Course Content:

What is Tender

Types of Tender

Terms & Conditions

Maintenance & Repair Contract and Operation & Maintenance Contract

Risk Analysis – basic idea

CVC guidelines for public procurement – some live tenders

Case Study – finding out risk factors in Global Tender and Comments against
commercial terms & conditions

01. What does Tender mean?

The word Tender means is to invite bids for a project, or to accept a formal offer such as a
takeover bid. Tender usually refers to the process whereby governments, private companies and
financial institutions invite bids for large projects that must be submitted within a finite deadline.
The term also refers to the process whereby shareholders submit their shares or securities in
response to a takeover offer.

Formal tender lists the conditions regarding how the company would meet the specified needs to
the requesting organization, as well as information regarding the general operation and
capabilities of the tendering company.

Issues related to costs of associated materials and labor, milestones or project goals, and
timelines to complete specific portions of the work may be included within the response,
providing an overview to the requesting organization regarding the responding business's
intentions.

Hence a Tender can be defined as:

A written invitation sent to potential suppliers of a good or service to inform them about the
information required for the buyer to choose among them. Issuing a tender document typically
begins the tender process by which a business selects qualified and interested suppliers based on
such things as their price, availability and proposed delivery terms.
02. What are the types of tenders? Define them.

a.) Single Tender : When only one source of supply is available then single tender is addressed
to the selected supplier.

b.) Limited Tender : This type of tender is addressed to a limited number of suppliers, who are
the reliable source of supply. There are set pre-qualification criteria against Limited Tender.

c.) Open Tender : is open to all the suppliers within the country who can supply the required
quantity and quality of materials. Such invitation is made by advertising in newspapers, journals
etc. Generally there is no strict pre-qualification criteria.

d.) Global Tender: is open to anybody from any part of the world to supply the required
quantity and quality of materials. There are strict pre-qualification criteria against Global Tender.

03. What are major activities involved in Global Tender?

Pre Tender process

Tender Protocol & Process

Bid type

Tender Fee

Earnest Money Deposit (EMD)

Eligibility Criteria

Due date of submission & due date of opening

Technical Specifications

Commercial Terms & Conditions

Price Bid

Check List of tender

Tender Evaluation

Tender Preparation & Bid submission

Post Tender activities

Award of Contract

Execution, Erection & Commissioning

Performance Guarantee

Closing the Contract

Maintenance & repair contract (MARC)/ Operation & maintenance contract (O&M)

04. List out major commercial criteria/ conditions generally observed in Global Tender:

Bid validity

Contract execution time period

Bid currency

Liquidated damage

Force majeure

Price Fall Clause

Arbitration

Security deposit / Advance bank guarantee

Performance bank guarantee

Deviation

Drawing / design approval

Inspection

Warranty/ Guarantee

Limitation of liability

Bid evaluation criteria

05. What are the differences between Maintenance & Repair Contract (MARC) and
Operation & Maintenance contract (O&M):

MARC
Generally applicable for critical machines
Period can be short / medium / long term
Covers maintenance & repairing of machines to
ascertain certain machine availability & working
hours
Client don’t wish to maintain the machine of its’
own & mainly concentrates on production
Two types of payments:

Spares and consumables charges on per
working hour basis

Overhead charges including supervision
on per hour availability of equipment
Payment are based on Available Hours basis
O&M
Generally applicable for Process plants
Period can be short / medium term
Covers operation & maintenance of entire
plant & machinery to ascertain certain
production quantity & quality
Client don’t wish to run the plant of its’ own &
mainly interested to take final product & earn
revenue from it.
Price is derived based on labor & overhead
charges, consumables & spares charges and
Payment is made on basis of per ton of
production

06. What is meant by Limitation of Liability in a Tender?

A limitation of liability clause is a provision in a contract that limits the amount of exposure a
company faces in the event a lawsuit is filed or another claim is made. It is to safeguard a
supplier from being exposed to claims of the client against consequential damages occurred
against their supplies or services rendered under a contract If found to be enforceable, a
limitation of liability clause can "cap" the amount of potential damages to which a company is
exposed. Company needs to analyze risks involved while signing the contract and to safeguard /
mitigate risks envisaged. Major consideration is to see that total liability of the contract should
not to exceed 100% of the contract value.
 Notes on Supply Management Integration for
Competitive Advantage

Integration:

Integration, a term often heard in the popular press, is in many cases not well defined. In this text, we
define integration as “the process of incorporating or bringing together different groups, functions, or
organizations, either formally or informally, physically or by information technology, to work jointly and
often concurrently on a common business-related assignment or purpose.” Although this is a very broad
definition, it implies certain elements. First, that people are coming together to work together on a
problem. It is no surprise that “two heads are better than one” when it comes to solving problems, but
many enterprises do not apply the idea of bringing together people with a different point of view to solve
a common problem. This is especially true in a global environment, with team members located all over
the world. Thus, another caveat to this definition involves doing so either formally or informally, through
physical methods or by information technology. Finally, integration requires that people create a common
understanding of the end goal or purpose; as we will see, this is an important aspect of the success of
integration strategies.

