APM Contracts and Procurement SIG - practitioner class 1

Welcome to the
practitioner class 1:
Introduction & Overview

Presenter & Chair of the C&P SIG :
Jon Broome
leading edge
projects consulting ltd
setting | your | projects
up for | success

jon@leadingedgeprojects.co.uk +44(0)7970 428 929 www.leadingedgeprojects.co.uk

© leading edge
projects consulting ltd , 2013

• Housekeeping
Mobiles off
Fire Exits & Alarms
Toilets

© leading edge

1

Objectives
To give an overview of :
key differences between the procurement
of goods and services and works / sub-
projects;
important developments, both past and
emerging, in contracts and procurement,
key definitions and terminology;
highlights of the SIGs generic 6/7 stage
process.
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Agenda
Housekeeping
About the SIG
What is Procurement ?
Developments in the Procurement &
Contracting for Projects &
Programmes
The Guide : key definitions, the 6/7
stage process, highlights.
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One of the first SIGs
Flourished and then declined.
A conference some 5 ½ years ago : members
wanted the basics of contracts &
procurement.
We run a combination of basic training events
called “seminars” (always booked up well in
advance) & more leading edge events.

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Aim of the C&P SIG :
The Contracts & Procurement Specific Interest Group :
Exists to promote and disseminate knowledge,
understanding and good practice of contracts and
procurement in a project & programme environment.
Aims is to become a lively and constructive debating
forum which takes existing best practice and helps
make it better.
Wants to be disseminating this knowledge,
understanding and better than best practice through a
variety of accessible means.
Has a long term aspiration to become recognised as
an international forum at the leading edge of
excellence in contracts & procurement for projects.
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2013 Contracts & Procurement SIG Structure
The Bulls Eye : Committee members
& those who want to initiate ‘projects’
& pro-actively contribute. Copied in on
most emails wrt SIG initiatives.
Bi-monthly web / tele-conference
meetings.

The Inner Circle Circle : Those who
are willing to contribute when asked
e.g. Talks, contributing & reviewing
documents. Limited direct emails.

The Middle Circle : Those on the
C&P web mailing list.

The Outer Circle (& beyond) :
Receive Information via general APM
publicity.

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Future Events
Contracts & Procurement Masterclass 2: The importance
of the business case & the project procurement strategy
– evening of 15th May - Steve Emerton - here.
Contracts & Procurement Masterclass 3 : Developing the
Package Contract Strategy – Afternoon of 6th June – Me
-here.
Risk management is dead (or dying); long live the
management of risk ! - lunchtime of 18th June - Me –
Webinar.

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APM Body of Knowledge 5th edition (Section 5.4)
(and last Procurement Guide)
“Procurement is the process by which the resources (goods and
services) required by a project are acquired.
It includes the development of the procurement strategy,
preparation of contracts, selection and acquisition of suppliers,
and management of the contracts.”

APM Body of Knowledge 6th edition (Section 3.7.3)
“Procurement is the products and services are acquired from an
external provider for incorporation into the project, programme or
portfolio.”

Are these still valid as definitions for the APM ?
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Why is Procurement Important ?
If 80 – 90% of many projects’ spend is outsourced
in some way, then might having the right
organisations and people on board with good
contracts in place be helpful ?
Research shows that good procurement decisions
can have just as much effect on delivering projects
to time, cost and performance as technical
decisions.
A Project Manager can only manage and
administrate a contract through the cards he is
dealt. Procurement & Contracts are about the
cards you deal yourself.
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Developments since the last SIG Guide
The Project Life-Cycle has expanded to include Operation
& Termination.
Extended Life Cycle
Project Life Cycle

Concept Definition Implementation Handover Operations Termination
and
Closeout
Figure 1.1 - APM’s project life cycle (APM BoK 5th ed.)

The ‘implementation’ stage may only involve
buying ‘off the shelf’ manufactured goods
and ‘bodies’ as a service.
Simple and easy !
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What about the Procurement of ‘works’ ?
In EU procurement terminology ‘works’ are
sub-projects delivered under contract.
(sub)Projects happen over a period of time
and are therefore subject to risk and
change and involve interaction between
people & organisations
i.e. relationship based vs. transactional based.

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Figure 3.7: Diagram correlating Nature of Relationship with Type of Package
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Typically in :
The NEED or OPPORTUNITY space

Benefits Business
to stakeholders Case

Sponsoring organisation’s
Success Criteria
for project or programme.
Project
Brief
Capabilities
enable benefits to be achieved.

