YARDSTICK INTERNATIONAL COLLEGE

PROJECT PROCUREMENT AND CONTRACT ADMINISTRATION

Section: A

Name ID
1.Alemtideg Alemayehu MAPM(2)012/13B

Submitted to; - Solomon Kibret (PhD)

December 05, 2023

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Part I. Discussion Type
1 .In what significant ways does public sector procurement differ from private sector
procurement? Discuss some of the legal issues related to public and private sector procurement
in Ethiopia.
Public sector procurement and private sector procurement share the same objective of purchasing
goods, services, and materials from suppliers. However, there are some key differences in the
way they approach and operate.

One of the most significant differences between public and private sector procurement is the way
contracts are awarded. In the public sector, contracts are awarded through a competitive bidding
process, which helps to select the best supplier for the job and get the best value for money. In
contrast, contracts are usually awarded through a negotiation process in the private sector, which
gives organizations more flexibility to negotiate terms and conditions that are more favorable to
them.

Another difference between the two sectors is the use of technology. In the public sector,
technology is heavily used to manage the procurement process. This includes the use of e-
procurement systems, which allow organizations to streamline the procurement process, reduce
costs, and improve transparency. Technology is also used in the private sector to manage
procurement, but it is not as widely adopted as in the public sector 1.

A third difference between the two sectors is compliance. In the public sector, compliance with
public procurement laws is paramount. This ensures that public funds are spent in a fair and
equitable manner. In contrast, compliance is important in the private sector, but organizations are
free to pursue their own procurement strategies
Public and private sector procurement in Ethiopia is governed by a comprehensive legal
framework that includes a clear organizational structure to ensure the application of procurement
laws with adequate monitoring, modernized procurement procedures and practices, proficient
and evenly distributed procurement staff, an independent control mechanism, including a
functioning system to treat bidders’ complaints and carry out independent audits, and anti-
corruption measures with effective sanctions .

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In 2018, Ethiopia enacted a new Proclamation No. 1076/2018 facilitating Public-Private
Partnership . The Ministry of Finance, Ethiopia provides a list of PPP projects, PPP guidelines,
PPP directive, and PPP proclamation on their website.

2. Name at least four procurement risks that exist in projects of any organization and discuss how
does procurement contribute to managing corporate/project risks?
Procurement in projects introduces various risks that organizations need to manage effectively.

Supply Chain Disruption:

● Risk: Disruptions in the supply chain can lead to delays, increased costs, or even
project failure.
● Procurement Contribution: Procurement professionals can conduct thorough
supplier assessments, implement dual sourcing strategies, and establish
contingency plans to mitigate the impact of supply chain disruptions.

Contractual Risks:

● Risk: Poorly structured contracts can lead to legal disputes, financial losses, or
failure to meet project objectives.
● Procurement Contribution: Procurement teams play a key role in developing
clear, comprehensive contracts that define roles, responsibilities, deliverables, and
performance metrics. They also monitor and enforce contract compliance.

Market Risks:

● Risk: Fluctuations in market conditions, such as changes in commodity prices or

inflation, can affect project costs.
● Procurement Contribution: Procurement professionals conduct market analysis to
identify potential risks, negotiate favorable terms, and establish mechanisms such
as price escalation clauses to manage cost variations.

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Vendor Reliability:

● Risk: Dependence on unreliable vendors can result in project delays or quality

issues.
● Procurement Contribution: Thorough vendor assessments, due diligence, and
ongoing performance monitoring are critical to ensuring the reliability of
suppliers. Establishing relationships with reputable suppliers can mitigate this
risk.

Regulatory Compliance:

● Risk: Failure to comply with relevant regulations can result in legal issues, fines,
or project stoppages.
● Procurement Contribution: Procurement professionals must stay informed about
applicable regulations and ensure that contracts and supplier relationships align
with legal requirements. This includes environmental, safety, and ethical
considerations.

Technology Risks:

● Risk: Dependence on outdated or unproven technologies can lead to project

failure.
● Procurement Contribution: Procurement teams collaborate with technical experts
to ensure that technology requirements are well-defined. They also evaluate
potential suppliers' technological capabilities and track advancements to minimize
technological risks.

Financial Risks:

● Risk: Budget overruns, payment issues, or financial instability of suppliers can

impact project finances.

