project procurement cycle

8/11/2019 Project Procurement Cycle

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Project Procurement Management

ngr. r. au a a


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Bio details of the PresenterEngr.Dr. Attaullah Shah

Director ( Planning and Projects AIOU) [email protected]. [email protected], www.drshahpak.weebly.com

+92-333-5729809, +92-51-9057212

Qualification PhD Civil Engineering ,M.Phil Eco ,MSc Structure Engg

MBA, MA Eco, MSc Envir Design,BSc Civil Engg (Gold Medal), Post Grad Dip Comp (GoldMedal)

Professional and Field experience:

25 Years

Research Publications in refereed journals and conferences:

25 Journals publications+38 Conference publications

Areas of interests

Structural Engineering

Sustainable built Environment

Construction project Management


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Some quotes about procurement Labor was the first price, the original purchase - money that

was paid for all things. It was not by gold or by silver, but bylabor, that all wealth of the world was originally purchased.Adam Smith

Property may be destroyed and money may lose itspurchasing power; but character, health, knowledge and goodjudgment will always be in demand under all conditions. RogerBabson

Men use care in purchasing a horse, and are neglectful inchoosing friends John Muir.

Purchasing power is a license to purchase power. RaoulVaneigem

Excellence in any department can be attained only by the labor

of a lifetime; it is not to be purchased at a lesser price. SamuelJohnson


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Some quotes.. Passion can never purchase what true love desires: true

intimacy, self-giving, and commitment

Experts agree that the best type of computer for yourindividual needs is one that comes on the market about

computer. Dave Barry

It takes me a long time to make a big purchase. JessicaChastain

If a man will make a purchase of a chance he must abideby the consequences. Richard Richards


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Self-pity is our worstenemy &

if we yield to it,

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wise in this world

- Helen Keller


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Procurement Process

DefinitionIt is the process required to supply equipment, material , service and other resources

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needed to carry out a project that satisfycustomer


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Procurement Management Procurement is acquisition of goods and services.

Project Procurement Management includes thecontract management and change control

rocesses re uired to administer contracts or

purchase orders issued by authorized project teammembers.


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Procurement means the activities related to purchase,subcontracted items

Procurement items are usually classified as goods, work

or services (GWS) Goods represent raw material or produced items

Work means contracted labor

Procurement of Items

erv ce means consu tat on Planning, budgeting, scheduling and follow-up control of

all fall under procurement management

Logistics plan includes everything related to the transport

and storage of materials for the projects. GWS itemscannot be scheduled to arrive just-in-time (JIT).Provision must be made to store and protect them untilthey are needed.


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Procurement management refers to planning and controlof the following

Equipment , material or components designed and

provided by vendors specifically for the project

It may be a portion of a work package or entire workpackage

Procurement Management

It may be off-the-shelf (OTS) equipment andcomponents

bulk material, like cement, metal piping etc.

Consumables items; nails, bolts, lubricants Support equipment for construction, cranes, lifts etc

Administrative equipment, computers, project officefacilities


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Industrial Project Cost DistributionItem Description Weight

1 Engineering 5%

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22 Equipment / MaterialEquipment / Material 65%65%

33 ConstructionConstruction 15%15%

4 Testing and Commissioning 10%


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Project Procurement Management Processesand Key Outputs


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Plan Purchases and Acquisitions. Determiningwhat to purchase or acquire and determining when andhow. Purchase of equipment

Procurement of works

Procurement of supplies etc

Procurement Cycle

Plan Contracting documenting products,services, and results requirements and identifyingpotential sellers. Developing the requisite documents

Specification

No and make etc.


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Request Seller Responses. obtaining information, quotations, bids, offers ,or proposals, as

appropriate.

Inviting bids

Inviting quotations Request for Proposals ( RPFs)

Expression of Interest ( EOI) etc.

Select Sellers. Reviewing offers, choosing among potential sellers, and

negotiating a written contract with each seller.

Tender/bids opening

Evaluation and Assessment of bids

Negotiation if required and allowed

Selection of the seller/contractor


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Contract Administration Managing the contract and relationship between the buyer and

seller.

Reviewing and documenting how a seller is performing or hasperformed to establish required corrective actions

Provide a basis for future relationships with the seller, Managing contract-related changes and, when appropriate,

Managing the contractual relationship with the outside buyer.

