Module 9 - Managing Project Procurement - PowerPoint Presentation Rev 2

5/22/2018 Module 9 - Managing Project Procurement - PowerPoint Presentation Rev 2

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Welcome to Worley Parsons Project Management

Process (WPMP) Training

Module 9Managing Project Procurement


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Managing Project Procurement

Introduction

Overview of Procurement

Responsibilities for Procurement

Commencing the Procurement Process \Procurement Planning

SmartPlant Materials

Procurement Reports

Procurement Initiation

Procurement Execution

Procurement Close-out

About this training session


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Learning Objectives

On completion of this module, you will be able to:

Identify and understand the procurement methodologies and tools

available to Project Managers for the management of EPCM

projects


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Learning Outcomes

Early involvement of the Procurement function in project planning

is essential

The projects procurement strategy and procurement plan must

align with the overall project strategy

Clear definition of the objectives of the Procurement Process is

critical for the project team

On completion of this module, you will be able to demonstrate an

understanding that:


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Procurement is an integral part of the WorleyParsons growth

strategy

Procurement shall support the company to compete more

successfully as a leading provider of professional servicesworldwide

Procurement in WorleyParsons


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Procurement is the process by which materials, equipment andthird-party services are acquired for projects

Key procurement interfaces include:

Project Management Engineering

HSE

Quality

Cost Estimation

Project Controls

Construction Management

Legal & Risk

What is procurement?


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At the best possible total cost of ownership

In the right quantity and quality

At the right time

In the right place

For the direct benefit of the customer

What does procurement involve?

the acquisition of materials, equipment or third-party services:


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Procurement and Capex

The Capital Expenditure (Capex) of a Project can be split into a

few elements:

Engineering and designapprox. 10% of Capex

Procurement: Materials and equipmentapprox. 30 to 45% of Capex

Contractsapprox. 30 to 45% of Capex

Balance is owners costs, insurance, land purchases etc

The above is indicative only and dependent on the type and

location of a project. However, on average the Capex element

managed by procurement ranges between 60% and 90% of the

overall project value


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Procurement is the bridge between Engineering (design) and

Construction (execution)

What is the role of procurement in a project?


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Materials Management

Purchasing, Expediting, Materials Control, Coordination ofInspection (liaising with Quality), Traffic/Logistics, Warehousing/

Inventory Control etc

Legal agreement used is a Purchase Order

Contracts

Acquisition and management of third-party services

Legal agreement used is a Contract

Both Purchase Orders and Contracts are written and binding legal

agreements between relevant parties to supply either goods or

services against agreed conditions

Procurement is divided into 2 functions


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Procurement Executive Directive

To minimise risk exposure, procurement services are usually

provided for and on behalf of Customers, in the Customers name

or on Customer paper this is the companys preferred position

However, this does not preclude provision of procurement servicesin WorleyParsons name or on WorleyParsons paper requires

CEO to proceed in any event where additional supplier-related

risks and liabilities are assumed (eg warranty obligations, delivery

commitments, product liability, etc)

In most instances, procurement services are provided on behalf of

the Customer, requiring active interaction with the Customer and

their various approvals to proceed


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EMS Workflows and Procedures 1/2

Contracts services cover the provision of third-party services such as

construction labor, inspection services, painting and sand blasting

The provision of contract services is governed by the Contracts

Workflow in EMS containing a number of procedures, guidelines,

forms and templates

Preferred Terminology:

ITT = Invitation to Tender

Contract = legal agreement for the provision of services

Contracts


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EMS Workflows and Procedures 2/2

Materials Management includes the purchasing of goods and

equipment, subsequent expediting, inspection and receipt.

