Contract & Tender Management

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Minimise Risk Exposure

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Contract & Tender Management

  1. 1. Contract & Tender Management Minimise Risk Exposure Anand Subramaniam
  2. 2. <ul><li>“ A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools. I love deadlines. I like the whooshing sound they make as they fly by .&quot; </li></ul><ul><ul><li>- Douglas Adams </li></ul></ul>
  3. 3. Highlights <ul><li>Contract – Elements & Form </li></ul><ul><li>Contractor’s Risk </li></ul><ul><li>Contract Administration Cycle & Changes </li></ul><ul><li>Termination & Rights </li></ul><ul><li>Negotiations & Award </li></ul><ul><li>Tender - Articles </li></ul>
  4. 4. Contract – Elements & Form
  5. 5. Elements of a Contract <ul><li>Mutual agreement </li></ul><ul><li>Consideration </li></ul><ul><li>Contract capability </li></ul><ul><li>Legal purpose </li></ul><ul><li>Form provided by law </li></ul>
  6. 6. Contract Form <ul><li>Completion contract </li></ul><ul><li>Term contract </li></ul>
  7. 7. Contractor’s Risk
  8. 8. Contractor’s Risk FFP CPFF Contractor’s Risk HIGH LOW LEGEND FFP FIRM FIXED PRICE CPFF COST PLUS FIXED FEE
  9. 9. Firm-Fixed-Price Contract (FFP) 0 % 0 % 100 % 100 % Contractor’s Risk Customer’s Risk Risk Sharing Meter RISK LOCATION <ul><li>Maximum risk with contractor </li></ul><ul><li>Higher negotiated profit margins </li></ul><ul><li>High likelihood of scope changes </li></ul>
  10. 10. Incentive Contracts <ul><li>Additional profits are possible by lowering cost </li></ul><ul><li>Customer and contractor share cost savings </li></ul>
  11. 11. Fixed-Price Incentive Fee Contract (FPIF) 0 % 0 % 100 % 100 % Contractor’s Risk Customer’s Risk Risk Sharing Meter RISK LOCATION <ul><li>Contractor can earn additional profits </li></ul><ul><li>Contract has a ceiling on price (or cost) paid </li></ul><ul><li>Price (or cost) ceiling at point of total assumption </li></ul>
  12. 12. Cost Plus Incentive Fee Contract (CPIF) 0 % 0 % 100 % 100 % Contractor’s Risk Customer’s Risk Risk Sharing Meter RISK LOCATION <ul><li>Contractor can earn additional profits </li></ul><ul><li>All costs are reimbursed (cost run-ups) </li></ul><ul><li>A “floor” and “ceiling” exists on profits </li></ul>
  13. 13. Cost Plus Award Fee Contract (CPAF) 0 % 0 % 100 % 100 % Contractor’s Risk Customer’s Risk Risk Sharing Meter RISK LOCATION <ul><li>All costs are reimbursed (cost run-ups) </li></ul><ul><li>Negotiated range of possible profits </li></ul><ul><li>Customer determines profit paid at completion </li></ul>
  14. 14. Cost Plus Fixed Fee Contract (CPFF) 0 % 0 % 100 % 100 % Contractor’s Risk Customer’s Risk Risk Sharing Meter RISK LOCATION <ul><li>All costs are reimbursed (cost run-ups) </li></ul><ul><li>Fee is fixed (in $$$ not %) irrespective of costs </li></ul><ul><li>Contractor is motivated for early completion </li></ul>
  15. 15. Cost Plus %age of Cost Contract (CPPC) 0 % 0 % 100 % 100 % Contractor’s Risk Customer’s Risk Risk Sharing Meter RISK LOCATION <ul><li>Costs incurred may be unlimited </li></ul><ul><li>Contractors can maximise profits </li></ul><ul><li>Scope changes may be frequent and unlimited </li></ul>
  16. 16. Contract Risk Summary RISK LOCATION FFP FFE FPIF CPIF CPAF CPFF CS C CPPC 0 % 100 % Contractor’s Risk 0 % 100 % Customer’s Risk Risk Sharing Meter
  17. 17. Contract Administration Cycle & Changes
