Friday, April 8, 2011

Communication - Internal Questions To Ask In Preparation

The first step in the Procurement process is internal information gathering that should be done with the requestor, users, subject matter experts, etc. to determine what is required. Similar to contract commitments you are looking for answers to the 4W’s and an H questions: Who, What, Where, When and How.

The goal of internal information gathering is to define the scope of the transaction, describe the elements that contribute to delivering that scope, and establish the conditions, under which the Product or Services will be provided or conducted, tested, and accepted. For major contracts information gathering is extremely important. What you learn as part of the information gathering phase can impact what you look for in a supplier, how your qualify them, the bid approach, contract type and contract terms that may be required.

In both preparing the Bid / Proposal documents and preparing the right contract there is significant information that the user or technical expert needs to provide. There are a number of different contracting approaches and each has a different speed and each require different levels of management. The answers to these questions provide direction on what approach should be used. For example, if the requester says that they have limited resources available to manage the supplier, you wouldn’t want to enter into a time and materials arrangement that requires the most management. Similarly, if your schedule is extremely aggressive you may not afford to be able to use a competitive bid approach that takes the longest period before work can commence. The technical expert should also be able to teach you about the product or commodity and many times will have past experience with the suppliers and with prior negotiations so they can help prepare you for what to expect.

The time to involve the technical expert is during any pre-qualification activity the will be performed. If there isn’t a formal pre-qualification or site visit required, as would occur with existing qualified suppliers, you need to involve the technical expert to help you not just provide the technical documents but to also provide all the information you need to prepare the bid or proposal document, select the contract approach and determine what terms are needed.

For large purchases information gathering may include:

Dates and Schedule
  • What are your delivery dates or schedule requirements. (This can drive the contracting approach you select.) This could include the total time allowed, major checkpoints or phase milestones. In discussing schedule you could also discuss schedule requirements for managing critical risks or interruption to the business.  For example when I purchased debit card processing services for a Bank one of the key schedule requirements was a prohibition on any system changes during the peak shopping periods leading up to the Christmas holidays as that was the period during which they had the most transaction and made the most money.
  • How flexible are you on the schedule?  Are you flexible if schedule has a significant cost impact? (This could allow you to request prices for different schedules).
  • Are there Milestone deliverables? This can help identify the types and amounts of progress payments that may be needed.

Definition of the Project Scope: The boundaries that define the depth and breadth of the purchase, including functionality. In many cases this would be done by the specification.
You would need copies of specifications, drawings, statement of work and all other documents and the on-line location of referenced documents or standards. For all documents you would:
  • Check that they are clear, complete, what is being asked for is realistic and the specifications would not restrict you to a single supplier unless that is absolutely necessary.
  • Clarity mean being able to answer:
      • Who is responsible,
      • What are they responsible to do?
      • When are they responsible to do it?
      • Where must it be done?
      • How must it be done
  • They use the same defined terms as the Agreement
  • There are no conflicting requirements.
  • They are written using the appropriate standard of commitments for any deliverables and Supplier obligations.
  • They include any assumptions that should be made where information is not fully available.
  • The referenced documents are current and are correctly referenced.
Once you understand all the documents you can make sure the order of precedence is established in the event of a conflict.

Volumes of purchases expected. This should include estimates of both current and future volumes.  Include the needed quantities for everything including samples, and prototypes.

Key Assumptions: environments or conditions under which the scope of work is defined and the estimates were determined.

Supplier Responsibilities: These are the tasks the Supplier will perform (or assist on) to develop or provide the deliverable product or service and any specific activity (or task), that you want to require and the Completion Criteria for those tasks. Where, what, when and how will they provide it?

Buyer Responsibilities: This would include activities (tasks) or deliverables that the Buyer must provide, perform (or assist on), to enable the Supplier to fulfill its responsibilities. Where, what, when and how will we provide it?

Deliverables: These are the Materials produced during the project by the Supplier, and delivered to the Buyer. For example do they provide you with samples or prototypes?

Delivery. Are there any special requirements for delivery, rigging, assembly, and start-up?

Acceptance criteria. Acceptance criteria are the detailed, objective, measurable conditions, which if stated in an Agreement, must be met by the Supplier in order to accept deliverable Materials provided by Supplier. Are special inspection acceptance or test requirements needed?

Completion Criteria for “project-based” SOWs. These are objective criteria by which overall project completion is measured.

Cost Estimate. How much do they expect to pay? Are there any benchmarks?

Flexibility. How firm are the requirements? How flexible is the schedule

Deliverable Materials Guidelines. How you want things delivered. This could mean things like the number of copies for a report, the media type for Software, etc.

How the performance will be managed and who will manage it? The amount of resources that are available for managing an activity can affect the type of contract you need. For example, you don’t want to do a time and materials relationship unless you have the resources to manage it. What escalation processes are required in the event of a problem? Is there any Project management requirements needed to help manage the performance of the work such as project review meetings?

Unique Requirements
  • Are any special terms or insurances needed?
  • What Intellectual Property rights are required?
  • Is any of the information that will be confidential? What degree of protection is required?

Priorities. What are the 3 to 5 most important things you need or want from the activity? This can help prioritize what’s important for the negotiation.

Recommended, preferred, and potential Suppliers.  Do they know of suppliers that they feel can do the work?

Alternative Suppliers, Products or Services. This can help identify potential leverage from competition. Are there any special capabilities or experience the supplier must have to do the work?
Bid, Proposal Requirements, What data and cost information do you want submitted with bid or proposals?

Risk Management Performance Management Needs
You would also ask whether the agreement will needs any performance or risk management terms such as:
  • Approval of Project Personnel, or changes to Personnel
  • Approval of Suppliers, Lower Tier Subcontractors
  • Audit or Examination of Books and Records requirements
  • Background Investigations
  • Change of Control Rights
  • Conflict of Interest restrictions for key personnel
  • Coordination of Work requirements
  • Stricter Confidentiality Requirements
  • Management Escalation Procedures
  • Escrow requirements
  • Inspection of Facilities rights
  • Additional Insurance Requirements such as
    • Professional Liability and Errors and Omissions
    • Employee Dishonesty and Computer Fraud Insurance
  • Key Employee Restrictions

In addition you might also solicit information such as
  • The financial impact if the supplier failed to perform (for use in determining potential Liquidated Damages.
  • Whether there may be competition with others using the same supplier requiring a Most Favored Customer commitment
  • Future needs to determine if you need multi-year Price Protection or purchase options
  • Whether there is any need to make derivative works (for discussions on ownership and license rights)
  • What type of payment mechanism works (Progress or milestone payments, retain age.
  • If there is a concern about Recruiting/Hiring of Employees.
  • Response Time / Performance Criteria
  • Risk of Loss (different from normal delivery terms)
  • Any special Safety & Security requirements that may be needed
  • If the work will be done on the Buyer’s or Customer’s site,
    • Temporary Use of Facilities
    • Temporary Use of Machines

As the last part of information gathering I would ask: What, if any, prior communications or discussions they have had with any of the Suppliers? The simple reason to ask that is to understand what the Supplier(s) may have learned about your company’s specific needs, schedule, preferences etc. All are things that may provide them with an indication on their competitive position that can take leverage away from you in the negotiation.  If you know, you can be better prepared to deal with it.

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