Planning and Administering Project Contracts
Project Procurement Management - The Case of Water Sanitation and Hygiene Development Project
Research Paper (undergraduate) 2012 35 Pages
Table of Contents
2. Literature Review of Project Procurement Management
2.1. Organizational Procurement Policy
3. Water Sanitation & Hygiene Project (WASH) Project procurement Management
3.1. Project Procurement Planning process
3.1.1. Water Sanitation & Hygiene Project Activities
3.1.2. Water Sanitation & Hygiene Project Activities Risk Matrix
3.1.3. Water Sanitation & Hygiene Project Activities Budget & Resource Requirement
3.1.4. Water Sanitation & Hygiene Project Activities Schedule Baseline
3.1.5. Water Sanitation & Hygiene Project Activities Procurement Plan
3.2. Conducting Project Procurement
3.2.1. Preparation of Sealed Tender
3.2.2. Handling of Tender
3.2.3. Opening of bid Conference
3.2.4. Review of application and analysis based on bid Criteria
3.3. Administering project procurement
4. Conclusions and Recommendations
Project procurement is the process of acquiring goods and services required to accomplish the project scope. Competitive project “procurement is the contractual acquisition (purchase or lease) by an organization of any kind of asset, whether material (goods, products, or construction) or immaterial (services) to complete the project scope with appropriated funds, enabling all deemed responsible sources to compete in a fair and open environment”.
The competitive project procurement management is important project management body of knowledge that provides the means of achieving the project scope, time . cost and quality deliverable objectives. The “body of knowledge can be subdivided into four core elements which determine the deliverable objectives of the project: Scope, Time, Cost, and Quality management. The other knowledge areas provide the means of achieving the deliverable objectives, namely: Integration, Human resources, Communication, Risk, Procurement and contract”.
Competitive project procurement management has the maximum level of openness, fairness and transparency that would enhance the suitability of the project goods and services, social justice and maximum returns on investment. Competitive Project “procurement is supposed to bring fairness, impartiality, transparency, and suitability to corporate practices, a competitive procurement process will ensure the highest level of openness, thus maximizing the suitability of the requested assets or services, and the best return on investment (ROI)”.
However, implementing the competitive project procurement processes is not free of challenge, some factors that restrict to enter the completive procurement directly from business to do with suppliers are the uniqueness of requested goods and services, the inadequacy of other sources, immediacy of its needs and legal constrains. “In other words, competitive procurement should be promoted pragmatism, with other methods thus becoming exceptions”.
The purpose of this essay is to examine the role of a project procurement management in the project Management it will determine how the procurement management processes facilitates with good project performance through balancing the project scope, time cost and quality deliverable objectives; in the practical case of Water Sanitation and Hygiene (WASH) Development project component of the Rural Women program Implementing by CARE Somalia..
The scope of this essay is the project procurement body of knowledge. It will give details of project procurement planning processes, as well as the project procurement conducting process, it extended to elucidate the project procurement administering process. The essay will emphasize more with the procurement management of the development projects in the case of Water Sanitation and Hygiene (WASH) Development project.
Due to the very inadequate time for data collection and manipulation, It will not intend to propose strategies that could be employed to improve the future project procurement planning and implementation aspects, it focuses more in my academic intent.
This essay relies on the Water Sanitation and Hygiene (WASH) project secondary sources of data. Both qualitative and quantitative data were used within this essay. The major sources of information adopted in this essay were taken from CARE Somalia procurement policy, Organizational project management guideline, WASH Strategy and WASH Project proposal and related documents.
This essay has two major significances. First it has an academic significance as it will endow me the sympathy of planning and Management of project contracts. Again It will replicate my study upon the project procurement processes in the course of combining the academic endeavors to my profession, which will ease the experiential and academic understanding of procurement management course as an essential part of the discipline.
This essay is organized into four chapters: The first chapter is the introduction of the essay. The second is the Literature of project procurement management processes. It explains the project procurement planning, conducting procurement, and administering procurement processes. The Third chapter is Water, sanitation and Hygiene (WASH) project procurement plan. While the fourth chapter is the conclusions and recommendations.
