Contract Planning

CONTRACT PLANNINGCONTRACT PLANNING

BY: NAEEM ABBASBY: NAEEM ABBAS

MCIPSMCIPS

Contracting ProcessContracting ProcessIdentify Need

Plan Purchase

Manage Transition

Develop Request

Invite & Receive Offers

Evaluate Offers

Negotiate/Due Diligence

Finalise & Award

Contract Operation

Complete, Extend, RenewReview & Evaluate

Link to Supplier Performance Management

Pla

nn

ing

Form

ati

on

Man

ag

em

en

t

Procurement CycleProcurement Cycle

Contract Award

Pre-qualification

Planning/Designing

specifications

Payments

Contract Administratio

n

Bids opening and Evaluation

Grievance Redressal Solicitation

of Bids

Procurement?Procurement?

“ “ Acquisition of goods, services, and Acquisition of goods, services, and works that result in best value to the works that result in best value to the buyer and the stakeholders.”buyer and the stakeholders.”

How?How?PeoplePeopleProcessesProcessesControlsControls

Hallmarks of Proficient Hallmarks of Proficient ProcurementProcurement

Economy: Economy: value may imply morevalue may imply more than just pricethan just price

Efficiency: Efficiency: implies practicality, compatibility with implies practicality, compatibility with administrative resources and professional capabilitiesadministrative resources and professional capabilities

Fairness: Fairness: impartial, consistent , reliableimpartial, consistent , reliable

Transparency: Transparency: establishes, maintains establishes, maintains accessible/ unambiguous rules and proceduresaccessible/ unambiguous rules and procedures

Accountability: Accountability: responsible for enforcing and responsible for enforcing and obeying rules/ key deterrent to collusion/corruption, obeying rules/ key deterrent to collusion/corruption, pre-requisite for procurement credibilitypre-requisite for procurement credibility

Why is Proficient Procurement Why is Proficient Procurement Important?Important?

Civil WorksCivil Works: e.g. bridges, buildings, harbors : e.g. bridges, buildings, harbors and highwaysand highways

GoodsGoods: equipment, material and supplies, : equipment, material and supplies, commodities, medical supplies etc.commodities, medical supplies etc.

ServicesServices: expert advice and training, : expert advice and training, computer programming, consultancy computer programming, consultancy services etcservices etc

QualityQuality, , timelinesstimeliness, , local appropriatenesslocal appropriateness, , and and affordabilityaffordability

Value for Money

Value for Money?Value for Money?

“ “ Best available outcome when all Best available outcome when all relevant costs and benefits over the relevant costs and benefits over the full procurement cycle are full procurement cycle are considered. Reconciliation of considered. Reconciliation of technical considerations of suitability technical considerations of suitability and/or performance with commercial and/or performance with commercial considerations of cost, availability, considerations of cost, availability, post delivery support, and effective post delivery support, and effective warranties to achieve best overall warranties to achieve best overall balance and ensure that benefits are balance and ensure that benefits are commensurate with costs.”commensurate with costs.”

Procurement and supply Procurement and supply competencecompetenceThe Road Map:The Road Map:

Procurement and supply competence

UnderstandingAppropriateness is

about understanding

when to use particular tools and techniques under specific

circumstances to deliver corporate

goals

operationally. Strategic ClarityStrategic goals about means

and ends must be clearly articulated in supply chain

terms

Knowledge 2Knowledge 1

Knowing in detail the

contingent supply chain and market

circumstances which face the

practitioner

Knowing what are the universe of

procurement tools and techniques available to

practitioners

Contract PlanningContract Planning

• Identification of needIdentification of need

• Development of a business caseDevelopment of a business case

• Planning purchase Planning purchase

• Risk assessment, analysis, Risk assessment, analysis, management management

• Risk management strategiesRisk management strategies

Identify the needIdentify the need

• Identifying the need is the process of Identifying the need is the process of determining what is actually required to determining what is actually required to achieve the intended result or contracting achieve the intended result or contracting outcome. For simple purchases this may be outcome. For simple purchases this may be very straightforward, but for more complex very straightforward, but for more complex requirements there may be a variety of requirements there may be a variety of alternatives. Once a need has been alternatives. Once a need has been identified, it must be accurately defined identified, it must be accurately defined before it can be satisfied. Optimal results before it can be satisfied. Optimal results cannot be achieved unless objectives are cannot be achieved unless objectives are understood clearly and can be conveyed to understood clearly and can be conveyed to suppliers. suppliers.

