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Project Management

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.

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Project Management

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  1. Project Management Project Procurement & Contract Administration Jiwei Ma

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

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

  4. Project Procurement Concept • Definition • Project management tasks to deal with part of the project's scopeof 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.

  5. 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

  6. 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

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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. Source Selection and Solicitation • Source selection • 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

  14. Source Selection and Solicitation • 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

  15. 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

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

  17. 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

  18. 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

  19. Construction Project Procurement • Overview • Scope of procurement • Procurement system • Procurement method

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

  21. 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.

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

  23. 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 Management Contracting Construction Management Turnkey Design-Build Construction Procurement System

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

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

  26. TIME Construction Project Procedure Design Bidding Construction

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

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

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

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

  31. Construction Project Procurement • Procurement method • Competitive bid • Performance based procurement

  32. 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

  33. General Contractor 1 General Contractor 2 General Contractor 3 General Contractor m 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 Scenario of Competitive Bid Owner Designer

  34. Competitive Bid • Advantages • 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

  35. 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

  36. 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

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

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

  39. 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.

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

  41. 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.

  42. 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

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

  44. 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.

  45. 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

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

  47. 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.

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