Contract Agreement

Contract Closure completing and settling each contract, including the resolution

of any open items,

Closing each contract applicable to the project or a projectphase.


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Procurement Planning Procurement planning involves identifying

which project needs can be best met byusing products or services outside theorganization. It includes deciding

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whether to procure how to procure

what to procure

how much to procure when to procure


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Procurement Planning Make-or-Buy Analysis

Make-or-buy analysis: determining whether a particularproduct or service should be made or performed insidethe organization or purchased from someone else.Often involves financial analysis


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Make-or Buy Example Assume you can lease an item you need

for a project for $150/day. To purchasethe item, the investment cost is $1,000,and the daily cost would be another

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$50/day. How long will it take for the lease cost to

be the same as the purchase cost?

If you need the item for 12 days, shouldyou lease it or purchase it?


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Make-or Buy Solution Set up an equation so the make is equal to the buy In this example, use the following equation. Let d be the

number of days to use the item.

$150d = $1,000 + $50d Solve for d as follows:

Subtract $50d from the right side of the equation to get

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,

Divide both sides of the equation by $100

d = 10 days

The lease cost is the same as the purchase cost at 10 days

If you need the item for 12 days, it would be more economicalto purchase it


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Procurement Planning Expert Judgment

Expert purchasing judgment can also be used to

develop or modify the criteria that will be used toevaluate offers or proposals made by sellers.

both internal and external, can provide valuablenpu s n procuremen ec s ons

Contract Types

Different types of contracts are more or less

appropriate for Different types of purchases. Fixed-price or lump-sum contracts. Cost-reimbursable contracts.( cost Plus)

Time and Material (T&M) contracts.


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Fixed Price contracts Fixed price or lump sum Cost price with re-determination Fixed price plus incentive fee. Fixed price plus economic price adjustment Fixed price with successive targets incentives Fixed price for service material and labor at cost. Time and material labor hours only.

Others methods: Turnkey Bonus - Penalty Joint venture

Combination of the above BOOT ( Build Operate Own and Transfer BOT ( Build Operate and Transfer) Build Lease and Transfer ( BLT)


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Statement of Work (SOW)

A statement of work is a description of thework required for the procurement

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,

agreements, include SOWs

A good SOW gives bidders a better

understanding of the buyers expectations


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I. Scope of Work:Describe the work to be done to detail. Specify the hardware and

software involved and the exact nature of the work.

II. Location of Work: Describe where the work must be performed. Specify the

location of hardware and software and where the people must perform the work

III. Period of Performance:Specify when the work is expected to start and end,working hours, number of hours that can be billed per week, where the work must

be performed, and related schedule information.

Statement of Work (SoW)

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. , ,

specify when they are due.

V. Applicable Standards: Specify any company or industry-specific standards that

are relevant to performing the work.

VI. Acceptance Criteria: Describe how the buyer organization will determine if the

work is acceptable.VII. Special Requirements: Specify any special requirements such as hardware or

software certifications, minimum degree or experience level of personnel, travelrequirements, and so on.


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Planning for land Procurement


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Consultancy Procurement


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Civil Works Planning


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Road Construction Planning


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Procurement of Equipment andGoods


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Solicitation Planning Solicitation planning involves preparing

several documents: Request for Proposals: used to solicit

proposals from prospective sellers

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for well-defined procurements Invitations for bid or negotiation and initial

contractor responses are also part of

solicitation planning


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Plan Contracting: Outputs

Procurement /Tender Documents

Procurement documents are used to seek proposals from

prospective sellers.A term such as bid, tender, or quotation is generally used

when the seller selection decision will be based on price,

A term such as proposal is generally used when otherconsiderations, such as technical skills or technicalapproach, are paramount.


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Components of RFP Introduction. Provide a brief summary of your project and

describe the process and rules for submitting a proposal.

Company. List the information you need to know about the

suppliers Company such as their vision, objectives, marketshare, customers, expertise and experience.

Solution. List the information needed to understand theso u ons propose y e supp er, nc u ng e o a

quantity of each solution proposed.

Implementation. List the information you need tounderstand the price of each of the solutions proposed by

the supplier. This will allow you to compare the total priceof solutions offered by suppliers.

