Chapter 14. Vendor Documentation

This chapter covers the following topics:

Understand common partner or vendor-centric documents and their purpose: Documents include request for information (RFI), request for proposal (RFP), request for quote (RFQ), and mutually binding documents (agreement/contract, non-disclosure agreement, cease-and-desist letter, letter of intent, statement of work, memorandum of understanding, service-level agreement, purchase order, and warranty).

A procurement is any product, good, service, or result that needs to be acquired from a third party. The project’s procurement management plan describes how any goods and services will be procured from outside sources, and the project manager should develop criteria for selecting procurement sources. Depending on the goods and services needed from third parties, the project manager may need to manage multiple suppliers and contract types.

Individual procurements are managed by vendor documentation, which includes the terms and conditions of the procurement. Because vendor documents are considered legally binding, such documents are usually reviewed and approved in a formal manner. Each document must contain all the specifications needed to ensure that the procurement meets the needs of the project. Each procurement is usually managed separately from the Planning through Closing phases of the project. Large projects may involve managing multiple procurement contracts. The project manager may need to understand an array of different types of vendor documentation, including request for information (RFI), request for proposal (RFP), request for quote (RFQ), and mutually binding documents.

This chapter covers the following objective for the Project+ exam:

4.3 Identify common partner or vendor-centric documents and their purpose.

“Do I Know This Already?” Quiz

The “Do I Know This Already?” quiz allows you to assess whether you should read this entire chapter thoroughly or jump to the “Exam Preparation Tasks” section. If you are in doubt about your answers to these questions or your own assessment of your knowledge of the topics, read the entire chapter. Table 14-1 lists major headings in this chapter and their corresponding “Do I Know This Already?” quiz questions. You can find the answers in Appendix A, “Answers to the ‘Do I Know This Already?’ Quizzes and Review Questions.”

Table 14-1 “Do I Know This Already?” Foundation Topics Section-to-Question Mapping

Foundation Topics Section(s)	Questions Covered in This Section
Request for Information (RFI)	1
Request for Quote (RFQ)	2
Request for Proposal (RFP)	3
Non-Disclosure Agreement (NDA)	4
Letter of Intent (LOI) and Memorandum of Understanding (MOU)	5

1. Which vendor documentation should be issued if the purchaser is unsure of the specifications of a procurement?

a. request for quote

b. request for information

c. request for proposal

d. statement of work

2. What is the purpose of a request for quote?

a. soliciting price quotations from prospective sellers of common products or services, such as computers or building materials

b. soliciting a potential seller to provide information related to the product, service, or seller’s capability

c. soliciting proposals from prospective sellers of products or services

d. outlining the plans of an agreement between two or more parties

3.Which vendor document is given to prospective sellers to obtain bids?

a. RFI

b. PO

c. RFP

d. SLA

4. Which document should be used to ensure that vendors and contractors do not share details of the project?

a. MOU

b. LOI

c. SLA

d. NDA

5. Which term is synonymous with LOI?

a. PO

b. MOU

c. SLA

d. RFI

Foundation Topics

At some point, most projects need to purchase services, materials, and/or equipment to conduct and complete the project. In project management standards, these purchases from contractors, providers, and so on (known collectively as vendors) follow a formal procurement process:

1. The project manager performs the appropriate make-or-buy analysis.

2. Once the decision is made to purchase from a vendor, the project manager documents details of the desired product or service and the source selection criteria.

3. Based on this information, a vendor document such as a request for information (RFI), request for proposal (RFP), or request for quote (RFQ) may be issued.

4. One bidder ultimately becomes the selected source and then evolves into the contracted supplier or seller. This part of the procurement process may involve mutually binding vendor documents such as a contract/agreement, non-disclosure agreement (NDA), cease-and-desist letter, letter of intent (LOI) or memorandum of understanding (MOU), statement of work (SOW), service-level agreement (SLA), purchase order (PO), and/or warranty.

In larger organizations, the accounting department typically provides the support needed to ensure that all procurements are completed according to documented business processes. Vendor or procurement documents can either be handled through the appropriate accounting personnel or by authorized project team members. A purchasing specialist or department may also be needed to help with project procurements. Procurement documents managed by the accounting department must be made available to the project manager and vice versa.

No matter who is responsible for the project’s procurement process, the appropriate vendor documents must be created, maintained, and stored according to established business processes documented in the procurement management plan.