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 ● Procurement Contribution: Procurement professionals develop realistic budgets,
negotiate favorable payment terms, and assess the financial stability of suppliers.
Monitoring supplier financial health throughout the project is crucial.

Cultural and Geopolitical Risks:

● Risk: Differences in culture, geopolitical events, or international trade tensions

can impact the project.
● Procurement Contribution: Procurement teams assess geopolitical risks, cultural
nuances, and trade regulations. Diversifying suppliers and developing
contingency plans for geopolitical uncertainties can help manage these risks.

3.What do you believe will be the business challenges facing procurement over the next decade?

While it's challenging to predict the future with certainty, several trends suggest potential
business challenges for procurement over the next decade. These challenges are influenced by
technological advancements, geopolitical shifts, environmental concerns, and changing
consumer expectations. Here are some potential business challenges facing procurement:

Supply Chain Resilience:

● Challenge: The need for more resilient and agile supply chains in the face of
disruptions such as pandemics, natural disasters, or geopolitical events.
● Response: Procurement will need to focus on diversifying suppliers, incorporating
digital technologies for real-time monitoring, and developing contingency plans.

Digital Transformation:

● Challenge: The rapid pace of technological advancements and the need to

integrate digital tools for improved efficiency and decision-making.

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 ● Response: Procurement professionals must embrace digital transformation,
including the use of artificial intelligence, blockchain, and data analytics to
enhance processes, automate routine tasks, and gain insights into market trends.

Sustainability and ESG Compliance:

● Challenge: Increasing emphasis on environmental, social, and governance (ESG)

factors, requiring organizations to adopt sustainable procurement practices.
● Response: Procurement will play a crucial role in evaluating and selecting
suppliers based on their ESG performance, tracking the environmental impact of
the supply chain, and ensuring compliance with sustainability goals.

Global Trade Uncertainties:

● Challenge: Shifting geopolitical landscapes, trade tensions, and regulatory

changes impacting global supply chains.
● Response: Procurement professionals will need to stay informed about
geopolitical developments, assess the potential impact on the supply chain, and
adapt strategies accordingly, possibly by diversifying suppliers or localizing
sourcing.

Data Security and Privacy:

● Challenge: Increasing concerns about data security and privacy, especially with
the adoption of digital procurement platforms and the collection of sensitive
information.
● Response: Procurement teams must prioritize cybersecurity, implement robust
data protection measures, and ensure compliance with data privacy regulations to
maintain trust with stakeholders.

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Addressing these challenges will require a proactive and strategic approach from procurement
professionals, leveraging technology, fostering collaboration, and staying adaptable to the
evolving business landscape.

4.Define Procurement strategy and give two examples to demonstrate that a procurement
strategy can be directly integrated with the organization’s strategy and long-term business plan.

Procurement strategy refers to the comprehensive plan and set of actions designed to guide an
organization's procurement activities in alignment with its overall business objectives. It involves
making informed decisions about sourcing, purchasing, and managing suppliers to optimize
value, mitigate risks, and contribute to the achievement of the organization's strategic goals. A
well-defined procurement strategy considers factors such as cost, quality, innovation,
sustainability, and risk management.

Innovation and Technology Integration

Organization's Strategy: A technology company aims to maintain a competitive edge through

continuous innovation.Integrated Procurement Strategy: The procurement strategy aligns with
the organization's innovation goals by prioritizing the sourcing of cutting-edge technologies and
solutions. This may involve establishing partnerships with innovative suppliers, conducting
market research to identify emerging technologies, and incorporating flexible contract terms to
accommodate rapid advancements. By integrating procurement with the innovation agenda, the
organization ensures that its supply chain supports its long-term vision for technological
leadership.

Sustainability and Environmental Stewardship

Organization's Strategy: A global retail company commits to environmental sustainability as a

core value and seeks to reduce its carbon footprint.

Integrated Procurement Strategy: The procurement strategy is centered around sustainable

sourcing practices. This involves evaluating suppliers based not only on cost and quality but also
on their environmental practices. The strategy may include setting targets for the percentage of

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products sourced from environmentally friendly suppliers, reducing packaging waste, and
collaborating with suppliers to implement eco-friendly initiatives. By integrating procurement
with the organization's sustainability goals, the company aligns its supply chain activities with its
commitment to environmental stewardship, contributing to the long-term business plan of being
a socially responsible and sustainable enterprise.

