Contracting Process Paper
Project procurement focuses on creating, sustaining and terminating relationships with suppliers. It is an important aspect of project management. It seeks to ensure that the supplier delivers the procured items in accordance with the specified requirements. The current paper discusses the process used to conduct and close procurements.
High-Level Steps for Project Procurement
The procurement process comprises five key steps including specification, selection, contracting, control and measurement. Specification entails specifying to the external vendors the procurement items needed to complete the project. Selection focuses on finding potential suppliers who have the capability to procure the needed items according to the specification. This requires the development of vendor selection criteria that takes into consideration measures such as performance of parts, cost, quality of service and delivery, among others. During contracting, the purchasing department communicates with suppliers regarding the payment and delivery terms, with the main aim of ensuring on-time delivery without exceeding the budget. This should be specified in the procurement contract including a comprehensive delivery schedule.
The control step implies establishment of the purchasing department controlling the payment and delivery processes in order to ensure that the procurement is a success through a number of initiatives such as meeting with suppliers regularly, tracking the progress of delivery, checking the delivered items to ensure they meet the specifications, and making changes in the procurement contract when needed. Measurement is the last phase of the procurement process, which entails making use of performance measures and indicators to evaluate the effectiveness of the procurement process.
Contract Administration Policies and Procedures
For contract administration to be successful, communication is important. This means that contract administrators must have an understanding of the provisions outlined in the purchase document and be able to communicate the contractual obligations to the involved parties while at the same time exercising control with respect to contract performance.
After the purchase contract has been granted, a number of activities must be undertaken including the identification of core supplier and purchasing department personnel as well as their authority and responsibilities; conducting a review of internal processes and guidelines with the involved parties; reviewing the contract reporting requirements with the supplier and the contract administrator; reviewing the process used for amendment requests; conducting a review of the communication processes used for conflict resolution.
In addition, successful administration of the purchasing contract requires a number of activities such as informing the contractor when to commence work; monitoring the contract activities; approval of final products/services delivered through the submission of a written document indicating the acceptance of the delivered items; monitoring expenditures; ensuring that invoices are accurate before payment approval; initiating amendment requests in a timely manner; ensuring that the work is finished and acknowledged by the purchase department before the contract expires; undertaking activities associated with contract closure; and maintaining an auditable and precise paper trail of the activities relating to contract administration.
Tools and Techniques for the Contract Administration Process
A number of tools and techniques are used to facilitate the contract administration process, which include contract change control process, procurement performance reviews, inspections and audits, performance reporting, payment process and records management system (RMS). The contract change control system is used in defining the process through modifications to the contract that can be made including the paperwork, procedures for resolving disputes, tracking systems and the approvals needed for modifications to be authorized.
The procurement performance reviews refers to a planned appraisal of the contractor’s progress pertaining to the delivery of the procured items with respect to the quality, cost and timetable as stated in the procurement contract. Inspections and audits are also specified in the procurement contract and constitute an important aspect of quality control in the sense that they are used in inspecting and verifying the adequacy of the procured items delivered by the contractors. Performance reporting provides the purchasing department with information needed to evaluate the contractor against the contractual objectives. In other words, performance reporting shows the ability of the contractor to meet the obligations stated in the contract in terms of technical performance, schedule and cost.
Payment process defines the payment system to be used in the procurement process, which should also encompass proper approval and reviews. In addition, the payment system defines the terms of payment with respect to the duration for requesting payment, such as n/30 for requesting payment after 30 days, n/60 for payment requests after 60 days. Any number of days can be stated in the payment process to indicate the due date for the payment. RMS is used by the contract administrator in managing the contract records and documents. RMS is also helpful in maintaining an index of the contract correspondence and documents as well as helping with the retrieval and archival of contract documents. Information technology is another tool used in contract administration to improve the effectiveness and efficiency of the process of contract administration through automation of the RMS.
Conflict Resolution Techniques Used While Managing Contractual Relationships
Disputes in contracts tend to result in undesirable outcomes, are costly and time-consuming. They are capable of destroying supplier/buyer relationships that have been built over the years. Before the need to resolve such disputes arises, it is important to consider dispute avoidance techniques that include having clear wording in the contract and good contract administration. In the event that a dispute occurs, there is a number of techniques that can be applied to reach a resolution, which include negotiation, using a mediator and conciliator, neutral evaluation, determination by experts, adjudication, using arbitrators, and legal action (litigation).
