Contract Management

(Chapter 19)
Procurement

“The acquisition of goods or services”

•Two (2) party process than impacts profitability

•Strategies ...
• Corporate – predicated upon a centralized function
• Project – specific actions germane to the the project (i.e. sole source)
 Procurement Objectives

•Procure all goods/services from a single source

•Procure all goods/services from multiple sources
•Procure only a small portion of goods/services
•Procure none of the goods/services (make vs buy decision)
 Macro Level Factors

•Recession
•Inflation
•Cost of Borrowing
•Buyer or Sellers Market
•Unemployment
 Procurement Process

1. Plan Procurement
2. Conduct Procurement
3. Administer Procurement
4. Close Procurement
 Fundamental Types of Specifications ...
•Design Specifications – based upon
physical characteristics
•Performance Specifications – based
Planning upon measure capabilities
•Functions Specifications – based upon
end use
 • Evaluating / Confirming specifications
• Confirming qualified sources
• Reviewing past performance
• Reviewing of team or partnership agreements
Conducting the • Producing a solicitation package (sent to
Procurement perspective suppliers)

• Bid documents (compliance forms)

• Qualified vendors
• Proposal evaluation criteria (i.e. scorecard)
• Bidder conference (Q&A)
• How change request will be managed
• Supplier payment plan
Conducting the Procurement (cont)
• Advertising – No negotiation, sealed bid
• Negotiation – Bargaining process

Common Solicitation Artifacts ....

Request for Information (RFI) - a solicitation document used to obtain general information about products, services, or suppliers. It is an information request, not binding
on either the supplier or the purchaser, and is often used prior to specific requisitions for items. The purpose of an RFI is to gain familiarity with the current market for a
particular supply or service and to gather information in a formal, structured, and comparable way.

Request for Quotation (RFQ) - is a process in which a company solicits select suppliers and contractors to submit price quotes and bids for the chance to fulfill certain tasks
or projects.

Request for Proposal (RFP) - s a document that a business, non-profit, or government agency creates to outline the requirements for a specific project. They use the RFP
process to solicit bids from qualified vendors and identify which vendor might be the best-qualified to complete the project.

Invitation for Bid (IFB) - is an invitation to contractors or equipment suppliers to bid on providing a specific project, product, and/or service.

Difference between RFP and RFQ if evaluation criteria for evaluation (i.e. how) ... “How the supplier intends to satisfy the need “
Conducting the Procurement (cont)

Basic Elements of a Contract:

• Mutual Agreement – Offer and acceptance

• Consideration - Something of value was promised in exchange (distinguishes a contract from a gift)
• Contract Capability - ability of a person to enter into a contract
• Legal Purpose - Agreement must be for a legal purpose
• Form Provided by Law – Format is predicated upon jurisdiction requirements

All elements must be present to have an enforceable contract

Type of Contracts

Fixed Price - type of contract where the payment amount does not depend on resources used or time
expended.

Cost Plus - an agreement to reimburse a company for expenses plus a specific amount of profit.

Risk

Fix Price Cost Plus

(Seller) (Buyer)
Type of Contracts

Incentive Fee Agreement Parameters

• Target Cost
• Target Profit
• Sharing Ratio (Buyer/Seller)

Example
Target Cost $10,000
Target Profit $850
Share Ratio 70/30

Actual Cost $9,000 Better Than Expect Performance (30% to Seller)

Amount Owed = Actual Costs + Target Profit + 30% of Better Than Expected Performance
Amount Owed = $9,000 + $850 + 30%($1,000)
Amount Owed = $10,150
 • Tracking compliance of the seller to
the contractual terms
• Administering change
Contract • Potential termination
Administration • Performance control
 • Verification all work is complete, and
Contract deliverables accepted.
Closure • Administrative closing of contract