Contracting and Procurement - Contract Types Recommended - Term Paper Example

University> By CONTRACTING AND PROCUREMENT CONTRACT TYPES RECOMMENDED This project requires various items to be delivered for its successful completion. However, there are several types of contracts that can be recommended for use. Project managers must understand that there is a substantial need to have the required knowledge on contract management before choosing the best type of contract. One of the most crucial terms that are worth noting is the contract management life cycle (CMLC). According to the Chartered Institute of Purchasing and Supply. Contract management life cycle “is the process of systematically and efficiently managing contract creation, execution, and analysis for maximizing operational and financial performance and minimizing risk” (Bartle & Korosec, 2013). Contract management systems range from simple database systems that allow companies to find their contracts and track basic information (such as contract expiration dates and deadlines) to contract lifecycle management (CLM) systems that attempt to automate the entire contract lifecycle, from the initial contract request through contract creation, signing, filing, and post-contract reporting. Some systems are primarily intended to support the procurement function, and others the sales contracting function, but increasingly these systems are being designed to handle all types of contracts. While a simple database and tickler system may be adequate for companies with only a small number of contracts to deal with, more fully featured CLM systems add significant features and functions to help manage what, for many companies, is an increasingly complex and critical area. This means that there are issues that must be considered when choosing the best contract in a given project. For the case of IOC One, one of the key issues that will be vital is selecting and recommending a contract type the maximization of financial and operational performance. In such a case, the selected contract type should be able to produce the best results despite the current and the changing situations in the market (Berrios, 2006). Secondly, the issue of risks should be minimized. For this project, there are several risks that can be anticipated, but the contract type should be in a better position to minimize all these risks at all costs. Finally, the recommended contract type will be efficient and effective in the delivery of the required materials for the success of the project (Wang & HU, 2007). One of the most recommended contract type for this project is fixed price contracts. This is one of the most applied and modern type of contract across the globe. This type of contracts is also referred to as lump sum contract. In such a type of contract, the buyer of any given products and the seller will agree on a certain fixed price. The fixed price type of contract is free from the negative issues such as inflation. This advantage is mainly effective for projects that run for more than one year. In this case, the project manager will not be worried about the changes in economy that can adversely affect the prices of the commodities and materials used in the project. The provider or supply of the drilling materials and equipment in this project will have to agree with the buyer and in this case, this can be the project managers or the representatives of IOC One (Nemec, Meričková & Grega, 2014). One of the most significant advantages of this type of contract is that the risk that buyer and in this case, the owner of the project is at very low risk. This is mainly because the price is already set and the seller has bound to accept it. The other advantage with this type of contract is that the project will be completed on time. this project is scheduled to be completed in 24months, and any delays that arise will be funded by the seller of the materials being used (Bartle & Korosec, 2013). In a such a case, the provider of the materials such as the ones used in the drilling of wells will ensure that the contract is completed in a timely manner to avoid extra costs. Western Australian government covers 49% of this project, and they are likely to use this type of contract type as well. Thus, the use of this type of contract by the IOC one will be in line with the government’s plans (Berrios, 2006). However, the project manager should be aware of the negative implications of using this type of contract. One of the most significant disadvantages with this type of contact is that the sellers usually are compelled to reduce the scope of the with the primary objective of completing the project on time. reducing the scope of the project means that some things may node be done as planned and this substantially affects the quality of the project. For instance, the seller may choose to use the wrong methods of drilling wells which may not last long as expected (Chan at al., 2007). As well, it is imperative to note that there are several types of fixed price contracts. Firstly, there is fixed price incentive fee (FPIF) whereby if a project ends soon the seller is paid an additional fee. Secondly, fixed price award fee (FPAF) whereby the seller will be paid an additional percentage if the performance exceeds the expectations of the project managers. Finally, the last recommended type is fixed price economic price adjustment (FPEPA) which