Lecture 12 - Procurement Flashcards
Define procurement and determine some of the planning procurement activities
➢Processes necessary to purchase or acquire products, services or results needed from outside the project team;
➢Process-based function driven by a particular department or local division seeking to get possession of something that solves an operational issue;
➢Value-adding function that focuses on the efficient attainment of goods, services, or results that deliver a number of very specific and measured benefits to the project;
➢Make the best possible use of supplier’s products & or services while supporting the changing scope, goals & objectives of the project itself (if/when necessary);
➢TBL and life cycle thinking as the core of Procurement.
What are procurement drivers
➢Supply the project with goods & services as specified & as required;
➢Improved relationships with key suppliers;
➢Balance output with both value & quality;
➢Increase accountability in the supply chain;
➢TBL and life cycle thinking as the project core;
What are some typical procurement planning questions
➢What is required?
➢How much will it cost?
➢From where will it be sourced?
➢When will it be needed?
➢Who will be involved?
What are the 8 Rs of procurement
➢Right materials (consider disposal issues)
➢Right price
➢Right quantity
➢Right quality
➢Right source
➢Right reasons
➢Right time
➢Right return
What are the two types of planning decisions, and what are some examples for both?
Make decision (in-house)
➢Currency of skills
➢Known availability
➢Cost effective resource allocation
Buy decision (out-house)
➢Insufficient capability
➢Conflicting operational & project priorities
➢Enhance project scope
Define Scope of Work (SOW) and Specification
Scope of work (SOW)—defines the component of work that will be included in the project; in other words, what the project organisation wants. Put simply, a statement of work identifies what is required (without specifying how).
Specification—defines the technical detail of the work to be performed. Put simply, the specification identifies how it must behaviour or function.
What are some suggestions for improving specifications
➢Clear understanding of the project scope & agreed specification;
➢Clear, complete, & user-friendly solicitation documents;
➢Express the contract clauses & conditions clearly & unambiguously;
➢Include a comprehensive glossary of terms;
➢Use a third party to review the documents;
How should you select potential suppliers?
Clear, complete, accurate, applicable and user-friendly solicitation documents (and nominated response templates) will ensure suppliers can address all the criteria required in their proposals.
➢Understanding of the requirement
➢Technical capability
➢Management capability
➢Financial capability
➢Resource capability
➢Price
What are the essential contract elements?
A contract is a legally binding agreement between two or more parties to act, or refrain from acting, in a particular way. i.e. Creating legal rights & obligations that are enforceable in law.
With the intent of protecting the interests of both parties, the contract should contain (as a minimum) the following key elements:
1. An offer (capable of being accepted);
2. Acceptance (capable of being communicated);
3. Intention/consent of each party to be legally bound (freely given);
4. Consideration ( something is given back for the promise) – e.g. money;
5. Mutuality (neither party is disadvantaged);
6. Capacity (both parties are not under any duress); and
7. Legality (it is not an illegal activity).
What are the 3 types of contracts
Fixed-price contract: i.e. The delivery of a well-defined product (goods or service) for a fixed price
Customer risks
➢At the mercy of a sole source contractor
➢Incomplete specifications (due to project change) leading to potential contract changes
➢Tendency of the contractor to use cheaper materials
Contractor risks
➢Requires careful cost estimation
➢Requires careful schedule estimation
➢Cost growth can lead to unprofitable projects
Cost-reimbursable contract: i.e. The seller is paid for the actual costs incurred plus a fee representing the seller’s profit
Customer risks
*Final cost unknown
*Sole source contractor
*Poor specification leads to more costs
*Poor specification leads to contract changes
Contractor risks
* Fee percentage declines as costs rise
* Rising costs can damage the relationship with the customer
➢Time & materials contract: i.e. This type of contract contains features of both fixed fee & cost plus contracts
Customer risks
*No specification
*Open-ended
*Sole source contractor
Contractor risks
*Fixed rates
*No defined tasks
What are Project management practices impacting project performance overseas
➢Quality of contract
➢Quality of response to perceived variations & extent of changes to the contract
➢Cultural & language barriers
➢Relationship building
➢Public image & public relations
What does conducting procurement activities consist of?
➢Obtaining seller responses, selecting a seller and awarding a contract;
➢How? i.e. Request for proposal, request for quotation, invitation for bid, expression of interest, invitation to tender;
➢Evaluating responses;
➢Additional negotiations (where required);
➢Awarding the contract;
➢A mutually binding agreement between two or more parties;
Who controls procurement activities
The contract manager, administrator, superintendent or project manager is responsible for contractual relationships and integrating project management processes throughout the project lifecycle –
➢Directing and managing authorised work;
➢Inspecting and verifying completed work prior to payment;
➢Ensuring all variations are properly assessed and approved;
➢Confirming rectification of all corrective work;
➢Maintaining accurate historical records.
What does closing out procurement activities consist of?
➢Reviewing all the procurement documentation;
➢Updating and archiving all appropriate records;
➢Financial reconciliations;
➢Reporting and rectification of any defects and/or damages;
➢Auditing the entire procurement process;
What are some common procurement issues
➢Types of contracts;
➢Documentation;
➢Transparency;
➢Performance metrics;
➢Managing multiple (external) providers and potential issue escalation;
➢Constraints, risk, assumptions;
➢Objective evaluations;
