APM Contracts and Procurement SIG - practitioner class 1

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leading edgeprojects consulting ltd , 2013

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Presenter & Chair of the C&P SIG :

Jon Broomeleading edgeprojects consulting ltd

setting | your | projects

up for | success

[email protected] +44(0)7970 428 929 www.leadingedgeprojects.co.uk

Welcome to thepractitioner class 1:

Introduction & Overview


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• Housekeeping� Mobiles off

� Fire Exits & Alarms

� Toilets

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Objectives

To give an overview of :

� key differences between the procurement of goods and services and works / sub-projects;

� important developments, both past and emerging, in contracts and procurement,

� key definitions and terminology;

� highlights of the SIGs generic 6/7 stage process.


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Agenda� Housekeeping

� About the SIG

� What is Procurement ?

� Developments in the Procurement &

Contracting for Projects &

Programmes

� The Guide : key definitions, the 6/7

stage process, highlights.

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� One of the first SIGs

� Flourished and then declined.

� A conference some 5 ½ years ago : members wanted the basics of contracts & procurement.

� We run a combination of basic training events called “seminars” (always booked up well in advance) & more leading edge events.


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Aim of the C&P SIG :The Contracts & Procurement Specific Interest Group :

� Exists to promote and disseminate knowledge, understanding and good practice of contracts and procurement in a project & programme environment.

� Aims is to become a lively and constructive debating forum which takes existing best practice and helps make it better.

� Wants to be disseminating this knowledge, understanding and better than best practice through a variety of accessible means.

� Has a long term aspiration to become recognised as an international forum at the leading edge of excellence in contracts & procurement for projects.

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2013 Contracts & Procurement SIG Structure

The Outer Circle (& beyond) : Receive Information via general APM publicity.

The Middle Circle : Those on the C&P web mailing list.

The Inner Circle Circle : Those who are willing to contribute when asked e.g. Talks, contributing & reviewing documents. Limited direct emails.

The Bulls Eye : Committee members & those who want to initiate ‘projects’ & pro-actively contribute. Copied in on most emails wrt SIG initiatives.Bi-monthly web / tele-conference meetings.


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Future Events� Contracts & Procurement Masterclass 2: The importance

of the business case & the project procurement strategy – evening of 15th May - Steve Emerton - here.

� Contracts & Procurement Masterclass 3 : Developing the Package Contract Strategy – Afternoon of 6th June – Me -here.

� Risk management is dead (or dying); long live the management of risk ! - lunchtime of 18th June - Me –Webinar.

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What is Procurement ?� APM Body of Knowledge 5th edition (Section 5.4)

(and last Procurement Guide)

“Procurement is the process by which the resources (goods and services) required by a project are acquired.

It includes the development of the procurement strategy, preparation of contracts, selection and acquisition of suppliers, and management of the contracts.”

� APM Body of Knowledge 6th edition (Section 3.7.3)“Procurement is the products and services are acquired from an external provider for incorporation into the project, programme or portfolio.”

� Are these still valid as definitions for the APM ?


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Why is Procurement Important ?� If 80 – 90% of many projects’ spend is outsourced

in some way, then might having the right organisations and people on board with good contracts in place be helpful ?

� Research shows that good procurement decisions can have just as much effect on delivering projects to time, cost and performance as technical decisions.

� A Project Manager can only manage and administrate a contract through the cards he is dealt. Procurement & Contracts are about the cards you deal yourself.

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Developments since the last SIG Guide� The Project Life-Cycle has expanded to include Operation

& Termination.

Concept Definition Implementation Handover and

Closeout

Operations Termination

Project Life Cycle

Extended Life Cycle

Figure 1.1 - APM’s project life cycle (APM BoK 5th ed.)

� The ‘implementation’ stage may only involve buying ‘off the shelf’ manufactured goods and ‘bodies’ as a service.

� Simple and easy !


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What about the Procurement of ‘works’ ?

� In EU procurement terminology ‘works’ are sub-projects delivered under contract.

� (sub)Projects happen over a period of time and are therefore subject to risk and change and involve interaction between people & organisations

i.e. relationship based vs. transactional based.

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Figure 3.7: Diagram correlating Nature of Relationship with Type of Package


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The NEED or OPPORTUNITY space

Sponsoring organisation’s

Success Criteriafor project or programme.

Capabilitiesenable benefits to be achieved.

Deliverablesare the end products or measurable results of the project

e.g.as stated in function or performance specifications.

to stakeholders

Goods and Servicesthat make up the Deliverable

BusinessCase

ProjectBrief

ProjectScope

Statement

Typically in :

TechnicalSpec

Benefits

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What could ‘works’ be ?Works could be expressed as

� a collection of goods and services assembled by a Provider e.g. a designed construction sub-project.

� a combination of functional &/or performance specs e.g. office building which the Provider has to design and build.

