# Project & Contract Management Basics # By SN Panigrahi
- 2. 2 SN Panigrahi is a Versatile Practitioner, Strategist, Energetic Coach, Learning Enabler & Public Speaker. He is an International-Corporate Trainer, Mentor & Author He has diverse experience and expertise in Project Management, Contract Management, Supply Chain Management, Procurement, Strategic Sourcing, Global Sourcing, Logistics, Exports & Imports, Indirect Taxes – GST etc. He had done more than 150 Workshops on above Published more than 500 Articles; More than 60 Youtube Presentations He is an Engineer + MBA +PGD ISO 9000 / TQM with around 29 Yrs of Experience He is a certified PMP® from PMI (USA) and become PMI India Champion Also a Certified Lean Six Sigma Green Belt from Exemplar Global Trained in COD for 31/2 Yrs. on Strategy & Leadership GST Certified – MSME – Tech. Dev. Centre (Govt of India) ZED Consultant – Certified by QCI – MSME (Govt of India) Member Board of Studies, IIMM Co-Chairman, Indirect Tax Committee, FTAPCCI Empanelled Faculty in NI MSME He has shared his domain expertise in various forums as a speaker & presented a number of papers in various national and international public forums and received a number of awards for his writings and contribution to business thoughts. SN Panigrahi 9652571117 snpanigrahi1963@gmail.com Hyderabad
- 4. 4 Maintenance project is like repairing an existing building Development project is like building a house as per need of the customer Conversion project is like changing an existing feature e.g. moving to tiled flooring Enhancement project is like extension of an existing building Package Implementation project resembles purchase of ready-made apartments with limited customization.
- 5. 5 Project Initiation Project management is the practice of initiating, planning, executing, controlling, and closing the work of a team to achieve specific goals and meet specific success criteria at the specified time SN Panigrahi
- 6. SN Panigrahi 6 A project may be a set of interrelated tasks to be executed over a fixed period and within certain cost, time and other limitations. Successful Completion - critical issue in all types of Projects : - software, infrastructure and other time bound projects. A Project is a planned set of activities A Project has a Scope A Project has Time, Cost, Quality and Resource Constraints •Time and Cost overruns are the norm not Exception •Cost Escalation has been a prime cause of concern for the exchequer.
- 7. SN Panigrahi 7 As per PMI (6th Edition) : Project is a temporary endeavor to achieve defined objectives by creating a unique product, service, result or outcome with a definite start and end date. A project can be defined as a temporary endeavor undertaken to create a unique product or service. Projects are different from other ongoing operations in an organization, because unlike operations, projects have a definite beginning and an end - they have a limited duration. Projects are critical to the realization of performing organization's business strategy because projects are a means by which the strategy of the company is implemented.
- 8. 8 1. Every project creates a unique product, service, result or outcome 2. The outcome of the project may be Tangible or Intangible 3. A project can create a product that can be a component of another item, an enhancement of an item, or an end item itself; a service or a capability to perform a service; an improvement in the existing product or service line; a result such an outcome or document. 4. Temporary doesn’t mean shorter duration of the project it refers to the project’s engagement having a definite beginning and end 5. A project may involve a single person or multiple persons; a single organization or multiple organizations 6. Operations are on-going and repetitive process(es) or series of acts involved in a particular form of work of transforming resources (inputs) into output – Eg : Operations includes all the normal business functions like Production operations, accounting operations, administrative functions manufacturing a product etc. Project Basic Concepts SN Panigrahi
- 9. SN Panigrahi 9 When is a Project SUCCESSFUL ? On Time Within Budget Meets the Requirements Meets Quality Reduces Risk
