Project Procurement Management is Knowledge Area 9 in PMBOK 6 (its processes are numbered 12.1 to 12.3 because they sit in chapter 12 of the guide). It covers buying products, services or results from outside the project team. There are three processes: Plan Procurement Management (decide what to buy, when and how), Conduct Procurements (get bids, pick the seller and sign the contract) and Control Procurements (manage the contract, check performance and close it). The main idea to remember for the exam is that the contract type decides who carries the cost risk. Fixed price, cost-reimbursable and time and material contracts split the risk between buyer and seller in very different ways.
✦
From my experience: A big part of my work on UAE construction projects was managing subcontractors: civil, MEP, facade, fit-out. I saw first-hand how the contract type changed behaviour on site. A lump sum subcontractor pushed back on every extra instruction and asked for a variation. A subcontractor paid on rates was happy to keep working but needed close watching on hours and materials. When I teach this to my PMP students, I make sure they can say, for each contract type, who loses money if the job costs more than planned.
This page is my exam-focused view of procurement: the processes, the contract types and the questions PMI likes to ask. I use simple construction subcontracting examples because that is where I learned this. If you need to manage a change to a contract on a real project, my change request form template is a good place to start. This page is for understanding the concepts and passing the exam.
Procurement is the knowledge area with the most legal and commercial weight. Every contract you sign, with a subcontractor, a supplier, a consultant or a software vendor, creates binding commitments that affect your cost, schedule, scope and risk. You need to know how to set those commitments up, how to choose sellers and how to manage them during delivery.
It is also the area where you depend most on people outside your control. You can direct your own team. You cannot direct a supplier the same way. If a supplier does not perform, you cannot just give the work to someone else. You work through the contract: its terms, its rights and its remedies.
On this page you will find the three processes with their inputs, tools and outputs, all the contract types and who carries the risk in each, make-or-buy decisions, source selection criteria, and how procurement works in predictive, agile and hybrid projects.
Foundational Concepts
Key Concepts Before the Processes
The Buyer-Seller Relationship
In PMBOK procurement, your project is always the buyer: the side getting the goods or services. Suppliers, vendors, contractors and subcontractors are the sellers. You look at everything from the buyer's side: write the requirements, assess the proposals, award the contract and check performance against it.
Fixed price contracts shift risk to the seller; cost-reimbursable contracts shift it to the buyer.
Your organisation can be a seller at the same time. On a construction job, the main contractor is the seller to the client but the buyer to its subcontractors. PMBOK procurement looks at the project as buyer. When you are the seller, that side is usually handled by your company's commercial team.
How do you make a make-or-buy decision?
Before you buy anything, decide whether to do the work yourselves (make) or get it from outside (buy). You make this decision in Plan Procurement Management, and it shapes the whole procurement approach.
Make (Internal Delivery)
Consider making when:
Your organisation has the required skills and capacity
The work involves proprietary knowledge or intellectual property that must remain internal
Security or confidentiality requirements prevent external involvement
The work is core to your organisation's competitive advantage
Long-term capability development is a strategic objective
Internal cost is genuinely lower than market rate when fully burdened
Your organisation lacks the required specialist skills or equipment
External supply is more cost-effective than internal development
Buying transfers risk to a supplier better placed to manage it
The work is a commodity available at competitive market rates
You need to augment internal capacity for a defined period
Faster delivery is possible through established external suppliers
You want access to technology without owning the maintenance burden
Contract Types
What are the main contract types?
Picking the contract type is the most important procurement decision. It decides how cost risk is split between buyer and seller, how much cost exposure you have, and how the relationship with the supplier will work. PMBOK groups contracts into three families, each with subtypes.
Risk Distribution Spectrum: Buyer vs Seller
Maximum buyer riskShared riskMaximum seller risk
Time & MaterialCost PlusFixed Price
Complete Contract Type Reference: All Families and Subtypes
Fixed-Price (FP) ContractsRisk: Seller
The buyer pays an agreed price, whatever the work actually costs the seller. The seller carries the cost overrun risk: if the work costs more, the seller absorbs it. Buyers like fixed price for well-defined work because they know the cost. Sellers usually add a risk margin to the price. Only use fixed price when the scope is clear. If the scope is vague, expect disputes, variations and corners being cut as the seller protects its margin.