DEVELOP THE BUSINESS CASEDEVELOP THE BUSINESS CASE

• The business case forms the foundation for The business case forms the foundation for

the procurement planning process and the procurement planning process and involves a involves a rigorous assessment of a proposal in terms of rigorous assessment of a proposal in terms of all the estimated costs, benefits, risks and all the estimated costs, benefits, risks and options, and provides the competent authority options, and provides the competent authority with a reality check to ensure the initiative is with a reality check to ensure the initiative is feasible; identifies the preferred procurement feasible; identifies the preferred procurement strategy and confirms that the option chosen strategy and confirms that the option chosen will meet the objectives set.will meet the objectives set.

OBTAIN APPROVAL TO OBTAIN APPROVAL TO PROCEEDPROCEED

• It may be necessary to obtain the It may be necessary to obtain the appropriate internal written approval appropriate internal written approval to undertake the purchase. to undertake the purchase.

• When seeking approval to proceed When seeking approval to proceed with the purchase, ensure that there with the purchase, ensure that there is an approved budget.is an approved budget.

MAINTAINING PROBITYMAINTAINING PROBITY• When calling quotations, it is important to When calling quotations, it is important to

maintain effective probity of the decision-making maintain effective probity of the decision-making and purchasing processes.and purchasing processes.

• Relevant documentation and information, Relevant documentation and information, particularly the offers themselves, should be particularly the offers themselves, should be recorded on file and retained in a secure and recorded on file and retained in a secure and confidential manner for audit purposes. confidential manner for audit purposes.

• Conflicts of interest must be managed & staff Conflicts of interest must be managed & staff associated with potential suppliers should not take associated with potential suppliers should not take part in the decision-making process for that part in the decision-making process for that purchase. purchase.

REVIEW PREVIOUS PURCHASESREVIEW PREVIOUS PURCHASES

• Review previous purchases for similar goods or Review previous purchases for similar goods or services to identify any potential problems and services to identify any potential problems and solutions. This may include: solutions. This may include: • • the scope and cost of previous purchases; the scope and cost of previous purchases; • • identity of the previous supplier; and identity of the previous supplier; and • • potential performance measures. potential performance measures.

• Consult with colleagues, take advantage of in-Consult with colleagues, take advantage of in-house expertise, and consult with users and house expertise, and consult with users and subject matter specialists.subject matter specialists.

PLANNING PURCHASEPLANNING PURCHASE

• development of tender documentationdevelopment of tender documentation

• writing specificationswriting specifications

• development of selection criteria development of selection criteria

• selection criteria weightingsselection criteria weightings

• terms and conditionsterms and conditions

• dispute resolutiondispute resolution

• Evaluation CommitteeEvaluation Committee

DEVELOP REQUEST DOCUMENTDEVELOP REQUEST DOCUMENT

• Consider most appropriate method Consider most appropriate method

• The Request carries legal The Request carries legal implications implications

• Must facilitate equitable comparisonMust facilitate equitable comparison

DEVELOP REQUEST DOCUMENTDEVELOP REQUEST DOCUMENT

STANDARD KEY ELEMENTSSTANDARD KEY ELEMENTS::

• Conditions of quotingConditions of quoting

• SpecificationsSpecifications

• Standard terms and conditionsStandard terms and conditions

• Special terms and conditionsSpecial terms and conditions

CONDITIONS OF QUOTATIONCONDITIONS OF QUOTATION

Provisions regarding the nature of the Provisions regarding the nature of the

Request and the consequences of the Request and the consequences of the

respondent submitting an Offerrespondent submitting an Offer

-- Submission of offerSubmission of offer

-- Rights of contracting authorityRights of contracting authority

-- Offer validityOffer validity

SPECIFICATIONSSPECIFICATIONS

• Must clearly and accurately describe Must clearly and accurately describe the essential requirements for the the essential requirements for the product to be purchasedproduct to be purchased

