Project Cost Estimation and Management

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Project Procurement Management
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PROJECT PROCUREMENT MANAGEMENT

• BY
• Engr. Dr. Attaullah Shah
• PhD (Civil Engg.) , MSc ( Str Engg.) , MBA , MA (
  Eco) , MSc Envir design
• BSc Civil Engg (Gold Medal) , Post Grad Dip in
  computer ( Gold medal)
• Project Director Allama Iqbal Open University
• Islaamabad Pakisatn.
• pdaiou_at_yahoo.com
• pd_at_aiou.edu.pk
• Cell 92-333-5729809
• Tel[phone]
• Fax[phone]

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• Property may be destroyed and money may lose its
  purchasing power but character, health,
  knowledge and good judgment will always be in
  demand under all conditions.  Roger Babson
• Men use care in purchasing a horse, and are
  neglectful in choosing friends  John Muir.
• Purchasing power is a license to purchase power.
   Raoul Vaneigem
• Excellence in any department can be attained
  only by the labor of a lifetime it is not to be
  purchased at a lesser price.  Samuel Johnson
• The friendship that can cease has never been
  real.  St. Jerome
• Sell not virtue to purchase wealth, nor liberty
  to purchase power.  Benjamin Franklin

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• Passion can never purchase what true love
  desires true intimacy, self-giving, and
  commitment
• Experts agree that the best type of computer for
  your individual needs is one that comes on the
  market about two days after you actually purchase
  some other computer.  Dave Barry
• I saw a boy of the crew purchasing javelins of
  them with bits of platters and broken glass.
  Christopher Columbus

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Procurement Management

• Procurement is acquisition of goods and services.
• Project Procurement Management includes the
  contract management and change control processes
  required to administer contracts or purchase
  orders issued by authorized project team members.

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• Procurement Cycle

• Plan Purchases and Acquisitions. Determining what
  to purchase or acquire and determining when and
  how.
• Purchase of equipment
• Procurement of works
• Procurement of supplies etc
• Plan Contracting documenting products,
  services, and results requirements and
  identifying potential sellers.
• Developing the requisite documents
• Specification
• No and make etc.

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• Request Seller Responses.
• obtaining information, quotations, bids, offers
  ,or proposals, as appropriate.
• Inviting bids
• Inviting quotations
• Request for Proposals ( RPFs)
• Expression of Interest ( EOI) etc.
• Select Sellers.
• Reviewing offers, choosing among potential
  sellers, and negotiating a written contract with
  each seller.
• Tender/bids opening
• Evaluation and Assessment of bids
• Negotiation if required and allowed
• Selection of the seller/contractor

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• Contract Administration
• Managing the contract and relationship between
  the buyer and seller.
• Reviewing and documenting how a seller is
  performing or has performed to establish required
  corrective actions
• Provide a basis for future relationships with the
  seller,
• Managing contract-related changes and, when
  appropriate,
• Managing the contractual relationship with the
  outside buyer.
• Contract Agreement
• Contract Closure
• completing and settling each contract, including
  the resolution of any open items,
• Closing each contract applicable to the project
  or a project phase.

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Procurement Planning

• Make-or-Buy Analysis
• Whether a particular product or service can be
  produced by the project team or can be purchased.
• Expert Judgment
• Expert purchasing judgment can also be used to
  develop or modify the criteria that will be used
  to evaluate offers or proposals made by sellers.
• Contract Types
• Different types of contracts are more or less
  appropriate for Different types of purchases.
• Fixed-price or lump-sum contracts.
• Cost-reimbursable contracts.( cost Plus)
• Time and Material (TM) contracts.

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• Fixed Price contracts
• Fixed price or lump sum
• Cost price with re-determination
• Fixed price plus incentive fee.
• Fixed price plus economic price adjustment
• Fixed price with successive targets incentives
• Fixed price for service material and labor at
  cost.
• Time and material labor hours only.
• Others methods
• Turnkey
• Bonus - Penalty
• Joint venture
• Combination of the above
• BOOT ( Build Operate Own and Transfer
• BOT ( Build Operate and Transfer)
• Build Lease and Transfer ( BLT)

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Plan Contracting Outputs

• Procurement Documents
• Procurement documents are used to seek proposals
  from prospective sellers.
• A term such as bid, tender, or quotation is
  generally used when the seller selection decision
  will be based on price (as when buying commercial
  or standard items),
• A term such as proposal is generally used when
  other considerations, such as technical skills or
  technical approach, are paramount.
• Evaluation Criteria
• Evaluation criteria are developed and used to
  rate or score proposals. They can be objective or
  subjective Evaluation criteria are often included
  as part of the procurement documents.

