PROJECT MANAGEMENT –PROCUREMENT & CONTRACT
MANAGEMENT
Project Management –
Procurement & Contract
Management
• Recap on Project Management
Fundamentals
• Procurement Management
• Contract Management
PMI Processes Groups
KNO WLEDGE AREAS INITIATING PLANNING EXECUTIO NMO NITO RING
& CO NTRO L
CLO SE
O UT
INTEGRATIO N 1 1 2 2 1
SCO PE 4 2
TIME 6 1
CO ST 3 1
Q UALITY 1 1 1
HUMAN RESO URCES 1 3
CO MMUNICATIO N 1 1 1
RISK 5 1
PRO CUREMENT 1 1 1
STAKEHO LDERS 1 1 1 1
2 24 9 11 1
PRO CESS GRO UP
Projects & Project Management -
PMI
Project:• A project is a temporary endeavor undertaken to
create a unique product, service, or result.
Project Procurement Management• Processes to purchase or acquire products,
services, or results needed from outside the project team.
• Includes contract management to develop and administer contracts / purchase orders issued as authorized.
Management - PDCA
Triple Constraint – Pick Any Two
Time
Project
Scope
&RiskCostQuality
• Good & Cheap – Not Fast
• Cheap & Fast – Not Good
• Good & Fast – Not Cheap
Scope is specified, products/services are acquired, delivered and paid for through the procurement process.
Food For Thought – Scope &
StakeholdersELEMENTS OF PROJECT MANGEMENT (after PMBOK, 1996)
INTERNAL CONTROL _________________________________________________________________________________________________________ EXTERNAL INFLUENCES
Increasing Risk
Decreasing Control
RISK
HUMAN
RESOURCES
COMMUNICATIONS
PROCUREMENT SCOPE
STAKEHOLDERS INTEGRATION
Procurement- Influence on
Project
• WBS / CBS / RBS /OBS / TBS
• Procurement binds the organizations in the delivery of the scope to predetermined quality, time & cost.
• Procurement allocates risk to the party best suited to manage that element.
Risk Base
Simple
Buyer (Customer)
Project Team (Buyer / Seller)
Seller / Provider (Contractors)
Sells
Buys
Larson & ToubroLarson & Toubro
Complex
OWNER
PROGRAM TEAM
PROJECT TEAM
Larson & ToubroSub contractors Suppliers &
Sub Suppliers
CONTRACTORS
Procurement Management
•Plan Procurement – documenting procurement
decisions, specifying approach, identifying potential
sellers (i.e. suppliers)
•Conduct Procurement – obtaining seller responses,
selecting a seller, awarding contracts
•Control Procurements – managing procurement
(contract) relationships, managing performance,
making changes as appropriate (not necessarily
‘required’)
•Close Procurement – completing each procurement
PMI – Procurement
ManagementProcess Inputs Tools Outputs
Plan
Procurement
Management
PM Plan,
Requirements, Risk,
Resources,
Schedule, Cost
Estimate,
Stakeholder,
Organizational
Assets, Enterprise
(External) Factors
Make or buy analysis,
Expert Judgment, Market
Research, Meetings
Procurement Plan,
Procurement
statement of work,
procurement
documents, source
selection, make/buy
decisions, changes,
updatest
Conduct
Procurements
Procurement Plan,
Procurement
Documents,
selection criteria,
seller proposals,
statement of work,
organizational
assets,
Bidder conference,
evaluation techniques,
independent estimates,
expert judgment,
advertising, analytical
techniques, negotiations
Stakeholder
Management Plan,
Update documents
PMI - Procurement
Process Inputs Tools Outputs
Control
Procurements
PM Plan,
Procurement
documents,
Agreements,
Approved
changes, Work
performance
reports / data
Contract change control,
procurement
performance reviews,
inspections and audits,
performance reporting,
payment systems,
claims, records
management
Work performance
information, change
requests, document
updates,
organizational
process updates.
