Streamline your procurement process with online contact management for Procurement

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at some point on a large project you will need someone else or someone else's goods and services to supplement the capabilities of your own team but how do you make sure you get exactly what you want and that you get good value well the answer is procurement [Music] management so what is Project procurement project procurement is the process by which we acquire goods and services from a thirdparty provider outside of our project these can be goods and materials parts and components assets or equipment or it could be consultancy professional advice contracted staff or just Services projects can procure goods and services either from within their own organization or from an external provider for external providers of course you'll need to enter into a legally binding contract for goods and services provided from other parts of your own organization those are usually bound if at all by a service level agreement or SLA there are many different types of contracts that govern the way we procure goods and Serv services and the way that we pay for them and I am not a legal expert so this is a brief introduction to the core ideas within your organization you likely to have procurement Specialists and indeed legal experts who will help you to get the contract form right let's look at six basic types of procurement contract that are common enough in the project world the first is a fix fixed price contract you will pay a fixed price for the goods and services agreed which means all the risks to delivery sit with the contractor or the provider this of course means they will have priced that risk into their costs and therefore you will be paying potentially a higher price for the goods and services to reflect the risk that the supplier is taking a variation on this would allow the supplier to secure a fixed price but to also add on additional prices under certain contingencies sometimes this is known as a fixed price plus contract or more verbosely as a fixed price with economic price adjustment the second type of contract is a fixed price with an incentive or with a penalty this type of contract adds a positive incentive a bonus or a negative incentive a penalty for the supplier to perform either to schedule or indeed ahead of schedule do note however that in some jurisdictions penalty-based contracts are not legal next we have the unit cost contract this type of contract allocates unit costs to each component that the project might need to buy you then buy as much as you want and pay the fixed tariff that is agreed at the start and of course if you're buying in volume you should be able to negotiate a reduced unit cost often these are framework contracts where you buy from a catalog fourth is the target cost contract this type of contract shares the risk between the purchaser and the supplier it sets a certain maximum price that the purchaser will pay the target if however the supplier can deliver below the Target price then the purchaser and the supplier will share the benefits this approach to Contracting however requires a high degree of openness and transparency about all of the costs this is more than just about accounting it's about making sure that you have a high degree of trust in the relationship between the project and your supplier number four is a Cost Plus contract this is a type of contract that throws all of the risk onto the project however the advantage is that it allows the supplier to charge just their base rates without adding on a premium for risk this means that rates can be lower with a Cost Plus contract than with most other sorts this type of contract also requires High degrees of transparency and therefore trust because of course the supplier will be declaring the cost sit in curs so that the project will pay all of the costs plus an agreed supplier fee this fee could be a simple additional fixed sum it could be a margin on all of the costs it could be an incentive or bonus based on the level of performance of the supplier or of course it could be some combination of all of the above finally we have the all familiar time and materials contract this again places all of the risk on the project but it reduces the burden of administration and oversight the supplier will charge for its service based on a schedule of rates agreed in the contract and the time that it has deployed those services this is very much the equivalent of a unit cost contract but this time for services rather than for materials or Goods the materials part of a time and materials contract refers to any costs that the supplyer incurs in addition to the time that it's people spend this can include subsistence expenses license fees travel or training costs let's move on to the how of procurement management and procure ment management follows a simple four-step process planning procuring monitoring and controlling and closing procurement planning you start by creating a procurement plan which will cover a number of things what you need to procure the types of procurement you use the detail of your procurement process any formal procedur policies legislation or regulation that you need to follow the forms of contract or service level agreements you likely to use the sources of legal advice preferred pricing mechanisms the quality standards that you'll apply to the products and services and also the kpis that you need your services to comply with the team that will be responsible for procurement and how your procurement process will fit in with the timelines of other parts of your project cost estimates for each of your procurements the governance process that will sit over all of your procurement your bid evaluation process and the authorities who will be making each procurement decision and on what basis any preferences you have among making hiring leasing or buying assets outright whether