Other Information. List any other information needed toenable a supplier to complete a detailed proposal for the

supply of goods and services to the project,


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Evaluation Criteria Evaluation criteria are developed and used to rate or score proposals.They can be objective or subjective Evaluation criteria are often

included as part of the procurement documents. Other Selection criteria

Understanding of need. How well does the sellers proposal address the

contract statement of work?

Overall or life-cycle cost. Will the selected seller produce the lowesttotal cost (purchase cost plus operating cost)?

Technical capability.

Management approach.

Technical approach.

Financial capacity. Does the seller have, or can the seller reasonablybe expected to obtain, the necessary financial resources?

Production capacity and interest. Does the seller have the capacityand interest to meet otential future re uirements?


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Business size and type.

References. Can the seller provide references from priorcustomers verifying the sellers work experience andcompliance with contractual requirements?

Intellectual property rights. Does the seller assertintellectual ro ert ri hts in the work rocesses or services

they will use or in the products they will produce for theproject?

Proprietary rights. Does the seller assert proprietary rightsin the work processes or services they will use or in theproducts they will produce for the project?


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Solicitation Solicitation involves obtaining proposals

or bids from prospective sellers

Organizations can advertise to procuregoods and services in several ways

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approaching several potential vendors

advertising to anyone interested

A bidders conference can help clarify thebuyers expectations


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Request Seller Responses: Tools and Techniques

Bidder Conferences

Meetings with prospective sellers prior to preparationof a bid or proposal.

To have a clear, common understanding of theprocurement

All potential sellers are given equal standing duringthis initial buyer and seller interaction to produce thebest bid.

Advertising

Develop Qualified Sellers List Qualified sellers lists can be developed from the

organizational assets if such lists or information arereadily available. Whether or not that data is available,

the project team can also develop its own sources.


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Outline for a Request for Proposal (RFP)I. Purpose of RFP

II. Organizations Background

III. Basic Requirements

IV. Hardware and Software Environment

V. Description of RFP Process

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.

VII. Possible Appendices

A. Current System Overview

B. System Requirements

C. Volume and Size Data

D. Required Contents of Vendors Response to RFP

E. Sample Contract


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Source Selection Source selection involves

evaluating bidders proposals

choosing the best one

negotiating the contract where allowed

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awarding the contract It is helpful to prepare formal evaluation

procedures for selecting vendors

Buyers often create a short list


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Select Sellers

Selection decision process:

cost can be the primary determinant for an off-the-shelfitem,

Proposals are often separated into technical(approach) and commercial (price) sections, with eachevaluated separately.

Multiple sources could be required for criticalproducts, services, and results to mitigate risks thatcan be associated with issues such as deliveryschedules and quality requirements.

Select a single seller that will be asked to sign astandard contract.


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Select Sellers

Establish a negotiating sequence by ranking all

proposals by the weighed evaluation scoresassigned to each proposal.

,

of requesting responses from sellers andevaluating sellers responses can be repeated.

A short list of qualified sellers can be established

based on a preliminary proposal. A more detailedevaluation can then be conducted based on amore detailed and comprehensive proposal that isrequested from the sellers on the short list.


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Select Seller Techniques Weighting System

Independent Estimates

Screening System

Contract Negotiation (Not under PPRA)

Seller Rating Systems Expert Judgment


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Sample Proposal Evaluation Sheet

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Be Careful in Selecting Suppliersand Writing Their Contracts Many dot-com companies were created to meet potential

market needs, but many went out of business, mainly dueto poor business planning, lack of senior managementoperations experience, lack of leadership, and lack ofvisions. Check the stability of suppliers

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Even well-known suppliers can impede project success.Be sure to write and manage contracts well with allsuppliers (see What Went Wrong?)


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Contract Administration Contract administration ensures that thesellers performance meets contractual

requirements Contracts are legal relationships, so it is

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professionals be involved in writing andadministering contracts

Many project managers ignore contractualissues, which can result in serious problems


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Contract An agreement enforceable by Law

A contract is awarded to each selected seller.

The contract can be in the form of a complex documentor a simple purchase order.

Regardless of the documents complexity, a contract isa mutually binding legal agreement that obligates theseller to provide the specified products, services, orresults, and obligates the buyer to pay the seller.


