Finding Value in System Contracting

Image by NobMouse via FlickrAssociate Guest Post by Rusty Joerin of Woodsgift Enterprises

System contracts, also known as standing orders, open purchase orders or similar terms can add considerable value to your procurements. Reduced overhead, efficient use of staff time, standardization of product and volume discounts deliver value to the buyer.

System contracts are most frequently utilized for the supply of low cost items routinely and commonly used in the organization. Often referred to as Maintenance, Repair and Operating (MRO)category items, the value is delivered both on the price of the individual items and the processes surrounding and incorporated into the supply contract. System contracts can also apply to furnishings, fleet maintenance and software licensing amongst other goods and services.

System contracts provide great opportunities for co-operative procurements between several organizations. I managed the procurement of stationery and copy paper supplies on behalf of a number of public sector organizations that resulted in better volume discounts than could be obtained through separate contracts. With one organization leading the procurement process duplication of procurement effort across the group was eliminated.

Standardization adds value through reduction of inventory carrying costs, reduction of training costs in the use or installation of product and interchangeability of products throughout the organization.

System contracts can and should be longer term contracts. Three to five years with appropriate safeguards is reasonable. This provides a balance between competitive requirements and procurement process savings to be achieved.

Next time – some things to consider when writing contracts for system type procurements.

Rusty James Joerin, SCMP is a Supply Chain Management Professional and accredited by the Purchasing Management Association of Canada. He offers procurement services primarily to public sector organizations that do not have a professional supply manager on staff and provides additional capacity to assist with project related supply.

Information about his experience and qualifications may be found at:www.woodsgift.com

Issues That Bind

Associate Guest Post by Rusty Joerin of Woodsgift Enterprises

This is the third in our series entitled Find, Bind and Mind Your Suppliers.

The first thing to remember is that as you bind your supplier, so you bindyourself (or more properly your organization). As a result of some recent court decisions concerning the formation of contracts resulting from the solicitation of offers to supply, procurement professionals have explicitly stated in their requests that no contract will be formed until such time as an agreement to supply is reached with the best respondent. This statement will also apply to the respondents who also will be under no obligation to contract with you, although there is a presumption they will because they responded. I suggest that this clause be used with care and not be attached to every request. This issue is complex, still evolving and well beyond the scope of this message. Be aware of this issue, monitor the latest legal developments and seek expert advice.

There are situations where you definitely want to bind all respondents to a request to supply. Bid bonds have long been used as a tool to ensure that the preferred bidder will contract with you, even if they have second thoughts after bid closing.

I once experienced a situation where after a prequalification process one of the shortlisted firms backed out midway into the second phase of a high value, complex RFP which decreased competition by a third. For subsequent projects and with expert advice, we extended the bid bond process to ensure that all short-listed proponents to similar high value complex procurements were compelled to submit a viable proposal. In short the binding process was advanced a step.

Depending on the procurement, suppliers can be bound by the request document, contract terms presented in the request to be included in any subsequent contract or by reference to an industry standard document with supplementary conditions given in the request document.
The joy in all of this is that you, the buying organization, get to decide what the terms of engagement will be. My advice is to ensure that the terms are fair, which encourages competition and so that a resulting contract becomes a beneficial relationship for both parties.

Rusty James Joerin, SCMP is a Supply Chain Management Professional and accredited by the Purchasing Management Association of Canada. He offers procurement services primarily to public sector organizations that do not have a professional supply manager on staff and provides additional capacity to assist with project related supply.

Information about his experience and qualifications may be found at:www.woodsgift.com

Related articles

• Find, Bind and Mind Your Suppliers (psbdelegation.com)
• Find the Best Suppliers
  

Breaking Down Compliance w Procurement Policy Directives

Image via Wikipedia

Last week I posted a link to the Ontario Broader Public Sector Procurement Directive/Accountability Act. With an implementation date of April 1, 2011, smaller, independent public organizations are finding themselves having to implement corporate-sized procurement rules ‘off the side of their desks’.

