PROCUREMENT & CONTRACT

OVERVIEWOverview(cont) The ordering is done Packages wise ( Typical Thermal Power Plant - 44 packages)Major Packages BTG (Boiler Turbine Generator)CHP (Coal Handling Plant)AHP (Ash Handling Plant)PTDM (Pre Treatment and Demineralising Plant)ChimneyCooling TowersCW & ACW Pumps & Piping SwitchyardElectrical Installation PackageCivil , Structural & Architecture works

Project Cost DistributionItemDescriptionWeight 1Engineering 5%2Equipment / Material 65%3Construction 15%4Testing and Commissioning 10%Key Roles..Engineering department Prepare Specification / DrawingsReview Technical Parameter submitted by BidderTechnical Evaluation Report

Consultant Review the SpecificationApprove the drawings and data sheet submitted by Bidder / Vendor

Procurement & Contracts Invite quotation from BiddersNegotiate for best priceAward Contract Resolve in case there are issues at site

Site ManagerCo-ordinate with Vendor for delivery of material or provision of servicesProcess payment to VendorMonitoring the post award activities

ProcessCommercial Evaluation & NegotiationAward of ContractReceipt of MaterialMonitoring ProgressInvoice/ PaymentSupplier performanceSupplier managementInvite TendersTechnical EvaluationOrderingAnalysisPROCUREMENTWhat is Procurement ?Dictionary Meaning - It is the act of getting possession of something

Procurement is the acquisition of goods or services at the best possible total cost of ownership in the right quantity , right quality, at the right time and in the right place

Objective Set out the process required for supply of material/ services to carry out the project right the first time and every time

Monitor Performance indictor to prevent and reduce problem that can affect the procurement process Procurement Process Procurement Process Inputs Bid Document ( ITB, Technical Specification, GCC, SCC etc)NIT (Notice Inviting Tender)List of perspective bidders BudgetOutputsApproval of Management for placement of order (NFA) Contract / LOA(Bill of Quantity, Scope of Work, Delivery Period, payment terms etc)Product valueProcurement ProcessEvaluation Technical Requirement (Product offered vs Product required)Financial CapabilityPast Performance / Experience Certificates of BidderWorkload existing & anticipatedPrice quoted by bidderDelivery time Terms & Conditions in Contract

CONTRACTWhat do you understand by Contract ?Mutual agreement between one or more parties involved

Legally enforceable

It can be written or oral to do something on agreed & binding terms

ObjectiveProcure material for timely delivery as per desired milestones to ensure continuous project activities

Follow 3R approach ( Right Source, Right Time and Right Quality)

Achieve economy in material cost by implementing various strategies & tools

Basic terminology used in Contracts..Indent = Requirement of material or service for particular jobBid / Tender = Document that contain all the terms and conditions & technical specification for carrying out the job as requested in the IndentBidder /Tenderer = Invited by the Owner for carrying out the workOwner / Purchaser = One who purchase the material / service against an indent Contract = Agreement between Contractor (s) and the Owner for carrying out the work Contractor /Supplier = successful Bidder who is awarded the ContractLetter of Intent (LOI) = Letter showing intent of the Owner to place the Contract on the selected bidderLetter of Award (LOA) = Agreement sent to the bidder along with all the terms of the Contract which is legally bindingGeneral Conditions of Contract (GCC) = These are those conditions which remain same for all the Bidders and no variation is acceptable on the sameSpecial Conditions of Contract (SCC) = These are those conditions Different types of ContractSupply Contract Service ContractWork ContractRate ContractQuantity Contract

Basic Components of ContractOfferUnambiguousShould have a validity periodAcceptance of the offerAbsoluteNo conditional acceptanceEither expressed or impliedMust be communicatedConsiderationQuid pro quo ( something in return)Need not be adequateMust be registered if without consideration

Intention to enter into legal commitmentFree consent Free from coercionUndue inferenceMistakesMisrepresentationfraudParties competent to contractFinancial & Manufacturing capabilityLegal status of the party

Phases of a ContractIndent or requirement is receivedBid / Tender is issued to all the Bidders with a target date to submit their offerOffers are received from interested BiddersTechnical & Commercial Evaluation Negotiation Clean Sheet Costing OJAS BinderNote for Approval circulated for Management ApprovalLetter of Intent (LOI) Kick off Meeting (if required)Letter of Award (LOA)

