Introduction
ntroduction
Information presented in this booklet and course is accurate as of the time of publication and
consistent with generally accepted public procurement principles. However, as research and
practice advances, standards, principles, and concepts may change. For this reason, it is
recommended that readers and participants evaluate the applicability of any recommendation
in light of their particular situations, changing standards, and jurisdictional guidance based on
their geographic location or political leadership.
Copyright © 2021 by NIGP, Inc. All rights reserved. No part of this publication may be
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recording, or other electronic or mechanical methods, without the prior written permission of
NIGP: The Institute for Public Procurement, except in the case of brief quotations embodied in
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ntroduction
Introduction
Table of Contents
Table of Contents .................................................................................................................. 1
Introduction .......................................................................................................................... 7
About NIGP’s NIGP-CPP Program ................................................................................................ 7
Guiding Principles of the NIGP-CPP ......................................................................................... 8
Conformance with International Standards ............................................................................ 8
NIGP’s Pathways Curriculum ....................................................................................................... 9
Test Specifications ..................................................................................................................... 10
Knowledge-Based vs. Situational Competency-Based Exams........................................................ 11
Exam Format .......................................................................................................................... 11
Preparation Resources and Recommendations .................................................................... 11
Using the NIGP-CPP Guide ........................................................................................................ 14
Focus Area 1 — Strategy ...................................................................................................... 15
NIGP-CPP Action Statement: Create procurement’s strategic goals, objectives, and policies in
alignment with the entity-wide strategic plan.......................................................................... 15
Identify Opportunities to Support and Further the Entity Mission....................................... 16
Strategic Alignment of Procurement Goals ........................................................................... 16
Identify Opportunities to Support Stakeholder Needs ......................................................... 16
Create a Procurement Strategic Plan that Integrates with the Entity’s Mission and Strategic
Plan ........................................................................................................................................ 17
Create Strategic Procurement Objectives ............................................................................. 18
Establish Short-term and Long-term Objectives ................................................................... 18
Review and Manage Procurement Resources....................................................................... 19
NIGP-CPP Action Statement: Manage efficiency and effectiveness in achievement of
procurement’s mission.............................................................................................................. 20
Procurement Performance Measurement ............................................................................ 20
Establish Procurement Efficiency Measures ......................................................................... 21
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Introduction
Establish Procurement Effectiveness Measures ................................................................... 22
Evaluate Results and Implement Necessary Changes to Procurement Actions ................... 23
Procurement Administration ................................................................................................. 24
Automated Procurement Systems ........................................................................................ 25
Focus Area 2 — Policy & Legislation ..................................................................................... 26
NIGP-CPP Action Statement: Create, implement, and maintain fair, accessible, and
transparent policies and procedures that align organizational behaviors, priorities, and
professional procurement values. ............................................................................................ 26
The Role of Public Procurement ............................................................................................ 26
Entity-Aligned Procurement Values ...................................................................................... 26
Responding to Challenges ..................................................................................................... 29
Ethical Policies & Procedures .................................................................................................... 29
Procurement Training Manuals................................................................................................... 30
Procurement Websites .............................................................................................................. 30
NIGP-CPP Action Statement: Engage the legislative process to further procurement interests.
................................................................................................................................................... 31
Structural Change Through the Legislative Process .............................................................. 31
Advocacy Channels ................................................................................................................ 32
NIGP-CPP Action Statement: Ensure compliance with applicable rules and regulations from
the various branches and levels of government. ...................................................................... 34
Federal, State, & Local Legislation......................................................................................... 34
Focus Area 3 — Planning & Analysis..................................................................................... 37
NIGP-CPP Action Statement: Assess risk and implement appropriate risk management
approaches. ............................................................................................................................... 37
Risk Analysis in the Public Sector .......................................................................................... 37
Spend Analysis in the Public Sector ....................................................................................... 38
NIGP-CPP Action Statement: Analyze information from multiple sources to create a
procurement plan to meet the overall entity’s goals. .............................................................. 39
Identify Key Impacts to Procurement Actions....................................................................... 39
Identify Entity Stakeholder Requirements and Objectives ................................................... 39
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Identify Impact from External Stakeholder Expectations and Initiatives.............................. 40
Consider Political Leadership Changes .................................................................................. 40
Analyze Legislative Updates and Changes............................................................................. 40
Strategic Procurement Planning (SP2) .................................................................................. 41
Process Improvement Programs ........................................................................................... 42
Strategic Sourcing .................................................................................................................. 43
Establish Acceptable Service Levels ...................................................................................... 43
Supplier Relationship Management ...................................................................................... 43
Establish Partnerships with Awarded Suppliers .................................................................... 44
Identify potential Emergency threats.................................................................................... 44
NIGP-CPP Action Statement: Analyze current market trends and the impact on procurement
planning. .................................................................................................................................... 48
Analyze the Key Spend Categories in the Entity’s Business Environment ............................ 48
Forecast Data ......................................................................................................................... 51
Identify Opportunities for Increased Value ........................................................................... 53
Value Analysis (VA) ................................................................................................................ 53
Value Engineering (VE) .......................................................................................................... 54
Cost Reduction....................................................................................................................... 54
Cost Avoidance ...................................................................................................................... 55
Identify Methods to Improve Commodity Fulfillment from the Entire Supply Chain........... 55
Strategic Inventory Forecasting Techniques and Strategies ................................................. 58
NIGP-CPP Action Statement: Use Procurement priorities and best value considerations in
addition to cost, price, and spend analysis methods to make informed decisions.................. 59
Collaborate with Internal Stakeholders to Help Meet Shared Goals and Objectives ........... 59
Focus Area 4 — Sourcing & Contracting ............................................................................... 64
NIGP-CPP Action Statement: Determine most advantageous sourcing, solicitation, evaluation,
and award method. ................................................................................................................... 64
Determining Method of Procurement .................................................................................. 64
Laws and Policies Affecting Sourcing Method Selection ....................................................... 70
Sourcing Methods.................................................................................................................. 70
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Solicitation Development ...................................................................................................... 73
Solicitation Issuance .............................................................................................................. 79
Evaluation Methods............................................................................................................... 80
Award Process ....................................................................................................................... 80
NIGP-CPP Action Statement: Determine the most favorable contract structure and content.81
Solicitations and Contracts .................................................................................................... 81
Contract Types for Fluctuating Markets ................................................................................ 84
NIGP-CPP Action Statement: Manage all stages of the selection process (from receipt to
award). ...................................................................................................................................... 84
Price Based Solicitations ........................................................................................................ 85
Best Value and Qualifications Based Solicitations................................................................. 85
NIGP-CPP Action Statement: Develop a negotiation strategy that maximizes advantages for all
involved. .................................................................................................................................... 87
Negotiation Planning ............................................................................................................. 87
Negotiations .......................................................................................................................... 88
Documentation ...................................................................................................................... 88
NIGP-CPP Action Statement: Manage a protest consistent with the law and the entity’s policy.
................................................................................................................................................... 88
Basis for a Protest .................................................................................................................. 89
Typical Protest Procedure ..................................................................................................... 89
Protest Prevention ................................................................................................................. 90
Focus Area 5 — Contract Administration.............................................................................. 91
Considerations Affecting Contract Administration During Formation Period ...................... 93
NIGP-CPP Action Statement: Establish policies and procedures for contract administration. 93
Develop Contract Administration Program ........................................................................... 94
Define Contract Administration Procedures ......................................................................... 96
Establish a Consistent and Defensible Cost Savings/Efficiencies Tracking & Reporting
Program ................................................................................................................................. 96
NIGP-CPP Action Statement: Establish policies and procedures to promote acceptable
contract performance. .............................................................................................................. 97
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The Contract Administration Plan (CAP) ............................................................................... 97
The Performance Assessment Plan (PAP) ........................................................................... 100
Post Award /Contract Kick Off Conference ......................................................................... 104
Monitoring Contract Administration Activities ................................................................... 104
Addressing Contract Issues.................................................................................................. 105
Contract Modifications ........................................................................................................ 109
NIGP-CPP Action Statement: Establish policies and procedures to address contract
performance issues. ................................................................................................................ 111
Managing Contract and Supplier Performance Issues ........................................................ 111
Communicate Performance Issues to Contractor and Request Corrective Action Plan ..... 114
Doctrine of Substantial Completion .................................................................................... 115
Contract Claims and Disputes.............................................................................................. 115
Guiding Principles in Contract Conflict Resolution .............................................................. 116
Alternative Dispute Resolution (ADR) Methods .................................................................. 116
Contract Termination .......................................................................................................... 117
Contract Payment ................................................................................................................ 120
Closing Out the Contract ..................................................................................................... 121
Focus Area 6 - Leadership .................................................................................................. 124
NIGP-CPP Action Statement: Create and foster a professional, ethical culture. .................... 124
Establish Expectations ......................................................................................................... 126
Model the Way/Lead by Example ....................................................................................... 126
NIGP-CPP Action Statement: Recruit, hire, develop, retain, and promote procurement
professionals. .......................................................................................................................... 128
Talent Management ............................................................................................................ 128
Focus Area 7 — Business Principles .................................................................................... 131
NIGP-CPP Action Statement: Select and implement technology to further procurement goals.
................................................................................................................................................. 131
Technology in the Public Sector .......................................................................................... 131
Procurement’s Alignment to the IT Infrastructure.............................................................. 133
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Introduction
Acknowledgements ........................................................................................................... 136
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Introduction
Introduction
The NIGP Certified Procurement Professional (NIGP-CPP) certification is a proven,
demonstratable, and strategic way for public procurement professionals to invest in their longterm growth. Based upon the theory and conceptual practice from thought leaders throughout
the field, the Institute’s new certification program shifts the focus of the learning from gaining
knowledge to building competencies, complimenting existing certifications and designations by
focusing on the full scope of a procurement professional’s capabilities, technical skills, and
competence.
This NIGP-CPP Module A Prep Guide is designed to help candidates prepare for the NIGP-CPP
Module A examination. Both this guide and the certification are aligned to NIGP’s Public
Procurement Competency Framework and Pathways course methodology. While the actual
examination questions are held in strict confidence by NIGP: The Institute for Public
Procurement and the NIGP Certification Commission, these preparation materials serve as a
focused study guide through similar application of the foundational curriculum.
About NIGP’s NIGP-CPP Program
Since 1964, when NIGP issued its first Certified Public Purchasing Official (CPPO) designation,
the Institute has led the initiative to drive a professional certification program that publicly
recognizes public procurement officials who have mastered the body of knowledge.
Throughout NIGP’s history, the NIGP Board never lost sight of the value of professional
certification, committing its Chief Executive and related resources to the Universal Public
Procurement Certification Council (UPPCC), when it became the entity responsible for
administering the UPPCC certification programs, i.e., the Certified Public Purchasing Buyer
(CPPB) and Certified Public purchasing Official (CPPO) designations.
Now, public procurement professionals can choose from a variety of credentialing programs
offered through Pathways. There are numerous certificate programs that can either be
standalone offerings, or they can be bundled and stacked to achieve a designation. The content
in these various programs can range from introductory foundational to mid-level to more
advanced or specialty areas that recognize life-long learning and skill development. In addition
to these educational innovations, we are excited to share that Pathways now offers a
professional certification program.
To institute a new professional certification, the NIGP Governing Board formed a highlydiversified Credentialing Design Team (CDT) in September 2018 to assist the Board in two areas:
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Introduction
(1) defining the inherent challenges of the existing learning and credentialing programs; and (2)
recommending an array of options to consider when building a holistic learning and
credentialing program. As the CDT began its work, the team identified three major challenges in
the profession that the new credentialing system would address:
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Shortage of qualified public procurement professionals and the need for succession
planning;
Failure to transition from practitioner to leader; and
Failure to permanently establish procurement as a strategic function within entities.
In late November 2018, the NIGP Governing Board finalized the credentialing system
components to address these major challenges and asked NIGP staff to develop a
comprehensive business plan to implement a credentialing system. The business plan was
adopted in April 2019, and the Institute publicly announced its learning and credentialing
options under the Pathways brand in May 2019.
Guiding Principles of the NIGP-CPP
The NIGP-CPP was developed for you by your colleagues in public procurement based on the
following guiding principles:
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The NIGP-CPP is perceived as valuable by public procurement professionals, their
supervisors, and their employing entities (e.g., district superintendents, finance
officers);
Employers should be able to use the NIGP-CPP to find qualified employees;
The NIGP-CPP values competency over years of experience;
The achievement of the NIGP-CPP must be rigorous and meaningful;
The NIGP-CPP must be flexible and adaptable to remain current and relevant; and
The NIGP-CPP must be comprehensive of enabling competencies.
Conformance with International Standards
NIGP’s credentialing system and structure complies with the International Organization for
Standardization (ISO) 17024 standards for professional certification programs. ISO 17024 serves
as the basis of the American National Standards Institute’s (ANSI) personnel certification
program administered by the ANSI National Accreditation Board (ANAB). The principal for
NIGP’s credentialing consulting firm is an assessor for ANAB. NIGP will be seeking third-party
accreditation from ANAB for its credentialing system once eligible.
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Introduction
The action is consistent with NIGP’s commitment to the third-party accreditation of our
educational program from the International Association for Continuing Education and Training
(IACET).
NIGP’s Pathways Curriculum
The Public Procurement Competency Framework (PPCF) is a comprehensive, universal guide for
professional development that focuses on the critical competencies you need to be a successful
and sought-after public procurement professional. The PPCF has seven focus areas comprised
of 33 individual competencies, all of which are critical to public procurement.
Each competency is based on a specific subject matter and taught in a modular fashion using a
variety of learning tactics from self-paced online courses to group assignments, case studies,
videos, and experiential activities. The PPCF gives you ultimate flexibility to design your learning
pathway and the option to pick and choose which competencies to focus on at different stages
of your career.
The PPCF’s focus areas and associated competencies include:
Strategy
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Mission and Public Benefit;
Transformation and Vision Creation; and
Social Responsibility Alignment.
Policy and Legislation
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Enabling Regulations and Compliance;
Ethics, Integrity, and Transparency;
Legislation and Legal Environment;
Program Implementation and Management; and
Internal Customers: Advice and Expertise.
Planning and Analysis
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Requirements Planning and Understanding;
Standardization;
Market Analysis and Forecasting;
Cost, Price, and Value Analysis;
Spend Analysis; and
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Risk Analysis.
Sourcing and Contracting
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Sourcing and Contracting Methods;
Specification Development;
Evaluation Methods;
Negotiations;
Disputes;
Protests and Appeals; and
International Procurements
Contract Administration
• Contract Management and Performance;
• Quality Assurance, Inspection, and Acceptance;
• Logistics and Transportation; and
• Asset and Inventory Management.
Leadership
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Driving Change, Innovation, and Agility;
Communication Strategies;
Problem Solving and Critical Thinking;
Talent Recruitment and Development, Succession Planning; and
Relationship Management: Internal Customers and Suppliers.
Business Principles
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Business Management and Continuity;
Economics, Budget, Financial Management and Accounting; and
Technology Management.
Test Specifications
Exam Structure and Breakdown
The comprehensive NIGP-CPP exam is built around 43 competency statements based on the
Public Procurement Competency Framework. Module A covers 21 of those competency
statements.
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Knowledge-Based vs. Situational Competency-Based Exams
The NIGP-CPP is a situational competency-based exam, which differs from the more familiar
knowledge-based exam. Knowledge-based exams, with which most people have experience,
tests a candidate’s understanding by asking questions to which the answer is typically clear. For
example, candidates may be asked to identify the specific types of communication a
procurement professional may encounter.
A situational competency-based exam, on the other hand, presents scenarios focused on reallife situations that practicing procurement professionals may experience. For example, a
situational question may present a specific scenario involving a problem and then ask the
candidate how they would effectively communicate with leaders about that problem, given the
circumstances presented. Unlike knowledge-based exams, typically all or most of the response
options in a situational competency-based exam could feasibly be correct. However, this exam
requires candidates to critically analyze each response option and then determine the most
effective answer. Rather than approach situational questions in terms of how their entities
would act, candidates should answer based on general procurement best practices.
Exam Format
The NIGP-CPP is a computer-based, modular exam. The advantage of a modular exam is that, in
case you do not pass either of the modules, you would only need to re-take the module in
which you did not achieve a passing score. This may help reduce the total time you spend in retesting, it will reduce your exam fees and, hopefully, some of the stress and anxiety.
Preparation Resources and Recommendations
In preparation for the NIGP-CPP Exam, NIGP recommends that candidates take advantage of a
wide and diverse variety of preparation resources and activities. The below recommendations
are not intended to be a comprehensive overview of all potential materials that learners may
not be comfortable with, but rather a suggestion of content that can introduce content and
concepts.
NIGP-CPP Prep Virtual, Instructor-Led Course
The NIGP-CPP certification is designed to elevate professional standards, enhance individual
performance, and designate public procurement professionals who demonstrate the
competencies essential to succeed in the public sector. Promoting learner engagement in three
new critical areas not traditionally covered by industry designations—focusing on competencies
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associated with Strategy, Leadership, and Business Principles—the NIGP-CPP Prep course
empowers students to assess their own strengths and weaknesses as they relate to the NIGP
Public Procurement Competency Framework.
Candidates of this course should enroll a minimum of six months prior to the selected test date
to provide enough time for independent reflection and additional study. Please note that
participation in this course does not guarantee success on the examination. Prospective
candidates can find the next offering availability of this course on the NIGP website.
NIGP Pathways-Aligned Courses
At the time of application, candidates may have taken an NIGP course related to either the
LEAP or Foundations curriculum or the Institute’s new Pathways methodology. Prospective
candidates are advised to seek out additional curriculum instruction based on the Pathways
model and the associated Public Procurement Competency Framework in support of furthering
their knowledge and performance in unfamiliar topics. Pathways offerings can be found on the
NIGP website and through recurring marketing communications.
Personalized Study Groups
Experts say that studying in a group can be more effective than studying alone.
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Each person in a group has professional experiences to contribute to the group.
Groups can provide motivation and support. Obligation to the group can keep an
individual going for the sake of the group.
Large topics can be better addressed when split up and assigned to several group
members.
Study groups can take many forms. At one end of the spectrum, study groups can be formal,
sponsored, and driven by a pre-set agenda. At the other end, they can be informal, selforganized, and flexible.
Entities or chapters may sponsor a study group, perhaps providing a single instructor or
facilitator and a meeting place in exchange for a fee. Self-organizing groups require more
discipline and motivation but may be more satisfying to the individual members. They may
meet in a room provided by a public library, a community center, an entity, or in private homes.
Ideally, the group size should be between five and fifteen members. If the group is too small,
each member is burdened with too much responsibility, and the opportunity for new input is
limited. Discussion and participation are limited in groups that are too large.
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Study Group Logistics
This NIGP-CPP Prep Guide and Pathways curriculum should jointly serve as the study guides for
the group. The respective focus areas and competency statements should be divided up over
the period that the study group meets. Create a schedule that allows the last session to be
open for wrap-up and any topics that need to be revisited. It is often recommended that the
group meet once a week for 12 weeks.
Each meeting should be 2½ to 3 hours in duration. The schedule should be set and agreed upon
by all members.
It is important that the meeting place is free from distractions and of appropriate size and with
the necessary accommodations. Learners can also use digital interfacing materials, such as
Zoom, Google Hangouts, or Facebook to communicate with groups as well, promoting crossfunctional and multi-geographical learning perspectives.
Study Group Activities
Each member should prepare for the session. Relevant materials and references should be
brought, and participants should be prepared with questions and issues—as well as workplace
examples. Each session can combine presentations by a speaker (either a guest or a group
member), discussion, and Q&A. Unanswered questions should be noted and researched before
the next meeting. Study groups should spend time at each meeting summarizing key points.
They can create charts, diagrams of processes, vocabulary lists, lists of key points, mind maps,
and other summarizing devices.
Speakers
Outside speakers can be sourced from an entity or a chapter and should be well versed
in the topic of the meeting. It is advised that all speakers be certified. Speakers should
be notified of the agenda and the time that they must speak.
Ideally, they can stay after their talk and participate in the discussion and Q&A session.
Speakers from inside the group should be well prepared with their assigned topic and
adhere closely to the competency statements and associated tasks and responsibilities
in the Pathways curriculum and associated focus areas.
Identifying Questions and Issues
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Study groups should actively identify areas of weakness and points of confusion. It is
important to leave the comfort zone and ensure that new areas and topics are explored.
As the NIGP-CPP Exam covers materials related to Strategy, Leadership, and Business
Principles, it is imperative that candidates review materials they may consider to be
outside the role of the traditional procurement professional.
NIGP’s Contact an Expert Function
NIGP members can use the Contact an Expert member service. This feature provides an easy to
use way to contact public procurement professionals that are subject experts to get additional
information in a specific area. Contacts may be made by email or phone. The Contact an Expert
feature can be found in the Membership section of the NIGP website.
Personal Study Time and Professional Reflection
As the Pathways curriculum and associated focus areas introduce new core procurement
competencies, prospective candidates should identify those NIGP-CPP action statements that
require additional research and reading. Frequent review of key information and thought about
how to apply that information to the procurement function are critical to preparation for the
exam.
Topics such as benchmarking, problem solving, communication, talent recruitment, ethical
workplace engagement, employee retention, leadership skills, and dialogue on social
responsibility in the public sector can be researched through Internet searches, business
journals, and general textbooks. Personal study time should be a key preparation activity that
reinforces classes and study groups.
Using the NIGP-CPP Guide
For studying convenience, the NIGP-CPP Prep Guide reflects the structure of the NIGP-CPP
Competency Statements within the seven focus areas of the Public Procurement Competency
Framework. This guide may be read straight through or used as a reference book in conjunction
with a study group, a candidate’s personal assessment of their strengths or weaknesses, or
alongside the NIGP-CPP Prep Course offered through Aspire. Learners are encouraged to draw
upon additional resources as well, including but not limited to NIGP’s Global Best Practice
series, NIGP’s Research and White Paper information, and the NSite Member Community, all of
which can be found on the NIGP website.
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Strategy
Focus Area 1 — Strategy
For public procurement to function as a valuable, contributing asset to the entity, it must think,
plan, and act strategically, aligning entity mission and public benefit alongside social
responsibility. The public procurement professional must actively contribute their expertise to
benefit the public through helping create the entity’s strategic vison.
NIGP-CPP Action Statement: Create procurement’s strategic
goals, objectives, and policies in alignment with the entity-wide
strategic plan.
Entity strategic plans address the internal and external issues that impact its place in
government. When considering its own strategies, Procurement must conduct a high-level
discussion and analysis of the following questions:
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Are the strategies aligned with the entity’s mission and value statements?
Do the strategies reflect the entity’s priorities?
Will achievement of the goals help to fulfill the entity’s mission?
Are the goals derived from an internal/external environmental assessment, and do they
reflect responses to stakeholder needs?
Do the objectives provide clear direction for action?
Although some planning is necessary in every area of our lives, most of the time when things
are done without planning, huge risks are at stake with results that often are disappointing or
unsatisfying. Benjamin Franklin’s quote “If you fail to plan, you are planning to fail” echoes this
thought.
Strategic planning is vital because it provides a sense of direction and outlines measurable goals
and objectives. It is a tool that is useful for guiding day-to-day decisions and for evaluating
progress and changing approaches when moving forward. Taking the time to prepare and
implement a strategic plan will help the procurement department identify its priorities, and
help determine the right steps required to move the entity closer to where it will gain the
desired success. Procurement Departments that do not understand the importance of planning
are setting themselves up for disappointment and failure.
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Strategy
Identify Opportunities to Support and Further the Entity Mission
While the overall strategic plan is developed on an entity basis, all internal departments and
divisions should have their own specific strategic plans that align with, and help achieve, the
entity’s overall strategic plan. Once the entity’s vision and mission are established,
Procurement can then develop its strategy to ensure support to entity stakeholders.
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Create a Procurement strategic plan that integrates with the entity’s mission and
strategic plan.
Define Key Performance Areas (KPAs).
Create short- and long-term Procurement objectives for each KPA.
Establish a term for your Strategic Plan (generally 2-5 years).
Strategic Alignment of Procurement Goals
The identification and articulation of Procurement goals is one of the most crucial steps in the
strategic planning process. The goal development process begins to direct resources toward
clearly defined purposes. Goals also identify where Procurement desires to be in the future, so
that it continues to align with the entity mission.
Goals identify what Procurement intends to accomplish, and proposes the general ends toward
which it will direct its efforts. Goals are issue-oriented statements that reflect priorities. They
are statements about policy intentions, and are generally ranked in terms of priority and
resource commitment. Although goals stretch and challenge procurement professionals, goals
must be realistic and achievable.
Identify Opportunities to Support Stakeholder Needs
Collaboration with internal entity departments will help inform Procurement about stakeholder
plans, goals, and objectives. Once priorities are established, procurement managers can take
action to ensure that resources are assigned to best support stakeholders. Procurement
strategies can be adapted to include stakeholder targets. Market research, trend analysis, and
forecasting techniques can be expanded to help provide information that will allow
procurement professionals to offer more effective and efficient support to the entity. Key
spend data can be compiled to support the strategies and targets presented by new
opportunities.
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Strategy
Create a Procurement Strategic Plan that Integrates with the Entity’s Mission and
Strategic Plan
Strategic planning is a process of determining long-range goals and establishing the means by
which these goals will be accomplished. It is a road map intended to help Procurement respond
to new challenges and develop future opportunities. Strategic planning requires dedication by
asking informed questions about current priorities and expectations. It is a complex activity that
involves multiple participants across various entity dimensions. It is a set of concepts,
techniques, and tools that help Procurement assess where it is, decide where it wants to go,
and determine the best way to get there. Strategic procurement planning is typically performed
on an annual basis; however, it is also used when an entity needs to expand or alter its
capacities to address immediate challenges and issues.
Effective strategic planning requires a significant investment of time, energy, commitment of
staff, and resources; however, the long-term cost of not investing in strategic planning can be
even more expensive. One of the main values of strategic planning is that it is designed to
establish and achieve the entity’s mission and vision.
A challenge to developing and implementing a successful strategic procurement plan in
governmental entities is the uncertain tenure of the elected officials and leaders. All entities
face the challenges of internal politics and power struggles. Exceptional strategic plans have
been shelved part-way through implementation because of the election or appointment of new
leaders to the entity.
Best practices advocate for procurement to move from a reactive role to a more proactive role.
