Procurement Process for High Value and High Risk Contracts

Dear all

I am in the early stages of preparing a template for a high value/risk procurement.  Critical review of the outline structure below would be welcome.

Regards

Gary

Procurement process

Full process for high risk and high value categories

Stage 1 – Contract strategy

Establish brief

·         Agree preconditions for success

·         Rationale for change

·         Is funding for the project approved

·         Is external funding available

·         Project director appointed

·         Establish the boundaries of the project

·         Stakeholder mapping

·         Core project team established

o   Legal, financial, procurement and technical. Customer facing representative if possible. Able to commit time.

·         Finalise project brief (Prince 2 document)

·         Gateway 1 – Project Board Approval

Establish needs

·         Research and establish categories

o   Obtain spend by supplier, deliverables, number of transactions, unit price, price breakdown, volume, budget and resources. Establish linkages to other categories, policies and processes.

o   Determine which directorate, section, individuals use the category

o   Purchase price cost analysis

·         Identify stakeholders

o   Internal, external, for, against, interest and strength of influence

o   Invite key stakeholder/s to be part of the project team

o   Briefing, influencing and persuading – all team members for the duration of project

·         Define scope

o   Prince2 Project Initiation Document

o   Establish level of corporate priority

o   Is collaboration with others beneficial

·         Establish communication strategy

o   Corporate communication involvement required

·         Identify needs

o   Meet key stakeholders

o   Establish needs in terms of quality, service, logistics, lead time, transport, regulation, legislation, policy framework.

o   Develop full understanding of what is required prior to progressing project.

o   Supply positioning

·         Assess cost

o   Whole life cost, maintenance, spares, software, fuel, change to buildings, systems, processes or policies

·         Assess risk

o   Prioritise needs and wants

o   Risk workshop to establish risk register (Risk register Prince2 document)

o   Probability, duration and impact on the organisation of the risk

·         Establish project teams knowledge of the procurement process

·         Establish clear measures to recognise success

·         Answer the following;

o   What are we doing with the output

o   Is anyone else doing this

o   Is their a framework in place

·         Check future requirements, five to ten years

·         Identify barriers to success

·         Gateway 2  - Finalise business case and  gain project board approval to proceed

Stage 2 – Supplier sourcing and market analysis

Supplier sourcing

·         Analyse category

o   Supply positioning – risk

§  Would delivery failure immediately impact on the ability of the organisation to deliver

§  Is there a Health and Safety consideration with this purchase

§  Is there a limited source of supply

§  Can we specify the requirement

§  Is the specification limited by legal/statutory implications

§  Is the product subject to swift technological change

§  Does the product/service require a long term commitment from the supplier

§  Does the product/service have to integrate with other critical products/services

§  Is the market stable

§  Are there major PR risks in failing to adequately source this product/service

§  Does the purchase represent a significant environmental or sustainability concern

§  Does the purchase represent a significant equalities concern

o   Supply positioning value £1 million plus contracts = high value

·         Identify how we buy at present

·         What supplier have been identified so far and do we need to source some more

·         Market Analysis

o   Geography

o   Segmentation

o   Restructuring trends

o   Pricing

o   Suppliers

o   Customers

o   Impact we can have on the market (deterministic influence)

·         Analyse opportunity

·         Generate and evaluate sourcing options

·         Write sourcing strategy

·         Create draft outline specification

o   Output specification

o   Input specification

Stage 2 – Supplier sourcing and market analysis

Soft market testing and development of tender documents

·         Develop project plan

o   Configuration management

o   Communication plan

o   Schedule

o   Responsibility assignment matrix RAM – Work Breakdown Structure (WBS) and Organisational breakdown structure (OBS) matrix.

o   Product breakdown structure detail developed under WBS

·         Get to know potential suppliers

o   Analysis of their business goals and strategy

o   Supplier’s market/product portfolio analysis

o   Build trust, establish competence with suppliers

o   What can we do/change to make the contract more attractive and reduce cost

o   Preferred payment method are stages appropriate

o   Understand mission

o   Analysis of key financial ratios

o   Technical competence

o   Compatibility of their business culture

o   Do they understand modern management practises

o   Do they have the ability to drive down costs

o   What is their customer base

·         Start to build relationships

·         Identify and gap in the supply market

·         Level of value adding activity is there another level in the supply chain