FFP: Firm Fixed Price
The purest form: a single defined price for all work. Most commonly used contract type. Buyer has maximum cost certainty; seller has maximum risk. Used for commodities, standard services, and well-defined deliverables.
FPIF: Fixed Price Incentive Fee
A fixed price with an incentive fee added if the seller achieves defined performance targets (cost underrun, early delivery, quality metrics). Shares cost savings between buyer and seller above the target cost. Motivates seller performance beyond minimum contractual compliance. Defined by a point of total assumption (PTA) above which the seller bears all additional costs.
FPEPA: Fixed Price with Economic Price Adjustment
A fixed price that includes a contractually defined adjustment mechanism for specific economic changes, typically inflation indices, foreign exchange rates, or commodity price movements, over long-duration contracts. Protects both buyer (from seller padding prices for unknown future inflation) and seller (from absorbing genuine market price changes beyond their control).
Cost-Reimbursable (CR) ContractsRisk: Buyer
The buyer pays the seller's allowable costs plus a fee (the profit). The buyer carries most or all of the cost overrun risk: if the work costs more, the buyer pays more. Use this when the scope is not clear at contract award, when the work is uncertain (research or new technology), or when a fixed price would force one side to take an unfair risk.
CPFF: Cost Plus Fixed Fee
Buyer pays all allowable costs plus a fixed fee that does not change based on actual costs. The seller has no financial incentive to reduce costs (the fee is fixed regardless) but also no incentive to over-spend (they don't earn more). Used in research, exploratory work, and situations where scope is highly uncertain.
CPIF: Cost Plus Incentive Fee
Buyer pays all allowable costs plus an incentive fee that varies based on actual vs target cost performance. If the seller completes below target cost, they share in the savings; if above, their fee is reduced. Creates cost efficiency motivation while retaining flexibility for uncertain scope. Buyer and seller agree the sharing ratio at contract award.
CPAF: Cost Plus Award Fee
Buyer pays all allowable costs plus a fee determined at the buyer's discretion based on subjective performance assessment: customer satisfaction, innovation, relationship quality. The buyer retains wide discretion and the award decision is typically not contestable. Used when performance is difficult to measure objectively but qualitative assessment is meaningful.
Time and Material (T&M) ContractsRisk: Buyer
A mix of the two: the seller is paid a fixed hourly or daily rate (the "time") plus materials at agreed rates or cost (the "material"). The total is open-ended because it depends on how many hours are worked and how much material is used. The buyer gets the most flexibility (work can start or stop easily) but the least cost certainty. Use it for staff support, advisory work, small undefined jobs and emergencies. T&M contracts usually have a not-to-exceed (NTE) ceiling to protect the buyer.
T&M with NTE (Not-to-Exceed)
Standard T&M augmented with a ceiling price that the buyer will not exceed. The seller must notify the buyer before reaching the NTE ceiling, at which point a decision is made to extend, reduce scope or close. Provides cost protection without converting to a fixed-price structure.
✦
The golden rule: choose the contract type that fits the risk of the work, not the one the buyer feels most comfortable with. A fixed price for vague scope moves the risk to the seller on paper, but in practice it leads to disputes, variations and lower quality as the seller protects its margin. The most expensive procurement result is usually a dispute caused by the wrong contract type.
Contract types with simple construction examples
This is how I explain contract types to my PMP students, using subcontract packages from a building project.
Firm fixed price (lump sum): the blockwork subcontractor agrees one price for all the blockwork shown on the approved drawings. If it costs them more, they carry it. If the drawings change, they will ask for a variation.
Fixed price incentive fee: the facade subcontractor has a target price, plus a bonus if they finish before a key handover date. They carry the cost risk but have a reason to go faster.