MINIMISE TENDER COSTSMINIMISE TENDER COSTS

The cost of the tender process is The cost of the tender process is

reduced if specifications:reduced if specifications:

• are standardised for similar are standardised for similar requirements; requirements;

• are concise and accurate; and are concise and accurate; and

• can be readily incorporated into a can be readily incorporated into a formal contract. formal contract.

PREPARING THE PREPARING THE SPECIFICATIONSSPECIFICATIONS

• Identify user needsIdentify user needs

• Research the marketResearch the market

• Conduct a risk assessmentConduct a risk assessment

• Identify what is to be procuredIdentify what is to be procured

• Determine the scopeDetermine the scope

• Determine the evaluationDetermine the evaluation

TYPES OF SPECIFICATIONSTYPES OF SPECIFICATIONS

• Functional: outcomes to be achievedFunctional: outcomes to be achieved

• Performance: emphasize outputs and Performance: emphasize outputs and encourages supplier innovation encourages supplier innovation performance requiredperformance required

• Conformance: emphasize inputs and Conformance: emphasize inputs and limits a supplier’s freedomlimits a supplier’s freedom

• Technical – physical characteristicsTechnical – physical characteristics

Functions of SpecificationsFunctions of Specifications

• Communication:Communication: a clear a clear unambiguous specification facilitates unambiguous specification facilitates communication between the buying communication between the buying organization and the supply market, organization and the supply market, and internally with usersand internally with users

• Comparison:Comparison: it facilitates a fair and it facilitates a fair and more accurate comparison of more accurate comparison of supplier’s bids for contracts, as all supplier’s bids for contracts, as all bids are compared on the same bids are compared on the same basis.basis.

Role of Purchasing FunctionRole of Purchasing Function

• All purchases have a technical and a All purchases have a technical and a commercial aspectcommercial aspect

• Early purchasing involvement can Early purchasing involvement can help identify potential and real help identify potential and real supply problemssupply problems

• Cost reduction and avoidance is at Cost reduction and avoidance is at the design/specification stagethe design/specification stage

• Quality, from the customer point of Quality, from the customer point of view is about more than just view is about more than just technical aspectstechnical aspects

Methods of SpecificationsMethods of Specifications• Brand:Brand: Xerox photocopier, Toyota carXerox photocopier, Toyota car• Samples:Samples: sample jacket to be used sample jacket to be used • End use:End use: Plastic containers to be used Plastic containers to be used

to hold hot liquidsto hold hot liquids• Drawings/blueprints: plans for a building Drawings/blueprints: plans for a building

project project• Market grade: light crude oil, first Market grade: light crude oil, first

pressing pressing olive oil, high-olive oil, high-tensile steeltensile steel

• Method of manufacturing: Halal etcMethod of manufacturing: Halal etc• Physical/chemical: Concrete, paints, etcPhysical/chemical: Concrete, paints, etc• Standards: A4 paper, 3.5 inch floppy etcStandards: A4 paper, 3.5 inch floppy etc

Standard and Standard and StandardizationStandardization• A standard is an agreed generic A standard is an agreed generic

specification, or a specification specification, or a specification intended for recurrent use, by generic intended for recurrent use, by generic it means that the specification has it means that the specification has general and widespread acceptance general and widespread acceptance within a product category, within a product category, organization, industry, profession or organization, industry, profession or geographical trading area.geographical trading area.