Request for Information (RFI)

A request for information (RFI) is a procurement document in which the buyer requests that a potential seller provide information related to the product/service or to the seller’s capability to provide the product/service. In an RFI, the project manager does not provide project details, focusing instead on the vendor’s capabilities, skills, and experience. This approach allows the buyer to pre-select service providers who have the appropriate capabilities for submitting a proposal. An RFI also helps vendors remove themselves from consideration if they cannot fulfill the stated needs of the project.

The RFI should state the following details: who is issuing the RFI, to which project the RFI applies, the RFI reference ID, the date of issuance, the WBS level of the project scope to which the RFI applies, the priority of the RFI, any specific queries or questions for which the issuer needs a response, and the deadline for responding to the RFI.

EXAMPLE: A small business needs to install a new network infrastructure as well as security devices to protect the network. The wiring and routers for this project have been ordered. To purchase a firewall, the project manager will need more information about firewalls and the services they provide. The project manager issues an RFI to obtain as much information as possible about available firewall products. After replies to the RFI are received, the project manager can consult subject matter experts (SMEs) to get their opinions on those responses.

The project manager should keep track of RFIs and be aware of when an excessive number of RFIs are being implemented. Too many RFIs could indicate incomplete contract or project documents or an incomplete study of the project’s procurement needs. Excessive RFIs can result in project delays as well as additional costs.

Keep in mind these points regarding RFIs:

RFIs are used when specifications cannot be finalized because of incomplete information or lack of understanding.

RFIs help narrow the vendor pool.

RFIs do not complete the contract.

After receiving and analyzing all the vendors’ responses to the RFI, the next step is to issue a request for proposal or a request for quote.

Request for Proposal (RFP)

A request for proposal (RFP) is a procurement document in which the buyer requests proposals from prospective sellers of products or services. An RFP should contain sufficient information that bidders know what is required and expected of their proposals. The RFP should include information on the requesting organization, relevant project information, project scope, bidder qualification requirements, timelines, and guidelines. With RFPs, suppliers are qualified after the RFPs are received.

EXAMPLE: The new network for a small business will require a high-speed Internet connection. The project manager for this project issues an RFP to prospective vendors to find out about available options.

When creating an RFP, project managers should keep the following tips in mind:

Define the evaluation criteria up front to ensure that the selection team and the potential suppliers understand all the areas to be evaluated.

Include a cross-functional section of RFP reviewers to obtain greater input into the price, contract, and financial issues associated with the purchase.

Conduct reference calls and site visits to ensure that the prospective vendor is competent and capable of providing the product or service.

Send all requests for communication to one person, to prevent multiple individuals from having to answer proposal questions.

Promises made in the RFP should be incorporated into the contract to ensure that they remain part of the vendor’s commitment.

The end result of an RFP is a procurement agreement or contract.

Request for Quote (RFQ)

A request for quote (RFQ) is a procurement document in which the buyer requests price quotations from prospective sellers of common products or services, such as computers or building materials. RFQs are used in place of RFPs when specifications are already known for the product or service. RFQs are issued only to vendors with which the buyer has previously worked; therefore, the suppliers are qualified prior to receiving the RFQ. Because so much information regarding the product or service is already known, the RFQ is mainly about pricing.

EXAMPLE: A small business is deploying a new retail sales application. With the application vendor’s specifications for the checkout kiosk, server, and mobile devices, the project manager can issue an RFQ to prospective vendors to determine what these devices cost.

The RFQ process is considered transparent and easily understood. Project managers should ensure that the awarding criteria and weights document the following details:

Product functionality or range of services

Initial price

Total cost of ownership (TCO)

Risks with the product or service

Risks with the vendor

Ability to meet requirements

Sealed bids ensure that no one can see the completed bids prior to the deadline. The bidding system opens after the submission deadline, and RFQs are reviewed by the selection team for awarding of the contract. If preset price targets are not met in the first round, a second round is possible, with limited participants given the price target.

The end result of an RFQ is a procurement agreement or contract.

Mutually Binding Documents

A mutually binding document is an agreement between two parties in which one party promises to do something for the other in return for payment. While the previously discussed vendor documentation is concerned with the procurement process prior to the awarding of the contract, project managers must also understand the mutually binding documents that are involved once the vendor is selected. Project managers should ensure that legal representation helps in drafting mutually binding agreements, in case these documents are needed in civil suits.

