Project Procurement

Question 1

Purpose & content of a procurement strategy

Answer 1

Purpose:
○ Ensure projects/programmes/portfolios have the right resources
○ Balance risk between organisation & supply chain

Content:
○ Make or buy
○ Payment mechanisms (how/when to pay the supplier)
○ Single/integrated/multiple suppliers
- Single preferred supplier (do everything else in-house)
- Integrated: supplier sits with project team e.g. Steve Halliday
- Multiple: spreads risk better
○ Contract and t’s & c’s:
- To include Service Level Agreement, quality, delivery timing, and payment terms
○ Supplier selection process

Question 2

Different methods of supplier reimbursement

Answer 2

• Fixed price
  ○ Defined scope
  ○ Supplier risks going over budget and losing money
  ○ Customer risks delays and poor quality if supplier tries to cut corners
• Cost plus fee
  ○ Supplier charges their costs plus a fee (often a percentage)
  ○ Supplier doesn’t risk losing money
  ○ Customer risks not knowing the final price
• Per unit quantity/time & material
  ○ Highest risk to customer as they don’t know scope or final price
  ○ Customer can use robust contract management to keep track of costs as incurred
• Target cost
  ○ If final cost is cheaper, both parties share the excess. If it’s more, both fund the excess

Question 3

Explain different contractual relationships

Answer 3

• Single supplier/turnkey
  ○ Simple to manage
  ○ May not get the best price for all commodities
• Multiple suppliers
  ○ More complex to manage
  ○ Shop around for the best price
• Sequential
  ○ One supplier for each stage of the project
  ○ Interactions between stages must be planned & managed
• Parallel
  ○ Multiple suppliers working alongside one another
  ○ Customer must manage all supplier relationships
  ○ Good if each supplier has limited capabilities
• Sub-contracts
  ○ Prime contractor holds the main contract, and sub-contracts to others to complete
  ○ Simpler for customer to manage, but can make managing quality or timings more difficult
• Partnering/joint venture
  ○ Multiple suppliers form a partnership if the work is too complex for a single supplier to deliver (e.g. Boorley Park)

Question 4

Outline a supplier selection process

Answer 4

• Define the requirement.
  ○ Research
  ○ Pre-qualification: who will be able to do it?
  ○ How will you evaluate the bids?
• Invitation to tender.
• Evaluating the bids.
• Award the contract.