Procurement Flashcards
What is the definition of Procurement
The process by which products and services are acquired from an external provider for incorporation in to the project, programme or portfolio.
What does procurement typically cover?
-Standard ‘off the shelf’ goods and services.
-Goods or services that are designed and provided specially for the purchaser.
-Professional advice or consultancy.
What are the typical contents of a procurement strategy?
-‘Make’ or ‘Buy’ the solution.
-Use of a single, integrated or multiple suppliers.
-Required provider relationships.
-Provider selection.
-Conditions or forms of contract.
-Types of pricing or methods of reimbursement.
-Roles and responsibilities.
What are the stages of the provider selection and management process?
-Research.
-Pre-qualification.
-Tender.
-Award.
-Manage.
-Close.
What are the different forms of contract?
-One comprehensive contract.
-Sequence of contracts.
-Parallel contracts.
-Subcontracts.
-Partnering and alliances.
-Turnkey.
What happens in the ‘Research’ stage of Provider selection?
-Suppliers who have the requisite capability are sought.
-May already be defined if part of a programme.
-May need to advertise for providers.
-Could result in there being no providers available leading to a ‘Make’ decision.
What happens in the ‘Pre-Qualification’ stage of Provider selection?
-Questionnaire may be sent out to prospective suppliers.
Questionnaire could ask:
-Capacity to fulfil the putative contract.
-Financial position.
-Testimonial relating to similar work.
What happens in the ‘Tender’ stage of Provider selection?
-A shortlist is drawn up from pre-qualification information.
-Invitations to tender for the work are sent out.
-Potential suppliers will submit responses to be evaluated.
-Bidders conference may be held to give potential suppliers opportunity to question the customer.
-Typically suppliers will be informed of the evaluation criteria.
What happens in the ‘Award’ stage of Provider selection?
-Enter contract negotiations with the supplier who comes top of the tendering process.
-Useful to have a reserve should contract agreement not be reached with the top supplier.
What happens in the ‘Manage’ stage of Provider selection and why?
The ‘Manage’ stage is to ensure that the supplier is performing adequately.
This involves:
-Monitoring and control processes in the project.
-Reminders and communication with the supplier on terms should they be close to breaching them.
What happens in the ‘Close’ stage of Provider selection?
-Once work has been accepted satisfactorily the contract can be closed.
-This may occur aftwer a time period to allow for ‘snags’ to be identified and rectified.
-Retention money clause in the contract would provide a method of doing this.
FORMS OF CONTRACT
What are the characteristics of One comprehensive contract?
-One supplier provides everything.
-Risk as customer is dependent on one supplier.
-Less work for customer (single person to deal with).
FORMS OF CONTRACT
What are the characteristics of Sequence of contracts?
-Two or more contracts on a stage by stage basis.
-Limits risk to customer.
-Disadvantage that final costs are not known; stage to stage handover needs planning.
FORMS OF CONTRACT
What are the characteristics of Parallel contracts?
-Different specialist providers.
-Direct communication customer to supplier.
-Customer has to manage the supplier relationship.
-Risk can be lower as multiple suppliers can assist.
FORMS OF CONTRACT
What are the characteristics of subcontracts?
-Very common.
-Need to assess how customer gains access to subcontractor.
-Capacity of subcontractors to fulfil the contract should be examined or assurances given by the main contractor sought.
FORMS OF CONTRACT
What are the characteristics of Partnering and alliances?
-Based on sharing ideas and information.
-Win-win outcome desired.
-Requires trust and move away from adversarial attitude.
-Often stated in a ‘framework agreement’.
Example: Large construction firm have a contract with a council for street improvement works for several years.
FORMS OF CONTRACT
What are the characteristics of Turnkey contract?
-Form of comprehensive contract with a fixed price, date & performance levels.
-Often found in construction industry.
-Involves the supplier managing the project and handing over responsibility to the customer at completion.
What does a transactional type of contract involve?
-Focus on delivery to contract.
-Dispute likely to go back to contract to settle.
Likely used for simple one-off purchases.
What does a collaborative type of contract involve?
-The contract has importance but so does maintaining the relationship.
-More collaborative approach to settling disputes.
Likely used for more complicated and lengthy contracts.
SUPPLIER REIMBURSEMENT
What are the characteristics of ‘Target Cost’ reimbursement?
-Target sum agreed by both parties.
-Both parties work together.
-If final cost is less than target - the surplus is shared.
-If final cost is more than target - both contribute to excess.
-Risk to contract is shared.
What are the methods of supplier reimbursement?
-Fixed price.
-Target cost.
-Cost plus fee.
-Time and materials.
-Maximum price.
-Stage/Milestone payments.
-Mixed terms (mix of the above).
SUPPLIER REIMBURSEMENT
What are the characteristics of ‘Fixed Price’ reimbursement?
-One cost agreed upfront.
-That is the price paid (ignoring changes).
-Risk with the supplier.
-Needs a decent specification.
SUPPLIER REIMBURSEMENT
What are the characteristics of ‘Cost Plus Fee’ reimbursement?
-Customer agrees to pay costs to deliver project.
-Plus a fee (the suppliers profit).
-High risk for customer as final price not known.
SUPPLIER REIMBURSEMENT
What are the characteristics of ‘Time & Materials’ reimbursement?
-Price is agreed per unit (e.g bricks, days).
-Customer pays as they are sued.
-Highest risk for customer as final price is not known.