Fixed price with economic price adjustment: a long supply contract for steel reinforcement where the price moves with an agreed steel price index.
Cost plus fixed fee: urgent repair work after a hidden services clash is found, where nobody can price it yet. You pay the costs plus a set fee.
Time and material: a crane with operator hired by the day, or extra labour hired on daily rates to clear a snag list before handover. Agree a not-to-exceed amount.
Exam tip: when a question says the scope is well defined and the buyer wants cost certainty, think fixed price. When it says the scope is unclear or the work is urgent and short, think cost-reimbursable or T&M. Mistakes I see most: choosing fixed price for vague scope, and forgetting that the seller is also a stakeholder.
The Three Processes
Contract types and who carries the cost risk
Contract type
Example
Cost risk sits with
Firm fixed price (FFP)
Fixed price for a defined deliverable
Seller
Fixed price incentive fee (FPIF)
Fixed price plus a bonus for beating targets
Mostly seller
Cost plus fixed fee (CPFF)
Costs reimbursed plus a set fee
Buyer
Cost plus incentive fee (CPIF)
Costs reimbursed plus a performance-based fee
Mostly buyer
Time and material (T&M)
Hourly or daily rate for open-ended work
Buyer
Source: PMBOK Guide, 6th edition (PMI).
Project Procurement Management: The 3 PMBOK Processes
12.1
Plan Procurement Management
Planning Process Group · Documents procurement decisions, specifies the approach, identifies potential sellers
+
Plan Procurement Management is where you record your procurement decisions, set the approach and identify possible sellers. Everything later depends on this work. Its main output is the Procurement Management Plan, along with the Procurement Strategy, Bid Documents and Source Selection Criteria.
Key decisions made in Plan Procurement Management:
Make-or-buy analysis: For each work package or component in scope, deciding whether to produce it internally or acquire it externally. The output is a formal make-or-buy decision documented in the procurement management plan.
Contract type selection: For each item to be procured, selecting the appropriate contract type based on risk profile, scope definition maturity, and the buyer's ability to define requirements precisely.
Procurement strategy: Defining the overall approach to the market, whether to use a single-source, limited competition or full competition approach; the sequencing of procurements; and the procurement method (Request for Information, Request for Proposal, Request for Quotation, Invitation to Bid).
Source selection criteria: Defining the criteria against which seller proposals will be evaluated, typically a weighted scoring model covering technical capability, experience, price, management approach, and risk assessment.
Independent cost estimates: The PM develops or commissions an independent estimate of what the procurement should cost: used to evaluate whether seller proposals represent fair value and to detect unrealistically low bids that may indicate a misunderstanding of scope or a "buy-in" strategy.
The Procurement Statement of Work (SOW) is a key output of this process. It describes what you are buying in enough detail for sellers to decide if they can provide it. A weak SOW is one of the most common causes of procurement trouble: vague requirements give you proposals you cannot compare, arguments over variations, and confusion during delivery.
Inputs
Project Charter
Business Documents
Project Management Plan (Scope, Quality, Resource, Risk Management Plans)
Executing Process Group · Obtains seller responses, selects sellers and awards contracts
+
Conduct Procurements takes the plan to the market: issue the bid documents, receive responses, assess them against the selection criteria and award the contract. Its main outputs are Selected Sellers and Agreements (contracts). This is where the legal relationship between buyer and seller starts.
Going to market: You release the bid documents (RFP, RFQ, IFB) prepared during planning. In the public sector, advertising is usually required by law. You may hold a bidder conference (pre-bid meeting) so every bidder has the same understanding. Share every question and answer with all bidders, so the process stays fair.
Proposal evaluation: Score each response against the weighted selection criteria you set earlier. Technical and commercial panels may be involved. Be consistent and keep good records, especially in the public sector where the decision can be challenged or audited.
Negotiation: Once you have a preferred seller, you agree the final price, terms, schedule, specifications and risk split before signing. This is different from scope discussion inside the team: it covers commercial terms, legal obligations and financial risk, and big contracts usually need legal advice.