� capabilities or outputs e.g. a customer service capability as expressed in a service level contract. For instance, in PFI projects.

� benefits & outcomes e.g. customer satisfaction, increased business, cost reduction.

If I am the customer, am I buying goods and services ?


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Developments since the last Guide

� The Project Life-Cycle has expanded to include Operation & Termination.

� There is a greater emphasis on outcomes, benefits & whole life cost’s.

� As technology & society gets more complex, there is an increasing need for collaboration to deliver projects.

� Selection therefore includes culture and capabilities as the end ‘product’ cannot be fully defined.

� Contracts need to align motivations and be more relationship based i.e. define how parties work together over time.

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What is Procurement ?� APM Body of Knowledge 5th edition (Section 5.4)

(and last Procurement Guide)

“Procurement is the process by which the resources (goods and services) required by a project are acquired.

It includes the development of the procurement strategy, preparation of contracts, selection and acquisition of suppliers, and management of the contracts.”

� APM Body of Knowledge 6th edition (Section 3.7.3)“Procurement is the products and services are acquired from an external provider for incorporation into the project, programme or portfolio.”

� Are these still valid as definitions for the APM ?


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A new definition for Procurement ?

� Procurement is the process by which the benefits, enhanced capabilities, functions / performance or resources (goods & services) required from or by a project or programme are acquired.

It includes deciding the package structure and, for each package, the development & implementation of the

� contracting strategy

� contract documents, including the specific scope / requirement

� process and evaluation criteria for selection and award

leading to the effective management and administration of the contracts once entered into."

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Other key definitions in the GuideA contract is a legally enforceable agreement between two or more parties with mutual obligations. It normally includes (when for a sub-project) at a minimum :

� the Requirement which defines the performance or deliverable;

� the constraints in which this performance has to be delivered;

� how the contract is administered in terms of when payments are made, quality is assured etc;

� how change, whether instigated through or by the Employer or arising from external circumstances, is administered and ideally managed to minimise the adverse impact on the Employer’s project objectives and outcomes; and

� remedies for non- or poor performance by either party;

� the pricing document.


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Other key definitions in the GuideAn Employer is the party who normally instigates the contract and who is receiving the Requirement in exchange for the ‘consideration’, normally monetary.

The Provider is a broad enough term to encompass :

� A manufacturer supplying ‘off the shelf’ goods

� A manufacturer designing and manufacturing goods to an Employer’s unique requirements, whether it is a one-off deliverable or 1000’s of units;

� A consultancy organisation providing professional services, whether these are ‘business as usual’ services, such as accountancy, or project specific services;

� An outsourcing organisation providing on-going services tailored to the Employer’s specific needs; or

� A contractor delivering a works contract, however expressed.

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• There is an overlap as often each stage runs over into the next.

• The process & processes within each Stage are not strictly linear.

• The process & sub-processes are a framework to Guide thought & action OR

• The starting point for the WBS and hence plan for a major procurement.

The Overall Process


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Activity 5 : Development of the Project Brief.

The Project Brief is a high–level outline specification, in terms of capability or functions and performance levels, of stakeholders’ (customers/clients) needs and requirements for the project needed to deliver the agreed Benefits. This would include the Benefits being refined where possible into tangible or measurable Success Criteria.

Activity 7 : Develop Project Scope Statement

� What’s in, what’s out and what’s a maybe ?

� High level boundaries / constraints.

� High level project breakdown structure for costing & planning.

� Threats & Opportunities


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Stage 1 : Develop Project Procurement Strategy

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Example ‘Make or Buy’ Criteria

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� See also Excel Spreadsheet


©Fig 3.3 : Process diagram for Stage 1 : Develop Project Procurement Strategy

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Stage 2 : Develop Package Contract Strategy


©Fig 4.2 : Process diagram for Stage 2 : Develop Package Contract Strategy

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Principles of Risk Allocation & Sharing

Consider :

� the effect on the organisations business,

� who can best influence it happening,

� for negative risk, who can best mitigate it,

� clarity over above for minor risks, and

� risk attitude


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Information Gathering� Industry drivers & constraints

� Participants’ Drivers & Constraints :– E.g. cash flow; market share; certainty of profit vs.

opportunity to maximise; short term vs. long term.

– Is this Package critical to the project ?

� Strengths & Weaknesses of the Likely Parties :

– Financial strength

– Technical and commercial ability wrt risks

– Collaborative ability ?

� Contract specific threats and weaknesses :– matched to above.

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Figure 3.7: Diagram correlating Nature of Relationship with Type of Package


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What Sort ofContracting Strategy ?

