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Contract Management

Principles and Practices


Exercises

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Start work

Duration

Duration

Duration

Renegotiate

Bid documents
Source sel. crit.
Revised:
SOWs
Procure. doc.

Duration

Final
documentation

Contract management

Duration

Final
contract
prepared

Duration

Finance

Legal

Vendor input

Market analysis

Procedural

Procurement
analysis

Procurement team

Revisions to
project plan

Duration

Award

Requirements
SOWs
Procure. doc.
Make or buy

Duration

Initial
procurement
planning
(technical)

Lead time

Duration

Signatures

Project
needs

Project planning

Project team

Duration

1st draft
of contract
prepared

Duration

Advertise

Duration

Vendor 3

Vendor 2

Negotiate

Duration

Bidders
conference
Duration

Receive
proposals

Duration

Vendor 4

Vendor 3

Vendor 2

Vendor 1

Interviews

Duration

Evaluate
proposals

Introduction to Procurement Management

Contract Schedule Network Diagram

Figure 1: Contract Schedule Network Diagram

1-4

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Case Study: Section 1

Instructor Case Study: InYourFaceMarketing


Scenario
Background
You work for a small high tech advertising firm, IYFM (InYourFaceMarketing). The
offices are looking a little shabby, and some important new clients are expected to visit
within a few weeks. The CEO has instructed a good friend of yours to get the place painted
quickly as possible.
IYFM does not have a procurement department. Your friend is responsible for everything.
You just took a contract management training course and have been asked for advice on
how to proceed.

Painting Project
The office manager has insisted that normal operations not be interrupted. The painting
must, therefore, be done at night, evenings, or weekends.
The painters will be responsible for removing pictures and decorations on the walls and
then returning them to their correct place after painting. The painters will be required to
move the furniture where necessary and to protect the furniture and flooring from splatter.
The painting needs to magically get done without anyone even noticing.

Sponsor
Jan Jones, the CEO and project sponsor, has initiated a number of concurrent decorative
projects, including new carpets, new furnishing in the foyer and an upgrade to the wall
decorations.
A demanding woman, Jan expects everything to be done quickly, cheaply, and in the
background. Redecorating activities should not affect anyone.

Costs
Keep the costs as low as possible.

Schedule
This project needs to be completed as soon as possible, in four weeks maximum.

Procurement
IYFM has a PO (Purchase Order) system. When something needs to be purchased, the
person requesting the purchase must have a PO created by Bill Smith, the accounting
manager.
Any purchase over $500 requires a managers approval. Any purchase over $2,000
requires the approval of three managers. Any purchase over $10,000 requires the CEOs
approval.
Standard practice at IYFM is to get at least three quotes before choosing a vendor or
supplier.

CS1-2

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Case Study: Section 1

Procurement Strategy
IYFM had the building painted ten years ago but has no record of who did it or the cost.
Your colleagues are advising you to call companies listed in the phone book or to ask for
references from paint suppliers. Your friend has prepared a cover letter and plans to fax it
to anyone that is interested. After ten responses have been received, the best contractor
will be selected and put to work right away.

Procurement Fax
InYourFaceMarketing
9000 Regency Parkway
Suite 5000

Painting Services Needed!!!


September 2, 20XX
To Whom It May Concern:
InYourFaceMarketing is looking for painters to paint our offices. The project needs to be
completed no later than the end of September. Sooner would be much better!
Painting activities must take place after hours, between 7:00 p.m. and 7:00 a.m.
Additional details about the project are:

Color: Cloud White by Benjamin Moore

14 offices (12' x 12')

Three meeting rooms (22' x 18')

Board room, lunch room, and foyer all approximately (32' x 20')

200' of hallway

Ceilings are 8' high

All ceilings are tiled

Interested parties may inspect the premises during normal office hours by contacting
Christine Right at 555-555-2222.
Please respond with a total price and proposed schedule by close of business
Wednesday, Sept 4.

CS1-3

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Case Study: Section 1

Worksheets: SWOT Outline

CS1-4

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Case Study: Section 1

CS1-5

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Introduction to Procurement Management

SWOT Outline
Use this table to highlight what you believe to be true about strengths, weaknesses,
opportunities, and threats with regard to each of the headings in the SWOT Outline. For
example, indicate the SWOT with regard to skills or experience.