This includes development of a procurement strategic plan and a procurement strategy focused
on the most critical needs of the entity. Public procurement professionals must expand beyond
the traditional sourcing roles to those roles which demonstrate their value to the entity. They
must begin to consider themselves as consultants, strategic planners, and technical advisors to
the entity’s program stakeholders that can assist in forecasting their sourcing needs.
Procurement professionals can demonstrate their value to the entity and ensure themselves a
voice in the entity’s strategic planning processes by adopting a position as an internal
consultant. This enables the procurement professional to assist stakeholders in areas such as:
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developing, implementing and evaluating strategic goals and objectives.
identifying and developing new management practices/processes.
generating needs assessments or issue assessments for senior management.
producing management reports and internal operations studies.
identifying and providing assistance through problem identification and resolution.
providing spend and performance data for informed decision making by internal
stakeholders.
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Strategy
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generally enhancing entity performance by providing in-house services that might
otherwise be contracted out.
Create Strategic Procurement Objectives
Objectives are highly defined targets that require specific action. Objectives typically have
shorter time frames than goals, and they may also identify specific performance indicators,
such as quantity or quality, in advance. All objectives must be achievable to some degree,
measurable in terms of identified indicators, and establish timing and the direction (positive or
negative relationships) of strategies.
Although goals are typically broad statements of long-range intended purposes, objectives are
much more specific in terms of accomplishments, quantifiable in terms of evaluation, and
shorter in range. Objectives represent the extent to which goals will be achieved at the end of
the time period for strategic planning purposes. Objectives should be derived directly from the
identified goals, which imply a priority for resource allocation.
Objectives must emphasize the results that Procurement is aiming to achieve, and when it plans
to achieve them. Objectives should clearly identify measures for specific results that
Procurement seeks to achieve during implementation of its strategic plan. These objectives
should be easily understood by the individuals accountable for their outcome and by the
general public.
The creation of strategic Procurement objectives should, at a minimum, include an analysis of
the following statements:
•
•
•
•
Is the objective logically related to an identified goal?
Does each objective describe an output or outcome in terms of identified targets, and
are they time based?
Is each objective realistic and attainable?
Is the objective related to a specific foreseeable result or outcome instead of some
internal process or output?
Establish Short-term and Long-term Objectives
Short-term objectives collectively represent milestones that have to be achieved to attain longterm goals. Often short-term objectives are the steps necessary to achieve the longer-term
goals.
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An entity’s business need determines whether an objective should be short-term or long-term.
Time-limited objectives are often defined as:
•
•
•
short term – less than one year.
intermediate term – one to three years.
long term – greater than three years.
In the context of a small project, short-term objectives might be daily or even hourly tasks
necessary to meet a deadline. An entity might set short-term objectives for longer periods to
accomplish its long-term goal in several years.
Identify Tactical Objectives
Tactics breathe life into the aspirations and goals developed in strategic planning
sessions. In contrast to goals, tactics are comprised of specific actions and approaches
that will be taken in the pursuit of accomplishing goals. For example, tactical objectives
direct and optimize the flow of commodities, such as identifying targets for which
commodities are required, in what quantity, what supply sources are available, and
when delivery is to be made. Tactical procurement objectives define acceptable
performance criteria and are supported by written procedures.
An effective tool to use when establishing both goals and objectives is SMART. SMART is
an acronym that spells out the requirements for establishing effective goals and
objectives. Creating objectives that meet these criteria will enable the entity to move
forward more efficiently, with clear direction and within stated timelines.
•
•
•
•
•
Specific: Objectives that are detailed and clear so that they are easy to understand.
Measurable: Quantifiable objectives that includes definite numbers and welldefined action plans.
Attainable: Realistic (another word used may be “Achievable”).
Relevant: The objective matters and it matches our overall goals.
Time Bound: Set a specific time frame to accomplish your objectives.
Review and Manage Procurement Resources
Procurement managers have a wide array of resources within their operations. Managers must
determine what combination of resources offer the most effective and efficient approaches to
help promote and support the entity’s goals.
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Best practice recommends that managers establish a framework for periodic review and
assessment of where their operation is, and what opportunities or gaps may exist in their
resource allocations. Although this type of forward planning takes time and attention away
from routine work, the cost caused by the lack of preparation may be even greater.
Types of Procurement Resources (Staff/Budget/Equipment/Supplies)
Procurement has a number of resources. These include, but are not limited to:
•
•
•
•
procurement professionals on staff.
operating budget.
equipment.
supplies.
All of these resources must be reviewed and managed. As supply and demand changes, so do
resources. As more effective and efficient procurement operating procedures are adopted,
such as eProcurement, less staff may be needed. On the other hand, if the number and
complexity of stakeholder requests continually increase, more procurement professionals may
be needed to meet the demand. Staffing requirements are directly tied to Procurement’s
operating budget. Other factors that can affect the operating budget can include new or
upgraded software and hardware, additional software or hardware, the need for more or less
staff, upgrading staff salaries to remain competitive, etc. If more staff is added, they will require
equipment to do their jobs—as well as supplies.
Effective management includes a review of resources on a consistent basis to keep up with
demands placed on Procurement. In order to obtain more needed resources, the procurement
manager may have to request that Procurement’s budget be increased to cover the cost.
NIGP-CPP Action Statement: Manage efficiency and
effectiveness in achievement of procurement’s mission.
Procurement Performance Measurement
A key principle of public procurement is to manage its resources and responsibilities efficiently
and effectively. Procurement should have a performance measurement system that assesses
progress towards achievement of the entity’s strategic plan. Performance measurement is
critical to any public sector activity, program, or entity.
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Strategy
In order for procurement managers to know “what” they are measuring, accurate planning
must be completed before the process of developing the performance metrics.
•
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•
Obtain input from key stakeholders (those to whom performance will be reported).
Ensure that measures are simple and relevant to the intended audience (e.g., public,
stakeholders, elected officials).
Ensure that measures are specific, consistently applied, and within the control of the
procurement function.
Identify any dependencies among other stakeholders, functions, or departments that
will be related to the measures.
Define a specific time period for reporting measures that is directly related to the
attainment of goals and objectives in the strategic plan (e.g., 6 months, 1 year).
Utilize measures in the decision-making process that support informed decision making
and lead to appropriate action. The measures should represent a balance of the types of
measures critical to achieving specific objectives and goals.
Establish Procurement Efficiency Measures
Good performance measures need to be meaningful for all participants (procurement
professionals, stakeholders, and suppliers), and stated in terms of the higher-level Procurement
objectives, or else they will lose their impact. Similarly, measures should be fair, easy to collect,
consistent, and objective. Measures must also lead to demonstrable action and they must be
communicated to stakeholders. Activities must be measured against a standard to make
sustainable improvements. There are different types of measurements and metrics:
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•
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•
Inputs measure resources used, such as labor, materials, equipment, and supplies.
Demand for services may also be considered an input metric.
Outputs record activity or effort that can be expressed in a quantitative or qualitative
manner (e.g., total number of new contracts, total number of employees who obtained
professional certification, total spend).
Outcomes assess results of an activity and show whether expected results were
achieved. (e.g., stakeholder service, improved performance of supplier, employee
retention). Outcomes must be benchmarked against other departments and outside
entities. A benchmark is a point of reference that can be used as a standard to compare
effectiveness and efficiency measurements.
Efficiency measures represent the ratio of inputs to outputs or outcomes (e.g.,
turnaround time per purchase order processed, average administrative cost per
contract, percentage of small business contracts as a percentage of total contracts
issued).
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Strategy
•
Success in meeting socio-economic goals, such as supporting MWBE suppliers and
environmental programs, can be tracked and measured.
Stakeholder Satisfaction Levels
A key aspect of measuring Procurement’s performance is to assess how well it is meeting the
needs of its internal stakeholders. Procurement should be judged for its achievement of service
delivery outcomes that are frequently stated as the 7 Rights of Procurement:
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Right materials
Right service
Right source
Right quantity
Right time
Right place
Right price
After the fiscal period is complete, Procurement should tabulate and measure outputs, such as
turnaround times, spend analyses, and stakeholder satisfaction surveys. Methods to monitor
internal stakeholder satisfaction levels involve holding regular stakeholder meetings and the
use of periodic surveys.
Guidelines for developing effective internal stakeholder surveys include rating the procurement
staff performance over the stated period (usually one year). Rating criteria may include overall
performance, professionalism, understanding of the stakeholder needs, and whether or not the
commodities received reflected high quality. Demographic questions may be included, such as
how often the stakeholders engage procurement staff, whether they hold staff or
management-level positions, and the size of their entity. Anecdotal questions may request a
case reference in which Procurement was a support or an obstacle for achieving the mission of
the stakeholder’s business unit.
Tabulate, record, and analyze survey responses and results, which are then shared with all key
stakeholders. The ratings and anecdotal information can then be used to develop targeted
training for internal stakeholders, or offer suggestions on methods to streamline operations.
Establish Procurement Effectiveness Measures
Effectiveness measures reflect how long it takes to process a request for procurement (e.g.,
purchase orders, IFBs/RFPs, etc.), or the turnaround time to receive a good or service.
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Effectiveness essentially measures quality and affects stakeholder satisfaction. It should be tied
back to the key objective.
Procurement should establish methods to measure the effectiveness of its performance.
Methods used to measure performance should be designed to motivate staff to contribute to
Procurement’s improvement. The following are examples of methods that may be used to
measure, track, and share procurement performance:
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•
•
•
•
•
workload levels and workload balance among staff and across the year
timeliness of commodity delivery
operating cost levels
benchmark targets
performance indicators
performance targets
quality management tools (i.e., checklists, progress charts, graphs)
sharing performance measures and progress during regular staff meetings
performance reviews to share performance measures that identify accomplishments
and areas for improvement
Evaluate Results and Implement Necessary Changes to Procurement Actions
Procurement should strive for continuous improvement. Part of that work includes evaluating
results from performance measures, as well as various sources of stakeholder input, to
determine what appropriate changes should be made moving forward. In addition,
Procurement should use various tools to analyze the current state as plans are made for the
improved future state.
Benchmarking Process Improvement Programs
Benchmarking is defined as the act of measuring a process, service, or good against the
characteristics of the recognized leaders in the given area of review. Benchmarking is a study,
review, or process whereby a procurement entity identifies world-class entities with which to
compare its practices, policies, and performance outcomes. An entity’s performance is judged
against selected criteria from other entities deemed “best in class.”
The benchmarks themselves must be quantifiable, attainable, and realistic. Monitor progress
and collect data. Effective benchmarks define the required data for informed decision making.
Procurement must have the ability to collect and analyze data, and monitor progress. Best
practice recommends that Procurement establish data analysis protocols and goals for progress
reporting. Finally, summarize data, then develop and share results using stakeholder reports.
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Strategy
Discussions with stakeholders will help procurement professionals evaluate results and
implement necessary changes to procurement actions.
The best procurement departments are able to measure and demonstrate their performance in
areas such as the efficiency of their own internal operations, including the savings and
contributions made to the overall entity. Procurement measures stakeholder satisfaction and
the process itself or its outcomes, both internally, such as benchmarking against other
departments, and externally against similar government entities.
In summary, some common procurement performance indicators are listed below.
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•
•
•
•
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•
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Cost reduction and containment, especially where demand is increasing, such as for
technology.
Level of savings resulting from new contract/supplier arrangements or procurement
initiatives.
Value of negotiated additional benefits.
Cost reduction resulting from using alternative commodities.
Value of improved warranties.
Reduced inventory stock and improved payment terms.
Savings realized through improved waste management.
Reduction in demand for a commodity.
Length of transaction cycle times.
Changes in transaction costs and error rates.
Timeliness of commodity delivery.
Procurement Administration
As part of managing and promoting an effective and efficient procurement operation,
procurement officials are responsible for establishing a structure of business operations to
ensure successful execution of its responsibilities. In the entity's structure, there are a number
of administrative actions that are necessary to establish. Those actions include, but are not
limited to:
•
•
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Design and maintain operational forms and templates (e.g., checklists, requisitions,
solicitation boilerplate).
Implement an automated procurement system (e.g., integrate business processes,
interfaces).
Implement a standardization process (e.g., materials, procedures, specifications, records
retention/management).
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•
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•
•
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•
Implement operating work policies, guidelines, and procedures for the control of the
department’s workflow (e.g., training manuals, Code of Ethics, Standard Operating
Procedures [SOP], process improvement).
Interpret policies and procedures (e.g., apply policy situationally, respond to questions
about policies and regulations).
Establish cooperative procurement programs with other public entities/private entities.
Audit the procurement process (e.g., ratification process, confirming orders, identifying
illegal purchases, unauthorized commitment).
Manage procurement department personnel (e.g., evaluate, counsel, discipline, coach);
and
Train Procurement personnel.
Automated Procurement Systems
Automated procurement systems are included in Enterprise Resource Planning (ERP) Systems.
ERP systems are business process software systems that manage multiple management
systems such as finance, accounting, human resources, procurement, inventory control and
other activities. Deploying an ERP is generally an enterprise-wide process, involving analysis,
replacement of legacy systems, and the development of new work procedures.
When considering an automated procurement system, it is important to first establish goals
and desired outcomes. The decision to implement an ERP system should include the following
elements:
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•
•
functional requirements
hardware and software support
installation and training
maintenance
one-time costs and recurring costs
A training plan should be developed before the hardware and software are acquired. The
training plan should include providing the end user with printed materials and brief training
programs. The development and training for using electronic procurement forms, such as
requisitions, purchase orders with appropriate terms, data reporting forms, etc., should be
ready when the automated system is implemented.
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Policy & Legislation
Focus Area 2 — Policy & Legislation
As stewards of the public trust, procurement professionals are held to a higher standard of
ethics than are most public employees, acting with confidence to wisely expend the taxpayer
dollars. It is vital they not only understand and follow applicable laws, but also that they act in
accordance with the intent of laws created to guard against favoritism, unfairness, and
unnecessary spending, meeting the needs of their entity without bowing to either internal or
external political pressures. Knowledge of the political environment and entity management
are necessary tools in order to do so.
NIGP-CPP Action Statement: Create, implement, and maintain
fair, accessible, and transparent policies and procedures that
align organizational behaviors, priorities, and professional
procurement values.
The Role of Public Procurement
A critical role the procurement professional serves is educating the entity and supplier
community on the role of the procurement function. Procurement professionals must be
strategic in thinking and executing and be able to successfully communicate with internal and
external stakeholders to maximize procurement's impact on the larger community.
The basic goal of public procurement is to satisfy the client by obtaining the optimum market
response to solicitations for goods or services at a fair and reasonable price with exactly what is
needed (i.e., quality) when it is needed (i.e., timeliness), while serving the long-term interests of
the entity by minimizing business and technical risks, accomplishing social and economic
objectives, maximizing competition, and maintaining integrity.
Like strategic planning, good procurement planning requires the gathering of extensive
information from both internal and external sources. The entity and department strategic plan
needs to provide the framework to develop procurement strategy and tactics.
Entity-Aligned Procurement Values
Public procurement is vitally important, but sometimes it can be a complex and challenging
process for both entity employees and suppliers alike. Procurement processes are created to
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promote efficiency, fairness, and transparency. In addition, processes should be developed to
prevent unethical behavior, and it is essential that entities have an approach that promotes
consistency throughout the procurement process.
The steps in the public procurement process should align with the entity’s policy requirements
and focus on a strategy that addresses an entity’s planned approach to effectively procuring the
required goods, services, and construction.
Policies and Procedures
To successfully serve the entity’s stakeholders and to ensure that goods and services are
delivered in a timely, effective, and economical manner, it is critical that Procurement develop
and maintain clear policies and procedures outlining its method of operation. Policies and
procedures for the central procurement office must be directly related to the enabling laws and
regulations that establish the structure and govern the entity.
Policy and procedure manuals must be well organized and should contain a clear definition of
the purpose of each manual and its intended use. To ensure proper organizational impact, the
Chief Executive Officer of the entity should endorse each manual. Manuals should be produced
in a manner that facilitates revision as changes will surely happen through new legislation and
increased efficiencies in processes.
When considering the structure of procurement manuals, it is useful to keep these basic
definitions in mind.
Regulation: A statement by a governmental body to implement, interpret, or prescribe
law or policy, or to describe organization, procedure, or practice, often promulgated in
accordance with an administrative procedure act.
Policy: A governing principle or plan that establishes the general parameters for the
entity to follow in carrying out its responsibilities.
Procedure: The detailed series of related activities that must be completed and the
sequence in which they must be done, to accomplish a given task.
These definitions reflect a hierarchical progression, both in authority and level of
specificity. A procedure must be based on a policy, which, in turn, is grounded in a
regulation or in legislation.
Guiding Principles
Guiding principles establish the fundamental norms, rules, or ethics that represent what is
desirable (values) and affirmative for our profession and help us determine the rightfulness or
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wrongfulness of our actions. Principles are more explicit than values and are meant to govern
action.
There are a few basic assumptions concerning the guiding principles:
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•
•
The principles are intended to guide the professional practice of public procurement,
and to inform procurement stakeholders (elected officials, managers, citizens, etc.)
about the principles they can expect to be upheld by public procurement professionals.
These principles were developed in the context of North American cultures, particularly
the United States, and so may reflect the experiences of that context.
The principles are broadly intended to cover all levels and variations of public sector
procurement. However, some practitioners will work in contexts in which following a
particular guiding principle cannot be done for good reason.
These principles are intended to set the standard of practice for all public sector procurement
professionals. Like all government processes, the practices of public procurement professionals
are regulated based on the common, statutory, and administrative laws that bind and protect
the responsibilities of public entities across North America. Practitioners must be empowered
to not only identify and define those terms commonly associated with the legal profession but
also be able to describe and apply the predominant categories of law within the larger function.
Procurement Values
We depend on values to construct the framework of our professional lives. Values serve as
broad guidelines that influence how and what choices we make. Our values are enduring beliefs
or ideals shared by procurement professionals, our stakeholders, and the public about what is
good and appropriate in our actions and behavior. We are judged by our choices, actions, and
behavior.
Ethical Alignment
Ethics are the principles that define an individual's behavior as right, good, and proper. An
individual's ethical standards are developed based on a variety of contributing factors, such as
cultural roots, family and religious beliefs, and personal experiences. As stewards of the public
trust, procurement professionals are held to a higher standard of ethics than most public
employees, acting with unwavering integrity to wisely expend taxpayer funds. Therefore,
procurement professionals must serve not only as the ethical leaders of their respective entities
but also as honest and transparent representatives within the communities they support. Each
entity’s identified ethics, laws, policies, values, and norms provide a reference for adapting
one’s individual standards to earn and preserve the public’s trust. An ethical procurement
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professional must understand the entity’s ethics principles, be unbiased and transparent in
their decision making and actions, take ownership, and be responsible to all stakeholders and
the public for their actions. Doing the right thing is essential to their responsibility to the
procurement profession.
Responding to Challenges
Public procurement is a “people oriented” function, one that should focus heavily on customer
service. Purchasing professionals should strive to develop working relationships with internal
stakeholders that promote trust and mutual respect. One of the main challenges for
Procurement in developing and initiating a consistent approach for procurement is that
commonly, other members of the entity, including senior management and staff, may resist
complying with process requirements, wanting processes to meet their own needs and desires.
In addition, political pressure and influence from elected officials and special interest groups
can make developing consistent and effective procurement processes difficult.
When responding to challenges within the public procurement function, it is difficult to ensure
a consistent approach for all stakeholders and members of the entity. By creating policies and
procedures with approval of entity leadership, the procurement professional can codify the
entity’s standardized processes. This will generate buy-in from stakeholders while ensuring
integrity and consistency in their application. It is important to note the role of political
pressures on standardized processes. Should a procurement professional be pressured into
changing policies, they should consult with management, and potentially legal counsel based
on the situation. In addition, the procurement professional should record all queries, concerns,
or requests for exceptions regarding entity policies, thereby documenting the requests made
and any actions taken as a result.
Ethical Policies & Procedures
An important part of the professional procurement professional’s job is to be sure that a code
of ethics exists within operational rules and procedures of the entity, complete with a
discussion of conflicts of interest and requirements for signing conflict of interest statements. It
is, therefore, important for all public procurement professionals to be cognizant of their
obligations to their employers, to suppliers and to the profession. NIGP and the Universal Public
Procurement Certification Council (UPPCC) provide good examples of codes of ethics.
Policy manuals should be centrally written, controlled, and used to guide behavior toward
specific entity objectives. Two examples of policies that represent entity objectives are:
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a set-aside/goal that allows an established percentage of the business conducted with a
government entity to be excluded from the general competitive pool and purchased
from a specialized class of businesses.
• a policy that encourages and promotes a recycle program which includes purchasing
recycled commodities.
Procurement professionals involved in the establishment of policy manuals must ensure they:
•
are compliant with best practices.
are responsive and adaptive to their environments.
act in the best interest of the government.
ensure transparency.
avoid conflicts of interest.
are well-informed about the information associated with regulations.
provide the support to perform functions within established procurement policies and
procedures.
Procurement policy manuals should be created to ensure that all employees clearly know what
standards of conduct are expected. Ethics training should also be included in any new employee
orientation and training. The individual who has received adequate training in ethical reasoning
and the ethical standards of the entity does not lose time wondering about the proper choice.
Such an individual can act more swiftly and assuredly.
•
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Procurement Training Manuals
Procurement policy manuals should be created to ensure that all employees clearly know what
standards of conduct are expected. Training on key policies and procedures should be
mandatory for all new personnel. As these are updated, refresher training should also be
provided. Manuals should be regularly updated. Ethics training should also be included in any
new employee orientation and training. A second reason for studying ethics is that it leads to
greater consistency in decision making.
Procurement Websites
Websites have become a quick, invaluable means for the general public to secure information
on topics such as procurement policies, supplier and procurement manuals, term contracts,
solicitations, awards, buyer contact information, and an array of other important information.
Using electronic bid boards or websites to post solicitation notices and asset disposals has
become easier and public entities have become more accepting of their use. The use of
websites adds a dimension of competition not previously anticipated.
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Entities should provide easily accessible and understandable policies and processes to all staff.
They should also be made available via the entity’s network or Intranet to ensure there is entity
wide access to the most current policies and procedures. In addition, policies and procedures
affecting external stakeholders should be made available publicly, such as on the entity
website. Ensuring adherence to these policies and procedures is essential to demonstrate
responsible use of public funds.
NIGP-CPP Action Statement: Engage the legislative process to
further procurement interests.
Major issues concerning structural reform relate to the level of authority of the procurement
function, the degree of procurement accountability and control, and the sourcing methods and
tools available to public procurement. The question that procurement professionals pursuing
reform must consider is how to balance client demands and interests to modernize the controls
of procurement regulations (red tape) against the entity’s need to maintain control against
fraud, mismanagement of the publics’ funds and abuse of the public trust. Legislative bodies
and central management traditionally exercise control through financial systems, personnel and
procurement systems. Those wishing to modernize the government’s controls over the
procurement process suggest that those controls constrain the ability of clients/stakeholders to
efficiently and effectively meet the service demands of the community. For public procurement
professionals, it is important to pursue legislation reform efforts that more effectively and
efficiently meet the needs of the client, while maintaining the integrity of the procurement
process, and maintaining the public trust.
Structural Change Through the Legislative Process
Legislative action can establish the authority needed by government to move programs and
policies from ideas to actions that positively impact the community and the marketplace.
Examples of procurement legislative initiatives include:
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•
Require reduction or elimination of the use of disposable goods, whenever possible.
Authorize or require the procurement of recycled, refurbished, or re-manufactured
goods and equipment.
Authorize and encourage the use of energy consumption and other life-cycle factors as
evaluation criteria.
Encourage the procurement of alternate-fuel fleet vehicles.
Require the procurement of energy-efficient lighting fixtures and bulbs.
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•
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Restrict procurement of goods containing mercury, if non-mercury alternatives are
available.
Enable the use of cooperative procurement.
Increase procurement thresholds to enable more efficient processes.
Establish programs geared toward increasing opportunities for small and disadvantaged
businesses.
It is important for procurement professionals to be actively engaged in the legislative process in
their entity. Specifically, procurement should be actively monitoring legislation that impacts the
procurement function in their entity or industry-wide, should have the opportunity to provide
input for or against any applicable proposed or pending legislation, and should work with key
stakeholders to pursue legislation that enables public procurement to work more effectively
with the entity and the community. Wherever and whenever possible, public procurement
professionals should leverage the legislative process to introduce industry best practices into
federal, state, and local policies.
Advocacy Channels
Public procurement is responsible for ensuring that taxpayer dollars are spent efficiently and
effectively. Resources are available to provide professional support and technical assistance to
public procurement professionals. The following is a representative list.
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Canadian Public Procurement Council (CPPC). An organization that represents public
sector procurement professionals throughout Canada.
NIGP: The Institute for Public Procurement. An international educational institute that
develops, supports, and promotes the public procurement profession though premier
educational and research programs, professional support, technical services, and
advocacy initiatives. NIGP develops public procurement practices, provides supplier
directives, and developed the NIGP Commodity/Services Code (which is currently
maintained by Periscope Holdings, Inc.).
Institute for Supply Management (ISM). A global, educational association that serves
supply management professionals and organizations. The first supply management
institute in the world, ISM sets professional standards and leads the supply
management profession through excellence, research, promotional activities, and
education.
International Federation of Purchasing and Supply Management (IFPSM). An
international organization that is the union of 48 national and regional purchasing
associations worldwide. IFPSM facilitates the development and distribution of
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•
•
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knowledge to elevate and advance the procurement profession in areas of purchasing,
materials management, logistics, supply chain management, and strategic sourcing.
National Association of State Procurement professionals (NASPO). An association
dedicated to strengthening the procurement community through education, research,
and communication. Made up of the directors of the central purchasing offices in each
of the 50 United States, the District of Columbia, and the territories of the United States,
NASPO offers leadership opportunities in quality professional public procurement; an
exchange of information and promotes cooperation to attain greater efficiency,
economy, and client satisfaction.
National Contract Management Association (NCMA). A leading professional resource in
the area of contract management. NCMA is dedicated to the professional growth and
educational advancement of procurement and acquisition personnel worldwide.
National Procurement Institute, Inc. (NPI). An institute that promotes education,
professional development, and networking opportunities for public sector procurement
and supply management professionals. NPI is the founding sponsor of the Achievement
of Excellence in Procurement (AEP) award, which recognizes excellence in public
procurement.