involves redetermination of the prices in conjunction with the prevailing market prices (Berrios, 2006). The other of contract that I will recommend being used in this project is Unit price contacts. This type of contract is also known as hourly rate. For instance, if the installation of fluid collector systems such as manifolds and any flexible lines, pumping units, and power production units and distribution takes 1000 hours and the contractor charges $100 per hour, then total to be paid will be $100, 000. One of the most significant advantage with this type of contract is that the contractor will make a lot of money per every hour (Bartle & Korosec, 2013). As such, the project manager will ensure that in that every hour paid work is done. In that connection, this project which is expected to be completed in 24months will be done faster since work is done and paid every hour. This is a clear indication that this is one of the types of contracts that ensures that the project is completed on the right time. as well, the contractor will enhance the performance of the employees since every unit of material used or hour is paid by the owner of the project (Chan at al., 2007) TYPE OF CONTRACTOR BEHAVIOUR There are several types of contractor behaviors that I anticipate to eventuate about various aspects of the project such as safety, productivity, use of resources, and risk management. One of the most common expected contractor behaviors is commitment. The contractor will try as much as possible to show total commitment to the achievement of the projects goals and objectives. the chief executives of every department within the project will ensure that they promote commitment to the project tasks (Wang & HU, 2007). Some of the most crucial activities in this project include the installation of the Production Drain Flow system, oil pipeline, Control Valves and SCADA/Telemetry system, cathodic protection system, and other activities. the contractor thus will ensure that these activities are conducted as expected and in a timely manner (Bartle & Korosec, 2013). This is because without such kind of commitment the lump some money will not be paid, and he may be forced to spend the extra costs (Berrios, 2006). The second most imperative contractor behavior regarding the types of contracts recommended is trust. The contractor will work to ensure that he maintains trust with all the key stakeholders of the project such as the project managers and the employees. However, to achieve such crucial trust, the contractor must work together with his team in a spirit of openness, good faith, no blame, and cooperation. For instance, they must ensure that all the employees work together as a team during drilling of the wells. One of the most common implications of such as strategy is that work will be completed on time and the best quality will be delivered due to the combination of efforts (Chan at al., 2007). The contractor must also ensure that he seeks the trust from the management. One of the crucial advantage of having management support is that the project will have increased chances of running as expected. This means that every activity will be conducted as scheduled. If any issue arises that can affect the 24month scheduled activities, the contractor will have a good relationship with the management for extensions or any other recommended solution. The third contractor behavior that is vital to the success of the project is respect. In such a project which involves various activities to be completed within 24 months’ respect is paramount. In such a situation, the interest of the project should take priority rather than the interest of other parties. Therefore, there is a substantial need that contractors ensure that any issues that may lead to a conflict of interests within the project are amicably solved (Nemec, Meričková & Grega, 2014). Creativity and innovation are the other key aspect when it comes to contractor behavior. Time and quality are some of the crucial pillars in the successful completion of a given project. The contractor should be in a better position to involve critical thinking to come up with innovative solutions throughout the project activities. in addition to the above, the contractor must always work in fairness. All the employees working on various project activities should be treated equally, and any cases of biases should be eliminated (Wang & HU, 2007). As well, the contractor should be in a better position to influence performance. This is one way in which productivity in the project is enhanced. it is the obligation of the project manager to encourage the subordinates to carry out the tasks effectively and efficient with the primary objective of enhancing productivity. For instance, a contractor can roll out a reward and incentive system whereby rewards are awarded to the employees who perform their duties perfectly. Those who work well in teams should also be recognized so that the other employees within the project can emulate them. In the long run, production will be enhanced, and the project will be completed according to the stipulated plans (Berrios, 2006). CONTRACT MANAGEMENT MAIN ELEMENTS TO BE CONSIDERED IN THE CONTRACT MANAGEMENT PLAN It is imperative to note that there are several elements that can be included in a contract management plan. However, there are a few most common and significant elements that I would like