OVERVIEW OF PROCUREMENT AND MATERIALS MANAGEMENT IN CONTRACTS

By

Dr. S.S.Seehra Additional Director (Highways) Intercontinental Consultants and Technocrats Pvt. Ltd. & Former Director Grade Scientist & Head, Rigid Pavements Division, Central Road Research Institute, New Delhi.

Intercontinental Consultants & Technocrats Pvt Ltd. New Delhi

GENERAL
Project overruns attributable to delay in the supply of
critical equipment and materials are very common in India. delivery, manufacturing defects, incorrect specifications, belated replacements, pilferage, shortage, etc., are common problems in almost all projects. storage, leading to deterioration, is not uncommon.

Delayed

Very early supply of some items also, with resultant long

A vigilant project management can ward of much of these

problems by proper planning and control of procurement and efficient post procurement materials management.

PROCUREMENT MATERIAL SCHEDULING AND COVERING

Critical equipment and bulk materials
Mechanical
Electrical Instruments

Refractories
Construction equipments Civil Engineering materials and other bulk materials

Project Consumables Raw materials and feed back Lubricants, spares and manufacturing consumables

PROCUREMENT PLANNING AND COVERING

Indenting

Buy or make decision

Bid documents preparation Asking for bids/quotations Bids evaluation Acceptance and approval

Ordering
Vendors confirmation Inspection, testing and quality assurance

Expediting

contd . . .

Risk-purchase and contingency plans

Ex-factory delivery Packing and despatching Insurance Transport and clearances Receipt, checking and tallying Transit damage/shortage reports Replacement supplies

Logistics planning
Procurement budgeting Implementation of the plans

A purchase function assisted by finance department

MATERIALS MANAGEMENT (MM)

MM covers storage and control of the flow of materials
from the on-site delivery point to the sites of consumption or use or incorporation.
demand and supply of materials to ensure success of the project.

Procurement and MM are the interface between the

PROCUREMENT OF MATERIALS CLASSIFICATION OF PROCUREMENT

Bought-out equipment and components designed by
vendors for any particular project such as boilers, pumps, motors, valves, etc. package

Equipment by turnkey contractors as a part of their total Designed and ordered by the enterprise

Bulk materials like sand, bricks, pebbles, cements, steel,

lime wood, piping, insulation materials and cables based on engineering drawings for all the work segments together.

Contd . . .

Consumables and loose tools specifically needed in the

construction such as binding wires, nails, screws, bolts, nuts, washers, gas, electrodes, cutting and grinding wheels, petrol, oil, lubricants, cotton waste, etc. and tools other than construction equipment. Depending on the approach to be adopted for construction, these may or may not form part of the contractors obligations. shovels, dumpers, trucks, tractors, trailers, compressors, welding equipments, fabrication and machine shop equipment, etc.

Construction equipment like cranes, derricks, winches,

Administration equipment and materials like motor

vehicles, air conditioners, refrigerators, office equipment, etc. for facilitating administration work. Printing and stationery also might be bracketed with this class.

PROCUREMENT ORGANIZATION AND USE OF PROCUREMENT AGENTS

Whether project procurement should be under the project
manager (PM), or be independent of him, is a matter for the top management to decide on the considerations of efficiency.
the turnkey contractor does not have the necessary organization to handle it, procurement agents may be employed.

In projects where procurement is complex, if the owner or

Procurements agents are generally well-versed in national and international procurement in line with the World Bank guidelines. Documentation and clearances are also handled by them.

MATERIALS SCHEDULING
The first step in materials scheduling is listing. This is
done by project Engineer (PE) on the basis of drawings or other engineering details. with reference to on-site delivery times to suit the work schedule network manually or on computer to facilitate timely action. but procurement scheduling is a purchase function.

Materials scheduling which follows the listing is done All key materials shall be scheduled in the form of

Delivery scheduling of materials is purely a PM function

In Indian conditions it is presently too much to expect a
just-in-time delivery of materials that will straightway go into the work.

PROCUREMENT PLANNING
In the detailed procurement planning, every action step is
necessary to deliver all materials on the site as per schedule of the orders of PM.