The provision of Materials Management services is governed by the

Materials Workflow in EMS containing a number of procedures,

guidelines, forms and templates

Materials Management activities are managed and tracked through

SmartPlant Materials, WorleyParsons Materials Management system

which starts from creation of the requisition through to final material

reconciliation on site

Preferred Terminology:

RFQ = Request for Quotation

Purchase Order (PO) = legal agreement for the supply of goods

Materials Management


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WorleyParsons procurement process

Pre-award Activities* Materials Management

* ContractsObtain quotations

Select the preferred suppliers

Project Procurement PlanDetermine procurement

requirements

Procurement InitiationIdentify potential

suppliers

Post-award ActivitiesManage the supplier

Administer POs and contractsManage POs/ contract variation

Expediting / Inspection

Materials Field AdministrationActivities

Field PurchasingTransport/ Logistics

Receipt on siteWarehousing

Close-out ActivitiesConclude the engagement of the

suppliersRecord the performance against

each order & contract


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As Project Manager, you are responsible for the overall

management of procurement activities associated with the project

You are not responsible for the execution of procurement activities

That is the responsibility of your Project Procurement Manager

To fulfill your responsibilities, you should work closely with the

Procurement Manager


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Procurement specialists in each region

Detailed procurement procedures, guidelines and associated

documentation

Deployment of SmartPlant Materials as the company-wide materials

control system to record, track and report on procurement activity

Global supplier database for materials, equipment and services

Global Sourcing initiatives

Supply arrangements with key suppliers

WorleyParsons procurement capability


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Procurement staff managing the Materials Management andContracts activities usually:

Work either from a core Procurement group in a key companylocation or

Form a part of a dedicated project procurement team

Procurement activities on the project are usually led by anexperienced Project Procurement Manager

Where warehousing staff are required for specific customers orprojects, they are usually located on site

Inspection may involve in-house or third-party inspectors, dependingon the location of the inspection activities

Procurement resourcing



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Procurement Process

Establish exactly what the customer requirements are andwhatWorleyParsons has committedto do

Establish your procurement team and set out their responsibilities

Procurement to participate in the Project Risk Assessment and ensure thatrisk mitigation is included in the Procurement Plan to be developed

Procurement to incorporate appropriate flow-down conditions from the Primecontract (the agreement between Customer and WorleyParsons) in theProject Conditions to ensure compliance and alignment (e.g. includingcustomers confidentiality requirements, alignment of warranty periods etc.)

Procurement to develop the project procurement procedures, based on EMSbut incorporating as appropriate Customers requirements (e.g. approvalinterfaces)

Arrange to have the project set up on SmartPlant Materials

Ensure WBS is established

Commencing the procurement process for a project


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Procurement Planning

Planning is at the crux of all project activities

Procurement is no exception

The aim of procurement planning is to:

Know what needs to be procured, when, where and how

Identify critical long lead items and services

Establish order and consistency in the way the procurementactivities are performed

Understand the risks involved in the project environment andidentify mitigating actions

The Project Procurement Plan is part of the Project ExecutionPlan

Planning


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Procurement & Risk Management

Procurement is an integral part of risk management on the project

Develop appropriate procurement/ contracts/ materials managementstrategies, identifying the various risks (market, forex, local content

requirements, taxation and importation issues, logistics complexities,

etc. to be managed) Use EMS procurement procedures to the largest extent, however,

recognize Customer requirements in the project specific procedure.

Ensure that the project specific procurement procedures areapproved by the customer and shared with the project procurement

team Develop the procurement schedule early, in line with the overall

project schedule, resulting in correct priorities to achieve the

Required on Site Dates


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What you need to plan for


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When planning occurs

Identify Evaluate Define Execute Operate1 2 3 4

Procurement Strategy

Procurement Plan

Materials Management Plan, if required

Purchasing and Contracts Initiation


Contracts Plan, if required

Materials Field Administration


Materials Management and Contracts Close-out


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Project Procurement Strategy (PPS) is the:

Process for identifying and documenting the procurement

opportunities applicable to the project First step in developing the Project Procurement Plan

Typically, the PPS is first developed during the scoping stages of a

project

Sometimes the customer provides the initial procurement strategy for

further development in the Project Procurement Plan

Project Procurement Strategy


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Purchasing activities can involve long lead times

Certain materials and equipment may be particularly critical to a

projects success

Purchasing activities usually involve multiple countries (infrastructureand logistics, local legislation etc.)

