Contract Formation and Working with Vendors to Ensure Successful Completion of Business Projects

Successful completion of any project highly depends on the success of the procedures put in place to enhance project development. Some of the most important procedures that determine project success include contract management, procurement, proposal assessment, and following the right contract awarding procedure among others. In most cases, the company managing a project needs to work with the vendor to ensure that all the required supplies are provided on time and in the right quality and standards. This means successful completion of the project does not only need having the right skill or project team players, but also ensuring effective procurement procedures. Poor procurement procedures cannot only impact the project completion time, but also the budget. It is therefore important for the project team to ensure to the right vendors are selected to complement their effort in successful project completion. A contractual relation should also be established to ensure that vendors are guided by legal terms and that they are held liable for any form of kind of loss that originates from breach of the contract. This paper discusses various subtopics that are related to ensuring proper understanding of contract formation and working with vendors to ensure successful completion of business projects. 

Read also Introducing Project Management Skills and Tools At Roto Air

Procurement and Contract Management and their Importance to the Business World

Procurement refers to the structure that typifies the administrative system sanctioned by customers for the project procedures execution and subsequent project management. The procurement process is regarded as an all-inclusive process in which designers, engineers, constructors, and other consultants offer to give services for construction and proposal to conduct a complete project to the customer. According to Dagba and Dagba (2019), a procurement strategy involves several processes. These processes are normally progressive and interconnected in nature, and their efficiency and effectiveness have a significant influence on the flop or achievement of projects. The processes include the pre-acquisition phase, contract award and tender process, supplier, and contract management. Each one of these processes needs a careful and specific design with the ability to give assurance of the best probable results (Dagba & Dagba, 2019).   According to Dagba and Dagba (2019), procurement contains the action applied by the purchasing company to integrate supply chain to manage time, lower cost, and enhance productivity. Procurement also ensures transparency in the purchasing process, giving high value for money. Procurement practices are said to maximize the profits bottom line via cost minimization which is a critical indicator for the fruitful business results.

Contract management refers to the practice that gives assurance to both interested groups to an agreement that fulfills their separate duties effectively and completely, to offer the operational goals essential from the agreement, and precisely to give value for money. Contract management involves active control and monitoring of the contract between the contractor and the disposing and procuring entity, to guarantee delivery of a reliable and cost-effective service at an agreed price and standard (Dagba & Dagba, 2019). According to Muhwezi and Ahimbisibwe (2015), contract management is the last stage in the process of bidding and mars the start of a contractual connection between the contractor and the disposing and procuring entity. Contract management comprises of contract administration, relationship management, and delivery management. Because of this, handling and formulating contracts is a necessary talent by the units of a public agency in the managing of the highest percentage of activities.

Contract management is crucial for procurement process success. It is a strategically important issue for all involved parties. A contract between a contractor and an entity mirrors the agent-principal relationship as described in the agency theory. The contractor possesses business based objectives while the entity desires to realize the value for money. This generates a variation in objectives, which results in uncouth behaviors that include withholding information creating information asymmetry. Contract administration which is a component of contract management aims at guaranteeing the enforcement of terms of the contract while paying attention to the attainment of stated contract output and input (Muhwezi & Ahimbisibwe, 2015). Based on agency theory interests divergence between agent and principal can be mitigated through instituting effective contract management processes, and through monitoring activities to restrict actions of opportunistic which are features of inter-functional coordination. Contract management ensures that contracted intended objectives are met. This entails guaranteeing that whatever is needed is delivered at the needed degree of quality, keeping the association constructive and open between contracting parties and guaranteeing that there is formal contract governance (Muhwezi & Ahimbisibwe, 2015). Contract management also involves constant contract review to mitigate various risks associated with procurement. These risks include price risk, proposal risk, performance risk, liability risk, contractual risk, and schedule risk. Processes of contract management such as control systems, review meetings, and contract signing explicitly define the game rules. Consequently, processes of this kind oblige inter-functional coordination. In Muhwezi and Ahimbisibwe’s (2015) view, procedures, and rules as reflected in the processes of contract management can be an effectual method for attaining inter-functional coordination.  

Request for Proposal Selection Tools and how to Improve the Assessment of Proposals

A request for proposal (RFP) directs buyers through a process of binding business requirement to technical needs, as the specific platform wherein the software requires to execute on, or the systems in which the solutions have to interface. RFP elucidates why a certain project has to be undertaken. According to Staaden and Lubbe (2006), RFP includes the statement of purpose, background information for the company issues, the RFP process description, primary requirements for services or/and products being proposed, the work statement, and software and hardware environment among others. The work statement is required to describe the work needed for product procurement and to assist vendors establish if they can deliver needed services and goods.