  18. 18. Contract Administration Cycle <ul><li>Change management </li></ul><ul><li>Specification interpretation </li></ul><ul><li>Adherence to quality </li></ul><ul><li>Warranties </li></ul><ul><li>Subcontractor management </li></ul><ul><li>Production surveillance </li></ul><ul><li>Waivers </li></ul><ul><li>Contract breach </li></ul><ul><li>Resolution of disputes </li></ul><ul><li>Project termination </li></ul><ul><li>Payment schedules </li></ul><ul><li>Project closeout </li></ul>
  19. 19. Types of Changes <ul><li>Administrative change </li></ul><ul><li>Change order </li></ul><ul><li>Contract modification </li></ul><ul><li>Undefined contractual action </li></ul><ul><li>Supplemental agreement </li></ul><ul><li>Constructive change </li></ul>
  20. 20. Clauses of Constructive Changes <ul><li>Defective specification with impossibility of performance </li></ul><ul><li>Erroneous interpretation of contract </li></ul><ul><li>Over-inspection of work </li></ul><ul><li>Failure to disclose superior knowledge </li></ul><ul><li>Acceleration of performance </li></ul><ul><li>Late or unsuitable owner or customer furnished property </li></ul><ul><li>Failure to cooperate </li></ul><ul><li>Improperly exercised options </li></ul><ul><li>Misusing proprietary data </li></ul>
  21. 21. Order of Precedence <ul><li>Specifications (first priority) </li></ul><ul><li>Other instructions (second priority) </li></ul><ul><li>Other documents, such as exhibits, attachments, appendices, SOW, contract date requirements list [CDRL], etc. (third priority) </li></ul><ul><li>Contract clauses (fourth priority) </li></ul><ul><li>The schedule (fifth priority) </li></ul>
  22. 22. Termination & Rights
  23. 23. Reasons for Termination <ul><li>Elimination of the requirement </li></ul><ul><li>Technological advances in the state-of-the-art </li></ul><ul><li>Budgetary changes </li></ul><ul><li>Related requirements and/or procurements </li></ul><ul><li>Anticipating profits not allowed </li></ul>Convenience of the Customer
  24. 24. Reasons for Termination (Contd.) <ul><li>Contractor fails to make delivery on scheduled date. </li></ul><ul><li>Contractor fails to make progress so as to endanger performance of the contract and its terms. </li></ul><ul><li>Contractor fails to perform any other provisions of the contract. </li></ul>Default Due to Contractor’s Actions
  25. 25. Contract Administration Rights <ul><li>Reject the entire shipment </li></ul><ul><li>Accept the entire shipment (barring latent defects) </li></ul><ul><li>Accept part of the shipment </li></ul>
  26. 26. Negotiations & Award
  27. 27. Negotiation Factors <ul><li>Compromise ability </li></ul><ul><li>Adaptability </li></ul><ul><li>Good faith </li></ul>
  28. 28. Negotiation Planning <ul><li>Develop objectives (i.e., min-max positions) </li></ul><ul><li>Evaluate your opponent </li></ul><ul><li>Define your strategy and tactics </li></ul><ul><li>Gather the facts </li></ul><ul><li>Perform a complete price/cost analysis </li></ul><ul><li>Arrange “hygiene” factors </li></ul>
  29. 29. Negotiation Objectives Buyer Seller Min Min Objective Objective Max Max Price
  30. 30. Award Contract <ul><li>Negotiate a contract type and price that will result in </li></ul><ul><ul><li>reasonable contractor risk and </li></ul></ul><ul><ul><li>provide the contractor with the greatest incentive for efficient and economic performance </li></ul></ul>
  31. 31. Tender Articles
  32. 32. Definition & Principles <ul><li>Article - Definitions </li></ul><ul><li>Article - Notices and Written Communications </li></ul><ul><li>Article - Eligibility </li></ul><ul><li>Article - Type of Contract </li></ul><ul><li>Article - Equality of Participation </li></ul><ul><li>Article - Derogation </li></ul><ul><li>Article - Competition </li></ul><ul><li>Article - Service Contracts </li></ul><ul><li>Article - Design Competition </li></ul><ul><li>Article - Technical Specifications and Standards </li></ul><ul><li>Article - Notices and Written Communications </li></ul>