Close
Procurements
PM Plan,
Procurement
Documents
Procurement audits,
procurement
negotiations, records
management system
Closed procurement,
Organizational
updates (Lessons
learned)
Procurement
Management - PDCA
PDCA Cycle
PROCUREMENT
PLAN
PROCUREMENT
DOCUMENTATION
ANALYSE SELLERS
ENGAGE SELLERS
ISSUES ARISING
MONITOR
PROCUREMENT
PLAN
DO
DO
CHECK PLAN
ACTION
Procurement Management –
PQ & Tendering
SAUDI LAND BRIDGE - PROCUREMENT PROCESS
PQ Route
Establish Procurement
Strategy
PQ Queries &
response
Prepare Procurement
Manual & Procedures
Market DiscussionsIssue PQ through
Journals/Media
Prepare Tender Documents
Possible Project
Briefing
Evaluate PQ
Submission
CoC, SCoC, ITT, FoT, GS, PS,
M&W, Dwgs, BOQ (*)
Tenderer Queries from
all
Tender documents issued /
collected
Prebid Conference / Site
Visit
Submission & Receipt of
Tenders (Offers)
Select Tenderers /
Advise Others
Prepare PQ
Documents
PQ Returned
Issue Addenda as
required to all
Responses to all
Tenderers
Procurement Management –
Tender Evaluation
Technical Review
Further clarifications
(as required)
Opening of Technical
Submission
Further clarifications
(as required)
Tender Clarifications
(as required)
Tender Evaluation & Report
Commercial Financial
Review
Ensure fully complaint
offers/bids
Advise non-complaint bidder -
return financial bid
Tenderer Recommendation,
& Selection
Negotiations (as required)
Prepare wrap up letter (s),
contract documents
Food For Thought – Lowest Bidder
John Ruskin (1819-1900)
It is unwise to pay too much, but it is worse to pay too little.
When you pay too much, you lose a little money - that is all.
When you pay too little you sometimes lose everything because the
thing you bought was incapable of doing the thing it was bought to do...
If you deal with the lowest bidder, it is well to add something for the
risk you run, and if you do that you will have enough to pay for
something better.
Procurement Management –
Finalisation & Award
Advise Other Tenders of outcome /
return Bid BondContract Signing / Award
Tenderer Recommendation,
& Selection
Food For Thought -
Contractors
FEASIBILITY - INITIATION - PLANNING - ADJUDICATION - NEGOTIATE
AWARD
Sales Decision
Process
Interviews and
clarifications with
Client / Customer
Initial Review of
Tender Docs,
Conditions, Risk,
Scope
Technical Planning
of scheme, Costing,
schedule, risks,
price.
Review of tender &
risks, price,
qualifications.
Decision 1 Decision 2 Decision 3 Decision 4
Contractor
NEGOTIATE EXECUTION - CLOSE OUT -
AWARD
Interviews and
clarifications with
Client / Customer
Start up, execution
of works, reporting,
monitoring & control,
etc.
DLP Maintenance,
Admin Closure,
Contract Close out,
Final Account,
Acceptance.
Decision 4
Procurement Management
Post Award Contract
Administration• Kick – Off Meeting
• Physical Work
• Compliance with Contract Deliverables
• Compliance with Specifications & Drawings
• Compliance with Quality
• Management of Interfaces
• Compliance with Programme
• Payment Applications
• &…problems, delays, slippage, errors, changes, etc
Claims
• Claims
“Demands for something due, or believed to be due, as a
result of an action, direction, or change order against the
agreed terms and conditions of a contract that cannot be
(economically) resolved between the parties”
• Claims Management
Processes to prevent construction claims, to mitigate the
effects of those that may/do occur, and to handle claims
quickly and effectively”
Claims
Management – PDCA
If you do not move claims along parts of the project may not move –
If you are in a hole - stop digging!
Claims Identification
• Suddenly, a heated
exchange took place
between the king and the
moat contractor.
• AN EARLY
CONTRACTUAL
DISPUTE AS A RESULT
OF POOR
REQUIREMENTS, NO
FUNCTIONAL
SPECIFICATION & NO
DRAWINGS.
