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PROCUREMENT ANALYSIS

OVERALL PROJECT IMPORTANCE

Engr Robinson Abella Salenga II, CE


Project Manager/Procurement Manager, Portuguese Realty Inc/WGroup Inc,
Bonifacio Global City, Taguig City, Philippines

Abstract : Understanding the distinction as well as the similarities of methods on how to implement effective procurement
without affecting the project management procedure which are applicable in delivering a project on time and at cost.
Key words : Procurement, Contracts, Project Management

Overall lifecycle of the project are merely dependent on its


precedent tasks of which are deliberately undertakes the
critical thinking and seriously considerations on how to
achieve the key deliverables in the specific stage.
Project, in totality, comprise of at least three major stages,
Pre-Construction, Construction and Post Construction. As
noted previously, each stage relayed on its predecessor,
notably the Pre-Construction Stage, as its starting point
should be dealt in outmost care and in-depth analysis and
consideration. This paper discussed the major component in
this Stage of Project, the Procurement, and proper
consideration of the resources to be utilized in life span of
the Project.
In general, procurement can make or break the overall goal
of the project, i.e. Quality, Time Budget, on which the works
carried out during this stage are to be considered as crucial,
vital and challenging.

critical evaluation of all related specifics as to where


the common difference of the similar factors raised
among others

INTRODUCTION

2.4 Procurement planning - the process of deciding what to


buy, when and from what source. During the
procurement planning process the procurement method
is assigned and the expectations for fulfillment of
procurement requirements determined.

UNDERSTANDING PROCUREMENT

Procurement procedures and purchasing management


involves people, processes and technology. Purchasing
involves the sourcing, purchasing and delivery of goods and
services that a company needs either in its manufacturing
and business management or for stock that it resells at a
profit.
One of the fundamentals of purchasing is that goods are
purchased at the best price and terms in order to deliver the
best profit for the company.

DEFINITION

2.1 Procurement - is the acquisition of goods, services or


works from an external source. It is favorable that the
goods, services or works are appropriate and that they
are procured at the best possible cost to meet the needs
of the acquirer in terms of quality and quantity, time,
location and similar resources.
Corporations and public bodies often define processes
intended to promote fair and open competition for their
business while minimizing exposure to fraud and
collusion.
2.2 Procurement Management - deals with all the activities
related to the purchase of goods and services from
external suppliers and the corresponding reporting.

This means that strong and easily understood purchasing


procedures need to be in place. Some companies interchange
the word procurement for purchasing, in others procurement
means purchasing via tender and purchasing means the day
to day purchasing via Master Sales Agreements with a select
group of suppliers.
One of the methods that are used to ensure good purchasing
management on day-to-day purchases is the use of purchase
orders and purchase requisitions constrained by a known set
of rules and procedures. Purchase orders are used to order
directly with an agreed supplier.
Purchase requisitions are usually raised by people external to
the purchasing department when they need a particular
product either for maintenance purposes or to increase stock
in abnormal situations.

2.3 Procurement Analysis an in-depth analysis and

PROCUREMENT GROUP SET-UP

In charge of purchasing management will be the Purchasing


Manager and they will have a number of purchasing clerks
and administration clerks working for them. They will all
have job descriptions that detail their roles and
responsibilities.
Relatively, there are still companies who are have trust and
security issues, mandate that the work are to be carried by
single person or at least few individuals with the direct
supervision and reports directly to higher management and
stakeholders.

TYPES OF PROCUREMENT

5.1 Construction management is a procurement route in


which the works are constructed by a number of
different trade contractors. These trade contractors are
contracted to the client but managed by a construction
manager. The construction manager, acts as an agent
for the client, administering and co-ordinating the
works contracts.
The construction manager is generally appointed early
in the design process so their experience can be used to
improve the buildability and packaging of proposals as
they develop. This can enable some trade contractors to
be appointed earlier than others, potentially shortening
the time taken to complete the project. However, there
will be price uncertainty until the design is complete
and all contracts have been let.
5.2 Design and build is a procurement route in which the
main contractor is appointed to design and construct
the works as opposed to a traditional contract where the
client appoints consultants to design the development,
and then once the design is complete, a contractor is
appointed to construct the works. Design and build can
appeal to clients as it gives a single point of
responsibility for delivering the project. However it
may be seen as only being appropriate for simple
projects, where design quality is not the main
consideration. The contractor can either be appointed to
carry out all of the design work, or if the client wishes
to have greater influence over the design, a concept
design and outline (or performance) specification can
be prepared by a design team employed by the client,
and then the contractor is appointed to complete the
design and carry out the construction. The contractor
may use their own in-house designers to design the
building, or appoint external designers, or the client's
designers can be employed by the contractor to
complete the design (either by novation or consultant
switch). Design and build projects can follow either a
single-stage or two-stage tender processes.
5.3 Design build finance and operate single contractor
(perhaps a special purpose vehicle (SPV), with design,