2. PROJECT PROCUREMENT MANAGEMENT
Project procurement is the process of acquisition of goods and services to accomplish project scope. Project Management body of knowledge (PMBoK, 2003) had defined the project Procurement Management as “the processes required to acquire goods and services from outside the performing organization. For simplicity, goods and services, whether one or many, will generally be referred to as a product”. Actually some parts or all of the projects scope are implemented through contracts “Procurement is a vital element in the success or failure of many projects, particularly those concerned with a hardware product”. If this is valid, then project procurement management processes must play a very crucial role in balancing the project scope, time, cost and quality deliverable objectives as well as mitigating project risks.
The scopes of various project contracts are linked to the project scope of work. “The procurement list or products are list of goods and services that were developed from the project’s scope of work. That is the WBS subdivisions of manageable work packages with fixed price contracts; the WBS helps to ensure the quotation includes the full scope of work”. Therefore, a miserable project performance is raising the full brunt of its procurement list mismanagement. The, execution of the project scope list of work has amiably progressive or regressive effects on the project schedule, Cost and Quality performance.
The project procurement management belongings on the project schedule are more obvious. “The work needs to be broke down- using work breakdown structure- into executable tasks and manageable elements often called control accounts. Either individual or team needs to manage each of work elements ”. project procurement is the purchase of goods and services required to accomplish the project work elements, availability and delivering of these goods and services to the project site always determines the accomplishment date of the project work. Hence, setback of these goods and services will result a substantial impediment to ahead a project schedule. the project Procurement Schedule must be in line with the project schedule.”The procurement schedule is developed after the CPM network diagram and schedule bar charts have been produced, but before the resource histograms and cash flow statements have been considered. By working back from the activities early start dates, subtracting the purchase order lead time and the just-in-time (JIT) margin, this will give the order by date”.
In addition, inefficient project procurement management methodology has unconstructive consequence on the project cost and quality objectives. The Specification of goods and services are the contract requirements of the buyer; however procuring goods and services with uncompleted specifications is not only uncertain to seller, but it can also spoil the project quality and requirements. Besides, cost changes caused by the unclear scope of contract will increases the cost of activity beyond its estimate. “A frequent cause of cost overruns in hardware projects is the extra charges made by subcontractors arising from 'changes in design during manufacture”. Nonetheless, the project procurement management is the watershed in project Performance Baseline execution strategy.“As project procurement management relies on buy or makes decision which is a key component of the execution strategy of a project scope”.Thus, the project procurement management has a very outstanding role in balancing of the Scope , Time, Cost and Quality project deliverable objectives.
Most of project scope, time, cost and quality outreach risks are vivid at project procurement planning stage. “Risk and uncertainty occur in all project types, and as such, each project must be treated separately and should not be under estimated”. The scope relating risks are experienced when post-negotiation changes of work specifications, and drawings are committed. Similarly, uncompleted specifications of goods and services that will increase the uncertainty in terms and conditions of contract, and the scheduling pressure on acquisition contract period are serious project quality and scheduling risks. In addition, some costs related risks are committed if activity is under priced or different method of cost estimating are used in same tender document. The incompetency of the contractor with his claims and the persisting relationship between the project team and the contractor may jeopardize the project as full monitoring is undermined. All of these various intensive project procurement management confrontations will not last unless outright mitigating measures are taken towards a sound project procurement implementation process.
Risk mitigation methods such as risk analysis (form of annex-3) and management method (RAM) applications are necessary in the trice of project procurement process to solute these risks. These risk management efforts must concentrate on the position of contractual methodology being close to the indemnity scheme to guarantee better risk diminution results. The most important factor for procurement risk reduction are the organizational system to control the scope of contracted work, type of contract adopted and it’s method of selection. The “appropriate contract strategy requires the deliberation of choice of organizational structure to control design, construction and their interface selection of the content, extent and sequencing of work package, the choice of the type of Contract and contract selection method, selection and preparation of tender documents including the conditions of contract, which are the primary guidelines for the risk allocation between client and contractors”.
