This presentation tries to justify the procurement source selection process divided into 20 parts. The first presents a summary of source selection process followed by source selection diagram, acquisition plan; forming procurement source selection teams for complexity procurement, including source selection and management’s approval; communication plan; evaluation of bidders’ RFP, statement of work (SOW); preparation & issuance of RFP; receipt of proposals; and evaluation of project proposals. The presentation also examines the management approach, technical capability, past performance, financial capability, intellectual property rights, proprietary rights, risks, and issues involved in contract negotiations, and ethics in procurement. Discussion on the Terms & Agreements, independent estimates, and Source selection decision issues, which includes Pre-award Notices and Contract Award, will also be discussed. The last three slides will cover Debrief Offerors of Award, Lessons Learned, and the conclusion.
Source Selection
Source selection is the process of selecting a contractor through issuing a solicitation, either a request for proposal (RFP) or invitation for bid (IFB), and then selecting (picking) the best-qualified offerors to run the project. Source selection management uses a glut of methods and processes in finding potential suppliers. These methods are electronic data interchange (EDI), net marketplaces, imprest funds, auctioning, and web portals. Other techniques in use include sealed bid procedures, competitive bidding open, and negotiated procurement, to name a few examples. Federal Acquisition Regulation (FAR) has, as an essential part of its goal, to ensure that source selection remains fair, competitive, and free of conflict of interest and corruption. Moreover, FAR’s parts 13, 14, 15, and 18 also address Simplified Acquisition Procedures, Sealed Bidding, Contracting by Negotiation, and Emergency Acquisitions, respectively.
Source Selection Diagram
The basis of project procurement source selection is to find and choose from among bidders. These capable offerors possess the skills required to deliver goods and services to the total satisfaction of the offeree in exchange for a price. As shown in the diagram, the first step to a source-section process is to form a cross-disciplinary team that works in tandem with top project management and project owners to set policies, standards, and evaluation procedures used to sort out bidders and settle on the best qualified. The Source Selection Official (SSO) team can be the Source Evaluation Board (SEB) or the Technical Evaluation Committee (TEC). The source selection teammates are required, according to FAR 3.101-1, to conduct themselves “in a manner beyond reproach, with complete impartiality and preferential treatment to none. Impeccable standards of conduct are necessary. Personnel involved in a Source Evaluation Board are required to avoid any conflict of interest or even the appearance of a conflict of interest. To make sure the process remains open and competitive, the team can create a website or an effective communication plan that can seamlessly manage the flow and access of information –including schedule, announcements, details about conferences, meetings, visits, questions, and answers and various links -between parties. The evaluation focuses on the bidders’ ability to manage the contract, their technical expertise, and price. The team can compare the amount that the offerors propose to an independent cost estimate. After a thorough evaluation of the offerors’ response to a request for proposals and a discussion or negotiation strategy of the terms and conditions of the contract, the team can report findings to the top management for review and approval. If approved, the source selection decisions -including pre-award notices and debriefing of offerors-can proceed.
Develop Acquisition Plan (DAP)
An acquisition plan covers a wide range of Pre-award, Contract Award, and Post-award procurement issues. These include user needs, requisition process, potential sources, solicitation proposal, suppliers, contract, and close contract. The Acquisition Plan ensures that the goal of finding and hiring the right suppliers is achieved. The source selection planning process considers other procurement areas such as funds availability, preliminary cost, schedule estimates, quality management plans, cash flow projections, work breakdown structures, risk management, and workforce resources. The procurement source-selection planning process provides an integrated assessment of contract type selection, risk management, and contract terms and conditions. The source selection plan also covers pricing, estimate costs, and fees, policies regarding notifications, debriefing, mistake handling, proposal, rules RFP preparation, and receipt of information. Moreover, FAR contains a robust repository of source selection standards and strategies –including competition requirements types of contracts, small business programs, contract financing, and termination of contracts.
