MGT254. Contracts and Procurement MGT 254. Contracts and Procurement Assignment 1 Writing a Statement of Work (SOW) Introduction The full life-cycle of a procurement of a good or service is typically comprised of five stages: Stage 1. An attempt is made to identify possible suppliers of goods and services. This is often done by means of a request for proposal (RFP) or an invitation for bid (IFB). An RFP is a written document that defines the work or products desired and is distributed among possible bidders. At the heart of the RFP is the statement of work (SOW), a narrative document describing the goods and services that will be contracted. Potential contractors write proposals describing how they will supply the desired goods and services (see below). Once the proposals have been submitted, the buyer and potential supplier may negotiate terms. An IFB is also solicitation inviting bids to supply defined goods or services. Unlike the RFP, sealed bids are tendered and opened publicly at one time. Typically, awards are made to the lowest bidder. There are no negotiations between buyer and supplier. Stage 2. After receiving the RFP (or IFB), potential suppliers must determine whether they want to tender a bid in response to the RFP. If they decide to proceed with a bid, they describe the work they will undertake and goods they will supply in a proposal. The technical description of what they will provide is 2015 University of Management and Technology 1 MGT254. Contracts and Procurement contained in a SOW. Proposals also contain information on who will carry out the effort, what the organizational capabilities are (including past experience), how much time it will take to deliver the services and goods, and how much it will cost to engage in the proposed effort. Stage 3. The buyer will review submitted proposals and then decide which proposer should be awarded the contract. Stage 4. Negotiations on the terms and conditions of the contract can be negotiated. Ultimately, the buyer issues a contract that describes what work will be done, what deliverables will be supplied, and time frames for work and deliverables. Beyond this, the contract can deal with a broad assortment of issues, including payment terms, penalties for non-performance, and descriptions of data rights. Stage 5. The contractor delivers the goods and services to the buyer and arrangements are made to close-out the contract. Assignment 1. The Statement of Work You will play the role of a buyer putting together an RFP describing work that you would like a contractor to carry out. The job that will be carried out is to relocate your company's headquarters from Site A to Site B. In this assignment, you should create a SOW that will lie at the heart of the RFP and that addresses the following facts: Current facilities (Site A) have 1,000 square meters of office space. The new facilities (Site B), have 1,600 square meters of space. Site B is located four kilometers from Site A. The current facilities contain 15 desks (with associated chairs) that need to be moved to the new site. The current facilities contains three sofas, 10 arm chairs, and three coffee tables that need to be moved to the new site. The current facilities contain small items that will be packed in an estimated 120-160 cardboard boxes. 2015 University of Management and Technology 2 MGT254. Contracts and Procurement The current facilities have 15 computers (with monitors) that need to be moved to the new site. The current facilities have 34 framed pictures that have to be packed and moved to the new site. Write a simple SOW that will be included in the RFP. 2. Estimate of Costs Create an estimate of what you think it will cost to carry out the work described in the SOW for the office relocation project. In your estimate, you should include estimates of labor time and equipment rental (e.g., renting moving vans). 2015 University of Management and Technology 3 MGT254. Contracts and Procurement MGT 254. Contracts and Procurement Assignment 2 Writing a Request for Proposal (RFP) Introduction Use of requests for proposals (RFPs) is a common approach to soliciting proposals from potential contractors. The length and depth of the RFP will be tied to the size and complexity of the proposed effort. Small, routine efforts can be handled with short RFPs of one or two pages length, while large, complex undertakings (e.g., building a weapons system) might require RFPs that are half a foot thick. When potential contractors submit proposals in response to the RFP, there is plenty of room to negotiate things like details of the work to be done, promise dates for critical deliverables, and project price. Once these items have been agreed to, a contract can be written capturing the agreement. Invitation for bids (IFBs) entail soliciting proposals that are submitted as sealed bids and opened publicly at a bid-opening session. In contrast to RFPs, the proposal contained in the sealed bid represents the contractor's best and final offer. In such circumstances, the contract is typically awarded to the low bidder. 