Purchasing Management Association of Canada (PMAC). The largest association in
Canada for supply chain management professionals. PMAC is the principal source of
supply chain training, education and professional development. The association sets the
standard of excellence for professional skills, knowledge and integrity and is the national
voice for advancing and promoting the supply chain management profession. PMAC
grants the SCMP (Supply Chain Management Professional) designation, the highest
achievement in the field and the mark of strategic leadership in
purchasing/procurement, strategic sourcing, contract management, materials/inventory
management, and logistics and transportation.
Responsible Purchasing Network (RPN). A national network of procurement related
professionals dedicated to socially responsible and environmentally sustainable
purchasing. RPN promotes and practices responsible purchasing by identifying best
practices, developing effective purchasing tools, educating the market, and utilizing its
collective purchasing power to maximize environmental stewardship, protect human
health, and support local and global sustainability.
Universal Public Procurement Certification Council (UPPCC). The pre-eminent certifying
body for public procurement that promotes global recognition of competency in the
public procurement profession through the Certified Public Procurement Officer (CPPO)
and the Certified Professional Public Buyer (CPPB) designations.
Other partnerships and resources to consider leveraging include various chambers of
commerce and business organizations, community groups, trade associations, and partnering
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government entities. Working collaboratively with these groups will help procurement to
advocate for the introduction and passing of legislation that will benefit the community, or to
block proposed legislation that will harm the community, the integrity of the procurement
process, or violates the principles of public procurement.
NIGP-CPP Action Statement: Ensure compliance with applicable
rules and regulations from the various branches and levels of
government.
Public entities are guided by laws, ordinances, policies, regulations, and procedures that impact
procurement activities. Public procurement is quite different from the private sector. Public
procurement is restricted to activities that are authorized by law. The authority of the
procurement department is limited by what has been included in the enabling legislation. The
opposite is true in the private sector, where one may do whatever the law does not prohibit.
There are three primary sources of procurement laws in any governmental jurisdiction.
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Statutory laws, ordinances, and charters. Statutory laws are based on statutes or laws
passed by governments. State or provincial statutes provide state/provincial-directed
legislative law. Ordinances and charters provide for local and municipal governments.
Administrative laws are written rules, regulations, and entity policy, developed and
promulgated by administrative and regulatory governmental entities. Administrative
Law, provided by the applicable regulatory entity, has equal force and effect as
legislative law, as long as it does not supersede the context of legislative law.
Common law is based on customs and traditions and codified through the legal system
by court decision; i.e., a collection of court decisions.
Federal, State, & Local Legislation
It is important for procurement professionals to understand the impact of legislation and
regulations at all three levels of government.
Federal Legislation
At the highest level, the federal government passes regulations that affect all procurement
departments either directly or indirectly. An example of a direct impact is federal Antitrust
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laws. Most countries have competition laws to prevent anti-competitive practices and
government regulations to aid the enforcement of these laws. These laws make illegal the
following practices:
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price fixing
territorial market allocation
tying arrangements
bid rigging
boycotts
dumping
exclusive dealing
In some cases, anti-competitive behavior can be difficult to distinguish from competition. For
instance, a distinction must be made between product bundling, which is a legal market
strategy, and product tying, which violates anti-trust law.
In addition, public procurement may be indirectly impacted by federal regulations when
procuring with federal funds. For any purchase of goods, services, design or construction,
applicable federal regulations must be followed when any (even $1) funds from a granting
entity are utilized for the purchase.
State Regulations
Procurement professionals are responsible for ensuring the entity practices and individual
purchases are compliant with their particular and applicable state statutes. States have varying
procurement thresholds, procurement practices, and procurement programs. Because of the
magnitude of state and local governmental spending, policy makers have used public
procurement to address a variety of social and economic problems. Laws have been enacted
requiring that contractors must:
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maintain fair employment practices.
provide safe and healthy working conditions.
pay fair wages.
refrain from polluting the air and water.
give preference to contractors from the same, state/province or locality.
award to small or women/minority-owned businesses.
promote the rehabilitation of prisoners and the disabled.
Public procurement professionals must also understand the precedence of the various levels of
regulations at the three government levels. Further, they must ensure they understand how the
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regulation is applied, how it connects to other regulations, and how it will be effectively
monitored for compliance.
Local Regulations
Finally, each locality has the ability to pass local regulations through the governing political
body (such as local city councils and local county boards). As with the federal and state
regulations, procurement professionals must understand these regulations, understand how to
apply them, and ensure a clear precedence is established for the various levels to avoid conflict.
In many cases, the local political authority may involve procurement officials in researching,
developing, and implementing certain procurement- related regulations.
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Focus Area 3 — Planning & Analysis
The role of the public sector entity requires strategic procurement planning and participation
by procurement professionals in the implementation of many projects— particularly
standardization, out-sourcing, and public-private partnerships. Risk is a critical consideration in
the contracting and procurement process, and a thoughtful and proactive approach toward
risk, as it relates to specific procurement actions, and contributes to the success of contract
performance.
NIGP-CPP Action Statement: Assess risk and implement
appropriate risk management approaches.
Risk Analysis in the Public Sector
A well-defined output- and outcome-based process is an effective means of managing risk.
Using this process, risks associated with both immediate results (outputs) and any long-term,
overall, or residual results (outcome) can be more clearly defined and adequately assessed. A
risk mitigation plan frames and categorizes procurement and contract risk so that it can be
effectively managed. It is important to remember that the nature of risk and its dynamic
relationship to the operating environment dictates ongoing assessment and monitoring.
Risk variations among contracts make a “cookbook” approach dangerous. Rather, a
procurement professional must recognize that the types and levels of risk and the management
of risk will vary from contract to contract. The various risk mitigation techniques are applied to
specific situations throughout the sequence of activities.
Every procurement action should be evaluated for six types of risks:
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Proposal Risk: Describing the item of service purchased through specifications and legal
document;
Surety/Liability Risk: Protecting the financial and legal interests of the entity;
Schedule Risk: Ensuring timely delivery;
Contractual Risk: Establishing change/amendment procedures, dispute resolution, and
breach procedures;
Performance Risk: Defining acceptance; and
Price Risk: Defining payment terms.
The value of teams is an effective means of populating a risk analysis model or register,
detailing mitigation strategies along with the likelihood and intensity of identified risks. The
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team approach offers a valuable opportunity to view risk through the lens of the various
functional disciplines. Early identification of risk sets the stage for a proactive, rather than a
reactive, approach to problem solving. Furthermore, a verification and validation loop that
traces key operational, programmatic and contractual elements to the risk model offers an
effective means for examining the completeness and accuracy of the risk management plan.
Spend Analysis in the Public Sector
Spend analysis is defined as the process of collecting, cleansing, classifying, and analyzing
expenditure data from all sources within the organization (i.e., procurement card,
eProcurement systems, etc.) It can be used to leverage buying power in an entity, reduce
taxpayer and budget costs, improve supplier management, and create a procurement strategy.
The process analyzes the current, past, and forecasted expenditures to allow visibility of data by
supplier, by good or service, and by department, within the entity.
Spend analysis can be used to make future management decisions by providing answers to such
questions as: what was bought; when items/services were purchased; where was it purchased;
how many suppliers were used and how much was spent with each; how much was paid for the
item.
The following business goals may be accomplished by conducting spend analysis as part of
routine procurement practices:
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Decrease costs in both the short and long term.
Increase effectiveness of the evaluation process.
Increase the value of the procurement function.
Increase efficiencies.
Decrease process time.
Increase in the return on investment.
Increase in procurement’s value within an entity.
Improve internal customer service.
Increase control over spending that leads to allocating money more strategically (the
right places).
Increase purchasing effectiveness by bulk purchasing to save money.
A variety of tools are available to assist with the spend analysis, including spreadsheet
applications, off-the-shelf analytical software, and experience of others who have performed
like analyses. This analysis is not something which should be put on the shelf and only done on
an annual basis. It is important to conduct periodic review of supplier spend to help ensure
spend is in line with the entity’s strategic goals. If the entity has established goals for “buy
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local” or “DBE,” it is a good exercise to compare entity spend with these goals to confirm
compliance with local purchasing policies and procedures.
NIGP-CPP Action Statement: Analyze information from multiple
sources to create a procurement plan to meet the overall entity’s
goals.
Key actions in developing effective procurement strategies include outreach, data capture, and
ongoing analysis of the internal and external entity environment. Leadership, stakeholders, and
suppliers all represent unique sources of input, expectations, discussion, and validation that
may assist Procurement in developing successful plans.
Identify Key Impacts to Procurement Actions
Procurement professionals must spend time assessing the existing environment in order to be
prepared to meet their entity’s needs. Proactive outreach to all stakeholders will provide
insights into their expectations and priorities. Careful analysis of existing spend data can help
develop efficient procurement strategies across the entity. Strategic sourcing activities pair
internal data obtained with supplier input, to help maximize understanding of the impacts on
current and future projects and plans.
Identify Entity Stakeholder Requirements and Objectives
An effective procurement function maintains proactive communication channels with both
internal and external stakeholders. Procurement professionals collaborate with their
stakeholders to identify how to better plan to help them meet their requirements, objectives,
expectations, and initiatives.
Procurement routinely interacts with internal stakeholders. Together, the team should focus on
helping to improve knowledge and understanding of their shared constraints and demands.
One approach is for procurement professionals is to attend stakeholder planning and budget
meetings. Budget discussions often address upcoming requirements and projects. Such
forecasting plans can offer great value to the procurement department, which, in turn, can
offer better support to stakeholders by adjusting workload of key buying staff, and staging
support for upcoming mission-critical projects within the entity’s tight deadlines.
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Identify Impact from External Stakeholder Expectations and Initiatives
The supplier community interacts directly with both internal stakeholders and the procurement
team through their marketing programs and by their participation in solicitations. Supplier
outreach programs are a component of strong partnerships between the entity and its key
suppliers. The use of debriefs after contract award can go a long way toward supporting good
supplier relationships. Routine supplier performance discussions offer the entity a structured
way to share feedback from internal stakeholders, and offer suppliers the opportunity to
improve satisfaction rates. The expectations from both parties are best addressed through
ongoing, constructive discussions about shared expectations.
The steps in the public procurement process should align with the entity’s policy requirements,
and focus on a strategy that addresses an entity’s planned approach to effectively procuring the
required commodities and construction. One of the main challenges to the procurement
professional in developing and initiating a consistent approach for procurement policies is that
other members of the entity, including senior management and staff, may resist complying with
process requirements, and want processes to meet their own needs and desires. For example, a
stakeholder may want the threshold for competitive requirements for small purchases to be
increased in order to favor a preferred supplier.
Another challenge for the procurement professional in promoting and maintaining a consistent
approach to procurement is that some stakeholders, including managers and even some
elected officials, may view procurement, in general, as an impediment to getting their jobs
done. They may view the processes as slow, time consuming, and unnecessary. In addition,
political pressure and influence from elected officials and special interest groups can make
developing consistent and effective procurement processes difficult.
Consider Political Leadership Changes
Political platform issues often directly affect procurement priorities. Government leadership
may change with the election cycle, and new priorities are constantly being implemented. The
Chief Procurement Officer or lead procurement professional must keep informed on how such
priority changes will affect procurement strategy and policy. For example, unintended
consequences may result from changing focus on supplier initiatives, including any changes to
targeted socio- economic award goals.
Analyze Legislative Updates and Changes
Local government legislative actions implement new statutes and regulations that affect
business practices. Procurement leadership must be proactive in understanding and being
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aware of new laws and their impact on doing business with the entity. Implementing conflicting
priorities for environmental preferences, for example, can leave stakeholders and suppliers
with difficult compliance choices.
Procurement must use its unique position in the entity to provide management with an analysis
of the impact of legislative changes on current plans, expectations, and requirements. Best
practice recommends outreach to advise the supplier community about how new initiatives
may shape their participation in entity projects.
Strategic Procurement Planning (SP2)
An entity’s strategic plan should provide the framework to develop procurement strategy and
tactics. Research has demonstrated that the financial benefits of developing integrated supply
chain management, process redesign, and policy development may be far greater than the
possible returns from a simple commodity or department cost/efficiency focus. The best way to
show the value of procurement is through a strategic effort at linking procurement to the
success of the entity. Hence, procurement planning becomes a critical component in increasing
the efficiency and effectiveness of the entity’s resource allocation process.
Strategic Procurement Planning (SP2) is the transformation of the entity’s mission, goals, and
objectives into measurable activities to be used to plan, budget, and manage the procurement
function. The ultimate goal is to bring about positive change in the entity’s culture, systems,
and operational processes. Procurement planning occurs across functional units and activities
by extending the value chain/supply chain management concept to include procurement
strategies.
A major goal of strategic procurement planning is to link resource allocation decisions with the
entity’s objectives in a priority-setting model. Some of the most common benefits associated
with strategic procurement planning are that it:
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focuses attention on the entity’s mission and links tactical procurement decisions to
overall strategy.
provides a framework to review strategy implementation and control.
allows procurement professionals to verify the legitimacy of procurement strategy
consistent with the entity’s strategy.
assists in designing future procurement strategies.
assists in designing or redesigning the structure of the procurement functions and
processes.
allows procurement resources to be assigned according to opportunities and risks.
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facilitates a better understanding of the implications of cross-functional problems and
projects arising out of procurement decisions.
creates a framework for communicating with suppliers and cross-functional team
members.
facilitates the identification of opportunities and threats for future procurement
decisions.
Strategic procurement planning provides the processes and tools to modernize public sector
efforts around improving service development and delivery systems. Procurement’s strategic
planning should be concerned with delivering the right commodities, in the right quantities and
quality, at the right time and price for each of its stakeholders, while attempting to ensure that
each procurement action is both aligned with and furthers the accomplishment of the entity’s
overall strategic plans.
Some roles and responsibilities in strategic procurement planning include monitoring legislative
trends and laws (e.g., rules, regulations, executive orders), keeping current on professional
trends and developments in public procurement, and conducting business analyses and
providing consultation to the entity’s executives regarding overall service provision business
options (e.g., outsourcing, privatization, partnering).
Process Improvement Programs
Process improvement is defined as the increase in value or decrease in applicable costs,
resulting from a modification in any phase of the procurement process. Process improvement is
a systematic approach to help any entity make significant changes in the way it does business.
Each step in a process involves cost and time. In exchange, each step should add value to either
the stakeholder or the entity. Activities that add neither stakeholder nor business value should
be considered for elimination to reduce costs and time. Process improvement involves:
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Defining the entity’s strategic goals and purposes. (Who are we, what do we do, and
why do we do it?)
Determining the entity’s stakeholders. (Whom do we serve?)
Aligning the entity’s processes to realize its goals. (How can we do it better?)
Process improvement may be implemented as a radical change in an entity or it may be
implemented on a smaller scale. For smaller scale projects:
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Start with a small process that can be completed in a short time frame.
Set clear timelines.
Do not spread resources thinly and do not focus on the short-term payoff.
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Management and primary stakeholders must be involved; if they are not, even a limited
implementation will fail.
Strategic Sourcing
A subset of the entity’s strategic procurement plan is a strategic sourcing plan. Strategic
sourcing is a methodology and process that enables procurement professionals to analyze how
they acquire commodities, with the objectives of lowering costs to the entity and improving
supply fulfillment throughout the entire supply chain. A fundamental tenant of strategic
sourcing is continuous improvement, and evaluation of methods and processes to enhance
effectiveness and efficiency. Other goals of strategic sourcing are to:
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improve supplier performance.
eliminate non-value-added activities and costs.
reduce waste.
minimize risk.
This sourcing methodology requires strategic planning of procurements and development of
policies and procedures that support future programs and operations. Some guiding principles
of strategic sourcing are:
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Process procurements in a manner that reflects the greater good of the entity.
Use cost-effective and efficient procurement methods.
Manage suppliers for performance and compliance with all statutes, regulatory
provisions, and entity policies and procedures.
Establish Acceptable Service Levels
Performance-based instruments for procuring and managing software contracts can be used to
specify software quality and are also often used to specify performance requirements. Service
Level Agreements (SLAs) identify and establish quality in the procurement planning phase,
helping the contract administrators to establish quality controls for monitoring and managing
the various aspects of software contracts. SLAs should be signed by both the entity and the
supplier, and included in the contract documents.
Supplier Relationship Management
Supplier Relationship Management (SRM) is a set of principles, processes, and tools that can
assist governments to maximize relationship value with suppliers, and minimize risk and
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management overhead through the entire supplier relationship life cycle. SRM enables entities
to:
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Effectively identify strategic suppliers based on relative importance and define
operational expectations (supplier stratification).
Establish the governance structure and process for internal and supplier interactions
across the life cycle of the supplier relationship.
Define formal processes for management involvement in the relationship.
Clarify internal roles and responsibilities.
Establish processes to effectively manage performance and develop supplier capabilities
to continuously improve value to the entity.
Establish Partnerships with Awarded Suppliers
Developing a good entity-supplier relationship is essential to ensuring long-term supplier
performance. It is important to establish a relationship of mutual trust and confidence. To
improve the relationship, procurement professionals should:
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Develop and maintain a viable supplier base.
Address appropriate strategic and tactical issues.
Assure the supplier selection process is effective and suppliers are selected
appropriately and are successful.
Use the appropriate procurement method, such as an Invitation for Bids (IFB) or
Request for Proposals (RFP) to make the appropriate supplier selection.
Lead/manage the source selection process to ensure that the best supplier is selected
for award.
Ensure the procurement professional has the appropriate tools to effectively manage
supplier performance.
Identify potential Emergency threats
Disaster Preparedness / Continuity of Operations Plans
The goal of a Continuity of Operations Plan (COOP) is the ongoing operation of essential
government functions during a formally declared emergency. The objective of the entity is to
identify those essential functions, and ensure that the functions can be continued throughout,
or resumed rapidly after, a disruption of normal activities.
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Procurement plays a key role in disaster response, relief, and recovery that includes the
purchase of all commodities and construction.
Elements of a COOP
A Continuity of Operations Plan (COOP) contains key elements.
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essential functions
orders of succession
delegations of authority
continuity facilities
continuity communications
reconstitution
vital records management
human capital
tests, training, and exercises
devolution of control and direction
A COOP plan may contain the following phases:
Phase I: Readiness and Preparedness.
Phase II: Activation and Relocation.
Phase III: Continuity Operations.
Phase IV: Reconstitution.
Procurement Responsibilities During Disaster Responses
COOP plans are available to everyone in the entity as well as to stakeholders and include:
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the development and implementation of consistent principles and approaches that
include efficient and effective preparation for the prevention of, response to, and
recovery from incidents.
procurement strategies and tactics.
measurable activities for planning, budgeting, and managing the procurement process
during a disaster.
In disaster preparedness, the procurement function has a strategic role and a service role.
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In its strategic role, procurement must ensure that the entire entity continues to receive
commodities at reasonable prices that are delivered appropriately. Commodities and
construction that are not otherwise available must be located.
Procurement’s service role ensures that its own department resources continue to
function and continue to provide appropriate purchase order/contract documentation.
The Chief Procurement Officer or lead procurement professional is responsible for ensuring
that the procurement department:
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has done all that it can in advance to prepare for the emergency.
is supportive of the entity’s stakeholders during these situations.
has clear reporting lines and procedures in place.
A procurement entity’s COOP must:
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be dynamic and capable of being immediately adjusted and modified depending upon
the situation.
identify essential functions and ensure that those functions can be continued
throughout or resumed rapidly after a disruption of normal activities.
be well-developed so that it addresses the people, processes, systems, and
infrastructure elements that will be needed to continue to perform essential functions
during a disaster or emergency operation.
Essential Elements for Procurement COOPs
The following essential elements should be included in every procurement COOP:
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definition of essential commodities to be provided during the situation. Include exactly
which procurement services will be provided and to what extent.
hierarchy of authority, including how procurement and contracting authority will be
delegated during the situation and by whom.
location of operations.
communication.
documentation, records, and recordkeeping.
identification of suppliers, shippers, resources, and other businesses.
emergency procurement procedures for purchases.
establishment of a credit or payment/procurement card for emergency purchases.
issuance of purchase orders and contracts, including term contracts.
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Drive - Away Kits/Black Boxes
Success of the COOP requires that necessary physical resources be available to the
procurement professionals that will be responsible for carrying out the plan. Necessary
resources include, but are not limited to, simple items such as pens, paper, paper clips, stapler,
file folders, printer paper and printer ink, and blank paper purchase orders. The central
procurement office should assemble enough Drive-Away Kits/Black Boxes that contain all of the
supplies and resources needed to carry out the plan. There should be enough kits so that each
person that is on the initial call-out list has one. Every kit should include the following:
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a copy of the procurement COOP
emergency procurement procedures
the supplier contact list
a list of all contracts that have an emergency supply function
entity resources, including internal contact information and approval procedures
any other resource that might be required if the entity’s procurement department is
inaccessible for more than a couple of days
Disaster Aftermath Activities
In the aftermath of a disaster, the tasks of the central procurement office will shift from buying
commodities, including construction, to responsibilities that include:
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documentation and justification for all purchases, including receipts and invoices.
preparation of documents for ratification of emergency purchases that were over a
certain dollar amount.
confirmation of required documentation and recordkeeping to obtain financial relief.
disposal of surplus equipment and items.
After Action Review and Remedial Action Plan
In the aftermath of a disaster, the entity should review and remediate its COOP action plans. An
assessment of lessons learned can offer significant resources to guide procurement
professionals and entity stakeholders, in the event of future emergency situations.
A strategic procurement Continuity of Operations Plan (COOP) for disaster response, relief, and
recovery brings together a wide range of important management information to support the
entity and its stakeholders. The COOP includes essential functions such as the procurement of
commodities and construction, and it ensures that these functions are continued throughout,
or resumed rapidly after, a disruption of normal activities.
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NIGP-CPP Action Statement: Analyze current market trends and
the impact on procurement planning.
Procurement strategies are based on several kinds of information, including, but not limited to,
forecast data, market factors, and economic trends. Research techniques are combined with
the various analytical techniques and with forecasting techniques to assemble and examine a
high- level view of procurement information. This leads to the choice of procurement
strategies.
Research in procurement is as much about choosing significant subject matter topics and
defining their scope, and knowing how and when to apply the findings, as it is about the actual
research techniques. A results-based, value-adding procurement occurs when strategies are
developed to analyze past and present requirements, as well as to determine future needs. In
order for the procurement professional to perform a thorough and appropriate market analysis,
they must start with a requirements analysis to ensure that the most appropriate commodity
will be procured.
Procurement professionals must:
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evaluate the feasibility, cost-effectiveness, and timing of potential procurements.
be aware of the nature of volume and timing decisions.
continually assess opportunities in order to determine future entity needs and to
develop a precise buying plan.
Analyze the Key Spend Categories in the Entity’s Business Environment
Procurement professionals should think creatively about possible information sources. To
analyze the market, they may use Internet commodity search resources, online professional
procurement association exchanges, discussions with colleagues and suppliers, trade journals,
commodities indexes, supplier trade shows, and other trusted industry forums. Procurement
teams must understand how the market works, the direction it is moving, why it is moving in
that direction, and who the key players are in each market. They must also understand how
suppliers view the government as a customer. Then they must communicate that information
to the stakeholders, and be prepared to advise them on the strengths and weaknesses of the
market, and where the greatest risks will be. Knowledge of market conditions will help the
procurement team provide accurate information to the stakeholder, and assist in forecasting
accurate costs and schedules for upcoming budgets, programs, or projects.
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Market Research Resources
Market research includes collecting and analyzing information about capabilities within the
market to satisfy entity needs. The results of market research are used to arrive at the most
suitable approach to acquiring, distributing, and supporting commodities.
The prices of some commodities experience substantial market fluctuations, and the timing of
the purchase and the terms of the contract can make a critical difference in the overall cost.
Market research is critical to the source selection process because it gives the procurement
professional current information to select the most beneficial method and timing for procuring,
distributing and supporting commodities. Without it, the procurement professional risks losing
the opportunity to achieve best value for their stakeholders. Market research allows the
procurement staff to fulfill its function of advising entity management and operating
departments about general business market conditions, new ideas, and commodities suggested
by suppliers. Specifically, staff can provide anticipated budgeting price ranges for materials and
their availability.
Monitor Trends in Market Volatility/Economy
The experienced procurement professional can anticipate current prices and fluctuations, as
well as commodity shortages or surpluses, by exercising appropriate research techniques.
Utilizing the appropriate research techniques is a key part of the planning process; without it,
the procurement professional risks the failure of the strategic procurement plan. Buying when
prices are high or the commodity is in short demand results in overpayment. In some cases, the
inability to procure commodities essential to the entity can mean interruption of the entity’s
mission. Conversely, the entity should purchase a greater quantity when prices are low and the
commodity is in large supply. There are obvious conditions that should be present for such
stock up actions, such as when the entity has high ongoing usage, sufficient warehouse space,
and the commodity’s shelf life is sufficiently long to avoid spoilage or deterioration.
An assessment of the market should include discussions with suppliers. A good relationship
with suppliers is one of the best resources available to the procurement professional to gain
knowledge of market conditions, commodity information, and an awareness of competition.
Government procurement professionals recognize the importance of partnering with suppliers
and developing practices to utilize their expertise without compromising integrity.
Implementing term contracts with optional renewals is one mechanism to achieve longer-term
relationships.
Market Research can be viewed as a four-step process.
1. Market intelligence. A high-level review of the industry examines all of the activities of
the market. It includes on-going activities such as reading journals, news magazines and
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newspaper articles that relate to the industry. Searching trusted Internet feeds can be
an effective tool for conducting surveillance.
2. Market Research. The process of collecting and analyzing the information related to a
specific commodity or service. The information learned by evaluating the data collected
through ongoing surveillance can then be utilized in preparing the next procurement.
3. Market Analysis. The action of the public entity in recognizing the availability of
commodities within the marketplace, as well as the suppliers of those commodities.
Identification of commodities includes comparing the commodity characteristics as
produced in the marketplace with the requirements of the entity and its stakeholders.
4. Procurement of the commodity. By following the previous three steps, the entity will
have a summary of the market conditions, will be able to identify potential suppliers of
the commodity, will understand how their anticipated requirements match up with the
commodities readily available in the current marketplace, can anticipate potential
budget impacts, and will be able to develop a successful solicitation to meet stakeholder
requirements.
