Project Procurement & Contract Administration Jiwei Ma Project Management Project Procurement & Contract Administration Jiwei Ma

Content Project procurement concept Planning of project procurement Source selection and solicitation Bid evaluation methods Contract administration Construction project procurement

Project Procurement Concept Definition Project procurement and operation procurement Project procurement categories Types of contract Basic procedure of project procurement

Project Procurement Concept Definition Project management tasks to deal with part of the project's scope of work which will be bought from another organization, sometimes the result of company teaming arrangements, but most typically resulting from contracting or subcontracting project scope.

Project Procurement Concept Project procurement and operation procurement Both purchase products and services from another organization Usually through solicitation and competition bid or negotiation Usually under the format of contract or mutual agreement Sometimes form stable relationships, such as alliance or partnering The process needs to be monitored, managed, and finally audited

Project Procurement Concept Operation procurement Continuous on-going production environment Mature organization with stabilized position Long-term cooperation Mostly bulk quantity purchase Minimized nonstandard product Project procurement Non-repetitive, progressive environment Temporarily established organization Short-term cooperation Mostly low-volume quantity Usually customized product or service

Project Procurement Concept Project procurement categories Materials or products Equipment or tools Labors Professional services Entirely engineered system

Project Procurement Concept Types of contract Lump sum contract Customized product or complicated system Unit price contract Commodities or standard services without predefined quantity Cost + fee contract Professional services or labors

Project Procurement Concept Basic procedure of project procurement Define the project scope: produce or procure Draft of project procurement plan Source selection and solicitation Proposal evaluation and negotiation Supplier selection Mutual agreement or signing of contract Contract administration Close out of the contract

Planning of Project Procurement Basic rules Clearly defined scope is the basis of procurement Different categories of procurement need different types of procedures and methods Procurement itself costs time and money Items on critical path and long-lead items are critical to project implementation Long-term relation with supplier makes difference Early supplier involvement is important to project’s success Variations to contract might contain serious impact on project

Planning of Project Procurement Procedure Define the scope of procurement Categorize and list procurement items Select contract type, accordingly Determine principles of source selection Determine solicitation methods, respectively Determine proposal evaluation method, respectively Define contract administration responsibilities and tasks Define contract closeout procedures

Planning of Project Procurement Content of project procurement plan Scope of procurement Procurement responsibilities of project team members Procedure of procurement Source selection and solicitation Evaluation method or criteria Types of contracts or agreements Monitoring and managing of procurement contract Closeout of contract

Source Selection and Solicitation Based on selection procedure Open Invited Exclusive Based on supplier category Domestic, joint venture or foreign company Company or individual Based on supplier identification Vendor or service provider Distributor or dealer/agent

Source Selection and Solicitation Methods Public announcement (media) Selected invitation (with prequalification) Selected invitation (without prequalification) Direct negotiation (long-term partners) Principles Selection of the solicitation methods: characteristics of products or services Public funded project: “selective” and “non-discriminative” solicitation

Bid Evaluation Methods By evaluation criteria Low price Cost effectiveness Performance By procedure Competitive bid Negotiation Technical feasibility evaluation + price selection By executive body Procurement management personnel Third party or consulting personnel

Contract Administration Overall responsibilities Preparation and negotiation of contract Monitoring and managing contract Managing supplier communication Managing supplier relationship Managing procurement change

Contract Administration Key tasks Set up contract administration team and working procedure Plan for strategies and tactics to deal with suppliers based on their contract types Identify and analyze risks associated with various types of contracts and plan for mitigation strategies Develop and enforce key performance indicators Establish supplier reporting requirements

Contract Administration Key tasks Monitor contract execution progress and find any variations to contract in a timely manner Manage variations to contracts, including cost, quality, scope, delivery and any breaches of terms and conditions Make payment schedule and monitor payment procedure Deal with claims and find appropriate resolution Manage contract closeout and final auditing Select historical procurement file for documentation

Construction Project Procurement Overview Scope of procurement Procurement system Procurement method

Construction Project Process Overview Design Preparation Design Construction Startup Warrantee Decision Making Project Proposal Feasibility Study Design Specification Preliminary Design Design Development Construction Document Acceptance TIME Decision Making Implementatio n Business Analysis Technical Description Technical and implementation planning Input of labor, materials, equipment, services, etc. Testing, inspection, evaluation, etc. Accounting, resolution of claims, etc.

Construction Project Procurement Scope of procurement Professional services Financial, technical feasibility analysis, project management, technical consulting, geological survey, design, inspection, testing, legal services, etc. Engineered system Entire system, part of a system, etc. Material Bulk materials, special products, etc Equipment leasing Equipment, tools, etc. Labor supply Skilled, non-skilled, etc.

Construction Project Procurement Procurement system Designer led competitive tender Designer led construction works managed for fee Package deal Project manager/client’s representative-led

Construction Procurement System Construction Project Procurement System Designer Led Competition Tender Designer Led Construction Managed for a Fee Package Deal Project Manager/Owner’s Representative Led Separate Contracts General Contract Turnkey Design-Build Management Contracting Construction Management

Designer Led Competitive Tender - Separate Contracts Owner Designer Contractor 1 Contractor 2 Contractor m Supplier 1 Supplier 2 Supplier n

Designer Led Competitive Tender - General Contractor Owner General Contractor Designer Supplier Subcontractor * Subcontractor *Owner outsourced tasks

Construction Project Procedure Design Bidding Construction TIME

Designer Led Construction Management for a Fee - Managing Contractor/Construction Management Owner MC/CM * * Designer Supplier Subcontractor Subcontractor 1 Subcontractor 2 Subcontractor m Supplier 1 Supplier 2 Supplier n *Owner outsourced tasks

