Procurement exercise

 

Hi PPT,

 

Can you please provide feedback on the below? Thanks.

 Describe 5 main components of a procurement strategy?

Make or buy decision – The organisation decides if the products can be sourced (made) internally or need to be purchased externally. This decision is based on quality and cost effectiveness. Example of  a buying decision based on quality: A server cabinet manufacturer builds 2mm cabinets but their project requirement just exceeds this thickness, so a 3mm thick steel cabinet is purchased externally to meet the requirement.

Reimbursement method – This defines how the project will pay the chosen contractor for their work. The client needs to understand their exposure to risk & the cost implications when deciding on the most appropriate method. Example of a risk adverse Reimbursement method (payment term): The client requests a fixed price contract as they want the risk of overruns to lie with the contractor, not themselves.

Contractual relationship – The organisation selects the most appropriate type of contract which will bind them & the contractor. Depending on their needs, the organisation will select a contract type ranging from single, prime to sub-prime, sequential, turnkey etc.  Example of a contract type which allows for further subcontracting: The server manufacturer cannot solely complete the scope of work within the timescale, so a prime contract is selected so the scope of work can be further subcontractor to meet the deadline.

Supplier selection – There are different steps in this process; starting at advertising the Invitation To Tender (ITT) to potential bidders and ending with awarding the contract to a bidder. A key stage is where all bids are assessed against a compliance matrix to ensure that they satisfy at least the minimum requirements. Example of an issue raised during the bidding process: A vendor highlights a query in the scope of works and this query then gets clarified on a conference call with all the vendors.

Post contract review – The contract is reviewed after completion to establish what went well and what went wrong. This is important for future projects as the lessons learnt can help in improving the procurement process. Example: The Invitation to Tender attracted few bidders. So the lesson learnt, is to advertise the Invitation to Tender on industry websites & publications to get more interest from diverse contractors.

 Describe five types of contract and the disadvantages and advantages of each?

 Single contract – One contract is issued from the client to one single contractor for them to directly complete the work. This is a basic contracting relationship and unless a more flexible contract is required. Example, client has a fixed scope of work and they know that only one contractor is needed to complete the work in full.

Prime contract – One contract is given from the client to the contractor and then the contract further contracts this work to other contractors. This contract type is used where the main contractor cannot satisfy the parts/labour required to complete the work. Example, the main contractor does not have enough internal resources to meet the client deadline, so more resources are drafted.

Sequential contract – One contract is given from the client to the first contractor to complete phase 1 and once completed a second contractor will then start their contract to complete phase 2 of the work, there is a dependency between contracts. Example, building a server requires contractor one to install the components and once completed, contractor two will then configure/update the software.

Turnkey contract – A comprehensive contract which covers all aspects of the clients scope of work to deliver the service/product. This contracts purpose is to deliver the client a service/product which is ready to use straightaway, ‘plug & play’. Example, a turnkey contract to build a server covers all the scope of work by installing and then configuring the server, ready for use.

Partnering contract – Two organisations mutually come together to deliver the scope of work. This requires trust between the organisations as on their own they could not deliver, mutually they can. Example, a mutual client for two contractors requires a new server setup by Monday. Contractor one know how to design the server specification and contractor two knows how to build the server. They need to work together to complete the project.