 A proposal is given by the vendor to the purchase stating what the vendor is willing to offer in terms of the products and price. The vendor describes the product offered, their technical and functional condition, weaknesses, flexibility, and strength among other factors that can influence purchasers’ decisions. In a proposal, every vendor is trying to sell his or her product to the purchaser. To assess the proposal, the purchaser needs to have a little knowledge of the product and the market place. This process can be improved by ensuring an intensive market survey to gather all product information in the market. This will help in basing the assessment based on acquired information. It can also be improved by effectively identifying project requirements to determine the very essential products that cannot be compromised. This will ensure that the company can check on its product requirements and always settle for what will address its need. Having a general knowledge of the market prices will also help in regulating the cost of operation among other things (Jayshingpure, Khona, Narkhede & Nagare, 2016).

The Concept of Procurement Planning and Various Strategies Necessary for Project Success

Procurement planning refers to the process employed by institutions or companies to plan purchasing activity for a particular period. This process is normally terminated during the process of budgeting. The procurement planning basic concept is that effective planning will yield cost savings, extra efficiency in business operations, and enhanced profitability. The planning process contains several steps with its bottom line being the future impact of today’s decisions (Willy & Njeru, 2014). Procurement planning involves the identification of what requires to be procured, how the companies requirements can best be met, the goods scope, the required services or work, what procurement methods or strategies to deployed, defining the time flames, and the full procurement process accountability. Requirements assessment, according to Onyango (2014), is a systematic process for addressing and determining the requirements or deviations between desired wants or conditions and current wants or conditions. This is an essential part of procurement since it is an essential tool to assist in identifying suitable solutions or interventions by identifying the issue clearly to guarantee that limited resources are channeled towards implementing and developing an applicable and feasible solution for projects identified.

Procurement planning is the basic function that sets the step for subsequent activities of procurement. An error in procurement planning contains wide implications for the organization, assessed from the two indicators of participation and accountability. The planning ideals according to Aimable et al. (2019) propose that procurement planning can be applied in a completely harmonious atmosphere. Procurement planning function endeavors to respond to the queries of what needs to be procured, when it should be procured, where it can be procured, when the resources will be accessible, the procurement techniques to be employed, efficiency in the process of procurement, how failure or timely procurement will impact the item user, the disposing and procuring entity, and individuals to be engaged in procurement. In Aimable et al. (2019) views, a good procurement plan involves an extra step of defining the process experienced to contractually appoint the suppliers. A procurement plan assists procurement entities to attain maximum expenditure value and permits the entities to address and identify all relevant problems regarding a specific procurement before the publication of procurement notice to possible services, works, and goods suppliers (Aimable et al., 2019).

Project success can be ensured by several strategies. One of these strategies is effective procurement management. The procurement process plays a great role in determining project pricing and whether it will go above or below the budget. Some of the involved procurement management activities include procurement planning, plan execution, controlling and monitoring, and closing. Planning entails documenting all procurement decisions of the project, approach specification, and identification of possible sellers. Execution involves getting suppliers’ responses, choosing suppliers, and awarding of the contract. Controlling and monitoring involve managing procurement connections, monitoring the performance of the contract, and making required amendments and deviations. The closing process entails finishing project procurements (Kafile & Fore, 2018). Another strategy to ensure project success is ensuring effective management of involved human resources and sub-contractors. One way to ensure this is by involving the right personnel with the right skills needed to complete a task. Another measure includes avoiding delays in the delivery of the required project raw materials. Delay in the provision of project resources is likely to result in delays in every other execution in the project. Effective procurement planning yields effective cost and time management. Risk management is another measure likely to enhance project success. Every project is faced by many risks that include economic risks such as inflation, raw material scarcity risks, climatic and environment risks, skills scarcity risks, and employee conflict risks among others. Such risks are likely to influence the general performance of the project. Sometimes they can cause excess delay or budget overflow. Managing risks play a great role in ensuring project success (Kafile & Fore, 2018).

How to Select the Most Qualified Vendor in a Proposal

The process of supplier selection is among the most essential tasks for every company to create an effective supply chain. It is a crucial task for companies to choose the right supplier in a competitive environment since potential supplier assists organizations to generate products of high quality at a reasonable price. To select a supplier objectively, companies employ qualitative and quantitative techniques. Optimal supplier selection can permit businesses to develop quality innovative products and attain a competitive advantage in the market. An effectual process of supplier selection plays an essential role in the success of any business and follows some significant steps. The wrong or right selection of suppliers is said to impact quality, price, and time of delivery, therefore the scope is to reduce purchase risk and create a strong association between supplier and buyer (Duica, Florea & Duica, 2018).

