CONTRACT PLANNING

BY: NAEEM ABBAS

MCIPS
Contracting Process

g
Plannin
Identify Need
Plan Purchase
Develop Request
Invite & Receive Offers

n
Formatio
Evaluate Offers
Negotiate/Due Diligence

Finalise & Award

Manage Transition

t
Managemen
Contract Operation
Complete, Extend, Renew
Review & Evaluate

Link to Supplier Performance Management

 Procurement Cycle

Contract
Planning/Designin
Administratio
g specifications
n

Payments Pre-
qualification

Grievance
Redressal Solicitation
of Bids

Contract Bids opening

Award and Evaluation
Procurement?

“ Acquisition of goods, services, and

works that result in best value to the
buyer and the stakeholders.” How?
People
Processes
Controls
Hallmarks of Proficient
Procurement
Economy: value may imply more than just
price
Efficiency: implies practicality, compatibility
with administrative resources and professional
capabilities
Fairness: impartial, consistent , reliable
Transparency: establishes, maintains
accessible/ unambiguous rules and procedures
Accountability: responsible for enforcing
and obeying rules/ key deterrent to
Why is Proficient Procurement
Important?
Civil Works: e.g. bridges, buildings,
harbors and highways
Goods: equipment, material and
supplies, commodities, medical
supplies etc.
Services: expert advice and training,
computer programming, consultancy
services etc
Quality, timeliness, local
Value for Money
Value for Money?
“ Best available outcome when all
relevant costs and benefits over the
full procurement cycle are
considered. Reconciliation of
technical considerations of suitability
and/or performance with commercial
considerations of cost, availability,
post delivery support, and effective
warranties to achieve best overall
balance and ensure that benefits are
commensurate with costs.”
 Procurement and supply
competence
The Road Map:
Procurement and supply
competence

Understandin
g
Appropriateness
Knowledge 2
Knowledge 1
is about Knowing in
Knowing what are the understanding detail the
universe of when to use contingent
procurement tools and particular tools supply chain and
techniques available and techniques market
to practitioners under specific circumstances
circumstances to which face the
deliver corporate practitioner
goals
Strategic Clarity
operationally.
Strategic goals about means
and ends must be clearly
articulated in supply chain
terms
Contract Planning

• Identification of need
• Development of a business case
• Planning purchase
• Risk assessment, analysis,
management
• Risk management strategies
Identify the need
• Identifying the need is the process of
determining what is actually required to
achieve the intended result or contracting
outcome. For simple purchases this may be
very straightforward, but for more complex
requirements there may be a variety of
alternatives. Once a need has been
identified, it must be accurately defined
before it can be satisfied. Optimal results
cannot be achieved unless objectives are
understood clearly and can be conveyed to
suppliers.
DEVELOP THE BUSINESS CASE

• The business case forms the foundation

for the procurement planning process and
involves a
rigorous assessment of a proposal in terms
of all the estimated costs, benefits, risks
and options, and provides the competent
authority with a reality check to ensure the
initiative is feasible; identifies the
preferred procurement strategy and
confirms that the option chosen will meet
the objectives set.
OBTAIN APPROVAL TO
PROCEED
• It may be necessary to obtain the
appropriate internal written approval
to undertake the purchase.

• When seeking approval to proceed

with the purchase, ensure that there
is an approved budget.
MAINTAINING PROBITY
• When calling quotations, it is important to
maintain effective probity of the decision-
making and purchasing processes.

• Relevant documentation and information,

particularly the offers themselves, should
be recorded on file and retained in a
secure and confidential manner for audit
purposes.

• Conflicts of interest must be managed &

staff associated with potential suppliers
should not take part in the decision-
making process for that purchase.
REVIEW PREVIOUS PURCHASES

• Review previous purchases for similar

goods or services to identify any potential
problems and
solutions. This may include:
• the scope and cost of previous
purchases;
• identity of the previous supplier; and
• potential performance measures.

• Consult with colleagues, take advantage of

in-house expertise, and consult with users
PLANNING PURCHASE
• development of tender documentation
• writing specifications
• development of selection criteria
• selection criteria weightings
• terms and conditions
• dispute resolution
• Evaluation Committee
DEVELOP REQUEST DOCUMENT

• Consider most appropriate method

• The Request carries legal

implications

• Must facilitate equitable comparison

DEVELOP REQUEST DOCUMENT

STANDARD KEY ELEMENTS:

• Conditions of quoting
• Specifications

• Standard terms and conditions

• Special terms and conditions
CONDITIONS OF QUOTATION

Provisions regarding the nature of

the Request and the consequences
of the respondent submitting an
Offer
- Submission of offer
- Rights of contracting authority
- Offer validity
SPECIFICATIONS

• Must clearly and accurately describe

the essential requirements for the
product to be purchased
MINIMISE TENDER COSTS

The cost of the tender process is

reduced if specifications:

• are standardised for similar

requirements;
• are concise and accurate; and
• can be readily incorporated into a
formal contract.
PREPARING THE
SPECIFICATIONS
• Identify user needs
• Research the market
• Conduct a risk assessment
• Identify what is to be procured
• Determine the scope
• Determine the evaluation
TYPES OF SPECIFICATIONS