- 11. 11 Constructing a building or facility or industrial plant or infrastructure Developing a new product or service Business takeovers & acquisitions Effecting a change in structure, staffing or style of an organization Designing a new transportation vehicle Developing or acquiring a new or modified information system Creating a new piece of software or Upgrade of software Designing a new network infrastructure or Installing new workstations Implementing a new business procedure or process Organizing a Conference; Birth Day Party; Marriage celebration; Holiday trip Organizing a workshop for imparting knowledge. Events like organizing Yoga Divas on 21st June, NATCOM by IIMM, management of PMI India National Conference, organizing IPL cricket match, India's mission Chnadrayan - 2, shooting a film, marriage ceremony, honeymoon trip, birthday party, family vacation, construction / renovation of a house etc all are temporary in nature, having a defined start and end date, involving a set of activities, using a defined set of resources (like people, equipment, material or money) to pursue a defined goal bringing in a unique outcome or result, thus called a project. Projects scope broadly covers a wide range and areas in business as well as social life. Projects may involve creation of new product, new process, new assets, or results of execution of strategic initiatives, development of technology, process improvements etc. Every project creates a unique product, service, result or outcome. SN Panigrahi
- 12. 12 Project Characteristics Has a Lifecycle (phases) Approved Budget Limited Resources Definable Tasks (Scope) Time, Cost, Quality and Resource Constraints Specific Objectives / Deliverables Have a Defined Timescale (specified start and end date) Unique Set of Activities (do not involve repetitive processes) Involve an Element of Risk Achieve Beneficial Change / enables Business Value Creation SN Panigrahi • Projects are Temporary in nature and have a Definite Beginning and End
- 13. 13 Project Operation Nature Temporary On-Going & Continuous Purpose Introduce Positive Change Sustain Business To keep the Organization Functioning Output Unique Repetitive •At the completion of a project, the end product (or result) may get turned over to the organization‟s operational areas for ongoing care and maintenance. •Project can intersect with operations at various points during the project life cycle, such as At each closeout phase When developing a new product, upgrading a product, expanding output While improving operations Until the end of product lifecycle SN Panigrahi
- 14. 14 Project management is the discipline of initiating, planning, executing, controlling, and closing the work of a team to achieve specific goals and meet specific success criteria. It is the application of knowledge, skills, tools, and techniques to project activities to meet the project requirements. The major objectives that must be met include performance, cost, and time goals, while at the same time you control or maintain the scope of the project at the correct level.
- 15. 15NTI – SN Panigrahi
- 16. SN Panigrahi 16 S • Specific • Avoid being vague and general.. Does the goal support the strategy of the organization? If the project goals are achieved, will the organization make significant progress towards the company's mission, vision, values, and corporate goals? M • Measurable • Can the goal be measured in terms of cost, quality, quantity, and timeliness? A • Attainable • Has the team worked together to define the goal? Can everyone support the goal & its Achievable R • Relevant & Realistic • Whether Goals are Relevant & Realistic? Don't fall for the fallacy of stretch goals. Make sure the goals are relevant or results-oriented. T • Time Bound • All goals should have a deadline. This adds a sense of urgency and keeps the team focused. SN Panigrahi
- 17. 17 The three most significant project constraints -- schedule, cost and scope -- are sometimes known as the triple constraint or the project management triangle. Additionally Three more Constraints are Added : Quality, Risk & Resources. SN Panigrahi
- 18. INITIATING Develop Project Charter with Defined Objectives PLANNING Develop Detailed Project Plan EXECUTING Directing and Managing Project Execution MONITORING & CONTROLLING Measuring & Taking Corrective Measures CLOSING Complete Formalities, Contract Closure, Archive Documents SN Panigrahi