Identify Market and Supply Chain Issues
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An important responsibility of the procurement professional is to determine how
competitive the current supply market is. This is best accomplished by conducting
market research into the following areas:
type and number of suppliers within a market
an estimation of each supplier’s market share
availability of alternative or substitute commodities
level and nature of competition within supplier communities
department’s value as a customer to the supplier
environmental factors affecting the supply market.
The supplier marketplace is typically broken down into four groups.
1. Perfect competition exists when there is free and open competition.
2. Imperfect competition includes the artificial restriction of available competition through
the use of preference policies, restraint of trade by suppliers who create selling
territorial areas or by the business practices of the entity.
3. Oligopoly is a market situation in which a few companies control or dominate the
market for a particular commodity. Example: OPEC cartel for petroleum commodities.
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4. Monopoly is a situation in which there are many buyers and only one seller of a
commodity that has no close substitute, giving the seller considerable control over the
price because of the lack of competition.
The more critical the commodity is to the entity, the more important it becomes to conduct
market research. When the commodity is “mission-critical” for the entity, procurement
professionals will usually conduct the market research on an ongoing basis, rather than waiting
until stakeholders submit a request for requirements. Commodities from stable markets will
require less ongoing research, but the research should never be completely ignored. On the
other hand, commodities from less stable or unstable markets require greater diligence in
performing the market research on an almost continuous basis. Typical of these unstable
commodities markets are oil and petroleum-based commodities, paper, crude rubber, and
many types of metal. In an unstable market, the timing of the solicitation will most likely
become a very important consideration for the procurement professional. Another valuable
tool in conducting market research is the Request for Information (RFI).
Key management planning tools to develop procurement strategies and determine future
needs include forecast data, market factors, and economic trends.
Forecast Data
Forecasting is an essential element of strategic planning that requires knowledge of the
economy. It is used to determine future needs through an ongoing assessment to examine
opportunities. In order to predict what will occur in the future, examination of current and past
trends and pricing is critical. Forecasting requires procurement professionals to keep abreast of
the market, and to survey and understand various commodity indicators, business cycles,
indexes, lead times, and price histories. When the procurement professional is involved up
front in the initial planning and budgeting processes, there is adequate time to forecast in order
to buy effectively, make good decisions, and maximize value.
Through examination of current and past economic trends and pricing, forecast data provides
knowledge of the economy, and serves as a basis to predict what will occur in the future and
plan for it. Buying effectively, making good decisions, and maximizing value are goals of
forecasting. Effective forecasting is useful in determining which methodology to use for a
solicitation, such as a spot bid or term contract based upon market fluctuations and conditions.
Some measurements and indicators that reflect changes in economic and business activity,
including highs and lows in the economy, are:
•
•
new orders.
Production.
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•
•
•
Employment.
supplier deliveries.
inventories.
Identify Trend and Anticipated Stakeholder Demand Changes
Procurement professionals are adept at managing and monitoring the business categories
that they handle. They are proactive in gathering market intelligence that help them
collaborate with stakeholders to make informed decisions on future projects. As
stakeholder demand changes, procurement professionals should use their knowledge of
market issues to anticipate ways to maintain competition and take advantage of trends.
Market Factors and Economic Trends
Stability of the market is a variable to be considered in determining purchase volume and
timing. Careful observation and analysis of market conditions are essential in order for
procurement professionals to satisfy the entity’s price and supply objectives. When
evaluating market factors, the procurement professional should:
•
•
•
•
be familiar with market conditions.
determine the degree of competitiveness in the current supply market.
provide accurate information to the stakeholder to assist in forecasting accurate
costs and schedules for upcoming budgets, programs or projects.
assist the stakeholder in selecting the appropriate solicitation method and the
proper time to solicit for needed commodities.
In a market with price stability, timing is not as critical as it is in an unstable market that
exhibits short-term fluctuations.
A stable market self-corrects to provide reasonably competitive prices. Commodities
require less ongoing research, but analysis and observation of a stable market should never
be completely ignored. Characteristics include an environment in which forces of supply and
demand determine the price level at which commodities are sold in the long run, and where
volume buying arrangements can reduce costs.
Short-run fluctuations are exhibited in an unstable market. Commodities from less stable or
unstable markets require great diligence and observation through almost continuous
market research. An unstable market requires certain considerations.
•
Timing - A major factor when procuring commodities, especially those that are
affected by an unstable market. A timely market analysis can identify potential cost
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•
•
•
reduction opportunities. The timing of a solicitation is an important responsibility of
the procurement professional.
International political situations - Many commodities utilized by an entity can be
significantly impacted by international political situations.
Weather and growing conditions - Market speculation can impact volatile
commodities.
Speculation and supply and demand - This applies to unstable commodities such as
oil and petroleum-based commodities, paper, crude rubber, and many types of
metals.
Certain sourcing and contracting tactics take advantage of conditions in the supply chain.
Procurement strategies for spot bids and term contracts are based on market factors and
forecast data.
Identify Opportunities for Increased Value
Market research, trend analysis, and forecasting techniques offer basic information about
procurement opportunities. Procurement professionals have a responsibility to make a
significant contribution to the procurement of commodities by developing and implementing a
variety of cost reduction and cost avoidance programs. The components of such programs
focus on developing an annual procurement buying plan that provides increased value to the
entity.
Value Analysis (VA)
Value Analysis is a structured thought process used to identify required commodity features,
and to eliminate features that add no true value. Value analysis (VA) is an organized effort
directed at analyzing the functions of a commodity, with the intent to satisfy the required
function at the lowest possible cost without impacting functional need and suitability. Value
analysis is focused on the substantive functions, attributes, components, and materials that
make up the commodity; i.e., what it does, not what it is.
The technique can be used to look at alternatives during the make or buy decision stage, and
can be used to develop specifications included in an invitation for bids or request for proposals.
Value analysis can be applied to:
hardware and software.
•
development, production, and manufacturing.
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•
•
specifications, standards, contract requirements and procurement practices,
procedures, and documentation.
facilities design and construction.
Value Analysis is usually a cross-functional team effort conducted by procurement and
stakeholders in preparation for a solicitation.
Value Engineering (VE)
Value Engineering (VE) is a technique by which contractors may (1) voluntarily suggest methods
for performing more economically and may share in any resulting savings, or (2) be required to
establish a program, or identify and submit methods for performing more economically. Value
Engineering is usually applied to construction projects. Value Engineering may be part of a
Request for Proposals or action taken by a contractor after the award.
Cost Reduction
Cost reduction is generally realized when a manufacturer is able to lower its material or labor
costs used to make its commodities; this term is interchangeably used to indicate a lower price
paid by the procurement professional from what was previously paid.
Cost reduction occurs when the current price to be paid by the procurement professional is
lower than the previous price paid under similar procurement conditions, generally as a result
of a favorable competitive market environment. In an attempt to achieve a cost reduction, the
procurement professional must carefully select the appropriate competitive solicitation method
to be used, coupled with a specific type of contract arrangement in order to entice suppliers to
competitively participate in the bidding/ proposal process for the entity’s business. In addition,
a cost reduction can be realized when the entity is willing to accept an alternative bid or
proposal that still meets the overall fit, form, and function specifications, and the entity
requirements. Dollar savings must be actual and quantitative, not potential, in order to be
reportable.
If market conditions are favorable to the procurement professional, a typical cost reduction
may occur when the procurement professional formally or informally solicits price quotations
from suppliers for a needed item or service, and the quoted price is lower than the previous
purchase under similar buying conditions.
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Cost Avoidance
Cost avoidance includes actions taken to avoid having to pay a certain type of cost. This could
be financial costs avoided by negotiating an extension to current prices when the entity
becomes aware that price increases are likely to occur. Another example of cost avoidance is
when Procurement elects to take advantage of a cooperative arrangement, and the entity
“avoids” the time and work involved in issuing a solicitation and completing its own contract.
Performing value analysis and drafting well-written specifications help ensure appropriate
quality and performance to meet the stakeholder’s requirements and expectations. In this way,
unnecessary costs can be eliminated.
Cost avoidance is a dedicated effort on the part of the procurement professional to carefully
analyze the entity’s needs (demand analysis), while taking the appropriate purchasing actions
to prevent unnecessary charges from occurring in the procurement of commodities. Cost
avoidance actions include:
•
•
•
•
the application of techniques to provide good specifications that incorporate value
analysis to eliminate unnecessary commodity features.
the use of negotiations to waive supplier manufacturing set-up costs and minimum
purchase penalty charges.
the early purchase of an item at the current supplier’s price to avoid an upcoming
scheduled supplier price increase.
due diligence to ensure that a solicitation does not have to be cancelled and recompeted.
Typically cost avoidance occurs when the procurement professional carefully examines the
internal stakeholder specifications to determine the exact requirements and the level of quality
needed for the commodity (value analysis). Many commodities have various models
representing the “good, better, and best” models in quality and features. If the entity has
determined that the commodity should be at the “good” level, then the procurement
professional and the internal stakeholder must ensure that specifications are reflective of this
“good” level, to avoid requesting any unnecessary features or higher level of quality that would
translate into higher quoted prices to the entity.
Identify Methods to Improve Commodity Fulfillment from the Entire Supply Chain
In their search for best value, procurement professionals monitor the entire supply chain.
Market intelligence offers one of the best ways to gain insights into upcoming opportunities to
improve support for stakeholder requirements and expectations. Please see the NIGP Global
Best Practice on The Market Research Process for more information.
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Time must be taken up front to research and assess:
•
•
•
•
market conditions.
price history fluctuation.
available competition.
the characteristics of the industry.
Market intelligence further yields the following information:
•
•
•
•
•
•
•
•
type and number of suppliers within a market
an estimation of each supplier’s market share
availability of alternative or substitute commodities
insights into current and future market plans for new and innovative solutions
information about cost drivers and impact on overall commodity costs
level and nature of competition within supplier communities
the entity’s value as a customer to the supplier
environmental factors affecting the supply market
Supply Positioning
Supply positioning is an analysis of the complexity of the supply marketplace and its impact on
entity service delivery based on such factors as:
•
•
•
•
•
dependency of entity service delivery upon particular commodities.
risk to entity service delivery arising from potential disruption, such as discontinuity of
supply or a significant increase in price.
the makeup of the marketplace.
lead times and the complexity of the technology involved.
the source of the original manufacture or service supply and any related opportunities.
There are two major forces impacting the nature of government procurement: (1) the difficulty
of securing a supply of commodities (risk), and (2) the amount expended for each commodity
consumed by the stakeholders. Using supply positioning, commodities can be plotted according
to their relative difficulty in being secured and the relative amount expended.
Supply positioning is a good management tool to determine where the procurement effort
should be focused and where energy and resources should be directed. Generally, the greater
the expenditure on particular commodities, the greater the difficulty in securing those items.
The relationship between amount and risk in the supply market and the costs associated with a
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commodity are not always linear, so a low-cost item might represent a high degree of difficulty
in securing supply, or a high cost item might pose no significant risk for the entity.
One of the key determinants of the successful utilization of the supply positioning matrix is to
ensure that complex categories of commodities are separated to the lowest common
denominator. For example, purchases labeled “information technology” can be split into a
number of markets, including information technology consultancies, personal computers,
computer peripherals, and software and technology consulting and contracting. Segmenting
the anticipated category spend is important because each market has different characteristics,
and the risks and expenditures of each procurement may differ.
The supply positioning matrix illustrated below graphically illustrates the supply continuum
and the potential procurement strategies for each quadrant.
Quadrant I: Commodities with a low degree of risk (difficulty of securing supply) and a low
expenditure relative to total procurement spend. These items collectively make up a relatively
small proportion of the total expenditure on purchased items.
Quadrant II: Commodities with a low degree of risk (difficulty of securing supply) and a high
expenditure relative to total procurement spend. These items collectively make up about a
quarter of the total expenditure on purchased items.
Quadrant III: Commodities with a high degree of risk (difficulty of securing supply) and a low
expenditure relative to total procurement spend. These items collectively make up a very small
proportion of the total expenditure on purchased items.
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Quadrant IV: Commodities with a high degree of risk (difficulty of securing supply) and a high
expenditure relative to total procurement spend. These items collectively make up over half of
the expenditure on purchased items.
Once the risks of supply are identified and a reasonable estimate is provided regarding risk
factors, the supply positioning chart can be segmented for planning purposes. The commodities
in the easy-to-secure supply (low degree of difficulty to secure supply) and low relative
expenditure category will demand substantially less attention than commodities in the other
categories. Commodities in the high-expenditure and high-risk quadrants require different
planning approaches.
Strategic Inventory Forecasting Techniques and Strategies
Forecasting is a tool used to determine future needs. Procurement professionals perform an
ongoing assessment of opportunities in order to develop reliable forecasts. Inventory
forecasting helps Procurement keep abreast of the market, and to survey and understand
various indicators, business cycles, indexes, lead times, and price histories of commodities. To
predict what will occur in the future, examination of current and past inventory trends and
pricing is critical.
Inventory Forecasting
Forecasting the need for various commodities is a key function of strategic inventory
management. An essential element in such management is to determine if any changes are
anticipated in future inventory. Forecast data is usually prepared by evaluating historical data
and analyzing it to determine if any changes in future requirements are anticipated.
A key function of inventory management is forecasting the anticipated need for various
commodities. If the entity maintains an inventory of commodities, then it is imperative that
inventory forecasting tools are effectively used. Forecasting is usually done by taking historical
data and analyzing it to determine if any changes in future requirements are anticipated.
To predict what will occur in the future, examination of current and past trends and pricing is
critical. Forecasting requires procurement professionals to keep abreast of themarket, and to
survey and understand various indicators, business cycles, indexes, lead times, and price
histories of commodities. When the procurement professional is involved up front in the initial
planning and budgeting processes, there is adequate time to forecast in order to buy
effectively, make good decisions, and maximize value.
Public purchasers need to pay particular attention to fluctuations in the market, so that their
knowledge of the ins and outs of the marketplace benefit their entity. As an example, the
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timing of seasonal purchases can generate substantial savings when procurement professionals
have analyzed a commodity and know when the conditions are favorable for greatest economy.
The most frequently used means of forecasting future usage are based upon various methods
of averaging past usage such as:
•
•
•
•
•
fixed period average.
moving average.
weighted moving average.
mean absolute deviation (MAD).
economic order quantity (EOQ).
NIGP-CPP Action Statement: Use Procurement priorities and
best value considerations in addition to cost, price, and spend
analysis methods to make informed decisions.
The entity’s desire to achieve best value drives proactive collaboration across internal
stakeholder groups to identify the most advantageous solution. Focused approaches such as
cost benefit analyses, life cycle costing, and total cost of ownership help maximize entity
savings. By considering options and identifying priorities, procurement professionals create and
provide recommendations that help the entity make sound decisions.
Collaborate with Internal Stakeholders to Help Meet Shared Goals and Objectives
Procurement professionals often lead internal teams that focus on a variety of projects to help
reach shared goals and objectives. Stakeholders from the finance and budget units are
invaluable partners in analyzing the components of spend that impact the entity. Program
stakeholders offer information about alternative solutions that can meet expectations and
contribute to savings initiatives.
Price Analysis
Price analysis is a process that compares prices with previous purchases, similar commodities,
or estimates prepared by an engineer, contractor, or other party. It is based on comparison
without breaking down components that make up the price. Price analysis is used extensively
with invitation for bids.
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Cost Analysis
Cost analysis is an evaluation of actual and anticipated components that comprise price. The
cost review is based upon categories that include direct costs, comprised of labor and
materials, and indirect costs that include overhead costs and general administrative expenses.
Cost analysis is generally associated with requests for proposals. A cost analysis should be
employed when price analysis is impractical or does not allow a purchaser to reach the
conclusion that a price is fair and reasonable. Cost analysis is most useful when purchasing
nonstandard commodities.
Spend Analysis
Spend analysis is the process of collecting, cleansing, classifying, and analyzing expenditure data
from all sources within the entity, such as procurement card and eProcurement systems. The
process analyzes the current, past, and forecasted stakeholder expenditures to allow visibility
of entity data at various levels, e.g., by supplier, commodity, service, or by department.
Spend analysis can be used to make management decisions by providing answers to such
questions as: what was bought, when was it bought, where was it purchased, how many
suppliers were used, how much was spent with each supplier, and how much was paid for the
item.
Performing a detailed spend analysis helps entities find new areas of savings that previously
went untapped and hold onto past areas of savings that they have already negotiated. A spend
analysis answers the questions:
1. What am I really spending?
2. With whom am I spending it?
3. Am I getting what’s been promised for that spend?
Spend analysis data can be used to accomplish several purposes:
•
•
•
•
•
•
•
•
finding savings
quantifying savings
budget planning
managing supplier relationships
collaborative procurement
ensuring legal compliance
improving processes
inventory management
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•
•
•
•
•
•
managing risk
reducing disparity
benchmarking relative position
managing maverick spend
recovering overpayments
sourcing more locally
All of these possible outcomes require more action than simply obtaining good data and looking
at it, because there are tradeoffs between them. Analyzing material impacts and next action
steps form the key spend analysis tasks. For instance, which is more important, savings or
reliability of supply? Procurement teams need to discuss the strategic tradeoffs, and formulate
options and recommendations for best value to be presented for management decisions.
Procurement Profile
A procurement profile takes a spend analysis a few steps farther. Fundamentally, a
procurement profile will provide baseline information that identifies where the entity is
spending its resources. In essence it provides a picture of what an entity is buying, from whom,
when, how, and for how much. A procurement profile results from conducting a series of
various analyses on the procurement expenditures of an entity, the range of commodities
acquired through procurement (Spend Analysis), the markets that provide them (Market
Analysis), the level of influence of the suppliers and the entity in the marketplace, and the risks
inherent in the market that could affect the entity’s operations (Supply Positioning). A
procurement profile adds decision making intelligence to a spend analysis.
A procurement profile is generated from the collection and synthesis of procurement
expenditures for a specific period. It provides the data and analytical framework to examine
critical supply market opportunities, analyze internal cost drivers, locate potential suppliers to
help develop new sourcing strategies, negotiate with suppliers to maximize value (in terms of
total cost benefits), implement the new supply structure, and track and evaluate the results.
The procurement profile enables the procurement entity and stakeholders to take what they
know from the spend data and use that intelligence to act on strategic initiatives.
Consult with Financial and Budget Teams
Proactive procurement professionals, in collaboration with finance and the budget unit
manager, should prepare or confirm that a cost/benefit analysis on future procurements has
been performed. The study should weigh project value, provide cost-effective results, and
ensure or attempt to ensure that:
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•
•
•
•
•
•
•
Equivalent money values of the benefits and costs to the entity of a project have been
estimated and totaled to determine whether or not the project is worthwhile. Examples
include training programs and construction of highways.
A financial decision can be made on the undertaking of one or more projects that includes:
o potential costs of not doing the project
o potential costs if the project fails
o opportunity costs (the potential benefits if funds are spent to successfully perform a
different project)
Appropriate project objectives are established.
Required resources for a project are defined.
Appropriate funding can be requested to resolve the need.
Project success and benefits can be measured.
The effort to resolve an identified need is in congruence with the entity’s overall strategic
plan.
Perform Cost/Benefit Analyses
A cost/benefit analysis is a comparative evaluation of the trade-off between the cost of a
commodity and the value or benefit to be obtained in order to choose among alternatives.
Benefits that are anticipated from a project as well as all costs that are necessary to introduce,
perform, and support the project are compared and assessed. A cost/benefit analysis uses
money as the common unit of measurement. It is used in most areas of public decision making.
Factors that influence the results of a cost/benefit analysis are:
•
•
•
•
•
•
the project lifetime, such as how far into the future will benefits be identified.
the assumptions on which the analysis is based.
present and future value of the dollar.
market supply and demand for the commodities involved in the project.
impact of tradeoffs, such as the measurement of time value versus money value in a high
value transportation project, in which the successful outcome will result in a savings of
travel time.
unplanned project modifications (change order accounting).
Perform Lifecycle Cost Analyses
Life cycle costing and total cost of ownership are often used synonymously. Both of these
techniques consider the true cost of a commodity, rather than just the purchase price, and
allow for better savings decisions. While these concepts are applied most frequently to capital
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expenditures, there is an increasing tendency for entities to make decisions based on total
costs, rather than on initial procurement costs alone.
Total cost of ownership and life cycle costing analyses provide comprehensive cost information
that can feed into a cost benefits analysis. These approaches can also be used to identify
alternatives during the make or buy decision stage, or during evaluation of bids and proposals
to determine which is most advantageous.
Life Cycle Costing
Life Cycle Costing is the total cost of ownership over the life span of the asset. It is a
procurement technique that takes into account operating, maintenance, technology licenses
and fees, the time value of money, disposal, and other associated costs of ownership, as well as
the residual value of the commodity.
Total Cost of Ownership (TCO)
Total cost of ownership (TCO) is a measure of all of the cost components associated with the
procurement of a commodity. It is the sum of all fixed and variable costs attributed to a
commodity. Total cost of ownership is a philosophy for understanding all supply chain related
costs of doing business with a particular supplier for a particular commodity.
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Focus Area 4 — Sourcing &
Contracting
In addition to knowing the approved methods of procurement, the procurement professional
must know the appropriate situations to use each in order to achieve the best value for the
entity while meeting the needs of the end user. To do this, procurement professionals must
understand how to deal effectively with individual clients across a variety of situations while
ensuring the contractor’s financial strength, ethics, past performance, etc., are duly considered
prior to award. Furthermore, procurement professionals must establish positive, pro-active
relationships with end users and suppliers (both domestic and international) in both positive
and negative situations.
NIGP-CPP Action Statement: Determine most advantageous
sourcing, solicitation, evaluation, and award method.
A primary function for most procurement professionals is sourcing. This is a comprehensive
process which requires attention to each phase to ensure entity needs are met in an efficient
and effective manner. Sourcing covers a significant portion of the entire procurement cycle,
beginning at needs identification and ending with contract award.
Determining Method of Procurement
Pre-Solicitation Research
Prior to creating a solicitation, there may be a need to better understand various options
available to the entity. This may include current technology or market availability. It may also
include a thorough needs analysis or a justification for the procurement. Some examples of presolicitation research are described below.
Pre-Solicitation Conferences
The pre-solicitation conference is an approach to learning about previously undefined or
unfamiliar goods or services. It requires the procurement professional to make contact
with two or more suppliers and invite them to present information about their supplies,
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services, or solutions. There is no conflict nor is there any impropriety in inviting
suppliers to present their credentials and to learn about an industry, product, or
solution. Inviting one supplier to present its credentials may raise some concerns about
favoritism. Inviting several competing suppliers to brief an entity on their capabilities is
simply keeping up to date with a changing marketplace. While a pre-solicitation
conference is an available tool for research, it is important to remember this is only an
information-gathering tool. This should not result in any sourcing actions or decisions on
specifications/scopes of work that limit competition or provide a competitive advantage
to any one supplier or brand.
Requests for Information (RFI)
An RFI is a mechanism used to solicit information from the supplier community in a fair
and impartial manner. An RFI may be used by an entity that anticipates the use of a
requirements procurement, but is unaware of what is available in the marketplace. The
RFI is non-binding in that no contract results from the action taken by the entity or the
responses offered by the suppliers. The entity typically issues a notice through
newspapers, websites, Internet, direct mail, or other public notice venues of its intent to
issue a solicitation.
The entity prepares a general statement describing the supply or service they anticipate
procuring, requesting suppliers to provide information that will assist the entity in
planning for the procurement. The interested suppliers may offer information and
advice that will be beneficial to the entity. By providing a public notice, the entity allows
any interested supplier an opportunity to provide information. This process is open, fair,
and impartial. Typically, the information gathered in an RFI assists the entity in planning
the requirements, budgeting, and in gathering other information pertinent to a
successful procurement. An RFI is only a research tool, and it does not result in a
contract award.
Letters of Interest (LOI)
Letters of Interest (LOI) are a less formal, less expensive approach to gathering
information from suppliers. The entity identifies the types of problems or types of
services in which it is interested and invites suppliers to provide information to
determine what suppliers, if any, are interested in this type of work.
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Value Analysis
Value Analysis is a structured thought process to identify required good or service
features and to eliminate features that add no true value to the client. It is focused on
the substantive functions, attributes, and components and materials that make up the
good or service; i.e., what it does, not what it is. The technique can be used to look at
alternatives during the Make or Buy decision stage, and can be used to develop
specifications included in an Invitation for Bids or Request for Proposals.
Make or Buy Analysis
Make or buy analysis evaluates costs to provide (“make”) the services/goods through
internal resources or to outsource (“buy”) the requirement to a supplier outside the
entity. When comparing costs, three principles should be considered.
•
•
•
Ensure all costs are considered. Exclusion of “hidden” costs may favor private
suppliers. Often the indirect costs of privatizing, such as the entity’s
responsibility to manage the contract, are overlooked in computing the entity’s
cost to outsource.
Evaluate only costs that differ between the entity and an external supplier. If
costs will be the same regardless of who provides the service, those costs
become irrelevant and need not be included in the analysis.
Ensure costs evaluated are for the same level of service and quality. There can
be no difference in the levels or quality under consideration in the make or buy
cost analysis. Both private and public providers must work under similar
constraints with similar populations. For example, comparisons cannot be made
between private and public service providers if one sector is providing services to
a lower risk population, because services to a high-risk population would be
more expensive.
When evaluating cost flow over future years, be sure to include implementation and
start- up costs. All cash flow should be discounted to net present value. Consider a fourstep approach to the make or buy analysis.
1. Define the outputs to be analyzed. This step requires establishing performance
standards for the goods or services that ensure the same level of quality,
measurement tools, and reporting requirements. Specifications should permit
prospective suppliers, if able, to offer more efficient ways of providing the
intended outcome.
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2. Determine costs that will be saved if the requirement is outsourced. Conduct a
complete review of internal business processes and include accompanying costs.
Costs may include:
• personnel: salaries, benefits, allowances.
• operating and maintenance costs: material and supplies, repair, travel.
• facility costs: rent, utilities.
• capital: assets, opportunity costs.
• overhead: administrative overhead, program support.
• conversion: one-time costs, recurring costs.
• common entity services: legal costs, procurement costs.
3. Compute the costs of contracting from the private sector. Ensure that in-house
costs (such as contract management) are included. Also consider the cost of:
• contract administration: within the various departments, with outside
suppliers.