To this end, procurement method and contract type are very outstanding providers of the procurement risks. The organizational procurement policy always sets out a threshold amount of money for various procurement methods “A procurement method is the manner chosen to perform a contractual acquisition. Procurement methods could be any of the following three types: Simplified acquisitions, full and open competition (FOC), and Other than full and open competition (OFOC), like sole source”.
The Simplified acquisition procedures are the procurement method used for the acquisition of which the amount does not exceed the minimum threshold lied down by the organizational purchasing policy. “Simplified acquisitions are equitably distributed among qualified suppliers in the local area, and purchases should not be split to avoid the requirements for competition above their respective thresholds”.
Furthermore, the full and open competition (FOC) is the practice of formal purchase of which the amount goes beyond the Simplified acquisition threshold. “Full and open competition (FOC) is process for acquisitions for which the amount exceeds a certain threshold in our case, the simplified acquisition threshold, The competitive procurement methods available for use in fulfilling the requirement for full and open competition are Sealed bidding, negotiated procurement, and two-step sealed bidding”. The third procurement method of other than full and open competition is not a competitive procurement method like a sole source and it is limited to a justifiable circumstances.
The sealed biding is the most competitive formal solicitation and contract awarding processes. “Sealed bidding relies on a solicitation document called invitation for bids (IFB) and involves the following steps: Preparation and Publicizing of invitation for bids, Receipt, Evaluation and comparison of bids, Selection of the lowest-priced technically acceptable solution, and Award of contract”. A contract is written mutual agreed legal agreement in between two sides (Seller and buyer) that mandates one side to provide goods and service with certain terms and condition to other side. There are three types of contracts: the cost based contract, material and time Contract, and fixed cost contracts “Basically there are three types of contract: fixed price based Cost Reimbursement based, and time and material based Contracts”.
Fixed cost contracts are those contracts with one fixed price which is not subject to any adjustment. It places the contractor to maximum risk and responsibility to manage the cost and profit. “In case of fixed price contract, the biggest advantage is that Seller tries to control the cost but the disadvantage is that’s seller can under-quote initially to get the contract and later try to overcharge, if there are any change requests. Some time, if the seller is not making any money, they can actually stop working”.fixed cost contracts is used by nonprofit development organizations when sealed bid is being involved.
Cost Reimbursement Contracts offers for payment of acceptable incurred costs, to the amount set in the contract. “The biggest disadvantage with the cost based contracting method is that the seller makes more money if the costs go higher. So, there is no incentive for the seller to control cost. The advantage is that it’s easier to get a seller work on such contracts”. Cost-reimbursement contracts are appropriate for use only when doubts are involved in contract performance, which restricts the accurate estimate of work to use the type of fixed price contract.
Time and Material Contracts are labor rent per working unit measurement rates (Day or hours) or Materials cost per item. It is used only when it is impossible to ensure the duration of the work or to anticipate costs with any rational level of confidence. “Time and Material contracts are generally used for smaller projects, where in customer pays by per item or per hour or per day basis”. The time and material contracts are very often used within the community based livelihood projects where communities are constructing their infrastructure through self-helping and they only need some skilled labor and construction material and transport costs.
There is a difference a between the procurement method and its supporting procurement processes. Project “Procurement method is mean chosen to perform a contractual acquisition”. project procurement processes are set of activities with specific input, tools and techniques to acquire goods and services from outside of the organization. “Project procurement management process deals with the acquiring of goods and services required to perform the project's scope of work”.