Market and technology developments can impact on the success of a

project and therefore need to be monitored on an ongoing basis

During the development of the PPS, the following factors need to be

considered:



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The PPS is a hierarchical matrix covering the entire work scope of a

project, broken down into separate work packages

Only the major critical items are separately identified as work packages

These packages are created and identified according to:

Unique technical and commercial attributes of the work activities

they comprise Methods by which they are to be executed



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Example of a PPS matrix

Components

Physical

Discipline

SpecialEquipment Item A

SpecialEquipment Item B

Balance of Plant Civil Works

ProjectManagement

Project Management Services ContractorReimbursable Costs withIncentives Fee$ 70m total

Design Design Contract

Lump Sum

$10m Facilities E & P Contract

Reimbursable Costs with Fixed Fee$30m totalProcurement

SpecialistSupplier ALumpSum PurchaseOrder$200mtotal

SpecialistSupplier BLump SumPurchase Order$100m total

FabricationConstruction ContractReimbursable Cost and EquipmentRates with Incentives Fee - $100M

total

Materials Control

Construction /Erection Services

Installation Contract

Lump Sum

$10m

Quality InspectionSpecialist Quality ContractAll-inrates$10m

Part of Project Management Services

Commissioning /Start-up

Assistance

Part of Supplier APurchase Order

Part of Supplier BPurchase Order

Contract N/A


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The structure of the PPSdepends on the:

Scope of work

Nature and complexity of the project

Requirements of the customer

The PPS assists in:

Administrative and commercial planning

Cost/schedule control functions of a project



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Allows a concise, high-level overview of how procurement activities

relate to the execution strategy of the project

Illustrates alternative ways of executing the project procurement

activities

Identifies where:

Consolidation (or further break-down) of work scopes can work tothe projects advantage

Gaps may occur in hand-offs during execution

A Procurement Strategyis a deliverable that can be provided for

projects in Identify and Evaluate phase

Benefits of a PPS


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When planning occurs

Identify Evaluate Define Execute Operate1 2 3 4

Procurement Strategy

Procurement Plan


Purchasing and Contracts Initiation



Materials Field Administration


Materials Management and Contracts Close-out


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Projects in Identifyand Evaluatephases:

While you might not be able to fully identify these requirements, youshould be able to identify them in broad scope

Concentrate on Procurement Strategy approach

Projects inDefinephase:

The procurement needs of the project should be sufficiently identified tosupport the Customers overall project schedule

Full fledged procurement plan can be developed

Projects inExecutephase:

The procurement needs are clearly identified and a procurement planshall be developed to achieve the timely delivery of the project

Full fledged procurement plan must be developed

Planning in the various WMPM project phases


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Documents the basis for obtaining and managing materials,equipment and third-party services required for project execution

Addresses relevant aspects of both materials management andcontracts for the project

Maps out the various anticipated risks and constraints and identifiedmitigating actions

Identifies critical supplies (see also Procurement Strategy) andoutlines general strategy

Ensures that the procurement activities align with the overall projectschedule

Project Procurement Plan


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The Project Procurement Plan:

Must clearly define the deliverables of the procurement process

Needs to be fit for its purpose



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The Project Procurement Plan

may also include details about

the targeting of procurement

efforts

The Project Procurement

Manager will consider the

assessment in the strategy

development

Criticality-Value Assessment


Bottleneck, e.g. specialalloy steel grade

Ensure continuity

Develop alternativesRevise specifications

Critical, e.g. turbinecompressor

Form closer relationships

Direct negotiations

Routine, e.g. pipingbulk blanket orders

Simplify procurementprocess

Automate

Rationalise supplier base

Leverage, e.g. customersstandard agreement

Maximise commercialadvantage

Competitive tender

Standardisation

Criticality

Low

Low High

Value Potential

High


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Where the complexity and / or size of the project warrant it, the Project

Procurement Plan may be further developed in separate plans:

A detailed Project Materials Management Plan

Separate detailed Project Contracts Plan for major contractpackages

Separate detailed Procurement Plans for key procurementpackages


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The various elements of the Procurement Plan are further defined in the

Materials Management Plan, including:

Specific strategies for buying materials and equipment

Associated activities for managing the expediting, traffic/logistics etc

The materials control and reporting systems

Prioritization of procurement activities and associated engineering

deliverables in line with the ROS (Required on Site dates) as definedin the project schedule

Materials Management planning


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Level of procurement effort based on cost, schedule, criticality, and

other relevant factors

POs/activities already executed and/or underway prior to

engagement of WorleyParsons

Transition of early purchase agreements from the customer

Material control systems

Quality management, verification and inspection, which includes an

outline of inspection to be undertaken

Site materials management plans

Materials Management planning (contd)