2015 University of Management and Technology 1 MGT254. Contracts and Procurement Assignment 1. Write an RFP Using the Statement of Work created for the office relocation project (Assignment 1), write a brief RFP, soliciting proposals from potential contractors. For guidance on what a basic RFP should contain, look at the outline of an RFP contained in the Chen/Frame text (Principles of Contracting for Project Management), pp 46-49. A shorter outline appears in Module 3, p 23. To see a real world example of an RFP, review the reading titled \"NIDA RFP.\" Your RFP should be no longer than five pages long. On your RFP, please include a cover page and table of contents - these two pages are not included in the page count mentioned above. 2. The IFB Describe how you would need to adjust your RFP to convert it into an IFB (it is not necessary to rewrite it as an IFB). Why are these adjustments necessary? Your answer to this part of the assignment should be no longer than one page. 2015 University of Management and Technology 2 \fMGT254. Contracts and Procurement MGT 254. Contracts and Procurement Assignment 4 Understanding Different Contract Modalities Contracts can be configured in various ways, but most are divided into one of two categories: fixed price contracts (also called lump sum contracts) and cost plus contracts (also called cost reimbursable contracts). Following is a summary differentiating the characteristics of these two contract modes: Fixed price contracts. Sellers agree to provide well-defined goods and/or services by a specific date at a fixed price. Sellers bear most of the risk on this contract, because if there is a cost overrun, the seller must assume the burden of the loss. Fixed price contracts also have \"opportunities,\" because if the seller's costs are very low, they have an opportunity to increase their profits. Cost plus contracts. Buyers agree to reimburse sellers for whatever costs they incur in carrying out the contracted work. Clearly, buyers face a serious risk of cost overruns here, because if contractors spend too much, buyers are obliged to reimburse them. In order to create incentives for buyers to save money, some variations on cost plus contracts have emerged, including: cost plus incentive fee contracts (CPIF). With the CPIF contract, a table is created that shows how contractors can be paid defined bonuses if they deliver their products early (e.g., $5,000 bonus if delivered one week early; $8,000 bonus if delivered two weeks early). cost plus award fee contracts (CPAF). With the CPAF contract, a pool of award fee money (i.e., a bonus pool) is created. If contractors do a great job on their contracts, an award fee panel may elect to pay them a bonus 2015 University of Management and Technology 1 MGT254. Contracts and Procurement with money taken from the award fee pool of money. Judgments of performance are subjective. cost plus fixed fee (CPFF). With CPFF contract, buyer and seller negotiate a fee (i.e., profit amount) that the buyer will pay the contractor, given that work is completed in a satisfactory manner. The fee is negotiated before any work has begun. Thus contractors know ahead of time what their profit levels will be. They have no incentive to increase costs in hopes that that will lead to higher profit levels. CPFF contracts are the dominant contract mode for research and development projects, which are high risks efforts. A commonly employed variant of the cost plus contract is the time and materials contract. This is a cost reimbursable contract where contractors are reimbursed for the time they put into a job plus expenses they incur in purchasing materials. Unlike the cost plus contracts, there is no explicit \"plus\" associated with the contract. This does not mean profits cannot be gained. If profits are factored into this type of contract, they must be built into the salaries and material costs associated with performing the contract. Assignment 1. For the following types of undertakings, which contract modes are most appropriate? Be prepared to explain the rationale behind your choice. We want to order a pencil manufacturer to produce 20,000 pencils for us We want to have a 300 meter bridge built to span a local river We want to have a contractor design a brand new circuit board that has state-of-the-art capabilities We want to contract out work to operate our small factory 2. Describe the relative benefits and weaknesses of a CPIF contract vs. a CPAF contract. 2015 University of Management and Technology 2 MGT254. Contracts and Procurement MGT 254. Contracts and Procurement Assignment 5 Writing a Personal Services Contract Introduction A contract is simply an agreement that specifies the rights and responsibilities of the signatories. It can be one sentence long or can stretch out for hundreds of pages. There are two primary factors that affect the length of a contract: 1) the size and complexity of the effort that needs to be undertaken; 2) the level of detail that the parties feel compelled to write into the written document. Clearly, while small, simple efforts can be covered by short agreements, large, complex undertakings will tend to be accompanied by lengthy, complex contracts. For example, a contract to build a nuclear power plant will be a massive document. If nothing else, the sheer quantity of detail that needs to be handled is enormous, and the act of documenting this detail will consume many pages. Beyond this, nuclear power plants have