- 19. • Combine, Unify and Coordinate the various project management activities within the five process groups. Integration Processes • Ensure the project includes all the work required, and only the work required, to complete the project successfully Scope Processes • Manage the Timely Completion of the Project Schedule Processes • Plan, Estimate, Fund, Manage, and Control costs so the project can be completed within the approved budget Cost Processes • Incorporating the organization’s quality policy regarding planning, managing and controlling project and product quality requirements in order to meet stakeholders’ expectations. Quality Processes • Identify, acquire, and manage the resources needed for the successfully completion of the project. Resource Processes • Required to ensure the planning, creation, distribution, control and monitoring of project information's Communications Processes • Planning risk management, the identification, analysis, and monitoring of risks on a project, and the implementation of risk responses. Risk Processes • Necessary to purchase or acquire products, services, or results needed from outside the project team. Procurement Processes • Required to identify stakeholders, to analyze their expectations and impact on the project, and to develop management strategies for effectively engaging stakeholders in decisions that affect the project. Stakeholder Processes SNPanigrahi
- 20. 20 Process Groups No. of Processess 5th Edition 6th Edition Initiating Process Groups 2 2 Planning Process Groups 24 24 Executing Process Groups 8 10 Monitoring & Controlling Process Groups 11 12 Closing Process Groups 2 1 Total 47 49 SN Panigrahi
- 21. 21 Knowledge Areas Initiating Process Group Planning Process Group Executing Process Group Monitoring & Controlling Process Group Closing Process Group 4. Project Integration Management 4.1 Develop Project Charter 4.2 Develop Project Management Plan 3.Direct and Manage Project Work 4.Manage Project Knowledge 5.Monitor and Control Project Work 6.Perform Integrated Change Control 4.7 Close Project or Phase 5. Project Scope Management 1. Plan Scope Management 2. Collect Requirements 3. Define Scope 4. Create WBS 5. Validate Scope 6. Control Scope 6. Project Schedule Management 1. Plan Schedule Management 2. Define Activities 3. Sequence Activities 4. Estimate Activity Durations 5. Develop Schedule 6.6 Control Schedule 7. Project Cost Management 1. Plan Cost Management 2. Estimate Costs 3. Determine Budget 7.4 Control Costs 8. Project Quality Management 8.1 Plan Quality Management 8.2 8.3 Control Quality 9. Project Resource Management 1. Plan Resource Management 2. Estimate Activity Resources 3. Acquire Resources 4. Develop Team 5. Manage Team 9.6 Control Resources 10. Project Communications Management 10.1 Plan Communications Management 10.2 Manage Communications 10.3 Monitor Communications 11. Project Risk Management 1.Plan Risk Management 2.Identify Risks 3.Perform Qualitative Risk Analysis 4.Perform Quantitative Risk Analysis 5.Plan Risk Responses 11.6 Implement Risk Responses 11.7 Monitor Risks 12. Project Procurement Management 12.1 Plan Procurement Management 12.2 Conduct Procurements 12.3 Control Procurements 13. Project Stakeholder Management 13.1 Identify Stakeholders 13.2 Plan Stakeholder Management 13.3 Manage Stakeholder Engagement 13.4 Monitor Stakeholder Engagement ITTO
- 22. Exercise 1 • Write down three attributes of a good Project Manager
- 23. 23 Responsible for Accomplishing Project Objectives and managing stakeholders‟ Expectations Works to Balance the Competing Constraints on the project with the resources available The project manager must Define the Project, reduce it to a set of Manageable Tasks, obtain appropriate Resources and build a Team to perform the work. The project manager must set the final goal for the project and Motivate his / her Team to complete the project on time. The project manager must Inform all Concerned Stakeholders of Progress on a regular basis. The project manager must Assess and Monitor Risks to the project and Mitigate them. No project ever goes exactly as planned, so project managers must learn to Adapt to and Manage Change. SN Panigrahi
- 24. 24 TOP 10 QUALITIES OF A PROJECT MANAGER QUALITIES OF A PROJECT MANAGER VISION COMMUNICATION INTEGRITY ENTHUSIASM /PASSION EMPATHY /COMPASSION COMPETENCE DELEGATION COMPOSURE TEAM BUILDING PROBLEM SOLVING SN Panigrahi Click
- 25. 25 Project Integration Management NTI – SN Panigrahi
