Establishing, creating and organizing requirement of contract
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This document discusses establishing, creating, and organizing requirements for procurement. It explains that requirements consist of elements like terms, conditions, and technical specifications. Creating clear requirements is a collaborative process that involves users, technical experts, procurement staff, and sometimes suppliers or consultants. Requirements are documented in specifications, statements of work, and terms and conditions. The roles and responsibilities for developing requirements are also outlined.
Establishing, creating and organizing requirement of contract
- 1. IN THE NAME OF ALLAH THE MOST MERCIFUL AND COMPASSIONATE
- 2. LECTURE 4 Establishing, Creating and Organizing Requirement
- 3. ESTABLISHING, CREATING AND ORGANIZING REQUIREMENT ESTABLISHING REQUIREMENT Description of the organization’s detailed needs for any purchase consists of a number of elements, including terms and conditions, lead time, and technical requirements. In order for the organization’s procurement team to select the most appropriate source for any specific purchase or for any potential supplier to submit an accurate bid or proposal, these elements must be available for documentation.
- 4. ESTABLISHING, CREATING AND ORGANIZING REQUIREMENT CREATING AND ORGANIZING REQUIREMENT Specifications and subsequent changes for standard products and services are usually documented and filed by the Document Control section responsible for physically maintaining the organization’s specifications. When there are no formal processes within the organization for developing specifications, it is the responsibility of the requisitioner/user—the individual initiating the request—to supply sufficient information to the Procurement Department so that the correct product or service gets procured
- 5. ESTABLISHING, CREATING AND ORGANIZING REQUIREMENT ROLES AND RESPONSIBILITIES. The responsibility for creating and maintaining specifications generally resides with the user or the using department. For direct materials used in a manufacturing organization, that usually means an engineering group or research and development group closely associated with making the product being shipped to the organization’s final customer. In other cases, the department responsible for the budget is also responsible for the specifications. When a statement of work (SOW) for a service used by the entire organization is being purchased (e.g., travel, consulting services, or telecommunications), most commonly an administrative department, Finance, Human Resources, or Information Technology, will take responsibility.
- 6. ESTABLISHING, CREATING AND ORGANIZING REQUIREMENT PROJECT TEAM. The development of complex requirements often takes on a project-oriented nature, and a cross-functional team is chartered with the responsibility to define and document the organization’s specific need in that particular situation. This team is composed of technical experts, users, and, of course, the Procurement Department. On occasion, outside information sources may be required, and consultants may be engaged to assist the project team. Frequently, it is this team that actually makes the final supplier selection.
- 7. ESTABLISHING, CREATING AND ORGANIZING REQUIREMENT CUSTOMER INPUTS In situations where the components or service being performed are critical to the operations of the organization, customers may play an important role in the development of specifications. It is not uncommon in high-tech industries, for example, where speed of product development and time to market introduction can be critical for success, to have representatives of the organization’s final customer participating in the development of specifications. Occasionally, customers will actually determine the specifications themselves if they are felt to be critical.
- 8. ESTABLISHING, CREATING AND ORGANIZING REQUIREMENT OTHER INPUT Besides the internal user or engineer, the most common additional information detailing the specification or SOW comes from existing or potential supplier(s) of the item to be purchased. Based on the degree of collaboration,it is common to find suppliers participating actively in the development of specifications. While this may sound like a conflict of interest, the supplier is usually in the best position to help formulate requirements, especially where there is no internal core competency in a particular commodity area. This collaboration often leads to a more complete understanding of the user’s requirement on the part of the supplier and substantially lowers the risk of the user receiving inadequate product or service quality.
- 9. ESTABLISHING, CREATING AND ORGANIZING REQUIREMENT OTHER INPUT It is also not uncommon, as noted previously, for organizations to engage third-party consultants who are experts in a particular industry or commodity to assist with the development of requirements and the writing of the specification due to their unique domain knowledge, especially when there is insufficient expertise within the organization and where cost or overall risk is substantially high. In addition, there are many third-party organizations that provide industry standards for products or services in common use. Such standards exist for a large number of commodities— fasteners, lubricants, and grades of ore, to name a few— and can be used to speed the development process or align specifications
- 10. DEVELOPING SPECIFICATION AND FORMATS 1.SPECIFICATIONS 2. SOW. 3. TERMS AND CONDITIONS
- 11. SPECIFICATIONS AND FORMATS SPECIFICATIONS Certain measures of quality, such as the frequency or mean time between failure (MTBF) for equipment Allowable number of rejected Parts per million (PPM) for purchased parts, (1)Technical Specifications. Technical specifications describe the physical characteristics of the material or product being purchased, such as dimensions, grade of materials, physical properties, color, finish, and any other data that defines an acceptable product.
- 12. SPECIFICATIONS AND FORMATS (2)Functional Specifications. Terms of its actual role and what it is intended to do. Functional specifications. define the job to be done rather than the method by which it is to be accomplished. (3) Performance Specifications. While technical specifications define the product’s physical characteristics, and functional specifications describe what role the product plays, neither describes just how well the product must perform. This is the purpose of a performance specification, which describes the parameters of actual performance the item or service must meet. With a performance specification, you are primarily interested in results rather than in method.
