Procurement Flashcards
Why is procurement important? 5
- Prevent unwise procurement decisions being made (sound supplier selection). 2. Articulate legislation and national guidance that must be followed. 3. Ensure checks that business is legitimate - tariffs and saction not preached. 4. Identify key areas of delegated authority, ensure competent people are making decisions. 5. Ensure budget is not exceeded.
Contents of procurement strategy 5
- Make or buy decision (capacity in house, budget? Cheaper elsewhere?). 2. Choice of contractual relationship (e.g. single, prime, parallel, sequential) 3. Payment mechanism (how paid, how risk allocated etc) 4. Supplier selection (tendering proces). 5. Negotiation process 6. Reimbursement method
Types of contractual relationship
- Single (one point where we buy all goods and service). 2. Prime (one point of contact, they take responsibility for and sub-contractors and intergrating activities, need good relationship. 3. Parallel contracts (multiple suppliers who can do the same work, choose which one for each work package, we are responsible for work) 4. Sequential (we responsible for work, architect to construction e.g.) 5. Transactional (lots of paperwork, by the letter of the contract) vs collaborative (less about efficiency, more on effective solution)
Form of contract
Legally binding agreement, needs offer, acceptance and consideration, and needs payment. Will be a specialist who can advise. New engineering contract (NEC civil) and Joint Contracts Tribunal (JCT construction)
Amount of suppliers?
- Single supplier - strong relationship, give them all work. Risk we’re overdependent but will get discount. 2. Multiple suppliers (keeps price competition, more work and admin so expensive). 3. Integrated supplier (everyone on joint team, transparent but difficult when maintaining confidentiality
Tendering process
- Research market (list of suitable suppliers, look at creating a comprehensive requirements doc) 2. Pre-qualify suppliers (reduce number by looking at capacity, willingness, financial stability, tech expertise. 3. ITT (will have requirements, instructions, type of contract, quality questions, assessment criteria) 4. Respond to queries from bidders (answers shared to all bidders) 5. Receive and evaluate the bids (will be a panel. Evaluated against key criteria and ranking system). 6. Award contract to preferred bidder. 7. Negotiate contract. 8. Manage (CA) and 9. Close one all products delivered
Negotiation process (5)
- Understand need for negotiation (develop strat for dealing) 2. Prepare (understand other parties position BATNA, ZOPA) 3. Discus/debate with supplier (separate issue from emotion avoiding positional bargaining). 4. Confirm and document once agreement reached. 5. Check actions against documented agreement
BATNA
Best alternative to negotiated agreement. May have another bid. Understand our threshold before walking away. Agreed with sponsor before entering negotiation
ZOPA
Żonę for potential agreement (overlap between desired outcome for both parties meaning a viable solution). Overlap between our minimum, their maximum
Negotiation process general
Formal (strategic issues at stake) vs Informal. 2. May have a number of rounds. 3. Strive for win-win through collaboration. Who has authority to make decision. What is the absolute bottom line?
Purpose of supplier selection process
- Ensure selection is opjective and fair. 2. Most appropriate supplier selected. 3. Supplier in alignment with organisations requirements
How do we choose suppliers?
- Org rules and guidelines (any regulations??) 2. Go to competitive tender, chose best value for money based on quality criteria. 3. Make sure right people are engaged (subject matter experts our side)
What found in contract?
Gen info, responsibilities, time, quality, payment, dealing with change, compensation or risk, ownership, insurances, dispute resolution
Reimbursement methods 1.
Fixed price. Most risk with supplier, scope clearly defined. 2. Contract target cst/price encourage working together, target cost upfront, need to be transparent, if underspent, split the savings. 3. Cost plus fee (fixed or %) risk with client, suitable when work is urgent. Supplier pays for materials and cost plus uplift. 4.per unit quantity. Risk with clie t.when works are urgent. Won’t know how much project will cost bc won’t know exact number of units required
