7PJMN004W: Project Finance and Procurement

Lecture 2: Project Procurement – Overview and

Planning

Module Leader (Procurement): Walaa Bakry

7PJMN004W: Project Finance and Procurement

Lecture 2: Project Procurement - Overview and Planning
PMBOK Processes Terminology
Plan Procurement Management: The Process of
documenting procurement decisions, determining the
procurement approach, and identifying prospective
sellers.
Conduct Procurements: The Process of obtaining
responses from prospective sellers, selecting a seller and
awarding a procurement contract.
Controlling Procurements: The Process of managing
seller relationships, managing contract performance,
managing change and closing out contracts.

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Objective

• The objective of this session is to be able to

evaluate the most suitable options for delivering a
procurement project
• Content:
Make vs. buy
Overview of the procurement process
Business case and funding options
Governance and planning

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What is procurement?

“…process of acquiring supplies, works and services, covering

acquisition from both third parties and in-house providers. The
process spans the whole cycle from identification of needs, through to
the end of a service contract or the end of the useful life of an asset.”
Sir Ian Byatt

Types of procurement
•Supplies – corporate and operational expenditure (the supply of
goods and commodities) – not relevant to PF
•Services – people and teams to plan, guide, advise, design, develop,
consult, care, operate and provide services
•Works – construction and commissioning of facilities, buildings,
infrastructure and capital assets.

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 Procurement
Workflow
Process

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What’s the impact of procurement?
Getting it right… Getting it wrong…
• Manages, minimises and • Poor service delivery
mitigates risk
• Gives management control • Cost overruns
• Helps enhance the service you • Increased risk
receive
• Loss of control
• Helps create efficiency savings
• Non-compliance with legal /
• Maintains consistency
regulatory procedures
• Due diligence
• Legal challenge
• Legal & regulatory compliance
• Fines
• Disciplinary procedures

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Finding the right solution
• Many procurement staff assume that the market will provide the required
solution
• We should not rush to this conclusion without appropriate ‘make vs. buy’
consideration
• Make = undertaking the service/product provision internally
• Benefits include utilisation of resources / assets, internal control
on the delivery
• Risks may include cost and/or lack of internal expertise
• Buy = utilising a third party provider to supply the services (i.e.
contracted-in services)
• Benefits include wider access to resources and specialist skills,
competitive costing and competitive delivery/service quality
• Risks may include loss of control and added cost

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Drivers for Buying-in
• Quality – increased quality demands, shortage of
trained staff, supplier’s expertise (“know-how”)
• Cost – to assist in controlling and decreasing costs,
economies of scale
• Finance – to avoid diverting funds from core
business
• Core business – to allow companies to concentrate
on its core skills, whilst utilising the service provider’s
expertise
• Headcount reduction – staff transferred to service
providers

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Outsource Decision Matrix
High

Work with Retain & Enhance

Strategic Importance

Strategic Partner (internal)

Reduce or
Outsource
Eliminate

Low High
Operational Importance
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Planning the procurement activity

• Procurement processes take time – often more than expected

• Amongst others, you need to consider the following activities:
• Involving stakeholders and building the business case
• Preparation of specification and bid documents
• Running the bid enquiry / tender process
• Evaluating the bids
• Making the Award
• Lead time to commence
• The end-to-end process could take 6-9 months, often longer for
contract procurement

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Before Going to the Market
• Specification
• Involve key stakeholders
• Soft market testing (where appropriate)
• Balance needs vs. wants
• Prepare an effective specification with suitable measures
• Business Case
• Assess risks
• Appraise financial and non-financial options
• Procurement Strategy
• Document the delivery mechanism for the solution and key
commercial considerations

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The Enquiry Process
• The ‘go to market’ phase involves:
• Advertising
• Inviting
• Selecting (as well as excluding)
• Evaluating & notifying
• Awarding
• Range of prescribed procedures
• Most common:
• open tendering
• restricted tendering

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Implementation & Management

Implementing the contract involves:

 Finalising the legal agreement
 Transitioning to the new supply arrangement
 Mobilisation and ramp-up
 Contract management
 Supplier performance management
 Exit and termination

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Summary points

• Procurement is ingrained in a regulatory framework – it’s

a legal process, so take care!
• Procurement strategies need to consider all options
(including make vs. buy, Fixed-Price vs. PPP)
• Business cases need clarity of information (financial and
non-financial)
• Government guidance recommends collaboration as one
of the principal means of efficiency.

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