Integration can occur in many forms. It can occur through functions, such as in sourcing or new-product
development teams. It can also occur through cross-location teams, where people from different business
units are brought together. Finally, the most difficult and challenging form is cross-organizational teams,
which involves
working with suppliers, customers, or even both concurrently! Bringing different people to the table to
work on a problem can provide significant benefits. People will generally provide input in the form of the
following:

• Information
o About their markets
o About their own plans and requirements
• Knowledge and expertise
o Product and service knowledge and technology
o Process knowledge and understanding of how to make it work
• Business advantages
o Favorable cost structures that can benefit customers
o Economies of scale, which can also help reduce costs
• Different perspective on an issue, which may drive a team to look at the problem from a new
perspective that they hadn’t thought of before.

Some of the different methods that supply management will apply to achieve integration include the
following:
• Cross-functional or cross-organizational committees and teams
• Information systems such as videoconferencing and webmail
• Integrated performance objectives and measures that drive a common goal
• Process-focused organizations that are dedicated to certain processes
• Co-location of suppliers and customers
• Buyer or supplier councils that provide input and guidance to a steering committee
Internal Integration:

Supply management must maintain a number of communication flows and linkages. Following figure
illustrates the two-way linkages between supply management and other key groups along with a sample
of the information exchanged between these groups. The linkages between supply management and
other groups will become even stronger and more important as the role of supply management continues
to develop and evolve.

Internal Integration in Purchasing:

Supply Management’s Internal Linkages

To facilitate integration with other internal functions, a number of critical communication linkages or
interfaces have evolved between supply management and other departments. This need for internal
integration has increased exponentially in the last five years. Many organizations have actively moved
toward an outsourced environment, and in some cases are sourcing all products through low-cost-
country sourcing environments or contract manufacturers. These environments are very different from
North American buyer-seller situations, and supply management must play a critical role in establishing
these agreements and identifying global requirements for success. Supply management must often work
to become part of the global negotiations teams and become involved in supplier qualification, contract
management, and logistics, working with multiple internal parties in the firm including finance, legal,
logistics, marketing, and operations.

Operations
Supply management has always been a major supporter of the operations group. Because the links
between operations and supply management have been so close, it has not been unusual for supply
management to report directly to operations. A major link between operations and supply management is
through the development of global operations strategy. Because supply management directly supports
operations, it must develop insights into production or service strategic plans. One area in which supply
management has critical input to operations (and marketing) is through the sales and operations plan,
which identifies the level of production and sales for six months to one year, as well as the required input
to execute the plan. Clearly, supply management’s strategies and plans must be aligned with the sales
and operations plan. For example, supply management must be aware of the components and services
needed by operations as they plan to fulfill customer requirements for products or services. This could
include materials, software, services, travel, hotel, information technology, and outsourced labor.
Because supply management is responsible for sourcing the inputs to support operation’s plans, supply
management managers must work with operations to coordinate the execution to plan.

Supply management and operations also maintain communication linkages through direct personnel
contact. Many firms are now co-locating supply management personnel directly at operating locations so
supply management can respond quickly to operation’s needs. For example, in many financial institutions,
supply managers are co-located within the strategic business units and provide supplier relationship
managers to act as a primary single point of contact between suppliers and the organization. These
managers can work to identify problems, create problem resolution strategies, and act as a liaison for
discussions of service management expectations.

Quality Assurance
The supply management–quality linkage has increased in importance during the last 10 years. As firms
externally source a larger percentage of finished product requirements, supply management and quality
assurance must work together closely to ensure that suppliers perform as expected. Joint projects
involving these two groups include supplier quality training, process capability studies, and corrective
action planning. This linkage has become so important that some firms have placed the responsibility for
supplier quality management directly with supply management. Many firms now have a dedicated
supplier quality management function with a dual reporting element
to both quality and supply management.

Engineering
Perhaps the most important and challenging linkages exist between supply management and
engineering. The need to develop quality products in less time has drawn supply management and
engineering closer over time. There are still opportunities, however, to improve the level of interaction
between these two groups.