Agreement types: The output can be a contract, memorandum of understanding (MOU), service level agreement (SLA), purchase order or letter of intent. Each one creates obligations for both buyer and seller.
Inputs
Project Management Plan (Procurement Management Plan, Scope, Requirements)
Monitoring & Controlling Process Group · Manages procurement relationships, monitors contract performance, and closes contracts
+
Control Procurements manages the buyer-seller relationship, checks contract performance, handles contract changes and closes contracts. It runs from award to closure, which may not match the project's end. A contract can stay open after the project closes (for example during a defects liability or warranty period), or close well before the project does.
Contract performance monitoring: You track the seller against what the contract says: milestones, quality, specifications and reporting. You can only hold the seller to what is written in the contract, not to what you hoped for. That is why a clear SOW at the start matters so much.
Claims administration: A claim is a disagreement about whether the seller met its obligations, or whether a change entitles the seller to more time or money. Use the dispute steps in the contract. Negotiation first, then alternative dispute resolution (mediation, arbitration) before going to court. Clear acceptance criteria and change procedures prevent most claims.
Contract change control: Changes to a contract follow the contract's own change procedure, which works alongside the project's integrated change control. Not every project change affects a contract, but when one does, bring in procurement early. A simple change request form helps you record the change, its cost and time impact and who approved it before any instruction reaches the seller.
Contract closure: Close each contract formally when the seller's work is done. Check that all deliverables are accepted, all payments made, any retention released, the contract file archived and lessons learned recorded. Final payment is usually held until everything is accepted and open claims are settled.
Source selection criteria are the standards you use to assess seller proposals. Set them during planning, before proposals arrive, and apply them the same way to everyone. Weighted criteria agreed in advance stop people from justifying a favourite supplier after the fact, and give you a decision you can defend.
✦Price / Cost
The proposed price for the work or the total cost of ownership over the contract period. For fixed-price contracts, price is the key commercial criterion. For cost-reimbursable contracts, the proposed fee structure and estimated cost are evaluated rather than a single price. Price should rarely be the only criterion, the lowest-cost proposal often carries the highest delivery risk.
✦Technical Capability and Approach
The seller's proposed technical solution, methodology and approach to delivering the requirements. Evaluated against the technical specifications in the Procurement SOW. A technically strong proposal from a slightly more expensive bidder may represent better value than a low-price proposal with a weak technical approach that will require extensive buyer management and change orders.
✦Relevant Experience
The seller's track record in delivering comparable work: similar scale, complexity, technology stack, industry sector or regulatory environment. References, case studies and client testimonials evidence relevant experience. Past performance on comparable work is one of the strongest predictors of future delivery performance.
✦Management Approach and Key Personnel
How the seller proposes to manage the engagement: governance structure, escalation procedures, communication approach, and the specific individuals who will lead delivery. For knowledge-work contracts (consulting, professional services, software development), the quality of the specific named individuals often matters more than the firm's general capabilities. Contracts may include key person clauses to protect against substitution of key personnel after award.
✦Risk Assessment
The risks associated with selecting a particular seller: financial stability, supply chain dependencies, single points of failure, concentration risk (too much of your project dependent on one supplier), geographical risk, and the seller's own risk management approach. A financially unstable seller creates delivery risk regardless of how compelling their proposal is.
✦Capacity and Schedule Commitment
Whether the seller has the capacity to deliver the required work within the project's timeline: given their current commitments to other clients. A seller who wins the contract but cannot resource it adequately because they are overcommitted elsewhere is a major schedule risk. Realistic schedule proposals with credible resource plans should be weighted more highly than aggressive schedules that will require change order renegotiation.
Interrelation to Other Knowledge Areas
How Procurement Management Connects to Every Other Knowledge Area
✦KA01: Integration Management
Procurement Management is deeply integrated with the overall project management plan. The Procurement Management Plan is a subsidiary component of the Project Management Plan, and all procurement decisions must align with integrated change control. When a scope change has contractual implications, the PM must coordinate between the project change control process and the contract change control procedure. Contract close-out must be coordinated with project close, the project cannot formally close while contracts remain open. Lessons learned from procurement activities feed into the project's OPAs through integration management.