you have any preferred thir shortlisted or framework suppliers already and how many vendors you intend to involve in the process you may also have Prime supplies with subcontractors or an intention to contract all things directly then there's your attitude to Partnerships or alliances and critically any ethical requirements these include things like sourcing Energy Efficiency and matters of modern day slavery many of which are legal requirements in many jurisdictions and finally your plan might include any sample documentation or templates that you're going to use in the procurement process when you get to the procuring stage there are two main steps specifying your requirement and then Market testing to secure the best deal to specif ify your requirements you need to gather what those requirements are from your users or your customers or your experts and then to document them carefully this means setting out quality standards for products and performance standards or key performance indicators for services you'll also document things like applicable legislation and Regulation and things like delivery times that you need to meet then you can move into Market testing this is the step where you find the best appropriate supplier through a competitive procurement process this is referred to as either Market testing competitive procurement or a tender process and I have a video which I'll put a link to in the description called competitive procurement how to run a tender process once you've finished the competitive process and selected your preferred bidder it's time to enter into negotiations to finalize the detail of the contract that you're going to award if the negotiation goes well your legal team and the suppliers legal team will work together to draft a contract that reflects properly your understanding of the supplier's bid this contract will contain the terms that you agreed on things like a statement of the work or the goods to be supplied time scales and schedules inspection and evaluation regimes quality standards and key performance indicators product support and maintenance change control or variation order procedures price payment terms and of course payment schedules penalties if you use them and they're not legal in all jurisdictions or bonuses reporting processes and any of the principal roles and responsibilities in the procurement or contract management process confidentiality intellectual property rights data protection obligations and how the contract may or may not be terminated and then of course there's all those basic legal boilerplate things limitations on liabilities warranties insurances performance bonds assignments dealing with disputes and governing jurisdiction monit in and controlling once you've entered into the contract the work starts and the goods or services are supplied now you need to monitor the contract performance this is a mix of formal and informal activities that monitor your relationship with your supplier it starts with administering the contract and making sure that both parties are fulfilling their obligations then there's monitoring performance against quality standards performance standards and kpis you may also carry out occasional formal procurement performance reviews going one step further your organization may also carry out a procurement performance audit of course if there are any deviations in the performance of the contract then you need to deal with those otherwise you'll be making your payments against delivery and contract Milestones but of course things also change so there may be contract variations variation orders or changes that you need to process or working with the supplier to get things right and finally that may of course mean updates to your plan and your documentation and maybe also your budget it's helpful to think of closing as a specific stage in your project procurement process the basic closing tasks include things like ensuring that your suppliers have met all of their contract performance criteria conducting formal handovers or acceptances documenting and addressing any outstanding issues any snagging any claims or payments ens sh you have all of the necessary documents for maintenance and for endof Life procedures on major assets finalizing all payment and meeting all invoices and attending to a formal contract closure documenting And archiving the whole process finally of course carrying out a Lessons Learned review so that the project team can learn from the procurement process finally it's worth saying a word or two about public sector procurement because whilst public sector procurement follows the same basic processes all commercial procurement often there are some additional rules regulations or legal constraints and quite often is also a requirement for a deal more rigor and transparency in the process public sector procurement in many countries is bound by national and often supranational legislation and regulation these regulations impose obligations regarding things like Fair competition openness to biders reasonable time scales and disclosure of certain information almost certainly if you're conducting a procurement in a public sector organization you will need access to a large amount of policy procedure regulation and legislation and you'll probably need experts to help you interpret it to make sure that you follow it in the private sector we're often far Freer to buy from whomever we choose and to apply the contract form and conditions that suit us commercially however many of the best commercial organizations still apply procurement processes that are every bit as rigorous and transparent as those used in the public sector please do give this video a like if you've enjoyed it or learned from it are we making loads more great project management videos for you so please do subscribe to the channel and hit the notification Bell so you don't miss any of them and I look forward to seeing you in the next one