How do you approach implementing something this complex without a corporate procurement department? Break it down into smaller components:

1) Understand the rules – make sure you are aware of what you can/cannot do, what your dollar thresholds are. Single page “cheat sheets” are helpful reminders to staff as to what path to take when they determine a need for a good or service.

2) Explain your process – both internally and externally. It is easier to be transparent, when everyone understands what you are procuring, how you will be doing it, what will be evaluated, and when.

3) Disclose your evaluation criteria – one of the keys to the trade agreements is disclosing the high level criteria for evaluation, and the weightings. Some organizations go further to disclose it on ALL procurements to be clear to all potential vendors (and to eliminate the internal confusion of ‘when do I need to disclose this?”)

4) Ensure all potential vendors have the same information – another key trademark to transparency and fairness. Make sure that any information that an incumbent may have is available to other bidders in order to level the playing field. As well, disclosing whether there is/is not an incumbent gives the vendor community the ability to decide whether it is worth their time to respond.

5) Keep an audit trail – in the name of transparency, and to withstand an audit of the process – keep documenting every step of the process, maintain a complete file from specification building through to contract award. This includes drafts (leading to a decision), email communications, faxes, proposals, evaluation books, signed declarations, letters/notifications of award. It may seem bureaucratic, but it makes life much easier at the end of a process to have a complete file in one place. Maintaining notes during the evaluation also helps for debriefing unsuccessful vendors without having to go back and re-read their proposal and evaluation score sheets.

6) Posting time – The minimum solicitation posting time of 15days is read by the vendor community as “you already have made your choice & are just doing a process to meet policy requirements”. Consider how much time it took you to build your specifications/statement of work and process? If the good/service is highly complex and your project document was built over a number of months – better quality responses will take longer than 15 days.

7) Be consistent – Ensure your processes follow the same path each time. There’s nothing worse than changing the rules, and then changing the way you do things at every turn.

8) Form of agreement w RFP – posting a copy of your resulting contract with your solicitation will greatly reduce the negotiation time as it will form part of your process. Depending upon the wording of your solicitation document (most Canadian public sector templates are based upon the non-negotiated RFP), vendors, by responding with a proposal, have accepted the terms and conditions of your contract attached.

9) Contract management tools – policy changes will affect your existing suppliers as well as smaller companies that haven’t bid on large contracts in past. Providing a sample invoice, contract documentation checklist, and monitoring reports will assist both your internal contract management efforts and compliance on the part of your vendors/contractors.

10) Debriefing - consider this a means to educate and build a stronger vendor community. The more vendors understand your process & how you evaluate proposals, the better the proposals & competition. PLUS, ask for feedback from the vendors as to how well you communicated your requirements; what additional information would they have wanted/needed. Improving the procurement process for future in addition to improving vendor proposals is a win/win for everyone.

Reference Checks

Image by Tim Morgan via FlickrIn 90% of RFPs I've been involved in, the end-users always requested references. However, few, if any actually call the references of their short-listed proponents. Why?

First of all, they think its time-consuming - I generally say it's not likely as time consuming as hiring a supplier that can't do the job.

Secondly, they don't trust the references will be 'candid'. Few, if any contract managers will say something 'bad' about a supplier for fear of reprisal.

Third, and this just might be in the area I've worked, the legal advisors state that a reference cannot change how they scored the 'written' proposal. The argument is 'what has changed in the proposal?'

So, to combat these issues, we found it helpful to build a reference call sheet with specific questions that you will ask ALL references, and keep it fact-based so no-one is put on the spot to say something 'bad'. If a vendor never met a deadline, it's a fact, not opinion. If they had a cost overrun, it's a fact, not opinion. If they had to redo something under warranty, it's a fact...etc

Also, adding some wording to your RFP about using the references to 'verify the information in the written proposal' and allowing yourself to adjust accordingly, *should* satisfy your legal department (but check with them anyway!)