  33. 33. Tender Dossier & Invitation <ul><li>Tender Dossier </li></ul><ul><ul><li>Article - Requests for Clarification </li></ul></ul><ul><li>Invitation to Tender </li></ul><ul><ul><li>Article - Notice of Invitation to Tender </li></ul></ul><ul><ul><li>Article - Pre-selection of Tenderers </li></ul></ul><ul><ul><li>Article - Direct Agreement Contracts </li></ul></ul>
  34. 34. Instructions <ul><li>Article - Performance Period </li></ul><ul><li>Article - Origin of Supplies </li></ul><ul><li>Article - Contents of the Tender </li></ul><ul><li>Article - How to Price the Tenders </li></ul><ul><li>Article - Tender Guarantee </li></ul><ul><li>Article - Currency of Tender </li></ul><ul><li>Article - Currency of Payment </li></ul><ul><li>Article - Variant Solutions </li></ul><ul><li>Article - Subject of the Contract and Contract Language </li></ul><ul><li>Article - Co-operation with Third Parties </li></ul><ul><li>Article - Training in Installation and After Sales Service </li></ul><ul><li>Article - Tender Validity Period </li></ul><ul><li>Article - Tendering Expenses </li></ul><ul><li>Article - Language </li></ul><ul><li>Article - Pricing of Tenders </li></ul><ul><li>Article - Period of Validity </li></ul><ul><li>Article - Pre-tender Visit </li></ul><ul><li>Article - Signing of Tenders </li></ul><ul><li>Article - Independence of Tenderers </li></ul><ul><li>Article - Variations in Quantities Ordered </li></ul><ul><li>Article - Performance Guarantee </li></ul><ul><li>Article - Number of Original and Copies and Signing of Tenders </li></ul>
  35. 35. Tender - Submission & Examination <ul><li>Submission </li></ul><ul><ul><li>Article - Closing Date for the Submission of Tenders </li></ul></ul><ul><ul><li>Article - Withdrawal and Amendments </li></ul></ul><ul><ul><li>Article - Formalities for Receipt of Tenders </li></ul></ul><ul><ul><li>Article - Time Limit </li></ul></ul><ul><ul><li>Article - Sealing and Marking of Envelopes </li></ul></ul><ul><li>Examination </li></ul><ul><ul><li>Article - Opening of Tenders </li></ul></ul><ul><ul><li>Article - Evaluation of Tenders </li></ul></ul><ul><ul><li>Article - Annulment of the Tender Procedure </li></ul></ul>
  36. 36. Award of Contract <ul><li>Article - Notification of the Award of Contract </li></ul><ul><li>Article - Signing of the Contract </li></ul><ul><li>Article - Communications to Unsuccessful Tenderers </li></ul><ul><li>Article - Selection </li></ul><ul><li>Article - Preparation of Contract Document </li></ul><ul><li>Article - Performance Guarantee </li></ul>
  37. 37. Contract Documents
  38. 38. Include Documents / Samples – viz., <ul><li>Technical Specifications </li></ul><ul><li>Applicable Legal & Fiscal Requirements </li></ul><ul><li>Appendix </li></ul><ul><ul><li>Model Tender Guarantee Form </li></ul></ul><ul><ul><li>Evaluation Criteria </li></ul></ul><ul><ul><li>Tenderer Qualification Form </li></ul></ul><ul><ul><li>Certificate of Ownership </li></ul></ul><ul><ul><li>Supply and Service Contracts </li></ul></ul><ul><ul><li>Financing Options </li></ul></ul><ul><ul><li>Tender Form </li></ul></ul><ul><ul><li>Special Conditions </li></ul></ul><ul><ul><li>Bank Guarantee </li></ul></ul>
  39. 39. <ul><li>“Those people who think they know everything are a great annoyance to those of us who do.” </li></ul><ul><li>- Isaac Asimov </li></ul>
  40. 40. <ul><li>Good Luck </li></ul><ul><li>http://www.linkedin.com/in/anandsubramaniam </li></ul>

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