·         Establish plan to close the gap if necessary

·         Check attractiveness of this project in the marketplace

·         Determine the suppliers view of the contract opportunity

·         Establish market view of specification requirements

·         Establish market view of KPI’s, contract duration, how contract extensions should be earned and award criteria

·         Gateway 3 - Finalise project plan

Stage 3 – Tender

Finalisation, issue and receipt of tenders

·         Ensure compliance with contract standing orders, rules, policies, processes and regulations

·         Check for compatibility with e-auction

·         Establish approval requirements for contract award

·         Determine most appropriate procurement process

·         Finalise procurement documentation

o   Pre-qualification questionnaire

§  Questions on accounts - Gross profit, operating profit or net profit to sales, return on capital employed, cash flow from operations, cash flow pre-financing, stock turnover, debtor collection period, creditor payment period, long term debt, current ratio, acid test, how much money is in the bank, sales by employee, profit by employee.

·         Read two years annual report and accounts for £1 million + contracts

·         Agree end date for tender clarification and process to ensure bidder confidentiality for proprietary solutions

·         Tender pack – to include, background, terms and conditions, final specification, pricing schedule, policies, processes, marketing information, guidance for completion and return

o   Can standard T&C’s be used

o   Include matrix for proposed changes to T&C’s and specification.

§  Current text

§  Proposed text

§  Justification for change

o   Are their any IPR issues

o   What insurance levels are required

o   Response times

o   What delivery terms are required

o   What change mechanism is appropriate

o   Opportunities for added value

o   Evaluation matrix

§  Evaluation criteria

§  Cost/quality weighting

o   Use information gathered on business needs, risk and market preferences to develop tender pack

o   Define governance structure for contract management

·         Is the service/product/output/building/structure useful to anyone else, can we sell it

·         Gateway 4 - Approval and dispatch of procurement documentation

·         Receipt of tenders

Stage 4 – Tender evaluation

Tender evaluation, contract approval and award

·         Bidder presentation if appropriate

·         Clarification

·         Negotiation with preferred bidder

o   Agree contract monitoring, measurement and reporting regime

o   Value for money

o   Warranties

o   Guarantees

o   Whole life costs including, spares and maintenance etc.

o   Delivery schedule

·         Evaluation

o   Use results of purchase price cost analysis

o   Compare costs to base model if available

·         Selection

o   Finalise the mobilisation and transition plan

o   Agree contract performance monitoring regime

Stage 5 – Approval and award

Approval to award contract complete, contract awarded

·         Gateway 5 – Approval to award contract

·          Award

·         De-brief unsuccessful bidders

·         Record predicted efficiency and cashable savings

·         Capture lessons learned

Stage 6 – Delivery

·         Shipping and delivery (Duty and Licences)

·         Documentation review

·         Acceptance testing

·         Snagging/rejection

·         Delivery of service or goods or works

o   Roll out

o   Ramp up

Stage 7 – Contract management

Contract management structure finalised

·         Support internal contract users

·         Supplier relationship management

o   Establish relationship with supplier 

o   Establish contract monitoring, measurement and reporting regime

o   Review supplier performance

o   Manage continuous improvement

o   Manage change mechanism and contract variations

o   360° review of performance, suppliers , customers and project

o   Strategic/critical suppliers on supplier development programme with access to head of service and directors at least once a year.

o   Dispute management and resolution

·         Manage financial issues

·         Maximise added value

·         Supplier risk management/mitigation

·         Review obsolescence and update rolling report

·         Regularly review business case to check measures of success

·         Review and update contract if necessary

·         Gateway 6 – Handover to operations

Stage 8 – Consumption, use or receipt of service

·         Prototype (May require return to stage 4)

·         Pilot (May require return to stage 4)

·         Training

·         Consumption or use

·         Maintenance

·         Spares

·         Upgrades

Stage 9 – End of contract

·         Prepare for end of contract term, determination or termination by returning to contract strategy stage 1.

·         Advance notification of tender or renewal requirement to procurement

·         Consider if TUPE could apply

·         Review performance

·         Ramp down

·         Termination

·         Disposal

·         Gateway 7 – Lessons learnt

·         Return to stage 1