liability issues that must be incorporated into the contract - as Three Mile Island and Chernobyl showed us, they can be dangerous places. Thus the legal portion of the contract can consume hundreds of pages. Even fairly small efforts can be defined by lengthy contracts if the parties insist that nothing be left to the imagination. For example, one contract might specify that Room 222 be painted Ivory White (# 6201B, Brite Paint mix), following standard professional painting practice, while another contract might 2015 University of Management and Technology 1 MGT254. Contracts and Procurement define in great detail what painting practice should be pursued (e.g., cover the furniture, remove face plates from switches, remove all hardware from doors, cover the floors with a drop cloth, etc.) The second contract will be much longer than the first. Assignment You want to hire a professional editor to help your film scripting group to put together a script for a two-hour documentary on the lives of illegal immigrants in Texas. It is estimated that the editor will be employed by your organization for three months and will be paid $250 per day. For the most part, he/she will be editing work that your colleagues have already written, or are in the process of writing. But it is clear that the editor should be able to write new material when the occasion arises. For the editor to function properly, he/she needs to attend project meetings for the project and be capable of interviewing key people when necessary. This is all the information you have been given regarding the editor's potential chores. You are asked to write a professional services contract that both your Vice President and the editor will sign. 1. What items and issues should be included in the contract? 2. Compose a short professional services contract that your company can use on the documentary project 2015 University of Management and Technology 2 MGT254. Contracts and Procurement MGT 254. Contracts and Procurement Assignment 6 Non-disclosure and Non-competition Agreements Introduction With today's increased emphasis on outsourcing professional services and entering into partnering agreements with other organizations, companies find themselves in situations where they may be providing outsiders with proprietary information that they do not want leaked out, or that they are offering their partners new skills that may turn them into a potential competitor. Consequently, it has become common practice to have new hires, contractors, and partners sign non-disclosure and non-competition agreements. Generally, these agreements do not need to be very long. While it may be tempting for a company to create highly restrictive agreements, this might become troublesome if a legal dispute arises, because courts and juries are reluctant to support agreements that are so restrictive that they deny people the right to make a living. On the other hand, if they are too vague and open-ended, they won't offer the company the protection it seeks. Creating a good agreement entails engaging in a balancing act: the agreement should be sufficiently detailed and restrictive to discourage employees, contractors, and partners from disclosing proprietary information or competing against the company, but loose enough not to be viewed as punitive by the courts. 2015 University of Management and Technology 1 MGT254. Contracts and Procurement Assignment You are about the hire an editor to help with the production of a script for a documentary on the lives of illegal immigrants in Texas (see Assignment 5, Writing a Personal Services Contract). Because the contracted editor will have access to proprietary information, you want him/her to sign a non-disclosure agreement. Also, you do not want the editor to take the skills he/she developed on the contract and begin competing against your company, so you want him/her to sign a non-competition agreement. Create short non-disclosure and non-competition agreements that the contractor can be asked to sign. 2015 University of Management and Technology 2 MGT254. Contracts and Procurement MGT 254. Contracts and Procurement Assignment 7 XYZ Company's Customer Relations Management (CRM) Project Six months ago, the Executive Committee of XYZ Company made a decision to install a Customer Relations Management (CRM) system to streamline its operations. Specifically, XYZ expected that the CRM project would enable it to integrate its order fulfilling and sales and marketing processes that had always operated as separate functional units. As a result, communication between these units has regrettably been minimal. For example, the order-fulfilling unit did not have any information about the customers whose orders they fulfilled. Similarly, the sales and marketing unit could not answer customer inquiries about the status of their orders because they did not have the information from the order fulfilling people. The Executive Committee assigned responsibility for the project to the IT department, which in turn appointed Steve McMahon as the focal person for the project. The Executive Committee also decided that the project should be outsourced to an outside contractor with a good track record in implementing CRM solutions. Steve developed the initial requirements