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

Yet Another Countdown...

Tuesday, January 3rd, 2012. Government offices are back to regular working hours again. In Procurement, its the calm before the storm. Just like the mad rush of shoppers on Christmas Eve, Government year-end spending comes just before March 31st every year. Returning from winter holidays means there are merely 12 weeks and 3 days for the public sector to commit (spend) any remaining budget funds they may have.

Although the budget approval process starts in September the year before (ie the business plans for capital and programs are submitted in the Fall prior to the start of the new budget year) you will find procurement is only 'called' at the moment the program area is ready to go to RFP.

Timelines will be short, as the RFP needs to be "on the street" from 2- 5 weeks, depending upon the complexity and value. Evaluations will take another 2-3 weeks depending upon the schedules of the evaluators, and the number of responses required. In order to commit the funds, the contract needs to be signed before the year-end and delivery made.

So, dear vendor, at this time of year, when you send in a request to extend the closing date of the RFP - don't be offended, when the request is summarily refused. What I would suggest, rather than stating you need more time, explain WHY it is necessary that the marketplace has more time to provide complete materials that will shorten contract negotiations and expedite delivery, in a manner that would 'save time, money & scope creep' for the buying organization.

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
  

Sustainable Procurement Policies for Specific Commodities

While researching sustainable procurement practices for a client (back in November 2010), I ran across a variety of resources that are beginning to specify sustainable procurement practices by specific commodity. These organizations had an overarching 'general' sustainable procurement policy and guidelines, but also provided details on how to purchase sustainable commodities as specific as furniture. The details would balance sustainability principles (triple bottom-line) against business needs, taking into account the:

• entire life cycle cost of the product.
• quality required by the specification, bearing in mind the sustainable issue. These need to be both client driven and through the ethical procurement values of the suppliers.
• availability of the product.
• functionality of the product in the environment to which it is to be applied.
• effect the product will have on the environment when in service.

(This came from research and practices being established by City of Richmond, Province of Nova Scotia, Queensland, Australia, and the United Nations Environment Programme (UNEP) to name a few)

Why have a policy by specific commodity? The sustainable procurement process will include Life Cycle Costing; establishment of standards & criteria for sourcing environmental & socially responsible suppliers; establishing VOC criteria as well as considering the 'best value for money' vs the typical "low price". To purchase sustainably, other criteria in addition to price need to be assessed.

According to the UNEP report I ran across, 20% of the evaluation weighting should be based upon sustainable criteria.

So, considering how much effort your facilities' department put into gaining Leed Certification, its time to get rid of the Request for Quote if you wish to purchase sustainable furniture for your new Leed Certified offices.

Related Links:
UNEP Background doc Furniture pdf
UNEP SP-Guidelines-Users-Guide-final.pdf

Better Value Procurements: Project Closure

Guest post today by Rusty Joerin of Woodsgift Enterprises

A project can be anything from a commodity purchase to a long term supply of goods and services or construction project.

Closure is important; it is the foundation upon which future projects are built.
For your suppliers that did not get the contract from your last request, closure may come in the form of the de-briefing interview. I always do these verbally and preferably in person. I won’t reveal the contract price but I will state where that vendor ranked overall amongst the other respondents. I will share my interpretation of the strengths and weaknesses of their offer or proposal. I will not reveal confidential information. I want that vendor to bid on future projects and to know that their effort is valuable to my clients and have confidence that they were and will be treated fairly and with respect.

The buying organization will also want to square the circle of procurement. I suggest that a process to collect and retain for reference a written appraisal be implemented in every organization for every significant project. A check list could include: quality of product and service, depth of supplier’s knowledge and resources, and most importantly how problem situations were handled by both parties.

The responsibility for collecting and retrieving this information is often a part of the procurement function. The ability to access this information by those who need to know is as critical as its confidentiality may be. It is important that this information not leave the organization in the head of a retiring employee. The written record becomes the resource for institutional learning.

The bottom line: did the project and the process to procure it advance the organization’s strategic goals and how, or if not, why not? What improvement can be made for the next project?

When planning your next project look first to prior experience with similar projects.

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 for those organizations with purchasing specialists on staff.
Information about his experience and qualifications may be found at:www.woodsgift.com

Related articles

• Better Value Procurements: Analyzing Vendor Proposals (psbdelegation.com)

Fairness in the Process - Now or Later?

In the aftermath of the Gomery report, many organizations have started using a "fairness" role with their large complex or politically sensitive procurements. The primary objective of involving fairness resources is to provide objective evidence that the process has been run in a fair, open and transparent manner. Having the role start with the process keeps the process ontrack and saves time later, versus the standard waiting for complaints and having someone audit the process 'after the fact'. I've done both roles a number of times, partly to deal with the perception of bias towards incumbents; alleviate union concerns of outsourcing, ongoing vendor relations issues, etc. Thanks to close contact with National Education Consulting Inc & the Legal Edge publication means keeping up-to-date with the latest/greatest court decisions.