✦KA02: Scope Management
The Procurement SOW is derived directly from the Scope Baseline: the work packages in the WBS that are being procured externally. The quality and precision of the Procurement SOW determines the quality of proposals received and the clarity of contractual obligations. Every scope change that affects a contracted work package must be assessed for contractual impact: additional scope given to a fixed-price supplier triggers a change order; reduced scope may trigger a claim for lost profit. Control Scope and Control Procurements must work in parallel to prevent scope changes from creating unresolved contractual ambiguity.
✦KA03: Schedule Management
Supplier delivery dates are external dependencies that must be incorporated into the project network diagram. The procurement lead time (from RFP release to contract award) is itself a schedulable activity that must be planned and tracked. Supplier milestones on the critical path represent concentrated schedule risk, a late supplier delivery delays the project by the same amount. T&M contracts create less schedule pressure on suppliers than fixed-price contracts; conversely, delay penalties (liquidated damages clauses) in fixed-price contracts provide contractual schedule enforcement. Schedule slippage by the supplier should trigger the contract's change management procedure.
✦KA04: Cost Management
Contract type selection is fundamentally a cost risk management decision. Fixed-price contracts provide buyer cost certainty but at a premium (seller risk loading). Cost-reimbursable contracts give the buyer full visibility of actual costs but transfer all cost overrun risk to the buyer. T&M contracts are the most cost-uncertain, the final cost depends entirely on the work volume consumed. Supplier invoices flow directly into Actual Cost (AC) for EVM analysis. Contract change orders must be assessed for cost impact before approval. Retention sums, payment milestones and performance bonds are all financial tools that connect procurement and cost management.
✦KA05: Quality Management
Supplier quality is an extension of project quality management. The contract must include quality requirements, acceptance criteria, inspection rights, and non-conformance remedies: otherwise the PM has no contractual mechanism to enforce quality standards on suppliers. Incoming inspection of supplier deliverables (an appraisal cost in the Cost of Quality framework) is a Control Quality activity applied to procured items. Supplier audits (a Control Procurements tool) verify that the supplier's quality management processes meet contracted standards. Non-conforming supplier deliverables generate change requests in both Control Procurements and Control Quality.
✦KA06: Resource Management
The make-or-buy decision is intrinsically linked to resource management, the decision to buy is often driven by a resource gap (skills or capacity not available internally). Procured resources (contractors, consultants) are managed through their contracts, not through the same management processes as internal team members. Key person clauses, substitution approval requirements, and supplier mobilisation plans are procurement mechanisms that address resource management concerns. When a supplier underperforms due to inadequate resourcing, the remedies available to the PM are contractual (not direct management authority).
✦KA08: Risk Management
Contract type selection is the primary mechanism for transferring project risk to suppliers. Fixed-price contracts transfer cost risk to the seller; cost-reimbursable contracts retain it with the buyer. The Risk Register is a key input to Plan Procurement Management: identified risks inform which contract types are appropriate and what contractual risk protections to include. Specific procurement risk mechanisms include: performance bonds (compensate buyer if seller defaults), liquidated damages (pre-agreed daily penalty for late delivery), warranties (seller's liability for defects post-delivery), and indemnification clauses (protection against third-party claims arising from supplier actions). Risk concentration (over-dependence on a single supplier) is itself a procurement risk requiring management.
✦KA07: Communications Management
Supplier communications must be carefully managed: informal communications that could be interpreted as instructions or scope changes create contractual exposure. The contract should define the formal communication channels (who can instruct the supplier, in what format, with what authority), the reporting requirements (frequency, format, content), and the escalation procedures for disputes. Progress meetings, site visits, and performance reviews are all contractual communication events. Any instruction given to a supplier outside the defined formal channels may be inadmissible in a dispute or may create contractual obligations that were not intended.