for the project. He then called a focus group meeting to review the requirements statement he had developed. The group consisted of middle managers from marketing and sales, IT, operations, finance and engineering. The meeting improved upon Steve's requirements statement and developed the business requirements for the project from it. The focus group later became the project's steering committee. A Statement of Work (SOW) and then a Request for Proposal (RFP) were developed based upon the business requirements. At the end of the solicitation process, Computer Software 2015 University of Management and Technology 1 MGT254. Contracts and Procurement Solution, Inc. won the contract, and started implementation of the project as defined by the SOW. Two months later, Steve was sitting in his office reviewing the latest status reports on the project the contractor had submitted. He was satisfied with the project's performance so far. At that moment, Roger Smith, the Vice President (V.P) for marketing and sales phoned Steve and asked for a briefing on the project. At the end of the briefing, the V.P told Steve that he was distressed about the suitability of the final product. He protested that there was by far too much emphasis on order fulfillment instead of customer profiling. He bluntly told Steve \"the product, as you have described it, would not be an effective market research tool as I expected it to be\". He then hung up. Moments later, he was on the phone again, but this time with Francis Gray, the contractor's project manager. Roger told Francis that what he expected to see at the end of the project was a product that would enable his unit to undertake effective market research. He therefore specifically gave Francis the go ahead to make changes in the product's features to include customer profiling that would enable him to achieve his goals. Francis politely told Roger that the prototype of the product was 40% completed and that his request would require a major redesign of the product. This would extend the project by another two months and would result in budgetary overruns. Francis also told Roger that before he (that is, Francis) could make any design changes, he needed to consult with Steve and other members of the project's steering committee. This was more than Roger could take and he quickly shot back: \"I am the customer. I demand that the product include the customer profiling features, period\". When Steve learned of Roger's demands on the contractor, he grew confused. He didn't know what to do. Questions: 1. Marketing Vice President Roger Smith angrily states: \"I am the customer\". As such, he expected the contractor to follow his request. What are the merits of Mr. Smith's assertion? To what extent is the contractor obliged to do what the customer orders? 2. How should Francis handle the unexpected request from Roger Smith? 3. How can effective change control procedures help Steve and Francis deal appropriately with this situation? 4. If Francis accedes to the request of Roger Smith, what would be the possible consequences? 2015 University of Management and Technology 2 MGT254. Contracts and Procurement 2015 University of Management and Technology 3 MGT254. Contracts and Procurement MGT 254. Contracts and Procurement Assignment 2 Writing a Request for Proposal (RFP) Introduction Use of requests for proposals (RFPs) is a common approach to soliciting proposals from potential contractors. The length and depth of the RFP will be tied to the size and complexity of the proposed effort. Small, routine efforts can be handled with short RFPs of one or two pages length, while large, complex undertakings (e.g., building a weapons system) might require RFPs that are half a foot thick. When potential contractors submit proposals in response to the RFP, there is plenty of room to negotiate things like details of the work to be done, promise dates for critical deliverables, and project price. Once these items have been agreed to, a contract can be written capturing the agreement. Invitation for bids (IFBs) entail soliciting proposals that are submitted as sealed bids and opened publicly at a bid-opening session. In contrast to RFPs, the proposal contained in the sealed bid represents the contractor's best and final offer. In such circumstances, the contract is typically awarded to the low bidder. 2015 University of Management and Technology 1 MGT254. Contracts and Procurement Assignment 1. Write an RFP Using the Statement of Work created for the office relocation project (Assignment 1), write a brief RFP, soliciting proposals from potential contractors. For guidance on what a basic RFP should contain, look at the outline of an RFP contained in the Chen/Frame text (Principles of Contracting for Project Management), pp 46-49. A shorter outline appears in Module 3, p 23. To see a real world example of an RFP, review the reading titled \"NIDA RFP.