Construction Project Procedure Conceptual Design Preliminary Design Construction Document MC/CM Bidding 。。。 Subcontractor Bidding 。。。 TIME

Turnkey/Design-build Contractor Package Deal – Turnkey/Design-build Owner Turnkey/Design-build Contractor Designer Supplier Subcontractor

Construction Project Procedure Conceptual Design Preliminary Design Construction Document Turnkey/D-B Bidding 。。。 Subcontractor Bidding 。。。 TIME

Construction Project Procurement Procurement method Competitive bid Performance based procurement

Construction Project Procurement Competitive bid The contractor is selected on the basis of competition Detailed design has to be finished Low bidder preferred, in most cases Usually adopted for the selection of contractor, subcontractor, material supplier, equipment vendor and special service provider Not applicable for professional services, such as design, engineering, consulting, etc. Not applicable for labors Mandatory for public funded project in some countries

Scenario of Competitive Bid Owner Designer General Contractor m General Contractor 1 General Contractor 2 General Contractor 3 Subcontractor 1 Subcontractor 2 Subcontractor i Service Pvd 1 Service Pvd 2 Service Pvd j Supplier 1 Supplier 2 Supplier m Vendor 1 Vendor 2 Vendor n

Competitive Bid Advantages Disadvantages Lowest bid price selected Simplified bid evaluation method Open and justified contract award procedure Disadvantages Possible mistakes and missed items due to hasty bid preparation Contradictory view on quality standard between owner and contractor Quality of the work controlled only by project design and specification Potential risks of project not identified Qualification of the contractor not evaluated Project experiences not used for future reference

Construction Project Procurement Performance based procurement The contractor is selected on the combined basis of contractor’s performance and owner’s expectation Contractor’s overall performance level has been evaluated based on the past performance and ability to minimize the project risks Owner’s priority of objectives or perception of risks has been taken into account of contractor selection Final output of contractor’s performance and owner’s satisfaction will be rated and utilized for future reference

Performance Based Procurement Procedure Collection of the contractors’ past performance information Request for and rating of risk assessment plan with a final shortlist Interview with project team and the key personnel with prioritized list Pre-award negotiation and contractor selection Reporting and rating of contractor’s performance in the project

Performance Based Procurement Procedure Past Performance Information Risk Assessment Plan & Short List Interview & Prioritization Pre-Award Period Construction Reporting & Final Rating Time Number of Competitive Firms

Performance Based Procurement Procedure Past Performance Information Risk Assessment Plan & Short List Interview & Prioritization Pre-Award Period Construction Reporting & Final Rating Number of Competitive Firms Time

Past Performance Information Past Performance Information will be collected on all critical team components, which may include: The Contractor Critical Individuals (Project Manager, Site Superintendent) Critical Subcontractors (Mechanical, Electrical, Roofing, etc) The performance of ALL components will impact the overall value of the performance level. The team components cannot be changed/modified after the proposal is submitted.

Performance Based Procurement Procedure Past Performance Information Risk Assessment Plan & Short List Interview & Prioritization Pre-Award Period Construction Reporting & Final Rating Number of Competitive Firms Time

Risk Assessment Plan Contents The RA Plan should clearly address the following items: List and prioritize major risk items (areas that may cause the project to not be completed on time, not finished within budget, generate any change orders, or may be a source of dissatisfaction for the owner). Explain how the builder will avoid / minimize the risk. Provide a general project schedule documenting general milestones. Propose any options that could increase the value (expectation or quality) of their work.

Short List All of the information collected will be inputted into a evaluation model Past performance information (all components) RA Plan rating The model will prioritize the bidders based on the information and predetermined weights The Owner will use the information to identify the firms to be shortlisted

Performance Based Procurement Procedure Past Performance Information Risk Assessment Plan & Short List Interview & Prioritization Pre-Award Period Construction Reporting & Final Rating Number of Competitive Firms Time

Interviews The Owner will interview all key personnel. They will be interviewed separately and then as a group. No substitutions will be allowed after proposals are submitted Interview period is used to identify how well the personnel understand the project and potential risks.

Selecting the Best-Value The interview score (along with the RA Plan Score and Past Performance Information), will be inputted into a final evaluation model The owner will review and analyze the prioritization in the model The owner may select the highest-ranked proposal, or another option based on perceived risk The best-valued firm will be invited to the pre-award meeting

Performance Based Procurement Procedure Past Performance Information Risk Assessment Plan & Short List Interview & Prioritization Pre-Award Period Construction Reporting & Final Rating Number of Competitive Firms Time

Objective of Pre-Award Period Review all identified risks and develop a plan to minimize all risks. Provide a detailed project schedule. Coordinate the requirements in detail with all critical elements and client. Work out any conflicts. Answer any questions by client. Provide their QC/QA procedures (quality measurements, housekeeping, etc). Identify what they will do if any problems arise.

Pre Award Meeting The firm will be responsible for identifying how they will minimize all risks The firm will provide the QA/QC document If the best-valued firm cannot minimize all of the identified risks (without modifying their time proposal or exceeding the budget), the bidder may withdrawal without penalty

Performance Based Procurement Procedure Past Performance Information Risk Assessment Plan & Short List Interview & Prioritization Pre-Award Period Construction Reporting & Final Rating Number of Competitive Firms Time

Weekly Reporting & Post Construction Rating Contractor will document relative information on a weekly basis Accuracy and timeliness of contractor’s performance will be factored into the final close out rating of the firm The owner will evaluate the performance of the project upon completion The rating will be based on completing the project with no change orders ($$$ and time), and overall quality All team components will receive the same rating The rating will be incorporated into the system and used as reference for future projects

Jiwei Ma jiweima@hotmail.com Thank You Jiwei Ma jiweima@hotmail.com