In this video I share 5 contract terms that you should know. Remember, this isn't legal advice (and it's good to get some of that prior to any contract) but understanding common procurement terminology will help you manage your supplier relationships more effectively.
Here are 5 tips for better project procurement. To get more details on any of these tips, you can read this article.
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Yes, there is such a thing! Not all project procurement processes have to be a struggle for who comes out top and a hugely competitive bidding event. Here are 3 project processes where there isn’t an element of competition.
1. Use a Preferred Supplier
You probably know this already but you might not have considered it as a non-competitive procurement approach.
If you have a preferred supplier, say, for photocopiers, then you are going to get your next photocopier from them. This goes for recruitment agencies sourcing your next project team members, to the company you have worked with for years who always supplies your widgets.
Where a preferred arrangement exists, company policy may actively prevent you from seeking out competition.
The risk here is that you don’t take the time to look at other vendors. Just because your preferred print supplier was competitive a year ago doesn’t make it competitive today. Business models are changing in plenty of sectors. I usually get all my printing from Moo.com but this month I changed to a local print shop as (strangely) they were more competitively priced for the leaflets I needed. They were even kind enough to ask me to check again, as they said they weren’t normally competitively priced with online printers. But in this case, being able to deal with a real human, having a turnaround in 24 hours and not paying for postage really swung it for me.
Also, don’t assume that your past good experience with a supplier is always going to reflect their future performance. As well as their business model and pricing changing, a key change in support or service personnel could mean that the good relationship you had previously isn’t there any longer.
2. Joint Venture
You might come across this on large projects or at a business venture or product level.
A joint venture is where you are contractually in a partnership-type arrangement with another party to work together to provide a service. There’s an agreement in place that requires you to give the work to a particular company (and they, in turn may give you something).
3. Sole-Source Procurement
I hadn’t heard of this until I read Henrique Mora’s PMP® Exam prep guide where he covers the procurement management processes extensively. It’s a good read if you are preparing for the exam (I read the version that’s current for the 5th Edition).
Sole-source procurement is where the buyer chooses to get a product that is only provided by a single provider. Say, for example, you need a particular kind of roofing tile that is only made by one manufacturer. You’d buy it from them.
You could say this is the same for the vast majority of software too. If you want to buy a particular software tool that you think is right for your business, you can only get it from the vendor. You can’t buy Microsoft Office from Adobe, for example. (This is a poor example because so many large software vendors have a network of resellers where you do have choice about where to get it from. But it holds true for the majority of small/medium sized project management tools like the ones I review.) In healthcare tech many software products are linked to modalities or medical equipment – you have to get the one that ‘matches’.
“The main risks of conducting a sole-source procurement,” Moura writes, “concern the supplier’s economic feasibility and market conditions.”
You can include escrow in your contract if that’s appropriate, or other legal measures as a way of mitigating this if you think it’s worth it.
Benefits of Non-Competitive Procurement
I love the idea of non-competitive procurement.
Not having to sit in endless vendor presentations while the sales people tell you all the features of the product that you know won’t work when you start to get your hands on it.
Not having to prepare detailed business cases and financial models for products that you aren’t recommending, just to prove that you aren’t recommending them for the right reasons.
There are plenty of benefits including being able to get on with the work of your project more quickly because your team isn’t tied up in knots doing procurement activities.
However, there are drawbacks as well, not least because there’s an assumption that you are getting the best/right deal for your business. You might be, but if you have a feeling that actually you aren’t, it is worth talking to your manager or the PMO to see if there is flexibility to ditch the normal arrangements and go out to tender for this particular piece of work.
I’ve written before about treating the company’s money as if it is your own, and if you wouldn’t go ahead with the non-competitive procurement if it was your cash, then you’re right to question your own instincts here too.
A project procurement strategy is drawn up at the very beginning of a project at a high level because it’s useful for the business case.
Then you’ll put together a more detailed level procurement plan during Definition, when you are specifying exactly what is going to happen on the project. The procurement plan is part of your overall project management plan (remember: your plan is more than the schedule alone).
Here are 5 things to take into account when you are putting your procurement approach together.
1. Make or Buy
Make or buy decisions happen all the time on projects because you need to get your hands on stuff to make your project happen.
A make or buy decision is where you decide whether the deliverables will be made in-house or bought in. For example, you might do some IT developments in-house as you have developers with those skills, and then buy in Software-as-a-Service products for other software items where you don’t have the skills (or the inclination) to build them yourself.
‘Make’ is a good choice where you have internal capacity, resources, time and funding and a as way of building expertise in the team for long term support.
‘Buy’ can be more expensive but is also normally faster and does not require the project manager to recruit or backfill specialist permanent roles.
Do you want more tips for make or buy decisions? This video sets out 5 steps to consider.
2. Single or Multiple Suppliers
You also have to decide if you want a main contractor or are prepared to manage multiple suppliers.