- 26. 26 Formally Authorizes the Project Manager to Start the Project Includes the business case explaining why the project is necessary Define the High-Level Scope Includes High-Level Budget Includes Key Stakeholders Includes Preliminary Risk Register Signed off by the Project Sponsor Project Charter •The project charter is NOT a Contract •Project Management Office (PMO) can provide expert judgement on how to structure the project charter SN Panigrahi
- 27. 27 Purpose of Project Management Plan (PMP) Provide a Comprehensive Baseline of what has to be achieved by the project How it is to be Achieved Who will be Involved How it will be Measured & Reported & How information will be Communicated Used as a Reference for any Decision & for Clarification of unclear areas Used as a Reference throughout the project to ensure that the management of the project is carried out consistently and in line with policy and procedures Purpose of Project Management Plan (PMP) SN Panigrahi
- 28. 28 Project Scope Management SN Panigrahi
- 29. 29 Project Time Management SN Panigrahi
- 30. 30 Project Cost Management SN Panigrahi
- 31. 31 Project Quality Management SN Panigrahi
- 32. 32 Project Human Resources Management
- 33. 33 Project Communication Management SN Panigrahi
- 34. 34 Project Risk Management SN Panigrahi
- 35. 35 Project Procurement Management SN Panigrahi
- 36. 36 Project Stakeholder Management SN Panigrahi
- 37. A project milestone is a task of zero duration that shows Significant Achievement along a project timeline. The milestones should represent a clear sequence of events that incrementally build up until your project is complete. ... They have zero duration because they symbolize an achievement, or a point of time in a project. Project Milestones are the most visible Indicators of Project Progress. Milestones typically Mark Critical Decision Points, the completion of major project tasks and the ends of various project phases. Research Deliverable - 1 Approval Deliverable - 2 Manufacturin g Deliverable -3 Market Launch Deliverable - 4 Milestone -1 Successful Trial Milestone -2 Marketing Authorization Milestone -3 Products Ready for Marketing Time Lines Total Project Schedule Clinical Trial Applications Start Manufacturing File IP (Patents) Start of Marketing Milestone -4 Launch in New Markets Milestone Example: Pharmaceutical SN Panigrah
- 38. 38 Project Design Deliverable - 2 Financing Deliverable - 3 Placing Contracts Deliverable - 4 Project Execution Deliverable - 5 Milestone -2 Project Design Ready by 30th Sep Milestone - 3 Availability of Funds By 2nd Oct Time Lines Total Project Schedule Example: Common Facility Center (CFC) Project Project Handover Deliverable - 6 Project Planning Deliverable - 1 Milestone - 4 Contract Finalization By 1st Nov Milestone - 5 Project Work Completion 15th Jan Milestone - 6 Project Handover to Customer By 26th Jan Milestone - 1 Overall Project Milestones, Timelines, Budgets etc Finalized By 15th Sep SN Panigrahi Starting of the Project 15th Aug End of the Project 26th Jan
- 39. 39 A deliverable is a Quantifiable tangible or intangible good or service produced as a result of a project or part of a project that is intended to be delivered to a customer (either internal or external). A deliverable could be a Product, a Part, a Report, a Document, a Software Product, a Server upgrade or any other building block of an overall project. A work breakdown structure is based on these deliverables. Deliverable Deliverable Quantifiable Results Tangible or Intangible To be Delivered To a Customer SN Panigrahi
- 40. A work breakdown structure (WBS) is a key project deliverable that organizes the team's work into manageable sections. The Project Management Body of Knowledge (PMBOK) defines the work breakdown structure as a "deliverable oriented hierarchical decomposition of the work to be executed by the project team.“ It is common practice for work breakdown structure elements to be numbered sequentially to reveal the hierarchical structure. The purpose for the numbering is to provide a consistent approach to identifying and managing the WBS across like areas regardless of supplier or trade WBS Coding System Defines: Levels and elements of the WBS Organization elements Work packages Budget and cost information Allows reports to be consolidated at any level in the organization structure The most commonly used scheme in practice is numeric indention. SN Panigrahi