to be included in my contract management plan. One of the most crucial element is the background of the contract management plan. One of the key roles of the background is to introduce and explain the purpose of the contract. The background should state that the project is planned to be completed within a given period of time. in this case, the background will state that the project will take 24 months, and the expected outcomes will also be highlighted (Chan at al., 2007). The other crucial point to be explicated in this section is the introduction of the work expected from the contractor. As such, the contractor will be expected to choose the way in which best results are arrived at. Most of the project tasks are scheduled for a period and an extension of two to three days is allowed. The extension in the plan will ensure that if any issue arises the task can still be completed within the stipulated period. Most of the projects are completed past the scheduled duration because the plans did not take into account the extensions. In some cases, the employees may get injured or raw materials are depleted without the manager’s notice. This section of the plan will cover such issues in detail. However, the contractor must work in compliance with the stipulated contract terms and conditions. The background also will highlight some of the consequences of completion of tasks. For instance, the recommended type of contract in this project is fixed price whereby the contractor may receive an additional fee if they perform work outstanding the expectations of the project managers (Nemec, Mikušová & Grega, 2014). The second crucial element to be included in the contract management plan is the identification of the key stakeholders in the contract. Some of the key stakeholders include contract team members and authorities. It is imperative to note that the success of the contract substantially depends on the coordinated efforts of various stakeholders. Having all the stakeholder identification section will ensure that all the risks for each of the personnel are highlighted. One of the positive implication of such identification is that it ensures that there are no conflicts in terms of duties and responsibilities concerning the contract. One of the most significant people in the contract is the contracting officer. This is the personnel that responsible in entering and signing contracts on behalf of the government (Nemec, Mikušová & Grega, 2014). The other crucial elements in contract management plan contract identification. Contract identification is the section that shows all the major details about a given project. Some of the key information to be indicated in this section include contract name, contract number, contract title, performance period, the type of contract, contract value, and contractor key personnel. This information is vital since it ensures that anyone who can access this plan will have detailed information about the contract (Nemec, Mikušová & Grega, 2014). This section of the plan is also vital when it comes to government and other legal agencies use. For instance, the government may want to inspect and assess projects for various reasons. The identification section in the plan will make it easier for the legal authorities to conduct the project assessment and inspection effectively. In addition to the above, various methodologies that are used in the project are crucial to be indicated. There are several sub-elements that are shown in this section of the contract management plan. one of the most common of such elements is how the project will be executed. This is the section that outlines the key roles and responsibilities of key stakeholders within the project. As well, this section touches on the issue of compliance with controls that are stipulated. The other crucial element that will be included in the contract management plan is the section whereby key contract vulnerabilities or performance risk areas in the project contract. It is imperative to note that there are several risks that can be faced during the project execution. This section of the of the plan will ensure that various types of risks are well managed. Some of the most common types of risks to be managed by IOC One in this project include environmental liability, third party liability, operations accidents, operations interruptions, and radiological risks (Skibniewski & Ghosh, 2009). Inspection and Acceptance Process is the other crucial element to be included in the contract management plan. the other vital elements to be included in the contract management plan are the key performance metrics, contract transition planning, and non-value-added requirements. KEY PERFORMANCE INDICATORS RECOMMENDED The first key performance indicator to be included in the contract management plan is the expertise. The expertise and the skills of the members of the contract team play a vital role in the enhancement of the performance. In such a case, a contractor should ensure that they build a team of professionals with expertise and skills in key areas of the project (Skibniewski & Ghosh, 2009). In essence, it is profound to ensure that the contract management team should be composed of people with a mix of business skills and technical expertise. This means that such a team will consist of people who can negotiate as well as people who can plan and write contracts. Research reveals