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Management
Procurement Planning
Make or Buy?
Share risk
Maintain flexibility
Procurement Processes
Procurement Processes
Contract
Different names:
Buyer = customer, sponsor, owner
Seller = vendor, supplier, contractor,
provider
Different perspectives:
For the buyer, the sellers work is
Differing Interests
Contract
Subcontracts
Project Manager as
Owner/Client
Buyer
Project Manager as
Seller
Project Manager as
Buyer
Project Manager as
Subcontractor
Seller
Contract Definition
Competent parties:
Legal age
B.
Lawful purpose:
Does not violate applicable laws
Compatible with public policy
12
13
D. Exchange of Value
Directly or indirectly
14
Example of
Exchange of Value
Buyer receives:
Financial value product or service
Seller receives:
Financial value payment
Non-financial value experience
15
16
Understanding the
Terms and Conditions
continued
Cost-Reimbursable Contracts
19
Price-Based Contracts
Unit price:
Fixed price
assumes fixed
scope!
20
Seller Estimate
Seller Actual
Cost
n/a
200,000
190,000
Profit/loss
n/a
25,000
35,000
225,000
225,000
225,000
Contract
Amount
21
Seller Estimate
Seller Actual
Cost
n/a
200,000
230,000
Profit/loss
n/a
25,000
5,000
225,000
225,000
225,000
Contract
Amount
22
Buyers Expectation
Reasonable Price
??
Sellers Estimate
Higher profit
23
Advantages:
Seller assumes cost risk
Disadvantages:
More effort needed to define scope
Changes can be expensive
24
Cost-Based Contracts
25
Cost-Based Contract
Terminology
26
CEOs
salary?
CEOs
salary?
Health insurance?
Materials
Office rent? used
in building product?
Project
Officemanagers
rent? salary?
Vacation
Projecttime?
managers
Vacation time?
salary?
27
28
CPFF:
Actual
CPIF: Actual
100,000
90,000
90,000
8,000
8,000
8,000
Incentive
(60/40)
n/a
n/a
+4,000
Contract
Amount
108,000
98,000
102,000
Cost
Fee
29
CPFF:
Actual
CPIF: Actual
100,000
110,000
110,000
8,000
8,000
8,000
Incentive
(30/70)
n/a
n/a
7,000
Contract
Amount
108,000
118,000
111,000
Cost
Fee
30
Contract Type
Cost Plus Incentive Fee contracts are:
a. only appropriate on construction
projects.
b. seldom used by a well-managed project
organization.
c. useful only for government agencies.
d. often cost effective for the buyer.
31
Advantages:
Less effort needed to define scope
Disadvantages:
Limited control over total cost
32
Hybrid Contracts
reached
33
Urgent = hybrid
Summary of
Key Points
These Topics will be presented from
the perspective of the Buyer
36
SOW
Tradeoffs
Buyer wants:
Flexibility
Minimum effort
Seller wants:
Clarity
Completeness
39
Procurement Overview
A. Planning preparing the
solicitation documents
41
Procurement Planning
42
Solicitation Planning
43
Solicitation
44
Types of Procurement
Documents
This usage is
common but not
universal!
45
Introduction or overview
Evaluation criteria
Source Selection
47
Source Selection
Types of solicitations
v
v
v
Sole source
Short list
Competitive
Evaluating responses
Negotiating an agreement
48
49
3. Competitive Solicitation
Professional journals
51
Evaluating Responses
6. Operability
2. Usability
7. Flexibility
3. Reliability
4. Maintainability
8. Social
acceptability
5. Availability
9. Affordability
53
Overall approach
Originality
54
Sellers reputation
Financial strength
Management systems
55
Reasonableness
Competitiveness
56
Mechanics of Evaluating
Responses
Screening system:
Eliminate proposals that dont meet
minimum requirements
Scoring system:
Equal or weighted factors
High score wins
57
Weight
Seller 1
Seller 2
Seller 3
Price
20
15
18
20
Sched
10
Staff
30
30
25
25
Plan
40
35
30
25
Total
100
88
81
78
58
Order of Negotiations
Staffing
Financial arrangements
59
Negotiation Reminders
Be careful of compromising
evaluation criteria
Summary of
Key Points
Match the solicitation approach
to the needs of your project.
Contract Administration
63
Contract Administration
64
Poor communication
Breach of contract
Payment disputes
65
Contracting Risk =
Poor Communication
Risk responses =
Kick-off meeting
66
Responsibility Assignment
Matrix
Person
Contract Item
Item 1
Item 2
Item 3
Item 4
R = Review
N = Notify
A = Approve
67
Contracting Risk =
Poor Change Control
Risk responses =
Clearly defined change control
practices
Change control practices specified in
contract
68
Contracting Risk =
Breach of Contract
Risk responses =
Payment of damages
Contractually specified corrective
action
70
Contracting Risk =
Payment Disputes
Risk responses =
Defined acceptance criteria
documents
71
Cumulative
Values
Planned Value
Actual Cost
Earned Value
Time
72
Payment Processing
73
Payment Terms
Advance payments:
Payments made prior to start of work
Usually made to support purchase of materials
amount
Method of calculation should be defined
within the contract
74
continued
Retainage:
Amounts withheld to ensure
performance
Final payments:
Payments made when all of the contract
76
Summary of
Key Points
Contract management is mostly risk
management.
Communicate, communicate,
communicate.
Conform to the contract.
77
79
Buyer view:
Seller should deliver as promised
Burden of proof is on the seller
Seller view:
Buyer knows best
80
Financial Guarantees
81
Payment bond:
Paid for by the Buyer.
insolvent.
Performance bond:
Paid for by the Seller.
Protects the Buyer if the Seller fails to
82
Warranties
Definition:
How post-completion failures will be
addressed
Normally limited to physical products
Coverage:
For how long?
Does a failure extend the warranty?
Responsibilities:
Can buyer actions void the warranty?
Limitation of Liability
Common limitations:
Indirect damages
Lawsuits by others
85
Summary of
Key Points
Product performance guarantees:
Be clear
Dont over promise
Contract Closeout
87