• conversion costs: one-time materials and labor, miscellaneous one-time
costs, recurring costs.
• net salvage value: transfer of assets, disposal charge.
• contract performance costs: compliance audit, miscellaneous audits.
4. Compare the cost difference and make final decision. Ensure all appropriate
costs were considered at equal output levels. Note intangible factors, such as
risks assumed by privatizing.
Diminished capacity to perform a function is another intangible. If the total costs
in the make or buy analysis are nearly the same, a sensitivity analysis should be
performed to determine the consideration of the costs relative to the
assumptions.
If applicable, the procurement professional should also consider the effect of
government regulations or labor union agreements as they apply to the “make or buy”
decision. Labor agreements may prohibit employees from making the required items or
may require that efforts to make the item be done only on an overtime basis, thus
raising costs.
Lease or Buy Analysis
Governments purchase the majority of required goods such as multifunction devices,
vehicles, and equipment outright, preferring the control that this option provides over
most leasing programs. However, leasing or renting may save the entity funds when a
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need is short term, or allow for a procurement when current year funds are not
available.
There are many options available to an entity considering a lease rather than a
purchase. One common practice is to use full-service leasing firms, in which the leasing
entity owns the equipment, has its own source of financing, and assumes all the
responsibilities of ownership for the lease.
The lessee (i.e., the government entity) has full use of the good and can concentrate on
regular business operations without concern for maintenance, special services and
administrative tasks associated with ownership. In the case of complex equipment
requiring highly specialized technical support, this can be an important benefit.
With a short-term lease, the lessee is not bound by long commitments and gains
maximum flexibility to respond to changing business conditions. A leasing arrangement
can also be used to meet temporary operating needs or to test new equipment before
making a long-term purchasing decision.
Lease or Buy Option Types
There are two types of leases:
•
•
Operating leases. These are characterized by their duration. Most operating
leases are short-term, for a fixed period of time that is considerably less than the
life of the equipment being leased. These arrangements are used to fulfill shortterm requirements, when there is danger of rapid obsolescence or when budget
constraints restrict funding on a fiscal year basis.
Financial leases. These are used as a financing tool and may generate long-term
benefits. Financial leases are long-term, with a fixed period of time just short of
the approximate life of the equipment being leased. Many financial leases are
non-cancelable.
Lease or Buy Decision
The entity should carefully evaluate the decision to lease or rent rather than buy
required equipment. The following factors are considered critical to the decision:
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purchase price compared to the sum of lease payments
maintenance and service costs
life expectancy of the equipment
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duration of the need for the equipment
obsolescence issues
cash flow considerations
prevailing interest rates
funding source for the equipment
financial statement ramifications
Operating leases or rental agreements are similar to contracts for the purchase of goods
or services. All contract options should be itemized and evaluated prior to execution of
the contract, including:
•
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•
•
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all costs to the jurisdiction.
ownership at the end of the lease period.
lease cancellation and penalties.
insurance responsibilities.
restrictions on equipment use or movement.
responsibility for and restrictions on repair and maintenance.
Advantages of Leasing
•
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Minimize risk of obsolescence.
Equipment can be made available on a short-term basis for projects that do not
justify a large and immediate outlay of funds.
The burden of the investment is shifted to the lessor.
The entire expense of the lease can sometimes be treated as an operating
expense, minimizing taxable income and thus the entity’s total tax obligation.
Disadvantages of Leasing
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Cost: Lessors make their profit on the difference between the financial
ownership costs of the assets and the rental rate.
Control: Lessors retain control of equipment and may place restrictions on the
manner in which the equipment is operated and on the operating supplies that
can be used.
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Laws and Policies Affecting Sourcing Method Selection
Most jurisdictions have legislation or policies that affect which sourcing methods may be used.
These policies may be defined at the federal, state, and local level. Laws and policies are often
based on dollar value, but may also be based on procurement type. For grant funded
procurements, it is important to research the grantor’s legislation to ensure that all laws and
policies are followed. The most stringent of the laws or policies between the grantor and
grantee will dictate the method to be used.
Sourcing Methods
Price Based Sourcing versus Best Value Based Sourcing Methods
This chart summarizes the differences between the competitive sealed bidding process and the
competitive sealed proposal process:
Price-Based Sourcing Methods
The following sourcing methods are used when price is the primary basis of selection. Award is
generally made to the responsible bidder with the lowest responsive bid.
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•
•
•
Informal Competitive Bidding: A small order amount purchasing method typically
utilizing a Request for Quote document. Generally used for small orders under a certain
dollar threshold such as $25,000. A request is sent to suppliers along with a description
of the commodity or services needed, and the supplier is asked to respond with price
and other information by a pre-determined date.
Invitation for Bids (IFB)/Invitation to Tender (ITT): The Invitation for Bids is also known
as competitive sealed bidding. This is a common method for procuring goods, some
services, and some construction for public use in which award is made to the
responsible bidder with the lowest responsive bid. The award is based solely on the
response to criteria set forth in the IFB. It does not include discussions or negotiations
with bidder. Invitation to Tender is the comparable term used in the Canadian public
procurement industry.
Two-Step Bid: Two-step sealed bidding is a variation of competitive sealed bidding, used
when adequate specifications are not available. Two-step sealed bidding is especially
useful in procurements requiring technical proposals, particularly those for complex
items. The two steps involved in two-step sealed bidding are the following:
1. In the first step, technical proposals are obtained, and discussions held.
2. In the second step, contractors with technically acceptable proposals from the
first step are invited to submit bids based on their individual proposal. An award
is then made to the responsible bidder with the lowest responsive bid in the
same way as it would have been made under a traditional sealed bidding
procedure.
These two steps can be combined by requiring the bidders to submit both their
technical proposals and pricing in separate, sealed envelopes. Once the technical
proposals have been evaluated, only the pricing envelopes from bidders whose
technical proposals were deemed acceptable are opened. This eliminates the need and
time required to go back to those offerors to ask them to submit their prices.
•
Reverse Auctions: A reverse auction is a type of auction in which the traditional roles of
buyer and seller are reversed. Thus, there is one buyer and many potential sellers. In an
ordinary auction (also known as a 'forward auction'), buyers compete to obtain goods or
services by offering increasingly higher prices.
Best Value Sourcing Methods
Best value is a procurement method that emphasizes value over price. The following methods
are available:
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•
•
•
•
Informal Competitive Proposals: A small order amount purchasing method that
considers multiple factors during the evaluation. Generally used for small orders under a
certain dollar threshold such as $25,000. A request is sent to suppliers along with a
description of the goods or services needed and the supplier is asked to respond with
price and other information by a pre-determined date. The proposal submission and
evaluation processes are not formal as in a Request for Proposals process.
Request for Proposals: The Request for Proposals (RFP) is a competitive procurement
method that allows the reviewer or evaluator to consider factors other than price
(supplier qualifications, experience, project approach, innovation, and creativity or
value-added services) when making the decision to award. The RFP can be a complex
procurement option. In order for the RFP to be used effectively, all elements must be
clearly defined. This provides the supplier with a total understanding of the good or
service that is being requested.
Invitation to Negotiate: The Invitation to Negotiate (ITN) is a competitive negotiation
process that is used when the procurement authority deems it is in their best interest to
negotiate with offerors to achieve “best value”. This is a form of source selection that is
similar to the Request for Proposals process. A short list of acceptable offerors may be
created. Two negotiation methods are allowed: single negotiation and concurrent
negotiation.
Request for Qualifications: Requests for Qualifications are used when the award is based
on the qualifications of the supplier, and price is either a minor factor or not considered
at all prior to ranking. This method is often required when contracting for design
services such as architectural and engineering services.
Noncompetitive Sourcing Methods
In those circumstances where a formal competitive solicitation process is not practical, the
following non-competitive selection methods may be available if written into laws, policies, and
regulations:
•
•
Sole Source Procurement: A sole source procurement may result because only one
supplier possesses the unique ability or capability to meet the particular requirements
of the solicitation. This may be because of a patent, copyright, or an intellectual
property right, which creates an inability to obtain competition. The procurement
authority may require a justification from the requesting entity explaining why this is
the only source for the requirement.
Emergency Procurement: A purchase made as the result of an unexpected and urgent
request where health and safety or the conservation of public resources is at risk.
Usually formal competitive bidding procedures are waived. Only those expenses
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•
•
necessary to contain the situation are allowable under an emergency procurement. A
formal emergency declaration by a Chief Elected Official or Governing Board is required
to waive normal bidding procedures.
Small Purchase Exception: The small purchase exception is reserved for very low dollar
procurements, granting authority to purchase goods or services within a preestablished dollar threshold, without competition, and possibly also without preauthorization. This strategy can save time and money by reducing the administrative
burden caused by soliciting competition that will result in minimal savings. Delegating
this small purchase authority to end users may also save time and money.
Cooperative Contracts: The growth of cooperative procurement has led to the
formation of numerous formal and informal cooperative procurement groups, also
known as Group Purchasing Organizations (GPOs). In its simplest form, a cooperative
may involve two or more government entities that agree to work together to issue a
single solicitation addressing the needs of both entities and leveraging their combined
volume of need to drive better pricing. Many GPOs utilize a lead entity model, where
one government entity issues and awards the solicitation, incorporating language in the
solicitation and resulting contract that enables other government entities to purchase
off the contract at the same pricing and under the existing terms and conditions. Other
GPOs may issue cooperative contracts themselves, based upon their status as an
instrumentality of government. Regardless of the model, each government entity is
responsible for exercising due diligence to ensure that whatever cooperative they wish
to use meets the requirements of their own procurement regulations at the state and
local level. Procurement professionals are cautioned that the laws regarding
participation in cooperative procurements vary by state and jurisdiction.
Other Noncompetitive Procurements
There may be other noncompetitive procurement types that are authorized by a particular
entity’s governing body. Examples of these include Single/Best Source Exception or a
Professional Services Exception to the competitive process. However, these are only valid if
they meet the justification and dollar value specified, and are not to be considered overall “best
practices.”
Solicitation Development
Development of Specification or Scope of Work
A specification is a precise description of the physical characteristics, quality, or desired
outcomes of a commodity to be procured, which a supplier must be able to produce or deliver
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to be considered for award of a contract. The primary purpose of a specification or scope of
work is to enable suppliers to know what the entity requires.
Specifications are utilized for commodity procurements and must be detailed enough to
unequivocally define or describe entity requirements so that “apples-to-apples” offers that
meet requirements are received. Specifications may be design specifications, performance
specifications, or a combination. Regardless of the form, it is important that specifications detail
only those features required, and that they not be written around a particular commodity, as
that may result in a proprietary specification that does not allow for full competition.
A Scope of Work is developed at the beginning of the procurement cycle and is a written
description of the entity’s needs and desired outcomes for the procurement and becomes the
basis for any resulting solicitation. The scope of work helps to ensure that the good or service
meets the stated outcome and establishes the parameters of the resulting contract. It does not
specify how the work is to be accomplished or what personnel or equipment is to be used to
perform the work. Broad latitude is afforded to the potential offeror to creatively propose a
solution to accomplish that result.
It is important to note that a Scope of Work is not the same as a Statement of Work. A
Statement of Work is the proposed solution by the successful offeror responding to the Scope
of Work appearing in the solicitation. The Statement of Work becomes the written description
in the contract detailing performance expectations and deliverables between the contracting
parties. After a supplier has been selected, the statement of work becomes the basis for the
contract and must provide sufficient information to meet the entity’s needs and achieve
successful outcomes, describe and define the expectations of the parties, set price and
payment schedules, and mitigate or avoid disputes.
Development of Terms and Conditions
Boilerplate vs. Special Ts and Cs
Terms and Conditions must be created for each procurement. These may include both
boilerplate language and language customized for each procurement.
Boilerplate language includes standard clauses and rules which apply to all bids/tenders and
offers formally solicited, becoming incorporated into the final contract. Examples of boilerplate
clauses are indemnification, contract changes, disputes, and other clauses that will pertain to
nearly every procurement. It is a best practice for an entity to have a boilerplate template for
each procurement type to ensure greater applicability to the good or service being procured.
Examples include boilerplates that are established for technology, construction, and design.
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Special terms and conditions supplement or supersede the boilerplate language. Examples of
these special clauses include term & renewal, insurance requirements, and other clauses that
will typically vary from procurement to procurement.
Risk Analysis and Mitigation
When selecting terms and conditions, it is important to analyze the procurement to identify the
potential risk to the entity. Terms and conditions that mitigate risks are selected for use in the
solicitation and the resulting contract. There are six standard types of risk that should be
carefully assessed in order to incorporate the appropriate mitigation strategy in the solicitation
development:
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•
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Proposal risk addresses the risk inherent in describing the item or service through
specifications and legal document(s).
Contractual risk addresses the risk inherent in established
change/amendment/modification procedures, dispute resolution procedures, and
termination and breach procedures.
Schedule risk addresses the risk inherent in delivery, including defined deliverables,
delivery terms and delivery delays.
Performance risk addresses the risk inherent in the performance of the contract,
including inspection, testing, and acceptance.
Price risk addresses the risk inherent in defined payment terms, such as price
adjustment, pre-payment, progress payments, and final payment.
Surety and liability risk address the risk inherent in protecting the financial and legal
interests of the entity. It clearly defines the following:
o the mutual areas of agreement
o insurance requirements
o licensing
o indemnity
o equal employment opportunity
o a set of responsibilities for each party
o bonds
o data privacy
o nondiscrimination
o independent contractor
Surety and liability risks are often mitigated through the requirement of insurance and bonds.
The most common types of bonds are bid, performance, and payment bonds.
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A Bid Bond is an insurance agreement accompanied by a monetary commitment, by
which a third party (the surety) accepts liability and guarantees that the bidder will not
withdraw the bid. A bid bond is submitted by each bidder with its bid and is usually in an
amount equal to a certain percent of the bidder’s bid price. The purpose of the bond is
to ensure that, if the lowest bidder balks at entering into a contract for some reason,
the public entity will still get the dollar benefit of that low bid by calling on the bonding
company to pay the bond. Generally, if a bidder fails to provide a bond, the entity must
reject the bid.
A Performance Bond is an instrument executed subsequent to award, but prior to
contract execution, by a successful offeror (contractor) that protects the entity from loss
resulting from the contractor’s inability to complete the contract as agreed. The
performance bond, required for coverage equal to 100% of the contract price, is for the
protection of the entity and is a risk mechanism to secure the fulfillment of all contract
requirements. Under a performance bond, the entity may ask or demand that the surety
complete the project if the contractor defaults or is struggling to complete the work.
A Payment Bond, also required for coverage equal to 100% of the contract price, is a
financial or contractual instrument executed subsequent to award, but prior to contract
execution, by a successful offeror (contractor) that provides an assurance that there is a
mechanism in place so that subcontractors will be paid for labor and materials
expended on the project if the contractor does not pay them.
Determination of Pricing Structure
There are many different factors that can affect which pricing structure method is most suitable
to a particular procurement. The most common pricing structures are explained below.
Fixed Price:
Fixed price is appropriate when it is possible to accurately predict the costs and when it
is reasonable to ask the supplier to assume responsibility for all costs. The supplier is
responsible for managing all costs, regardless of whether they exceed or fall below the
total contract price. The supplier accepts most, if not all, of the cost risk. This means less
price related contract administration and interim monitoring by the public entity.
There are different types of fixed price contracts.
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•
•
•
•
Firm-fixed price is the most commonly used type of contract because the pricing
remains constant for the duration of the contract period. The supplier assumes
full responsibility and risk for completing the project or purchase. There are no
adjustments to price based on changes in the marketplace or the supplier’s
performance. This type of pricing provides the greatest incentive for effective
cost control because the supplier keeps any savings realized.
Fixed-price with economic price adjustment (also known as fixed price with
escalation) provides for upward or downward adjustment of price based on
certain contingencies that are specified in the contract. This type of pricing is
used when there is concern about the stability of the market and labor
conditions during a period when production is to take place and when it is
possible to identify contingencies. Pricing adjustments are made according to
provisions included in the contract providing a basis for price escalation or
decrease.
Fixed-price incentive provides for adjustment of profit and establishment of a
final price through the use of a formula that compares the total actual costs to
initial target costs. It is used when achievable cost and performance goals exist
beyond the target or minimum acceptable levels established by the contract, and
the goals may be achieved by giving the supplier a profit incentive. If final costs
are above the targets and/or performance is below the target, the supplier’s
profit is reduced. If final costs are below the target and/or performance is above
the target, the supplier’s profit is increased. This type of performance-based
contract is often used for contracted service contracts for the purpose of
rewarding high quality performance.
Fixed-price with re-determination is used when a realistic price can be
determined for initial periods but not for subsequent periods. Quantity of
materials and/or services may change and be unknown. The supplier has the cost
risk for the initial determination and the public entity for the re- determination.
Even if a contract has a fixed price, the payment frequency must be determined. The
most common is payment in full or completion payment when goods are received or
services provided and accepted, a proper invoice is received, and the contract is
completed. This method of payment poses the least risk to the government. Other
methods are advance payments, partial payments, progress payments, milestone
payments, incentive contracts, and retainage.
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Time and Materials
A contract which provides for contractor payment based on a direct labor, hourly rate
that includes benefits, payroll taxes, overhead, and contractor profit and for the cost of
materials and equipment used in performance of the contract. This type of contract is
used only when no other type of pricing is suitable. If no materials are involved, this is
referred to as a “labor hour” contract. A contract ceiling price is negotiated at the outset
of a contract. This type of contract creates an increased contract administration burden.
It is generally used when it is not possible to estimate the extent or duration of required
work.
Cost Reimbursement
Cost reimbursement is appropriate when there is uncertainty and a variety of unknown
potential cost risks, and when it is unreasonable to ask a supplier to assume these risks
alone. The specification or scope of work may be less definitive and the focus of
contract administration is largely concerned with establishing the precise methods and
manner of performance as the work progresses. The supplier is reimbursed for all
allowable costs incurred during performance and commits to making a best effort to
complete all work. The total amount to be paid to the supplier is not fixed at the outset,
but it is highly recommended that a ceiling cost be established. The public entity
assumes most, if not all, the risk and responsibility and, therefore, has a keen interest in
the use of resources and the way in which work is proceeding.
There are different types of cost reimbursement contracts.
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•
Cost sharing is used when it is impossible to estimate costs firmly and there is a high
probability that the supplier will receive a substantial present or future commercial
benefit. May be used in research and development (R&D) contracts.
Cost-plus incentive fee is used when a formula can provide an incentive for effective
management. Targeted cost minimums/maximums and fee adjustment formulas are
established at the outset. The supplier receives reimbursement for costs as in a costplus fixed-fee contract, but the fee is determined after the contract is completed
according to a formula comparing actual to target costs as in fixed-price incentive
contracts.
Cost-plus fixed fee is used when it is appropriate to reimburse the supplier for all
reasonable, allocable, and allowable costs. The supplier receives a fixed fee (profit)
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•
amount negotiated at the time of award. There are two types of cost-plus fixed fee
contracts:
o Completion form cost contract identifies a specific task or goal and specifies an
end product. The supplier is normally required to complete and deliver the
specified end product within the estimated cost.
o Term form cost contract commits the supplier to a specified level of effort based
on the general “statement of work” for a specified period of time.
Cost-plus award fee provides for a base fee amount fixed at inception of a contract, and
an additional fee to be determined at time of fee award that is based on an evaluation
by the purchaser as to the quality of the contract performance, and the evaluator’s
assessment as to the fee amount necessary to motivate the contractor toward
excellence.
Standardizing Response Format
A well written solicitation will provide a clear, standardized structure for the responses. Best
practices advocate for response templates allowing online submissions. However, absent an
online platform for submissions, physical forms should be used where practical. When
neither a procurement system or standardized forms are available, an entity may provide a
list of detailed questions guiding supplier responses, helping to create standardized
responses leading to more efficient and transparent evaluations of responses.
Solicitation Issuance
A primary function of public procurement is to ensure open, transparent sourcing processes, as
well as ensuring optimal levels of competition. To maximize competition, an up-to-date supplier
list will enable potential offerors to be notified of open competitive opportunities. Entities that
want to create a supplier list can do so by allowing suppliers to register their interest in doing
business with government. These goods and services are categorized under a standardized
commodity code structure, such as the NIGP Commodity Code or NAICS grouping, or
commodity codes that identify the type of goods or services that the firm is capable of
supplying. Solicitations may be sent directly to the appropriate suppliers on the supplier list. In
addition, most entities now advertise their solicitations via the Internet, either on their own
sites, or a third-party site.
Advertising solicitations widely will increase competition, promote fairness, and improve the
quality of responses received.
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Addenda
There may be situations where it is essential to change the original solicitation document’s
terms, conditions, specifications, deliverables, or timing. These may occur for one or more of
the following reasons:
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•
•
•
•
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changes to terms or conditions
clarification or modifications to specifications
quantity changes
delivery location changes
extension of time for response submissions
outcomes from site meeting or bidder/proposer conference.
Addenda may be issued following a pre-bid/pre-proposal conference or as a result of a
specification or work scope change to the solicitation.
Accordingly, the instructions in the solicitation must include a provision that enables the public
entity to issue changes through addenda. Any change required to the solicitation documents
prior to the stated closing date must allow sufficient time for offerors to reconsider and modify
their responses. Modifications to sourcing documents must be communicated to all known
and/or potential respondents through addenda. Generally, the only individual authorized to
issue an addendum is the procurement professional that posted the original solicitation
document. Addenda must not be issued in person, verbally, or by the telephone, as this will
give rise to misinterpretation and potentially involve aprotest.
Written addenda are the only means available to maintain an equal playing field. Typically, an
addendum will provide clarifications and/or materially change the solicitation document (e.g.,
bid/tender/proposal specifications, quantities, closing dates and times, etc.)
Evaluation Methods
Evaluation methods will vary, depending on procurement type, solicitation type, and value. The
various methods are discussed are addressed elsewhere in this guide.
Award Process
Award processes will vary based upon entity requirements. The authority and approval for the
award of a contract will depend on the spending limits and signing authority granted through
an entity’s policy framework. However, a typical high value award process will include the
following steps:
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1. Recommendation preparation. Prepare the bid tabulation or evaluation committee
report.
2. Award concurrences. The authorized representatives from procurement and the
requesting department review the results and concur with the recommendation. Fund
availability is also reconfirmed.
3. Public notifications. A notice of intent to award is posted and resulting inquiries are
handled.
4. Debrief unsuccessful offerors. This is typically done upon request. This may be offered
prior to or immediately after award.
5. Final approval. The recommendation for award is forwarded to the Executive Officer
who then takes the recommendation for award to the governing board, if necessary.
6. Contract execution. The contract (which may be a Purchase Order) is executed by the
entity and sent to the successful offeror.
NIGP-CPP Action Statement: Determine the most favorable
contract structure and content.
Procurement professionals are increasingly responsible for developing contract content. This
development must begin when the solicitation is being developed. If a dedicated legal team is
not assigned to support and take the lead, the procurement professional must have a strong
understanding of how to build a contract that will protect the entity and ensure its needs are
met.
Solicitations and Contracts
Significant work in identifying and mitigating risk will have been put forth during the solicitation
development phase. The resulting content in the solicitation (such as terms and conditions and
acceptance tests) should be carried over into the contract unless modifications are made during
contract negotiations. Common contract types are explained below.
Contract Types for Volume Purchase
Volume contractual agreements help to decrease administrative costs, reduce processing time,
increase productivity, ensure a continuous source of supply and may result in lower prices. The
procurement department solicits bids and awards a contract according to the entity’s normal
procurement procedures. The procurement function is generally responsible for issuing
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delegated authority to internal clients to secure release orders against the contracts as needs
occur.
Blanket Contracts (Blanket Orders)
Blanket orders, supply items, or services on an “as needed basis,” often in an over- thecounter basis.
•
•
An agreement to purchase a given quantity of specific goods over a specified
period of time, usually one year.
The contract for the agreement generally establishes prices, terms, conditions,
and the period covered, although no quantities are specified; shipments are to
be made when and as required by the purchaser, which, in certain cases may be
the end user.
Blanket orders are typically used:
•
•
When the exact items or services cannot be specifically enumerated
For a specific time period and includes a maximum amount of money at one time
or within a specified period of time or both
Term Contracts
A type of contract in which a source of supply is established for a specified period of
time for specified services or supplies; usually characterized by an estimated or definite
minimum quantity, with the possibility of additional requirements beyond the
minimum, all at a predetermined unit price.
Term contracts establish a source of supply and pricing for specified items or services for
a specific time frame. They are usually based on known or estimated quantities to be
ordered, as needed.
Both blanket and term contracts may be referred to as “forward buying.” Forward
buying represents a win/win situation for both the jurisdiction and the selected supplier
or contractor. The entity is able to obtain better terms in exchange for the longer-term
commitment. The selected supplier or contractor can look forward to larger contracts.
Possible arrangements for a term contract include:
•
•
definite quantity for a definite period.
definite quantity for an indefinite period.
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•
•
indefinite quantity for a definitive period.
indefinite quantity for an indefinite period.
Schedule Contracts
A contract that consolidates entity requirements by pre-establishing a bid opening date
and requiring using entities to submit requirements by a specified time. Procurement
should consolidate internal client’s needs under a single solicitation and establish
contracts to fulfill those requirements establish prices or definite items and quantities
with specified delivery requirements.
Systems Contracts
A contract that establishes a source of supply for a specified period for a large group or
related family of materials; a method of procurement designed to improve reordering of
materials used repeatedly. May include a catalog with a list and description of items
that can be purchased.
Systems contracts are an extension of and a more sophisticated version of blanket
orders. Typically, they are used to reduce the excessive use of small orders or the need
to carry inventory. Estimated quantities and a fixed price for each item are usually
included in the contract.
Requirements Contracts
A form of indefinite delivery/indefinite quantity contract where all actual purchase
requirements for specific supplies or services during the contract period are filled by the
selected supplier, with deliveries to be scheduled by placing orders with the supplier.
Open End Contracts
A contract which sets forth the general provision of supplies and services that may be
delivered or performed within a given period of time, but in which quantity or duration
is not specified. The quantity and delivery are specified with the placement of orders.
See blanket order, requirements contract, and term contract.