construction and facilities management expertise as


well as funding capability) is appointed to design and
build the project and then to operate it for a period of
time. The contractor finances the project and leases it
to the client for an agreed period (perhaps 30 years)
after which the development reverts to the client. As
this is a very long-term relationship, entered into before
any design work is undertaken, it is important that the
client defines their requirements very carefully, in
particular the quality that is required and how it will be
judged. A great deal of risk is given to the contractor,
however the price they offer will reflect this. An
example of a design build finance and operate
procurement route is Public Private Partnership (PPP),
the most common form of which is the Private Finance
Initiative (PFI).
5.4 Emerging cost contracts An emerging cost (Time and
Materials or T&M) contract is a management contract
for works and services where the management
contractor is paid direct costs identified in an 'estimate
of project costs'. It is often applied over a certain period
of time. This means that design and workmanship
should give greater consideration to long-term
performance issues. Emerging cost contracts are often
used on projects such as railway infrastructure
contracts. They provide for sophisticated management
services along with sub-contracting the construction of
the works. It is not a target-cost contract but does
provide for value engineering and a right to terminate if
the current cost estimate reaches an agreed percentage
above than original estimate.
5.5 Engineering procurement and construction contract
(EPC) / turnkey contract- EPC contracts, sometimes
called turnkey contracts are similar to design and build
contracts, in that there is a single contract for the
design and construction of the project, but generally
with an EPC contract, the client has less say over the
design of the project and the contractor takes more risk.
On an EPC project, the client may seek tenders based
purely on a performance specification and then have no
input into the design, other than if variations are
instructed. Generally, EPC contracts are used on
engineering and infrastructure projects, where the
aesthetics of design might be considered less important
than performance and cost certainty.
5.6 Furniture, fixtures and equipment (FF&E) FF&E refers
to the procurement of Furniture, Fixtures and
Equipment. This might be procured separately to the
main construction contract, particularly by clients that
may already have systems in place for procuring fixed
and loose furniture, fittings and equipment, for
example schools or hospitals. It is very important under
such circumstances to define which contract every
element of FF&E is within. It is also important to
ensure that any building work required for installation
is identified and procured, that any services required

described as prime-type contracting).

are identified and that installation is properly integrated


into the main contract.
5.7 Framework agreements. Clients that are continuously
commissioning construction work might want to
reduce timescales, learning curves and other risks by
using framework agreements. Such arrangements allow
the client to invite tenders from contracts to be carried
out over a period of time on a call off basis as and
when required.
5.8 Guaranteed maximum price A guaranteed maximum
price (GMP) is a form of agreement with a contractor
in which it is agreed that the contract sum will not
exceed an specified maximum. Typically this is a
mechanism used on design and build contracts where
the contractor has responsibility for completing the
clients design and for carrying out the construction
works, so they are in a good position to control costs.
5.9 Lump sum contract A lump sum contract is the
traditional means of procuring construction, and still
the most common form of construction contract. Under
a lump sum contract, a single lump sum price for all
of the works is agreed before the works begin. It is
generally appropriate where the project is already well
defined when tenders are sought and changes are
unlikely. A lump sum contract is not a fixed price.
There is more certainty over the final cost, but there are
still mechanisms that allow the contract sum to change.
5.10 Management contract. A management contract is one
where the works are constructed by a number of
different works contractors who are contracted to and
managed by a management contractor. A management
contract structure is similar to a traditional contract,
however, instead of taking the risk associated with a
fixed price, the management contractor is reimbursed
the amounts paid to works contractors, and is paid a fee
usually in the form of a percentage.
5.11 Partnering. Partnering arrangements are intended to
enable full integration of design, construction and
operation. Partnering arrangements are linked by biparty contracts and can include contractors, suppliers
and specialist designers. Collective and individual
incentive schemes for delivery can be included in cost
reimbursement and fee payments. Partnering requires
heavy involvement from the client acting as employer
and adjudicator of disputes.
5.12 Prime contracting / prime-type contracting Prime
contracting is a form of procurement in which the
client enters into a long-term relationship with a
contractor who provides a single point of contact
(prime contract) for a supply chain to deliver one or
more projects. This is one of the three procurement
routes recommended by Government Construction
Strategy for publicly-funded projects (where it is