Skills

Experience

Knowledge

Marketing

Costs

Savings

Operations

Ethics

1-24

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Introduction to Procurement Management

Organization

Finance/
Funding

Economics

Strategy

Information
Technology

Automation

Innovation

Legal/Taxes

Accounting/
Controls

1-25

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Introduction to Procurement Management

SWOT Worksheet
Use the grid to analyze individual risks, both good and bad.
Strengths

Weaknesses

Opportunities

Threats

Strengths

Weaknesses

Opportunities

Threats

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Case Study: Section 2

Instructor Case Study: InYourFaceMarketing


Scenario
Responses
The cover letter was faxed to several paint supply companies, contractors, and other
interested parties. Proposals and bids have started to come back. You have been asked to
help choose the best of them.

Proposal 1
Eddy Greene
Hello:
We can do it. Well start right away.
Our rates are $27/hour for journeyman painters and $23 for apprentices. Our supplies and
materials are at cost plus 10 percent.
Attached is a list of our clients.
Regards
Eddy The Painted Professional

Proposal 2
HomeTouchUps
Dear Sir/Madam:
We are a multi-faceted home and business dcor company specializing in interior design.
Our rates for commercial interior painting range from $0.90 to $1.13/square foot of
finished surface. This is based on one coat, one color, and average levels of preparation.
We have been in business for 40 years and have references to prove it.
Our terms are:

25 percent in advance

Balance on completion

Schedule: 7 to 10 days from receipt of down payment

Looking forward to hearing from you.


Regards,
Eduardo Chevalle

CS2-2

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Case Study: Section 2

Proposal 3
TotalDesign
To whom it may concern:
Based on the dimensions you have provided, we are prepared to undertake the contract for
a fixed fee of $30,000 and commit to work being complete in 14 days from date of first
payment. We agree to a late delivery penalty of 3% for each day we are late and a bonus
for early delivery of 6% for each day we are finished early.
Our price is for a single coat, one color, and no ceilings. The terms are:

50% due on signing

50% plus +/-bonus on completion

We look forward to serving you.


The TotalDesign Team

Ranking of Proposals
Proposal #

Name

Cost

Schedule

CS2-3

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Case Study: Section 2

Instructor Case Study Example: Question


What is wrong with the RFP?

CS2-4

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Case Study: Section 3

Instructor Case Study: InYourFaceMarketing


Scenario
Final RFQ
The CEO, Jan, would not approve any of the original bids. Your friend has been instructed
to distribute another request for quotes. Jan wants a formal RFQ.
You will need the following information for the RFQ:

Vendor selection criteria

Weighting system for the selection criteria

Performance and quality measures

Negotiating priorities

A week has already been wasted on the first round of bidding. The procurement administrator, your good friend, really must hurry if the project is to be completed on schedule.

Source Selection Criteria and Weighting

Performance and Quality Standards

Performan

Negotiation Priorities

CS3-2

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Plan Procurements

Source Selection Criteria and Weighting Worksheet


Source Selection Criteria and Weighting Worksheet
Project

Updated

Contract Name:



Contract Ref#



ID

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

Name

Price
Understanding of needs
Communication skills
Schedule commitment
Experience Level Vendor
References
Technical approach
Warranty
Financial capability
Production capacity and interest
Business size and type
Past performance of seller
Risk
Intellectual property rights
Quality of work plan
Response to scope of work

17



Weight %

30%
20%


















18





19





20





3-15

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Plan Procurements

Contract Performance and Quality Standards Worksheet


Contract Performance and Quality Standards Worksheet
Project




Contract Name:
Contract Ref#
ID

Name

Disruption of
operations

1




Updated



Milestones

No staff
complaints

Quality Standard

All rooms and furnishing


returned to original positions



1/3 complete

2



2/3 complete



3




































3-16

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Plan Procurements

Contract Negotiation Priorities Worksheet


Contract Negotiation Priorities Worksheet
Project

Updated

Contract Name:
Contract Ref#
Priority Level





Rank

Issue

Essential



Disruptions



2

Schedule



3





VeryImportant 5

Worst Case

Frequent


Target

Best Case

Minor

None







Price







Security







Replace wall
decorations





































LessImportant 





































Optional







































3-17

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Case Study: Section 4

Instructor Case Study: InYourFaceMarketing


Scenario
Vendor Selected
A vendor has been selected, negotiations are complete, and a contract is in the final stages
of being signed. The painters promised to start work within 48 hours of receiving a 25
percent down payment. They expect to complete the work in 10 calendar days at the most
but are hoping to complete in six to seven days.