Firms can create stronger communication linkages and flows between supply management and
engineering in several ways. Engineers and buyers can develop open communication by working together
on product development or supplier selection teams. Supply management can also co-locate a buyer
within the engineering group. The buyer can maintain direct contact with product and process engineers
to respond quickly to their needs. A firm can also appoint a liaison that coordinates interdepartmental
communications and makes sure that each group is aware of the other group’s activities. The two
departments can hold regular meetings to report on items of mutual concern. Finally, many supply
management groups are recruiting commodity managers with very strong technical backgrounds, who
are able to talk the talk and walk the walk alongside their engineering counterparts. The key to a
successful relationship between supply management and engineering is open and direct communication,
which in turn should lead to increased teamwork and trust.

Engineering looks to supply management to perform certain tasks to support engineering’s efforts. For
example, engineering expects supply management to identify the most technically and financially capable
supplier for an item and to make sure each supplier meets engineering’s quality and delivery targets. In
addition, engineering expects supply management to assess a supplier’s production capabilities, actively
involve suppliers early in the design process, and develop relationships that encourage a supplier to offer
innovative ideas. Engineering also expects supply management to identify sources of new technology that
can be integrated into new products and services. It is also important to note that supply and
engineering must work closely together to deal with quality risks that may arise in new products, such as
the example shown in Sourcing Snapshot: Ensuring Quality Requirements:
Batteries from Sony.

Finally, manufacturing and process engineering will want to ensure ongoing technical support and service
during product launch and ongoing customer order fulfillment, as problems inevitably arise during this
phase of the product life cycle as well.

Accounting and Finance

Supply management also maintains linkages with the accounting and finance department. These linkages
are not as strong, however, as the linkages with operations, engineering, and quality control. In fact,
much of the communication linkage between supply management and accounting today is electronic. For
example, as supply
management transmits material releases to suppliers, it also provides information concerning inbound
material requirements to the accounting department. Upon receipt of the ordered material, the material
control system updates the supply management files from on-order or in-transit to a received status. The
accounts payable system then receives the receipt information and compares the amount received to the
amount ordered for payment.

Supply management may require data from the cost accounting system. For example, supply
management must know handling and material rework costs for an item resulting from poor supplier
performance. Supply management usually does not maintain data about individual activity costs that can
increase total cost. The supply management performance measurement system relies on input from cost
accountants to help calculate the total cost of an item, which is also important in make-or-buy decisions.

Finally, supply management must work closely with finance when making capital acquisition decisions.

Marketing/Sales
Supply management maintains indirect linkages with marketing. Many new product ideas that supply
management must support start with marketing personnel, who are the voice of a firm’s end customers.
Marketing also develops sales forecasts that convert into production plans. Supply management must
select suppliers and request material to support both marketing and production plans.

Legal
Supply management often confers with the legal department to seek counsel on specific elements of
contracts. Issues that may arise include patent ownership terms in new-product development, intellectual
property, product liability claims, antitrust, long-term contracts containing escape clauses, and other legal
issues. Electronic commerce also raises many legal issues that require supply management to consult
with the legal department. Later chapters discuss legal issues in greater detail. Sourcing Snapshot: The
New Role for Supply Management in Contracts illustrates some of the major challenges that lie ahead,
specifically with respect to the role of procurement on contract management and legal overlapping
responsibilities.
Environmental Management, Health, and Safety
Supply management may also confer with personnel from the environmental, health, and safety
departments to ensure that suppliers are employing safe methods of transportation and are complying
with Occupational Safety and Health Administration and safety regulations.

External Integration:

Supply management represents the external face of the organization and also serves as the primary
vehicle by which to integrate external suppliers and other entities into the organization. This is done by
creating and maintaining linkages with groups external to the firm—these linkages are in some respects
more important than supply management’s internal linkages.

Supply Management’s External Linkages

Supply management acts as a liaison with external parties on multiple fronts, including materials, new
technology, information, and services. These parties include suppliers, government, and local
communities.

Suppliers
Supply management’s primary external linkages are with its suppliers. Supply management’s primary
responsibility is to maintain open communications with suppliers and select the suppliers with which to do
business. Supply management should be the primary communication linkage with suppliers, although
non–supply management personnel may contact a supplier about a particular item or question.

Supply management has the responsibility to select suppliers and to remain the primary commercial
linkage with the buying firm, including any matter involving the conditions of the purchase agreement or
other issues of importance. Non–supply management departments should not select, independently work
with, or directly negotiate with potential suppliers for items for which the supply management
department is responsible.

Government
Supply management sometimes maintains communication linkages with governments at different levels
and locations. For example, supply management has an active role in international countertrade and
often negotiates directly with foreign governments when establishing countertrade agreements. Supply
management may also need to consult with federal government agencies on various matters, including
the Environmental Protection Agency, the Department of Defense, the Department of External Affairs,
and other agencies that have authority over issues governed by public policy.