Deliverables Project
are the end products or measurable results of the project Scope
e.g.as stated in function or performance specifications. Statement

Goods and Services Technical
that make up the Deliverable Spec

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What could ‘works’ be ?
Works could be expressed as
a collection of goods and services assembled by a
Provider e.g. a designed construction sub-project.
a combination of functional &/or performance specs
e.g. office building which the Provider has to design
and build.
capabilities or outputs e.g. a customer service
capability as expressed in a service level contract.
For instance, in PFI projects.
benefits & outcomes e.g. customer satisfaction,
increased business, cost reduction.
If I am the customer, am I buying goods and services ?
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Developments since the last Guide
The Project Life-Cycle has expanded to include
Operation & Termination.
There is a greater emphasis on outcomes, benefits &
whole life cost’s.
As technology & society gets more complex, there is
an increasing need for collaboration to deliver projects.
Selection therefore includes culture and capabilities as
the end ‘product’ cannot be fully defined.
Contracts need to align motivations and be more
relationship based i.e. define how parties work
together over time.
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APM Body of Knowledge 5th edition (Section 5.4)
(and last Procurement Guide)
“Procurement is the process by which the resources (goods and
services) required by a project are acquired.
It includes the development of the procurement strategy,
preparation of contracts, selection and acquisition of suppliers,
and management of the contracts.”

APM Body of Knowledge 6th edition (Section 3.7.3)
“Procurement is the products and services are acquired from an
external provider for incorporation into the project, programme or
portfolio.”

Are these still valid as definitions for the APM ?
© leading edge

A new definition for Procurement ?
Procurement is the process by which the benefits,
enhanced capabilities, functions / performance or
resources (goods & services) required from or by a
project or programme are acquired.
It includes deciding the package structure and, for each
package, the development & implementation of the
contracting strategy
contract documents, including the specific scope /
requirement
process and evaluation criteria for selection and
award
leading to the effective management and administration
of the contracts once entered into."
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Other key definitions in the Guide
A contract is a legally enforceable agreement between two or
more parties with mutual obligations. It normally includes (when for
a sub-project) at a minimum :
the Requirement which defines the performance or deliverable;
the constraints in which this performance has to be delivered;
how the contract is administered in terms of when payments
are made, quality is assured etc;
how change, whether instigated through or by the Employer or
arising from external circumstances, is administered and ideally
managed to minimise the adverse impact on the Employer’s
project objectives and outcomes; and
remedies for non- or poor performance by either party;
the pricing document.
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Other key definitions in the Guide
An Employer is the party who normally instigates the contract
and who is receiving the Requirement in exchange for the
‘consideration’, normally monetary.
The Provider is a broad enough term to encompass :
A manufacturer supplying ‘off the shelf’ goods
A manufacturer designing and manufacturing goods to an
Employer’s unique requirements, whether it is a one-off
deliverable or 1000’s of units;
A consultancy organisation providing professional services,
whether these are ‘business as usual’ services, such as
accountancy, or project specific services;
An outsourcing organisation providing on-going services
tailored to the Employer’s specific needs; or
A contractor delivering a works contract, however expressed.
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The Overall Process

• There is an overlap as often each stage runs over into the next.
• The process & processes within each Stage are not strictly linear.
• The process & sub-processes are a framework to Guide thought & action OR
• The starting point for the WBS and hence plan for a major procurement.
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Activity 5 : Development of the Project Brief.
The Project Brief is a high–level outline specification, in
terms of capability or functions and performance levels, of
stakeholders’ (customers/clients) needs and requirements
for the project needed to deliver the agreed Benefits. This
would include the Benefits being refined where possible
into tangible or measurable Success Criteria.
Activity 7 : Develop Project Scope Statement
What’s in, what’s out and what’s a maybe ?
High level boundaries / constraints.
High level project breakdown structure for costing &
planning.
Threats & Opportunities

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Stage 1 : Develop Project Procurement Strategy

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Example ‘Make or Buy’ Criteria

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See also Excel Spreadsheet
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Fig 3.3 : Process diagram for Stage 1 : Develop Project Procurement Strategy
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Stage 2 : Develop Package Contract Strategy

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Fig 4.2 : Process diagram for Stage 2 : Develop Package Contractedge
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Principles of Risk Allocation & Sharing
Consider :
the effect on the organisations business,
who can best influence it happening,
for negative risk, who can best mitigate it,
clarity over above for minor risks, and
risk attitude

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Information Gathering
Industry drivers & constraints
Participants’ Drivers & Constraints :
– E.g. cash flow; market share; certainty of profit vs.
opportunity to maximise; short term vs. long term.
– Is this Package critical to the project ?
Strengths & Weaknesses of the Likely Parties :
– Financial strength
– Technical and commercial ability wrt risks
– Collaborative ability ?
Contract specific threats and weaknesses :
– matched to above.
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Figure 3.7: Diagram correlating Nature of Relationship with Type of Package
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What Sort of
Design Build

High Contracting Strategy ? Finance, Operate
Arrangements

Joint Ventures

Partnering Style Contracts
- Strategic Alliances : frameworks,
outsourcing, partnerships
- Project alliances
- Target costs contract
Complexity
/ Degree of Input Based Contracts :
- Management contracting
Uncertainty - cost reimbursable
- fee based arrangements

Fixed price contracts
- activity schedule
- lump sums
- milestone payments

Bill of
Quantities
Low Schedule
of Rates

Short Medium Long ©
Permanent
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TIMESCALE projects consulting ltd , 2013

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Second Order Risk Allocation

Additional Risk and Thresholds
– What risks would be additional to the
Contract Sum (or what do we take out from a
standard form) ?
– What thresholds do we set for transference ?
Use of Incentives
– Damages vs. Bonuses vs. a combination.

