Oerview of Procurement and Materials Management in Contracts

7/28/2019 Oerview of Procurement and Materials Management in Contracts

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OVERVIEW OF PROCUREMENT AND

MATERIALS MANAGEMENT IN CONTRACTS

By

Dr. S.S.Seehra

Additional Director (Highways)

Intercontinental Consultants and Technocrats Pvt. Ltd. &

Former Director Grade Scientist & Head,

Rigid Pavements Division,

Central Road Research Institute, New Delhi.

Intercontinental Consultants & Technocrats Pvt Ltd.

New Delhi


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GENERAL Project overruns attributable to delay in the supply ofcritical equipment and materials are very common in

India.

Delayed delivery, manufacturing defects, incorrect

specifications, belated replacements, pilferage, shortage,etc., are common problems in almost all projects.

Very early supply of some items also, with resultant longstorage, leading to deterioration, is not uncommon.

A vigilant project management can ward of much of theseproblems by proper planning and control of procurementand efficient post procurement materials management.


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PROCUREMENT MATERIALSCHEDULING AND COVERING

Critical equipment and bulk materials

Mechanical

Electrical

Instruments

Refractories

Construction equipments

Civil Engineering materials and other bulk materials

Project Consumables

Raw materials and feed back

Lubricants, spares and manufacturing consumables


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PROCUREMENT PLANNING ANDCOVERING

Indenting

Buy or make decision

Bid documents preparation

Asking for bids/quotations

Bids evaluation

Acceptance and approval

Ordering

Vendors confirmation

Inspection, testing and quality assurance

Expediting


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contd . . . Risk-purchase and contingency plans

Ex-factory delivery

Packing and despatching

Insurance

Transport and clearances

Receipt, checking and tallying

Transit damage/shortage reports

Replacement supplies

Logistics planning

Procurement budgeting

Implementation of the plans

A purchase function assisted by finance department


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MATERIALS MANAGEMENT (MM) MM covers storage and control of the flow of materials

from the on-site delivery point to the sites of consumptionor use or incorporation.

Procurement and MM are the interface between thedemand and supply of materials to ensure success of theproject.


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PROCUREMENT OF MATERIALS CLASSIFICATION OF PROCUREMENT

Bought-out equipment and components designed byvendors for any particular project such as boilers, pumps,motors, valves, etc.

Equipment by turnkey contractors as a part of their totalpackage

Designed and ordered by the enterprise

Bulk materials like sand, bricks, pebbles, cements, steel,lime wood, piping, insulation materials and cables basedon engineering drawings for all the work segmentstogether.


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Contd . . .

Consumables and loose tools specifically needed in theconstruction such as binding wires, nails, screws, bolts,

nuts, washers, gas, electrodes, cutting and grindingwheels, petrol, oil, lubricants, cotton waste, etc. and toolsother than construction equipment. Depending on theapproach to be adopted for construction, these may ormay not form part of the contractors obligations.

Construction equipment like cranes, derricks, winches,shovels, dumpers, trucks, tractors, trailers, compressors,welding equipments, fabrication and machine shopequipment, etc.

Administration equipment and materials like motorvehicles, air conditioners, refrigerators, office equipment,etc. for facilitating administration work. Printing andstationery also might be bracketed with this class.


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PROCUREMENT ORGANIZATION ANDUSE OF PROCUREMENT AGENTS

Whether project procurement should be under the projectmanager (PM), or be independent of him, is a matter forthe top management to decide on the considerations ofefficiency.

In projects where procurement is complex, if the owner orthe turnkey contractor does not have the necessaryorganization to handle it, procurement agents may beemployed.

Procurements agents are generally well-versed in nationaland international procurement in line with the WorldBank guidelines. Documentation and clearances are also

handled by them.


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MATERIALS SCHEDULING The first step in materials scheduling is listing. This is

done by project Engineer (PE) on the basis of drawings orother engineering details.

Materials scheduling which follows the listing is donewith reference to on-site delivery times to suit the work

schedule

All key materials shall be scheduled in the form ofnetwork manually or on computer to facilitate timelyaction.

Delivery scheduling of materials is purely a PM functionbut procurement scheduling is a purchase function.

In Indian conditions it is presently too much to expect ajust-in-time delivery of materials that will straightway gointo the work.


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PROCUREMENT PLANNING

In the detailed procurement planning, every action step isnecessary to deliver all materials on the site as perschedule of the orders of PM.