Forming or designating a procurement team for complex buys
Major complex buys serve a company in dual roles. They are goods and services that can boost a company’s competitiveness and maximize their return on investment. However, the nature of their rarity and novelty, along with the high cost of manufacturing or producing them can weaken a company’s market share growth if they are not managed with the utmost care. Choosing a team with the responsibility to manage complexity procurement, therefore, requires the most considerable attention and foresight. The team must have multi-functional, cross-organizational boundaries and capabilities and be adept in the product specifications and work breakdown structure (WBS) management and work together to share information. Having as its head, a technologically inclined member of the team is highly desirable. Most companies also find it strategically essential to hire a third-party consultant to manage significant complex buys. It helps share risks associated with the purchase, developing, designing, manufacturing, shipping, handling, and delivery of complexity procurements.
Major complexity procurements present challenges to procurement management. They are unique items that are hard to find on the market. Companies invest more resources in creating, buying, and securing them. In other words, major complexity procurements are high-risk products, possible showstoppers, and disruptors to product delivery schedules.
Technical knowledge is particularly essential in purchasing major complexity procurements. Technical requirements may contain the size, capacity, staffing, hardware, and technical approach, to name a few. The staffing requirements include mastery of the appropriate software, inventory analysis, and redeployment systems, buyer program management, e-procurement software, e-commerce, and e-auctions.
Procurement Ethics
Conforming to a high ethical standard is essential in the procurement source selection process. Ethical decisions cover everything a source selection team does, from listing potential sources, inviting bidders, evaluating RFPs to awarding. Team leaders can create values that are ethical or perform their duties and achieve business goals without going to jail, being fined, paying high penalties, and liquidating business assets. The more trustworthy and ethical the business and its leaders operate, the better the reputation. And corporation that has a reputation, honesty, and integrity retains customers’ royalty and shareholders’ commitment continually.
On the other hand, the less honest or trustworthy a firm’s leadership becomes, the fewer shareholders will be interested in investing or doing business with the leadership. The goal of source selection is to “acquire materials and services of the right quality, in the right quantity, at the right price, at the right time and from the right source.”
Moreover, the breach of ethics –lying about products and services, falsifying business documents, stealing property, and using public funds for personal use saps business value and tarnishes its reputation in the community. Procurement professionals must be duty-bound to understand boundaries and the rules that govern project procurement and to craft an organizational culture spelling out shared values and beliefs that can influence everyone that has vested interest in the business to behave according to those values and beliefs. Research in ethics has shown modeling a moral and ethical behavior can trickle down to subordinates positively. Being concerned about ethics and morality is not, however, enough. Procurement executives must set the right corporate culture, corporate social responsibility, craft procedures, policies and standards of conduct, and appoint a compliance team to respond swiftly to problems. The procurement team must also make it easier for people to report ethical breaches, protect whistleblowers, discipline violators, reward those who do the right things, and continue to train the team in ethical conduct. The training format may include PowerPoint presentations, videos, transcripts, and hard copies and make them available on corporate intranet sites for reference, and those may miss a training session.
Develop a Communication Plan
One of the riskiest factors in project procurement management is the lack of understanding of and the inability to clearly explain the meaning and terms of what is required by both parties. This situation is compounded when one is working in a foreign environment or unfamiliar territories. The reality is that lack of understanding of project artifacts, scope requirements, shortcomings of human language and differing interpretations, the behavior of the parties, haste, and deception can only lead to procurement project failure. The ability, therefore, to know and understand ( by either asking the appropriate questions, consulting experts, or researching) what our local or external partners mean by what they say or write is not only the best practice but the way to reduce or turn risks into opportunities. Mindful of what clear communication does to the bottom line, procurement project management personnel have established a website where parties to a contract can access project information, address some of the ambiguities, concerns, errors, omissions, weaknesses, and deficiencies regarding past performance, to name a few. Identifying key stakeholders, asking them what type of information they want to receive and when, and obtaining top management sign off constitutes some of the elements that make a communication plan work.
