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Macro Process of Selection of Contractors

Introduction

The oil crisis and in general the energy sector, generated a disbanding of professionals that for some years was nourished from experience in the field of contracting “many of them with multinational companies” and who now do not find employment opportunities in other sectors and have decided to explore the field of consulting with barely acceptable results. The absence of new projects other than infrastructure concessions in their different waves, has made the stabilizing
factor in the implementation of good practices in supply that would have been achieved with the continuity of these professionals, be truncated and these disappear because companies they do not have effective methods to preserve knowledge.

On the other hand, the faculties of engineering and architecture have little or relative importance given to this issue, because it is erroneously thought to be the exclusive responsibility of lawyers, without warning that all professionals must know the fundamentals that allow them to contract in a solid manner and be reliable in a highly competitive environment.

Each company according to its needs must adjust, expand, or regulate its own processes and procedures, seeking its own internal legislation with sufficient flexibility to contract, without excessive administrative controls, many of which are a burden of administrative contracting. In the midst of a crisis like the one facing the planet, in which dishonesty and corruption are not strange to hiring practices especially with the state, the mature and serious enterprise must be characterized by an active receptivity that seeks the strengthening and application of complete and satisfactory processes of supply.

The virtuous triangle of Supply

This virtuous triangle shown below, is based on the attractiveness of a geometric figure, the equilateral triangle, whose sides resemble three elements that are supposed to have equal capabilities and whose interaction and confluence, in effect surpasses the sum of the individual effects, applicable in the supply process.

The three elements are scope of services, cost structures, and budget.

Graphic 1. Macro Process of Selection of Contractors

Scope of services

Scopes or descriptions of services are necessary because

  • They allow us to know more clearly and completely the requirements, conditions, restrictions, and other conditions, under which a service must be provided or a work executed.
  • They offer information that allows the potential contractor or supplier to elaborate a better technical proposal.
    We can receive commercial proposals with reasonable prices and rates.

The following graphic exposes the interfaces between the internal customers, supply and suppliers and contractors, in terms of actions and satisfaction of expectations:

Graphic 2. Macro Process of Selection of Contractors

Internal clients do not always have the competence and skills required to elaborate technical specifications and particularly scope, in the case of contracts for the provision of services. There are scopes for incipient, incomplete, or nonexistent services and there can be no significant changes since the last revision.

The weaknesses and inaccuracies in the scope can mislead the bidders in their understanding of the needs of the client and therefore to formulate proposals deficient in their technical and economic content, which do not meet the expected expectations.

To mitigate this situation, a good practice to enrich the scope of services at an early stage, before proceeding to solicit proposals, is observed in the following scheme:

Graphic 3. Macro Process of Selection of Contractors

In addition, it is required that supply has the ability to «challenge» what the client requests, who often increases the amount required of an item with the argument that it is possible that it falls short in its projections or in many opportunities; and to understand requested standards of goods or the conditions of services, and to understand when they exceed the minimum requirements.

Supply should ask itself the following question: What does the customer need? What does the client want?

It is a responsibility, possibly indirect, of the supply function, to ensure that its internal clients are suitable for the formulation of said scope and to carry out joint reviews to ensure the requirements such as:

  • The lifting of processes and key performance indicators, in the case of service provisions.
  • Type, quality, and detail of the reports and periodic reports required.
  • Transfer of knowledge by the contractor, through seminars and workshops.
  • Periodic performance meetings.
  • In the case of contract termination or contractor change, the current contractor should meetthe new one.
  • Balances as annual cuts, in the case of medium or long-term contracts. Service level agreements, with internal clients.
  • Risk matrices.
  • Learned lessons.

These are common elements in service contracts, which are often overlooked or not properly considered in the description of those services.

Agreeing upon the scope and content of some of these elements after the completion of the contract, means compromising the ability to leverage as a company. The opening attitude of the bidder to provide information, commit and negotiate, diminishes in the measure in which he acquires the certainty that the contract belongs to him. A best practice is to include the aforementioned responsibilities, in the original scope. In this way, it is a common requirement for all suppliers.

Once the contract is signed, it is not often unknown that the scope, especially in medium or longterm services, is an element subject to permanent change, resulting from the adjustments identified by either the contract manager or the contractor. Little by little, the two parties identify gaps, redundancies, opportunities for improvement that are distancing themselves from the original scope and that, depending on their impact, must be reflected in an amendment.

At the end of the contract, if there has been a judicious process of identifying changes and adjustments to the final scope of the services, this could be very different from the original, defining new demands for a new process. The following scheme reflects this situation:

Graphic4. Macro Process of Selection of Contractors

In the need to develop a technical specification for a good because there is no standard or norm, the challenge for an internal client can be very demanding because it is necessary to review and define many factors such as those indicated in the following scheme:

Graphic 5. Macro Process of Selection of Contractors

A very basic example could be to write the specifications for a backpack. The mind mapping describes the exercise that a group of parents and the leaders of a group of boy scouts, developed to define the characteristics of the backpack that they would use during a 30-day excursion to several countries in Europe.

Graphic 6. Macro Process of Selection of Contractors

If they had not done so, they could have finished with a backpack of the following characteristics, which would not have satisfied the needs and expectations of that type of excursion:

Graphic 7. Macro Process of Selection of Contractors

 

Reference

This article is part of the book Macro Process of Selection of Contractors (Strategic Procurement)

Author: Iván Pinzón

 

Iván Pinzón Amaya
Ingeniero especialista en liderar la cadena de suministros en multinacionales – sectores minero, petrolero, energía eléctrica y gas – en sus fases de proyectos, exploración y producción. Diestro en la energización estratégica de equipos de trabajo. Exitoso en estructurar modelos administrativos, seleccionar proveedores y gestionar contratos de abastecimiento y servicios al más bajo costo total evaluado, asegurando la satisfacción del cliente interno. Promotor de relaciones adecuadas con Oferentes y Contratistas. Facilitador de ejercicios de reflexión corporativa y referenciación dentro de la compañía e involucrando terceros en el sector energía

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