5.13 Schedule of rates term contract This form of contract is


normally used when the nature of work is known but
cannot be quantified, or if continuity of programme
cannot be determined. In the absence of an estimate,
tenderers quote unit rates against a document that is
intended to cover all likely activities that might form
part of the works. Indicative quantities may or may not
be given to tenderers but do not form part of the
contract.
5.14 Traditional contract (Design-Bid-Build) The
'traditional' procurement route (sometimes referred to
as design-bid-build) is a single-stage, fully designed
project where the design is developed in detail by a
consultant team working for the client and a contractor
is then appointed under a lump-sum construction
contract which includes penalties for late completion.
The contractor may have no responsibility for any
design other than temporary works.
5.15 Two-stage tender Two-stage tendering is used to allow
early appointment of a contractor, prior to the
completion of all the information required to enable
them to offer a fixed price. In the first stage, a limited
appointment is agreed allowing the contractor to begin
work and in the second stage, when more detail is
available, a fixed price is negotiated for the rest of the
contract.
It can be used to appoint the main contractor early, or more
commonly as a mechanism for early appointment of a
specialist contractor such as a cladding contractor. It may
also be adopted on a design and build project. In this case,
the contractor will tender a fee for designing the building
along with a schedule of rates that can be used to establish
the construction price for the second stage.

TYPES OF ANALYSIS

Whatever the size of your company you must analyze costs


and its deliverables. As become larger and purchasing needs
become more complex, should be analyzing delivery times,
maverick spending and whether you are making the best use
of suppliers.
6.1 Cost Analysis
Obviously, the first thing to look at is the actual cost to
purchase the goods is. Costs do not stop there
unfortunately, there are also the costs incurred for
delivery, handling and storage. There are supplier that
requires advanced payments. Ordering large items that
take several people to move and have to pay for them
to be delivered, actual costs are far higher than just the
costs of the goods. This depends from the Incoterms
used in the proposal. A full procurement analysis will
identify the total cost of purchasing from a particular
supplier.

6.2 Inventory Analysis


The next most important area to analyze is the costs of
storing the items as well as the costs of not having the
items available for sale or manufacture. A correct
procurement analysis on current inventory will be able
to predict the optimal future inventory. It should also
tell that the optimum inventory levels that will not
negatively influence sales or productivity. People and
machines being idle are expensive. This kind of
inventory was designed by the Japanese and called JIT
(Just In Time).
6.3 Best Use Of Suppliers Analysis
If you have a number of suppliers, it is better might
like to analyze who is supplying what to you. Relying
on one supplier too much and this is never a good idea.
On the other hand, it might be that by consolidating
suppliers may get the better prices and terms that
correspond to larger orders.
6.4 Maverick Spending
Sometimes, particularly if use purchase requisitions,
items may be ordered that are not appropriate or of a
higher price or lower quality than you usually purchase.
It could also be that an item is purchased from one
supplier, when another could have been cheaper. A
procurement analysis of all purchase requisitions and
ad hoc purchases will soon identify these maverick
purchases that could be costing company far more than
need be.
6.5 Delivery Time Analysis
Delivery times can be important to some large
companies, particularly when perishable and large
goods are concerned. A large delivery that needs to be
paid for very quickly can play havoc with a tight cash
flow. Large goods need staff handling and a
correspondingly large storage area.
Some goods need special storage facilities such as freezer
areas that may not be available. Careful control of a
companys inventory needs to be maintained. All of these
areas will be highlighted with a thorough procurement
analysis of the delivery times.

GENERAL ANALYSIS AND A NEED OF


PROCUREMENT STRATEGY

While procurement planning deals with when,


procurement strategy looks at what, how, where and
why; which need to be decided before the when.
- What to buy?
- Why buy it?
- How to buy it?
- What purpose does it serve?
- Whats the objective of the purchase?
- How much does it cost?
- Where can it be sources?
- How many sources are available?

- Whats the risk?


- Whats the benefit?
- Whats the cost?
But even after a preliminary procurement plan is developed,
there are still further strategic questions that need to be
answered, such as:Is the expected contract award date
realistic given the procurement method?
- Does the procurement process need
expediting?
- Are there opportunities for packaging
requirements in order to purchase in bulk?
- What are the monetary or strategic
advantages/disadvantages
of
grouping
requirements?
- Are there any dependent requirements?
The above list of questions is not exhaustive.
A procurement strategy can be developed for one
requirement or a group of requirements, and although the
development of a procurement strategy is important when
planning procurements, the extent of the strategy developed
is dependent on the level of risk and monetary value of the
requirement.
The strategy that is developed has to take into consideration
the various procurement principles; primarily, economy and
efficiency. Consideration needs to always be given to
whatever savings (or economies of scale) that can be
achieved by strategically planning how procurements will be
carried out over the period covered by the procurement plan.
This might entail consulting with the various requesting
entities to determine if there are any extenuating
circumstances that warrant making their purchases in a
special manner and in any way different from the rest of the
planned procurements of similar items.
Requesting entities should also be involved and consulted on
whatever decisions are made in the planning and strategy
phase, in order to obtain their agreement and to avoid
planning their requirements in such a manner that could be
counterproductive to their operations.