Schedule
The original schedule was for the end of the month, a total of 30 days.
The procurement assignment was given on Monday, September 1. The cover letter was
faxed out on Tuesday, September 2. The rest of the first week was spent mulling over the
proposals.
At the end of the first week, Jan, the CEO, decided that the painting project was a
substantial enough purchase to warrant a more formal procurement process. She refused
all proposals from the first round and insisted on an entirely new RFQ (request for quote).
She still expects the original deadline to be met.
The RFQ was written over the weekend, approved on Monday, and distributed on Tuesday
the 9th.
Responses were accepted until Thursday and analyzed on Friday. A recommendation was
made to the CEO on Saturday, which she approved.
Negotiations took place on Monday and Tuesday. An agreement was reached on
Wednesday. A contract was prepared for signing by Friday and is now awaiting signatures.
The earliest a PO for the down payment could be ready is Monday.

Contract Terms
They were not able to find a bondable painter. As a form of insurance against theft, the
management at IYFM has decided that employees will provide security by watching over
the painters. Junior employees have been pressured to volunteer for night duty. The
volunteers will work in pairs and will help speed up the painting process by assisting with
the moving of the wall coverings and furniture while secretly keeping an eye on the
painters.

CS4-2

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Case Study: Section 4

Exercise 4: Painting Project: Schedule Update

CS4-3

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Risk Analysis (Risk Register)


ID

Risk
Name/Description

Risk Statement

What is this risk?

Describe risk and


consequences in one
sentence

Risk Name/Description

Rank

Probability

Trigger Event/Indicator

Impact

Detectability

Score

Ranking

Category

Status

Date
Entered

Date to
Review

Who
monitors
this risk?

Risk Response/Description

What act or event initiates either


How will you respond to this risk and
the risk occurrence or precipitates what actions will you take to match that
the response strategy?
response?

CS4-5

Owner

Contingency Plan

If the risk becomes a reality, what will you


do in response, as a backup, or
alternative/workaround?

Case Study: Section 5

Instructor Case Study: InYourFaceMarketing


Scenario
Confidential: IYFM Negotiation team
The painting project is just about to get under way and already there have been change
requests.
No one is happy with a single color for the entire office complex. Everyone wants to
choose a color for their office. The CEO, Jan, was the first. Then everyone else joined in.
Suddenly, the CEO is saying that the schedule is less important than the perfect color to
match her new furnishings.
Your friend, the procurement administrator, has been asked to negotiate color changes
with the painting contractor.
Jan, the CEO, does not want to pay any more than she has to. A minor slippage in the
schedule would be acceptable.

Confidential: Painting Contractor


Your company suddenly has a lot of work lined up. There is no way you can start painting
the IYFM offices as promised. You need to negotiate a delay.
Your brother-in-law owns and operates a paint store. He is able to mix small quantities of
virtually any color from the Cloud White base color originally agreed to. The only
increase in costs associated with changing office colors would be the slight increase in
waste caused by color changes between offices.

Exercise 5: Example Planning for IYFM

CS5-2

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Administer Procurements

Contract Negotiation: Interests and Objective Criteria Worksheet

5-16

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Case Study: Section 6

Instructor Case Study: InYourFaceMarketing


Scenario
Closure
The painting project is complete. Everyone got their own office color. Not much was
stolen or went missing. All the furniture and wall coverings are back in place. Everything
has returned to normal, like it never happened.
The work was completed by mid-October. The final cost was $34,000.

Exercise 6: Example Lessons Learned

CS6-2

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Close Procurements

Statements

The project schedule was met.

The project came in on or under budget.

The deliverables on the project met their requirements.

The project met the original business benefits.

This project was successful.

The team was happy with the project result.

Senior management was happy with the project result.

The project met customer needs.

The project met its objectives.

N/A

Disagree

Neutral

Agree

Key Lessons Learned

Comments

6-17

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Close Procurements

Question

What are the top three most effective things that were
done on this project?

What are the top three least effective things that were
done on this project?

For future project teams working on similar projects,


what would you want them to learn from this project?

Comments

6-18

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