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Subsets of the Material Management Plan

Engineered equipment planning

Bulk materials planning

Prefabrication planning and modularization

Materials Management planning


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The primary objective is to ensure that items are acquired and

released in time to meet the overall project schedule

The dates on which items are required on site to meet construction

needs drive the engineering and procurement planning and activityfor engineered equipment

A major equipment list for the project needs to be developed early

Engineered equipment planning


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Planning for bulk materials can be more complex than planning for

engineered equipment

Bulk materials control starts with an examination of the project

schedule to assess:

What bulk materials are required over time

Critical required on site (ROS) dates

Bulk material planning


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Procurement planning:

Is usually very complex for extensive prefabrication

modularization often involving multiple sites

An extensive prefabrication program demands an early procurement

planning effort that addresses the interfaces between vendors,

fabricators and site construction

Prefabrication planning and modularization


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The Contracts Plan can be:

Subset of the Project Procurement Plan or

Separate planscomplex projects

The main focus of project contracts planning is the selection the bestcontractor under the best available terms and conditions

Needs to:

Analyze the options and the marketplace for the requiredservices

Define the number, type, scope, timing, interfaces, compensationbasis, etc of major contracts to be developed for the project from

early planning through start-up

Contracts planning


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For Projects in the Definephase the Project Contracts Plan needs to

document:

Critical contracting issues (e.g. labour resource constraints,market constraints) for the major contracts

How will the impact be managed and the risk mitigated?

What is the schedule to meet timely completion of the Project?

Contracts Planning in Define Phase


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For Projects in the Executephase, the Project Contracts Plan

review the constraints and identify mitigation measures similar to

the Define phase projects but not just for major contracts.

All anticipated contracts are identified.

If the project is a continuation of a Define phase project, theContracts Plan developed for the Define phase will be

reviewed and updated by the Project Procurement Manager to

reflect project progress and significant new developments

A list of matters that typically need to be considered are listed onpage 32 of the participants manual

Contracts Planning in Execute Phase


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The customer must approve the Project Procurement Plan as part of

the Project Execution Plan

Approving the Project Procurement Plan

S


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WorleyParsons uses a suite of project management systems to

record, track, control and report on projects


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SmartPlant Materials is used to:

Identify

Record

Track

materials and equipment required and purchased for a project


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SmartPlant Materials has four integrated modules, which are described on

page 36 of the workbook


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Maintains the Material Stock Code catalogue

Generates bulk requisitions via interface to design systems (e.g.PDS)

Generates equipment and services requisitions

Preparation of RFQs

Supports bid evaluations

Creates and, if required, amends POs

Facilitates expediting

Facilitates Traffic/Logistics

Facilitates stores management

Can undertake invoice reconciliation via Invoice Matching Interface

module


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SmartPlant Materials imports bills of materials from 2-D/3-D engineering

design software and other sources

SmartPlant Materials supports better material planning on site and materialreconciliation through the ability to track imported bills of materials fromRequisition to Material Issue

Materials are identified as being in any of the following phases:

Requisition

RFQ

Purchasing

Expediting

Shipping

Warehouse receipt

Storage

Material Issue


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SmartPlant Materials was designed as a system for controlling

materials and equipment, not for administering contracts

SmartPlant Materials can, however, be used to record basic

information about contracts

Using SmartPlant Materials for recording and tracking contracts


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Each individual project needs to be set up in SmartPlant Materials so

that its procurement activities can be recorded, monitored and

reported

SmartPlant Materials should be set up as soon as the ProjectProcurement Plan or Materials Management Plan has been approved

You are responsible for ensuring that SmartPlant Materials is set up

properly

You work with the project Procurement Manager to identify and

obtain the information for the set up

Setting up SmartPlant Materials for a project

SmartPlant Materials Training


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SmartPlant MaterialsTraining

When you need to start using SmartPlant Materials, you will receive

specific training on how to use it

Contact the Business Systems Group to arrange the training

Training in SmartPlant Materials


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Procurement Reports

Procurement activities are monitored and reviewed regularly

SmartPlant Materials generates a range of reports which you use to

monitor progress and identify actions to be taken to address issues

Two particularly important reports for the management ofprocurement activities are the:

Procurement Status Report

Procurement Expediting Report

Procurement reports

P I i i i


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The Project Procurement Manager is responsible for completing the activities

that enable purchasing and contracts to be initiated

The initiation activities should be completed during the early stages of the

project

The initiation activities are:

Purchasing initiation

Contracts initiation and formulation

Part of the initiation activities is the development of the Project terms andconditions for purchase orders and contracts.