Local Communities
Supply management may have contact with local communities and leaders. Because supply management
controls a large budget, it has the potential to affect certain social goals. These goals include sourcing
from local suppliers, awarding a certain percentage of business to qualified minority suppliers, and
establishing ethical business practices in all dealings.

Critical Role of Cross-Functional Sourcing Teams

Cross-functional sourcing teams consist of personnel from different functions and, increasingly, suppliers,
brought together to achieve supply management or supply chain–related tasks. This includes specific
tasks such as product design or supplier selection, or broader tasks such as responsibility for reducing
purchased item cost or improving quality.
When executed properly, the cross-functional sourcing team approach can bring together the knowledge
and resources required for responding to new sourcing demands, something that rigid organizational
structures are often incapable of doing. Prior researchers on team-building, such as Likert, have noted
that groups and teams can accomplish much that is good, or they can do great harm. There is nothing
implicitly good or bad, weak or strong, about teams, regardless of where an organization uses them.

Following Table segments cross-functional sourcing teams by the team’s assignment (finite or
continuous) and the member’s personal commitment to the team (full or part time). Although some
progressive firms are creating full-time sourcing team assignments, in most cases sourcing team
assignments are still part time. The lower half of this matrix (finite or continuous team assignments
supported by part-time members) presents a special challenge. It is often a struggle to obtain the
commitment of members who have other professional responsibilities. Experience reveals that cross-
functional sourcing teams are usually part-time/continuous assignments, making the use of sourcing
teams a challenging way to work.

Benefits of Cross Functional Team Approach:

1. Reduced Time to Complete a Task:

Individuals working as a team can often reduce the time required to solve a problem or complete
an assigned task. The traditional approach to completing organizational tasks often requires
duplication of effort between groups, and the individual sign-off of different functional groups
may take an extended period of time. The team approach supports members reaching agreement
together, which can result in reduced rework and the time required to execute a decision.

2. Increased Innovation
Firms look to teams to develop innovative products and processes to maintain an advantage over
competitors. Innovation is critical to long-term success. Research has revealed that lower levels
of formal rules and procedures along with informal organizational structures support increased
levels of innovation.

The team approach should require fewer formal rules and qualifies as a less formal organizational
structure. Teams can be a means to encourage increased innovation among members.

3. Joint Ownership of Decisions:

 The team approach requires joint agreement and ownership of decisions among different
members. Through team interaction, members begin to understand each other’s requirements or
limitations and develop solutions that different departments can support. Perhaps the greatest
benefit of team interaction is that once a team makes a decision, implementing the decision often
becomes easier due to group buy-in. The stakeholders involved in carrying out the decision are
more likely to do so efficiently and effectively, because the team has established cross-functional
agreement and ownership regarding the change or decision.

4. Enhanced Communication between Functions or Organizations :

Those who have worked in an organization with rigidly separated departments know the
inefficiencies associated with interdepartmental communication. The problems are even worse as
parties attempt to communicate across organizations. The cross-functional team approach can
help reduce communication barriers because members are in direct contact with each other
(either face to face or by electronic communication).

5. Realizing Synergies by Combining Individuals and Functions:

A primary objective of using teams is to bring together individuals with different perspectives and
expertise to perform better on a task compared to individuals or departments acting alone. The
synergistic effect of team interaction can help generate new and creative ways to look at a
problem or approach a task. Ideally, a team works together to solve problems that individuals
could not solve as well acting alone, to create new ways to perform routine (though time-
consuming) tasks, and to develop ideas that only a diverse group could develop.

6. Better Identification and Resolution of Problems :

Teams with diverse knowledge and skills have an opportunity to quickly identify causes of
problems that may affect the team or the organization. Early problem identification and
correction minimizes or even prevents a problem’s total impact. Furthermore, a team should
assume joint ownership of problems and accept the responsibility for problem correction, which
helps prevent finger-pointing for blame between departments.

Drawbacks of Cross Functional Team Approach:

1. Team Process Loss:

Process loss occurs when a team does not complete its task in the best or most efficient manner
or members are not motivated to employ their resources to create a successful outcome. When
process loss is present, the total group effort is less than the expected sum of the individual
parts. There is a potential drawback if the benefits resulting from team interaction do not
outweigh team process loss. For example, a supplier selection team with 12 members, 5 of whom
are active on the team, would experience a loss and waste from a lack of team interaction and
participation.