Evaluation plan
A source selection is an evaluation and a ranking process. A firms’ strategic goals vary according to industry, business strategy, effective use of resources, profit motive, and making sure project scope requirement is delivered on time, within budget, and with good quality. The bidders’ proposal must align with an offeree’s strategic and tactical objective. The ranking plan must also be realistic, and regardless of how this is done. It’s also essential to have a reliable, well defined, and thought-out baseline against which the evaluation or ranking is based. The ranking plan should incorporate major complexity items, suppliers’ licenses, qualification, understanding RFP, including business objectives, organizational needs, and able to deliver the final product or service. The technical requirement includes whether a firm can design and complete the work within a time frame that is specific, measurable, attainable, realistic time based, and environmentally responsible. Evaluation criteria should also focus on selecting price proposals that are reasonable and realistic as well as the organization’s past performance, management and financial capabilities, proprietary rights, warranty, risk, and life-cycle coast and intellectual property rights.
Specify SOW
Project scope is the work that must be complete to deliver a product, service, or result with the specified features and functions. The statement of work describes the buyer’s requirement in sufficient detail to allow the prospective sellers to submit a bid or proposal. The scope statement or statement of work sets boundaries-what the project does and what it does not do. This presents in unambiguous terms what is and what is not a requirement for the project. Often not understanding the project’s Terms of Reference can lead to project enlargement, which is also called scope creep. To safeguard misunderstandings and avoid cost overrun, schedule delay, lack of total quality control, any change in the scope should be charted, approved by project owners, and documented.
The SOW also reflects on a project’s estimated cost or budget. Project estimate requires a quantitative assessment of the probable amount of expenses and costs of resources, effort, and duration of a project. Various market elements are factored in to make project estimates. The most common ones are unit and bulk material rates, equipment quotes, and takeoffs on material quantities and sales specials, to name a few. Cost estimates consider many factors, including people, equipment, and materials. The estimate may be top-down (analogous), bottom-up (decomposition), Delphi (consensus of experts), and parametric (the benchmark for comparing estimates in a detailed manner).
Prepare & Issue RFP /Receive Proposals
Informal solicitation of comments, questions, suggestions, and corrections, can save significant misunderstanding and waste of time and costs. The draft of the Request for Proposal (RFP) should consist of clear instructions and evaluation criteria to offerors. Sections to the selection should comprise Specification/Statement of Work, technical skills, price, business objectives, a period of performance, quality control, management performance, recognized holidays, hours of operations, type of contract, warranty, and special requirements, to name a few.
After defining the goal that the offeror intends to seek in the RFP, the offeree must be capable of executing those requirements by delivering the goods or services on time with a low or reasonable price while at the same time maintaining project quality. The conflict will begin at what price that both parties will settle on, taking into consideration all the risks and conditions of uncertainties that the project presents. The battle may continue unabated if either party still is unwilling to compromise on terms or conditions based on the challenges that the requirements as defined in the offerors’ RFPs. What offerors must do concerning goods or services, obtaining price information and complying with schedule must be included.
Management approach
Management approach answers the buyer’s concerns whether the suppliers or other business partners are capable of managing, support, and finance and man the procurement project from start to finish in a successful fashion. In other words, does the supplier have a mature, competent, and stable structure, including a team of skilled and capable workforce to develop, design, and deliver the scope of the project on time? Through the application of the Contract Management Maturity Model (CMMM), many firms tend to set priorities, find vital and essential areas, and work toward improving them. Competency relates to providing advanced and effective performance. Many buyers also expect a supplier management approach to include process capability, the ability to work through things to produce results.
Technical capability / Past performance
Technical knowledge is particularly essential in purchasing major complexity procurements. Technical requirements may have size, capacity, staffing, hardware, and technical approach, to name a few. Staffing requirements include mastery of operating software, database software, inventory analysis, and redeployment systems, frequent buyer program management, e-procurement software, e-commerce, and e-auctions.
In today’s information technological ridden business culture, technical knowledge is the key to enhance communication, understanding of hardware and software terminologies, and making a difference between real success and failure. In the procurement of high-risk construction or building equipment, the probability of risk increases if the procurement manager does not understand the materials or equipment being procured. Most riskier materials are unique items and are not found on the local market and will have to be obtained from remote or oversea locations. They are complex and have multiple components and modules, hard to manage, and many require subcontractors to make them. In other words, the materials and equipment that are capital intensive with substantial potential cost overruns, and having a procurement team that has little or no idea about this kind of procurements can increase business risk.