Essentials of a Contract..Parties Name & Contact details

Introduction or brief background and intention of the document

Operative clauses ( heart of the Contract setting out main obligations of each party to one another)

Termination Provision ( how and when contract ends and what happens after that)

Schedules or Annexure (giving more details on specific aspects if applicable) Important ClausesTechnical SpecificationContract priceDelivery TermsWarranty / GuaranteeLiquidated DamagesPayment TermsCross Fall Breach AgreementLimitations on subcontractingInclusions / Exclusions of third party rightConfidential InformationForce MajeureArbitration Laws & JurisdictionsApproach Customer vs Contractor CUSTOMERQuestion :What is your company in Business for?

Answer :To make money

How?By providing deliverables at minimum costCONTRACTORQuestion :What are Contractors in Business for?

Answer :To make money

How?By maximizing payment for services What Contracting is and isnt!Contraction is

Working with Contractors to Work more efficientlyEliminate wasteful & unnecessary operations Add valueReduce costsShare the gains (win/win)

Contractor isnt

About squeezing Suppliers and Contractors profit margins !!!

Trends in Contract ManagementLonger term contractsTurnkey ContractsHarnessing contractor expertiseSupplier Development programmesCross functional teamsIncentive Schemes to Contractors More comprehensive relationshipsIncreased performance criteria

NegotiationNegotiation is back and forth communication designed to reach agreement while leaving the other side intact and positiveEasier to negotiate when the two sides have some shared interests and some opposed.Develop Multiple options and decide laterAvoid Premature judgment Negotiation Involves -ListeningAbility to identify the interest of both the partiesPersuasionDiplomacyBuilding & preserving relationship

Negotiation BasicsNegotiation Process (Preparation)Know your own interestsWhat are the issues What are the need vs want Know your strengths & weaknessSelf AwarenessBody LanguageEmotional IntelligenceSee things from others perspective Research others interest and their needs (why they are negotiating)What are their needs Be aware of unpleasant situationsNegotiation Process (Planning)Brainstorm alternatives that could satisfy their needsBe creativeExpand the pie

Know your Vendor / opponentDoes the person has the authority to make decisionAre there any penalty for bluffing

Plan way to break it / Buy Time

Work out a strategy within your own team Negotiation Process (Planning)Set a Target Price

Minimum, or walk away point

Tie up the loose ends

Conclusion, and the feel-good facto

Documentation & enforcementDuring NegotiationBring the list of main points and set of questionsTake a Friendly approachStay open to new information and try not to interruptFocus on Interests Redirect personal attack onto problems at handListen actively and reflectively (listen also to what is not said) Write a note or memo if required ( e.g. If no reply is received by .. Will assume that it stands accepted)Be prepared to walk away if agreement is not reachedTools used in NegotiationBest of Best Benchmarking

Clean Sheet Costing

Previous Order placed for similar material / services

Negotiation Tactics

MONITORING CONTRACTMonitoring Contract..Detecting problems related to Payment to Contractor

Improved monitoring of milestones and deliverables

Site related issues

Mobilization advance issues

Tracking of various aspects such as delivered quantity , bills processed etc

Key planning points..What is the subject of the contract and how clear it is?What are the objectives of the agreement? Are they measurable and what are the conditions of achievement?Benefits of the contract being carried out and what new pressures might this produce?Work out all the cost implications and make sure they are covered in the contractAll the assumption should be checked and recorded in the contractWhat are the risks and how are they dealt? Are there exclusion or limitation clauses to be negotiated? Has some tolerance be built in the equation?Will the deal work in practice and have all the work done to integrate all the processes required to make it workWhat areas of uncertainty still exist and how far can these sensibly be covered?

QUICK REVIEWQuick ReviewWho asks for price quote ?VendorOwnerSub-Contractor

Quick Review contWho prepares the Letter of Award? ProjectsProcurement & ContractsVendor Quick Review contWhat is the difference between Service Contract and Work Contract ? They are both same with different nameService Contract involve service part and Work Contract is given to sub contractor for carrying out the work Service Contract involve service part and Work Contract involve Supply of material along with ServicesQuick Review contWhich clause forms a part of Special Conditions of Contract ? Arbitration Payment TermsLiquidated DamagesAll of the above