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• Other Selection criteria
• Understanding of need. How well does the sellers
  proposal address the contract statement of work?
• Overall or life-cycle cost. Will the selected
  seller produce the lowest total cost (purchase
  cost plus operating cost)?
• Technical capability.
• Management approach.
• Technical approach.
• Financial capacity. Does the seller have, or can
  the seller reasonably be expected to obtain, the
  necessary financial resources?
• Production capacity and interest. Does the seller
  have the capacity and interest to meet potential
  future requirements?

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• Business size and type.
• References. Can the seller provide references
  from prior customers verifying the sellers work
  experience and compliance with contractual
  requirements?
• Intellectual property rights. Does the seller
  assert intellectual property rights in the work
  processes or services they will use or in the
  products they will produce for the project?
• Proprietary rights. Does the seller assert
  proprietary rights in the work processes or
  services they will use or in the products they
  will produce for the project?

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Request Seller Responses Tools and Techniques

• Bidder Conferences
• Meetings with prospective sellers prior to
  preparation of a bid or proposal.
• To have a clear, common understanding of the
  procurement
• All potential sellers are given equal standing
  during this initial buyer and seller interaction
  to produce the best bid.
• Advertising
• Develop Qualified Sellers List
• Qualified sellers lists can be developed from the
  organizational assets if such lists or
  information are readily available. Whether or not
  that data is available, the project team can also
  develop its own sources.

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Select Sellers

• Selection decision process
• cost can be the primary determinant for an
  off-the-shelf item,
• Proposals are often separated into technical
  (approach) and commercial (price) sections, with
  each evaluated separately.
• Multiple sources could be required for critical
  products, services, and results to mitigate risks
  that can be associated with issues such as
  delivery schedules and quality requirements.
• Select a single seller that will be asked to sign
  a standard contract.
• Establish a negotiating sequence by ranking all
  proposals by the weighed evaluation scores
  assigned to each proposal.
• On major procurement items, the overall process
  of requesting responses from sellers and
  evaluating sellers responses can be repeated.
• A short list of qualified sellers can be
  established based on a preliminary proposal. A
  more detailed evaluation can then be conducted
  based on a more detailed and comprehensive
  proposal that is requested from the sellers on
  the short list.

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Select Seller Techniques

• Weighting System
• Independent Estimates
• Screening System
• Contract Negotiation
• Seller Rating Systems
• Expert Judgment

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• Contract
• A contract is awarded to each selected seller.
• The contract can be in the form of a complex
  document or a simple purchase order.
• Regardless of the documents complexity, a
  contract is a mutually binding legal agreement
  that obligates the seller to provide the
  specified products, services, or results, and
  obligates the buyer to pay the seller.

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Contract Administration Tools and Techniques

• Contract Change Control System
• A contract change control system defines the
  process by which the contract can be modified.
• Buyer-Conducted Performance Review
• Inspections and Audits
• Performance Reporting

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Contract Closure

• The Contract Closure process supports the Close
  procurement process since it involves
  verification that all work and deliverables were
  acceptable.
• Contract Closure Tools and Techniques
• Procurement Audits
• A procurement audit is a structured review of the
  procurement process from the Plan Purchases and
  Acquisitions process
• Records Management System

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One Envelope Procedure
Procedures of Open competitive Bidding under PPRA
Rules 2004.

• Each bid shall comprise one single envelopes
  containing, separately, financial proposal and
  technical proposal (if any)
• Open competitive bidding procedure used for most
  of the procurement.
• where the scope and technical specification of
  the procurements are very clear and unambiguous.
• For projects of repetitive nature and where a
  pool of registered contractors with the
  departments is available sometimes.
• In this procurement mode, the financially lowest
  bid is generally selected.
• Such procurements become victim of low bidder
  dilemma as the bidding firms.
• Poor history of successful procurements by this
  method.
• Preferred for small and clear procurements.

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Two Envelops Procedure

1. The bid shall comprise a single package
   containing two separate envelopes. Each envelope
   shall contain separately the financial proposal
   and the technical proposal
2. The envelopes shall be marked as FINANCIAL
   PROPOSAL and TECHNICLA PROPOSAL in bold and
   legible letters to avoid confusion.

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Two Stage Bidding Procedure

• First Stage (Tech Proposal )
• The bidders shall submit, according to the
  required specifications, a technical proposal
  without price,
• The technical proposal shall be evaluated in
  accordance with the specified evaluation criteria
  and may be discussed with the bidders regarding
  any deficiencies and unsatisfactory technical
  features.