Experienced and knowledgeable workers are believed to reduce the risk that is associated with jobs that they perform without any major mistakes. Choosing incapable suppliers that have no prior experience can add to the level of risk. Past performance includes skill, experience, and the extent to which suppliers can perform the tasks or contract without any significant errors. Competency is defined in terms of technological know-how, capability in seamlessly using software and hardware, ability to design and build or troubleshoot information technology equipment, and hard technology machines.
Financial capability
Generally, a financially capable firm has more financial assets than debts. This shows that the supplier has an excellent line of credit to obtain funding for the project and that it has the financial strength to meet his commitments-pays its bills and meet payroll obligations, to name a few. Financial strength also means that the supplier or contractors can obtain from banks and insurance agencies bond and guarantee that they can provide financial security and protection for project owners in case a contractor flouts the contract or becomes solvent. A seller’s surety bonds ensure that a buyer’s obligations are fulfilled; otherwise, the buyer can hold the seller and sureties responsible for payment. Payment Bonds are written instruments that make sure payment to subcontractors for goods and services that they rendered are secured. In other words, payment bonds are meant to protect laborers, subcontractors, traders, and suppliers against actions that may deprive them of receiving payments for work they have performed. Performance Bonds secure the performance and fulfill all the undertakings, covenants, terms, conditions, and agreements that are contained in the contract. Bid Bonds protect project owners against risks that are associated with the withdrawal of the awarded tenderer from entering into a contract or accepting it. Without a bid bond, the costs that can incur in launching a new pre-qualification process-including evaluation of tenders from a new set of bidders can be enormous. The bid bond pays for these costs. It becomes null and void once the contract is signed.
Surety and guarantor obligations are essential to contractual performance. The principal/guarantor-the the main debtor-and the surety-the secondary debtor-are held liable for the debt in case the principal defaults on its contractual obligations. In other words, in the case of default, the injured party can go after the primary guarantor for performance enforcing or payment. If the principal is unable to make a payment or perform, the injured party can directly go after the surety for recovery. The surety, in this case, assumes the obligation of the guarantor.
Intellectual property rights/ Proprietary Rights
A vital part of the Source Selection is to find out from the offerors whether they have intellectual or proprietary rights to the products and services they produce or offer. Intellectual property rights include patents, copyrights, trademarks, and trade names. A copyright holder of a product or an idea has exclusive rights to sell, control, or license the copyrighted materials. The right to own patent, proprietary software, or copyrights can enhance businesses’ competitiveness. They are protected by laws in the United States and most other countries. However, the ubiquities of information technology have raised the number of ethical issues that affect privacy and property rights as most computer users are bent on infringing on intellectual property rights and invading personal and private property rights of others. Besides, they steal intellectual property, copyrighted materials such as music and movies, and commit cybercrimes. Software and music thefts cost business firms in the US $100 billion per year. Pirated software constitutes more than 80 percent of software. Types of intellectual property include the following:
| Trademarks | Copyrights | Patent | Trade secrets |
| Words, names, symbols, device used to identify products or services | Original creative works of authorship such as writings, movies, records, and computer software | Utility, designs, and plant patents | Advantageous formulas, devices or compilation or information |
Warranty
A seller makes a warranty statement to show a buyer that the goods and services that are produced or manufactured meet specific standards of quality, safety, performance, and Warranty of Title. If the goods do not conform to the warranty standards, the seller may be liable for damages for breach of warranty. Parties to a contract can create added warranties or amend the existing warranty to maximize their individual or collective business investment. Under UCC Section 2-312, Warranty of Title, the seller is responsible to the buyer if he or she sells goods to the buyer that has infringed on a trademark, copyright, or patent that a party owns. The list and type of warranty that UCC imposes include:
- Warranty to Title & 2-312- The seller legally owns the goods he/she sells, and they are free of any encumbrances, liens, and claims of infringement.
- Express warranty & 2-313- seller claims that goods meet standards of quality, safety, and performance. The buyer can buy additional warranty
- Implied warranties of Merchantability & 2-314- Shows that the goods meet quality and safety standards reasonably fit for the purpose they are being sold for.