that successful project management has been achieved due the teamwork depicted by people with expertise and factual knowledge (Yuan at al., 2009). The next key performance indicator in contract management is the organization. research reveals that “although a central organization is strongly favored for many contract related processes, only 9% of enterprises regulate all contract management-related tasks centrally” Nemec, Meričková & Grega, 2014). Thus, this is a clear suggestion that contracts have various forms of operations. one of the most significant parts is whereby the contract adopts a corporate standard with a stipulated format and style. This type of contract contains various terms and conditions that ensure that performance is enhanced. In addition to the above, advanced technology is the other key performance indicator. Most of these resourceful technology tools are software and other project management tools. These tools have various positive impacts on performance (Domberger, Fernandez, & Fiebig, 2010). One of the most crucial positive implication is that it facilitates faster retrieval of documents. Project management needs that various documents be filled and stored for future use. Therefore, it is imperative to note that the use of technology is a cost effective approach in the business process. Technology ensures that faster retrieval of this kind of information is ensured at any given time that they are required (Skibniewski & Ghosh, 2009). Apart from the faster retrieval of the documents, the safety of the files is enhanced. This is one to make sure that all the project ideas are not exposed to emerging issues such as fraud and other related activities. This as well is essential since it makes the monitoring and assessment of the project outcomes easy and effective. In that connection, any project manager that uses technology and related technology will be ensured of enhanced performance (Domberger, Fernandez, & Fiebig, 2010). Management support is the other significant performance indicator that I will recommend to be included in the contract management plan. When a contract or a project is supported by the highest level of management performance will be guaranteed. The main reason is that the management is the primary group of people that are involved in key decision making that concerns the project. As such, the contract management plan should ensure that there is ensured support from to the top management of the organization (Yuan at al., 2009). As well, a simplified process is key performance indicator to be indicated in a contract management plan. one of the crucial roles that is played by the simplified process is to ensure that everyone involved with the project is reminded of his roles and responsibilities. This means that people will be encouraged to achieve the goals and objectives of the project in a timely manner. The simplified process as well is important since it encourages communication between various stakeholders (Domberger, Fernandez, & Fiebig, 2010). Communication ensures that any issue that can arise is tackled with immediacy. This section also ensures that all the stakeholders such as the managers and the employees are aware of the business regulations. They will be informed of both the corporate internal and external regulations governing the project and the contract (Domberger, Fernandez, & Fiebig, 2010). In conclusion, it is imperative that the above key performance indicators are included in a contract management plan. the role played by each performance indicator has been elaborated in detail. However, there are other types of performance indicators that can as well be added to the contract management plan. for the case of IOC one company, providing quality and enhanced performance in the project will be vital. As such, contract management and procurement are key issues that will be elemental to the success of the overall project. References Bartle, J.R. and Korosec, R.L., 2013. A review of state procurement and contracting. Journal of Public Procurement, 3(2), p.192. Berrios, R., 2006. Government contracts and contractor behavior. Journal of Business Ethics, 63(2), pp.119-130. Chan, D.W., Chan, A.P., Lam, T.I.P., Lam, W.M.E. and Wong, J.M., 2007. An investigation of guaranteed maximum price (GMP) and target cost contracting (TCC) procurement strategies in Hong Kong construction industry. The Hong Kong Polytechnic University. Domberger, S., Fernandez, P. and Fiebig, D.G., 2010. Modelling the price, performance and contract characteristics of IT outsourcing. Journal of Information Technology, 15(2), pp.107-118. Nemec, J., Mikušová Meričková, B. and Grega, M., 2014. Contracting, outsourcing, procurement: selected factors limiting their success in the CEE region. Skibniewski, M.J. and Ghosh, S., 2009. Determination of key performance indicators with enterprise resource planning systems in engineering construction firms. Journal of Construction Engineering and Management, 135(10), pp.965-978. Wang, T. and HU, P., 2007. Operation Mechanism of Contract Energy Management Plan and Risk Analysis [J]. Electric Power Technologic Economics, 6, p.015. Yuan, J., Zeng, A.Y., Skibniewski, M.J. and Li, Q., 2009. Selection of performance objectives and key performance indicators in public–private partnership projects to achieve value for money. Construction Management and Economics, 27(3), pp.253-270. Read More