Close Procurements

00:01 Hello and welcome.

00:02 This module will focus on the closed procurements process and the PMBOK guide. The difficulty and the exam importance are both rated as medium because it's one of only two closing processes in the PMBOK guide, and it must be done properly because it could have severe legal implications if not done properly. But memorization is low.

00:25 There's not a lot of new or complicated concepts being introduced here.

00:31 The closed procurement process is one of four procurement management knowledge area processes, but this one closed procurements is focused on ensuring that all of our contracts are closed.

00:45 Both normally and also under less than normal conditions, and that's a rule for the exam.

00:51 All contracts must be closed regardless of whether it's normal closure or abnormal closure.

01:01 The particular domain task.

01:04 That the closed procurement process helps us understand its closing task three, which says obtain financial, legal and administrative closure closure using generally accepted practices and policies in order to communicate formal project closure and ensure transfer of liability.

01:29 The key themes of this process.

01:33 It is a subset of closing a project or phase process, but it can also be done at any point in the project.

01:40 If you've signed a contract during Planning or early on in executing that work may be completed and as such, the contract would be completed early on in the project.

01:52 But regardless, as you go through the closing of project or phase process, you must ensure first that all of your contracts are close. And it's about obtaining final acceptance of all of the project deliverables as well.

02:10 And making sure that we've got that financial, legal and administrative closure and all of the contracts that impact on that are closed.

02:21 So the particular inputs that we will want will be the project management plan and our procurement documents.

02:28 The part of the project management plan that we will want, especially is our procurement management plan. We'll need those procurement documents because within them and the contracts that make them up are the conditions for closure. Now most contracts have a part of them, which spells out how they are closed.

02:50 In my experience, though, most project managers don't know what they are.

02:53 So I do encourage you if you're involved and delivering anything with a contract with your buyer or seller, read it in its entirety, particularly those conditions for closure, and they will probably outline conditions for normal closure and conditions for abnormal closure. So some key concepts you need to be aware of.

03:19 First up. Every contract must be closed.

03:26 No exceptions, you must be able to prove that both parties have agreed that that contract has ended.

03:34 So make sure for the exam, you know, every contract must be closed. Of course, the difficulty can be if a question poses the following scenario. Perhaps you're working on a project and money just dries up really quickly.

03:49 How do you close every contract? If you don't even have money to close the contracts? Well, on that instance, the answer would probably be do a summary as quick as you can that the contract was closed because of exceptional and extraordinary conditions and maybe get the project sponsor to sign it.

04:08 Contractual closure or close closure of all procurements is done at the end of a contract. Remember, it doesn't mean the end of a project.

04:16 Contracts can be for work done at the beginning of projects and in which case by the time they end, you're not even halfway through a project yet, but you've still got to close those contracts.

04:28 We know that the research tells us that many, if not most, contracts actually end with negotiated settlement, and this is perfectly fine.

04:38 A negotiated settlement is where you come to an end of a contract and this loose ends to tie up, and maybe the contractual terms are a little ambiguous or even silent on how to deal with that.

04:49 And so the parties may come to a negotiated settlement, and this is where they go.

04:54 Well, if you do, that will pay you that and we'll call it quits.

04:58 Now, that's not uncommon and it's perfectly acceptable.

05:02 So you will also need to know the typical conditions that a contract can be closed under. The first one are the normal conditions of contract, and these are spelled out in the contract.

05:14 There's also breach of contract.

05:17 This is where one party breaches the terms of the contract, in which case the contract can be closed.

05:24 You'll need to have a robust understanding of the laws of the country in which you're operating, though, on how the civil part of those laws affects breach of contract.

05:34 It can be different.

05:36 Also, beware of force majeure or act of God as a reason for contracts to be closed or terminated.

05:44 So these are the normal conditions that you may come across for termination of contract, normal termination or closure, breach of contract and force majeure or act of God and our Act of God includes things like weather events or earthquakes. I'm not sure if it includes war.

06:02 You need to check the local laws in your country there.

06:08 The tools and techniques that you may choose to use in order to successfully close your procurement documents and contracts include procurement audits.

06:17 Obviously, given that your procurement documents are documents, you'll audit them, you'll check what they say, how termination or closure is to happen and whether that has actually occurred as per the terms in the contract.

06:32 Or you will use your own organizational process assets relating to contractual closure and make sure you've followed those steps as well. That's what an audit is about, making sure the processes have been followed.

06:47 You may carry out procurement negotiations, as I've already mentioned, most contracts end with a negotiated settlement.

06:55 And this is because of the usual ambiguity that exists in many contracts.

07:01 So a way to get through negotiations to end the contract, as I've already said, is simply saying one party says you do this and we'll pay you that and the other party agreeing.

07:11 But be aware that procurement negotiations can quickly escalate.

07:16 From negotiation to mediation to arbitration and finally to litigation, negotiation is where both parties attempt to negotiate a solution.

07:29 Mediation is where they formally negotiate and they may have somebody in there helping them to mediate an agreed solution.

07:39 Arbitration is where both parties agree to appoint an independent arbitrator. And both parties will make their case to the arbitrator, and the agreement may be that the arbitrator makes a binding or non-binding decision.

07:56 Obviously litigation, on the other hand, well, both parties appear in front of a judge and the judge's decision is binding.

08:04 So remember that negotiation, mediation, arbitration and litigation as the natural path of escalation of negotiations gone wrong? The other total technique that you may choose to use are your own record management systems. And this is the place that you store all of your contract, your records so they can be accessed easily and once they are closed, they can be archived and retrieved easily in the future.

08:34 Remember, many countries have a statute of limitation for civil liability and contracts. And you'll need to keep these records for at least that long. Some organizations require you, though, to keep these records for a lot longer.

08:50 So your records management system should be robust enough to cater for your current needs for storage and retrieval of your procurement documents, but also those archival needs so that they can be found and retrieved easily many years down the track.

09:09 The particular outputs that will come from the closed procurement process include well, closed procurements.

09:17 This is proof that you've you've closed all those contracts, often letters are exchanged by all parties agreeing that the contract has been closed under normal or abnormal conditions, and they may also outline the agreements or negotiated settlements that were arrived at as well.

09:36 But you must have proof in some way that the parties agree that the contracts were closed.

09:42 This will also include proof that all the payments were made as per the terms of the contract, and there's no outstanding payments to be made.

09:51 Now, this can be a little difficult when you've got a contract that has a sum of money kept for a difficult period or a warranty period, which could be one or two years away.

10:03 If this is the case, you'll need to come to an agreement with all parties about how that part of it is handled by perhaps another part of your organization. Well, after your project has finished, you may also want to update your own organizational processes as part of your commitment to continuous improvement.

10:25 You may want to make sure they're better.

10:28 You may want to identify deficiencies.

10:31 And update your own project management methodology in relation to procurement closure activities.

10:39 So in summary, the closed procurement process has focused on ensuring that all contracts are closed.

10:48 No exceptions.

10:49 You must be able to prove that they were closed.

10:52 And remember, this generally happens as a result of negotiated settlements or normal conditions of closure and contractual closure must be done before you can close a project.

11:07 So before you can finish absolute and final project closure, you must have closed off all of your contracts as well.

11:18 So thank you very much.

11:19 This has been an overview and an introduction to the close procurement process and the PMBOK guide.