Procurement Management Issues - Essay Example

PROCUREMENT MANAGEMENT by The of the The of the School The and where it is located The Date Procurement Management Question 1 Procurement is the process of identification, selection and commissioning of the best solution to a requirement through sustainable allocation of the risks between client management and the supply chain. To obtain the best service and performance from a construction industry, the client must be closely involved with each step of the procurement process (Zaman 2011, p. 13). This means that a successful procurement and commissioning process requires commitment, discipline, and responsibility between the principals, consultants, contractors and all other stakeholders. Successful construction procurement should result in timely project delivery, proper budgeting and quality in order to meet the required functions. The act of creating a new structure requires objective survey on site, interaction with design team and other consultants, suppliers as well as other stakeholders. An immediate choice in term of the cost and quality should be agreed upon. The procurement of a construction work is often the subject of joint funding with different stakeholders who have varying interests and goals in the outcome of the projects. The following elements are the best drivers in terms of construction management: Two stage traditional selection process is best suited for short term projects An integrated team should be formed before design and maintained throughout the delivery life Suppliers should be selected by the best value and not by the lowest price. This is achievable within EC and considerations of the government procurement guidelines relating to the quality of design, sustainability, and the total value. Performance measurement should be applied to support continuous improvement Of the working process Culture and processes of achieving a given objective should be changed in order to focus on collaborative rather than confrontational working behaviours. Procurement Strategy in a Construction Project Global Bank Corporation are the owners of this project whose purpose is to take account of the demise of many European banks during the credit crunch. The success of this project will meet owner’s interest and at the same time meet the needs of their customers (Schwalbe 2009, p. 45). It is very important to first point at the factors that will determine the most suitable procurement strategy before commencing the projects. These factors: Key goals and hindrances of the project The risk that may emerge during the deliver phase of the project and the appropriate measures to deal with them The degree of complexity of the project The objectives of this project will relate to scope, cost, time, quality, sustainability, innovation and the stakeholders’ needs as well as expectations. Constraints are aspects that restrict achievements of the objectives of a project. These constraints are: Time constraints Budget constraints Physical constraints Availability of the requires resources including labour Skills and capacity building to deliver the planned project Market conditions Policy requirements In any construction procurement, the objectives and constraints of each building project are interdependent and therefore require concurrent considerations. A competent and industrious team will be necessary to meet these aspects. Risks are events known or unknown that adversely affect the outcome of the project. The nature of the risk is determined by the objective and constraints of the project. For instance, this project is budgeted at £120m and any activity that may cost more than the amount projected will be a risk. Consequently, it will affect rest processes and the entire project. Similarly, this project has a tight timeframe for completion. Any delay to the construction program will be a risk on the completion of the project. The responsibility of managing a given risk will be allocated to the party that has the capacity to deal with that risk. Level of project complexity will be determined by: i) The size of the project ii) Duration of the project iii) Scope of the project iv) Number of stakeholders to be involved v) Degree of innovation required vi) Market conditions vii) Level of technology to be incorporated. Inappropriate procurement strategy can lead to unsatisfactory project outcomes in terms of costs. The two stage traditional strategy will be suitable for this project since it gives allowance on time predictability, cost estimation, and use by all clients. The clients will develop brief budget and appoint team of consultants who will be involved in the tendering process. In addition, the client will appoint a building contractor to construct the design at an agreed price and time. Stage 1 This is a prequalification process that aims at limiting tendering to contractors with the necessary skills and experience to successively complete the project. Moreover, unnecessary costs in preparation of tenders that may limit the success of a project are eliminated. The contractor’s tender will be based on the developed consultants design. This will ensure a competitive tender process resulting to best value for the money outcome for the client. To achieve the above objectives, the following processes will be important: Preparation of prequalification documents including brief details of the project requirements as per the design. There will be advertisement and issuing of prequalification documents to the interested parties. These documents will require parties to demonstrate various financial, managerial, and technical skills of the project. Criteria, procedures, and process of evaluation will be indicated