2. Negative Effects on Individual Members :

Membership on a team can have negative effects on individuals. Teams can exert pressure to
conform to a decision or position that the member does not support. An example might involve a
materials engineer who is pressured by other team members to select the lowest-price supplier,
even though he or she knows that a higher-priced supplier will provide better quality.

A team may also pressure an individual to support or conform to a lower productivity norm than
the individual’s personal norm. Also, some individuals may feel stifled in a team setting or may
not interact well with other team members. When this occurs, individual performance suffers.
3. Poor Team Decisions:
Although it seems counter to what we popularly believe, cross-functional teams can arrive at
poor decisions. Groupthink—the tendency of a rational group or team to arrive at a bad
decision when other information is available —may become a problem for individuals in a
cohesive group. By striving for group uniformity and consensus, they may suppress their
motivation to appraise alternative courses of action. The team may arrive at a decision that
careful evaluation of all available information or critical discussion normally would not support.
 CASE STUDY
Caterpillar Works with Delco to Achieve Mutually Beneficial Outcomes:

Over the last decade, Caterpillar Inc. has worked closely with Delco Electronics (now known as Delphi) to
create a highly integrated relationship. It first approached Delco Electronics in 1997 with the opportunity
to compete for the strategic position as its electronics supplier. Two factors were driving this opportunity.
The first was that Caterpillar was dissatisfied with its current supplier. The second was that it wanted to
reduce its in-house electronics capability to allow it to focus more on its core business. In the case of
Caterpillar, the buyer has had two distinct roles.

As a participant in the strategic supplier selection, the buyer was involved in an extensive process to
evaluate suppliers and ultimately recommend to senior management a supplier to assume the role of
strategic supplier. This process lasted six to eight months. It involved numerous visits by the team to
Delco Electronics’ headquarters, engineering facilities, and manufacturing facilities. It included quoting
several different scenarios ranging from build-to- print to design-and-build. Quoting was a benchmarking
exercise to understand capability and not an exercise to set pricing. The evaluation included several Delco
Electronics visits to meet with Caterpillar’s engineering groups and present its execution, quality, and cost
reduction plans in the event of being selected. It included several rounds of discussions.

Delco Electronics received word through the buyer that it had been selected to be the strategic supplier
of electronics to Caterpillar. It was at this point that the buyer’s role switched to that of executor of the
strategy. At this point, Delco Electronics had not yet been awarded any business. Shortly after the
announcement, the buyer presented a preliminary draft of an agreement that started something like this:
“Delco Electronics has agreed to supply Caterpillar 100% of its electronics requirements for the next five
years. . . . ” Caterpillar also restated the strategy outlined during the selection process. This consisted of
Delco Electronics starting immediately to supply existing products on a build-to-print basis and evolving
to a design-and-build basis. Caterpillar also explained the Caterpillar business model for pricing.

From that point forward, the buyer’s role was to ensure successful execution of the strategy. The buyer
spent his time ensuring that the two companies were developing the right working relationship.
Caterpillar had weekly meetings with all team members, ensured that deliverables were met, and
escalated issues in both Delco Electronics and Caterpillar. Caterpillar participants attended prototype
builds at the Delco Electronics manufacturing site. When new programs were identified, Caterpillar’s head
of procurement would attend the Sanctioning Body Approval event, the first formal gate in the Delco
Electronics Product Development Process. His attendance was focused on ensuring that Delco Electronics
was ready to start the development of the new program. Did it have resources in place? Did it
understand the technical requirements? Was it linked up with the correct Caterpillar technical resources?
Early in the relationship the team established a regular cadence of management meetings. The buyer
always attended and assumed the prime Caterpillar lead role. On pricing there was no competitive
bidding. There were discussions pertaining to volume and recovery of engineering content.

Much of this activity continues today at a much higher level of maturity as both companies have
nourished the relationship. Throughout, Caterpillar never lost any sleep over the success of Delco
Electronics as a supplier. The buyer clearly felt responsibility for the outcome. There was no hand-off to
others in the organization or to other organizations. Today, Delphi is involved in more than 20 electronics
programs with Caterpillar worth millions of dollars. As the business has grown, the buyer’s office has
expanded to include a senior buyer, two buyers, and a person involved in quality and readiness issues.
Although there have been changes in personnel over the years, clarity of ownership has not changed 10
years later!
QUESTIONS:

1. Review Caterpillar’s process for early supplier involvement. What was critical to the success of
the relationship?
2. How important was the role of specific individuals involved in the discussion? What does this say
about the importance of trust in managing buyer-supplier relationships in such an environment,
and the role of individuals in the relationship?
3. How were the risks minimized? Do you believe the benefits in this case outweighed these
potential risks?