20140326-CM Course Class Exercises.pdf

Contract Management Principles and Practices Exercises

1-4

Introduction to Procurement Management

Contract Schedule Network Diagram

Figure 1: Contract Schedule Network Diagram

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Case Study: Section 1

Instructor Case Study: InYourFaceMarketing

Scenario

BackgroundYou work for a small high tech advertising firm, IYFM (InYourFaceMarketing). The offices are looking a little shabby, and some important new clients are expected to visit within a few weeks. The CEO has instructed a good friend of yours to get the place painted quickly as possible.IYFM does not have a procurement department. Your friend is responsible for everything. You just took a contract management training course and have been asked for advice on how to proceed.

Painting ProjectThe office manager has insisted that normal operations not be interrupted. The painting must, therefore, be done at night, evenings, or weekends.The painters will be responsible for removing pictures and decorations on the walls and then returning them to their correct place after painting. The painters will be required to move the furniture where necessary and to protect the furniture and flooring from splatter.The painting needs to magically get done without anyone even noticing.

SponsorJan Jones, the CEO and project sponsor, has initiated a number of concurrent decorative projects, including new carpets, new furnishing in the foyer and an upgrade to the wall decorations. A demanding woman, Jan expects everything to be done quickly, cheaply, and in the background. Redecorating activities should not affect anyone.

CostsKeep the costs as low as possible.

ScheduleThis project needs to be completed as soon as possible, in four weeks maximum.

ProcurementIYFM has a PO (Purchase Order) system. When something needs to be purchased, the person requesting the purchase must have a PO created by Bill Smith, the accounting manager.Any purchase over $500 requires a manager’s approval. Any purchase over $2,000 requires the approval of three managers. Any purchase over $10,000 requires the CEO’s approval.Standard practice at IYFM is to get at least three quotes before choosing a vendor or supplier.

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Procurement StrategyIYFM had the building painted ten years ago but has no record of who did it or the cost. Your colleagues are advising you to call companies listed in the phone book or to ask for references from paint suppliers. Your friend has prepared a cover letter and plans to fax it to anyone that is interested. After ten responses have been received, the best contractor will be selected and put to work right away.

Procurement FaxInYourFaceMarketing9000 Regency ParkwaySuite 5000

Painting Services Needed!!!

September 2, 20XXTo Whom It May Concern:

InYourFaceMarketing is looking for painters to paint our offices. The project needs to be completed no later than the end of September. Sooner would be much better!

Painting activities must take place after hours, between 7:00 p.m. and 7:00 a.m. Additional details about the project are:

• Color: Cloud White by Benjamin Moore• 14 offices (12' x 12')• Three meeting rooms (22' x 18')• Board room, lunch room, and foyer all approximately (32' x 20')• 200' of hallway• Ceilings are 8' high• All ceilings are tiled

Interested parties may inspect the premises during normal office hours by contacting Christine Right at 555-555-2222.

Please respond with a total price and proposed schedule by close of business Wednesday, Sept 4.

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Worksheets: SWOT Outline

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1-24


SWOT OutlineUse this table to highlight what you believe to be true about strengths, weaknesses, opportunities, and threats with regard to each of the headings in the SWOT Outline. For example, indicate the SWOT with regard to skills or experience.

S W O T

Skills

Experience

Knowledge

Marketing

Costs

Savings

Operations

Ethics

1-25


S W O T

Organization

Finance/Funding

Economics

Strategy

Information Technology

Automation

Innovation

Legal/Taxes

Accounting/Controls

1-26


SWOT WorksheetUse the grid to analyze individual risks, both good and bad.

Strengths Weaknesses

Opportunities Threats

Strengths Weaknesses

Opportunities Threats

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Scenario

ResponsesThe cover letter was faxed to several paint supply companies, contractors, and other interested parties. Proposals and bids have started to come back. You have been asked to help choose the best of them.

Proposal 1Eddy GreeneHello:We can do it. We’ll start right away.Our rates are $27/hour for journeyman painters and $23 for apprentices. Our supplies and materials are at cost plus 10 percent.Attached is a list of our clients.RegardsEddy – The Painted Professional

Proposal 2HomeTouchUpsDear Sir/Madam:We are a multi-faceted home and business décor company specializing in interior design. Our rates for commercial interior painting range from $0.90 to $1.13/square foot of finished surface. This is based on one coat, one color, and average levels of preparation.We have been in business for 40 years and have references to prove it.Our terms are:

• 25 percent in advance• Balance on completion• Schedule: 7 to 10 days from receipt of down payment

Looking forward to hearing from you.Regards,Eduardo Chevalle

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Proposal 3TotalDesignTo whom it may concern:Based on the dimensions you have provided, we are prepared to undertake the contract for a fixed fee of $30,000 and commit to work being complete in 14 days from date of first payment. We agree to a late delivery penalty of 3% for each day we are late and a bonus for early delivery of 6% for each day we are finished early. Our price is for a single coat, one color, and no ceilings. The terms are:

• 50% due on signing• 50% plus +/-bonus on completion

We look forward to serving you.The TotalDesign Team

Ranking of Proposals

Proposal # Name Cost Schedule

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Instructor Case Study Example: Question

What is wrong with the RFP?

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Scenario

Final RFQThe CEO, Jan, would not approve any of the original bids. Your friend has been instructed to distribute another request for quotes. Jan wants a formal RFQ. You will need the following information for the RFQ:

• Vendor selection criteria• Weighting system for the selection criteria• Performance and quality measures• Negotiating priorities

A week has already been wasted on the first round of bidding. The procurement adminis-trator, your good friend, really must hurry if the project is to be completed on schedule.