Project managers may need to understand multiple types of mutually binding documents, as discussed in the following sections.

Agreement/Contract

An agreement or contract is the document that spells out the conditions of the transaction between two parties. Such documents include fixed price contracts, cost-reimbursable contracts, and time-and-materials contracts. The type of contract is selected based on the needs of the project.

Project managers should understand the following contract types:

Firm fixed price (FFP): The price for the procurement is set at the outset and cannot change unless the scope of work changes. The vendor absorbs any cost increase that occurs due to performance issues. Changes to the procurement specification will result in increased costs. This is the most popular type of contract.

EXAMPLE: A project needs to purchase seven desktop computers that will be used for graphics applications. An FPP contract is used because the specifications are known and the computers are in stock or available within a relatively short period.

Fixed price incentive fee (FPIF) contract: As with FFP, the price for the procurement is set at the outset. However, this contract includes a clause that ties financial incentives for the vendor to certain conditions—usually related to cost, schedule, or technical performance, but with a price ceiling included. The final cost is determined after the work is complete.

EXAMPLE: A project needs to purchase a storage area network (SAN). The selected vendor has projected six weeks until the SAN is set up and available for use. If the project needs the SAN sooner, the project manager could use an FPIF contract in hopes that a financial incentive will speed up the vendor’s process.

Fixed price with economic price adjustment (FP-EPA) contract: The price for the procurement can be affected over time, because these procurement contracts can span a period of years. The price can fluctuate based on changing conditions such as inflation or commodity cost changes. Usually the economic adjustment clause is tied to a specific financial index.

EXAMPLE: A long-term project involves building houses in a new neighborhood. Phase 1 will construct 50 homes in the first year of the project. Phase 2 will build 100 homes in the second year. Phase 3 will complete 200 homes in the third year. An FP-EPA contract would be the best choice for the lumber supplier for this project, because this type of contract allows the price to be adjusted based on current economic conditions.

Cost plus fixed fee (CPFF) contract: The vendor receives payment for all allowed costs plus a fixed fee, which is a percentage of the estimated costs.
The payment does not change unless the project scope changes.

EXAMPLE: A high-risk medical project requires the services of a medical research firm. Because the project has many unknowns that will become clear only as the research progresses, the project manager and vendor may decide to use a CPFF contract to protect the research vendor.

Cost plus incentive fee (CPIF) contract: The vendor receives payment for all allowed costs plus an incentive fee based on the objectives spelled out in the contract.

EXAMPLE: In the high-risk medical project from the previous example, a CPIF contract could be used instead of the CPFF to encourage the vendor to cut costs or to complete the research early. The vendor would receive the incentive fee based on fulfilling the clauses in the contract.

Cost plus award fee (CPAF) contract: The vendor receives payment for all allowed costs. The award fee is earned based on performance criteria spelled out in the contract.

EXAMPLE: The high-risk medical project from the previous examples might decide to use a CPAF contract. This type of contract would pay an award fee based on a subjective evaluation of the vendor’s performance, based on the purchaser’s satisfaction.

Time and materials (T&M) contract: These contracts are often used when a statement of work (discussed later in this chapter) is not possible. The full value of the contract and quantity of items needed may not be defined, so the contract is considered open-ended. Payment is given based on billable time and all allowed costs. These contracts often include not-to-exceed values, time limits, and unit labor or material rates.

EXAMPLE: For a project to develop new housing over a multi-year period, a T&M contract could be used to hire a team of brick masons for the entire project.

Project managers should work with management and the project management office to determine the best type of contract to implement for each procurement. Many organizations have documented guidelines that can be used to help in this process.

Non-Disclosure Agreement (NDA)

A non-disclosure agreement (NDA) is a type of confidentiality agreement in which the selected vendor and any vendor personnel involved in the procurement agree not to disclose details about the project. NDAs are most often used when projects involve confidential information that will be shared with the vendor, but the project sponsor wants the information to remain private.

An NDA establishes the type of confidential information without actually revealing details, lists the parties that are covered by the agreement, and specifies the types of information that are not covered by the NDA.

EXAMPLE: A project developing a new mobile application has hired a third party to create the application’s help files. The vendor and its technical writers should sign an NDA to prevent the leaking of any information about the application.

