Hidden Opportunities The Statement of Work Four Formats for Statements of Work Planning the Statement of Work Writing the Statement of Work Artificial Intelligence Tips on Writing an Effective S.O.W. Selecting Service Contractors Tips from a Professional The Ideal Services Supplier Pricing Service Contracts Professional Services Technical Services Operating Services Third Party Contracts So, Your Services Contract is About to Expire Contract Administration Services Purchases and the Internet Construction Services Conventional Method Design and Build, Agreed Price Method Design and Build, Cost-Reimbursable Method Building Team The Owner as a Contractor Construction Purchasing Entails Unique Problems Performance Contracting

1. Chapter 9
Purchasing Services
9-1

2. Key Concepts
• Hidden Opportunities
• The Statement of Work
» Four Formats for Statements of Work
» Planning the Statement of Work
» Writing the Statement of Work
» Artificial Intelligence
» Tips on Writing an Effective S.O.W.
• Selecting Service Contractors
» Tips from a Professional
» The Ideal Services Supplier
9-2

3. Key Concepts
• Pricing Service Contracts
» Professional Services
» Technical Services
» Operating Services
» Third Party Contracts
» So, Your Services Contract is About to Expire
• Contract Administration
• Services Purchases and the Internet
9-3

4. Key Concepts
• Construction Services
» Conventional Method
» Design and Build, Agreed Price Method
» Design and Build, Cost-Reimbursable Method
» Building Team
» The Owner as a Contractor
» Construction Purchasing Entails Unique
Problems
» Performance Contracting
9-4

5. Hidden Opportunities at Polaroid
• Print ad production
• Financial auditors
• General consultants
• Training courses
• Computer consultants
• Per diem help
• Computer network
management
• Placement agencies
• Design of exterior of
products
• Technical consultants
• Television ad production
• Spot TV and radio time
• Outplacement agencies
• Telephone customer
service
• Training consultants
• Annual reports
• Network TV time
• Logistics and inventory
control
• Market research
9-5

6. The Statement of Work
• Four Formats for Statements of Work
• Planning the Statement of Work
• Writing the Statement of Work
• Artificial Intelligence
• Tips on Writing an Effective S.O.W.
9-6

7. Four Formats for Statements of Work
• Performance S.O.W., which details
everything wanted by the buyer.
• Functional S.O.W., which defines what the
buyer is “trying to do,”
• Design S.O.W., which is the most detailed
type of statement of work
• Level-of-Effort S.O.W., which is a
specialized version of the performance
statement of work
9-7

8. Planning the Statement of Work
1. Description of the work
2. Schedule
3. Specifications and requirements
4. Quality requirements
5. Performance measurements
6. Deliverables
7. Delivery and performance schedule
8. Service levels
9. Changes and modifications
10. Bonds
9-8

9. Planning the Statement of Work
11. Charges and costs
12. Project management
13. Reporting requirements
14. Safety
15. Supplier responsibilities
16. Buyer responsibilities
17. Work approvals
18. Use of subcontractors
19. Authorized personnel
20. Exhibits, schedules, and attachments
9-9

10. Writing the Statement of Work
• A performance plan.
• Quality monitoring system.
• Personnel plan.
• Performance and payment bonds.
• Metrics.
• Progress reviews.
9-10

11. Tips on Writing an Effective S.O.W.
• Be clear
• Use active, not passive tenses.
• Be precise
• Spell out the buyer’s obligations carefully.
• Limit abbreviations to those in common
usage and spell them out in the first usage
• Include procedures.
• Do not over specify or overstate.
9-11

12. Tips on Writing an Effective S.O.W.
• Eliminate extraneous statements.
• Include all relevant reference documents.
• Don’t mix general/background
information, guidance and specific
direction/requirements.
• Don’t sole source the work statement
unless competition isn’t desired.
• Describe requirements in sufficient detail
to assure clarity
9-12

13. Tips on Writing an Effective S.O.W.
• Be aware that contingent actions may
have an impact on price as well as
schedule.
• Provide a ceiling on the extent of services,
or work out a procedure that will ensure
adequate control, where appropriate
• Avoid incorporating extraneous material
and requirements which may add
unnecessary cost.
• Don’t repeat detailed requirements or
specifications
9-13

14. Tips on Writing an Effective S.O.W.
• Explain the interrelationship between
tasks
• Identify all constraints and limitations.
• Include standards that will make
performance measurement possible and
meaningful.
• Be clear about phase requirements
• Proofread for errors and omissions
9-14

15. Selecting Service Contractors
• Total Costs for the Construction Project
Firm X Firm Y
Construction cost $10,000,000 $11,000,000
Design fee 739,200 660,000
Total Cost $10,739,200 $11,660,000
Table 9-1
9-15

16. Tips from a Professional
• Partner with users.
• Learn from the past.
• Update specifications.
• Minimize assumptions.
• Encourage questions
• Facilitate comparison.
• Plan evaluation.
• Reduce surprises.
• Check yourself.
9-16

17. The Ideal Services Supplier
• The ideal services supplier listens to what
users complain about most and then
designs service products that supply the
market's missing ingredients.
• Satisfaction is built into service products
rather than added as an afterthought.
9-17

18. Pricing Service Contracts
• Professional Services
• Technical Services
• Operating Services
• Third Party Contracts
• So, Your Services Contract is About to
Expire
9-18

19. Contract Administration
• Sound S.O.W.
• Selection of the "right" source
• Fair and reasonable price
• Aggressive management of the contract
9-19

20. Services Purchases and the Internet
• The Internet will allow purchasing firms to
obtain increased competition and lower
prices for some services
• Electronic marketplaces can provide a
directory of services suppliers and
frequently can provide the role of
matchmaker
• Leading firms use the prospect of
incorporating the Internet as a stimulus to
optimize their services supply chains
9-20

21. Pricing Service Contracts
Pricing is constrained by three factors:
1. A continuing or cumulative supply is absent
2. Interchangeable services generally are not
available
3. Supply of services can become easily
restricted
Conclusion: negotiation is usually best
9-21

22. Some Pricing Issues
• For smaller dollar amounts, a time and
materials or labor-hour contract should be
considered
• Fixed price contracts reward suppliers for
their cost control
• Cost-type contracts should be considered
when there is significant uncertainty
9-22

23. Four Keys to Successful
Service Contract Administration
• A sound S.O.W.
• Selection of the “right” source
• A fair and reasonable price
• Aggressive management of the contract
9-23

24. Alternative Methods of Purchasing Construction
Figure 9-1, Upper Half
9-24

25. Alternative Methods of Purchasing Construction
Figure 9-1
Lower Half
9-25

26. Construction Services
• Conventional Method
• Design and Build, Agreed Price Method
• Design and Build, Cost-Reimbursable
Method
• Building Team
• The Owner as a Contractor
• Construction Purchasing Entails Unique
Problems
• Performance Contracting
9-26

27. Price of a Hypothetical Building Under Five
Compensation Methods
Method A&E Fee
Construction
Contract(s)
Total
Time
(months)
Conventional $740,000 $12,300,000
$13,040,00
0
16
D&B (Firm agreed
Price)
-- 9,750,000 9,750,000 11.5
D&B (Cost
Reimbursable)
-- 11,830,000 11,830,000 12
Building Team 670,000 11,160,000 11,830,000
12
Owner as his Own
General
600,000 11,800,000 12,400,000
15.5
Table 9-2
9-27

28. Concluding Remarks
• The procurement of services is one of
supply management’s most interesting
and challenging assignments
• Supply Management frequently must
assume a far more active role in all phases
of a services procurement than when
purchasing materials.
9-28