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Hit241 - Procurement & Contract Management: CDU - School of Information Technology Procurement - Slide 1
Hit241 - Procurement & Contract Management: CDU - School of Information Technology Procurement - Slide 1
Introduction
Procurement means acquiring goods and/or services from an outside source. Procurement is the term generally used by government, while business uses the term purchasing and outsourcing is commonly used by the information technology industry. It is estimated that in the year 2003 the worldwide information technology outsourcing market has grown to over US$110 billion.
Procurement - Slide 1
Why Outsource?
Outsourcing is a growing practice within the IT industry, and it is important to appreciate the reasons it is adopted: To reduce both fixed and recurrent costs. To allow the client organization to focus on its core business. To access skills and technologies. To provide flexibility. To increase accountability.
CDU School of Information Technology Procurement - Slide 2
Procurement planning: determining what to procure and when. Solicitation planning: documenting product requirements and identifying potential sources. Solicitation: obtaining quotations, bids, offers, or proposals as appropriate. Source selection: choosing from among potential vendors. Contract administration: managing the relationship with the vendor. Contract close-out: completion and settlement of the contract.
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Procurement Planning
Procurement planning involves identifying which project needs can be best met by using products or services outside the organization. It includes deciding: Whether to procure. How to procure. What to procure. How much to procure. When to procure. It is essential to be thorough and creative when planning procurement. Even though a company may be viewed as a competitor, it will often be advantageous to collaborate on some projects.
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Types of Contracts
A contract is a mutually and legally binding agreement that obligates the seller to provide specified products or services, and obligates the buyer to pay for them. Different types of contracts are suited to particular circumstances, there are three broad categories: Fixed price or lump sum: involve a fixed total price for a well-defined product or service. Cost reimbursable: involve payment to the seller for direct and indirect costs. Unit price contracts: require the buyer to pay the seller a predetermined amount per unit of service.
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Solicitation Planning
Solicitation planning involves preparing of the documents needed for requesting bids (solicitation), and determining the evaluation criteria for the award of a contract. Common documents used in this process are: Request for Proposals: used to solicit proposals from prospective sellers where there are several ways to meet the sellers needs. Requests for Quotes: used to solicit quotes for welldefined procurements. Invitations for bid or negotiation and initial contractor responses are also part of solicitation planning.
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Solicitation
Solicitation (or tendering) involves obtaining proposals, tenders or bids from prospective sellers. Prospective sellers do most the work in this process, usually at no cost to the buyer or the project. The buying organisation is responsible for advertising the request to tender (the solicitation). Organizations can advertise to procure goods and services in several ways: Approaching the preferred vendor. Approaching several potential vendors. Advertising to anyone interested. A bidders conference or similar meeting between the buyer and the prospective sellers can help clarify the buyers expectations. Procurement - Slide 17
Source Selection
Once buyers receive proposals, they must select a vendor or decide to cancel the procurement. Source selection involves: Evaluating bidders proposals. Choosing the best one. Negotiating the contract. Awarding the contract. It is highly recommended that buyers use formal evaluation procedures for selecting vendors. Buyers often create a short list.
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Source Selection
After developing a short list of possible sellers, organisations will often undertake more detailed evaluation. The following figure lists items that might be part of an evaluation of the top three vendors for a large information technology project. All of the evaluation criteria are given a certain number of possible points (based on ranked importance), and the project team members and other stakeholders then evaluate each proposal by assigning points to each criteria.
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Contract Administration
Contract administration ensures that the sellers performance meets contractual requirements. Contracts are legal relationships, and are subject to the contract law in the country where the project is conducted, and in the case of international projects, the country of supply.
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Contract Administration
However, due to their complexity, many project managers ignore contractual issues. This can result in serious problems. Ideally, the project manager and the project team should be actively involved with contract law experts in the preparation and administration of contracts.
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Contract Administration
Project members must be aware of the legal problems they might cause by not understanding a contract. In particular, most projects involve changes, and these changes must be handled properly for items under contract.
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Contract Close-out
Contract close-out is the final project procurement management process. It includes: Product verification to determine if all work was completed correctly and satisfactorily. Administrative activities to update records to reflect final results. Archiving information for future use. Procurement audits are often undertaken during contract close-out to identify lessons learned in the procurement process.
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Conclusion - 1
It is essential that organisations obtain good contracts that minimise risk while ensuring optimum results through effective contract administration. With the current competitive and demanding conditions found in information technology projects, it is very important to prepare contracts with great care and expert assistance. It is equally important to initiate and follow effective contract administration procedures.
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Conclusion - 2
The following guidelines can help can assist in preparing proposals, contracts and administrative procedures: Use checklists and templates where appropriate. Evaluate risks by reference to suggested contract provisions where appropriate. All major proposals and contracts, and contracts with questionable provisions, should be reviewed by a contract law expert. Appropriate pricing and/or insuring of risk under the contract. Periodic review, improvement and updating of contract preparation and administration procedures.
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