in the document. Stage 2 This phase involves tendering. Whoever set forth the first tender has the potential to negotiate for the second construction stage. The key drivers in this project will be centred on the cost, time and quality. To provide good results, proper understanding of the key drivers will achieve an optimum balance in the context of the project, and the requirements of the organizational strategy. Tendering Strategies This process will focus on: Allowing tenderers to develop designs to the advanced stage that may tender a firm lump of £120m. Enabling resolution of general matters that necessitate clarification of tenderers. Allowing resolution of issues relevant to a tenderer’s scheme. The scheme requires handling with care and security. Tendering process will involve the following stages: i) The tender document will be provided by the client, which will highlight the evaluation criteria, the evaluation procedures, and proposed timing of evaluation process. ii) An appropriate period will be allowed for the preparation of tender. It will be important for the Global Corporation to allocate adequate time on preparation of tenders in order to create room for quality design, innovation, and minimizing risk allowance through appropriate alternative solutions. A period of not less than 15 weeks will be suitable. iii) Site visit and briefing will be conducted whereby tenderers will be briefed on the requirements of the project as well as ask any questions. iv) It will be crucial to hold workshops to discuss matters of general interest. For instance, the client may use geotechnical workshops learn and conduct investigations on geographical aspects. v) Individual briefing will be held to maintain the confidentiality of the tenderers’ intended proposal while ensuring that proposals remain within the owner’s parameters for the project. vi) Submitted tenders will be assessed in accordance with the published evaluation criteria. Tenders are likely to contain significant differences mostly in the areas of design, time, cost, durability, and operation. vii) The evaluation team may seek clarification of issues from applicants, verbally, or in writing viii) A preferred tenderer will be reserved while unsuccessful ones will be advised as soon. Tendering will follow the following EU regulations: Values exclude VAT Values are total values not annual values. Values are to be exaggerated if there is an on-going annual need for supplies There is specific rules relating to extension of the existing contracts There are specific rules relating to contracts for both services and supplies A score system, normally 100-point system will be applied to determine the winning tender. Price component will include both the client’s own estimated project price and the bid prices submitted by all the bidders. Each of this is validated and then combined using the weighted average and percentage methods to derive a so-called “reasonable Price”. A bid price, which will be outside the range of 92-109% of the client’s price will be disqualified. Similarly, a reasonable price for this project may be estimated by calculating the average price of the submitted bid prices where the highest and lowest bid prices will be discarded. Bid price close to the reasonable price will be selected as the winning tender. Bidders who bid below the reasonable price, say by more than 5%, will be interviewed and questioned on how they arrived at their price to see whether they left some parts of the work out when pricing the bid, or let them prove that they are able to do the work using some form of greater efficiency than the competitors without infringing the EU regulations. This will be a reasonable way of avoiding to punish them. Question 2 A good procurement strategy will understand the key drivers of the construction project and achieve the optimum balance in context of the individual project and the organizational requirement strategy. For instance, a particular requirement for a project may be a specific design, which in turn assigns the quality through the specifications. If this parameter is partly fixed, then the other two key drivers (cost and time) will have to be optimized through the procurement strategy. Similarly, there may be situations where the end user requirements and the costs are fairly set, and through the procurement process, the design and the time element will be optimized and achieved. Different procurement options indicate the fundamental differences in the allocation of risk and responsibility to match the characteristics of different projects (Fleming 2003, p. 70). This means that the selection of the procurement strategy must be given strategic considerations. Reasonable cost of the project is achieved on the baseline of the client’s budget. The tender document is given to the potential bidders with clear details on what the project requires. Bidders manifest their professionalism and technical skills concerning the project. Later, bidders submit their tender document to the client where deep evaluation is done to determine the winning bid, which is given a range of 93-109% of the client’s price. Oral presentation of the potential contractors is very important since it helps the owner to make adjustments where need arises. The winning bid must demonstrate clear plans on how the task will be completed within the time allocated without compromising on the quality of the project. Usually, much of the work is sub-contracted to specialist firms but the contractor remains liable. Outmoded procurement approach is a low risk decision for clienteles who wish to reduce their contact to the risks of extravagance, interruptions or design failures. Design-Build is a procurement