The lowest bid gets the order

Vendors confirmation of the order

Expediting by the owners buyers Manufacturing by the vendor Quality control and inspection Packing of materials to the site

Contd . . .

Risk of the neglecting vendor risk purchase clause

gives the owner the right to get the order executed by others at the cost and risk of neglecting vendor.

Procurement budget and cost control

Procurement through turnkey contract covering the
composite responsibility of engineering, design, manufacturing and/or supply of materials, construction and commissioning. activity loading, transport, port clearance unloading, storage facilities and site transportation, etc. ocean/inland transport of materials loading unloading depending upon the contract conditions.

Logistics planning it is a major planning of project The turnkey contractor may take the responsibility of
and

LEGAL ASPECTS OF PURCHASING CONTRACTS

Every purchase order is a contract involving several legal
provisions.

Every bit of it should be legally worded The procurement department has to handle customs,
excise, sales, tax claims against the enterprise and disputes raised by the vendors. The department should, therefore, have a legal cell.

MATERIALS MANAGEMENT (MM)

MM is strictly a part of construction management Poor MM delays the projects and leads to even cost
overruns.

Checking of materials on arrival Recording the receipts in the engineering documents. Storage on site, handling and retrieval

Risk management
Rectifications, repairs and replacements at site. Inventory control

Contd

Wastage and damage during usage/erection Owners supplies to Contractors Transfers to general maintenance stock The project manager (MM) and chief materials manager
(CMM) should have thorough knowledge of the present and future supply vis--vis the demand of the project.

CONTRACTING AND CONSTRUCTION MANAGEMENT (CCM)

Contracting is the process of establishing a relation
between the owner and the contractors to execute the project work, mainly construction.

It has many legal and commercial facets, and, therefore, its

handling calls for specialized knowledge and practical experience more importantly in the following:

Indian Contract Act, 1872

Indian Arbitration Act, 1940

TYPES OF CONTRACTS
The popular types of contracts are: Turnkey contract Measurement contract Lumpsum works contract Item rate contract Piece rate work

Labour supply contract

Hybrid contract Fixed price and variable price contract

CONTRACTING PROCEDURE
Contracting procedure is more or less the same as
procurement procedure. The usual steps in contracting are the following:

Work packaging Preparation of tender documents

Determination of the contractors; qualifications to

undertake the work package

Pre-qualification of contractors

Tender invitation
Tender submission Tender opening

Contd. . .

Evaluation and recommendations Approval of contract

Award of contract
Signing of agreement with detailed contract conditions Drawings, bills of quantities and technical specifications

Schedule of rates
General conditions of contract Special conditions of contract Specimens of bank guarantees Size of the contract package should be neither too large
nor too small for one or more reputed contractors to handle.

CONCLUSIONS
Efficient procurement and materials management lead to
project success.

Timely on-site delivery of materials to suit the

construction schedule will greatly avoid time overruns should be made possible

By proper planning and vigilant follow-up actions, this Procurement of materials should be planned with prefect
integration into the engineering and construction schedules.

As approximately 60% of the project cost is spent on

materials, close control on procurement cost is necessary for controlling the overall project cost.

Management of materials after their on-site delivery is

important project activity.

Contd . . .

Storage and control of the flow of materials from the on-

site delivery points to the sites of incorporation/use need vigilant attention by the project team and the materials department, so that every piece of materials is available when required at project site. which will result in preventing long storage time, massive stock, storage risks and above all, will ensure the timely supply of the required items for an efficient project implementation. technique is not workable in the Indian projects.

In projects there is a need for a good inventory control,

A just-in-time (JIT) supply and inventory control

Contd

In variable price contract the prices are subject to

variations according to the rate of inflation in the country, on some agreed formula. In fixed price contract, the prices remain fixed throughout the contract period except for fluctuations in taxes, duties and statutory levels.

In long-term contracts normally no contractor would agree to the fixed price condition, especially in an inflationary economic situation.

Contract for every package must be awarded sufficiently

in advance of the starting date of the work so that the contractor is able to mobilize his resources and move in before the starting date. interest of overall efficiency of the project.

Crisis situations should be avoided at every step in the

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