- 13. SPECIFICATIONS AND FORMATS (4) Standards. Using pre established standards is another way of describing specifications or supplementing the description when that is appropriate. Liter-ally dozens of organizations provide published standards available for general use. (5) Benchmarking. In its simplest form, a benchmark provides a measurement as a guide for establishing a specific requirement. However, bench marking can also be a detailed process for determining how one organization is performing in relation to other organizations.
- 14. SPECIFICATIONS AND FORMATS (6) Quality Control. Most people readily agree that quality is less costly when controlled within the initial process itself rather than through some form of inspection at a stage following manufacture or shipping. Prevention is less expensive than finding a full-blown cure. Methods of quality control typically include automated controls to measure compliance to specification and site inspection at the point of manufacture where corrections can be made. statistical process control (SPC). This process relies on a variety of data collection and measurement
- 15. SOW STATEMENT OF WORK. A statement of work (SOW) outlines the requirements for a purchase of services rather than a product. Nevertheless, like a specification, it defines exactly what is needed in enough detail so that disputes will be avoided when it comes time for payment for the services performed. All SOWs, whether simple or highly complex, usually contain a number of common elements. They often include: (i) Description of the Work to Be Performed. This is often task oriented and provided in sequential terms following some logical, defined process of workflow. For example: Generate a detailed design for the lab work area.
- 16. SOW List all work to be performed by the nature of the subcontract required. Submit work specification to at least three applicable subcontractors for each major trade. (ii) Timeline. Each section of the work must be completed within a specific time. The timeline details the expected completion times of each element in the workflow and ensures that the project finishes on time. Often, the timeline specifies the points at which approval is required before proceeding further to ensure that requirements for one section are met before proceeding on to another. Timeline approval points may also trigger payment to the suppler for acceptable work performed.
- 17. SOW (iii) Performance. The SOW must clearly define the parameters for acceptable quality and performance and the metrics by which they will be determined. Subjective terms such as “good” or “best” should be avoided whenever possible and replaced with more objective measurements such as “100 percent” or “within two hours of notification” so that it is clear to both parties if (or when) the requirements have been met. Statement of work and scope of work are interchangeable terms.
- 18. TERMS AND CONDITIONS TERMS AND CONDITIONS. As an adjunct to both specifications and statements of work, terms and conditions, define the contractual obligations of the supplier and the procurement organization. To the extent that your organization’s standard terms and conditions will be included in all solicitations for quotations, they should be considered an integral part of the specifications. While terms and conditions naturally vary from organization to organization each generally uses a set of standard terms and conditions for purchase requirements, modified from time to time by terms and conditions tailored specifically for a given purchase.
- 19. TERMS AND CONDITIONS Standard terms and conditions usually include sections covering warranties, liability, indemnity, payment terms, legal jurisdiction, contingencies, cancellation, shipping requirements, and inspection. Terms that are customized for a particular purchase and tend to apply uniquely to that specific purpose may include such provisions as installation, acceptance criteria, training, and timelines. For example, you might have a description in the PO such as “Valve, pneumatic as described in the attached specification.” The following additional terms and conditions may apply: Approval by Robert Johnson required prior to payment. Delivery no later than July 23. Call 24 hours before delivery: (234) 555–1212
- 20. SPECIFICATION TRAPS SPECIFICATION TRAPS This trap arises from the mistaken assumption that the product being purchased must be customized to conform to user requirements. Customization typically adds cost, so the purchaser is well advised to investigate if this is truly required. The term standardization also refers to the methods used to reduce or eliminate custom, one-time, and seldom-used components and processes that introduce variability and can potentially create added cost and quality problems.
- 21. SPECIFICATION TRAPS SPECIFICATION TRAPS (i) Disregarding Performance Requirements. Specifications unnecessarily stricter than actual performance would require simply add cost without adding benefits. They may also eliminate potential suppliers who are unable to perform to the higher requirements and thus eliminate price-reducing competition. Conversely, specifications that are too open or loose, or with important details missing, tend to invite unacceptable quality and can create costly mistakes. The supplier can provide a product or material that meets specification precisely but will not perform in its intended function.
- 22. SPECIFICATION TRAPS SPECIFICATION TRAPS Often, a supplier will “low-ball” an initial bid, purposely bidding well below market price to buy the business knowing that a change order request will follow. Having already received the contract, the supplier is then relatively free to charge any amount it wishes and thus recover its loss on the initial bid.
- 23. SPECIFICATION TRAPS (ii) Brand Name. Specifying a brand name limits competition and thus increases the likelihood of higher prices. Brand names may or may not improve the chances of receiving better quality; nevertheless, they typically cost more as a result of higher advertising costs to create the brand name in the first place and because of the perception that users have that substitutes will not perform as well. One way to avoid this trap is to specify the brand name and include the verbiage “or equivalent” to allow for greater competition. This means that any product meeting the same specifications as the brand name will be acceptable to the purchaser.