• Standardization is the process of Standardization is the process of selecting and preparing the most selecting and preparing the most suitable standard specification to suitable standard specification to which purchased inputs must conformwhich purchased inputs must conform

StandardsStandards ExamplesExamplesProductProduct Battery sizes/ voltages, paper Battery sizes/ voltages, paper

weights and sizesweights and sizesOrganizationOrganization Army, national health services, Army, national health services,

Shell exploration and Shell exploration and productionproduction Ford Motor Car Ford Motor Car CompanyCompany

ProfessionProfession CIPS, ACCA, Airline Pilot Assoc.CIPS, ACCA, Airline Pilot Assoc.IndustryIndustry Building and ConstructionBuilding and Construction

Catering, EngineeringCatering, EngineeringCountryCountry Electrical voltages, educational Electrical voltages, educational

qualifications, food and drug qualifications, food and drug standardsstandards

Trading AreaTrading Area European Union health and safety European Union health and safety rulesrules

The WorldThe World Aviation communication & Safety, Aviation communication & Safety, UN UN human rights standards etchuman rights standards etc

Late CustomizationLate Customization• A method that attempts to satisfy the A method that attempts to satisfy the

seemingly incompatible objectives of seemingly incompatible objectives of offering customers maximum choice, offering customers maximum choice, while purchasing and stocking the while purchasing and stocking the narrowest variety of items.narrowest variety of items.

• It is a technique that aims to It is a technique that aims to maximize customer choice while maximize customer choice while minimizing input variety through minimizing input variety through standardization and variety reductionstandardization and variety reduction

Writing Specs for ProductsWriting Specs for ProductsPerformance:Performance: Primary operating characteristicsPrimary operating characteristics

Features:Features: The ‘bells and whistles’. Extras The ‘bells and whistles’. Extras providedprovided

Conformance:Conformance: Degree to which design matches Degree to which design matches known or agreed standardsknown or agreed standards

Reliability:Reliability: Likelihood of failure in period of Likelihood of failure in period of timetime

Durability:Durability: Useful life of productUseful life of product

Serviceability:Serviceability: Speed, ease, and cost of Speed, ease, and cost of maintenancemaintenance

Aesthetics:Aesthetics: The look, feel, sound, taste etcThe look, feel, sound, taste etc

Perceived Quality:Perceived Quality: Brand image, reputation Brand image, reputation

Writing Specs for Services: Writing Specs for Services: Parasuraman’s Quality Parasuraman’s Quality CharacteristicsCharacteristics

Reliability:Reliability: Consistency of performance Consistency of performanceResponsiveness:Responsiveness: willingness or readiness willingness or readinessCompetence:Competence: Possession of required skills Possession of required skillsAccess:Access: Approachability and ease of contact Approachability and ease of contactCourtesy:Courtesy: Politeness, respect, consideration Politeness, respect, considerationCommunication:Communication: keeping customers informed keeping customers informedCredibility:Credibility: trustworthiness, honesty trustworthiness, honestySecurity:Security: freedom from danger, risk or doubt freedom from danger, risk or doubtUnderstanding:Understanding: make efforts to understand make efforts to understand

needsneedsTangibles:Tangibles: Physical evidence of the service Physical evidence of the service

What to include in an SLAWhat to include in an SLA

• Technical and professional supportTechnical and professional support

• Customer account management Customer account management arrangementsarrangements

• Problem escalation procedureProblem escalation procedure

• Changing arrangementsChanging arrangements

• Service level measures- KPIsService level measures- KPIs

• Failure Costs and providsionsFailure Costs and providsions

SLA contd.SLA contd.

• Arrangements for service review Arrangements for service review meetingsmeetings

• Contracts/help desk/named peopleContracts/help desk/named people

• Renegotiation arrangementsRenegotiation arrangements

CHECK SPECIFICATIONSCHECK SPECIFICATIONS

• Use checklist to ensure completenessUse checklist to ensure completeness

• Verify accuracy with end userVerify accuracy with end user

Home WorkHome Work

Based upon Parasuraman’s service Based upon Parasuraman’s service quality dimensions, write a short quality dimensions, write a short draft specification to be used to draft specification to be used to advertise a contract for a security advertise a contract for a security service for your office building. service for your office building. Please include as many dimensions Please include as many dimensions of service quality as you can.of service quality as you can.