Even in cases where RFPs are better developed (in terms of how evaluations would occur) with an incumbent in place, it might be useful to request a fairness advisor/monitor/auditor play a role. Generally, the procurement department itself doesn't hire the fairness role (as it is reporting on their conduct/process!) Personally, I believe a fairness role needs to be appointed by an assurance department or a higher authority. There are even 'little things' that should be considered in the course of 'fairness' such as having all the evaluators sign a disclosure agreement (much like how the vendors are to provide within their proposals). I sat in on an evaluation process where the chair did NOT request this, and the evaluators went through a dozen grant application proposals and it wasn't until they faced the last proposal, one evaluator disclosed his son worked for the firm and would recuse himself from that evaluation - which was good to do, HOWEVER, he was involved in the scoring/discussions on all the competitive proposals up until that point! That is still a conflict of interest, even if he wasn't going to play any role in the scoring of that last proposal, he influenced the other scores. The organization changed their practices for future evaluations, and dealt with the issue by awarding to 'all' grant applications received - eliminating the risk of breach of process. I've been in other processes where the evaluations had to be 'tossed' and a second evaluation had to occur.

Is this more bureaucracy? Red tape to an already onerous process? How do you think the fairness can be 'above reproach'?

Comments/discussion appreciated

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.

10 Ways to Better Procurements #2 - Mitigate Risk

#2 - Mitigate Procurement Risk

Risk exists and can never be eliminated but it can be mitigated through effective management and knowledge application. All of the articles in this series address risk issues, this is a summary. Procurement risks can be sorted into two general categories: contracting process and supply chain risks.

Laws relevant to the procurement contracting process continue to evolve as a result of case law initiated because one party to a tendering or contracting process was offended by the actions of another party. Involvement in these types of court cases is a huge risk to be avoided. This type of risk can be mitigated by application of equal, transparent and ethical treatment of all respondents to a procurement request. Easily said, but considerable diligence is required to implement. Professional procurement and legal expertise can assist.

It is possible to transfer risk from the purchasing organization to the supplier, however risk transfer comes with its own risks. Transferring too much risk will add to the cost of the procurement and/or may reduce the number of quality respondents. Use a fair balance and only assign risk to the party that has the most opportunity to control it.

Any organization’s supply chain can and likely will break from time to time. A sole supplier may lack capacity, a product may have quality variables or a disaster may close a key supplier’s facilities. These risks can be mitigated through understanding and knowledge of your organization’s supply chain (see #8 in this series). This includes knowledge of your supplier’s supply chain as well. Identification of the weak links such as geographical and/or corporate concentration of supply sources of critical components will assist in the formulation of supply chain risk mitigation strategies.
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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

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

What's in a name?

I'm finding myself immersed in a theme of "what's in a name". This morning I received an email from The Surge Group talking about what a business is - ie it's brand, name, logo or what they sell. It was an interesting article about brand being a combination, but in reality, your business really is what people feel about it. Made me think about people understanding a business, understanding they are in good hands, understanding the need for the help, support, results they get. Surge believes a recession will be a good test of a business - businesses that operate authentically have a brand as a 'result' rather than a brand they push onto the marketplace. Intrigues me, so much so that I'll be attending their next workshop where they're discussing this topic further.

What then led me to feeling immersed in this theme was reading a discussion board on the Purchasing Management Association's member's portal. The topic was regarding the 'renaming' of the C.P.P. designation. To say people feel passionate about the topic is an understatement. In reading the posts, this same thought haunted me, what is in the name? Does it really make a difference in what the credential is named? Do people understand it? Do people feel that someone with this credential is better qualified to do their purchasing, inventory management, strategic sourcing, negotiations, etc? Strangely enough, people believe the brand is the designation, yet ignore that the brand is, in a huge way, the membership. The misunderstandings come from the huge range of skills, understanding, and acceptance of the people performing these jobs. Accountants have three separate, distinct designations for the three "types" of accountants and what "niche area" they focus on. Does "supply chain" designations need to reflect different "niche areas"?

Does the designation "name" really matter? Are purchasing, procurement and supply chain understood by the marketplace as "different" areas requiring different distinct skills? Does the marketplace even understand the designation requirements? Who's responsible for this 'confusion' in branding?

The Risks of Waiving Contract Insurance

A risk management colleague of mine and I wrote an article this past year that was published in NECI's Legal Edge Jan/Feb 08 Newsletter. Summit Magazine has subsequently requested (and received) approval to reprint the article as a Procurement Tip on their website.

Although we highly recommend subscribing to the NECI Legal Edge newsletter - you can get this particular article here: Procurement_Tips

We created this article based upon our experience with what we deemed a simple insurance requirement and the 'excuses' without consideration of the risks associated. After the newsletter was published, we received thank you notes from procurement managers who have experienced similar resistance to insurance requirements.

Enjoy!