The Procurement Journey: From Strategy to Execution

In the realm of project management, procurement is a critical process that involves the delegation of project goals to an external party. This process may encompass acquiring various deliverables, such as the hiring of a project manager, amongst other things. After this, the project manager takes it upon themselves to identify and assemble the necessary skills to define and design the project in detail.

The PMBOK® lays out a comprehensive approach to project procurement management, comprising of several key processes. During the planning phase, the initial step involves creating a plan for procurement management. In the implementation phase, the focus shifts towards conducting procurements, followed by the control procurement process. Lastly, during the closure phase, the project team will close procurements.

The Procurement Process starts with the appointment of a Project Manager who will then bring in the necessary internal or external expertise. Consultants may work directly with the organization, with the Project Manager, or as sub-consultants to the Project Manager. It is crucial to ensure that any procurement system used only exposes the organization to acceptable levels of risk.

Procurement is a complex process that entails much more than just purchasing goods or services. It involves an intricate web of activities, including identifying sources of supply, negotiating with suppliers, requesting quotes, analyzing them, selecting the best supplier and placing orders. Furthermore, procurement often requires monitoring progress, expediting orders, arranging for inspections and tests, organizing delivery to the desired location, ensuring safekeeping of purchased items, and verifying that the invoicing is accurate. In short, procurement is a multi-faceted effort that demands attention to detail, savvy negotiation skills, and a commitment to excellence.

Tender Documentation

Ensuring good project documentation is crucial to a project's success, and the responsibility lies with the project manager. The project manager must ensure that the project scope and objectives are clearly defined, that the documentation accurately reflects what is needed, and that the requirements are realistic. Additionally, the requirements of the project plan should be transferred to the documentation, and the contract should reflect the Project Plan. It is also important to establish a clear process for monitoring progress and managing change.

However, achieving perfect contract documentation is challenging, as tenderers often identify errors or omissions and seek answers to unforeseen questions. Despite this, the project manager should strive to avoid issuing addenda to tender documentation while it is out for bid. Doing so might lead to misunderstandings, unsatisfactory responses, or other disadvantages. Instead, it is necessary to clarify any uncertainties to all parties involved.

Tendering

The purpose of requesting tenders is to acquire the best value for money when obtaining goods and services. Prior to this, we may call for Expressions of Interest (EOI) to identify potential tenderers based on their contractors' capabilities, available technology, and management capacity. To determine the fee structure, we have various options such as a lump sum, fixed price-variable, schedule of rates, cost and fixed incentive fee, cost and fixed fee, and cost and % fee.

The Tender Evaluation process helps us identify the best procurement option and achieve the best value for money, fitness for purpose, reliability, delivery, whole-life operating costs, ongoing support and warranty. We also ensure that the selection process is conducted with probity, and technical, financial, and business arrangements are kept confidential. Additionally, we ensure that there are no conflicts of interest between official and personal dealings, and decisions are transparent, auditable, and open to scrutiny.

During the evaluation process, tenderers are evaluated against pre-determined criteria. These criteria are not revised during the evaluation, and some of them include experience in providing and supplying services, management capability, technical expertise, compliance with contractual terms and conditions, pricing, schedule, quality assurance, management, and capital, and risk identification and management capability. Considering these criteria, we effectively assess the relative value for money of each tender, and then make the final selection.

What is a Contract?

A contract is a legally enforceable agreement between two parties that involves promises. To form a contract, there must be an offer and acceptance of that offer, which must be supported by consideration. This means that something of value must be exchanged between the parties. A contract cannot rely on any breach of common or state law to be enforceable.

To create a binding contract, the intention of the parties to deal with each other must be clear. The acceptance of an offer must be communicated in the manner described in the contract or by a generally accepted method. If the acceptance is not communicated properly, the contract may not be valid.

Consideration is something of value that is exchanged between the parties at the time of the agreement or promise. It does not necessarily have to be money.

Some contracts must be in writing, and even if not all of the contract is in writing, there must be some note or writing indicating the material terms or conditions. A contract must be carried out according to the terms set out in the agreement.

The quality of a contract depends on how well the parties clarify and simplify the description of what is wanted.

