These sources are indicative - there are many other good texts available in libraries and on the Internet. They are referenced here as this presentation draws on them extensively.
Better Practice Guide – Selecting Suppliers
Australian National Audit Office 1998 http://www.anao.gov.au then click on ‘Publications’
Better Practice Guide – Contract Management
Australian National Audit Office 2001 http:// www.anao.gov.au then click on ‘Publications’
Project Lifecycle - Eng’g Processes Shaded area shows work normally considered for external “Procurement” System Specifications System Specifications System and Sub-System Specifications Detail Design Ideas Sub-system Testing System Testing Acceptance Testing Progress Clockwise Review Operations Strategy Studies Operations Analysis Architectural Design User Requirements Specification User Oriented Testing - Functional and Performance System Oriented Testing- Technical Functionality, plus Connectivity and Interfacing Acquire and Implement Sub-systems Sub-system Oriented Testing- Detailed Functionality, plus Connectivity and Interfacing
All of the advantages and disadvantages of Consultants
Provision of skills and people – eg Expertise and staff numbers
Independence of suppliers –
but check their past tasks for possible conflicts of loyalties
Less skills transfer than using resident consultants or short term employees
Commitment to long term goals may be questionable
Whose goals – yours or theirs?
Removes emotional ownership issues
Clearer focus on performance (or no payment)
Issues of liability – who is responsible if it does not work?
Purchasing Models Many variants are possible Main ones used are: Often a mixture of approaches is used eg different phases of a major project use different models X X Multiple supplier X X Single supplier Variable Price Fixed Price
Requires that both purchaser and supplier are clear about scope of work –
good for well known and well defined tasks such as payrolls,
poor for leading edge systems where both the task and technology are not well understood leading to high risks ( price will be loaded to accommodate the risk )
Single Supplier - Fixed Price (SSFP)
Single supplier for whole task, usually including installation and training
Supplier may subcontract some/most of the work, but retains responsibility and liability as “Prime Contractor” or “Prime Systems Integrator” (PSI)
Most appropriate where the task is well defined in testable terms.
Good where the overall task is intimately associated with many minor aspects requiring close coordination of many parties (e.g. supply and install a network, where power, air conditioning, cable installation, security, building works etc etc are involved)
Multiple Supplier - Fixed Price (MSFP)
Requires purchaser to have more staff designing, coordinating, managing (outcome very dependent on inside staff numbers and expertise)
May be cheaper than SSFP
(Prime Contractor or PSI usually charges 15% to 30% add-on to sub-contract costs for supervising the sub-contractor and for integrating their work into the main task)
Project cannot be specified in sufficient detail to allow fixed price approaches Eg leading edge technologies
Actual task is defined as the work progresses and knowledge is gained
Often a multi-stage project, where each stage is managed as a Fixed Price task, with one sub-task in each stage to define and cost next stage
Project often subject to exchange rate changes or other factors beyond control of contractor
Often needs a "head" contract to define the rules.
Often called "time & materials" contract.
Multiple Supplier - Variable Price (MSVP)
Combines MSFP and SSVP aspects
Really a project which is self-managed and self sub-contracted.
Procurement Procedures Sequence and Indicative Timescales (Times shown are indicative for a ‘high tech’ $50M+ task) Starting Point - After concept has been developed, and strategic decision to go ahead RFI preparation, responses, and decisions (3-12 months) RFP/RFT preparation (1-3 months) Tendering period (2-4 months) Tender evaluation (3 months) Contract negotiation and award (2-6 months) Contract execution (6-36 Months to build, install, test etc)
Allow for 0.5% to 1% of cost of job for specification and evaluation
More if extensive travel is required to research needs and solutions
From 2% to 4% of cost of job for large ‘functional’ RFP/Ts
(eg high level design, detail designs, extensive research is required, many draft plans, samples of outputs, compliance with complex proposed contractual conditions etc)
More if extensive research, travel or effort required to satisfy the demands for innovation, examples, supporting documents, presentations, tight timeframes to bid (eg hiring aircraft to deliver the bid documents) etc
Is it worth the cost and financial risks? Could we do better bidding other work?
Bidders price reflects cost of bidding or tendering
Bidders should expect to win approximately one in three bids, therefore cost add-in to cover expenses of failed bids is 6% to 12% of cost of this bid
Purchasers with bad reputations (eg using too many bidders, frequently aborting bid work or not proceeding with purchases after bid work) will have higher prices proposed to cover the risks that bidders perceive.
Bidder’s price reflects perceived risk in the task
High risk = higher prices
High risk may be technical, contractual or schedule risks (eg innovative or leading edge technology, severe penalties in contract, difficult schedules etc)
May be perception (reputation) that the purchaser is difficult to satisfy
Bidder’s price may reflect an unwillingness to do this job
They do not really want to do the job at this time and only bid to keep their name in the game because of fear of being ignored in future
Q: Should there be differences between private and public bodies in their manner of procurements?
Why? – or are we simply continuing an outdated approach?
Is there a better way than the processes described here?
Eg What if the available budget was advertised to bidders rather than being hidden from them?
This would have the advantage of automatically scoping the task value. Thus, bidders way out of the expected cost value could opt to ‘no bid’ Many aspects of uncertainty and risk would be clarified by publishing the expected value.
Bidders would then differentiated by value for money rather than price