Contracting and procurement
Contents |
Abstract
This article will present a review of the tendering phase and contract management of project procurement management. Decision factors and methods for a company's procurement division when selecting a supplier and negotiating a contract will be presented. Multiple factors should be considered when selecting a supplier and when the supplier has been chosen, a contract must be designed with some main objectives. The company must decide between a pool of sellers, which they seek offers from, or choose to negotiate with a given seller. When negotiating a contract, the main things to consider are to ensure that buyers are able to meet their customers' demand and propose a system where the supplier and the buyer share risks and cost. The article will first introduce briefly the definition of procurement and contracting separately, and then explain the relationship between the two. The article will then be divided into five main parts; defining the problem, defining the buyers' needs, determining the qualification of a supplier, choosing a supplier, and finally the negotiation factors. [1] [2].
Contracting and Procurement
Procurement
"Procurement is the acquisition of goods, services or works from external sources." The goal of procurement management is to identify a supplier to procure goods and services for a specific company. Suppliers can provide all from raw materials to finished products. Project Procurement Management spans a wide range and is present throughout the whole project process. Furthermore, this article will cover the tendering phase and contract management.
Contracting
"An agreement between two or more parties, especially one that is written and enforceable by law." Contract management involves creating a contract, negotiating terms and conditions, compliance, execution and analyzation. In Project Procurement Management legal documents, or contracts, are made between the buyer and the seller. It is a document stating that the seller will provide some value in return for compensation from the buyer.
Contracting in Procurement
All companies have to make a decision to produce in house, or outsource the production. If the benefits for outsourcing exceed the benefits of producing in house, companies must find a supplier that is reliable and maintains a certain standard. All contracts with external sources are negotiated by the procurement team.
Defining the Problem
How much should the company itself produce, what is cheaper and/or justifiable to outsource?
Defining the Buyer's Needs
Which goods, services or works will be outsourced and how much is needed?
Determining the Qualification of a Supplier
Analyze and investigate suppliers available, and determine qualification standards they are required to maintain.
Choosing a Supplier
Choose between suppliers that maintain the certain qualification standard, and now consider other factors, such as cost.