TYPES OF CONTRACTS

Contracts in the construction industry can be categorized into several types. Lump Sum (Firm Price) Contracts, for example, are agreements where the contractor agrees to provide specific goods and/or services at a fixed net price with no variation allowed. Fixed Price Variable Contracts are used when the requirements are clear, but the contract risks relate to the time, cost of money, labor, or raw materials. Meanwhile, Schedule of Rates (Period) Contracts are used when a contractor provides goods and/or services at a set rate for a specified period.

For cases where technical risk is very high, the Cost Plus Incentive Fee contract is used. This is because a ceiling price cannot be determined before contract signature. On the other hand, the Cost Plus Fixed Fee contract reimburses the contractor for all contract costs plus a fixed amount of profit (such as time + materials + $x fixed profit).

There are also different construction contract systems, including Construct Only, Design Development and Construct, Design, Novate and Construct, Design and Construct, Build, Own, Operate (BOO), and Build, Own, Operate and Transfer (BOOT). Additionally, delivery systems in the construction industry can be categorized as Single Contract, Multiple Contract, Period Contract, and Direct Labour.

NEGOTIATIONS

When negotiating purchases, the price is often seen as the starting point. However, a skilled negotiator will first explore ways to improve the overall value for money package by negotiating better terms and conditions. These may include technical support, financial aspects, risk management, management information, government support, timeframes, performance incentives, and general matters such as packaging and freight. After these matters have been addressed, it would be appropriate to negotiate on price.

To prepare for negotiations, a checklist should be followed. This should include forming a team, considering your own position and interests, seeking advice from stakeholders, developing proposals, setting targets, identifying a best alternative to a negotiated agreement, determining deadlines, choosing a location, planning for interruptions, providing private meeting space, setting an agenda, and preparing personally. By following this checklist, you can ensure that you have thoroughly prepared for the negotiation process.

Plan Procurement Management

When planning purchases and acquisitions for a project, it's important to determine which products, services, and results outside of the project organization will meet the project's needs. This involves taking into account various inputs such as the Project Management Plan, Requirements documentation, Risk Register, Activity resource requirements, Project Schedule, Activity cost estimates, Stakeholder register, Enterprise organizational factors, and Organizational process assets.

To aid in this process, tools and techniques like make-or-buy analysis, expert judgement, market research, and meetings can be used. The end result is the creation of a Procurement Management Plan, Procurement Statement of Work, Procurement documents, Source selection criteria, Make-or-buy decisions, Change requests, and Project documents updates.

When short-listing potential sellers, it's important to evaluate them based on mandatory criteria such as their understanding of need, technical capability, management approach, financial capacity, accreditation, and references. Failure to meet any one of these mandatory criteria results in elimination from the short list. Expression of Interest (EOI) can be used to evaluate potential sellers prior to a full Request for Proposal (RFP).

A Weighted Scoring System can then be used to allocate numerical weightings to each of the Evaluation Criteria, which is typically used when seeking to procure goods. This system justifies why one tenderer has been rated differently to another, and is developed before seeking quotations or tenders. To create the matrix for measuring importance and compliance, it's important to consider both the client's perspective and the quotation/tender's compliance.

To compare offers:

By utilizing the 'Compliance Rating' table, you can accurately assess the technical compliance of each offer. This method will provide an all-encompassing score. Once you have determined the individual score of each criterion, remember to multiply it by the corresponding 'Importance' rating. Through this process, you will be able to generate a weighted score that considers the relative importance of each criterion. The spreadsheet below provides a clear illustration of how this analysis works.

‘Importance’ weightings are assigned during tender evaluation planning'
‘These are considered from the table prepared earlier

Conceal the weightings before you enter ‘compliance’ scores
Score each offer, criteria by criteria, against the compliance matrix you prepared earlier

To calculate the total scores, add all the weightings and multiply them by the highest possible 'compliance'. This will give you the 'perfect score'. For instance, in this example, the calculation would be (10+6+4) x 5 = 100.

When evaluating bids, it's important to first establish the technical quality of the bid and then compare prices. Negotiating price is often easier than negotiating quality. Sometimes it may be justifiable to select a bid that is not the lowest in price based on the value for money it offers.

