Key Objective

Ensure the right resources are obtained at the right time, cost, quality, and risk level

Core Decisions in Sourcing Strategy

1. Make-or-Buy Analysis

• Decide whether to:

  • • Make internally

    • Buy from external vendors
      
      

Example:

• Develop solar panels internally

• Procure from specialized vendor 

2. Sourcing Approach

• Single supplier vs multiple suppliers

• Local vs global sourcing

• Strategic partnership vs transactional vendor

• Centralised Vs Decentralised procurements 
  
  

3. Contract Type Selection

• Fixed Price (FP)

  • • When scope clarity is very high and uncertainty is low 

    • In all fixed price contracts, the Cost risk is with the Seller  where as all other risks like Schedule, Quality etc is high on the Buyer. 

• Cost Reimbursible (CR)

  • Used when there is high uncertainty 

  • In all cost reimbursible contracts, the cost risk is high on the buyer. The seller will never make a loss. 

• Time & Material (T&M)

  • Used when Scope is higly flexible 

  • The cost risk is high on the buyer 

• Purchase Order 

  • Used to procure off the shelf, standard items 

4. Procurement Process Definition

• How vendors will be selected

• Evaluation criteria (technical, cost, experience)

• Approval workflows
  
  

5. Risk Allocation

• Identify procurement risks

• Decide who bears which risks (buyer vs seller)
  
  

6. Supplier Evaluation Criteria

• Cost

• Quality

• Experience

• Delivery capability

• Financial stability

7. Integration with Project Plan

• Align procurement with:

  • Schedule

  • Budget

  • Risk plan

  • Stakeholder expectations
    
    

Inputs to Sourcing Strategy

• Project charter

• Business case

• Scope baseline

• Organizational policies (OPA)

• Enterprise Environmental Factors (EEF)
  
  

Outputs

• Procurement management plan

• Make-or-buy decisions

• Procurement strategy document

• Bid documents (RFP, RFQ, etc.)
  
  

Project Example (Practical)

Project:

 Solar Power Plant 

Sourcing Decisions

• Solar panels → Buy from international supplier

• Civil works → Local contractor

• Software system → Outsourced to IT vendor
  
  

Strategy Insights

• Use Fixed Price contract for construction

• Use T&M contract for software development

• Select vendors based on past performance and cost efficiency
  
  

Procurement is not just buying. It is strategic decision-making to optimize value and manage risk

Contracting Strategies 

Contracting strategies define how a buyer structures, selects, and manages suppliers to deliver project outcomes. In modern frameworks like PMBOK Guide Seventh Edition, contracting is closely tied to risk allocation, delivery model, and collaboration level.

Here’s a clear, structured overview of the major contracting strategies used in projects:

1. Traditional (Design–Bid–Build)

Design and construction are handled by separate entities.

How it works

• Client hires a designer/consultant

• Design is completed

• Contractors bid and execute construction

Key characteristics

• Sequential approach

• Lowest bid often wins

• Clear scope before execution

Pros

• High cost certainty

• Competitive pricing

Cons

• Slow (no overlap of phases)

• Limited flexibility

• Higher risk of disputes
  
  

2. Design–Build (DB)

A single contractor is responsible for both design and construction.

Key characteristics

• One point of accountability

• Overlapping design and execution

Pros

• Faster delivery

• Reduced coordination issues

Cons

• Less control over design details

• Requires clear performance requirements
  
  

3. Engineering, Procurement, and Construction (EPC)

A turnkey approach where the contractor delivers a fully operational facility.

Key characteristics

• Lump-sum, fixed-price contracts common

• Contractor bears most risks
  
  

Pros

• High cost and schedule certainty

• Minimal client involvement
  
  

Cons

• Less flexibility for changes

• Higher initial cost due to risk premium
  
  

4. Construction Management (CM)

Types

• CM as Agent (CMA)

• CM at Risk (CMAR)
  
  

A construction manager is engaged early to manage contractors.

Pros

• Early expert input

• Better cost control

Cons

• Multiple contracts to manage

• Risk depends on type (CMA vs CMAR)
  
  

5. Integrated Project Delivery (IPD)

A collaborative contract involving owner, designer, and contractor.

Key characteristics

• Shared risks and rewards

• Joint decision-making

Pros

• High collaboration

• Innovation-friendly

Cons

• Complex to structure

• Requires cultural maturity
  
  

6. Public-Private Partnership (PPP)

A government partners with private firms to finance, build, and operate infrastructure.

Common forms

• BOT (Build-Operate-Transfer)

• BOOT (Build-Own-Operate-Transfer)

Pros

• Reduces public funding burden

• Encourages efficiency

Cons

• Complex legal frameworks

• Long-term commitments
  
  

7. Framework Agreements / Master Service Agreements (MSA)

Pre-negotiated contracts used for repeat work over time.

Pros

• Faster procurement

• Strong supplier relationships
  
  

Cons

• Less competitive pricing over time

• Dependency on selected vendors
  
  

8. Alliance Contracting

A highly collaborative model where all parties share risks and rewards.

Key characteristics

• • “No blame” culture

  • Joint governance

Pros

• Excellent for complex, uncertain projects

• Encourages innovation

Cons

• Requires high trust

• Difficult to implement in rigid environments
  
  

9. Agile / Adaptive Contracts

Contracts designed for iterative and incremental delivery, aligned with Agile.

Examples

• Time & Material with caps

• Incremental delivery contracts

Pros

• Flexible scope

• Early value delivery

Cons

• Cost uncertainty

• Requires strong collaboration