✦KA10: Stakeholder Management
Sellers are stakeholders: they have interests, concerns and influence that must be managed like any other project stakeholder. The stakeholder register should include key supplier contacts and their engagement level. During the conduct procurements process, supplier communications require careful stakeholder management: maintaining equal treatment of all bidders, managing competitive sensitivity, and building collaborative relationships with selected suppliers without compromising contractual objectivity. Post-award relationship management with key suppliers is as important as pre-award evaluation in determining delivery success.
Agile and Hybrid Approaches
Procurement Management in Agile, Waterfall and Hybrid Environments
Procurement in Waterfall (Predictive)
Traditional waterfall procurement follows the full three-process PMBOK model with formal competitive tendering:
Complete Procurement SOW developed from the full WBS before market engagement
Fixed-price contracts preferred: scope is defined, cost certainty is possible
Milestone-based payment schedules aligned to project stage gates
Formal change control process for all contract modifications
EVM applied to supplier performance (earned value of delivered work vs planned value)
Dispute resolution procedures invoked for non-performance
Public sector: full procurement regulations apply (OJEU, PCR, utilities procurement)
Key challenge: Formal tendering for large contracts can take many months, which can hold up the schedule, especially in the public sector where procurement rules are mandatory.
Procurement in Agile
Agile procurement requires different contract structures to accommodate iterative, evolving scope:
Fixed-price contracts are difficult in pure Agile: scope is not fully defined at contract award
T&M contracts are the most common Agile procurement vehicle, the team is bought, not the output
Outcome-based contracts: fixed price for a defined set of outcomes, with flexibility on how they are achieved
Sprint-based payment: monthly or sprint-by-sprint invoicing based on team cost rather than deliverable milestones
Shorter initial contracts with extension options: allows relationship assessment before full commitment
Collaboration-focused contracts: shared incentives aligned to project success rather than adversarial fixed-price risk transfer
The Definition of Done becomes the contractual acceptance criterion at sprint level
Agile supplier selection emphasises team capability and collaboration behaviours over lowest price
Key challenge: Most procurement regulations and public sector frameworks are designed for defined-scope fixed-price contracts: adapting them for Agile procurement requires active navigation of regulatory requirements.
Hybrid Procurement Approaches
Hybrid procurement keeps formal governance and competitive selection at the programme level, but uses more flexible commercial terms for delivery. Common examples: framework agreements (pre-qualify a panel of suppliers, then call off work on T&M or outcome-based terms as needs become clear), alliance contracting (buyer and suppliers share risk and reward against shared outcomes) and early contractor involvement (ECI) (bring the contractor in during design to improve buildability and agree risk before the main contract is awarded).
Exam Tips
Procurement Management: 7 Exam Tips for PMP and APM PMQ
1
Know which contract type puts risk on the buyer vs seller. Fixed-price = seller bears cost overrun risk. Cost-reimbursable = buyer bears cost overrun risk. T&M = buyer bears volume risk (open-ended cost). This is one of the most frequently tested procurement concepts on the PMP exam. Any scenario describing a situation where the buyer wants cost certainty points to fixed-price; uncertainty or evolving scope points to cost-reimbursable or T&M.
2
Fixed-price contracts are not always best for the buyer. A common PMP trap is assuming buyers always prefer fixed-price. For poorly-defined scope, fixed-price contracts create perverse incentives, the seller manages their cost exposure through change orders, quality compromises or scope disputes. The right contract type matches the risk profile of the work. The exam tests this nuance.
3
Know all three Fixed-Price subtypes and their distinguishing features. FFP (single fixed price), FPIF (fixed price plus performance incentive with a Point of Total Assumption), FPEPA (fixed price with economic adjustment clause for long-duration contracts). The PMP exam describes a scenario and asks which contract type applies: know the specific conditions that distinguish each.
4
The Point of Total Assumption (PTA) appears in FPIF contracts. Above the PTA, the seller bears 100% of additional costs, the fixed-price ceiling has effectively been hit. Below the PTA, cost overruns are shared between buyer and seller at the agreed sharing ratio. PTA = ((Ceiling Price − Target Price) / Buyer's Share Ratio) + Target Cost. This formula is occasionally tested on PMP.