In some cases, NDAs may need to incorporate a non-compete clause or a separate non-compete agreement to prevent the vendor from pursuing a similar project with the buyer’s direct competitors within a specified time period. The time period for enforcement of the NDA should be included in the contract, along with any penalties tied to the agreement.

EXAMPLE: A project is developing training material for security analysts. The project will hire a third party to provide a content development team. This team will need expensive education and preparation to ensure that they have the necessary skills to write the training material. The project manager includes a non-complete clause in the NDA to ensure that the same team will not be used to develop material for a direct competitor.

Cease-and-Desist Letter

A cease-and-desist letter is sent to direct a person or entity to stop doing something immediately (cease) and never do it again (desist). This document usually applies to a particular activity, labor practice, or method of competition. Common examples are violating copyrights or patents. Cease-and-desist letters can include demands for compensation or a formal request for proper attribution to correct the violation. Cease-and-desist letters can be issued by themselves or in conjunction with civil lawsuits. A cease-and-desist letter from a legal representative usually carries more weight than one simply issued from the project sponsor.

EXAMPLE: While Company A is developing a new gaming system, it learns that a competitor has just launched a similar device based on technology patented by Company A’s project sponsor. The project sponsor’s legal representative should issue a cease-and-desist letter prior to filing legal action.

Letter of Intent (LOI) and Memorandum of Understanding (MOU)

A letter of intent (LOI) or memorandum of understanding (MOU) outlines the plans of an agreement between two or more parties, usually a precursor to a formal contract. This temporary measure is typically implemented to state that the parties are negotiating terms for the contract. The project manager should ensure that the LOI or MOU has a limited timeframe and that the formal contract is implemented as quickly as possible.

An LOI or MOU is not legally binding but does carry a degree of seriousness and mutual respect, stronger than a “gentlemen”™s agreement.” When either type of document is used, it implies that a binding contract is in the works.

EXAMPLE: During a project that will be launching a new education system,
the project sponsor starts negotiations to purchase one of the project’s vendors.
The project sponsor issues a letter of intent to announce these negotiations.

Statement of Work (SOW)

A procurement statement of work (SOW) gives a description of the procurement item so that prospective sellers know the specifications and can determine whether they can provide the procurement to meet the specifications. The SOW can include quantity needed, quality specifications, performance data, performance period, work location, and any other requirements.

EXAMPLE: For a project to produce training materials for a IT course, the contract will spell out the terms and conditions of the project, including payment information. The SOW includes details about the required end product, including any graphics, videos, and assessment questions that will be part of the product.

Each procurement requires a specific statement of work, but the SOW can group multiple related products or services that the vendor will provide as part of that procurement.

Service-Level Agreement (SLA)

A service-level agreement (SLA) is a contract between a service provider and its customer. The SLA sets specific metrics for different aspects of the service, including quality, availability, and responsibilities. For example, SLAs may exist between the project and its IT service, between organizations and their Internet service providers (ISPs), or between an organization and its cloud-computing provider. Some project services may be provided by a department within the same organization. In those cases, the SLA between the department and the project ensures that the promised services have a formal agreement. For example, an SLA between the IT department and the project ensures that the services needed by the project are documented.

The SLA should describe the type of service provided, the performance level, the steps for reporting issues, response and issue-resolution parameters, process and service-level reporting, and repercussions. Project managers should ensure that the parameters set forth in the SLA will satisfy the needs of the project.

Purchase Order (PO)

A purchase order (PO) is a document that is issued immediately after a contract is signed, clarifying the details of the purchase. The PO states the financial agreement, terms, method of delivery, delivery date, quantity needed, and so on, and is binding for the purchaser. Depending on organizational policies, project managers may need to issue POs only for purchases over a certain amount. Once the product or service is delivered, the vendor issues an invoice that references the PO. This practice allows proper accounting procedures to track the full transaction.

Warranty

A warranty provides an assurance of the level of quality for a procurement. In some cases, the warranty is included as part of the contract. However, some procurements, such as computers, routers, and other devices, may come with separate warranty statements. These warranties are valid for a certain period, usually a number of months or years. The warranty should be documented as part of any configuration management data that is captured for the procurement.

Exam Preparation Tasks

As mentioned in the section “How To Use This Book” in the Introduction, you have several choices for exam preparation: the exercises here; Chapter 15, “Final Preparation”; and the Pearson Test Prep practice test software online.

