project management project procurement & contract administration jiwei ma

Project Management

Project Procurement &

Contract Administration

Jiwei Ma

Content

Project procurement concept Planning of project procurement Source selection and solicitation Bid evaluation methods Contract administration Construction project procurement

Project Procurement Concept

Definition Project procurement and operation

procurement Project procurement categories Types of contract Basic procedure of project

procurement


Definition Project management tasks to deal with

part of the project's scope of work which will be bought from another organization, sometimes the result of company teaming arrangements, but most typically resulting from contracting or subcontracting project scope.

Project Procurement Concept Project procurement and operation

procurement Both purchase products and services from

another organization Usually through solicitation and competition bid

or negotiation Usually under the format of contract or mutual

agreement Sometimes form stable relationships, such as

alliance or partnering The process needs to be monitored, managed,

and finally audited

Project Procurement Concept Operation

procurement Continuous on-going

production environment

Mature organization with stabilized position

Long-term cooperation Mostly bulk quantity

purchase Minimized nonstandard

product

Project procurement Non-repetitive, progressive

environment Temporarily established

organization Short-term cooperation Mostly low-volume quantity Usually customized product or

service


Project procurement categories Materials or products Equipment or tools Labors Professional services Entirely engineered system


Types of contract Lump sum contract

Customized product or complicated system Unit price contract

Commodities or standard services without predefined quantity

Cost + fee contract Professional services or labors


Basic procedure of project procurement Define the project scope: produce or procure Draft of project procurement plan Source selection and solicitation Proposal evaluation and negotiation Supplier selection Mutual agreement or signing of contract Contract administration Close out of the contract

Planning of Project Procurement

Basic rules Clearly defined scope is the basis of procurement Different categories of procurement need different

types of procedures and methods Procurement itself costs time and money Items on critical path and long-lead items are critical

to project implementation Long-term relation with supplier makes difference Early supplier involvement is important to project’s

success Variations to contract might contain serious impact

on project


Procedure Define the scope of procurement Categorize and list procurement items Select contract type, accordingly Determine principles of source selection Determine solicitation methods, respectively Determine proposal evaluation method,

respectively Define contract administration responsibilities and

tasks Define contract closeout procedures


Content of project procurement plan Scope of procurement Procurement responsibilities of project team

members Procedure of procurement Source selection and solicitation Evaluation method or criteria Types of contracts or agreements Monitoring and managing of procurement

contract Closeout of contract

PROJECT PROCUREMENT PLAN

Project Name:

Prepared by:

Date (MM/DD/YYYY):

1. Procurement Definition

Describe, in specific terms, what items will be procured and under what conditions:

2. Contract Responsibility

Project Team members who are authorized to enter into contract agreements or purchase for the Team (insert rows as needed):

Name: Phone: Responsibility:

3. Vendor Selection

Describe what steps the project team will take to select a vendor (e.g. RFI, RFP)

4. Decision Criteria

Define the circumstances under which a contract may be initiated:

5. Contract Type

Document which types of contracts will be used and what actions need to be taken to initiate procurement.

PROJECT PROCUREMENT PLAN

6. Contract Standards

Provide the standards for documentation that will need to be initiated and maintained for each contract.

7. Vendor Management

Describe what steps the project team will take to ensure that the vendor provides all of the products and/or services (and only the products and/or services) that were agreed upon, and that appropriate levels of quality are maintained..

8. Project Procurement Plan / Signatures

Project Name:

Project Manager:

I have reviewed the information contained in this Project Procurement Plan and agree:

Name Role Signature Date

(MM/DD/YYYY)

The signatures above indicate an understanding of the purpose and content of this document by those signing it. By signing this document, they agree to this as the formal Project Procurement Plan.

Source Selection and Solicitation

Source selection Based on selection procedure

Open Invited Exclusive

Based on supplier category Domestic, joint venture or foreign company Company or individual

Based on supplier identification Vendor or service provider Distributor or dealer/agent

Source Selection and Solicitation

Solicitation Methods

Public announcement (media) Selected invitation (with prequalification) Selected invitation (without prequalification) Direct negotiation (long-term partners)

Principles Selection of the solicitation methods:

characteristics of products or services Public funded project: “selective” and “non-

discriminative” solicitation

Bid Evaluation Methods By evaluation criteria

Low price Cost effectiveness Performance

By procedure Competitive bid Negotiation Technical feasibility evaluation + price selection

By executive body Procurement management personnel Third party or consulting personnel

Contract Administration

Overall responsibilities Preparation and negotiation of contract Monitoring and managing contract Managing supplier communication Managing supplier relationship Managing procurement change

Contract Administration Key tasks

Set up contract administration team and working procedure

Plan for strategies and tactics to deal with suppliers based on their contract types

Identify and analyze risks associated with various types of contracts and plan for mitigation strategies

Develop and enforce key performance indicators Establish supplier reporting requirements