Source Selection Criteria and Weighting

Performan Performance and Quality Standards Negotiation Priorities

3-15

Plan Procurements

Source Selection Criteria and Weighting Worksheet

Source Selection Criteria and Weighting Worksheet Project Updated ��

Contract Name: ��

Contract Ref# ��

ID Name Weight %

1� Price ��

2� Understanding of needs ��

3� Communication skills ��

4� Schedule commitment ��

5� Experience Level Vendor ��

6� References ��

7� Technical approach ��

8� Warranty ��

9� Financial capability ��

10� Production capacity and interest ��

11� Business size and type ��

12� Past performance of seller ��

13� Risk ��

14� Intellectual property rights ��

15� Quality of work plan ��

16� Response to scope of work ��

17� ��

18� ��

19� ��

20� ��

30% 20%

3-16

Plan Procurements

Contract Performance and Quality Standards Worksheet

Contract Performance and Quality Standards Worksheet Project Updated ��



ID Name Milestones Quality Standard

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Disruption of operations

1/3 complete

2/3 complete

No staffcomplaints

All rooms and furnishingreturned to original positions 1

2

3

3-17

Plan Procurements

Contract Negotiation Priorities Worksheet

Contract Negotiation Priorities Worksheet�Project Updated ��



Priority Level Rank Issue Worst Case Target� Best Case

Essential� ��

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1 Disruptions Frequent Minor None

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3

4

5

Schedule

Price

Security

Replace walldecorations

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Scenario

Vendor SelectedA vendor has been selected, negotiations are complete, and a contract is in the final stages of being signed. The painters promised to start work within 48 hours of receiving a 25 percent down payment. They expect to complete the work in 10 calendar days at the most but are hoping to complete in six to seven days.

ScheduleThe original schedule was for the end of the month, a total of 30 days.The procurement assignment was given on Monday, September 1. The cover letter was faxed out on Tuesday, September 2. The rest of the first week was spent mulling over the proposals.At the end of the first week, Jan, the CEO, decided that the painting project was a substantial enough purchase to warrant a more formal procurement process. She refused all proposals from the first round and insisted on an entirely new RFQ (request for quote). She still expects the original deadline to be met.The RFQ was written over the weekend, approved on Monday, and distributed on Tuesday the 9th.Responses were accepted until Thursday and analyzed on Friday. A recommendation was made to the CEO on Saturday, which she approved.Negotiations took place on Monday and Tuesday. An agreement was reached on Wednesday. A contract was prepared for signing by Friday and is now awaiting signatures.

The earliest a PO for the down payment could be ready is Monday.

Contract TermsThey were not able to find a bondable painter. As a form of insurance against theft, the management at IYFM has decided that employees will provide security by watching over the painters. Junior employees have been pressured to volunteer for night duty. The volunteers will work in pairs and will help speed up the painting process by assisting with the moving of the wall coverings and furniture while secretly keeping an eye on the painters.

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Exercise 4: Painting Project: Schedule Update

Risk Analysis (Risk Register)

ID Risk Name/Description Risk Statement Probability Impact Detect-

ability Score Ranking Category Owner Status Date Entered

Date to Review

What is this risk?Describe risk and consequences in one sentence

Who monitors this risk?

Risk Name/Description Rank Trigger Event/Indicator Risk Response/Description Contingency Plan

What act or event initiates either the risk occurrence or precipitates the response strategy?

How will you respond to this risk and what actions will you take to match that response?

If the risk becomes a reality, what will you do in response, as a backup, or alternative/workaround?

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Scenario

Confidential: IYFM Negotiation team The painting project is just about to get under way and already there have been change requests.No one is happy with a single color for the entire office complex. Everyone wants to choose a color for their office. The CEO, Jan, was the first. Then everyone else joined in.Suddenly, the CEO is saying that the schedule is less important than the perfect color to match her new furnishings.Your friend, the procurement administrator, has been asked to negotiate color changes with the painting contractor.Jan, the CEO, does not want to pay any more than she has to. A minor slippage in the schedule would be acceptable.

Confidential: Painting ContractorYour company suddenly has a lot of work lined up. There is no way you can start painting the IYFM offices as promised. You need to negotiate a delay.Your brother-in-law owns and operates a paint store. He is able to mix small quantities of virtually any color from the Cloud White base color originally agreed to. The only increase in costs associated with changing office colors would be the slight increase in waste caused by color changes between offices.

Exercise 5: Example Planning for IYFM

5-16

Administer Procurements

Contract Negotiation: Interests and Objective Criteria Worksheet

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Scenario

ClosureThe painting project is complete. Everyone got their own office color. Not much was stolen or went missing. All the furniture and wall coverings are back in place. Everything has returned to normal, like it never happened.The work was completed by mid-October. The final cost was $34,000.

Exercise 6: Example Lessons Learned

6-17

Close Procurements

Key Lessons Learned

# Statements

Agre

e

Neut

ral

Disa

gree

N/A

Comments

1 The project schedule was met.

2 The project came in on or under budget.

3 The deliverables on the project met their requirements.

4 The project met the original business benefits.

5 This project was successful.

6 The team was happy with the project result.

7 Senior management was happy with the project result.

8 The project met customer needs.

9 The project met its objectives.

6-18

Close Procurements

# Question Comments

1 What are the top three most effective things that were done on this project?

2 What are the top three least effective things that were done on this project?

3 For future project teams working on similar projects, what would you want them to learn from this project?

20140326-CM Course Class Exercises.pdf

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