- 41. SN Panigrahi 41 Drawing 5.1 Marking of Layout 5.2 Ground Levelling 5.3 Foundation 5.4 Column Casting 5.5 Construction of Walls 5.6 Roofing 5.7 M & E Works Miscellaneous Works 5.8 Compacting the Ground 5.4.1 PCC 5.4,2 Footing Reinforcement 5.4.3 Shuttering 5.4.4 Footing Concrete 5.4.5 Conceptualization of Project 1.0 Design 2.0 Bidding & Contracting 3.0 Procurement 4.0 Construction 5.0 Closure 6.0 Common Facility Centre (CFC) Level 0 Broad Project Level 1 Control Account Level 2 Major Planning Packages Level 3 Work Packages
- 42. level 0 level 1 level 2 level 3 level 4 level 5 WBS - Example GAS-STEAM COMBINED POWER PLANT MAIN FUNCTIONS OF PLANT (Control Accounts) Planning Packages GAS – 1.0 INTERFACES – 3.0STEAM – 2.0 TURBINE – 1.1 COMPRESSION STATION – 1.3GENERATOR- 1.2 COMPRESSORS-1.3.1 ENCLOSURE-1.3.3GAS TREATMENT-1.3.2 WORK PACKAGES Major Planning Packages COMPRESSOR 1 1.3.1.1 FOUNDATIONS 1.3.1.3 COMPRESSOR 2 1.3.1.2 DESIGN 1.3.1.2.1 INSTALLATION 1.3.1.2.3 PROCUREMENT 1.3.1.2.2
- 43. SN Panigrahi 43 Tendering & Contract Management
- 44. 44 Contracts are essential part of every business – small or medium or big; private or public or Government – it is ubiquitous; no business is virtually possible without contracts. Contracts are important means for achieving goals to acquire resources – goods and services at competitive prices, of right quantity and quality, delivered timely by sourcing from reliable supplier(s). Contracts help define the scope of services and the deliverables of a product. They help define expectations and obligations Well defined expectations and obligations are imperative to meet desired objectives and maintain good relationships Written contracts mitigate ambiguities and misunderstandings - Reduce risks. ALL TRANSACTIONS IN THE BUSINESS WORLD INVOLVE CONTRACTS
- 45. 45 Service Contract : Consultancy Services / Maintenance Contract / Vehicle Engagement Sales Contract : A contract between a company (the Seller) and a Customer Purchasing Contract : A contract between your company (the Buyer) and a Supplier Partnership Agreement : A contract, which formally establishes the terms of a partnership between two legal entities Lease Agreement : Generally an agreement related to rights to enjoy property Employment Agreement : Contract between Employer & Employee Works Contract - Consultancy Contract - Rate Contract etc…. etc….. Common commercial contracts include Employment Letters, Sales Contract, Purchase Orders, and Utility Service Agreements etc. Complex contracts are often necessary for construction projects, goods or services that are highly regulated, goods or services with detailed technical specifications, intellectual property (IP) agreements, and International Trade etc. Contracts Examples
- 46. Definition of Contract 46 A Contract is an agreement enforceable by law with specific terms between two or more persons or entities in which there is a promise which creates obligations to do or not to do something in return for a valuable benefit known as consideration. As per Clause 2(h) of The Indian Contract Act, 1872, “An agreement enforceable by law is a Contract”
- 47. 47 Advantages Contract Help Define Scope & Deliverables Help Expectations & Obligations Mitigate Ambiguities & Uncertainties - Risks Clarity on Terms
- 48. 48 CONTRACT AGREEMENT (meeting of the minds ) + = ENFORCEABLE BY LAW Competent To Contract Free Consent Lawful Object Lawful Consideration Not Void PROMISOR / OFFEROR / SELLER PROMISEE / OFFEREE / BUYER PROMISE / OFFER ACCEPTANCE Mutuality of Obligation LEGAL OBLIGATIONS LegalRelationship LegalRelationship Acknowledgment
- 49. SN Panigrahi 49 a) a Promise / an Offer; b) an Acceptance of that offer which results in a meeting of the minds (agreement); c) a Promise to Perform (Mutuality of Obligation); d) a Valuable Consideration (which can be a promise or payment in some form); e) a time or event when Performance must be made (meet commitments); f) Definite Terms : Terms of the contract are reasonably certain; g) Capacity : The parties must have competency and capacity in order to create a binding contract. h) a written Instrument. i) Legal Purpose: A contract must be for a legal purpose in order to be binding j) Performance (as per agreement). Some of the Features of a Contract
- 50. Essentials Elements of a Valid Contract 1. Agreement. 2. Enforceability by law. 3. At least 2 parties. 4. Proposal. 5. Acceptance. . 50 6. Intention to legal relations. 7. Free consent. 8. Contractual capacity. 9. Consideration. 10. Lawful objects. 11. Possibility of performance.