Contract Administration Key tasks

Monitor contract execution progress and find any variations to contract in a timely manner

Manage variations to contracts, including cost, quality, scope, delivery and any breaches of terms and conditions

Make payment schedule and monitor payment procedure

Deal with claims and find appropriate resolution Manage contract closeout and final auditing Select historical procurement file for

documentation

Construction Project Procurement

Overview

Scope of procurement

Procurement system

Procurement method

Construction Project Process Overview

Implementation

Decision Making

Design Preparation Design Construction Startup WarranteeDecision

Making

Project

Prop

osal

Feasib

ility Stu

dy

Design

S

pecification

Prelim

inary D

esign

Design

Develop

men

t

Con

struction

Docu

men

t

Con

struction

Accep

tance

TIME

Business Analysis

Technical Description

Technical and implementation planning

Input of labor, materials, equipment, services, etc.

Accounting, resolution of claims, etc.

Testing, inspection, evaluation, etc.

Construction Project Procurement Scope of procurement

Professional services Financial, technical feasibility analysis, project

management, technical consulting, geological survey, design, inspection, testing, legal services, etc.

Engineered system Entire system, part of a system, etc.

Material Bulk materials, special products, etc

Equipment leasing Equipment, tools, etc.

Labor supply Skilled, non-skilled, etc.


Procurement system Designer led competitive tender Designer led construction works

managed for fee Package deal Project manager/client’s representative-

led

Construction Procurement System

Construction Project

Procurement System

Designer Led

Competition Tender

Designer Led Construction

Managed for a Fee

Package

Deal

Project Manager/Owner’s Representative Led

Separate Contracts

General Contract

Management Contracting

Construction Management

Turnkey Design-Build

Owner

Designer Led Competitive Tender- Separate Contracts

Designer

Contractor 1

Contractor 2

Contractor m

Supplier 1

Supplier 2

Supplier n

Designer Led Competitive Tender- General Contractor

Owner

*Owner outsourced tasks

General Contractor

Design

er

Su

pp

lier

Su

bcon

tractor

* *

Su

bcon

tractor

Su

bcon

tractor

Su

bcon

tractor

TIME

Design

Construction

Bidding

Construction Project Procedure

Owner

MC/CMDesigner

SubcontractorS

ubcontractor 1

Subcontractor 2

Subcontractor m

Supplier 1

Supplier 2

Supplier n

Supplier

*Owner outsourced tasks

* *

Designer Led Construction Management for a Fee

- Managing Contractor/Construction Management

TIME

MC/CM Bidding 。。。

。。。

Construction Document

Conceptual Design

Preliminary Design


Subcontractor Bidding

Package Deal – Turnkey/Design-build

Owner

Design

er

Su

pp

lier

Su

bcon

tractorTurnkey/Design-build Contractor

TIME

Turnkey/D-B Bidding

。。。

。。。

Construction Document

Conceptual Design

Preliminary Design


Subcontractor Bidding


Procurement method

Competitive bid

Performance based procurement

Construction Project Procurement Competitive bid

The contractor is selected on the basis of competition

Detailed design has to be finished Low bidder preferred, in most cases Usually adopted for the selection of contractor,

subcontractor, material supplier, equipment vendor and special service provider

Not applicable for professional services, such as design, engineering, consulting, etc.

Not applicable for labors Mandatory for public funded project in some

countries

Scenario of Competitive BidOwner Designer

Subcontractor 1

Subcontractor 2

Subcontractor i

Service P

vd 1

Service P

vd 2

Service P

vd j

Supplier 1

Supplier 2

Supplier m

Vendor 1

Vendor 2

Vendor n

General Contractor m

General Contractor 1



Competitive Bid Advantages

Lowest bid price selected Simplified bid evaluation method Open and justified contract award procedure

Disadvantages Possible mistakes and missed items due to hasty bid

preparation Contradictory view on quality standard between owner

and contractor Quality of the work controlled only by project design

and specification Potential risks of project not identified Qualification of the contractor not evaluated Project experiences not used for future reference

Construction Project Procurement Performance based procurement

The contractor is selected on the combined basis of contractor’s performance and owner’s expectation

Contractor’s overall performance level has been evaluated based on the past performance and ability to minimize the project risks

Owner’s priority of objectives or perception of risks has been taken into account of contractor selection

Final output of contractor’s performance and owner’s satisfaction will be rated and utilized for future reference

Performance Based Procurement

Procedure Collection of the contractors’ past

performance information Request for and rating of risk assessment

plan with a final shortlist Interview with project team and the key

personnel with prioritized list Pre-award negotiation and contractor

selection Reporting and rating of contractor’s

performance in the project

PastPerformanceInformation

Risk Assessment Plan & Short List

Interview & Prioritization

Pre-AwardPeriod

Construction Reporting & Final

Rating

Performance Based Procurement Procedure

Time

Num

ber

of

Com

peti

tive F

irm

s