Review All Key Topics

Review the most important topics in this chapter, noted with the Key Topics icon in the outer margin of the page. Table 14-2 provides a reference of these key topics and the page number on which each begins.

Table 14-2 Key Topics for Chapter 14

Key Topic Element	Description	Page Number
Section; list; example	Overview of request for information (RFI)	294
Section; list; example	Overview of request for proposal (RFP)	295
Section; list; example	Overview of request for quote (RFQ)	296
Section	Overview of mutually binding documents	297
Section; list; examples	Overview of agreement and contract; description of various contract or agreement types	297
Section; examples	Overview of non-disclosure agreement (NDA)	299
Section; example	Overview of cease-and-desist letter	300
Section; example	Overview of letter of intent (LOI) and memorandum of understanding (MOU)	300
Section; example	Overview of statement of work (SOW)	301
Section	Overview of service-level agreement (SLA)	301
Section	Overview of purchase order (PO)	301
Section	Overview of warranty	302

Define Key Terms

Define the following key terms from this chapter and check your answers in the Glossary:

request for information (RFI)

request for proposal (RFP)

request for quote (RFQ)

mutually binding document

contract

firm fixed price (FFP) contract

fixed price incentive fee (FPIF) contract

fixed price with economic price adjustment (FP-EPA) contract

cost plus fixed fee (CPFF) contract

cost plus incentive fee (CPIF) contract

cost plus award fee (CPAF) contract

time and materials (T&M) contract

non-disclosure agreement (NDA)

non-compete clause

cease-and-desist letter

letter of intent (LOI)

memorandum of understanding (MOU)

statement of work (SOW)

service-level agreement (SLA)

purchase order (PO)

warranty

Review Questions

The answers to these questions appear in Appendix A. For more practice with sample exam questions, use the Pearson Test Prep practice test software online.

1. You are the project manager for a project to design and build sets for a Broadway musical. You need to obtain a motorized mechanism that will allow certain parts of the stage to rotate 360 degrees automatically. You are unsure of the specifications for this procurement. Which procurement document should you use?

a. RFQ

b. RFI

c. RFP

d. SLA

2. You are the project manager for a project with multiple procurements, and you need to purchase the equipment to implement a lab network. This equipment includes servers, routers, and cabling. You already have details about the exact equipment models and specifications needed for the project. Which procurement document should you issue?

a. RFI

b. RFP

c. RFQ

d. PO

3. Which document is usually issued after an analysis of the RFI is complete?

a. LOI

b. SLA

c. PO

d. RFP

4. For your current project, a procurement is being purchased at a contract price that was negotiated with the vendor. If the procurement is delivered early, the vendor will receive a bonus. Which type of contract did you implement?

a. FFP

b. FPIF

c. FP-EPA

d. T&M

5. Divisions within your large corporation often work together on projects. Your project will obtain a procurement from another division of your company. The other division has agreed to provide the procurement for the cost of its materials plus labor. Which type of contract will be used for this procurement?

a. CPAF

b. CPIF

c. CPFF

d. T&M

6. While managing a project that includes a new patent granted to your company, you discover that another company is working on a project that will infringe upon your company’s patent. Which type of document should you use to inform the other company of the issue?

a. letter of intent

b. memorandum of understanding

c. cease-and-desist letter

d. purchase order

7. You have contracted a portion of a new mobile app to be developed by a third party. You need to ensure that personnel from that company do not share any details of this project with anyone. Which document should you use?

a. cease-and-desist letter

b. non-disclosure agreement

c. letter of intent

d. statement of work

8. After selecting a vendor based on the RFP, your company is in negotiations with the vendor regarding the purchase contract. However, as the project manager, you need to ensure that the project proceeds and that the vendor can start work. Which type of document should you use?

a. LOI

b. SLA

c. PO

d. SOW

9. The project you are managing needs wireless access to the Internet in one of your company’s offices, which currently has no wireless access. Your company’s IT department has agreed to provide this service until the project is complete. You need to ensure that a high degree of performance is maintained for project success. Which type of document should be drafted for this relationship?

a. PO

b. SLA

c. SOW

d. NDA

10. As the project manager, you are concerned that some equipment currently being purchased will not last for the duration of the project, which is three years. Which of the following should you check?

a. request for proposal

b. statement of work

c. warranty

d. service-level agreement