- 51. 51 • of the Age of Majority (above 18 yrs of age) • Of Sound Mind • Not Disqualified by any Law Competent • Free from Coercion, Undue Influence • Fraud, Misrepresentation or Mistake Free Consent • Not Forbidden by law or Fraudulent • Would not Defeat the provisions of any laws • Involves or implies injury to the person or property of another • Immoral or opposed to public policy Lawful Object • Not Unlawful • Void agreements are not contractsNot Void Contract : Explanation
- 52. 52 • Promise for a Promise - exchange of mutual promises • A value that can be objectively determined • Lawful consideration and with a lawful object. • An agreement without consideration is void Consideration • Performance of contract' means fulfillment of the obligations by the parties. The parties who make the contract must fulfill their obligations according to the terms laid down in the contract Performance • In order to form a legally binding contract, the offer must contain definite and certain terms – that means capable of readily understanding the terms. Definite Terms • A valid contract must be capable of being performed, An agreement to do an impossible act is void. If the act is legally or physically impossible to perform, the agreement cannot be enforced by law. Possibility of Performance Contract : Explanation
- 53. What is Contract Management? 53 Contract management is the process of managing contract creation, execution and analysis to maximize operational and financial performance at an organization, all while reducing financial risk. Contract management is the process which ensures all parties to a contract fully meet their obligations, in order to satisfy the operational objectives of the contract and the strategic business goals of the customer. It also involves building a good working relationship between customer and provider. It continues throughout the life of a contract and involves managing proactively to anticipate future needs as well as reacting to situations that arise.
- 54. SN Panigrahi 54 Through successful contract management organisations can create and enhance value into the business, increase controls and information system, increase effectiveness and minimise costs, risks and also provide strategic and competitive advantages. Why Contract Management Strategic Alignment and Streamlining of Operations Gaining Competitive Advantage Better Performance Management Better Compliance & Risk Mitigation Improved Reporting Benefits Give clear and Documented Records Manage and Control Change Better Business Relationships Improved Financial Management Anticipate any Problems
- 56. Phases of the Contracting Process 56 Contract Closure / Feedback Administration Ensuring that the contractor adheres to the terms and conditions of the contract, monitoring contractor performance, processing and paying invoices, executing modifications, handling claims, and closing out the contract. AwardMaking the best value decision for the award, obtaining all pre-award approvals, executing the contract with the successful offeror, notifying the unsuccessful offerors, and conducting debriefings. Evaluation Evaluating the technical and price proposals submitted by the offerors. The proposals must be responsive to the solicitation package. Solicitation Identifying prospective service providers, distributing the solicitation package, and receiving proposals. Pre-Solicitation Identifying the requirement, performing market research, and preparing the statement of work and solicitation package.
- 57. 57 Identify Needs Write Specifications Raise Purch. Requisition Selection of a Procurement Method Verification & Study By Purch. Dept. Cost / Budget Check & Scrutiny PR Approval Vendors Selection & Bid Notification / RFQ Quotes Receipt and Opening Award Contract/POProposal Approval Evaluation Review By Contracts Committee Negotiations CONTRACT ------- --------- ------- ------ ----- -- --- ------ ------- ------ ------- - -------- ------ ABCD ------ ------ ---- ---- ----------- -------- ------- ----- ------- ----- ------- -12345 --- ----- --- ---- ----- ------- ----- ---- ------ ----- ------ ------ ------ XYZ SIGNATURE VENDOR Material DeliveryMaterial Receipt & InspectionPayment ` PROCUREMENT PROCESS & CYCLE
- 58. SN Panigrahi 58 ContractAdministration Contract Maintenance Monitoring & Reporting Payment & Budget Control Change Control Monitoring : Performance & Risk -Reporting (Hard factual) – Format -Content-Frequency - Channels Key Performance Indicators - Conducting Contract milestone reviews - Exceptions Payment mechanism- Monthly monitoring-Reconciliation- Budget –commitment- Cash Flow Planning for the long term Flexibility for changes within set parameters without changing the documentation Change protocol – Authorization – Documentation – Record Keeping Performance : Implementation- Control - Monitoring – SQSC; Resource management and planning Contract Documentation : Common Data Bank - kept up to date – Operating from common point -All parties working from the same documents - Communication; Relationships CONTRACT ADMINISTRATION