- Fitness for a particular purpose & 2-315- If the buyer relies on the seller’s skill or judgment in selecting goods for a specific purpose, the products must be able to perform that purpose.
Risk
Risk management is a dynamic process. The more active stakeholders are in the implementation of risk management, the better is risk identification and treatment. Firms treat and identify risks differently. Some use quantitative and qualitative methods to measure risk. A Risk Register is like a re-fueling field. As a new threat is identified, it is weighed and ranked numerically or qualitatively. It is also necessary to add that buying equipment and materials can be an opportunity, as well as a risk depending on how the risks associated with it are managed. Selecting the most suitable contractors or subcontractors based on experience and past performance can minimize and mitigate risks. Risk review of tender assessment comes alive when the project owners decide to invite contractors to bid on the contract, and whatever the bidders submit will have to be considered or evaluated based on the baseline as outlined in the invitation. The risk review of the tender role is to make a comparative assessment of risk plans or documents that the tenderers have submitted with a focus on giving a comparison between the tender responses and proposed strategies that they have made to execute the project. By evaluating and assessing the risk responses of the contract bidders, the risk review of tenders phase provides an opportunity to choose the best bidders not only with the right price but the one that is better qualified and has the better risk management plan.
Issues for Negotiation
Issues in contractual negotiation consist of a gamut ranging from essential contract elements, including scope, schedule, performance, risk management, budget, technical issues, change management issues, insurance, travel matters, technological information costs- to terms and conditions of the contract. Sustainable success in contract negotiation stems from two fronts: Team organization and a winnable strategy. The team should comprise multidisciplinary professionals adept in law, technology, accounting, procurement, marketing, project management, leadership and tact, and diplomacy, to name a few. Each discipline or expert compliments the other teamers, but the synergy produces results that are greater than the collective individual contributions. In other words, while a multidisciplinary team minimizes the risk of negotiating ignorantly, for instance, not being able to estimate cost intelligently or having a little or no idea how information technology works, speaking with one voice during the negotiation achieves higher results. A sustainable negotiation strategy focuses on the bigger prize, a win-win, and a long-range objective. It seeks to resolve issues fairly. A negotiation where one wins it all may not be right for anyone. After all, if the contract price cannot fully cover all the expenses involved in completing the project according to plan, the buyer suffers the consequence as well.
In case of stalemate in contract negotiations, parties can resolve to the use of alternative dispute resolution through binding mediation and arbitration aimed to reduce costs and expenses that are associated with a lawsuit and the time it takes to resolve a dispute in court. The mediation process includes a third party that can listen to each side of the conflict and their concerns. The mediator usually holds meetings with each party to gather facts on the case between parties and garner information and determine where each party stands and uses the information to find common ground for further bargaining and resolving the dispute amicably. Arbitration also involves a third-party intervention to determine settlement terms between the feuding parties. Since both parties to the dispute usually agree to arbitrate, the arbitrator can compel parties to accept the settlement terms.
Discuss Terms & Conditions
Procurement contracts are not always as clear as the parties perceive them to be. Complicated legalese, misunderstanding, and miscreant behaviors can constrain parties to achieve their individual business goal. Moreover, irrespective of how well-qualified and experienced contract developers are, there are always situations that contract participants do not expect to occur. Political unrest, hurricanes, and other forms of natural and human-made disasters can challenge even the most expertly crafted agreement. That is why it is good to define the rights and responsibilities in the contract and negotiate in good faith. Crossing all the Ts thus enables the court or the arbitration board to resolve any potential conflict quickly. Terms of a contract agreement consist of contractual payment, delivery, product quality, warranty of goods and services, termination of the deal, and resolution of disputes. Conditions of a contract, on the other hand, trigger or suspend a term. While a “conditional precedent” set in motion contractual condition, “condition subsequent” suspends a contractual term of the agreement
Successfully sustainable outcomes of project procurement activities are based on creating useful and trustworthy coalitions and partnerships and on how effectively contract terms and conditions are negotiated. Acceptance of a firm, fixed-price contract without addressing unexpected turn of events such as force majeure can be a strategic and costly blunder. Studies show that buyers and sellers in the procurement industry tend to trust each other if they are task competent, communicate honestly, maintain quality control, comply with legal procurement requirements, financially balanced, and mutually respectful of each other. In other words, the higher the trust and quality of products and services, the better the likelihood of keeping market power, and per consequence, the more sustainable businesses will maximize profits
Contract terms usually address some of the following aspects: quality, quantity, best management practices, time and date of delivery, prices, and payment and actions taken if the contract provisions are not met.