strategy where the contractors assume full responsibilities for design and construction. For instance, a design error would be directed to the contractors (Guth 2009, p. 17). However, it will be a good alternative since it offers faster track of events, cost certainty, and suitability for use with both experienced and inexperienced clients. The contactor tenders must relatively follow the initial concept design prepared by the client’s expert team. Alternatively, alterations are completed to the approved design and description of work sets in the programme to hold onto the mission within the financial plan. The construction management is also prioritized through constant participation by the client in decision making throughout the construction period. Procurement directives make it imperative for undertaking construction projects to carefully consider the organizational needs and strengths that are fit for the intended procurement strategy and its organizational capabilities. Question 3 D&B method will be applied in order to organize the ideas from the entire construction team about how to achieve the list of requirement for the project. A consortium of contractors, engineers, architectures, and the client will be actively involved in framing the schedule and means of achieving different activities. The prime contractor will be required to establish a coherent relationship with the supply team. Considering various equipment required to start the project, the prime contractor is expected to display exceptional co-ordination and management practices in order to provide a facility that meets its specified purpose. Before the groundwork can be dug, service providers are typically obligated to confirm and have prevailing service lines marked by a firm specializing in proviing such services. This will lessen the foreseen and unpredictable possibility of mutilation to the prevailing electrical, water, sewerage, phone, as well as cable facilities that could prompt outages and possibly hazardous circumstances. Still, it will prevent confrontation with the municipal councils and the business operators within this vicinity. Management procurement systems are required to speed up procurement processes, create suppleness in design disparity throughout the deal, and isolate contractual accountability on each person in the agreement. The construction manager will be responsible for all financial matters concerning the project. Bidding and tender evaluation are carried inside the Tangible Construction Markets (TCMs) in order to conform to fairness and transparency. Critical issues such as probity, conflict of interest, transparency, fairness all parties as well as consistency of process will be addressed (Sollish & Semanik 2012, p. 10). Considering a piling contract worth £100m, the bids received from different bidders should be very close to the client’s price. This means that any bidder should prepare a proposal with reasonable price in order to prevent losing points. The related works accounts for around 45% of the budgeted cost. Around £10m will be allocated to earth-moving machines and labour necessary to control and level the geography where the construction project will occur. Around 6% of the budgeted cost will be directed to both major and minor architectural matters. PPT models are useful in identifying risks and transferring them to the responsible parties. This prevents delay on progress of the project. The project will be completed within the time frame and at the budgeted cost, thus fast return on investments. The report recommends that government should provide guidance to public clients on how to value and manage design and project delivery at all identifiable states. Question 4 Supply chain typically involves comparing alternatives for the supply of goods and services to get the best mix of quality and effectiveness for the friendliest cost. It is involves proper risks allocation, making suitable selection strategy, and contract in determining whether money value is attained. EU rules reinforce the value of money based on the procurement policy of combination of cost and quality to meet the user’s requirements. Innovation within the project procurement processes and activities promotes good relationship, trust, and transparency between supply chain partners. Moreover, innovative thinking promotes supply chain integration offers benefits to all parties in form of flexibility and adaptability, commercial growth, and improved quality of products and services (Ukalkar 2000, p. 34). Terms of reference and technical specifications are included when preparing tenders to facilitate smooth supply of the goods and services. The terms of reference or technical specifications are included in the tender dossier to become the annex of selection and delivery of the goods and services that meet the desired qualities. Therefore, supply chain is a matter of common sense and good management. References Fleming, Q, W., 2003. Project procurement management: contracting, subcontracting, teaming, Tustin, Calif, FMC Press. Guth, S, R., 2009. Project procurement management:: a guide to structured procurements, Alexandria, Va, Guth Ventures. Schwalbe, K., 2009. Introduction to project management, Boston, Mass, Course Technology. Sollish, F., & Semanik, J., 2012. The procurement and supply managers desk reference, Hoboken, N.J., Wiley, Available at: http://www.123library.org/book_details/?id=53089 Ukalkar, S., 2000. Strategic procurement: management for competitive advantage, Delhi [u.a.], Oxford Univ. Press. Zaman, N. U., 2011. Procurement Management - the Process, Munich, GRIN Verlag GmbH, Available at: http://nbn-resolving.de/urn:nbn:de:101:1-2013102516055 . Read More