OPMT 1187

Project Procurement
Copyright BCIT School of Business 2020
Session # 10 Agenda
• Project Procurement

• RFP vs, RFQ

• Contracts

• Supplier Performance Management

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Learning Outcomes
By the end of this session students will be able to

• Perform Make or Buy analysis

• Define project procurement considerations

• Select the most appropriate procurement method for the specific statement of work

• Define supplier performance metrics

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Procurement Considerations
Complexity of Procurement: How complicated is the work to be done?
What specific skills or experience must supplier(seller) possess?

Physical Location: Are sellers nearby or distant? In a different continent?

Time zone?

Governance & Regulatory Environment: What laws or regulations need

to be performed during the procurement? During the project work?

Availability of Qualified Suppliers: Scarcity may increase project costs

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Make or Buy Analysis
If resource is available internally – should we use it on the project?

Compare Costs: Example build prototype parts

Internal: Stop production to build parts

3 hours@ $5000/hour = $ 15,000

External: Hire Job Shop to produce parts = $12,500

Decision – buy parts from Job Shop since lower cost

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 Why Acquire Externally?

• Firm does not currently possess the goods or services needed

• Would be costly and inefficient to have these items on hand permanently

(think of a Wedding Planner)

• Buying when needed ensures you can have most current items (ex.
Computing technology)

• Allows flexibility to quickly meet changes in demand

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Project Procurement

Procurement - Acquiring required resources from outside the firm

(external) required for the project’s work activities

• Identify need for items

• Ensure items are correct (specifications, models)
• Source capable suppliers
• Obtain competitive pricing
• Arrange delivery details

Discuss: when selecting a seller, what factors are more important than
price?

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Procurement – Sourcing Strategy
Sourcing - finding capable qualified suppliers

Price may be only one factor in the decision process

Discuss: Would you want the lowest cost person to fix your teeth … or a
qualified professional dentist?

What would you expect the dentist to have?

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Procurement – Sourcing Strategy
Managing procurements risks:

Seller ability to perform their work (on time and on budget)

Seller ability to do quality work

Discuss: Who should manage Risks in a project: Buyer or Seller?

Pushing the risk onto seller will lead to higher pricing that may affect project
budget, Seller will add risk factor into their bids

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Procurement Items
• Personnel: temporary project staff

• Products: machinery, equipment, computers

• Services: IT support, architecture, landscaping

• Knowledge: consultants, subject matter experts

• Materials: concrete, lumber, screws

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Project Buyer
Procurement Department (or Project Buyer) is responsible for entire
procurement process. SME on the project team

Possesses procurement and contract expertise

Has complete access to project information: Scope of Work, Schedule, Quality

requirements

Project Manager relies on this person to meet delivery deadlines

Project Manager will reviews procurement documents (tender and contract prior
to sending to sellers

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

 Project Procurement

Buyer – could be a dedicated project buyer on the project team

Determine needs of the project:

 Specific Item(s)
 Arrival condition – ready to use, preparation required
 Quantity – all at once or allotted by time period (phases)
 Timing – arrive right when needed, not earlier or later
 Location of delivery
 Warranty and support i.e. receive defective items

Real Experiences. Real Results.

Project Buyer

From Project Scope, Deliverables and WBS dtermine needs of the

project:

 Specific Item(s)
 Arrival condition – ready to use, set-up or preparation required
 Quantity – all at once or allotted by time period (phases)
 Timing – arrive right when needed, not earlier or later
 Location of delivery
 Warranty and support i.e. receive defective items

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Project Expediter
A member of the procurement team – Not a Buyer

Tracks open contracts and delivery dates; ensure everything still on track
for delivery as per project schedule

May need to pull in (expedite) or push out (de-expedite) deliveries of

items depending upon the actual project schedule as project progresses

(Initial delivery dates were based upon Baseline Schedule)

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Project Buying Considerations
May need to conduct market research to understand requirements and then
where to find capable suppliers – whom, location, capability to deliver and
support

Discuss: What does an Environmental Site Assessment Consultant do?

May need to have back-up suppliers for critical items or split between two
suppliers. Ensure safety of delivery otf materials to meet project schedule

Example: Burj Khalifa custom windows problems

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Project Buying Considerations

If possible - seek to consolidate items purchased; reduce the number of

suppliers to deal with, build purchasing volume power = better pricing, fewer
suppliers to monitor

Be aware of purchasing acquisition lead times when placing orders. Allow

time for supplier to produce item plus time to ship . Align delivery dates to
project schedule and inform the Project Manager if dates cannot be met.

