9. Understanding procurement Flashcards
9.1 Explain
the purpose, typical contents and importance of a procurement strategy
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Procurement - The process by which products and services are acquired from an external provider for incorporation into the project, programme or portfolio.
Procurement strategy - The high-level approach for securing the goods and services required from external suppliers to satisfy project, programme and portfolio needs. See also Strategic sourcing.
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make or buy - ‘external potential to provide’
use of single or multiple suppliers - or integrated supply route (supplier sits with/forms part of project team - issue re addressing service delivery issues)
conditions and forms of contract - joint contract tribunal (JCT), new engineering contract (NEC)
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considers extent risk retained by project or shared with supply chain - protect from risk - contract model determines relationship
considers approach to procuring best suppliers (outputs/performance, cost, schedule) and contracting relationships
considers make or buy - in house or supply chain
9.2 Differentiate
between different methods of supplier reimbursement (including fixed price, cost plus fee, per unit quantity, and target cost)
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Supplier - A supplier is a contractor, consultant or any organisation that supplies resources to the project.
Reimbursement - Method by which a contractor will be paid for the work they have undertaken.
Fixed price contracts - A generic category of contracts based on the establishment of firm legal commitments to complete the required work. A performing contractor is legally obligated to finish the job, no matter how much it costs to complete.
Prime or lead contractor - A main supplier who has a contract for much or all of the work on a contract. The prime contractor is responsible for managing projects that involve a number of subsystem contracts. It is responsible for coordinating the activities of subcontractors, integrating their deliverables and managing risks to meet the client’s requirements.
Cost plus fixed fee contract A type of contract where the buyer reimburses the seller for the seller’s allowable costs plus a fixed fee.
Cost plus incentive fee contract A type of contract where the buyer reimburses the seller for the seller’s allowable costs and the seller earns a profit if defined criteria are met.
Cost–reimbursement type contracts A category of contracts based on payments to a contractor for allowable estimated costs, usually requiring only a ‘best efforts’ performance standard from the contractor.
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fixed price - defined scope - higher technical and schedule performance risk lowest price/cost control risk - supplier cuts corners
per unit quantity - fixed price per unit quantity - high price/cost control risk lower tech & schedule perf risk
target cost - target sum agreed in advance - share tech & sched perf risk and price/cost control risk
9.3 Differentiate
between different contractual relationships
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Contract An agreement made between two or more parties that creates legally binding obligations between them. The contract sets out those obligations and the actions that can be taken if they are not met.
Contract price The price payable by the customer under the contract for the proper delivery of supplies and services specified in the scope of work of the contract.
Contract target cost - The negotiated costs for the original defined contract and all contractual changes that have been agreed and approved, but excluding the estimated cost of any authorised, unpriced changes.
Contract target price - The negotiated estimated costs plus profit or fee.
Contractor - A person, company or firm who holds a contract for carrying out the works and/or the supply of goods or services in connection with the project.
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Comprehensive contracts - Design & Construct / Prime contractor
Sequential contracts - split design and development and construction
Sequence - Sequence is the order in which activities will occur with respect to one another.
Parallel contracts - similar scope to 2/more suppliers - multi floor office block refurbishment
Parallel activities - Two or more activities that can be done at the same time.
Partnership/Joint Venture- shared risk / reward - stand alone company
Joint venture (JV) - A joint ownership of a firm by two or more persons or other firms, or a partnership between two or more companies mutually engaged in a particular venture such as a major project.
Subcontract
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transactional - terms set by contract, conflict resolution as per contract
collaborative - relationships, operating as unit, working together, informal discussion resolves conflicts
9.4 Explain
a supplier selection process
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Supplier A supplier is a contractor, consultant or any organisation that supplies resources to the project.
Tender - A document proposing to meet a specification in a certain way and at a stated price (or on a particular financial basis); an offer of price and conditions under which a supplier is willing to undertake work for the client. See Bid.
Tender document - The document issued to prospective suppliers when inviting bids or quotations for supply of goods or services.
Tender list - A list of approved suppliers to whom a specific enquiry may be sent.
Tendering - The process of preparing and submitting a tender, quotation or bid.
Invitation to tender (ITT) - An invitation to a supplier to tender or bid for the supply of goods or services.
Request for proposal (RFP) - A bid document used to request proposals from prospective sellers of products or services.
Request for quotation (RFQ) - Equivalent to a request for proposal but with more specific application areas.
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Six stages, objective, fair, transparent
Research
Pre-evaluation - track record - safety, quality, financial, technical, capacity, relationships, willingness to tender - open, transparent
Tender - statement of works - Invitation to Tender (ITT) (clear scope) / Request for Proposals (RFP) (supplier approach to achieve outputs) - TCQ criteria - record incase challenged
Award - negotiation subject to contract, dates, terms, reporting, standards, procedures, inspection rights, risk allocation (warranties), termination, intellectual property
Manage
Closure