Short Medium Long Permanent

Complexity / Degree of Uncertainty

Low

High

Partnering Style Contracts

- Strategic Alliances : frameworks,

outsourcing, partnerships

- Project alliances

- Target costs contract

Joint Ventures

TIMESCALE

Schedule

of Rates

Bill of

Quantities

Fixed price contracts

- activity schedule

- lump sums

- milestone payments

Input Based Contracts :- Management contracting

- cost reimbursable

- fee based arrangements

Design Build

Finance, Operate Arrangements

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Second Order Risk Allocation

� Additional Risk and Thresholds

– What risks would be additional to the

Contract Sum (or what do we take out from a

standard form) ?

– What thresholds do we set for transference ?

� Use of Incentives

– Damages vs. Bonuses vs. a combination.


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Means of Redress

� Retention

� Guarantees :

– Parent Company

– Bonds

� Warranties

– Fitness for Purpose

– Collateral Warranties

� The Contracts (Rights of Third Parties) 1999 Act

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Use of Standard Forms

Reasons to if possible

� Saves legal costs and time.

� In theory, they have been evolved and fine tuned over time to take out ambiguities & inconsistencies which cause dispute. Where this is not the case, case law may exist to confirm their legal interpretation.

� Familiarity amongst practitioners with both their interpretation and the procedures to operate them. (‘better the devil you know’ !)

� The contra preferentum or constructor against the grantor rule does not apply to the standard terms.


©Fig 4.2 : Process diagram for Stage 2 : Develop Package Contract Strategy

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Stage 3 : Prepare Contract.


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What should a contract cover ?� Definitions

� Design development and implementation

� Types of liability : reasonable skill and

care (services); fitness for purpose; tort.

� Existing State / Starting Point

� The Deliverable

� Each parties Rights & Obligations during delivery

� Constraints during Delivery

� Subcontracting

� Testing & Commissioning

� Correction of defects after completion

� Time, inc Final Certificate

� Payment : Certification : when, by what

criteria (foreign currencies) and by whom.

Interest payments for late payment.

� Approvals / Instructions etc. on behalf of Employer

� Risk Allocation / Management of Change : the need, risk allocation,

calculation of time and cost.

� Title & ownership rights, inc IPR

� Insurance : what each party should hold, indemnity.

� Termination / Exit procedures

� Dispute Resolution : options &

sequence (dispute resolution board,

adjudication; mediation; arbitration or

litigation).

� International Factors e.g. multiple

currencies, shipping..

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Stage 5 : Select Contractor & Award Contract.Outline Sequence

� Relevant background law

� Types of Selection Criteria

� Typical Stages of a Selection Process

� EU Procurement Regulations

� Forming a Contract

� Other considerations / good practice e.g. :– answering queries during the tender etc – avoiding mis-representation in negotiation– status of letters of intent etc.


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Types of Selection Criteria

� Past Performance : for you & / or others

� Price * / Cost factors *

� The End Deliverable : Contractor’s Proposals*

vs. what you asked for

� Means of Delivery * : Hard & Soft factors

Internal vs. External

� Capability : Organisationally &/or of Individuals *

� Culture : Generally &/or Compatibility

Organisationally &/or Individually

VfM

* Contractual Status must be decided.

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Typical Stages of a Selection Process

� Desk Research

� Publicising (& Engagement ?)

� Pre-Qualification

� Double Envelope : price & ‘quality’

� Two Stage

� (Checking out of statements ?)

� Negotiation / Clarification

� Final Selection.


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EU Procurement Regulations

� Do they apply to you ? Type & Value Thresholds.

Public Sector & Utilities.

� Open Procedure : No prequalification. Open to all. Likely

to be mainly based around price for commodities

� Restricted Procedure : Prequalification + no less than 5

final bidders.

� Negotiated Procedures : Open (with pre-qualification

and going to open market) vs. Restricted.

� Competitive Dialogue : For ‘particularly complex

projects’ when the technical specification or ‘legal or financial

make-up’ cannot be defined in advance by the employer.

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Forming a Contract

� Why is this important ? So you, as a Project

Manager, do not inadvertently enter a contract.

There must be :

� Offer

� Acceptance

� Consideration

� Intent to form legal relations

� Capacity of Parties (and individual)

� Purpose must be legal and not immoral


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Stage 5 : Manage & Deliver ContractStage 6 : Contract Close

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A new definition for Procurement ?

� Procurement is the process by which the benefits, enhanced capabilities, functions / performance or resources (goods & services) required from or by a project or programme are acquired.

It includes deciding the package structure and, for each package, the development & implementation of the

� contracting strategy

� contract documents, including the specific scope / requirement

� process and evaluation criteria for selection and award

leading to the effective management and administration of the contracts once entered into."


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Thank you

Feeding Back (please do !)

� By emailing me :

[email protected] | your | projects | up for | success

� By telephone :07970 428 929 / 0117 909 3297

APM Contracts and Procurement SIG - practitioner class 1

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Transcript of APM Contracts and Procurement SIG - practitioner class 1