Understand project procurement

Question 1

what does the procure strategy set out

Answer 1

the high level approach for securing the goods and services from external suppliers to satisfy project, programme and portfolio needs.

Question 2

what are considerations for the procurement strategy

Answer 2

• How much risk to retain in the project and how much to share with suppliers in the supply chain
• What type of relationship you want with various suppliers; from simply buying things when needed, to working collaboratively in partnership to design solutions

Question 3

what are the 6 main decisions included in the procurement strategy

Answer 3

• make or buy
• use of single, integrated or multiple suppliers
• conditions and forms of contract
• methods of supplier reimbursement
• types of contractual relationships
• supplier selection process

Question 4

what happens during the make or buy procurement decision

Answer 4

build it yourself or get someone else to do it for you. Include, for your consideration of costs, quality, intellectual property ownership (who gets to use/sell it after the contract is finished), resource availability, etc.

Question 5

what happens during the use of single suppliers procurement decision

Answer 5

Single (preferred)

• one supplier for particular commodity
• strong relationships
• price leverage / volume discount
• all eggs in one basket

Question 6

what happens during the use of single, integrated or multiple suppliers procurement decision

Answer 6

• reduce risk of supply disruption
• competition
• additional cost of contract negotiation

Question 7

what happens during the use of single, integrated or multiple suppliers procurement decision

Answer 7

• member of supplier in project team
• immediacy of contact
• inside view of project to optimise supply
• too close
• confidentiality

Question 8

what are the 5 types of contractual relationship

Answer 8

• comprehensive (turnkey)
• sub-contract
• parallel / integrated
• sequential
• partner / alliance

Question 9

describe the comprehensive (turnkey) contractual relationship

Answer 9

a single supplier has access to all resources required for the project and is responsible for the delivery of a specific solution

Question 10

describe the sub-contract contractual relationship

Answer 10

there may be several sub-contractors particularly if the project needs specialised goods or services

Question 11

describe the parallel / integrated contractual relationship

Answer 11

The customer manages the relationships between the various specialist suppliers to have more control of performance and/or cost, his can involve a lot of management

Question 12

describe the sequential contractual relationship

Answer 12

use of one or more contractors during a project is often used when a project is too complex to be covered by a fully defined contract at its outset. Added risk as it’s not possible to calculate project cost at the outset

Question 13

describe the partner / alliance contractual relationship

Answer 13

The customer and the supplier both bring skills and/or resources and work together to deliver the project. They share risk, effort and resources

Question 14

what are the 4 types of supplier reimbursement

Answer 14

• fixed price
• cost reimbursable
• per unit quantity
• target cost

Question 15

what is fixed price supplier reimbursement

Answer 15

the price is fixed at the outset for a defined scope of work.

for long-term projects there may be an allowance for economic factors

there may also be an incentive fee for meeting performance metrics

Question 16

what is cost reimbursable supplier reimbursement

Answer 16

• Cost plus fixed fee means that you reimburse the supplier for all allowable costs, plus a fixed or percentage fee.
• Cost plus award means that you reimburse the supplier for all allowable costs, but the majority of the fee is only earned based on the satisfaction of certain broad subjective performance criteria.
• Cost plus incentive means that you reimburse the supplier for all allowable costs, plus a predetermined incentive fee for achieving certain targets (usually financial).

Question 17

what is per unit quantity supplier reimbursement

Answer 17

nits are well defined (for example, area or distance). This may take the form of a time and materials contract, especially where services are provided.

Question 18

what is target cost supplier reimbursement

Answer 18

The customer and the supplier share risk and reward. For example, the supplier may receive part of the saving if costs are kept below an agreed threshold.

Question 19

what are the 5 steps of the supplier selection process

Answer 19

1. define requirements
2. establish criteria
3. solicit and evaluate bids
4. shortlist
5. select winner

Question 20

what happens during the define requirements step of the supplier selection process

Answer 20

Clarify the requirements to Identify potential providers that have the capability to deliver. This may be made easier with an ‘approved supplier’ list

Question 21

what happens during the establish criteria step of the supplier selection process

Answer 21

You can use a Pre-Qualification Questionnaire (PQQ) to clarify suppliers’ capacity, willingness to tender, financial stability and technical experience. You can then invite those eligible for contract to tender

Question 22

what happens during the solicit and evaluate bids step of the supplier selection process

Answer 22

You can ask the shortlisted providers to provide a full bid against a set of defined requirements through an ITT

You need to retain records, set a tender deadline, and reject late applicants. You should prepare an evaluation criteria with appropriate weightings to show priorities.

Question 23

what happens during the shortlist step of the supplier selection process

Answer 23

Having assessed the tenders, you can now invite a smaller list of contractors to face-to-face bid clarification discussions.

Question 24

what happens during the select winner step of the supplier selection process

Answer 24

negotiate and agree on a contract to supply the goods and services. Both parties must understand that they’re entering into a legally binding agreement.