Project procurement processes are iterating; the out puts of one process are inputs of the successive processes. According to (PMBoK, 2008) “Project Procurement Management includes the processes necessary to purchase or acquire products, services, or results needed from outside the project team. The Project Procurement Management Processes are: Plan Procurements, Conduct Procurement, Administer Procurements, and Close Procurement”.Procurement planning is the process of deciding and documenting the goods and services required to purchase from the outside of project team and approach to procure.”The procurement planning is the process of deciding and documenting the project purchases, specifying the acquisition approach, and identifying potential sellers”. According to project Management Body of Knowledge (PMBoK, 2008), the input of this ”process are Scope baseline , Requirements documentation, Teaming agreements, Risk register , Risk-related contract decisions , Activity resource requirements, Project schedule , Activity cost estimates, Cost performance baseline , Enterprise environmental factors, and Organizational process assets”. The major tools and techniques adopted with in this process are Expert judgment, Make-or-buy, and project Contract types. According to project Management Body of Knowledge (PMBoK, 2008), The outputs from this process are the “Procurement management plan, Procurement statements of work, Make-or-buy decisions, and Procurement documents. And Source selection criteria”.
Once we have planned the project procurements the next is conducting procurement process. “Conduct Procurements is the process of obtaining seller responses, selecting a seller, and awarding a contract”. According to project Management Body of Knowledge (PMBoK, 2008), “the input of this process are Project management plan, Procurement documents, Source selection criteria, Qualified seller list, Seller proposals, Project documents, Make-or-buy decisions, Teaming agreements, and Organizational process assets”. According to project Management Body of Knowledge (PMBoK, 2008), The major “tools and techniques used within this process are Bidder conferences, Proposal evaluation techniques, Independent estimates, Expert judgment, Advertising, Internet search, and Procurement negotiations”. The outputs from this process are the selected sellers, Procurement contract award, Resource calendars, Change requests, Project, management plan updates, Project document updates
After the project team selected and award the contract to the seller, Administer Procurements is the followed by procurement process. “Administer Procurements is the process of managing procurement relationships, monitoring contract performance, and making changes and corrections as needed”.
Administering of the project contract is required to ensure the sellers performance. “The Contract administration is the process of ensuring that the seller’s performance meets contractual requirements. On larger projects with multiple product and service providers, a key aspect of contract administration is managing the interfaces among the various providers, The legal nature of the contractual relationship makes it imperative that the project team be acutely aware of the legal implications of action Taken when administering the contracts” According to project Management Body of Knowledge (PMBoK, 2008) “the input of this process are Procurement documents, Project management plan, Contract, Performance reports, Approved change requests and Work performance information”.
According to project Management Body of Knowledge (PMBoK, 2008), major “tools and techniques used within this process are Contract change control system, procurement performance, reviews, Inspections and audit, Performing reporting, Payment system, Claims administration, and Records management system”. The outputs from this process are Procurement documentation, Organizational process assets updates, Change requests, Project management plan updates.
Finally project procurement must be completed and documented. Close Procurement is the process of completing all project procurement. According to project Management Body of Knowledge (PMBoK, 2008), “the inputs of this process are the Project management plan and Procurement documentation. The major tools and techniques used within this process are Procurement audits, Negotiated settlements and Records management system”. While the outputs of the Close Procurement process are the Closed procurement and Organizational process assets updates.
2.1. Organizational procurement Policy
According to organizational guide to project managers (CARE, 2003), the project procurement plan is crucial for the project success and it remains the focus of the organizational internal audit observations. “Over the past five years, Internal Audit has repeatedly observed that procurement plans are not being prepared by many CARE Officers. Please be aware that developing a procurement plan is essential to your project’s success. Refer to the project proposal, budget, and budget notes for information about what should be included in your procurement plan”.CARE international procurement Guideline is the existing organizational policy pertaining different thresholds for various manners to perform the acquisition of goods and services to accomplish the CARE implementing project scope of work.
The general Quotation Guideline - Section XII of the CARE procurement Guideline states that Specific quotation procedures must occur which are dependent upon the USD / local currency threshold amount. The quotation amounts above USD 5,000, requests for quotations must be requested in writing and sent from procurement via letter, e-mail or fax. Requests for quotations are submitted to the vendors simultaneously and when received must be dated. A quote from a vendor is acceptable in the form of an e-mail, an original letter (scanned and emailed) or a fax.