Claims should be treated fairly
and reasonably
Procurement Management
Claims• Delayed Drawings,• Right of access• Setting Out Errors• Unforeseeable Physical Conditions• Finding of fossils• Delays due to Engineer’s Instructions etc• Delays by authority• Delayed tests by Employer • Costs etc with Part Takeover• Change in Legislation• Employer's Risks• Insurances not in place by Employer• Variations• Any Delay caused by Contract Conditions• Exceptional Adverse Climatic Conditions• Unforeseeable shortages of labour
(epidemic)• Any delay attributable to Employer,
Employer’s personnel, other Contractors
NO
YES
NO
YES
Yes
No
No
Yes
CONTRACTOR PROVIDES
FINAL CLAIM AT 42 DAYS
CONTRACTOR PROVIDES MONTHLY
UPDATE
CONTRACTOR LODGES CLAIM PURSUANT
TO Cl 20.1
ENGINEER ADVISES OF CLAIM REFERENCE
+ ADD RECORDS
DISPUTE PROCESS
COMMENCESENGINEER REJECTS CLAIM
CONTRACTOR PROVIDES INTERIM CLAIM
AT 42 DAYS
FINAL CLAIM 28 DAYS AFTER CESSATION
ENGINEER DETERMINES AFTER 42 DAYS
FROM RECEIPT OF 'FINAL CLAIM'
PROCEED WITH DETERMINATION
(Rejected / Accepted)
CLAIM WITHIN 28 DAYS
IS CLAIM ONGOING?
Determination Accepted
IS CLAIM ONGOING?
Claim Assessment - Delays
Impacted Programme
C2-1 (Pier 85 to 79)
C1A-6
C3-1
EOT = 75 days
(Phase C2)
Bored pile & king post
Excavation / underpining
Slab - B2, B1 & L1
Touch-up / cleaning / handover
C2-1 complete (- 162 days)
12/10
21/11 10/7
4/11
14/11
15/12
Instruction given (18 Feb 08)
Additional time to confirm design
upon instruction and to perform
the instructed works (75 days)
C1A-6 complete (- 203 days)
B2 slab / pour strip
Touch-up / cleaning / handover
22/8EOT = 75 days
(Phase C1A)
B2 slab / pour strip
C3-1 complete
(-113 days)
26/10
3/8
EOT = 63 days
(Phase C3)
C3-1 complete (- 50 days)
Excavation / underpining
Claim Assessment – Source of
Costs
Employer’s Claims
NO
YES
NO
YES
NO
YES
END PAYMENT RECOVERED
ENGINEER ADVISES CLAIM
WILL NOT BE PERSUED
DISPUTE
CLAIMABLE EVENT OCCURS & EMPLOYER
INCURS COSTS
ENGINEER ADVISES CONTRCATOR OF
EVENT (2.5)
ENGINEER RAISES WITH EMPLOYER
ENGINEER ADVISES OF CLAIM REFERENCE
& QUANTUM (3.5)
ENGINEER REQUESTS FOR
JUSTIFICATION (if req'd)
ENGINEER ADVISES HOW PAYMENT WILL
BE RECOVERED
CLAIM NOT SUBSTANTIATED -
END
EMPLOYER WISHES TO
PROCEED
CONTRACTOR ACCEPTS?
ACCEPTABLE?
