for priced bids on fully designed work.

Source selection criteria tell sellers how proposals will be evaluated. They are published in the bid documents so that evaluation is fair and sellers can respond to what matters. Typical criteria include understanding of need, technical approach, management approach and staffing, past performance and references, financial capacity, warranty and support, life-cycle cost and, increasingly, accessibility, security and sustainability. Mandatory requirements screen out non-compliant proposals before scoring. An independent cost estimate, prepared by the buyer or a consultant before bids arrive, provides a benchmark: if bids differ widely from it, the SOW may be unclear or the market misunderstood.

Legal context

Public bodies in Canada must follow procurement rules set by legislation, trade agreements and their own policies. A municipal library typically follows provincial requirements and the municipality's purchasing bylaw or policy. Above certain dollar thresholds, the Canadian Free Trade Agreement (CFTA) requires open, non-discriminatory competition for the broader public sector, including municipalities, and international agreements such as CETA and the WTO Agreement on Government Procurement may also apply at higher thresholds. Thresholds are adjusted periodically, so procurement staff check current values. At the federal level, the Buy Canadian Policy that took effect on 16 December 2025 favours Canadian suppliers and materials in some large federal procurements; it applies to federal departments rather than to a municipal library, though some provinces have adopted their own buy-local measures. Disputes over federal procurements can go to the Canadian International Trade Tribunal; most municipal procurements are challenged in the courts.

Whatever the jurisdiction, public procurement emphasizes fairness, transparency, value for money and accountability. The practical consequences for a project manager are lead time (formal competitions take weeks or months), limits on talking to bidders outside formal channels, a duty to evaluate strictly against published criteria and a record of decisions that can withstand challenge. Private organizations have more freedom but usually still have purchasing policies and approval limits.

Ethics in procurement

Procurement is where conflicts of interest and unfair preference for particular suppliers most often appear. A project manager should disclose any personal relationship with a bidder, refuse gifts and hospitality beyond what policy allows, treat all bidders equally (sharing the same information at the same time, for example through a bidder conference and written addenda), keep bid information confidential and never steer a contract to a preferred supplier by writing the SOW around one product. PMP-121 covered PMI's Code of Ethics and Professional Conduct; procurement is where its standards of fairness and honesty are tested most directly. On Project Compass, a board member's relative works for one of the kiosk vendors; the board member declared the interest and did not take part in the decision, and the declaration was recorded.

Procurement for adaptive work

Buying adaptive work is harder, because the scope will evolve. Contracts for the app team describe outcomes, team composition, ways of working and the product owner's role, rather than a fixed feature list. Common structures include time and materials with a not-to-exceed ceiling, a fixed price per sprint or release with scope chosen sprint by sprint, and clauses allowing either party to stop after any release with notice, so that the buyer can walk away if value is not being delivered. PMP-140 discusses agile contracting further. Project Compass chose time and materials with a ceiling of $210,000, matching the app's budget, and a right to end the contract after each release.