SELECTION CRITERIASELECTION CRITERIA

• Used to assess the suitability of a Used to assess the suitability of a potential supplier potential supplier

• Must focus on essential aspects of Must focus on essential aspects of requirementrequirement

SELECTION CRITERIASELECTION CRITERIA

TYPES OF SELECTION CRITERIA:TYPES OF SELECTION CRITERIA:

• Pre-qualificationPre-qualification

• Compliance and disclosureCompliance and disclosure

• QualitativeQualitative

• InsuranceInsurance

• Price and pricing requirementsPrice and pricing requirements

SELECTION CRITERIA SELECTION CRITERIA WEIGHTINGSWEIGHTINGS

• Assists evaluation panel in evaluation Assists evaluation panel in evaluation of submissionsof submissions

• Each qualitative criteria is given a Each qualitative criteria is given a weightingweighting

• Weighting should indicate Weighting should indicate importance of criteriaimportance of criteria

ENVIRONMENTAL ENVIRONMENTAL CONSIDERATIONSCONSIDERATIONS

• Consideration should be given to the Consideration should be given to the environmental impact in the environmental impact in the procurement processprocurement process

eg product re-usability, re-cyclability, eg product re-usability, re-cyclability, durability, energy efficiency and durability, energy efficiency and packaging.packaging.

INVOLVE MARKETPLACEINVOLVE MARKETPLACE

• Actively seeking advice and feedback Actively seeking advice and feedback from the marketplace enhances from the marketplace enhances complex or high risk purchasing complex or high risk purchasing outcomesoutcomes

TERMS AND CONDITIONSTERMS AND CONDITIONS

• Protect the interests of the parties to Protect the interests of the parties to the contractthe contract

• Minimize risk, or reduce the Minimize risk, or reduce the consequence of riskconsequence of risk


• Sellers and buyers have different Sellers and buyers have different terms and conditions, each designed terms and conditions, each designed to suit their particular requirementsto suit their particular requirements

• Buyers should select terms and Buyers should select terms and conditions that are appropriate to the conditions that are appropriate to the requirements of the purchaserequirements of the purchase


General Terms and Conditions:General Terms and Conditions:

• A range of general or standard terms and A range of general or standard terms and conditions that may be included in all conditions that may be included in all contractscontracts

Special Terms and Conditions:Special Terms and Conditions:

• Used when the requirement is not covered Used when the requirement is not covered by the general terms and conditionsby the general terms and conditions

DISPUTE RESOLUTIONDISPUTE RESOLUTION

• Better to avoid than to resolveBetter to avoid than to resolve

• Avoid by:Avoid by:

-- clearly defining requirementsclearly defining requirements

-- Contract management planContract management plan

-- Key Performance IndicatorsKey Performance Indicators

-- MeetingsMeetings


Avoiding by:Avoiding by:• Clearly defining requirements and Clearly defining requirements and

expectationsexpectations• Implementing key performance Implementing key performance

indicatorsindicators• Contract management planContract management plan• Regular performance meetingsRegular performance meetings• Work with contractor, not against – Work with contractor, not against –

objectives are the sameobjectives are the same


When all else fails:When all else fails:

• Refer to dispute resolution Refer to dispute resolution procedures in contract terms and procedures in contract terms and conditionsconditions

Evaluation CommitteeEvaluation Committee

• Must always be odd in numberMust always be odd in number

• Representatives Finance, end user or Representatives Finance, end user or requestor, technical person in general requestor, technical person in general are included in the committeeare included in the committee

• Consultant firms are hired to conduct Consultant firms are hired to conduct evaluation of Complex casesevaluation of Complex cases

• Briefing in advance must be givenBriefing in advance must be given

Benefit-Cost RatioBenefit-Cost Ratio

Functional PerformanceValue for Money =

Resources Consumed

With whole of life considerations of: Cost related factors Non cost related factors; and Benefits to organization other

objectives

THANK YOUTHANK YOU

Documents

Contract Planning