Understand project procurement Flashcards
what does the procure strategy set out
the high level approach for securing the goods and services from external suppliers to satisfy project, programme and portfolio needs.
what are considerations for the procurement strategy
- How much risk to retain in the project and how much to share with suppliers in the supply chain
- What type of relationship you want with various suppliers; from simply buying things when needed, to working collaboratively in partnership to design solutions
what are the 6 main decisions included in the procurement strategy
- make or buy
- use of single, integrated or multiple suppliers
- conditions and forms of contract
- methods of supplier reimbursement
- types of contractual relationships
- supplier selection process
what happens during the make or buy procurement decision
build it yourself or get someone else to do it for you. Include, for your consideration of costs, quality, intellectual property ownership (who gets to use/sell it after the contract is finished), resource availability, etc.
what happens during the use of single suppliers procurement decision
Single (preferred)
- one supplier for particular commodity
- strong relationships
- price leverage / volume discount
- all eggs in one basket
what happens during the use of single, integrated or multiple suppliers procurement decision
- reduce risk of supply disruption
- competition
- additional cost of contract negotiation
what happens during the use of single, integrated or multiple suppliers procurement decision
- member of supplier in project team
- immediacy of contact
- inside view of project to optimise supply
- too close
- confidentiality
what are the 5 types of contractual relationship
- comprehensive (turnkey)
- sub-contract
- parallel / integrated
- sequential
- partner / alliance
describe the comprehensive (turnkey) contractual relationship
a single supplier has access to all resources required for the project and is responsible for the delivery of a specific solution
describe the sub-contract contractual relationship
there may be several sub-contractors particularly if the project needs specialised goods or services
describe the parallel / integrated contractual relationship
The customer manages the relationships between the various specialist suppliers to have more control of performance and/or cost, his can involve a lot of management
describe the sequential contractual relationship
use of one or more contractors during a project is often used when a project is too complex to be covered by a fully defined contract at its outset. Added risk as it’s not possible to calculate project cost at the outset
describe the partner / alliance contractual relationship
The customer and the supplier both bring skills and/or resources and work together to deliver the project. They share risk, effort and resources
what are the 4 types of supplier reimbursement
- fixed price
- cost reimbursable
- per unit quantity
- target cost
what is fixed price supplier reimbursement
the price is fixed at the outset for a defined scope of work.
for long-term projects there may be an allowance for economic factors
there may also be an incentive fee for meeting performance metrics
what is cost reimbursable supplier reimbursement
- Cost plus fixed fee means that you reimburse the supplier for all allowable costs, plus a fixed or percentage fee.
- Cost plus award means that you reimburse the supplier for all allowable costs, but the majority of the fee is only earned based on the satisfaction of certain broad subjective performance criteria.
- Cost plus incentive means that you reimburse the supplier for all allowable costs, plus a predetermined incentive fee for achieving certain targets (usually financial).
what is per unit quantity supplier reimbursement
nits are well defined (for example, area or distance). This may take the form of a time and materials contract, especially where services are provided.
what is target cost supplier reimbursement
The customer and the supplier share risk and reward. For example, the supplier may receive part of the saving if costs are kept below an agreed threshold.
what are the 5 steps of the supplier selection process
- define requirements
- establish criteria
- solicit and evaluate bids
- shortlist
- select winner
what happens during the define requirements step of the supplier selection process
Clarify the requirements to Identify potential providers that have the capability to deliver. This may be made easier with an ‘approved supplier’ list
what happens during the establish criteria step of the supplier selection process
You can use a Pre-Qualification Questionnaire (PQQ) to clarify suppliers’ capacity, willingness to tender, financial stability and technical experience. You can then invite those eligible for contract to tender
what happens during the solicit and evaluate bids step of the supplier selection process
You can ask the shortlisted providers to provide a full bid against a set of defined requirements through an ITT
You need to retain records, set a tender deadline, and reject late applicants. You should prepare an evaluation criteria with appropriate weightings to show priorities.
what happens during the shortlist step of the supplier selection process
Having assessed the tenders, you can now invite a smaller list of contractors to face-to-face bid clarification discussions.
what happens during the select winner step of the supplier selection process
negotiate and agree on a contract to supply the goods and services. Both parties must understand that they’re entering into a legally binding agreement.