I don't score references as a rule of thumb, I use them to verify information, and if necessary, disqualify someone who either 'stretched' the truth or omitted some key facts in their proposals.

10 Ways to Better Value Procurements - #5 - Tools

Supply management professionals utilize a variety of processes and documents to find, bind and mind a supplier of goods and services. They range from informal phone calls to creation of highly complex tender and RFP documents.
Find a Supplier
Situation: you have a unique need and are uncertain who may deliver the required solution. A Request for Qualifications or Expression of Interest document posted on a public site such as Civic Info or BC Bid may attract the right attention. A detailed internet search and the supply manager’s peer network will also aid in finding qualified suppliers. Depending on possible outcomes stated in the request and other factors, a negotiated contract may result or a RFP may be issued to a short list of responders.
Bind a Supplier
Situation: you are requesting something of high value and/or there are valuable time constraints and you wish to mitigate supply risk. This is a balancing act; transfer too much risk to the supplier and you may not get the best quality of responses, transfer too little risk and you may be left with an incomplete project. Careful application of indemnity, insurance, bonding and liquidated damages clauses in the request document can be used, always depending on the particulars of the situation. Standard industry contract documents such as Canadian Construction Association documents can be used to fairly bind a supplier of applicable services.
Mind a Supplier
Situation: you wish to contract for goods and/or services to be delivered over a period of time; construction, system contracts, and service contracts are examples. A request for proposal or tender document may be issued. The difference being the degree of specification and appraisal criterion contained in the request document. The commonality is that the request will address management of the contract during the contract term. I address this issue in the next installment of this series.
Time
Time is a valuable procurement tool. Use it to plan the procurement from needs analysis to end of contract. Allow enough time for the best suppliers to participate.
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Other Posts in the series: How to Add Value to Your Procurements
• Be Proactive
• Analyze what is required – bring clarity to the specification
• Understand the supply chain
• Align procurement strategies with corporate strategies
• Apply the highest standard of ethics
• Use the right tool for the job
• Plan contract management before there is a contract
• Learn from what was done
• Mitigate procurement risks
• Utilize the skills of supply management professionals

Over the coming year, Rusty Joerin, guest blogger, will expand on the above. Your comments are welcomed.


Rusty James Joerin, C.P.P. is a Supply Chain Management Professional and accredited by the Purchasing Management Association of Canada as a Certified Professional Purchaser. He offers procurement services primarily to public sector organizations that do not have a professional supply manager on staff and provides additional capacity to assist with project related supply for those organizations with purchasing specialists on staff.
Information about his experience and qualifications may be found at:www.woodsgift.com

Measuring Success Rates on RFP proposals

Image by Camilla Ferrari via Flickr

Another topic of discussion on LinkedIn...

Response Rates to an RFP

I assume we have all responded to an RFP in the past. I am interersted in hearing from you what your success rate has been with the RFP's that you have responded to this year.

My response: I'm on the buying side and while I believe it is good to measure your 'success rate', I hope you are measuring a few other parameters to put it into context (ie not just looking at how many RFPs you responded to vs how many you were successful on) because this year was a little different.

1) are you checking how many opportunities in your field have been available (whether you responded or not) - ie did you notice there were less RFPs for your field this year than in previous years (in BC, definitely there were less consulting opportunities due to spending freezes)

2) are you finding out how many people are responding to each opportunity? Not that every buying organization will disclose this, but I can say for a fact we've had MORE companies respond than in past years... for example in the early 2000s, I would normally receive about 12-14 proposals to each of my RFPs, then about mid 2005/2006 I was only getting about 5-6 and some only got 1-2 responses (everyone was busy), now we're back up to 15-20 proposals per RFP....

So, if you don't take these other factors into consideration, you may find your success rates 'look' lower this year