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Just-in-Time Contracts
A variation of volume purchase contracts is the Just-in-Time (JIT) contract. The JIT
concept is based upon the concept that no activity takes place within the supply chain
until the need is actually identified. Rather than storing the materials in inventory in
anticipation of need, the order occurs so that material arrives when it is needed. JIT is
essentially a technique that is focused on inventory reduction and value-added
activities. Part of adopting JIT could include the establishment of term contracts for
various goods on an as-needed basis. A successful JIT program will require a disciplined
approach to planning and scheduling of inbound requirements and a high degree of
communication and planning linkage between supply chain partners.
Contract Types for Fluctuating Markets
Forecasting is a tool to determine future needs. It is an essential element of strategic planning
and should be an ongoing exercise for the procurement professional. It requires up-to-date
knowledge of the market and an understanding of tools used for market evaluation.
Forecasting should be used to determine the most appropriate type of solicitation based on
market conditions.
Varying market conditions require an analysis to determine whether the use of spot purchases
(Spot Buys) or term contracts would be more beneficial. Spot purchases are a one-time
purchase that when properly timed can take advantage of favorable market conditions and
advantageous pricing. Term purchases relieve the need to closely watch the market to time a
buy, and can be equally advantageous if a strategically written price adjustment factor is
included in the agreement.
NIGP-CPP Action Statement: Manage all stages of the selection
process (from receipt to award).
The selection process will vary depending on solicitation method. Generally speaking, a
competitive sealed solicitation process will be more complex than an informal solicitation
process and a best value selection process will be more complex than a price-based selection
process.
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Price Based Solicitations
All solicitations received by the deadline will be reviewed for compliance with the solicitation
requirements. They must pass the test of both responsiveness (are the package and the
commodity compliant) and responsibility (is the offeror capable of fulfilling the requirements of
supplying the good or service). Any product alternatives offered are evaluated for compliance
with stated requirements. A bid tabulation is prepared to include the relevant information for
all bids submitted. This bid tabulation should be made available to the public to establish
transparency in the process. It is important for procurement professionals to understand the
bid tabulation posting requirements for their state and their entity.
For complex goods, a formal Price Analysis or Total Cost of Ownership calculation may be
performed prior to finalizing a recommendation and submitting it through the award process.
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Price Analysis: The process of examining and evaluating a prospective price without
performing cost analysis; that is, without evaluating the separate cost elements and
profit of the offeror included in that price. The end result of price analysis is to ensure
fair and reasonable pricing of a good or service. Price analysis may include a variety of
techniques, such as comparing proposed prices with prices of same or similar items
obtained through market research. The primary form of price analysis used in
government purchasing is the comparison of bid prices on a bid tabulation sheet. When
this method is followed, it is fairly certain that a reasonable price has been obtained.
Total Cost of Ownership and Life Cycle Costing analyses provide comprehensive costs
information that can feed into a Costs-Benefits analysis. These can be used to look at
alternatives during the Make or Buy decision stage, or during evaluation of bids and
proposals to determine which is most advantageous.
Best Value and Qualifications Based Solicitations
Evaluations for best value and qualification-based solicitations are based upon evaluation
criteria other than just price. These evaluation processes may involve various activities to
determine the offer deemed to be most advantageous or to be in the entity’s best interest.
These processes often involve subject matter experts who work with the procurement staff to
conduct the evaluations of the offers submitted. The following is a typical series of evaluation
process actions:
Form Evaluation Committee
The evaluation team must be identified before evaluations begin. While the team may include
individuals who were involved in the creation of the solicitation, it may also include various
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subject-matter experts, as well as internal and external stakeholders. The membership should
be broad based and representative of various disciplines and special skills, at minimum:
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procurement official (typically non-voting member)
representative of end user department
technical expert
The team should be instructed on ethics and confidentiality, typically signing a statement
verifying no conflict of interest, binding confidentiality and agreement to evaluation rules.
Evaluation committee members are expected to review the original solicitation and any
addendums and be familiar with the evaluation criteria. Proposals are then distributed to the
team along with any required evaluation and scoring documentation.
Evaluate Responses
Each proposal is reviewed to ensure it is responsive. All responsive proposals continue through
the evaluation process and will be evaluated based only on the criteria listed in the solicitation.
While the proposal is evaluated for responsiveness, the proposer is evaluated for responsibility.
Responsibility refers to the proposer’s capability and capacity to perform and deliver and
includes evaluated requirements such as mandatory and scored technical requirements and
general requirements such as adequate financial resources and the ability to comply with the
delivery of performance schedule. Various events may be utilized during the evaluation process
such as interviews, demonstrations, reference checks, and clarifications. The evaluation process
to be used for a given solicitation should be clearly outlined in the solicitation.
Some specific analyses may be deemed necessary during this part of the evaluation process.
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Cost Analysis: Cost analysis is an evaluation of actual and anticipated components that
comprise price. The cost review is based upon categories that include direct costs,
comprised of labor and materials, and indirect costs that include overhead costs and
general administrative expenses. Cost analysis is generally associated with the
competitive sealed proposal method of procurement.
Cost-Benefit Analysis: A Cost-Benefit analysis is often employed to look at alternatives
during the Make or Buy decision stage, and can also be used during evaluation of
proposals to determine which is most advantageous.
Short-Listing
It may be necessary to shortlist to narrow the field to the responses with a reasonable chance
of receiving an award. Shortlisting must be based upon the published evaluation criteria. It also
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may be necessary to request clarifications, hold discussions, or request best and final offers.
After all these steps are completed (or waived), the responses must be scored or ranked.
Negotiations
Negotiations are typically held with the highest scoring or ranking proposer. If negotiations are
unsuccessful, the next highest scoring or ranking proposer is invited to negotiate. The resulting
contract is submitted through the award process.
NIGP-CPP Action Statement: Develop a negotiation strategy that
maximizes advantages for all involved.
Procurement professionals are increasingly called upon to participate in negotiations. These
negotiations may range from sensitive discussions with irate suppliers to complex negotiations
with a supplier that has been selected as a result of an RFP or RFQ. They may include detailed
negotiations with offerors during the evaluation of proposals, or working out details in the
contract administration phase to implement change orders and resolve disputes, or in a
procurement where factors other than price are critical and the ability to negotiate is desired or
required. The goal of any negotiation is to achieve a mutual goal referred to as a win-win
agreement. A win-win situation is one that is reasonably balanced, with each party feeling they
have obtained something beneficial from the deal.
Negotiation has become an important skill for the procurement professional as bargaining has
become a valued and accepted process in the public sector. Regardless of the complexity or
simplicity of the negotiation, the stages should be the same. First is the planning phase, then
comes the actual negotiations, followed by the documentation phase.
Negotiation Planning
As you enter the planning phase, the negotiation team must be compiled. The negotiation team
may be the proposal evaluation team; however, it may be necessary to modify the team to
ensure the appropriate individuals are included. The team facilitator is usually the procurement
representative.
Planning for negotiations should comprise 70% of the effort expended in the overall negotiation
process. With proper planning, an entity will achieve greater results. Planning includes such
tasks as:
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conducting research on offerors.
identifying potential issues.
setting targets for the negotiations.
establishing a negotiation plan/strategy.
developing a Best Alternative to a Negotiated Agreement (BATNA).
The Best Alternative to a Negotiated Agreement. Often negotiators will establish a “bottom
line” in an attempt to protect themselves against a poor agreement. Instead the weaker party
should concentrate on assessing their best alternative to a negotiated agreement (BATNA). The
reason you negotiate is to produce something better than the results you can obtain without
negotiating.
Negotiations
The object of the negotiation will have been identified during the planning phase. Negotiations
can clarify price, terms and conditions, quality, performance of the contract or any other aspect
of the procurement. Negotiating targets can be divided into substantive and relationship issues.
These issues demand different approaches and tactics to reach a satisfactory outcome. It is,
therefore, important to know these issues as they relate to the specific procurement.
Negotiations should always aim for a win-win solution to ensure long-term success of the
project. There are many different negotiation techniques, however, it is important to avoid or
deflect tricky techniques.
Documentation
All discussions during negotiations must be documented to ensure there is a record of all open
issues and eventual agreement. Documentation will be important as the contract is drafted. In
the event of a dispute during performance, this documentation may become critical to quick
resolution.
NIGP-CPP Action Statement: Manage a protest consistent with
the law and the entity’s policy.
Protests may happen even when a procurement process is performed properly. Potential
offerors may not understand how to informally address concerns about the solicitation.
Sometimes unsuccessful offerors may use a protest procedure as a means to gain
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understanding of why they did not get an award. Therefore, every procurement professional
should be well- versed in how to prevent and handle protests.
Basis for a Protest
The procurement professional encounters a protest in two different stages in the procurement
cycle.
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The first protest may be from an interested party who may protest some part of the
solicitation. That protest may claim that the requirements of the solicitation are flawed
or restrictive or in some other way interfere with the potential offeror’s opportunity to
offer a bid or proposal. A protest of requirements may actually be of value to the entity,
as it may highlight restrictive specifications.
The second protest will occur at the stage in the procurement cycle when the entity
announces its intent to award to a supplier. The usual position of the protesting supplier
is that the selected supplier’s bid/proposal is not the best one or point out some other
irregularity that would make the selected bid/proposal non-responsive or the
bidder/proposer non-responsible, and the bid/proposal offered by the protester should
receive the award.
It is important to point out the difference between a protest and a dispute. A protest occurs as
a result of a solicitation or award. However, a dispute is the result of a difference of opinion
regarding a contract or contract performance.
Typical Protest Procedure
Protest procedures may vary from entity to entity. However, a typical procedure, based upon
the American Bar Association Model Procurement Code, would look similar to the following:
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receipt of timely protest
o If protest of specifications, the protest should be required to be received some
minimum time prior to the deadline for receipt of offers.
o If protest of intended award, the protest should be required to be received some
minimum time before contract award is being made.
review of the solicitation
review of protest issues, generally by the procurement authority and the end user
deny or uphold the protest
if denied, appeal to a next higher authority
appeal to entity chief executive or the governing board of the entity
if protestor disagrees with the decision, the parties enter into a form of alternate
dispute resolution, such as mediation or arbitration
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•
file a civil action asking for an injunctive relief or compensation
Protest Prevention
Protests can be prevented by incorporating several best practices into procurement
procedures. Pre-bid or Pre-proposal conferences, with any necessary walk throughs, help
offerors to understand entity requirements. Having a Question and Answer period prior to the
response deadline will encourage offerors to express concerns early enough in the process to
address them.
Offering debriefing meetings once an award decision has been made will allow for informal
queries and explanations that may otherwise become formal protests. A debriefing is an
attempt by the entity to provide unsuccessful offerors with insight as to why their offer was not
selected. Depending on the dollar amount of the contract and its complexity, debriefing of all
offerors who responded to the solicitation may save time and dollars associated with contract
award protests.
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Focus Area 5 — Contract
Administration
Public procurement professionals must be prepared to demonstrate good contract writing and
management skills when pursuing procurement engagement and supporting uninterrupted
public service delivery of commodities for their entity. For the procurement professional, this
includes all aspects from the time the need is recognized until the commodity is used or
disposed of, including, but not limited to receipt, inspection, logistics, inventory management,
and contract/supplier management.
It is important to establish a clear understanding of the differences between the terms
“contract management,” “contract formation,” and “contract administration.” These three
terms are occasionally incorrectly used interchangeably. To help ensure the success of contract
management at an entity, procurement professionals should clearly establish the differences in
each term and how they relate to one another.
Contract management is the entire contracting process from pre-solicitation activities through
contract closeout. The term “contract management” is often used to describe the contract
administration phase; however, caution must be exercised so that the terms are not confused.
Contract Administration is defined as the management actions that must be taken following the
award of a contract to assure full compliance with all of the terms and conditions contained
within the contract document.
Contract management can be seen as a sequential cycle, demonstrated in the following chart
split into two main components: contract formation and contract administration.
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Considerations Affecting Contract Administration During Formation Period
Contract formation is a series of pre-award procurement activities between an entity and a
supplier or multiple suppliers that result in a contract. The procurement professional offers
value to the contract formation process by providing a set of procurement tools which aid in
assessing different risks for each type of procurement and establishing specific contractual
goals to manage risk. Contract formation includes identifying contract risks and establishing
contract goals to manage risk. In essence, the contract formation activities serve as a preamble
to the administrative activities that will follow once the contract is executed.
During the planning stage of the procurement process, much of the groundwork for contract
administration is established. It is at this time that the stakeholder and contracting personnel
should reach agreement in several important areas that impact contract administration. The
specific pre-award activities that occur during the contract formation process are:
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identifying contract risks and establishing goals to manage risk.
determining the appropriate mechanism for developing an IFB or RFP.
determining the appropriate type of contract.
selecting the appropriate terms, conditions, and pricing structure.
Two points to consider in regard to the contract formation phase. First, it is essential to
consider how a contract is going to be administered when forming the solicitation. When
discussing contract execution, you will formulate various requirements that should be clearly
delineated during the development of the solicitation. Second, when developing the contract
administration plan, it is important to incorporate portions of the contract to ensure
compliance. For example, any requirement identified in a contract should have a mechanism
for compliance identified in the plan for performance.
NIGP-CPP Action Statement: Establish policies and procedures
for contract administration.
A successful contract management program includes the development of a contract
administration program with clear and complete policies and procedures. Similar to policies and
procedures that are established for the contract formation phase, the contract administration
must establish proper guidance for all those engaged in contract administration.
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Develop Contract Administration Program
Entities should establish a specific contract administration program, to include a defined
structure with roles and responsibilities of the function, as well as clearly defined policies and
procedures. While some entities may have specific staff assigned to a defined contract
administration program, others may incorporate these responsibilities into positions with other
responsibilities, such as contracting staff and clients/end users. The reality is that all
stakeholders in the sourcing process play a part in the development, execution, and
management of an effective contract administration program.
Ensure Compatibility with Entity Goals and Objectives
As part of developing a contract administration program, Procurement should understand the
goals and objectives of the entity, ideally as identified in an entity’s strategic plan. It is
important that any procurement program have a connection to the entity’s plan, or absent a
specific strategic plan, the goals and objectives as communicated by entity leadership. To
ensure clarity on those goals and objectives, Procurement may choose to meet with entity
leadership and discuss expectations of how the contract administration program can support
the entity. As an example, if the entity is particularly focused on efficiencies, the development
of the plan should have a particular focus on efficient policies, processes, and procedures, but
should also plan to track and capture tangible efficiencies for future reporting. If the entity is
specifically focused on reducing expenses, the contract administration program may choose to
focus on capturing savings and avoided costs through effective contract administration.
Research Industry Best Practices
As part of developing the program, Procurement should look to industry best practices for
contract management and administration. These best practices will provide a framework for
program development. For details about the various types of program structures, policies, and
procedures, including tools and lessons learned, Procurement should look to those leading
entities who have existing programs. Through a review of these other entity structures,
Procurement can identify similar entity types, programs that are in alignment with the entity’s
goals and objectives, and can learn from the experiences of those other entities. Further,
through sharing existing policies, tools, and templates, Procurement can avoid “reinventing the
wheel” and instead focus on fine tuning to meet their own entity’s needs.
Another way to benefit from the contract administration program network is to engage through
existing networks of professionals (such as the Contract Administration Nsite community via
NIGP), accessing information through articles or blogs and viewing various videos and courses
available on the topic of program development.
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Identify and Engage Stakeholders
It is important to engage the various stakeholders in the development of the contract
administration program. Stakeholders include executive leadership, the procurement team,
partner support functions such as Accounts Payable/Legal/Risk Management, client / end users,
and the supplier community. Each group shares a role in the effective execution of the contract
administration function and, therefore, provides valuable input into the program development.
Consider ways to engage these groups in the development of policy, procedures, processes,
tools, roles and responsibilities, and training.
Define Contract Administration Policy
Policies should be developed to govern the contract administration program. This policy should
be high level and should provide the structure of the program, the level of authority for the
roles responsible for program management and execution, and should connect to any existing
procurement policy. Ideally the policy should be incorporated as part of the procurement
policy, whether through a formal approval process (such as ordinance approval by a council) or
through less formal policy approval channels (such as by the Chief Procurement Official or Chief
Financial Officer). As with all procurement policy, the contract administration policy should be
in compliance with any applicable federal and state regulations and should be approved by the
appropriate party in the entity (whether the political body, the entity executive, or other
delegated authority). It is important that the policy is shared with all affected stakeholder
groups and should be included in all existing information platforms and training materials.
Some best practices procurement departments provide specific training on contract
administration, sometimes in connection with project management training.
Identify Legal & Regulatory Requirements
As with all policy development, it is essential to work closely with legal counsel. This helps
ensure any contract administration program policy is legally defensible, consistent with various
regulatory language, consistent with the American Bar Association Model Procurement Code, in
alignment with industry best practices and supported by key stakeholders in the entity.
Establish Roles & Responsibilities
A formal contract administration program should be managed by a specific role in the entity.
While some entities may have a formal, dedicated contract administration manager role, other
entities will assign this role to an existing position with other responsibilities. If it is not possible
to dedicate a position, it is important to ensure there is no conflict of interest between roles.
For example, if a Project Manager is also serving as the contract administration manager, there
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is a possibility of conflict of interest between the two roles. The contract administration
manager is the individual responsible for any and all aspects of the contract administration
program, including, but not limited to: developing the program policy, securing program
funding, including positions; developing and maintaining program procedures, reports, tools,
and data; authorizing various program updates; selecting technology to support the program;
executing or overseeing program training; managing program staff; and overseeing all aspects
of the contract administration program. This is not to be confused with a contract administrator
who may have a responsibility for overseeing a specific contract or project.
Define Contract Administration Procedures
A key success factor in effective contract administration is early engagement. As such, the ideal
place to begin thinking about contract administration is at the identification of the need that
initiates a sourcing process. Through early engagement, a contract administration manager is
able to collaborate with the client/end user to define needs, identify language and
requirements that should be included in the solicitation and resulting contract, identify
parameters for effective performance measurement and monitoring, and discuss risks and
mitigations that may arise in the execution of the contract.
An effective contract program will rely on pro-active planning documents that guide the public
entity and the contractor towards exemplary performance. Three planning tools assist in
achieving performance outcomes.
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Contract Administration Plan (CAP) provides the framework for effective contract
administration with an emphasis on process, output, and outcome. The length and
detail of the CAP depends on the complexity and potential risk of the contract.
Performance Assessment Plan (PAP) is based on the technical requirements and terms
and conditions of the contract and ensures that the entity is receiving the supplies or
services to which it is entitled under the contract.
Surveillance techniques (PAP) provide for the monitoring and evaluating of all contract
requirements through a combination of methods such as sampling, checklists,
performance requirement summary lists, or other information.
Establish a Consistent and Defensible Cost Savings/Efficiencies Tracking & Reporting
Program
To determine the effectiveness of the contract administration program and whether it is
meeting the goals and objectives of the entity, it is important to discuss and define metrics for
the program. How the program connects to the entity’s goals and objectives will determine
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what types of metrics are put in place and what data will be tracked and measured. To
demonstrate the value of the contract administration program, a clear set of metrics should be
discussed and agreed upon by executives in the entity, as well as other stakeholders in the
process. Then, as the manager of the program, the contract administration manager should
establish the defining measures, the data to capture, the way in which the data will be
captured, and what type of reporting will be provided to the stakeholder community.
Ideally, technology will be used to execute contract administration activities and will be used to
capture key data. Dependent upon the technology used, the system may be a full financial or
procurement system, or may be a separate contract administration tool. Regardless, all those
engaged in the contract administration processes should be trained to record the appropriate
steps and data into the system for future reporting. Data captured may include:
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hard dollars saved or recovered through managing contract administration issues such
as contract amendments, change order and invoices.
soft dollars saved as a result of contract administration efficiencies.
time saved or avoided through process efficiencies.
NIGP-CPP Action Statement: Establish policies and procedures
to promote acceptable contract performance.
There are three critical plans that are developed and utilized in various phases of the
procurement process:
1. the Procurement Plan, which sets the overarching strategy for the total procurement
process.
2. the Source Selection Plan, which details the source selection strategy.
3. the Contract Administration Plan, which provides the framework for effective contract
administration. (The Procurement Plan and Source Selection Plan are addressed
elsewhere in this guide).
The Contract Administration Plan (CAP)
The Contract Administration Plan (CAP) will vary in scope, complexity, and risk associated with
the contract. Non-complex, routine contracts may simply merit a two- or three-page document
that discusses specific issues that are worthy of special attention during contract
administration.
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Developing the Contract Administration Plan
CAPs share a common framework; however, inclusion of each topical area within the CAP
should be a matter of need rather than one of formalities. Typical components of CAPs will be
discussed briefly. Note that it may be beneficial to include each topic area and, where
appropriate, state the inapplicability of an area. Doing so will help to avoid an inadvertent
omission.
The development of a Contract Administration Plan (CAP) as part of the procurement planning
process defines how the contract will be administered. For routine contracts, the CAP may only
be a couple of pages. For complex contracts, the contract administration team should develop
the CAP collaboratively. While the complexity of the contract will determine what should be
included in the CAP, here are some of the topics that may be included:
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description
period of performance /delivery dates
testing
warranty provisions
data and deliverables
inspection and acceptance
personnel requirements
critical milestones
special terms and conditions
schedules and meetings
watch list items, items that are on the critical path
roles and responsibilities
Developing the Contract Administration Team (CAT)
For contract administration to function effectively, it is critical to have a partnership and open
communication among the department(s) using the contract and the procurement department.
Depending on the size of the contract and the entity, the procurement professional may be the
sole member of the Contract Administration Team (CAT) or may work with a cross-functional
team.
Composition depending on the complexity of the contract, some or all of the following
personnel may become involved in contract administration activities:
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contracting officer
subject matter expert
reliability engineer
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legal counsel
contracting officer’s representative (COR)
quality assurance specialist
materials and services price and cost analyst
Establishing Roles and Responsibilities for the Contract Administration Team
The respective roles and responsibilities of the Contract Administration Team should be
established early so each member of the team understands their authority, the limits to such
authority, and the importance of communication and coordination of activities within the team.
The two primary authority levels are (1) determining who is leading the daily management of
the contract and (2) who makes the final decisions.
A contract should have a day-to-day manager responsible for ensuring the appropriate
execution of the contract, including contractor performance monitoring, deliverable receipt and
acceptance, and coordination with Procurement for any needed changes or issue resolution.
This role may be assigned to the end user’s Project Manager or may be assigned to a
designated Contract Administrator (generally within the end user’s area). Dependent upon the
terminology by the entity and the specific position titles, a Contract Administrator or Project
Manager role should not be confused with the position in Procurement that is responsible for
any modifications to the contract, resolutions of any contract issues, or potential action
resulting from unacceptable performance.
It is critical that public entity employees who are engaged in any aspect of the procurement and
contracting function subscribe to the highest standards of ethical behavior. The Contracting
Officer needs to set an example for ethical performance and recognize what constitutes a
conflict of interest. A conflict of interest occurs when judgment, action, or non-action taken by
a team member benefits the same member. Within the context of this issue, there are three
types of conflicts of interest generally recognized by the public procurement professional that
should be avoided:
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actual conflict of interest
potential conflict of interest
appearance of conflict of interest
Create Contract Schedules, Meetings, Personnel, and Events
Contract Administration is very similar to the project management discipline. A contract is
similar to any other project. It has a beginning and an end. It requires the management of
resources toward accomplishing a goal: delivery of a good or service in compliance with a
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contract. Successful contract execution begins with the development of a strategy as to how
the resources of the project will be managed. These resources include schedules, events and
personnel. Procurement should work with the Contract Administrator or Project Manager to
establish the schedule of contract events, meetings, deliverables, and Contract Administration
Team members. This information should be captured in the Contract Administration Plan
Regular team and update meetings should be established, a master schedule should be
managed and updated, and a consistent communication strategy should be established.
Develop the Transition Plan
After building the Contract Administration Team, the next step is to create and communicate a
transition plan. Not all new contracts will need a transition plan. Larger, complex projects are
likely to need a transition plan to ensure that both the outgoing and incoming contractors are
on the same page and no lapse in coverage occurs. Senior contract administrators are more
likely to manage these types of contracts and would be developing and managing the transition
plan, but it is good for procurement professionals to be aware of the processes involved.
The Performance Assessment Plan (PAP)
The Performance Assessment Plan (PAP) is key to successful contract administration. The PAP
can be contained within the Contract Administration Plan, or it can be a standalone document.
The PAP is particularly useful, given the trend toward performance-based contracts.
Performance-based contracts focus on output and outcome and leave process to the
contractor. The PAP ensures that the public entity is receiving the supplies or services to which
it is entitled under the contract.
The PAP is based upon:
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the work to be performed by the contractor, as delineated in the Statement of Work
any attachments or exhibits to the Statement of Work
the specifications
the contractor’s proposal
any other documents that are contractually binding.
The PAP provides specific information on how the Contract Administration Team will observe
and evaluate performance according to the standard required by the contract. Specifically, the
PAP includes information on how the “evaluators” will observe, survey, sample, test, evaluate,
and document supplier performance.
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The PAP is based upon the technical requirements and other relevant terms and conditions to
the contract. It is not a contractually binding document, nor is the Contract Administration Plan.
The PAP delineates the proposed actions that will be used to evaluate contractor performance.
As with any other plan, the PAP is only valuable if it is adopted and implemented. The PAP
should be included within the solicitation so that suppliers understand the standard against
which they will be evaluated. This is important so that risk and pricing can adequately reflect
the standard of performance to be accomplished. A PAP may, in fact, cause a potential supplier
to “no bid” work, if the plan is too stringent. Thus, industry standards that have been examined
as part of market research often form the foundation of the PAP. The PAP provides potential
suppliers with the following information:
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What tasks will be inspected?
When the tasks will be inspected?
What standards will be utilized?
How will evaluation and assessment of performance be measured?
It is important to remember that PAPs are not “one size fits all” documents. The plan must be
developed for each procurement. While some components of the plan may transcend specific
contracts because of the need for same or similar supplies or services, the dynamics of the
operating environment will often cause the details of the plan to change.
Evaluating Supplier Performance
Effective contract management and surveillance techniques, coupled with the contractor’s own
quality assurance program, will help to ensure that standards for acceptable or better-thanacceptable performance (as appropriate) are met. A public entity has broad-reaching rights
with respect to inspection of services and supplies. These rights are bound by the obligation not
to delay or disrupt work while inspection takes place. The entity’s inspection rights typically
include the right to “inspect any time and any place in a manner that does not delay or disrupt
the work of the supplier.”