The lowest bid gets the order Vendors confirmation of the order

Expediting by the owners buyers

Manufacturing by the vendor

Quality control and inspection

Packing of materials to the site


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Contd . . .

Risk of the neglecting vendor risk purchase clausegives the owner the right to get the order executed byothers at the cost and risk of neglecting vendor.

Procurement budget and cost control

Procurement through turnkey contract covering the

composite responsibility of engineering, design,manufacturing and/or supply of materials, constructionand commissioning.

Logistics planning it is a major planning of project

activity loading, transport, port clearance unloading,storage facilities and site transportation, etc.

The turnkey contractor may take the responsibility ofocean/inland transport of materials loading and

unloading depending upon the contract conditions.


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LEGAL ASPECTS OF PURCHASINGCONTRACTS

Every purchase order is a contract involving several legalprovisions.

Every bit of it should be legally worded

The procurement department has to handle customs,excise, sales, tax claims against the enterprise and disputesraised by the vendors. The department should, therefore,have a legal cell.


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MATERIALS MANAGEMENT (MM) MM is strictly a part of construction management

Poor MM delays the projects and leads to even costoverruns.

Checking of materials on arrival

Recording the receipts in the engineering documents.

Storage on site, handling and retrieval

Risk management

Rectifications, repairs and replacements at site.

Inventory control


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Contd

Wastage and damage during usage/erection

Owners supplies to Contractors

Transfers to general maintenance stock

The project manager (MM) and chief materials manager(CMM) should have thorough knowledge of the presentand future supply vis--vis the demand of the project.


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CONTRACTING AND CONSTRUCTIONMANAGEMENT (CCM)

Contracting is the process of establishing a relationbetween the owner and the contractors to execute theproject work, mainly construction.

It has many legal and commercial facets, and, therefore, itshandling calls for specialized knowledge and practicalexperience more importantly in the following:

Indian Contract Act, 1872

Indian Arbitration Act, 1940


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TYPES OF CONTRACTS

The popular types of contracts are:

Turnkey contract

Measurement contract

Lumpsum works contract

Item rate contract

Piece rate work

Labour supply contract

Hybrid contract

Fixed price and variable price contract


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CONTRACTING PROCEDURE

Contracting procedure is more or less the same asprocurement procedure. The usual steps in contractingare the following:

Work packaging

Preparation of tender documents Determination of the contractors; qualifications to

undertake the work package

Pre-qualification of contractors

Tender invitation

Tender submission

Tender opening


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Contd. . .

Evaluation and recommendations

Approval of contract

Award of contract

Signing of agreement with detailed contract conditions

Drawings, bills of quantities and technical specifications

Schedule of rates

General conditions of contract

Special conditions of contract

Specimens of bank guarantees

Size of the contract package should be neither too largenor too small for one or more reputed contractors to

handle.


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CONCLUSIONS

Efficient procurement and materials management lead to

project success.

Timely on-site delivery of materials to suit theconstruction schedule will greatly avoid time overruns

By proper planning and vigilant follow-up actions, this

should be made possible

Procurement of materials should be planned with prefectintegration into the engineering and constructionschedules.

As approximately 60% of the project cost is spent onmaterials, close control on procurement cost is necessaryfor controlling the overall project cost.

Management of materials after their on-site delivery isimportant project activity.


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Contd . . .

Storage and control of the flow of materials from the on-site delivery points to the sites of incorporation/use needvigilant attention by the project team and the materialsdepartment, so that every piece of materials is availablewhen required at project site.

In projects there is a need for a good inventory control,which will result in preventing long storage time, massivestock, storage risks and above all, will ensure the timelysupply of the required items for an efficient projectimplementation.

A just-in-time (JIT) supply and inventory controltechnique is not workable in the Indian projects.


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Contd

In variable price contract the prices are subject to

variations according to the rate of inflation in the country,on some agreed formula. In fixed price contract, the pricesremain fixed throughout the contract period except forfluctuations in taxes, duties and statutory levels.

In long-term contracts normally no contractor would agreeto the fixed price condition, especially in an inflationaryeconomic situation.

Contract for every package must be awarded sufficientlyin advance of the starting date of the work so that thecontractor is able to mobilize his resources and move inbefore the starting date.

Crisis situations should be avoided at every step in theinterest of overall efficiency of the project.


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THANK YOU

Oerview of Procurement and Materials Management in Contracts

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