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Contract Administration: Tools and Techniques

Contract Change Control System

A contract change control system defines the process by

which the contract can be modified.

Buyer-Conducted Performance Review

Inspections and Audits

Performance Reporting


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Suggestions on Change Control forContracts

Changes to any part of the project need to be reviewed,

approved, and documented by the same people in thesame way that the original part of the plan wasapproved

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analysis. How will the change affect the scope, time,cost, and quality of the goods or services beingprovided?

Changes must be documented in writing. Project team

members should also document all important meetingsand telephone calls


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Contract Close-out Contract close-out includes product verification to determine if all work was

completed correctly and satisfactorily

administrative activities to update records to reflect finalresults

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Procurement audits identify lessons learned in theprocurement process

A procurement audit is a structured review of theprocurement process from the Plan Purchases andAcquisitions process

Records Management System


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Ethical Issues in Procurement and

Contract Management

Professional Ethics:

Values & standards used byGroup of Managers in workplace.

Applied when Decision

not Clear-Cut Ethically.Physicians/Lawyers

Professional Associates

(PMA, Bar Council)

Evidence Showing Ethical Managers

Benefit over long term .


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Project Management and EthicsEthical culture: firms increasingly seek tomake good ethics part of norm &

organizational culture.Views of Ethical Decision-Making

Decision makers

seek to impose

and enforce rules

fairly and

impartially

Decisions made

solely on the basis

of outcomes orconsequences

Decisions are

concerned with

respecting and pro-

tecting basic rights

of individuals


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PMI Code of EthicsARTICLE I: Project Managers shall maintain high

standards of personal and professional conduct.

a) Accept responsibility for their actions.b)

Undertake projects and accept responsibility only ifqualified by training or experience, or after full disclosureto their employers or clients of pertinent qualifications.

c) Maintain their professional skills at the state -of-the-artan recogn ze e mpor ance o con nue persona

development and education.d) Advance the integrity and prestige of the profession by

practicing in a dignified manner.e) Support this code and encourage colleagues and co-

workers to act in accordance with this code.f) Support the professional society by actively participating

and encouraging colleagues and coworkers to participate.g) Obey the laws of the country in which work is being

performed.

ARTICLE II P j t M h ll i th i


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ARTICLE II: Project Managers shall, in their

work:a) Provide the necessary project leadership to promote

maximum productivity while striving to minimize costs.b) Apply state-of-the-art management tools and techniques to

ensure schedules are met and the project is appropriatelyplanned and coordinated.c) Treat fairly all project team members, colleagues and co-

, , , ,

origin.d) Protect project team members from physical and mentalharm.

e) Provide suitable working conditions and opportunities forproject team members.

f) Seek, accept and offer honest criticism of work, andproperly credit the contribution of others.

g) Assist project team members, colleagues and co-workers intheir professional development.


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ARTICLE III: Project Managers shall, in their relations

with employers and clients:

a) Act as faithful agents or trustees for their employers or clients inprofessional or business matters.

b) Keep information on the business affairs or technical processesof an employer or client in confidence while employed, and later,until such information is properly released.

c) Inform their employers, clients, professional societies or publicagencies of which they are members or to which they may make

any presentations, of any circumstances that could lead to aconflict of interest.d) Neither give nor accept, directly or indirectly, any gift, payment

or service of more than nominal value to or from those havingbusiness relationships with their employers or clients.

e) Be honest and realistic in reporting project cost, schedule andperformance.


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ARTICLE IV: Project Managers shall, infulfilling their responsibilities to the

community:

a) Protect the safety, health and welfare of theublic and s eak out a ainst abuses in

those areas affecting the public interest.b) Seek to extend public knowledge and

appreciation of the project management

profession and its achievements.

U i S ft t A i t i P j t


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Using Software to Assist in ProjectProcurement Management

Word processing software helps in writing proposals andcontracts, spreadsheets help in evaluating suppliers,databases help track suppliers, and presentation softwareaids in presenting procurement-related information

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In the late 1990s and early 2000s, many companies startedusing e-procurement software to do many procurementfunctions electronically

Companies such as Commerce One, Ariba, Concur

Technologies, SAS, and Baan provide corporateprocurement services over the Internet

Organizations also use other Internet tools to help findinformation on suppliers or auction goods and services


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Thank You