Launch an Independent Estimate
An independent cost estimate verifies the reasonableness and fairness of contract price based on the resources and cost that the contractor or supplier incurs in executing the project, from the initiation to the end. Some of the costs are direct, while others are indirect. Direct cost includes labor, material, supplies, equipment, and transportation. The indirect costs are overhead, general, and administrative (G & A) expenses, fringe benefits as well as profits or fees. An outside firm can make these estimates if the project is larger; otherwise, this can be done internally during acquisition planning or the contract price analysis phase. Generally, there are also other approaches to project cost estimate. The popular ones are analog, top-down, and bottom-up. The analogy approach reviews WBS of similar projects that occurred in the past. The top-down approach begins by breaking down the project items into manageable pieces, while the bottom-up approach starts with the specific tasks and roll them up.
A typical WBS package contains subtasks, time estimates or deadlines, cost estimates, responsibility, immediate predecessors, preconditions, inputs, deliverables, resources, risk assessment, among others. When cost variances exist, alterations to the project plan will be evaluated to determine a way to bring costs back in line with the cost baseline. Any cost saving implementations that affect the quality, stakeholders, schedule, scope, or product deliverables must go through the Change Control Process.
Source Selection Decision:
Issue of Contract Award/Debrief Offerors of Award/ Lessons Learned
A contract is generally awarded to the best qualified concerning performance, financial capacity, administrative competence, technical ability, and experience. A contract award is a risk transfer, and depending on the contract type, size, and environment, the buyer or seller may end up paying more risks than the other party. The contractor may accept the risk of cost overruns but may also make an added profit if costs are lower than expected. Debriefing is meant to inform the offerors of the results presented to the offeree. It can occur before or after the evaluation. A pre-evaluation debriefing occurs when a candidate is excluded from the list. This could be due to many reasons, including not correctly responding to the request for proposal, not meeting qualification standards and conflict of interest, to name a few examples. Post-award debriefing caters to unsuccessful offerors and those who made it. Pre-award debriefs offerors are not allowed in the Post-award debriefing session. Debriefings also provide a channel through which offerors can ask questions, and the offeree, in turn, can provide information about the evaluation of their proposal. The offeree can also inform the offerors about future procurement opportunities. An offeror can also request a debriefing. Response time is about five days after the request.
Lesson learned can be the source of information on the next project. Having a repository for source selection templates, documentation, evaluation standards, ranking system, and a list of suppliers is extremely important when building an active process. In addition to lessons learned, the repository should have project metrics such as status reports and defect and exception information.
Conclusion
The project procurement source selection-process incorporates a glut of strategies in its search for the right suppliers that provide the right materials, quantity, and price at the right time. The evaluation of offerors’ requests for proposals determines the success or failure of the objective of source selection, depending on how it is carried out. The success in finding and selecting the right partners-suppliers, contractors, and subcontractors-also depends on how ethical and straightforward source selection personnel are in implementing the evaluation criteria and standards in alignment with the overarching objective of the organization.
References
Edwards, V. J. (2006). Source selection answer book (2nd ed.). Vienna, VA: Management Concepts.
Fleming, Q. W. (2003). Project procurement management. Tustin, CA: Quality Books.
Garret, G. A. (2010). World class contracting. Riverwoods, IL: CCH Incorporated.
Jennings, M. M. (2009). Business (8th ed.). Mason, OH: Cengage Learning.
Maltzman, R., & Shirley, D. (2011). Green project management. Boca Raton, FL: CRC Press.