\" Your RFP should be no longer than five pages long. On your RFP, please include a cover page and table of contents - these two pages are not included in the page count mentioned above. SOLUTION: REQUEST FOR PROPOSAL Date: Company: Introduction: Our company is in need of relocating to a new cite 4 kilometers away from the current operating site. We are accepting proposals in response to this proposal. In order to find the qualified source to help provide the end product, the following are the goals: a good and modern mode of transportation for our items as well as a reduced cost for the whole process. Now, while the price for the service is an award determining factor, other prospects such as determination to do a quality job will also form a basis of the award. Submission: 2015 University of Management and Technology 2 MGT254. Contracts and Procurement Only the qualified sources should submit their proposals as this project management wont award any unqualified source. The proposals are supposed and must be submitted prior to the date stated (in the beginning). Scope and the budget: this process is approximated to run for a maximum of one week and use roughly $3,600 to completion. Our company is therefore willing to re award the most appropriate, \"may the best team win.\" 2. The IFB Describe how you would need to adjust your RFP to convert it into an IFB (it is not necessary to rewrite it as an IFB). Why are these adjustments necessary? Your answer to this part of the assignment should be no longer than one page. SOLUTION: In IFB the first thing is to is to give instructions to bidders as well as providing them with bidding data sheet. This is to help the bidders familiar with what is expected of them. Bidders are also given the bidding forms and the eligibility determined. Finally, in this introduction step, there is the evaluation and qualification criteria determined. The second and third part of this document requires you to determine the supply requirements as well as the nature of the contracts respectively. On the contract part 2015 University of Management and Technology 3 MGT254. Contracts and Procurement it's important to be precise on the general and the special condition contracts. At the final step the company finalizes by inviting the bidder. 2015 University of Management and Technology 4 MGT254. Contracts and Procurement MGT 254. Contracts and Procurement Assignment 3 Respond Appropriately to the Following Request for Quotations (RFQ) ---------------------------------------------------------------------------------------Puffy Pop Popcorn Company Request for Quotations Puffy Pop Popcorn Co. is a subsidiary of Great Plains Grocery, Inc., a supermarket chain serving five Midwestern states. Each month, Great Plains' stores collectively sell an average of 5,000 pounds of pop corn kernels in onepound plastic sacks. It sells the popcorn under the house brand name of Puffy Pop. Puffy Pop is looking for a new supplier of popcorn. The supplier must be able to meet the following requirements: 1. Supply popcorn kernels that pop to a clean white color. 2. Supply popcorn that produces fewer than 1% \"old maids\" (i.e., kernels that do not pop after cooking). 2015 University of Management and Technology 1 MGT254. Contracts and Procurement 3. Is capable of bagging the popcorn in plastic bags that hold one-pound of corn kernels. The bags will be supplied by Puffy Pop. 4. Will supply Great Plains' central warehouse in Desmoines, Iowa, with 3,500 one-pound bags of popcorn kernels each month and will have the capacity to add up to 2,000 additional bags - given one month's prior notice - to meet changing levels of demand. Only vendors who have experience in supplying popcorn kernels to retailers should submit bids. At the time of the bid submittal, bidders should provide a one-pound quantity of their product which Puffy Pop can test. Bids should contain the following information: 1. Point of contact at the vendor facility. Include name, telephone number, fax number, address, and e-mail address. 2. Names of three clients who currently are supplied with popcorn kernels by the bidder. Phone numbers of these people should also be supplied. 3. Summary of corporate capabilities, including a brief history of experience in supplying clients with popcorn kernels. 4. Price per pound of popcorn kernels delivered to Great Plains's Desmoines warehouse. 5. A brief statement of back-up plans in the event that the vendor is unable to supply the required quantities of popcorn. Bids should be submitted by XX/YY/20zz. Response: DATE: CONTACT INFO: Subject: Supplying Popcorns to your company (Puffy Pop) I am the manager of Hubs popcorn suppliers, a company that deals specifically with groceries and supplying of popcorns. The sole reason for my proposal is because I want to supply the popcorn as indicated in your RFQ. I have read an understood all the requirements of the RFQ and wish to work 2015 University of Management and Technology 2 MGT254. Contracts and Procurement with Puffy pop. The job your institution is offering is surely what we do best here at Hubs. Our firm has been in the game for over 25 years and has a good relation with the customers it works for. For us the customer preferences are our number one priority. Currently we are having few jobs in our schedule thus putting at the best position to serve your needs. We would wish to make it clear to your firm that additional charges may incur over the period of supply just in case the market we are getting the popcorn grains hikes the prices. We look forward to getting the award. Hubs. 2015 University of Management and Technology 3