5
Bidder conferences must treat all bidders equally. Any question asked by one bidder at a conference must be shared with all bidders. Any answer given privately that is not shared with all bidders creates grounds for a procurement challenge. The exam tests whether candidates understand that equal treatment of bidders is a procurement management obligation, not just good practice.
6
Sellers are stakeholders. The PMP exam takes a broad view of stakeholders that explicitly includes suppliers and contractors. Procurement relationships are stakeholder relationships governed by contracts. Questions about managing difficult suppliers, late deliveries or contract disputes are procurement management questions, the answer must work within the contract framework, not ignore it.
7
Contract close → project close. A procurement can be closed before the project is complete (the supplier's work is done while the project continues). A procurement can remain open after a project appears complete (warranty periods, defects liability periods). The exam tests whether candidates understand that procurement closure is a separate administrative activity from project closure, managed through Control Procurements, not through Close Project or Phase.
Apply This Knowledge Area in Your PMP or APM PMQ Exam
Contract types, risk allocation and source selection come up in both the PMP and the APM PMQ. Who carries the cost risk is one of the most common procurement questions. On the PMP, the 2026 exam follows the Exam Content Outline and PMBOK 8 rather than these PMBOK 6 processes, but procurement scenarios still appear, often in hybrid settings.
The three PMBOK 6 processes in Project Procurement Management (Knowledge Area 9) are: (1) Plan Procurement Management (Planning): decide what to buy, when, how and from whom. Outputs include the Procurement Management Plan, Procurement SOW, Bid Documents, Source Selection Criteria and Make-or-Buy Decisions. (2) Conduct Procurements (Executing): go to market, assess proposals, negotiate and award. Outputs are Selected Sellers and Agreements. (3) Control Procurements (Monitoring and Controlling): manage the relationship, check performance, handle contract changes and claims, and close contracts. Outputs include Closed Procurements and Work Performance Information.
With a fixed-price contract the seller delivers a defined scope for an agreed price, whatever it actually costs them. The seller carries the cost overrun risk, and the buyer gets cost certainty. It suits well-defined work. With a cost-reimbursable contract the buyer pays the seller's allowable costs plus a fee, so the buyer carries the cost overrun risk. It suits work where the scope is unclear or uncertain. The choice is really about risk: who is better placed to manage the cost uncertainty of this piece of work?
A Procurement Statement of Work describes what you are buying in enough detail for sellers to decide if they can provide it and to price it properly. It usually covers what is to be delivered (deliverables, specifications, quantities), how (methods, standards, constraints), when (milestones), where (location) and the acceptance criteria. A weak SOW leads to proposals you cannot compare and disputes after award. The SOW comes from the part of the scope baseline that you are buying.
Make-or-buy is the decision to do the work in-house (make) or buy it from a supplier (buy). You make it during Plan Procurement Management. Reasons to make: you have the skills and capacity, the knowledge is confidential, rules require you to do it yourself, or it is cheaper in-house once all overheads are counted. Reasons to buy: you lack the skills or capacity, you need specialist expertise, the market is cheaper, or you want to move some risk to a supplier through a good contract.
Agile projects leave scope open on purpose, so a fixed price for fixed scope rarely fits. A common approach is time and material: you buy a team's capacity at an agreed rate rather than a fixed list of deliverables. Other options are outcome-based contracts (a fixed price for an outcome, with freedom on how to reach it), payments per sprint or release, and short first contracts with options to extend. The Definition of Done can act as the acceptance standard in the contract.
The Point of Total Assumption (PTA) applies to Fixed Price Incentive Fee (FPIF) contracts. Below the PTA, cost overruns above the target cost are shared between buyer and seller using the agreed ratio (for example 80% buyer, 20% seller). Above the PTA, the seller carries all extra cost, because the ceiling price has been reached. Formula: PTA = ((Ceiling Price - Target Price) / Buyer's Share Ratio) + Target Cost. It shows the point where the seller stops sharing the pain and carries it all.