The guideline sets out three procurement methods for three different levels, these are no quotation and direct purchase, open quotations and sealed quotations. The Article 1/a indicates that there is No Quotations Required for some and materials and services may be directly purchased:, however these item will have three different procurement approaches: The goods or services that have a value of less than USD 100 [or local currency amount] administrative or program staff may directly purchase through petty cash without a Purchase Request or solicitation of quotations. Whereas the goods or services listed on the PR that are between USD 100 – 1,000 [or local currency amount] staff must complete a PR and obtain appropriate approval. The PR will be provided to procurement staff who will prepare a Purchase Order and directly purchase based on a Performa invoice or one quotation from the vendor. No vendor signature is required on the PO. Similarly, it states the third approach of the no quotation as the Required Vendor: Once a Required Vendor Agreement has been signed with the vendor, no competitive quotes are required for the period of the agreement up to USD 5,000 [or local currency amount] per transaction. No vendor signature is required on the Purchase Order.
The Article 1/b of the CARE Procurement Guideline indicates that there is Open Quotations for goods or services listed on the PR that may have a value over USD 1,000 and up to USD 25,000 [or local currency amount] staff must complete a PR and obtain appropriate approval. Following approval, written quotations are solicited from vendors. No quotations are required if using a Required Vendor for purchase below USD 5,000.The number of quotations requested for goods and services should not be less than 3 vendors. In instances where a sufficient number of vendors are not available, fewer vendors can be contacted with justification noted on the Summary of Bid Analysis (ANNEX-2), open. Quotations are requested simultaneously and, when received, must be on vendor letterhead and dated. An original letter, scanned email or facsimile of the quote is acceptable. Under this sub-article the guideline enlighten that If a vendor has been requested to quote and a quotation is not received, put the name of the vendor on the SBA and write “No Quotation Received” in Section I of the SBA..To use a quote for subsequent purchases, the vendor must put the validity period on the quotation.
The Article 1/b of the CARE Procurement Guideline points out of the Sealed Quotations For goods or services listed on the PR that may have a value over USD 25,000 [ or local currency amount], staff must complete a PR and obtain appropriate approval. Once the PR has been approved, the Procurement Department manages the following tender process. Also, the same process is used for selecting a Required Vendor.
The sub-articles of this article elaborates the process of conducting the procurement of the sealed bid. It articulates that The Procurement Department prepares a letter requesting quotations from vendors based upon specified criteria, with assistance from technical project staff, as necessary. The letter should be sent to all vendors simultaneously with a tender number and technical specifications for the goods, services or consultancy, timing of the delivery, payment schedule and amounts, deadline for submission of quotations, etc. A bid closing date is clearly indicated in the letter. Documenting the list of vendors requested to quote, procurement staff will prepare a list of vendors that were invited to quote. This list is included with the procurement documents pertaining to the Sealed Quotation. When the vendors return their quotation in a sealed envelope with the tender number on the envelope and provides to the CARE receptionist by the specified bid closing date. Upon receipt of the sealed bid, the receptionist will place the bid in a locked Tender Box. Also, the receptionist will provide the vendor with a bid receipt which documents the receipt of the bid. Note that the key to the Tender Box is maintained by a senior administrative staff not involved in the procurement process. It indicates that as soon as practical after the closing of the deadline, procurement staff will schedule a time for the bid opening. At the bid opening, the Tender Box is opened in the presence of the “Bid Committee” which consists of a minimum of 1 procurement staff person and 2 others from the areas of Finance Department , Administration Department , Project team Representative.
The members of the bid committee may be placed on the committee for a length or time or on an “as need” basis. A member of the committee must have the knowledge, technical understanding, ability and/or judgment to make good recommendations. In addition, they must have a reasonable level of authority in the organization to make procurement recommendations. .Following the bid opening, the committee members present will initial and date each envelope and the individual quotations in the presence of each other. In addition, the Bid Committee will complete the Sealed Bid Tracking Sheet.. a Senior procurement staff and technical or project staff will then be responsible for preparing the SBA ( Annex-2), Sections I and II. The bid committee members will agree on a recommendation and the members will sign on the SBA. At this point, the SBA is provided to the appropriate authority for approval. Based upon a review of the documents, the SBA can be approved.
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