Project management strategies for procurement

In earlier times, procurement was viewed as an isolated function that solely fulfilled orders and operated independently from other departments. However, in recent times, procurement has transformed and become more cross-functional, requiring collaboration with various departments for project-based strategies. Procurement experts now assume the position of project leaders, with their responsibilities encompassing goal setting, team establishment, and result measurement. This new role presents a unique set of management challenges that necessitate project management skills. Procurement project teams are typically comprised of individuals from different organizations and functions, such as suppliers and customers. This makes financial impact more significant, particularly when the focus is on identifying new suppliers or materials or reducing costs. As a result, conventional project management strategies taught in business schools may not always be suitable for procurement experts.

How the World Bank Improved Its Global Sourcing and Supplier Management System

The World Bank is a global financial institution that provides loans and grants to developing countries. In order to ensure that its procurement process is efficient and effective, the bank has implemented a number of improvements, including a new business process management (BPM) system.

The old system was decentralized, which meant that project leaders from around the world had to access multiple systems and manage most of their procurement tasks manually. This led to problems with transparency, compliance, and institutional memory.

The new BPM system is a web-based eprocurement system that centralizes all procurement activities. This makes it easier for project leaders to find and manage suppliers, and it also helps to improve transparency and compliance. The system also includes a database of information about past and current projects and procurement activity, which helps to improve institutional memory.

The implementation of the new system was a complex project that involved five phases:

1. Discovery and assessment: This phase involved identifying the strengths and weaknesses of the existing system and recommending improvements.
2. Strategy and prioritization: This phase involved creating a strategy for the new system and developing a budget.
3. High-level design and low-level design: This phase involved transforming the vision for the new system into detailed plans.
4. Development: This phase involved customizing, configuring, integrating, and testing the new software system.
5. Deployment: This phase involved training users on the new system and making it available for use.

The implementation of the new system was a success, and it has helped the World Bank to improve its global sourcing and supplier management system. The new system is more efficient, effective, and transparent, and it has also helped to improve compliance.

Here are some of the key benefits of the new system:

• Increased efficiency: The new system has helped to reduce the time and effort required for procurement activities.
• Improved effectiveness: The new system has helped to ensure that the bank is getting the best value for its money.
• Enhanced transparency: The new system makes it easier for the bank to track and monitor its procurement activities.
• Improved compliance: The new system helps the bank to comply with all applicable regulations.
• Enhanced institutional memory: The new system creates a database of information about past and current projects and procurement activity, which helps the bank to learn from its experiences and improve its procurement practices over time.

The World Bank's experience shows that it is possible to improve the efficiency and effectiveness of a global procurement system by implementing a new BPM system. The new system can help to reduce costs, improve transparency, and enhance compliance.

How Francine Holloway Led the World Bank's Office Technology Team to Success

Francine Holloway, senior contracts officer at the World Bank, was largely responsible for managing the implementation of a new enterprisewide system. She faced a number of challenges, including selecting the right vendor and software product, assembling a cross-functional team, and getting everyone to work together.

Holloway knew that senior management sponsorship and support would be essential to the project's success. She worked closely with the bank's CIO to secure their buy-in and to get the resources she needed.

She also took the time to carefully select the members of the cross-functional team. She wanted people from different departments and with different perspectives, so that they could bring a variety of ideas to the table. She also made sure to choose people who were willing to work collaboratively and who were committed to the project's success.

Once the team was in place, Holloway worked hard to build a culture of collaboration and trust. She held regular meetings to keep everyone updated on the project's progress and to get feedback from team members. She also made sure to celebrate successes along the way, which helped to keep the team motivated.

The project was a success, and the new system is now being used by employees around the world. Holloway's leadership was instrumental in making this happen. She demonstrated that it is possible to lead a cross-functional team to success, even in a large and complex organization.

Here are some of the key lessons that can be learned from Francine Holloway's experience:

• Senior management sponsorship and support are essential to the success of any cross-functional team.
• It is important to select the right members for the team, with a variety of skills and perspectives.
• The team leader needs to build a culture of collaboration and trust.
• It is important to celebrate successes along the way.

By following these tips, you can increase your chances of leading a cross-functional team to success.