Procurement

Question 1

What is procurement?

Answer 1

Securing the provision of resources

Question 2

Why does a project need a procurement strategy?

Answer 2

Ensures budget not exceeded.
Ensures investment provides return/benefit.
Ensure investment aligns with organisational strategy.

Question 3

What 6 topics does procurement strategy include?

Answer 3

Make or Buy decision.
Supplier selection (selection process, decision on use of single/integrated/multiple suppliers, plan for negotiation).
Decision on contractual relationship (conditions/form of contract).

Question 4

What are considerations for Make or Buy decision?

Answer 4

Can good/services be supplied in house?
Or better to procure elsewhere? (quality/cost).
What specifications required?
Quality aspirations.
Internal/external stakeholder engagement.

Question 5

What is supplier selection / tender step by step process?

Answer 5

Research the market (how many potential suppliers?
Pre-quality suppliers (check capability, financial stability).
Issue Invitiation To Tender (ITT) (instructions, evaluation criteria, scoring matrix).
Respond to bid queries.
Review and evaluate bids.
Award contract (Agree terms, understand liabilities).
Enter into contract and contract admin.

Question 6

What are the 3 negotiation techniques? (just names)

Answer 6

Best alternative to a negotiated agreement (BATNA).
Zone of possible agreement (ZOPA)
‘Win-win’

Question 7

Describe the BATNA negotiation technique.

Answer 7

Best alternative to a negotiated agreement.
Best fallback position - what alternative action taken if negotiations don’t lead to agreement.
Useful to know this for both parties.

Question 8

Describe the ZOPA negotiation technique

Answer 8

Zone of possible agreement.
Bargaining range where both parties’ min targets overlap.
Final agreement take place within this zone.
Difference between project’s max and supplier’s min target values.

Question 9

Describe the ‘win-win’ negotiation technique

Answer 9

Collaborative approach, both parties reach mutually beneficial agreement.
Involves problem solving, comms, strong trust relationship

Question 10

What are 4 main contractual relationships/forms?

Answer 10

Single contract
Parallel contracts
Sequential contracts
Prime contracts

Question 11

Describe single contract

Answer 11

Simplest form, client buys good/services from one supplier. One contractual relationship.

Question 12

Describe parallel contract

Answer 12

Several suppliers provide same/similar goods/services. Multiple contractual relationships.

Question 13

Describe sequential contract

Answer 13

One activity dependant upon completion of the one prior. Multiple contractual relationships.

Question 14

Describe prime contracts

Answer 14

When a supplier sub-contracts to suppliers of specific goods/services. One contractual relationship

Question 15

What are the 4 main supplier payment terms

Answer 15

Time and materials / unit price.
Cost plus.
Contract target cost/price
Fixed price

Question 16

Describe the time and materials / unit price payment terms. Who has risk? When suitable?

Answer 16

Client pays per unit.
Risk of running overtime runs with client.
Suitable when specification is vague, allows scope to evolve.

Question 17

Describe the cost plus payment terms. Who’s risk? When suitable?

Answer 17

Client pays actual cost of work plus agreed amount for supplier overhead and profit.
Profit could be a % (lower risk for supplier) or fixed fee (higher risk for supplier)
Suitable when earlier start needed and scope still being developed. Emergency/urgent works.

Question 18

Describe contract target cost/price payment terms. Who’s risk? When suitable?

Answer 18

Incentivised collaboration, where target cost agreed at start, both client/supplier work together to achieve.
Risk shared between parties at agreed rate.
Suitable where contractual relationships are collaborative and where there are opportunities to incentivise collaborative ideas

Question 19

Describe fixed price payment terms

Answer 19

Agreed price based on agreed scope of work.
Risk of running overtime lies with supplier.
Price may be higher due to supplier risk.
Suitable where scope clearly defined, where transactional relationship preferred/tolerated.