These may be provided by the Customer as we will typically be acting ontheir behalf.

The conditions shall be checked for alignment with the Prime contract.

Overview of procurement initiation

P t I iti ti


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Purchasing initiation involves setting up the project base for the

Purchasing documentation and databases

The main activities are:

Identifying PO provisions (including standard Terms andConditions)

Preparing standard documentation, including Instructions toBidders, master Request for Quotation, master purchase order

document

Carrying out vendor pre-qualification

Establishing a project vendor list

Overview of purchasing initiation (Materials Management)


P t I iti ti


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Contract initiation and formulation involves:

Setting up the project base for contracts documentation(including standard Terms and Conditions)

Establishing the contracts system for the project


Establishing the contract types, sites conditions, HSE etc

Preparing common enquiry requirements and special contractprovisions

Carrying out contractor pre-qualifications

Establishing the contractor list

Overview of Contracts initiation and formulation




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All procurement execution activities are undertaken by the Project

Procurement Manager and the Procurement team

You are responsible for ensuring that the procurement activities are

executed in accordance with the Project Procurement Plan

You and your Project Procurement Manager need to hold regular

meetings to:

Review the status of procurement activities

Identify issues early and determine the action required tominimize any adverse impact

Overview of procurement execution



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The purpose of the Purchasing Pre-award Process is to award the POs under

which the projects materials and equipment are obtained

The pre-award process ensures that all bidders are treated fairly and

equitable, that the confidentiality of the information is maintained and that the

recommendation to award is in accordance with the agreed evaluation criteria

Agreed evaluation criteria may be as simple as Technically acceptable,lowest cost or more complex Total Cost of Ownership (TCO). Consider

that TCO often requires Customer input as well.

Competitive bidding is indicated. However, if single source is considered

for purchase orders, justification must be provided. This may includeproprietary technology or customers standardisation preference.

Project Purchasing pre-award activities occur predominantly during the

Execution phase

For long-lead items some activities may occur in the Define phase

Materials Management executionpurchasing pre-award process



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Preparing enquiry packages, including special terms andrequirements (for example, supplier data, support, spares)

Issuing the enquiry packages and managing bid preparation andreceipt process

Managing all communications with bidders during bidding andevaluation

Evaluating the bids

Preparing recommendations for award, conducting post-bidnegotiation and facilitating final issue

Entering all data related to the purchases into SmartPlant Materials




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Maintains the required level of confidentiality of information

Ensures that engineering deliverables are aligned to support timelyprocurement activities

Maintains the interfaces between Engineering, Quality andConstruction

Involves the Project Procurement Manager in the regular teamprogress meetings

Undertakes and completes procurement activities in accordance withthe Project Procurement Plan


As Project Manager, you will need to ensure that the procurement

team:



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Purchase Order documents are to be prepared by Engineering and

Procurement on receipt of the approved Award Recommendation

Kick-off meetings are arranged as required

Post-award activities are initiated by the project procurement team

Once internal and other approvals have been obtained to place a

contract or a PO theProcurement Manager is the only person with

the authority to confirm the commitment for the contract or PO with

the supplier on behalf of WorleyParsons and/or our customers

Materials Management executionpurchasing award process



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Confirm that the cost of the awarded POs is within theproject budget

Provide relevant information to the projects Cost ControlsManager

Materials Management executionpurchasing award process

You are responsible for ensuring that the award process is

properly undertaken

You need to:



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This process covers award of a PO through to receipt at site andfinancial close-out

The purpose of the Purchasing Post-award Process is to:

Administer the POs to obtain the projects materials and

equipment on schedule and in accordance with specifications Provide cost and schedule information to Project Services

Identify PO issues for Risk Management activities

Liaise with Inspection to ensure compliance to specifications

The Purchasing Post-award Process covers the technical andcommercial activities in the manufacture and delivery of materials andequipment

Ensure all meetings and vendor contact are coordinated byProcurement.