Performance reviews should be conducted at least quarterly during the contract period.
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The review should provide a status report of the contractor’s performance in the areas
of costs, schedules, and technical activities.
Normally, the Contract Officer conducts reviews with support from the contract team,
as necessary.
All reviews should be scheduled in advance and all participants should be provided with
an agenda.
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Action items should be gathered and assigned with required completion dates. Followup for closure should not wait until the next review but should be assigned to a member
of the team for regular status reports. The updated status of each action item should be
reviewed by the Contract Officer at the next meeting. If an item falls behind between
meetings, the Contract Officer must work with the appropriate personnel to obtain
closure.
Material hazards should be addressed during the review. The Contract Officer should
attempt to alert all affected personnel of new hazards before the review so that they
can provide an appropriate recovery plan at the meeting.
In addition to an “action items listing,” minutes should be recorded and published for all
meetings. As with any strategy, there must be sufficient resources available to implement the
PAP.
Define Quality Assurance Metrics
There are general techniques to evaluate supplier performance.
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Investigate the potential supplier’s references to ensure that the potential supplier has
performed similar contracts successfully.
Determine if the supplier is ISO 9000 certified, showing the supplier’s commitment to
Total Quality Management (TQM).
Determine if the supplier has adopted Quality Assurance/Quality Control (QA/QC)
measures.
Determine if the supplier has developed a surveillance plan for the entity, which details
the methods used to monitor and ensure performance compliance; such methods may
include:
o sampling, with written procedures.
o Checklists.
o performance requirement summary lists.
o other information, such as any unique terms and conditions.
Inspect for use of Service Level Agreements (SLAs). Performance-based instruments for
procuring and managing software contracts can be used to specify software quality and
are also often used to specify performance requirements. SLAs identify and establish
quality in the procurement planning phase, helping the contract administrators to
establish quality controls for monitoring and managing the various aspects of software
contracts. SLAs should be signed by both the entity and the supplier and included in the
contract documents.
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There are a number of approaches to addressing quality measures to ensuring contractor
performance, which should be addressed in the solicitation process and then captured in the
resulting contract. Those approaches include:
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Samples - the requirement of samples during evaluation can be used as a baseline for
comparison to actual delivery under the contract.
Testing and quality assurance - specific testing may be required, including possible
verification by an outside testing lab. Statistical Process Control (SPC) may be used to
identify the impending production of an unacceptable product before it actually occurs.
Inspection – ensures the contract is fully performed by guaranteeing the good or service
is received in the correct quality, quantity, and in a timely manner. There are several
types of inspection techniques:
o exception inspection
o final inspection
o first-article testing
o after-delivery inspection
o sampling inspection
o prevention vs. detection
o in-process inspection
o technical testing through laboratories
Acceptance - After a good or service is accepted, the public entity has limited rejection
rights. Proper receiving and inspection methods are critical components of contract
administration that provide for the early detection of defects and allow for corrective
action to be taken. A standard inspection clause should address the following
responsibilities for each party:
o public entity’s right to inspection
o cost of inspection
o place of inspection
o allowance for testing
o time of inspection
Create a Contractor Performance Rating System
As part of an effective contract administration program, an entity should establish a rating
system for contractor performance. The rating system should be applied consistently, however,
it should allow for application variations between types of performance (such as commodity
delivery, service provision, variation in types of services).
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Identify Contract Data and Deliverables
The PAP should identify all data and deliverables required to be provided during the execution
of the contract. Sufficient detail should be included in the plan to enable the responsible person
to confirm the data and to confirm that deliverables have been provided in accordance with
contractual requirements, including parameters such as format, quantity, quality, and accuracy.
Provide Tools and Templates
The contract administration program should provide all CAT members with standard tools and
templates to capture activity results, data, and information related to performance monitoring.
Appropriate training should be provided on tools and collection activities.
Post Award /Contract Kick Off Conference
After the contract has been executed, it is time to discuss contract performance expectations
with the Contract Administration Team. Attendees should include all members of the public
entity’s Contract Administration Team and their corresponding contractor counterparts. A postaward conference ensures that the contractor understands the expectations, performs
accordingly, and can provide the foundation for an effective contract effort.
Monitoring Contract Administration Activities
Monitoring and managing contractor performance are a fundamental responsibility for the
Contract Administration Team (CAT). The contractor and the public entity have made specific
contractual promises in writing. The contractor must be held accountable to perform at
acceptable levels. The team will determine if performance has deteriorated to the point of
invoking a time period for cure or invoking remedies. The contractor should hold the public
entity responsible for contractual promises as well.
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Monitoring quality - Quality must be managed carefully to prevent an adverse impact
on the other operating areas. Different contract types will require different emphasis
and skill sets to determine adequate quality.
Monitoring changes - It is essential to develop a comprehensive system to control
contract changes, including appropriate justification for changes, and specific controls
regarding the levels of the change, who can approve it, the costs involved, and
appropriate feedback to all team members who need it.
Monitoring schedules - All schedules of deliverables must be detailed and finalized,
including important milestones that are critical for the successful completion of the
project.
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Monitoring conflicts - Procurement must be proactive in anticipating the potential for
conflicts, such as disputes over specifications, and should intervene and render
decisions, when appropriate.
Monitoring the budget and payment - A structure should be established to monitor the
allocated budget for a contract, as well as a system to review and approve contract
payments. Consideration should be given to allocating additional funds in reserve for
contract changes that are necessary because of unanticipated development problems or
unforeseen environmental conditions.
Monitoring risk of failure - A plan should be established for the CAT and Procurement
to monitor risk factors, anticipate potential problems, and mitigate issues and delays.
Monitoring subcontractors - If subcontractors are used, the team should develop a
monitoring plan that addresses any potential problems in communication, keeping in
mind that the subcontractors’ legal relationship is with the prime contractor.
Monitoring data - Contracts containing large amounts of report data should be tracked
closely by using a detailed schedule of deliverables, delivery milestones, and a good
reporting system.
Monitoring acceptance and close-out - To mitigate delays and disputes during
acceptance, a plan of regular monitoring of delivery and progress should be established,
as well as efficient process of addressing changes to the contract, clear delineation of
roles for acceptance and a checklist of closeout activities.
Addressing Contract Issues
Throughout the life of the contract, the procurement professional and the CAT members will be
called upon to address various issues that arise during contract performance. Those issues may
include contract interpretation, issues with delivery and acceptance, and non-conforming or
defective deliverables.
Issues with Contract interpretation
Courts will refer to the written contract document in the event of disputes. The court’s primary
purpose is to enforce the intent of the parties. The courts will assume that the parties
understand the contract and its terms and so will apply common meaning to the words chosen.
When a dispute remains as to the meaning, the courts will turn next to common law rules of
interpretation of applicable statutes for guidance.
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Interpretations of terms and conditions. Courts use common law rules of interpretation.
A court will view the language for its objective meaning (i.e., the meaning that a
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reasonable person would give it) and not necessarily the meaning that the drafter
intended. Avoid using language that may require relying on these rules.
Protocols. There are generally accepted practices regarding business protocols such as
the precedence or ordering sequence of contract language interpretation according to
the importance of words, format, and emphasis.
There is a hierarchy of guidelines for interpreting contracts. These rules of
interpretation differ by jurisdiction and evolve over time. Be aware of these rules and
consult your legal counsel.
At the top of the hierarchy is the cardinal rule. This focuses on the plain language of the
contract and the meaning that both parties gave to the text at the time of the contract
signing. Secondary Rules include the whole instrument rule and the express language
rule. The whole instrument rule gives priority to the meaning of the overall contract as
opposed to a section or clause of the contract. The express language rule specifies that
when there is a list of words that is not followed by a general description of a category,
then the contract applies only to the items in the list. Other secondary rules include
conduct of the parties, prior course of dealings, custom in trade, and the order of
precedence.
Finally, there are mechanical rules. These include handwritten notes taking precedence
over printed text, quantities spelled out in words over the use of numerals, and anything
written in a conspicuous manner such as larger font. Courts will strictly enforce
language against the drafter. The courts generally take the position that the party who
wrote the contract will usually favor themselves first and to their advantage in writing
the contract since they crafted the contract document. When you draft the contract
document, the courts assume you know what you are doing. Make sure that you fully
understand the impact and meaning of every provision.
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Issues with Acceptance of Contract Delivery or Service
The acceptance process is a critical part of contract administration. Acceptance entitles the
contractor to payment and limits the rights of the public entity to seek remedies if defects are
found at a later date. An acceptance clause should be included in the solicitation documents
issued during the solicitation process or, at a minimum, within the contract document executed
between the public entity and the contractor.
On occasion, entities may delay on final acceptance because the specifications are not
complete and additional work is required to complete the contract. This type of delay can be a
key source of conflict between the contractor and the entity. If the contractor has completed
the work identified in the specifications, the entity should accept the work. However,
sometimes there are issues with contractor performance that may require appropriate action:
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Remedies for defects: The solicitation and contract should suggest a variety of remedies
for defects prior to acceptance.
Rejection: The formal process used by the public entity to officially notify the contractor
that the good or service is defective and that it will not be accepted. If a good or service
is rejected, the owner or entity can pursue any of the following options:
o determine that the contractor is not entitled to payment
o pursue corrective action
o pursue an equitable adjustment in price
o determine that there has been contract default and pursue damages
Remedies may or may not be pursued prior to the official rejection process, although
the options are similar. It is crucial to determine the conditions for proper rejection and
acceptance. If a commodity is accepted, the public entity’s rights of rejection at a later
date are very limited.
Post acceptance rights: Acceptance substantially limits the public entity’s ability to reject
goods or services if a defect is found at a later date. In fact, one of the following
conditions must exist for the public entity to seek a remedy after an item or service has
been accepted:
Latent defects: These exist at the time of acceptance, but could not have been
discovered through normal and reasonable inspection procedures. An example of a
latent defect is a standard, off-the-shelf personal computer with a defective hard drive.
Fraud: All of the following factors must be present in order for the public entity to
revoke acceptance based on fraud:
o misrepresentation of fact, actual or implied, or the concealment of a material
fact
o knowledge of falsity or reckless or wanton disregard of the facts
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o intent to mislead the public entity into relying on the misrepresentations
o injury suffered by the public entity
Gross mistakes amounting to fraud: This is a major mistake made by the contractor that
is so serious and uncalled for as not to be reasonably expected or justifiable. The
requirements to prove gross mistakes are the same as fraud with the exception of
proving there was intent to mislead.
Warranties: Clauses which provide the public entity a remedy for latent or patent
defects discovered after acceptance.
o Implied warranties are obligations of the contractor that have not been assumed
in expressed language. These implied warranties may be used in supply contracts
that do not contain a standard inspection clause that defines acceptance.
o Express warranties are explicit, written promises by the contractor to provide a
specified level of quality, condition, description or performance of a good or
service.
Remedies for Defects in Non-Conforming Commodities or Services
Every jurisdiction has remedies for defects in non-conforming goods or services. It is critical to
know the laws that govern procurements in a jurisdiction. The public entity can consider four
options for seeking remedies for defects prior to acceptance.
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Require the contractor to correct the defects.
Extend the contract completion date for a reasonable amount of time to allow the
contractor to correct minor defects.
Accept a good or service with minor nonconformities when correction would cause
economic waste or it is not material (Doctrine of Substantial Completion).
Allow the entity to replace, correct defective work or perform the services and to charge
or offset these costs to the contractor.
Common law has modified the right of rejection for strict compliance to address the following
conditions:
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Adequate Description and Measurements: If a specification is not precisely stated or
cannot be accurately measured, the public entity can only reject the work if it is not
suitable for its intended purpose.
Substantial Completion: The doctrine of substantial completion limits the public entity’s
remedies when rejecting work on the basis of strict compliance.
Correctable Defects: If a defect is easily correctable, the public entity cannot terminate
the contract based on strict compliance.
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Previous Action: If the contractor can demonstrate that the public entity previously
accepted the work fully aware of the nonconformance, the contractor can successfully
demonstrate that the public entity waived its right to strict compliance.
Contract Modifications
With rare exception, all contracts will undergo modifications. Modifications are necessary for
many reasons. The need for modifications can be predicted in some instances; and in others,
the need may be emergent. Modifications can alter routine administrative matters within the
contract, correct minor errors, or make substantive changes to the terms of agreement by the
parties. Modifications must be well thought out, written, and considered in terms of immediate
and long-term consequences.
Types of Modifications
All modifications can be classified as either bilateral or unilateral.
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Bilateral modifications to the contract require the approval of both parties in signatory
form. In most cases the contract modifications will state that it is to be executed by both
parties to be binding. Bilateral modifications are often related to some alteration of one
or more substantive terms of the contract. Because substantive changes can cause
significant changes to the rights and obligations of one or both parties, bilateral
execution serves as a protection mechanism so both parties are aware of the nature of
the changes. Doing so permits the parties to assess the implications of the
modifications.
Unilateral modifications can occur for two reasons: (1) the right to unilaterally modify
the contract has been given to the public entity in the contract itself or (2) the
modification is for a minor purpose. Careful attention to the use of unilateral
modification authority must be exercised.
Constructive Changes
Constructive changes are any actions or inactions on the part of the public entity that have not
been made through formal change order authority, but have caused the contractor to perform
additional work that is outside the scope of the existing contract. Typical constructive change
actions occur when direction is given (or perceived to have been given) by someone within the
public entity who lacks authority to order the change. In many circumstances, the public
entity’s view may be that the change constituted a valid change or, perhaps, work that could
not be considered a change.
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Request for Equitable Adjustment (REA)
Changes to a contract may require additional work and expense on the contractor. Change
work, either directed by formal contract modification or through constructive change, entitles
the contractor to seek an equitable adjustment. The contractor must prove that they are
entitled to an equitable adjustment. The contract must contain language specifying the
conditions under which a REA will be considered. Seeking such an adjustment does not
automatically entitle the contractor to more money or time. Once both parties have agreed to
consider a REA, the equitable pricing adjustment will have to be established. Most pricing
adjustments are settled through negotiation. The price adjustment will be a result of one of the
following actions caused by the event that triggered the REA:
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actions that add work
actions that delete work
actions that delete one item and substitute another item
Reasonably incurred costs are “the difference between what it would have reasonably cost to
perform the work as originally required and what it would reasonably cost to perform the work
as changed.”
The following factors are considered to determine the change in any reasonably incurred costs.
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The work must be performed within the terms of the contract the public entity has
agreed to reimburse and the costs must be reasonable.
The contractor will negotiate an equitable adjustment with affected subcontractors and
include this amount.
Compensation may be provided to the contractor for performing unneeded work,
performing inefficiently, stoppage of work, performing work during different hours, or
changing the work process.
If a delay is caused by a public entity, increases in material and labor costs that have
been incurred are allowable.
Changes in overhead or profit must be a result of costs that were directly increased or
decreased as a result of the change.
Renewal Versus Extension
Contracts may require modification of the term through either an extension or a renewal.
Whether a contract can be renewed is determined by the jurisdiction’s regulations and
procedures as well as the terms and conditions stated in the contract document. Whether to
renew a contract requires analysis of contract performance, the market, and the contract
requirements on the part of the buyer in advance of the contract renewal notification period.
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Some contract renewal terms may include a provision for price escalation in accordance with
some applicable index such as the consumer price index or other defined market indicator.
Contracts with Escalation Clauses
A fixed price with escalation contract provides for upward or downward adjustment of price
based on certain contingencies that are specified in the contract. Pricing adjustments are made
according to provisions included in the contract, providing a basis for price increase or
decrease. Contract administration concerns for this type of pricing include:
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making sure that price changes are handled properly (in accordance with the contract
provisions).
verifying the validity of all requests for increased compensation.
making sure that the public entity receives the benefits of any price reductions.
NIGP-CPP Action Statement: Establish policies and procedures
to address contract performance issues.
Managing Contract and Supplier Performance Issues
Contract performance deficiencies, disputes, and resolutions (e.g., notice to cure, liquidated
damages) are all part of managing contract and supplier performance issues. Contractual
problems during contract performance generally fall into one of two broad areas: late or missed
delivery/performance and non-conforming goods or services. There may be others, but the
predominance of contractual problems falls into these two broad categories.
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Late or missed delivery. This problem occurs when the contractor fails to deliver as
required by the contract. Causes can be either because excusable delays or nonexcusable delays as explained in this section.
Non-conforming goods or services. These occur when the contractor attempts to deliver
or delivers goods or services that do not conform to the specifications in the contract.
The cost of dealing with contract administration problems after they occur can be tremendous
both in dollars and time. To effectively manage a contract, the procurement department should
anticipate which contract administration problems are most likely to be encountered and then
develop specifications, contract clauses, and a contract-monitoring plan to avoid or manage the
problems. Research indicates that construction and contracted service contracts experience the
greatest number of contract administration problems. Change orders were perceived to be the
most common construction contract problem.
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Contract Delays and Issues
Unanticipated delays are one of the most common contract administration problems. Delays
can adversely affect the goals and value of the public procurement function and result in:
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failure of the entire project.
decreased efficiency.
increased cost.
redirection and disruption of both parties’ efforts.
Failure by the contractor to meet a delivery schedule usually originates with problems that
occurred earlier in the course of work. Therefore, progressive action should be taken as soon as
a potential delay is identified so that responsibility and consequential costs can be allocated to
one or both parties. Progressive actions taken could include:
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determining if the delay will impact delivery or performance.
determination of fault.
determining the duration of delay.
selecting appropriate action to resolve the problem.
Compensable Delays
When a contract contains a compensable delay clause, it should clearly define the exclusive
conditions for granting compensation to the contractor. If the contract does not contain a
compensable delay clause, the contractor must demonstrate that the public entity caused
the delay by interference, lack of cooperation, or unreasonable breach of its contractual
responsibilities. A contractor may be able to receive compensation for increased costs as a
result of a delay after consideration and documentation of the following factors.
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Ordered suspensions. If the public entity orders that work be suspended because a
provision in the Suspension of Work clause, the contractor may be compensated
only if the resultant delay is unreasonable. Contractors are not entitled to
compensation if the Suspension of Work is the contractor’s fault.
Constructive suspensions. Constructive suspensions occur when the public entity is
found to be responsible for the work stoppage and did not issue a Suspension of
Work.
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Excusable Delays
The excusable delay contract clause provides the contractor with protection from sanctions
for late performance, such as default termination, liquidated damages, actual damages,
excess costs because of delays, and Force Majeure.
Force Majeure: Unexpected or uncontrollable events, including those caused by nature that
can impact the contract price, terms, and conditions. These events are not because of
contractor negligence and may excuse contractor performance during the events and under
certain conditions caused by the event. These include Acts of God or disruptive conditions
for which a contractor or carrier will not be held responsible. If an excusable delay is
granted, the contractor is generally responsible for bearing any increase in costs to perform
the contract with the completion date extended to allow for the delay. The public entity is
responsible for costs and time delays that it causes, has under its control, or for which it has
agreed to pay the contractor, such as accelerated delivery if an excusable delay is granted.
In order for a delay listed in the default clause to be considered excusable, it must be:
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beyond the control of the contractor.
without the contractor's fault or negligence.
To determine if the cause of delay is beyond the control of the contractor, three factors
must be considered.
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Was the delay unforeseeable?
Can the consequences of the delay be overcome?
Could the delay have been prevented?
Non-Excusable Delays
Non-excusable delays occur because the contractor assumes the risk of providing the
necessary amount of planning and effort to complete the contract. They often result from:
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financial difficulties.
lack of materials.
labor problems, excluding strikes.
lack of equipment and facilities.
lack of knowledge.
reasonable delays preceding award.
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Liquidated Damages
Liquidated damages are usually in the form of a monetary payment as agreed to by the
parties in the contract. These are due and payable as damages by the party who breaches
all or part of the contract and may be applied on a daily basis for as long as the breach is in
effect. They may not be imposed as an arbitrary penalty. The key to establishing liquidated
damages is reasonableness. It is incumbent upon the buyer to demonstrate, through
quantifiable means, that damages did exist. Liquidated damages affect the allocation of risk
and, thus, may impact such issues as pricing, competition, and the cost and difficulty of
contract administration.
There are also a number of conditions that entitle the contractor to relief from assessment
of liquidated damages. An excusable delay is such a condition. Where an excusable delay
exists, the public entity can accelerate performance to achieve the initial delivery or
completion target, but that would require an equitable adjustment. If the entity does not
terminate the Contractor’s right to proceed, the resulting damage will consist of liquidated
damages until the work is completed or accepted.
Communicate Performance Issues to Contractor and Request Corrective Action Plan
In addressing contractor performance issues, it is important to establish progressive levels of
action and to clearly define the steps in the process. Contractors should be afforded their rights
to dispute any claims for performance failure and should further be given the opportunity to
cure the issues. This due diligence process establishes fairness for the parties involved,
transparency to the decisions and actions in the process, as well as providing a legally
defensible basis for the actions of the entity.
As with all phases of the contract administration process, documentation is vital and must be
maintained in the contract file. Contractor performance issues need to be clearly documented.
Entities should engage legal counsel guidance for any contract dispute and resolution matters
to ensure matters are handled within the confines of the law.
The key to handling poor performance is to manage relationships with contractors successfully.
The following is a progressive five-step plan for dealing with poor performance as it relates
primarily to service contracts:
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Project Manager or Contract Administrator attempts to resolve the problem by working
directly with the contractor’s On-Site Supervisor to resolve the problem directly on-site
where the conflict occurs.
Project Manager or Contract Administrator contacts the contractor higher level off-site
manager to resolve the performance issues.
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A meeting with the Project Manager, Contractor Administrator, or Procurement is held.
Action is initiated according to contract provisions and applicable law, which could
include liquidated damages or cure notice.
Contract termination is pursued.
Despite the use of clear, progressive steps in contract monitoring that could lead to termination
for default, contract termination is always problematic and very risky. If the contractor contests
the termination, the entity must have strong supporting documentation. If the contract
required a performance bond, the bonding company will demand documentation as well.
Doctrine of Substantial Completion
The doctrine of substantial compliance is applicable when reviewing contract performance for
closeout. To qualify for “substantial completion,” the contractor must have completed the work
within the prescribed time period, or had reason to believe that the goods or services
conformed to the contract specifications, or had reason to believe that any defects were minor
in nature and easily correctable. The basic test for determining if the defects are minor in
nature is whether the good or service is capable of being used or occupied by the public entity
for its intended purpose.
While this doctrine is applicable to all contracts, it is primarily used for construction contracts.
With construction contracts, substantial completion occurs when the building or facility is
essentially completed and can be used for its intended purpose with only minor items, called
punch list items, remaining to be completed.
Contract Claims and Disputes
A dispute is a contractual disagreement or misunderstanding between contracting parties
specific to contract provisions or language. Resolution is generally through pre-established
administrative procedures or agreed upon alternative dispute resolution provisions. A dispute is
a matter of disagreement that is not resolvable between the parties. In other words, the parties
have attempted to resolve the matter in an amicable fashion, and one or both of the parties
believe that a formal disputes process is the only path that remains.
Disputes clauses are designed to facilitate the process in the event a disagreement cannot be
resolved. The language of any dispute clause, in addition to providing the framework for action,
serves to encourage the parties to resolve disputes through the negotiation process. Disputes
clauses include applicable procedures as well as the rights and responsibilities of both parties,
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and provide a procedure for appeal of the owner or entity decisions. It should be identical to a
dispute clause written in the original sourcing document.
All members of the Contract Administration Team need to understand and be able to
effectively apply the contractual language related to disputes. Every effort should be made to
resolve disputes in a negotiated manner that is in the best interest of the parties. Contract
interpretation issues should be made cautiously and must be consistent with the original intent.
Guiding Principles in Contract Conflict Resolution
Think before reacting. It is important to think before reacting, consider the options, weigh the
possibilities, etc. Listen actively. Active listening means not only listening to what another
person is saying with words but also to what is said by intonation and body language. The active
listening process also involves letting the speaker know that they have been heard.
Alternative Dispute Resolution (ADR) Methods
Many contracts contain language regarding the use of an ADR as a means of resolving disputes
and matters in conflict. There are various methods of resolving disputes in a non-judicial
manner. While ADR may not be ideal for all contractual disputes, when used appropriately, it
can facilitate resolution of the dispute and preserve the relationship between the contracting
parties.
ADR offers several techniques using a third party such as:
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a neutral third party acting as a facilitator (best approach).
a neutral third-party providing advice.
a neutral third party as a decision maker.
Common types of ADR include the following methods.
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Mediation. A neutral third party helps to resolve a dispute. The mediator does not have
the authority to impose a decision on either party. When and if a satisfactory resolution
is not reached, the parties may still pursue a lawsuit.
Arbitration. The parties agree to abide by the decision of the arbitrator(s). The arbitrator
is selected directly by the parties or is chosen in accordance with the terms of the
contract. When the parties elect to use arbitration, they agree to be bound by the
decision of the arbitrator.
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Other approaches include:
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structured negotiations.
mini-trial using a neutral third party.
ombudsman.
summary jury trial.
Contract Termination
Termination is a drastic adjustment of the contractual relationship and may be grounds for
future litigation. The procurement department should, as a matter of course, proactively
include clauses in the solicitation documents and contractual documents that protect the public
entity from poor contractor performance by including warranties, performance bonds,
liquidated damages, termination for default, and other legal remedies.
The Right to Terminate for Default
Termination for Default is a contract clause that may be contained within boilerplate language
that allows either contracting party the right to cancel a contract, either in whole or in part,
because of failure of the other party to perform satisfactorily. Termination procedures should
begin only after thoughtful consideration of the consequences and with input from a variety of
sources, such as legal counsel and the impacted governmental entities. Discretion should be
exercised when terminating for default to ensure that this is the best course of action, that no
excusable condition exists and that the right to terminate has not been waived through some
unintentional action.
The right to terminate for default hinges upon two prerequisites: (1) reasonable grounds for
termination, or (2) noncompliance with certain procedural notification requirements.
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Did the contractor fail to perform or deliver within the prescribed time period?
Did the contractor fail to make progress?
This type of termination requires the public entity to prove that there is a reasonable likelihood
that the contractor will not complete performance prior to the delivery date. The following
factual considerations must be evaluated:
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percentage of completion and time remaining
consistent quality failure
other key factors, such as loss of personnel and failure to provide progress reports
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Procedural Notification Requirements
Entities are obligated to give proper notice to the contractor of its deficiencies and the
potential consequences. There are three types of notices usually listed in the termination
clause: cure notice, show cause notice, and notice of termination for default.