Claims Prevention / Mitigation
Variations
VARIATIONS
NO
YES
NO
YES
Maybe YES YES More Data
NO NO
NO
YES
Cancel Confirm
Variation Req'd
NO VARIATION TO BE
INSTRUCTED
ENGINEER ADVISES NO VARIATION TO BE
INSTRUCTED
SEEK ALTERNATIVE CONTRACTUAL
MECHANISM FOR VARIED WORKS
ENGINEER ADVISES TO
PROCEED UNDER 13.1
ENGINEER RECEIVES & REVIEWS
ENGINEER RECEIVES & REVIEWS
PERFORM WORKS AS PER VARIATION ORDER
(Maintain records & Adjust)
REQUEST FURTHER
INFORMATION
ENGINEER ISSUES 'REQUEST FOR PROPOSAL'
(13.3)
CONTRACTOR SUBMITS PROPOSAL (Scope,
Programme, Cost)
ENGINEER RECEIVES & REVIEWS
NEED/DESIRE FOR VARIATION IDENTIFIED
ENGINEER ISSUES VARIATION ORDER (13.1)
ENGINEER RECEIVES & REVIEWS
CONTRACTOR SUBMITS 'VALUE
ENGINEERING PROPOSAL' (13.2)
VARIATION BY
EMPLOYER?
DEFINITIVE VARIATION?
ACCEPTABLE /
ADOPTABLE?ACCEPTABLE /
ADOPTABLE?
OK to Contractor?
Engineer's Decision?
Beware the High Rate / Low
Quantity
Procurement Management
Payment ProcessP A YM E N T P R O C ES S F L O W
YE S
N O
N O YE S
C O N T R A C T W O R K S E X E C U TE D
E N G IN E E R IS S U ES P ER F O R M A C E C E R T IF IC A TE
(1 1.9 )
C O N T R A C T O R R A IS E S IP C
A P P LIC A T IO N (1 4 .3 )
E N GIN E E R / C O N TR A C TO R A G R E E IP C
C O M M EN C E M E N T D A T E
C O N TR A C TO R P R O V ID E S S EC U R IT Y &
G U A R A N TE E (4 .2)
E N GIN E ER IS S U E S IP C (1 4.6 )
E M P L O YE R P A YS (14 .7 )
D E F E C TS N O T IF IC A TIO N P ER IO D E N D S (1 1 .3 / 4 )
EN G IN E ER C E R T IF IES & IS S U E S IP C
(1 4.6 ) (+ 28 d )
E N GIN E E R P A Y S C O N TR A C TO R (1 4 .7 )
(+ 56 d )
TA K IN G O V E R C ER TIF IC A T E IS S U ED (1 0 .1 )
E N G IN EE R IS S U ES IP C F O R R E TE N TIO N M O N EY
(5 0 % ) (14 .9 )
C O N T R A C T O R S U B M IT S C O M P L ET IO N
S T AT E M EN T (1 4 .10 )
EN G IN E ER / C O N T R A C TO R A GR EE S TA TE M E N T
E N GIN E E R C ER TIF IE S & IS S U E S IP C F O R
C O M P L ET IO N (1 4 .6 )
E M P L O YE R P A YS (14 .7 )
A D V A N C E
P A YM EN T ?
W O R K S
C O M P LE TE ?
Payments
WORKS COMMENCE
(ADVANCE PAYMENT)
INTERIM PAYMENTS
• Contract Signed
• Advance payment
• Interim Payments
• Taking Over (50%
retention Released)
• Statement at Completion
• Performance Certificate
• Retention Released
• Bond Released
• Final Certificate
STATEMENT AT
COMPLETION
RETURN
BOND
FINAL CERT
&PAYMENT
Conclusions
• Procurement is essential to project success and typically an early
decision
• Suppliers are selected to provide the required work/services during
project evolution and manage the risk apportioned to them
• Suppliers are paid in an efficient, objective and timely manner
• Administration ensures that variation/change is identified, captured
and controlled wrt impact on cost / time / quality / scope in a timely
and controlled manner
• Ensures claims are handled in an objective manner and impacts on
interfaces with other contracts / stakeholders is identified and
managed
• Closure finalises the buying/ selling process and ensures lessons
are learnt and there is formal / legal closure.
Remember
•Procurement binds other companies, agencies and
sometimes people into the ‘project organisation’
•Roles and Responsibilities are effectively defined formally
and there are legal/contractual obligations that must be
fulfilled.
•Procurement processes depend on the agency carrying
out the work – there are two sides to each contract
•Claims happen
•BUT
•there are three sides to every coin
Questions / Discussion
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