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Means of Redress
Retention
Guarantees :
– Parent Company
– Bonds
Warranties
– Fitness for Purpose
– Collateral Warranties
The Contracts (Rights of Third Parties) 1999 Act

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Use of Standard Forms
Reasons to if possible
Saves legal costs and time.
In theory, they have been evolved and fine tuned over
time to take out ambiguities & inconsistencies which
cause dispute. Where this is not the case, case law
may exist to confirm their legal interpretation.
Familiarity amongst practitioners with both their
interpretation and the procedures to operate them.
(‘better the devil you know’ !)
The contra preferentum or constructor against the
grantor rule does not apply to the standard terms.

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Fig 4.2 : Process diagram for Stage 2 : Develop Package Contractedge
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Stage 3 : Prepare Contract.

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What should a contract cover ?
Definitions Payment : Certification : when, by what
criteria (foreign currencies) and by whom.
Design development and Interest payments for late payment.
implementation
Approvals / Instructions etc. on behalf
Types of liability : reasonable skill and of Employer
care (services); fitness for purpose; tort.
Risk Allocation / Management of
Existing State / Starting Point Change : the need, risk allocation,
The Deliverable calculation of time and cost.
Each parties Rights & Obligations Title & ownership rights, inc IPR
during delivery Insurance : what each party should
Constraints during Delivery hold, indemnity.
Subcontracting Termination / Exit procedures
Testing & Commissioning Dispute Resolution : options &
Correction of defects after sequence (dispute resolution board,
adjudication; mediation; arbitration or
completion
litigation).
Time, inc Final Certificate
International Factors e.g. multiple
currencies, shipping..
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Stage 5 : Select Contractor & Award Contract.
Outline Sequence
Relevant background law
Types of Selection Criteria
Typical Stages of a Selection Process
EU Procurement Regulations
Forming a Contract
Other considerations / good practice e.g. :
– answering queries during the tender etc
– avoiding mis-representation in negotiation
– status of letters of intent etc.
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Types of Selection Criteria
Past Performance : for you & / or others
Price * / Cost factors *
The End Deliverable : Contractor’s Proposals*
vs. what you asked for VfM
Means of Delivery * : Hard & Soft factors
Internal vs. External
Capability : Organisationally &/or of Individuals *
Culture : Generally &/or Compatibility
Organisationally &/or Individually
* Contractual Status must be decided.
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Typical Stages of a Selection Process

Desk Research
Publicising (& Engagement ?)
Pre-Qualification
Double Envelope : price & ‘quality’
Two Stage
(Checking out of statements ?)
Negotiation / Clarification
Final Selection.
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EU Procurement Regulations
Do they apply to you ? Type & Value Thresholds.
Public Sector & Utilities.
Open Procedure : No prequalification. Open to all. Likely
to be mainly based around price for commodities
Restricted Procedure : Prequalification + no less than 5
final bidders.
Negotiated Procedures : Open (with pre-qualification
and going to open market) vs. Restricted.
Competitive Dialogue : For ‘particularly complex
projects’ when the technical specification or ‘legal or financial
make-up’ cannot be defined in advance by the employer.
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Forming a Contract
Why is this important ? So you, as a Project
Manager, do not inadvertently enter a contract.
There must be :
Offer
Acceptance
Consideration
Intent to form legal relations
Capacity of Parties (and individual)
Purpose must be legal and not immoral
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Stage 5 : Manage & Deliver Contract
Stage 6 : Contract Close

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A new definition for Procurement ?
Procurement is the process by which the benefits,
enhanced capabilities, functions / performance or
resources (goods & services) required from or by a
project or programme are acquired.
It includes deciding the package structure and, for each
package, the development & implementation of the
contracting strategy
contract documents, including the specific scope /
requirement
process and evaluation criteria for selection and
award
leading to the effective management and administration
of the contracts once entered into."
© leading edge

Feeding Back (please do !)
By emailing me :
jon@leadingedgeprojects.co.uk
setting | your | projects | up for | success

By telephone :
07970 428 929 / 0117 909 3297

Thank you © leading edge

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APM Contracts and Procurement SIG - practitioner class 1

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