Negotiation is the most widely used dispute resolution technique that entails both conflicting parties attempting to settle their differences through communication. Mediation refers to a structured private negotiation facilitated by a non-binding third party. When the settlement is agreed, the contract becomes legally binding. The mediator has the role of facilitating communication and making sure that the conflicting parties reach a mutually acceptable settlement. Conciliation is the same mediation meaning only that a conciliator can suggest a solution for both parties to consent. Neutral evaluation involves the use of a third party having legal qualifications to offer a likely consequence as a foundation for the discussions geared towards settlement. Adjudication involves calling an expert to rule over a technical problem. Arbitration implies using a nominated third party or arbitrator(s) to help resolve the dispute, without the involvement of the courts. Under arbitration, both conflicting parties consent to the decision made by the arbitrator. Litigation is the last option and implicates seeking the help of courts to help in resolving the dispute.
Steps Taken to Close Out Project Procurements
Closing out procurements entails settling and completing the procurement contract as well as resolving any open issues. The two steps of procurement closure include product verification and administrative closeout. Product verification involves verifying that all deliverables and work are done according to the agreed terms. Administrative closeout entails archiving and updating the contract records. Special cases of early termination are also likely, which might stem from mutual agreement because of one party defaulting the contract or for the convenience of the purchaser.
It is important to define the rights of parties in the terminations clause in the procurement contract. It is also important to collect, index and file all procurement documentations in accordance to the set procedures to outline the lessons learnt, estimate future contracts and assess potential contractors for procurements in future. Procurement audits must also be undertaken to evaluate the botches and achievements of the procurement to be deliberated when preparing and managing other contracts.
Importance of Closing Project Procurements and Accounts
The importance of procurement closure is manifold. First, post-procurement evaluation offers historical records that may be helpful in future contracts, such as the selection of contractors based on past performance and future budget estimations, among others. In other words, the lessons learned from procurement closure are valuable in the administration of other current or future contracts. Secondly, procurement closure is important because it offers an avenue for settling any outstanding issues existing between the supplier and the buyer. Another import aspect of procurement closure is that it serves as a guarantee that all procurement deliverables were met. Overall, procurement closure ensures that all the obligations stated in the procurement contract have been satisfied by the supplier in accordance with the specification.
External Influences on Procurement and Risk Management Process
Some external variables influence the procurement and risk management process including financial, political, technological, socio-cultural, and environmental factors. Variables in the financial environment including economic performance significantly affect the manner, in which buyers undertake procurement activities. Other factors in the financial environment affecting procurement and risk management include fluctuations in the current state; financial policies governing investor behavior and inflation, which in turn influences cash flow; banks’ lending activity can limit procurement by compelling buyers to prioritize cost cutting when securing financing is a challenge.
Changes in the political environment including international politics, policies and regimes have a significant impact on how and whom buyers conduct business with. Locally, policy and regime changes can result in a regulatory reform, which may influence the manner, in which firms structure their supply chains, compliance with safety and health, and tax, among others. Bilateral trade relations also influence trade dynamics such as opening new markets, posing financial and compliance challenges. It is important for procurement departments to be updated of political events in the global arena in order to be well equipped to adapt and lessen risk while exploiting opportunities.
Technology also has an effect on procurement since it is changing the manner, in which businesses operate. Procurement departments cannot also afford to disregard socio-cultural factors affecting the expectations and behaviors of customers. Environmental factors, such as natural disasters and resources scarcity, also pose a significant procurement risk through disruption.
Relationship between Risk Response Plan and External Influences
The external environment poses a significant risk for procurement, which means that buyers must consider external factors when devising procurement strategies. This will enhance the ability of the procurement department to adjust and respond to external factors. The risk response plan should be incorporated as a part of the contract in the sense that the contract administrator should identify the owners of the risk and allocate resources to lessen the impact of the risk. However, there may some unexpected risks in the external environment that are not expressed in the procurement contract. In such a case, both the contractor and the buyer are supposed to collaborate in defining the strategies and actions needed to respond to the risk.
From this assignment, a number of lessons have been learned. The first lesson relates to the important considerations for the success of contract administration including communication, and monitoring of the contract activities, among others. The second lesson learnt from this assignment involves the significance of closing out procurements. Lastly, the need for procurement managers to consider external factors and the risks they pose on the procurement operations has been emphasized in this assignment.
This paper has explained the processes used to conduct and close procurements. Five steps have been identified for the procurement process, which include specification, selection, contracting, control and measurement. The paper has also discussed some techniques that can be used in addressing contractual disputes. They include negotiation, mediation, conciliation, neutral evaluation, expert determination, adjudication, arbitration, and litigation. It is also important to close out procurement because of the valuable lessons learned, and ensuring that all contractual obligations are met. The importance of considering the external factors influencing activities have also been emphasized in this paper including political, environmental, technological, socio-cultural, and financial factors.