What You Should Know about Closing the Procurements for the PMP Certification Exam
Closing processes don’t just happen at the end of a project. They happen whenever you close a procurement or a phase. For PMP Certification Exam purposes, keep the following list of cross-cutting skills in mind:
Information management tools, techniques, and methods
Targeting communications to intended audiences
Questions in the Closing process group account for 8% of the exam.
Close Your Procurements
Close Procurements supports the Close Project or Phase process but doesn’t necessarily happen at the same time. However, to close the project, all procurements must be closed. The exception to this is if you have open claims or appeals. Open claims are handled by the legal department.
Because contracts are legal documents, the project manager does not usually have the authority to close them out. Generally, the project manager will inform a contract administrator that the contract project work has been completed. It is then up to the contract administrator to formally close out the contract.
Close Procurements. Completing each procurement.
To close out a procurement, you use the procurement management plan for the details and guidelines associated with contract closure. All procurement documents need to be indexed for lessons learned and future reference. Procurement documents include performance reports, invoices, and contractual change documentation. Your organization may use information from contractor performance reports and documentation to evaluate contractors for future work.
Termination of a contract
Contracts can be terminated for a variety of reasons, such as termination by mutual agreement, termination for cause, and termination for convenience.
Terminating a contract by mutual agreement is self-explanatory. If both parties agree that the contract should be cancelled, they need to follow the requirements in the termination clause of the contract. Be aware that termination for cause and termination for convenience have different contractual obligations associated with them.
Termination for cause
Termination for cause occurs when either party has breached or is about to breach the contract. This is also known as defaulting on the contract.
Here are two examples of seller default:
The seller can’t deliver the quality of work promised, and there is no evidence that the seller will be able to.
The clause Time is of the Essence is in the contract, and it’s abundantly clear that the seller can’t meet the delivery date.
The following are examples of buyer default:
The buyer is in significant arrears for payment, and it’s obvious that the buyer can’t catch up on back payments and make future payments.
The buyer is obligated to provide some element or component of the deliverable for the seller to be able to complete the contract. If the buyer doesn’t deliver the element, the buyer is defaulting on its part of the contract.
Termination for convenience
Many contracts have a clause that allows the buyer to terminate the contract at its convenience. Examples of reasons to terminate for convenience include the following:
Another project takes higher priority, and the company decides to cancel or delay the current project.
The market changes, and there is no longer a need for the project.
Because of a reorganization, new leadership has other priorities.
Financial landscape has shifted. A company’s quarterly earnings were worse than expected, and the organization has decided to cut costs based on projected earnings.
Depending on the reason for termination, there is a difference in the compensation due to the seller. If a contract is terminated for cause, the buyer need only reimburse the seller for the accepted work. However, if the contract is terminated for convenience, the buyer must reimburse the seller for accepted work and any preparations for work and any partially completed work. Here’s a scenario from a childcare center example.
You get a call from the sponsor, Morgan Cuthbert, to come to her office right away. When you get there, Morgan informs you that she has great news. The cafeteria vendor has informed her that it can reorganize the kitchen area and make room for a separate food storage and food prep area for the childcare center.
The cafeteria is adjacent to the childcare center, so by building a simple doorway, you will have plenty of kitchen space. This is great news because you can use the planned kitchen space for other activities for the childcare center.
Although this is good news, you realize that the kitchen contractor, Kit’s Kitchens, has already drawn up plans for the kitchen, laid in the rough plumbing, and preordered some cabinets. You understand that you have to terminate Kit’s contract and pay for any work in progress. Upon returning to your desk, you call the kitchen contractor and set up a meeting.
At the meeting, you explain the situation to Kit and assure her that you have every intention of paying for completed work, work in progress, and any preparation for future work.
The following week you meet with Kit again. She tallied expenses for work in progress for the electrician, plumber, and carpenter. You think the expenses are fair and agree to them. There is a $500 cancellation fee for the cabinets.
You talk with the general contractor to see whether the cabinets can be used anywhere else in the childcare center so you don’t have to count the $500 as a total loss. It turns out that you can use the cabinets for art supplies and sleeping mats. Therefore, you decide to keep the cabinet order as is.
At the end of the meeting, you agree to provide all the documentation to the contract administrator and get the invoices through the system. You assure Kit that you will move ahead with contract closure and get her payment as soon as possible.
In this scenario, the contract termination was in no way a reflection of the work that Kit provided. The contract will go through the termination process, the buyer will compensate the seller fairly, and the contract will be closed.