Show Cause Notice
The Contracting Officer may issue a Show Cause Notice prior to issuing a termination for
default. The Show Cause Notice will notify the contractor of the reasons for the default and the
consequences of a termination for default. The Notice will also request that the contractor
“show cause” why the contract should not be terminated for default and will provide the
contractor an opportunity to discuss the reasons for the problems. Failure of the contractor to
provide an explanation may be taken as an admission that no explanation for the “cause”
exists.
Notice of Termination for Default
Once the Contracting Officer determines termination for default is proper, the contractor will
be issued an official written Notice of Termination containing the following information:
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the contract number, effective termination date, and description of the acts or
omissions that constitute the default
the contractor’s appeal rights
a statement that the contractor’s right to proceed with performance of the contract (or
a portion of the contract) is terminated
if the Contracting Officer has not determined whether the failure to perform is
excusable, the notice should state that it is possible that the contractor will be held
liable for any excess costs the public entity must pay in re-purchasing terminated
supplies or services
if the Contracting Officer has determined that the failure to perform is inexcusable, the
notice should state that (1) the notice of termination constitutes such a determination
and is a final decision under the termination for default clause; (2) the contractor will be
held liable for any excess costs of re-purchase; and (3) delivered materials not
incorporated are to become the property of the public entity
Consequences of Termination for Default
When exercising the right to terminate a contract for default, the public entity effectively
informs the contractor that the performance failure has caused the public entity to terminate
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the agreement as set forth in the contract. A termination for default exposes the contractor to
potential financial liability. There are several issues for the public entity to contemplate before
terminating for default:
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The consequences of a default termination can be very serious for the contractor. The
contractor will suffer financially especially under a fixed-price contract. The contractor
may also lose future public sector contracts because of debarment or suspension.
Termination for default may not be in the public entity’s best interest. It may result in
delays, excess expenditures and time spent defending the default termination.
Termination for default cannot be done arbitrarily; such a decision must be preceded by
certain conditions and procedures.
Intervening factors, such as improper notification or a waiver of termination rights, can render
a default termination inappropriate or unenforceable.
Debarment and Suspension
If a contractor defaults on a contract, public procurement officials will normally enact
debarment or suspension against a defaulting contractor:
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Debarment: The exclusion of a person or company from participating in a procurement
activity for an extended period of time, as specified by law, because of previous illegal or
irresponsible action.
Suspension: The temporary exclusion of a person or company from participating in a
procurement activity because of previous illegal or irresponsible action.
Alternatives to Default Termination
Before terminating for default, the public entity should consider the following:
whether it would be effective to withhold payment until satisfactory performance is
demonstrated
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whether, if termination action is taken, there is an alternative source of supply
whether the contractor’s financial condition precludes recovery for the excess cost of
re-procurement
whether continued performance under a revised delivery schedule would better serve
the public entity’s interests
whether a no-cost termination agreement should be executed if the requirement for the
supplies or services no longer exists and the contractor is not liable for damages
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Termination for Convenience
Termination for convenience is a contract clause which may be contained within boilerplate
language that allows for a contract to be ended at the discretion of the governmental entity.
Action by which the purchasing entity, in accordance with contract provisions, unilaterally
cancels all or part of the contract work for the best interest of the jurisdiction and with no
reflection on the contractor’s performance.
Contract Payment
All contracts contain payment clauses that must be enforced during contract performance.
Generally, payment for supplies and services is requested upon successful completion (and
sometimes prior acceptance) of some portion or all of the work required by the contract.
Naturally, contractors are particularly interested in the payment mechanisms contained in the
contract, because payment terms affect cash flow and afford the contractor the profit
motivation commonly found in contract prices.
The various types of payment mechanisms contained in contracts provide different types of
financial compensation methods. It is important to consider that the method of financial
compensation is closely related to working capital and risk. It is important to both choose the
appropriate payment approach based upon the type of good or service, but also to ensure
appropriate monitoring of the acceptance and payment in compliance with the contract
language. As a reminder, payment options in a contract may include:
payment in full or completion payment.
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advance payments.
progress payments.
milestone payments.
incentive payments.
Withholding Payments
There will be occasions when payment to a supplier should be withheld in accordance with a
requirement in the contract. Retainage is generally used in construction contracts to ensure
payment to sub-suppliers by the prime contractor. However, retainage may also be defined in
certain service or goods contracts. According to the contract payment terms, a specified portion
of the contract payment is withheld until the entity is assured that all obligations under the
contract have been met. Once all contractual requirements have been fulfilled, the amount
retained is remitted to the contractor.
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Closing Out the Contract
Contract close-out is part of the Performance Monitoring phase of contract management.
Close-out occurs when performance is complete. Contract close-out is an important process for
complex, large dollar value or sensitive contracts. Checklists help ensure that the close-out
process is complete.
File Management
For transparency in procurement, it is vital to maintain a complete contract file, inclusive of all
relevant documents from the contract formation phase to the contract administration phase to
contract closeout. Files should be accurate, void of inappropriate and irrelevant documents,
and organized such that they can easily and readily be made available for public inspection.
Documents required for an effective contract administration file include:
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the formal contract.
related solicitation documents.
notice of award.
required bonds and insurance certificates and any correspondence with surety
companies.
conflict of interest form, completed by each member of the contract administration
team.
post-award documentation from or to the contractor.
notice to proceed (award).
approvals or disapprovals of contract submittals required by the contract and requests
for waivers or deviations from contractual requirements.
documentation of performance monitoring.
modifications/changes to the contract, including the rationale for the change order and
whether the request for change was issued or denied.
documentation regarding any changes in the delivery date or contract price as a result
of the changes.
documentation regarding the settlement of claims and disputes, including, as
appropriate, results of audit, legal reviews of the claims, and approval by the proper
authority of the settlement amount.
documentation regarding “stop work” and “suspension of work” orders and termination
actions documentation of inspection and acceptance.
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•
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•
documentation of contract closeout.
deficiency list.
training and maintenance manuals.
When documenting contract closeout, it is helpful to have a Contract Close-out Checklist to
ensure all key documents are present. The following items may be included in the checklist:
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contract completion statement, prepared by the procurement professional
contract file complete to include:
contract document and modifications and deliverables
performance and progress reports
general and contract correspondence
receiving documentation of all deliverables
validation of payments
reconciliation of overpayments and underpayments
outstanding invoices, performance issues, deliverables, resolutions, etc.
de-obligation of funds, if required
report of inventions, patents and copyrights, prepared by the contractor, if applicable
physical inventory record
contractor’s assignment of refunds, rebates, credits, and other amounts, as applicable
transfer of service, such as utilities, from the contractor to the entity
transfer of warranties from the contractor to the entity
any other special requirements, specific to this contract, such as release of liens.
By performing a formal contract close-out process, the procurement professional ensures that
both the contractor and entity have completed their contractual obligations. That includes
ensuring the contract file includes all records and documents to support the actions taken by
the entity during the performance of this contract. It further ensures fulfillment of the entity’s
fiduciary responsibility to the public in the expenditure of the public’s resources.
A part of the close-out process may be the development and use of a transition plan, detailing
the closing out of the current contract and the startup of the new one, especially when there is
a new contractor. Property and resources, such as inventory and labor, may have to be
transferred or transitioned to the new contractor in order not to cause any delays in contract
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performance. The goal of the transition plan is to make the transition from the old contract to
the new contract as seamless as possible.
Finally, it is important at the end of each contract to discuss and document what went well and
where opportunities for improvement exist. Analysis of the full contract administration phase is
essential to building necessary improvement into future contracts. The analysis should be
conducted by the full CAT, including the contractor, and should be shared with appropriate
stakeholders. It is important that this analysis results in actions in order to change future
outcomes.
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Focus Area 6 - Leadership
Public procurement professionals must be prepared to demonstrate good leadership skills
when faced with everyday challenges, striving to ensure that both employees and leaders have
the necessary agility, innovation, and drive to proactively transform their procurement cultures
in strategic, practical ways. In addition, the procurement professional must master
communication strategies, problem solving and critical thinking skills, and relationship
management skills, learning to operate as forward-thinking stakeholders in their entity to
ensure continuous, proactive solutions that align with their entity’s strategic objectives. As the
practitioners leave the profession or age and retire, public procurement professionals must
ensure that talent recruitment and development, along with long-term succession planning,
play a critical role in their public service, working collaboratively to establish and oversee
expectations for career progression, retention, and life-long learning for the procurement
function.
NIGP-CPP Action Statement: Create and foster a professional,
ethical culture.
Professionalism is basically an individual's conduct at work. In spite of the word's root,
professional traits can be demonstrated by anyone regardless of their occupation or position
within an entity. For example, many service workers—such as cashiers and wait staff—can
demonstrate a high level of professional traits, even though these occupations normally require
minimal training and are staffed with employees with modest earnings. Alternatively, those
occupations that we traditionally consider to be professions, such as doctors, lawyers, and
engineers, can display very little professionalism.
You may believe that no one will notice if you don't demonstrate professional behavior at work.
If you do your job well, what's the difference? However, your supervisor, other management
staff, colleagues, and clients do notice if you lack this quality, and it could result in severe and
adverse consequences for your career, affecting your chances for promotion or even the ability
to keep your job.
Ethics are the principles that define an individual's behavior as right, good, and proper. An
individual's ethical standards are developed based on a variety of contributing factors. It is
important that you are aware of these factors, which include:
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religious beliefs.
cultural roots.
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•
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family background.
personal experiences.
laws.
entity values.
professional norms.
political habits.
Procurement professionals represent the procurement operation, in particular, but also the
entire entity. As the primary point of contact for all things procurement related, procurement
professionals are the "face" of the entity. How the procurement professional acts, what they
do, what they say, and how they say it matters. As the relationship manager of the interactions
with internal client departments as well as the external supplier community, the procurement
professional has the ability, in fact the duty, to set operational compliance expectations with
these groups.
Procurement professionals should at least:
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•
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•
know which body of legislative and administrative law applies to ethical issues relative
to their duties.
follow them! Use checklists to identify important requirements such as the declaration
of Conflicts of Interest.
be able to explain to client departments the effect of application of certain statutes and
policies.
identify issues involving breach of ethical standards and elevate unresolved issues to
supervisors for advice of counsel, if needed.
Variances in ethics, values, and customs exist from country to country, from community to
community, between different families, persons and entities. Laws that have been enacted and
the professional standards that have been developed are an attempt to deal with these
variances and provide a level playing field for the public procurement profession. Most people
want to act ethically because it may make them feel good about themselves. There may be
perceived personal advantages based on approval from others and being recognized as an
honest, fair, and trustworthy person. Some may receive religious satisfaction, while for others
acting ethically is simply a habit. Values exert a major influence on the behavior of an individual
and serve as broad guidelines. We depend on values to construct the frameworks of our lives.
Values influence how we make choices, what choices we make and how we are to be judged by
the stakeholders for our actions.
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Establish Expectations
Procurement professionals should consider incorporating public procurement values and
guiding principles, in addition to ethics, when establishing expectations. Examples of the
following adopted procurement industry standards are included as Appendix A to this guide:
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•
•
Values and Guiding Principles of Public Procurement
NIGP Code of Ethics
UPPCC Code of Ethics
Conflict of interest
Purchasers have an obligation to reveal any conflict of interest that can affect the fair conduct
of procurement activities by their employers. If appropriate, the purchaser may be asked to
excuse themselves from participation in the transaction in question.
Entity Code of Ethics
An important part of the professional procurement manager’s job is to be sure that a code of
ethics exists within operational rules and procedures of the entity, complete with a discussion
of conflicts of interest, and requirements for signing conflict of interest statements. It is,
therefore, important for all public procurement professionals to be cognizant of their
obligations to their employers, to suppliers, and to the profession.
Model the Way/Lead by Example
To lead others, one must have influence with them. The level of influence grows in stages. It
grows in direct relation to the levels of leadership. There are four levels of influence:
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•
•
•
model
motivate
mentor
multiply
A person of influence models integrity, which inspires trust; nurtures other people; has faith in
people; understands people; enlarges people; navigates with other people; connects with
people; empowers people; and reproduces/develops other influencers. As you model,
motivate, and mentor others, your level of influence increases and so do your leadership skills.
When you model integrity, you can start to develop trust and trust helps establish a
relationship on a personal or professional level. When you gain people’s trust, they give you
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their permission to lead them. As your leadership skills grow, your influence with people also
grows.
There are different levels of leadership. As you increase your influence and leadership skills, you
can move to the next level of leadership. The five levels of leadership are:
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•
Position – Rights. People follow because they have to. This is the lowest level of
leadership. When you are recognized and given a promotion, know that this is your
starting point and that you have a small window to move to the next level of leadership.
Permission – Relationships. People follow because they want to. At this level, people
give you permission to lead them because they give you their trust based on the
integrity that you modeled. However, it is essential to move to the next level by showing
your competence. Staying at the Permission level means that you have established good
relationships with your team/peers but have stayed at a level of commonality.
Production – Results. People follow because of what you have done for the entity. You
have shown your competence and what you can accomplish for the entity. This is a good
position to be in, but if you want to retain good people and keep them engaged, you
need to help them develop as leaders. When you start developing leaders, you move to
the next level of leadership. Approximately 80% of the leaders do not go beyond the
Production level.
People Development – Reproduction or developing other leaders. People follow
because of what you have done for them. Very few leaders attract and develop leaders.
This is a level of mentorship in which you develop leaders around you. Approximately
5% of leaders attract and develop leaders.
Pinnacle – Respect. People follow because of who you are and what you represent. This
is the ultimate level of leadership and not many people achieve this level.
For a new leader or a procurement professional who may not be in a leadership position, it is
beneficial to achieve level 3 leadership, production level. In level 3, production, you have
gained the follower’s trust, you have shown them that you care about them, and you as a
leader have demonstrated your competence to take them to where they need to go. It is at this
level that people are willing to jump on board and follow you because they trust that you can
take them where they need to go based on what you as a leader have demonstrated. The fact
that you have a procurement title places you in a leadership position as it relates to the
procurement process. The process will go more smoothly and the experience for all involved
will be better when you can lead people who willingly follow.
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NIGP-CPP Action Statement: Recruit, hire, develop, retain, and
promote procurement professionals.
Talent Management
Talent management refers to the process of recruiting, on-boarding, developing, and retaining
employees. Further, it focuses on building a talent pipeline to continuously attract highly skilled
candidates to the entity. For Procurement, effective talent management targets individuals
demonstrating proficiency in the public procurement core competencies as well as those
individuals who are professionally certified. Talent management includes a robust selection and
on-boarding process, as well as professional development, retention, and succession plan.
Procurement leaders have a responsibility to develop staff in the various core competencies, as
well as providing a pathway for advancement.
A critical part of maintaining and improving an entity’s service delivery system is by enabling
procurement professionals to continuously develop their core competencies and challenging
them to pursue leadership opportunities. Effective talent management ensures that an entity
has the right staff in the right numbers applying the right skills at the right time for the right
purpose. Creating a procurement workforce with the appropriate breadth and depth of core
competencies can be a challenge, given changes to the procurement workforce, industry and
service needs.
Staffing Plan
Personnel are an entity’s most critical resource. Given many entities have limited staffing
resources, it is vital to staff positions with the right resource, properly skilled and trained to
function at the highest level. Staffing should not be confused with recruiting. While recruiting
addresses selecting the right staff, staffing speaks to the ongoing process of managing a
competent and content workforce and making the most effective use of those resources.
A staffing plan specifies the positions, roles, and responsibilities required by the entity for a
defined period of time, as well as the organizational structure of the entity. Further, the plan
establishes reporting structures, and the relationship among the various defined positions.
When developing a staffing plan, similar to developing a strategic plan, the process of the plan
development is vital to the success of the plan. Don't undervalue the process to develop the
plan. Consider engaging subject matter experts in human resources, possibly stakeholders
within the entity. Consider engaging various stakeholders who can provide credible feedback.
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Recruiting and Hiring Staff
Recruitment entails finding candidates, reviewing applicant credentials, screening potential
employees, and selecting employees for the entity. When the recruitment is effective, the
entity hires employees who are skilled, experienced, and are a good fit with the entity’s culture.
Hiring qualified candidates to fill procurement positions is crucial to the entity. There are
processes that should be followed to ensure the entity is recruiting and hiring the most
qualified candidates for positions. There are necessary steps that should occur in the recruiting
and hiring process:
Recruiting
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Develop a pipeline of potential candidates.
Create an internship program.
Conduct community-level recruitment (ongoing).
Network in the community.
Participate in job fairs.
Partner with other entities (universities, etc.).
Promote the profession to the community.
Promote the profession/department on social media.
Hiring
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Identify the need for the position.
Receive approval for the new position.
Publicize the job posting.
Review applications.
Interview the candidates.
Check references/perform background checks.
Select the most qualified person for the job.
Onboard the new employee.
Developing and Promoting Staff
Recruiting and on-boarding staff is often a lengthy and expensive process. With this significant
investment of time and money, it is important for entities to invest in training new
procurement professionals. A training plan is an effective way of strategically planning for staff
training and development, as well as establishing a budget and schedule for implementation. It
is advisable to assess each employee, identifying areas of targeted training, as well as
identifying broad training opportunities for procurement staff and stakeholders. Ideally,
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employees should see a pathway to progress to positions of greater responsibility, greater pay
and greater leadership opportunity.
Mentorship is another way to help employees develop. New employees, or employees who
promote into new positions, are matched with mentors focused on encouraging, advocating,
guiding, and advising. Mentors may come from within the entity or may be matched from
outside the entity, including programs offered by professional associations. While formal
mentor programs are an excellent resource for new procurement professionals, informal
mentor relationships are also an option.
Retaining Staff
Turnover of staff is costly to an entity. When an experienced employee leaves, there is a
significant lapse of knowledge that takes time to remedy. Therefore, it is critical that an entity
do whatever it can to retain good staff.
Contrary to common assumption, pay is not the primary factor in retaining an employee. There
is always something special that makes someone want to stay. Great employees stay because
giving up that something special is giving up too much. There are long-term employees that
stay simply because they're comfortable. However great employees have unique talents; they
want to excel and succeed by doing work that has purpose and meaning; and they feel their
contribution is valued.
Debriefing Staff
Staff will leave for a variety of reasons. If their departure could have been avoided, it is
important to know the cause so it can be prevented in the future. By having an exit interview
with departing employees, a lot can be learned. In many cases, outside influences cause the
exit, and these may not have been able to be overcome. However, in the case where an
employee is dissatisfied, preventable factors may be discovered that can be addressed before
there is an additional loss of staff.
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Focus Area 7 — Business Principles
In our ever-changing and increasingly complex world, the ability for procurement professionals
to perform their professional responsibilities alongside common business principles and
operations is critical to the success of an entity’s procurement function. It is no longer feasible
for the procurement professional to merely be concerned with the purchasing process. Instead,
they must understand, apply, and master the use of business, financial, technology, and project
management soft skills to serve as an effective and contributing member of an entity’s
management team, thereby ensuring project and program success while efficiently and
ethically serving as stewards of the public trust.
NIGP-CPP Action Statement: Select and implement technology
to further procurement goals.
Technology in the Public Sector
Procurement professionals should identify and implement technology that aides the
procurement process and supports the overall strategy of the entity. The technology should
create measurable results including reduced transaction costs, improved process efficiency, a
reduction or elimination in “maverick spending,” increased contract compliance, improved
transparency, reduced cycle times, and improved inventory costs. Technology can also increase
supplier access to solicitation opportunities, which can result in increased competition,
diversity, and inclusion of suppliers.
Technology Tools
There are a number of technology tools available to the procurement professional to support
the various business functions. These tools include procurement systems (Enterprise Planning
Resource, eProcurement solutions, eCommerce), websites and procurement cards. It is
essential that procurement professionals carefully evaluate the entity’s technology needs and
match the most appropriate tools to those needs after clearly defining those needs, evaluating
available tools, and selecting tools that provide the greatest value and greatest return on
investment. As newer technologies and industries emerge, such as artificial intelligence (AI) and
cloud-based solutions, procurement professionals will need to incorporate analysis of those
new technologies into their existing technology strategies.
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Procurement Systems
Procurement systems provide the opportunity to automate manual processes, streamlining
approvals, capturing critical data, eliminating manual forms, reducing processing time,
eliminating duplicate data entry, and providing immediate access to information. Procurement
systems may be Internet-based applications, client-server based applications, or hosted
applications. These systems, whichever type best serves the entity, play a major role in the
procurement process and allow procurement professionals and stakeholders to transact
business effectively and efficiently.
Whether integrated as part of ERP systems, standalone eProcurement solutions, or web- apps
accessible through tablets and even phones, procurement systems create substantial
opportunities for reduced hard and soft costs, as well as cost avoidance. The systems provide
access to critical data required for informed decision-making by Procurement and the entity.
The systems provide value for all stakeholders as well as the supplier community.
Procurement Cards
Other technology tools providing value for procurement and entities include procurement cards
(P-Cards) and smart cards. P-Cards have become essential tools for processing small purchases
in thousands of state and local governments, as well as the federal government. P-Cards are a
convenient and efficient means of acquiring small dollar items and services without time and
expense associated with normal purchase order procurement process. Benefits include
increased responsiveness to stakeholders’ needs, prompt payment to suppliers, reduction of
administrative costs, and instantaneous accounting of small purchases.
Smart cards are similar to credit cards but have an embedded chip that stores data for a variety
of uses. These cards can be pre-loaded with a specified amount of funds. The cards are also
used in government entitlement programs to provide clients with “cash,” as in food stamp or
transportation voucher programs. The smart card has evolved into a very useful tool in Canada
and the United States. Smart card technology has been used for a variety of applications,
including identification, library access, and meal payments.
Websites and Web –Based Applications
Entity and procurement websites have held a long-standing presence in most entities. Websites
may be cloud-based, third-party hosted, or homegrown. There are a multitude of functions that
websites provide access to in Procurement’s business, including, but not limited to:
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Procurement policies and procedures;
Supplier Manuals and how to do business guides;
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Procurement opportunities;
Term contract catalogs, supplier catalogs;
Supplier registration;
Procurement staff contacts and areas of responsibility; and
Spend management data.
E-Commerce Systems
Electronic commerce (eCommerce) systems are used to transfer money and data for the
transactions of goods and services. This could include the posting of IFBs and RFPs on electronic
bulletin boards, the receipt of bids and proposals via electronic data interchange, notification of
award by email, and payment via electronic funds transfer. eCommerce is also being used to
collect and receive payments in a more efficient manner using electronic funds transfer (EFT)
and Pre-authorized Debit (PAD).
Digital Signatures
Digital signatures that permit sending authentic electronic messages are called electronic
signatures. As part of the technology expansion, the utilization of digital signatures permit
sending authentic electronic documents. Digital signature technology uses a complex
mathematical formula to calculate and attaches a certificate to the message that verifies the
signer’s identity. The entity’s policies and procedures must legally allow the use and acceptance
of digital signatures.
Procurement’s Alignment to the IT Infrastructure
Procurement should be aligned to the IT infrastructure of the entity, particularly in relation to
the sourcing function. As various stakeholders’ needs are identified, it is imperative that
Procurement work closely with their IT partners to source solutions that fit within the entity’s IT
strategy. When working on sourcing projects, Procurement should ensure that the appropriate
stakeholders are involved, including those with experience in the existing system and those
who have expertise in the entity’s technology standards. It may also be beneficial to reach out
to other jurisdictions for their expertise and experience.
Another key stakeholder of the established cross-functional team is the stakeholder who has
the business need. A representative of the organization needing the technology should be
involved to better articulate their functional and business needs. If looking at an enterprisewide application, a cross section of business areas from across the entity should be considered.
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This allows the Technology Manager to be clear on the business need and, in turn, Procurement
is able to ensure those needs are clearly defined in the sourcing document.
Collaboration of Procurement with the IT Department and the IT Manager is imperative for
successful solicitation, purchase, implementation, and continued usage of any initiative. As a
result, Procurement and IT must build a collaborative relationship that is focused on the mutual
success of the projects.
Some of the common pitfalls and challenges experienced by procurement professionals when
working on technology procurements:
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•
•
Stakeholders who define the good or service based on what they want for their function
and not based on the business needs of the entity;
Stakeholders who conduct preliminary research and pre-determine the desired solution
rather than allowing the open, competitive procurement to determine the solution; and
Stakeholders who are unaware of procurement guidelines requiring guidance from
procurement.
To gain an understanding of an initiative, it is necessary to outline the goals and benefits. Will
the initiative streamline work, thereby creating efficiencies and allowing resources to be spent
on other things? In order to understand the goals of the initiative, there must be coordination
with stakeholders. The stakeholders need to share and understand the long-term and shortterm goals.
Stakeholder and End User Engagement
One of the challenges between Procurement and IT is that both speak different languages. It is
important for Procurement and IT to be able to communicate, particularly in terms of IT needs.
Technology staff should be able to define a project/initiative in lay terms so that it is easily
understandable by all those involved in the procurement process. Einstein would say if you
cannot present a subject to a 5 -year-old, you do not truly understand it. Understanding IT
infrastructure needs begins with IT explaining things in a non-technical way to not only
procurement but also to the entity. At the same time, it is best practice for Procurement to
have an understanding of basic IT terms. Please refer to the NIGP Global Best Practices on IT
Procurement.
All stakeholders may have a different need for the initiative, and as a result, different long- and
short-term goals emerge. Building consensus is difficult and requires the focus and experience
of the IT Manager and Procurement to make sure that the correct items are obtained and the
project, or initiative, is achieved.
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Presenting as a unified group allows decision makers to see that appropriate communication
and dialog has occurred. If a decision maker is going to approve a project, they will want to be
sure that it will be successful. Visually seeing that everyone is on the same team and has given
their input is vital.
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Appendix
Acknowledgements
Subject Matter Experts
John Flynn, CPPO, CPPB
Renee A. Rogers, CPPO, CPPB, C.P.M.
Joy M. Kerkhoff, CPPO, CPPB
Christina D. Lochbaum, CPPO, CPPB
Marcheta E. Gillespie, CPPO, CPPB, FNIGP, C.P.M., CPM
Deborah Kay Bryan, CPPO, CPPB
Christine O. Weber, CPPB, C.P.M.
Ronald King, CPPO, CPPB, VCM, VCO