Using a single supplier streamlines communication and devolves the project management requirement to the lead contractor. But it can cost more as it introduces another layer or management and there may be disputes.
Also: watch out for communication problems as your message might be lost or diluted as it is passed down.
Multiple suppliers are common on projects because there are often a variety of deliverables. It might make sense to group these together under a lead contractor – it often does on construction projects, for example – but it is going to really depend on your project and the type of suppliers you have.
3. Method of Reimbursement
You should think about what method of reimbursement you are going to use on your project and this might be mandated by your finance team or company policy. It’s really about the types of contract you are prepared to enter into: cost plus, cost, fixed price, firm price and so on.
Think about how much of your costs should be fixed and how much you are prepared to have as variable. The legal team are likely to get involved here to offer advice as you write your strategy. It’s not something that you can decide alone, although you might be in a position to make a recommendation. However, it’s important that you know what you are authorised to offer to a vendor, so it’s best to be clear at the beginning.
4. Supplier Selection
Think it through, take advice and then document your approach in your procurement strategy. You may already have this process for supplier selection formalised as part of your company policies, so there might not be much to do here except reference the existing procurement process. Check before you invent a supplier selection approach from scratch!
5. Contract conditions
Finally, contract conditions are worth covering in your strategy. You’ll need to ensure that your contract meets company standards and has a signatory at the appropriate level of authority. Your Finance team can advise on this.
Review any specifications that must be included like a break clause, intellectual property clause or force majeure.
What else would you consider in your procurement strategy? Let us know in the comments below.
When you are preparing to select a new supplier for your project you want to make sure that they are a good fit for you and your organisation. As well as the cost management aspects of getting a quote and setting up a procurement process to select a vendor, there are some other things to consider when you are making your final choice. These should all be part of your selection criteria – don’t forget that as well as technical requirements for your project you’re also ‘interviewing’ them to gain some confidence that they are actually going to work well with your existing project team.
So what do you need to know about your project supplier? Here are some things to consider.
Solvency is important because you want to work with a business that is credible and stable. It’s not fun to be in a situation where you are halfway through a project and you find out that your supplier is on the verge of bankruptcy. Ask your finance or legal team to carry out their standard background checks on the businesses that you are considering working with (they should have access to the information to do this, although they might outsource the checks to a third party).
You’ll get back information about how the company has performed financially and whether or not it is considered a going concern. If you are at all bothered by the results, talk to the supplier. Some things could be explained away but if not, this simple solvency check will help you avoid a lot of problems in the future.
Size of business
How big is the company? It’s a very different experience working with a major multi-national to working with a small design studio that could essentially be one person working from their kitchen. That’s not to say that you shouldn’t engage small and independent firms, but be aware if you are doing so.
Taking on a big contract is also a risk for a small firm. If you decide not to continue to use them (say, after the project has finished) then they will lose a large deal and could potentially struggle. If you do need them for some kind of ongoing support then make this clear.
With a big company you could find the opposite: your project is so small in the grand scheme of things that you don’t get the customer service you expect because they don’t prioritise your problems.
Find out how they have prepared their estimates. There should be a list of assumptions somewhere in the proposal document. These should explicitly say if the proposal includes taxes and expenses. Some vendors will also expect per diems for their staff. This is a flat rate to cover the cost of working away from home or on a client site, and is supposed to be used to cover things like lunches, laundry, phone calls and so on. It’s paid directly to the staff member so it is different from expenses and often it’s explicitly excluded from a quoted price.
How do I know? I’ve been caught out with those before.
The working hours are particularly relevant if you are working with international partners. They will have different national holidays to you so it’s worth finding out when they are. You can also write into your contract that you expect them to be available on all workings days in your country. Personally I think this is a bit mean and it’s nicer to be able to work around their availability rather than make them skip their local holidays, although I have seen it done.
You might also want to check what hours they are going to be available. While no one would expect the team in New Zealand to stay up all night in case someone calls, it is worth discussing what would happen if there was an urgent problem during your working hours and the overseas office was closed.
Staffing and experience
Talk to them about who is going to be allocated to your project. You’ll want confidence that the consultants they put forward have the relevant experience to be able to complete the work. Everyone, of course, needs to start somewhere and you may find that you also get less experienced contractors allocated to your account. That’s fine, as long as you know they are being adequately supported by more experienced colleagues. You’re paying for someone to do the job and provide expertise in a field that your own company doesn’t have. You’re not paying for someone to learn on the job.
While you are at it, get references of where they have delivered similar projects for other clients. They should be able to evidence the fact that they are experts in this area because that is what you are engaging them for. If they haven’t got a lot of experience in your sector but you still want to use them, talk to them about you can help them build their knowledge quickly.
What else do you consider when selecting and securing a third party to work on your projects? Let us know in the comments.