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Continued

• After such discussions, all the bidders shall be
  permitted to revise their respective technical
  proposals to meet the requirements of the
  procuring agency
• The procuring agency may delete, modify or add
  any aspect of the technical requirements or
  evaluation criteria, or it may add new
  requirements or criteria not inconsistent with
  these rules.

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Continued

• Such revisions, deletions, modifications or
  additions are communicated to all the bidders
  equally at the time of invitation to submit final
  bids, and that sufficient time is allowed to the
  bidders to prepare their revised bids
• Such allowance of time shall not be less than
  fifteen days in the case of national competitive
  bidding and thirty days in the case of
  international competitive bidding

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Continued

1. Those bidders not willing to conform their
   respective bids to the procuring agencys
   technical requirements may be allowed to withdraw
   from the bidding without forfeiture of their bid
   security.

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Second stage (Revised Tech Proposal)

• The bidders, whose technical proposals or bids
  have not been rejected and who are willing, to
  conform their bids to the revised technical
  requirements shall be invited to submit a revised
  technical proposal along with the financial
  proposal.

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Continued

• The revised technical proposal and the financial
  proposal shall be opened at a time date and venue
  announced and communicated to the bidders in
  advance and
• The revised technical proposal and the financial
  proposal shall be evaluated in the manner
  prescribed above. The bid found to be the lowest
  evaluated bid shall be accepted.

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• Best for projects of technical nature.
• Where the firms capacity to deal with the
  complexity of the project is critical to the
  successful implementation of the project
• The scaling of technical and financial score
  depends on the nature of the project and relevant
  importance of the of each major criteria
• Typical range from 5050 to 7030 for technical
  financial respectively.
• For mega IT projects, where the technical
  expertise, global partnership and relevant
  experience of the firm are of paramount
  importance, the technical part can be given a
  score of 70 or even 80.

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One Stage Two envelope bidding procedure-

• The bid shall comprise a single package
  containing two separate envelopes containing
  separately the financial proposal and the
  technical proposal
• The envelopes shall be marked as FINANCIAL
  PROPOSAL and TECHNICAL PROPOSAL in bold and
  legible letters to avoid confusion

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Continued

• initially, only the envelope marked TECHNICAL
  PROPOSAL shall be opened
• The envelope marked as FINANCIAL PROPOSAL shall
  be retained in the custody of the procuring
  agency without being opened.
• The technical proposal shall be evaluated on the
  laid down criteria.
• The financial bids of the firm fulfilling the
  criteria are opened and remaining are returned
  un-opened.
• The lowest evaluated bid based on the technical
  and financial bids is approved.

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Performance Guarantee

• Where needed and clearly expressed in the bidding
  documents, the procuring agency shall require the
  successful bidder to furnish a performance
  guarantee which shall not exceed ten per cent of
  the contract amount.

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Two Stage Bidding Procedure

• First Stage (Tech Proposal)
• The bidders shall submit, according to the
  required specifications, a technical proposal
  without price,
• The technical proposal shall be evaluated in
  accordance with the specified evaluation criteria
  and may be discussed with the bidders regarding
  any deficiencies and unsatisfactory technical
  features,
• After such discussions, all the bidders shall be
  permitted to revise their respective technical
  proposals to meet the requirements of the
  procuring agency
• The procuring agency may delete, modify or add
  any aspect of the

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• technical requirements or evaluation criteria, or
  it may add new requirements or criteria not
  inconsistent with these rules.
• Such revisions, deletions, modifications or
  additions are communicated to all the bidders
  equally at the time of invitation to submit final
  bids, and that sufficient time is allowed to the
  bidders to prepare their revised bids
• Such allowance of time shall not be less than
  fifteen days in the case of national competitive
  bidding and thirty days in the case of
  international competitive bidding
• Those bidders not willing to conform their
  respective bids to the procuring agencys
  technical requirements may be allowed to withdraw
  from the bidding without forfeiture of their bid
  security.

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Second Stage

• The bidders, whose technical proposals or bids
  have not been rejected and who are willing, to
  conform their bids to the revised technical
  requirements shall be invited to submit a revised
  technical proposal along with the financial
  proposal.
• The revised technical proposal and the financial
  proposal shall be opened at a time date and venue
  announced and communicated to the bidders in
  advance and
• The revised technical proposal and the financial
  proposal shall be evaluated in the manner
  prescribed above. The bid found to be the lowest
  evaluated bid shall be accepted.

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• Best for
• Best suited for Large Civil Works projects, heavy
  equipment and complex projects
• Where the available information and in-house
  expertise of the procuring agency is not enough
  to deal with.
• The feedback of the firm may provide some
  additional information on the procurement.

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• Thank You