Procurement methods and contracts

Procurement Methods

Definition of Procurement: Procurement is the process of sourcing and obtaining the goods or services needed for a project.
Invitation to Tender (ITT): This method involves inviting suppliers to submit a bid to supply goods or services. The bid that offers the best value for money usually wins.
Request for Proposal (RFP): This method includes a request for suppliers to propose a solution for the supply of goods or services. It’s often used when solutions in addition to price are important.
Request for Quotation (RFQ): A method that asks suppliers to quote a price for a specific service or good. It typically applies when the requirements are clear and well-defined.
Single Source Procurement: Involves procurement from a single supplier. This method is used when only one supplier can meet the project’s requirements.

Procurement Contracts

Fixed-Price Contract: The supplier and the buyer agree on a fixed price for the service or goods. Even if actual costs increase, the buyer does not need to pay more than the set price.
Cost Reimbursable Contract: The buyer reimburses the supplier for actual costs and includes a payment for profit. The contract can be used when the scope is uncertain or not fully defined.
Time and Materials Contract: The buyer pays the supplier based on the time and materials used. This contract is used when it is difficult to accurately estimate the total project cost.
Target Cost Contract: The buyer and supplier agree on a target cost and share the risk of the project exceeding or coming under this cost.
Design and Build Contract: In this contract, one contractor is responsible for both the design and construction of the project. This provides a single point of responsibility.
Management Contracting: Here, a management contractor is appointed early in the design process to provide advice.

Choosing Procurement Methods and Contracts

Project Needs and Requirements: The chosen procurement method and contract type should align with the project’s needs and requirements.
Cost, Time, and Quality: The project’s budget, schedule, and quality requirements can impact the choice of procurement method and contract type.
Supplier’s Ability to Deliver: The supplier’s track record, capability, and reliability should also influence the choice of procurement method and contract type.

Contract Management

Contract Administration: Requires the management of the contracts to ensure all parties fulfill their obligations.
Change Control: Any changes to the contract during the project need to be managed effectively to avoid disputes and delays.
Dispute Resolution: Any disputes that arise during the contract can be resolved through negotiation, mediation, arbitration, or court proceedings.