• Functional: outcomes to be achieved

• Performance: emphasize outputs and
encourages supplier innovation
performance required
• Conformance: emphasize inputs and
limits a supplier’s freedom
• Technical – physical characteristics
Functions of Specifications
• Communication: a clear
unambiguous specification facilitates
communication between the buying
organization and the supply market,
and internally with users
• Comparison: it facilitates a fair and
more accurate comparison of
supplier’s bids for contracts, as all
bids are compared on the same
basis.
Role of Purchasing Function
• All purchases have a technical and a
commercial aspect
• Early purchasing involvement can
help identify potential and real
supply problems
• Cost reduction and avoidance is at
the design/specification stage
• Quality, from the customer point of
view is about more than just
technical aspects
Methods of Specifications
• Brand: Xerox photocopier, Toyota car
• Samples: sample jacket to be used
• End use: Plastic containers to be
used to hold hot liquids
• Drawings/blueprints: plans for a
building project
• Market grade: light crude oil, first
pressing olive oil, high-
tensile steel
• Method of manufacturing: Halal etc
• Physical/chemical: Concrete, paints,
Standard and
Standardization
• A standard is an agreed generic
specification, or a specification
intended for recurrent use, by
generic it means that the
specification has general and
widespread acceptance within a
product category, organization,
industry, profession or geographical
trading area.
• Standardization is the process of
selecting and preparing the most
Standards Examples
Product Battery sizes/ voltages, paper
weights and sizes
Organization Army, national health services,
Shell exploration and
production Ford Motor Car
Company
Profession CIPS, ACCA, Airline Pilot
Assoc.
Industry Building and Construction
Catering, Engineering
Country Electrical voltages, educational
qualifications, food and drug
standards
Trading Area European Union health and safety
rules
Late Customization
• A method that attempts to satisfy the
seemingly incompatible objectives of
offering customers maximum choice,
while purchasing and stocking the
narrowest variety of items.
• It is a technique that aims to
maximize customer choice while
minimizing input variety through
standardization and variety reduction
Writing Specs for Products
Performance: Primary operating characteristics
Features: The ‘bells and whistles’. Extras
provided
Conformance: Degree to which design matches
known or agreed standards
Reliability: Likelihood of failure in period
of time
Durability: Useful life of product
Serviceability: Speed, ease, and cost of
maintenance
Aesthetics: The look, feel, sound, taste
etc
 Writing Specs for Services:
Parasuraman’s Quality
Characteristics
Reliability: Consistency of performance
Responsiveness: willingness or readiness
Competence: Possession of required skills
Access: Approachability and ease of
contact
Courtesy: Politeness, respect, consideration
Communication: keeping customers
informed
Credibility: trustworthiness, honesty
Security: freedom from danger, risk or
doubt
What to include in an SLA

• Technical and professional support

• Customer account management
arrangements
• Problem escalation procedure
• Changing arrangements
• Service level measures- KPIs
• Failure Costs and providsions
SLA contd.

• Arrangements for service review

meetings
• Contracts/help desk/named people
• Renegotiation arrangements
CHECK SPECIFICATIONS

• Use checklist to ensure completeness

• Verify accuracy with end user
Home Work

Based upon Parasuraman’s service

quality dimensions, write a short
draft specification to be used to
advertise a contract for a security
service for your office building.
Please include as many dimensions
of service quality as you can.
SELECTION CRITERIA

• Used to assess the suitability of a

potential supplier
• Must focus on essential aspects of
requirement
SELECTION CRITERIA

TYPES OF SELECTION CRITERIA:

• Pre-qualification
• Compliance and disclosure
• Qualitative
• Insurance
• Price and pricing requirements
SELECTION CRITERIA
WEIGHTINGS
• Assists evaluation panel in evaluation
of submissions
• Each qualitative criteria is given a
weighting
• Weighting should indicate
importance of criteria
ENVIRONMENTAL
CONSIDERATIONS
• Consideration should be given to the
environmental impact in the
procurement process
eg product re-usability, re-cyclability,
durability, energy efficiency and
packaging.
INVOLVE MARKETPLACE

• Actively seeking advice and feedback

from the marketplace enhances
complex or high risk purchasing
outcomes
TERMS AND CONDITIONS

• Protect the interests of the parties to

the contract
• Minimize risk, or reduce the
consequence of risk
TERMS AND CONDITIONS

• Sellers and buyers have different

terms and conditions, each designed
to suit their particular requirements
• Buyers should select terms and
conditions that are appropriate to the
requirements of the purchase
TERMS AND CONDITIONS

General Terms and Conditions:

• A range of general or standard terms
and conditions that may be included
in all contracts

Special Terms and Conditions:

• Used when the requirement is not
covered by the general terms and
conditions
DISPUTE RESOLUTION

• Better to avoid than to resolve

• Avoid by:
- clearly defining requirements
- Contract management plan
- Key Performance Indicators
- Meetings
DISPUTE RESOLUTION

Avoiding by:
• Clearly defining requirements and
expectations
• Implementing key performance
indicators
• Contract management plan
• Regular performance meetings
• Work with contractor, not against –
objectives are the same
DISPUTE RESOLUTION

When all else fails:

• Refer to dispute resolution
procedures in contract terms and
conditions
Evaluation Committee

• Must always be odd in number

• Representatives Finance, end user or
requestor, technical person in
general are included in the
committee
• Consultant firms are hired to conduct
evaluation of Complex cases
• Briefing in advance must be given
 Benefit-Cost Ratio

Functional Performance
Value for Money =
Resources Consumed

 With whole of life considerations

of:
 Cost related factors
 Non cost related factors; and
THANK YOU