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Project Supplier (Seller)
Supply and deliver to the buyer’s requirements:

 Specific Item(s) or suitable replacements – no stock-outs

 Supplier’s knowledge and expertise
 Supplier qualifications, certifications, licenses
 Quantity required & timing – as per project schedule
 Packaging - items arrive securely and in good condition
 Arrangement of logistics - where to send to, shipment method
 Post delivery support – customer questions or technical help

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Procurement Steps

Project Manager provides

Scope of Work

Buyer carries out

procurement

Project Manager manages

seller contract
performance

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Procurement Steps
o Define procurement details & specifications
o Advertise (government purchasing – public notification)
o Seek capable suppliers
o Hold Bidder Conference or Site Meeting – clarify requirements to all
interested sellers
o Receive seller submissions – pricing and/or solution
o Evaluate submissions - experienced evaluators
o Select supplier (lowest price or best solution)
o Enter into contract negotiations
o Finalize contract-commence project work

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Bidder Conference/Site Meeting
Could be a meeting, teleconference or on-site viewing

Could be optional attendance or mandatory (only those who attend can

bid)

Sellers can better understand the work and ask questions

Sellers can see who else might be interested (who attends meeting)

Allow a few days after meeting for any additional questions

Discuss: What could be a risk to the Buyer if meeting is MANDATORY?

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Project Tender Types
RFQ (Request For Quote)
Price only – lowest price wins

RFI (Request For Information)

Seeking information only – no offering of work

EOI (Expression of Interest)

No offer of work (yet)
Determine seller interest in possible future work

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Procurement Tender Types
Request For Proposal (RFP)

Seeking a “solution” to a problem the buyer faces

Buyer may not know exactly what they require, rely on supplier expertise

Price is only one factor to consider

RFP contains project details, timeline, rules of the RFP and weighted
evaluation criteria

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RFP Criteria
Rated Criteria Category Weighting %

Experience with similar complex projects 25

Staff and Team Qualifications 10

Proposed Work Plan/Methodology 10

Schedule 05

Price 50

Total 100

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Evaluating RFP Submissions

Conducted by predetermined team of experts. Could include external

consultants

Facilitated by Buyer (to ensure fairness)

Evaluate each submission against RFP criteria requirements

Highest scoring seller is the “winner”

Discuss: What could happen if we award to a lower scoring seller?

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Contract Negotiating
Buyer or Project Manager can lead negotiations
Dealing with issues in negotiation:

• If pushed, do not push back aggressively

• Ask questions instead of making statements – the more you know about
the other party (what they want) the better you can negotiate

• Work towards a win/win scenario for both parties - you may need to
work with this seller again in the future

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Contracts
Legally binds both buyer and seller.

Contains:

• Scope of work
• Duration
• Pricing/payment
• Performance measures
• Terms and conditions
• May contain costly performance penalties (Cel phone contracts)

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Contracts
Buyer may have standard contract templates that have been created by
lawyers

Simply add in specific work and any pertinent details

Contract terms may be amended as a result of negotiations – do NOT

change Terms & Conditions

Supplier’s legal team may need to review contract prior to signing

Factor this time into project schedule – NO WORK starts until contract
approved and signed by both parties

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Contract Types
Purchase Order

Simple purchase of an item. Example: office supplies

PO contains item number, description, price and terms

Work Order

Simple work that can be performed quickly. Example: fence repair

WO contains description of work to be done and price

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Contract Types
Service Level Agreement

Detailed description of service requirements to be provided. Example:

Snow removal

Contract contains length of term and performance metrics

Lease

Long term “rent”, Example: new car

Lease contains length of term and payment information

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Contract Types
Design/Build - construction firm handles everything; design the building
then coordinate all construction activity to build

Construction Manager – manage all construction activity – hiring of all

trades, construct the building to ready for occupancy

Contractor (Trades)– perform specific construction activity. Example:

Install electrical wiring, lay tiles

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Contract Pricing
Unit Price – price per piece ordered

Stipulated Price (Lump Sum) – one total price for all the work– risk placed
on supplier if they have cost over-runs or are late

Cost Reimbursable (Cost Plus)– unknown scope – pay as we go (up to a

maximum budget $ amount)

Percentage - % of total budget (Construction Management)

Copyright BCIT School of Business 2020 Real Experiences. Real Results.

Outsourcing Project Work

Advantages Disadvantages
o Possible cost reductions o Coordination breakdowns
o Faster project completion o Possible loss of control
o High level of expertise o Potential culture conflict
o Higher flexibility o Security issues (Intellectual
o Greater number of resources Property)

Discuss: Which is the worst disadvantage and why?

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Successful Relationships
• Establish a “we” as opposed to “us/them” attitude

• Co-locate employees from both organizations together at the same location

to develop teamwork

• Establish relationship management processes:

Problem (dispute) resolution
Continuous improvement
Joint evaluation of project performance

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Why Relationships Fail
Senior management fails to address problems or does not empower team
members to solve problems
Lack of trust between firms
Cultural differences between firms not identified or dealt with
Lack of incentive for continuous improvement
Lack of clear joint objectives

Discuss: How can we re-establish trust?

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Images Acknowledgement:

Slide 18: Pinterest

Copyright BCIT School of Business 2020 Real Experiences. Real Results.