- 59. SN Panigrahi 59 SCOPE SCHEDULE COST Justification - Scope and the Specifications - Service / Performance level - Flexibility especially in early stages of long term contracts Time Targets – duration- Breakup of schedule of deliveries Value for money; Price to be paid – CTC – Against Budget – Outflow – Schedules; Savings in cost & overrun - Revenue maximization - leakages MANAGING : SQSC QUALITY Set out clearly the expected Performance and Quality - metrics– quality level & measurement; Improvements above baseline ; Responsibility : both mutual and individual
- 60. Firm Fixed Price (FFP) or Lump Sum Contract Fixed Price Plus Incentive Fee (FPIF) Fixed Price Time & Material Fixed Price with Economic Price Adjustment (FP/EPA) Fixed Price with Re-determination (FP/RD) Cost Reimbursable Cost Reimbursement (CR) or Cost Plus Fixed Fee (CPFF) Cost Plus Incentive Fee (CPIF) Cost Plus Award Fee (CPAF) Cost Plus Percentage of Cost (CPPC) Types of Contracts
- 61. Fixed Price Contracts 61 Fixed Price Firm Fixed Price Contracts (FFP): The price is fixed firm. Most commonly used contract type. Favored by buyer if the scope is very Clear. Low Risk to Buyer: High Risk to Seller Fixed Price Incentive Fee contracts (FPIF): The price is fixed, with incentive for over performance and / or penalty for under performance. Fixed Price with Economic Price Adjustment Contracts (FP-EPA): Applicable for long term projects. It is a fixed price contract, with special provision for final price adjustment due to inflation; tied to clear Financial Index like Inflation Index, Labour Index, Commodity Index, dollar exchange rate etc., Price is Fixed Irrespective of Market Fluctuations. Suitable where Scope is Clearly Defined. Requirement Changes would typically call for re-negotiating on the Price. Cost & Time is certain for buyer; but seller bears risk of cost & time overrun
- 62. Cost Reimbursable (CR) Cost Plus Contracts 62 Cost Reimbursable (CR) Contracts Cost Plus FIXED FEE contracts (CPFF): Provides the contractor with a fee, or profit amount, that is determined at the beginning of the contract and does not change apart from Actual Cost which is Reimbursed. Cost Plus Percentage of cost contracts (CPPC): Reimburses actual costs + agreed percentage fee on actual expenses such as 5% of total allowable costs. More popular over CPFF, as seller gets rational fee based on volume of work.. Cost Plus incentive fee contracts (CPIF): used to encourage performance in areas critical to the project. Often the contract attempts to motivate contractors to save or reduce project costs. The use of the cost reimbursable contract with an incentive fee is one way to motivate cost reduction behaviors. Cost Plus AWARD fee contracts (CPAF): reimburses the contractor for all allowable costs plus a fee that is based on performance criteria. The fee is typically based on goals or objectives that are more subjective. An amount of money is set aside for the contractor to earn through excellent performance, and the decision on how much to pay the contractor is left to the judgment of the project team. The amount is sufficient to motivate excellent performance. In these contracts, all applicable COSTs are reimbursed along with an agreed FEE representing seller profit. These contracts are inherently flexible to Scope / Requirement changes. Buyer takes More Risk as the overall time & cost is open ended.
- 63. Time & Materials (T&M) 63 The seller charges for TIME and AMOUNT of materials (including travel) used as per agreed RATE. The rates are fixed for every category of resources and includes profit. Rates are charged like DOLLAR per Hour, DOLLAR per Ton...... Per Unit Proce. These contracts are inherently flexible to Requirement Changes. This contract is often used in Annual Maintenance Contracts / Rate Contracts, Resource Engagement Contracts, Material Handling Contracts etc where Scope is not Very Clear at the begining. T&M contracts have characteristics of both FP & CR contracts, therefore also called as Hybrid Contracts. They resemble FP with predefined unit labor or material rates and at the same time resemble cost reimbursable as Time & Cost are OPEN ended. Many buyers place ‘not-to- exceed’ (ceiling) values and time limits placed on all T&M contracts to prevent unlimited cost growth. In T&M, some risk is taken by seller as they need to bear the differences between agreed RATE Vs. Market RATE; but more risk is taken by buyer as still the time & cost is OPEN ended.