Part II. Work Out

1.You are considering whether to buy or make a software product: If you buy, the cost is $
80,000, and the cost of procurement and integration with your company is $ 1,000. If you want
to make it yourself, the product will require seven software engineers working for three months.
The salary of each software engineer is $ 4,000 per month. The overhead costs apportioned to the
project will be $ 2,000. Which option will you choose—make or buy?

to determine whether it is more cost-effective to make or buy the software product, let's calculate
the costs for each option:

Buy Option:

Cost of the software: $80,000

Cost of procurement and integration: $1,000

Total Cost for Buy Option: $80,000 + $1,000 = $81,000

Make Option:

Number of software engineers: 7

Duration of work: 3 months
Salary per software engineer: $4,000 per month
Overhead costs: $2,000

Total Cost for Make Option:

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TotalCost=(Number ofSoftware Engineers×Monthly Salary×Duration)+OverheadCosts

Total Cost = (7 x$4,000 x3) + $2,000

Total Cost = $84,000 + $2,000 = $86,000

Comparing the costs:

● Buy Option Cost: $81,000

● Make Option Cost: $86,000

In this scenario, the buy option is more cost-effective as it incurs a lower total cost ($81,000)
compared to the make option ($86,000). Therefore, based on cost considerations alone, it would
be advisable to choose the buy option for the software product.

Part III. Project Procurement Management Case Study

1. Select a certain project in any organization that you are interested in and evaluate how the
Project Procurement Management Process (Planning, Conducting, Administering and Closing)
are addressed and mention the types of challenges that occur frequently. Taking one example of
‘an important purchase’ in the project, prepare a flow chart showing the processes involved in
procuring that purchase. Can you then identify the decision points?

Certainly, let's consider a construction project where a critical component, such as specialized
construction materials, needs to be procured. We'll go through the Project Procurement
Management processes of Planning, Conducting, Administering, and Closing, and identify
potential challenges. Afterward, I'll provide a simple flow chart outlining the processes involved
in procuring the construction materials.

Project Procurement Management Processes:

1. Planning:

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 ● Identify the procurement needs, specifications, and requirements for the specialized
construction materials.
● Develop a procurement management plan outlining the procurement approach, types of
contracts, and risk management strategies.
● Identify potential suppliers and conduct a make-or-buy analysis.
● Define the evaluation criteria for supplier selection.

2. Conducting:

● Issue a Request for Proposal (RFP) or Request for Quotation (RFQ) to potential
suppliers.
● Receive and evaluate proposals from suppliers.
● Conduct negotiations with shortlisted suppliers.
● Select the preferred supplier based on criteria such as cost, quality, and delivery.

3. Administering:

● Develop and execute the procurement contract.

● Monitor supplier performance and ensure compliance with contract terms.
● Resolve any issues or disputes that may arise during the procurement process.
● Keep track of delivery schedules, quality assurance, and other contractual obligations.

4. Closing:

● Confirm that all deliverables have been received and meet the required standards.
● Complete any remaining contractual obligations, such as final payments.
● Document lessons learned for future procurements.
● Close out the procurement contracts and update project records.

Challenges in Project Procurement Management:

Supplier Reliability:
● Challenge: Ensuring that the selected supplier is reliable and can deliver the
required materials on time and within specifications.

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 Contractual Risks:
● Challenge: Managing risks associated with the procurement contract, including
legal and financial implications.
Quality Assurance:
● Challenge: Ensuring that the procured materials meet the required quality
standards and specifications.
Budget Constraints:
● Challenge: Balancing the need for quality materials with budgetary constraints.

Decision Points:

Supplier Selection:
● Decision Point: After evaluating proposals, decide on the preferred supplier based
on criteria such as cost, quality, and delivery.
Contract Execution:
● Decision Point: Decide to execute the procurement contract with the selected
supplier.
Quality Confirmation:
● Decision Point: Confirm whether the received materials meet the required quality
standards.

Contract Closure:
● Decision Point: Decide to close out the procurement contracts and finalize any
remaining contractual obligations.

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