Materials Management executionpurchasing post-award process



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The main activities in the Purchasing Post-award Process are:

Expediting (including Supplier documentation)

Inspection coordination

Traffic/Logistics

Receiving on site, warehousing and preservation

Change/Claim administration

Invoice payment




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Effective procurement performance requires:

Use of SmartPlant Materials

Monitoring the vendors engineering and manufacturing processes

Meeting documentation obligations

Measuring and assuring conformance to the technical specification

Administering delivery of the materials and equipment

Managing any changes to the PO technical and commercial

provisions

Managing any claims by the vendor for additional payment or

schedule time




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The Construction Manager involves the ProjectProcurement Manager in construction progress reviewmeeting


As Project Manager you are responsible for ensuring that:

For most items, weekly status meetings are sufficient

For critical items, daily review meetings between the Constructionand Procurement Managers may be required



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The Materials Field Administration Process governs the day-to-day

procurement activities on site

The actual administration is the responsibility of your Project

Procurement Manager

Materials Field Administration may include site administration,

purchasing and contracting

Materials Management executionpurchasingmaterials field

administration process

You are responsible for ensuring that the requirements for

materials field administration are included in the Project

Procurement Plan



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The purpose of the Contracts Pre-award Process is the contracting of

third-party services

Project Contracts pre-award activities predominantly occur during the

Execution phase

For early contracts, some activities may occur in the Define phase

The deliverables of the Contracts Pre-award Process are:

Bidders lists

Enquiry packages

Approved recommendations for award Contract documents

Cost and schedule information provided to Project Services and

contracts issues input into Risk Management activities

Contracts executioncontract pre-award process



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Contractor selection

A thorough prequalification process will normally be executed for majorcontracts, e.g. fabrication contracts. This will involve multiple disciplines toprepare the questionnaire for the relevant work scope, typically including

construction, engineering, quality, HSE as well as project controls andprocurement.

Competitive, sealed bids are indicated for major contracts

If single source is considered for service contracts, justification must beprovided. This may include proprietary technology (e.g. software) orcustomers preference.

Once internal and other approvals have been obtained to place a contract ora PO theProcurement Manager is the only person with the authority toconfirm the commitment for the contract or PO with the supplier on behalf ofWorleyParsons and/or our customers

Contracts executioncontract award process



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The Contracts Post-award Process covers the technical andcommercial activities


Awarding contracts

Administering and monitoring the contractors

Managing any changes to the contract

Managing any claims

Processing any payments and back charges, reconcilingquantities and finalizing all contract obligations

Providing cost and schedule information to Project Services

Identifying any contracts issues for Risk Management activities

Contracts executioncontracts post-award process



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PO and contract variation must be processed in accordance with the

Management of Project Change Process

You and the Procurement Manager must sign-off any variances

before they can take effect

Purchase order and contracts variation


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The scenario for the case study is on page 55 of your workbooks

Discussion topics:

What would you say are the key procurement issues on the project?

What can be done to remedy the situation?

Case studygroup discussion



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The Procurement team completes the procurement close-out tasks

You are responsible for ensuring that the Project Procurement

Manager and the procurement team do this

Responsibilities for procurement close-out



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Procurement Close out

Project Materials Management close-out activities generally occurlate in the Execution phase

Close-out must follow the requirements for finalization of supply as

set out in the Project Procurement Plan

The main objectives of materials close-out are:

Materials reconciliation

Surplus management

Final inspection (this is a Quality activity)

Receipt Final Vendor Documentation

Claims resolution

Closing out of all PDs

Materials Management close-out



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Procurement Close out

Close-out must follow the requirements for finalization of supply asset out in the Project Procurement Plan

The main objectives of contracts close-out are:

Provision of acceptance certificates

Confirmation of warranties

Handover of documentation

Final inspections (Quality activity)

Claims resolution and payment reconciliation

Demobilization of the site by WorleyParsons and the contractor does

not necessarily indicate final close-out of the project

Contracts close-out

Summary and Feedback


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Summary and Feedback

Review learning objectives and outcomes

Summary



Commencing the Procurement Process \Procurement Planning


Procurement Reports




Questions

Evaluation


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Module 9 Managing Project Procurement

Thank you for your participation

Module 9 - Managing Project Procurement - PowerPoint Presentation Rev 2

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