WHERE IS PROCUREMENT NOW

There have been a number of purchasing trends over the last


few years. Two of the most important are:
a. JIT (Just In Time) which was bought over
from Japan in the 1990s. It is the ordering of
inventory only when it is just in time to use.
b. In the 2000s e-procurement is becoming
more popular as internet security and
computer power becomes stronger and more
prevalent.

UNDERSTANDING THE PROCUREMENT

Overall having a detailed procurement route and strategy


benefits in the following:

It helps to decide what to buy, when and from

what sources.

It allows planners to determine if expectations are


realistic; particularly the expectations of the requesting
entities, which usually expect their requirements met on
short notice and over a shorter period than the application of
the corresponding procurement method allows.

It is an opportunity for all stakeholders involved in


the processes to meet in order to discuss particular
procurement requirements. These stakeholders could be the
requesting entity, end users, procurement department,
technical experts, and even vendors to give relevant inputs
on specific requirements.

It permits the creation of a procurement strategy


for procuring each requirement that will be included in the
procurement plan. Such strategy includes a market survey
and determining the applicable procurement method given
the requirement and the circumstances.

Planners can estimate the time required to


complete the procurement process and award contract for
each requirement. This is valuable information as it serves to
confirm if the requirement can be fulfilled within the period
expected, or required, by the requesting entity.

The need for technical expertise to develop


technical specifications and/or scope of work for certain
requirements can be assessed, especially where in-house
technical capacity is not available or is non-existent.

Planners can assess feasibility of combining or


dividing procurement requirements into different contract
packages.

It lists all requirements expected to be procured


over a period of time.

From it the procurement schedule is developed,


which establishes the timelines for carrying out each step in
the procurement process up to contract award and the
fulfillment of the requirement.

It allows for the consolidation of similar


requirements under one contract or the division of a
requirement into several contract packages for economies of
scale.

From the number of requirements on the


procurement plan, the procuring entity can determine
beforehand any need for additional staffing, including
external assistance for the purpose of completing all
procurement requirements listed on the procurement plan.

It allows for the monitoring of the procuring


process to determine how actual performance compares with
planned activities, and thus to alert the pertinent departments
and adjust the procurement plan accordingly.

It enhances the transparency and predictability of


the procurement process.

10 BENEFITS OF THE PROCUREMENT


PROCESSS

of the process and should be calculated in such a manner


that the completion of this stage can be determined.
The preparation of specifications and terms of reference is
crucial and sometimes presents a bottleneck because only
someone with experience can ideally estimate the time it
will take to prepare the specifications or terms of reference
of a particular requirement due to its complexity and
uniqueness. This is important because if this period is not
calculated correctly the whole plan can be thrown off. So we
want to carefully calculate this period such that it
encompasses the commencement and completion of the
specifications and terms of reference.
Another period that is usually outside the control of the
procurement entity is the bid/proposal evaluation period
given that evaluation panel members can come from entities
that are not under the control of the procurement entity. So
the use of their time has to be negotiated. Thus, the
evaluation period must be carefully calculated so as to
ensure that the evaluation can actually take place within a set
timeframe. The number of bids/proposals received also has
an impact on the duration of the evaluation process.
Contract negotiations can also be a potential bottleneck, so
sufficient time needs to be considered for this when its
required.
Its important to keep delays in the execution of the
procurement plan to a minimum, because such delays can
have an impact on contract award and completion, which
directly affects service delivery. Thats why the periodic
update of procurement plans cannot be overstated.

11 EXAMPLES / COMMON PRACTICE


Critical thinking starts with a simple comparison of the
trades/information required for the proper evaluation.
Analysis should always be technical and commercial
evaluation and analysis. Both factors were required to be
considered as Competitive and Compliant Submission.
Note that the factors to be used as a basis of evaluation may
differ from every type of contract package to be evaluated.
Criterion used for selecting a Consultant for Overall Master
Planning may differ from Interior Finishing Works, as noted,
the range of service may affect the overall understanding and
analysis, however, the evaluator should have a considerate
amount of time and experience in order to come up with
realistic findings and recommendation.

12 PRACTICECONCLUSION
The procurement plan should begin at the beginning, and
this beginning depends on the entity that has the control over
the action. Ideally, the beginning should be with the
preparation of the specifications (for goods and works) and
terms of reference (for services). This is really the beginning

Procurement and its associated works, i.e. tendering,


analysis and negotiation, is a complex area and tendering for
good suppliers and the consequential negotiating of entity
and favorable contracts is a very beneficial skill for someone

to learn. A poorly negotiated contract that ties the end user to


a negative supplier and high prices can quickly damage a
projects overall reputation and profit. On top, five rights are
easily met, right time, right delivery place, right price, right
source and right quality

ACKNOWLEDGMENT
Author would like to extend this gratitude for the support
given by his wife, Victoria and son, Victor, as well as the
family. Members of the PRI MLA CSC Team and friends.