- 64. 64 Contract Type Risk Contract Type & Risk
- 65. 65 Solicitation Documents Solicitation documents are the documents used to request potential suppliers to offer a quotation, bid or proposal to provide the required goods, services or works. Preparation of solicitation documents covers the process of assembling and formalising the information and documentation necessary for potential suppliers to prepare responsive and easily comparable offers, consistent with the requirement and procurement strategy. Solicitation Process
- 66. Solicitation Documents RFx 66 Procurement Documents are used to solicit prospective sellers to bid for procurement items. Examples of procurement documents are : Request for Information (RFI), Request for Proposal (RFP), Request for Quotation (RFQ). They generally include a description of the expected responses, procurement statement of work, contractual requirements or conditions. Procurements documents involving government contracting might be governed by regulations as well.
- 67. Types of Solicitation Documents RFX 67 RFI RFI (Request for Information) is really a preliminary document used by companies that don’t understand the marketplace they’re about to enter. RFI is more of a fact-finding document. RFP RFP (Request for Proposal), is usually follows an RFI. RFP should contain much more specificity in terms of what a company’s needs. RFP allows for the flexibility of the vendor to suggest creative solutions to the problem or Alternate Proposals. RFQ RFQ (Request for Quotation) is an more detailed document calling for price bids for exact specifications required by the company. Typically, an RFQ seeks an itemized list of prices for something that is well-defined and quantifiable, such as hardware. RFB Alternative term for invitation to bid (ITB) IFB An invitation for bid (IfB) or invitation to bid (ItB) is an invitation to contractors or equipment suppliers to submit an offer on a specific project to be realized or product or service to be furnished.
- 68. 68 Request for Information (RFI) It’s often used in the early stages of a procurement process, where buyers are keen to discover relevant information from potential suppliers. It is a request seeking broad data and understanding from Bidders. It is traditionally undertaken in the planning stage of a project where Scope is not Very Clear. A request for information is usually the first step and will precede either an RFP or RFQ. Request for Proposal (RFP) An RFP is a request by buyers for potential suppliers to come up with a proposal for a project. These requests are often used when a buyer has an understanding of the outcome they want, but are uncertain of the best way to undertake it. RFPs tend to be more open than RFIs, allowing a supplier to provide their own suggestions around how they would design and complete a particular project. RFPs are Requested to Solicit Innovative Solutions / Creative Ideas or Proposals. RFPs provide for greater flexibility to Encourage Innovation. Solicitation Documents RFx
- 69. Procurement Documents RFx 69 Request for Quotation (RFQ) An RFQ is similar to an RFP but with a more defined scope setting out the needs of a buyer. It will often have a formal list of work, supplies and equipment required for a project, that suppliers will then submit costs for. An RFQ is generally used to obtain pricing, delivery information, terms and conditions from suppliers. In this case, requestors have a clear understanding of what they need, including requirements and specifications. Invitation for bid (IFB) Invitation For Bid (IFB) solicitation will describe the planned project in detail, lay out submission requirements including deadlines, project scope and duration, minimum qualifications, mandatory service standards and required warranties. It also provides a description of the overall selection process including timelines. An Invitation to Bid differs from a Request for Proposal (RFP) in that the objective is to obtain contractors’ proposals concerning the costs to complete the project with less emphasis on the bidder introducing its own ideas for how to complete a project or perform the service.
- 70. 70 Request for Tender (RFT) Request for tender refers to the open invitation that is sent to the suppliers to respond to a defined need and not a request that is sent to potential suppliers. This is a holistic document that is based on stated delivery requirements, performance specifications, terms and conditions. Solicitation Documents RFx
- 71. RFx 71
- 72. 72