Read also Auditing Vendor Information To Ensure Accuracy And Legitimacy

The vendor selection process involves several stages. The first stage is identifying potential vendors. For a business to survive in an intensely competitive market, it is very essential not to depend on existing vendors but to also discover and search for new ones. The purchaser also must be cognizant of the requirement to guarantee that such vendor needs to qualify for needed qualifying latent vendor and job identifying. The vendor selection process can be costly and time-consuming. Purchaser frequently develops a long-term supply founded on a potential vendor. Some of the essential points to consider when selecting a vendor include new vendor importance especially superiority compared to the firm existing vendor. This superiority is measured based on innovativeness and adoption of modern technology which can result in a drastic reduction in the cost of production. Purchasers might require several vendors to reduce the risk involved as a result of supply disruption and to introduce competition (Jayshingpure et al., 2016). The other aspect to consider is the reputation of the vendor. Vendor non-performance can result in job completion failure. The purchaser should focus on avoiding vendors with a negative reputation to reduce risks of delay due to shortage or due to the provision of faulty products that must be recalled. Purchasers should also check the capability of the vendor before giving them a contract. The purchaser needs to conduct vendor qualification screening to lower vendor non-performance chances that include delivery of faulty or non-conforming products, non-delivery, or late delivery. Purchaser should also guarantee that the vendor will be a responsive and responsible partner in daily business connections with Purchaser Company. The other step involves reference checks. In this case, the purchaser needs to contact former customers to inquire about the vendor’s ability to honor terms of the contract, service performance, problems and conflicts in the past and how they were addressed, and performance in product delivery. The next step involved checking on vendor financial status. Purchaser should utilize published performance ratings of the vendor to establish the financial status of the vendor and probable financial viability in the medium to short term. For instance, the purchaser should check on recent debts by the vendor and determine the risk of the vendor being bankrupt before satisfying its duty toward the purchaser (Jayshingpure et al., 2016). Purchasers should also assess the vendor’s certification demonstrating vendor adherence to documentation, rule and regulation, training, and procedures to guarantee consistency in adhering to the set quality standards (Jayshingpure et al., 2016).

Read also Vendor Evaluation Benchmark

After potential vendors’ identification, this is followed by requesting the vendors to give information regarding their services or good. At this stage, three forms of information are demanded which request for information that focuses on gaining information on different alternatives accessible to address the current needs. Requests for proposal can also be given when the purchaser contains a sense of the marketplace and a work statement that has a specific set of performance limits fulfill its need. Requests for quotes can also be given when the purchaser can create a work statement that states the real requirement of needed services or goods. The next step will be an evaluation of the vendor using a data bank with an authorized vendors’ list. Databases should contain organizational profile, technical competence, and quality assessment. This will ensure that the selected vendor is the best and can ensure timely delivery of the product and delivery of high-quality products to cater to the purchasers’ needs (Jayshingpure et al., 2016). The evaluation process should consider the vendor’s cost criteria, risk factor, technical capability, vendors profile, quality assessment, service levels, and organizational profile. The next stage will focus on the review of contract terms. The contract terms include information of both the purchaser and vendors. It also specifics what is expected of the vendor, how the contract will be executed, and the payment terms. It should also include some special clauses that address special situations such as liquidity damages clause (Jayshingpure et al., 2016). This will be followed by the contract negotiation process between the vendor and the purchasing team. Both the purchasing team and the vendor try to persuade for favorable contractual terms. The two should settle on terms that fit both of them best. The purchasing team will then select the vendor that serves them best and him or her with the contract. Sometimes, the purchasing team may offer multiple-award contracting to minimize the risk of delays or other risks that can impact the progress of the business (Jayshingpure et al., 2016).

Read also Outsourcing – Best Practices, Methodologies, Factors To Consider and Pitfalls

Evaluation of the Contract and the Legal Aspects of Procurement in a Project

A contract needs to meet a certain standard dictated by the laws. This standard ensures there are no developments of bias contracts that aim at oppressing any of the involved parties.

evaluation should thus focus on ensuring that a contract meets certain operational standards that protect the two contracting parties equally. Similar to other contracts, procurement contracts must be supported by the legal structure for them to be legally recognized and valid. One of procurement contracts’ legal requirements demands that contract should not be amended or altered by both parties and in any manner after the contract has been drafted, signed, and given to the contractor except when such amendments or alterations are done for a government benefit. It is therefore the greatest essential to guarantee that public procurement contracts are for the interest and the benefit of the general public in social services provision areas and infrastructure development.  The law also requires procuring entities to monitor the performance of contractors over the works schedule or requirements statement identified in the contract through monthly, weekly, or daily reports from the procurement entity’s supervisor accountable for works or services. If the performance of the contractor is satisfactory the contracting entity has to approve payment through certification and measurement, opposing the procurement entities will draw the attention of the contractor to any short-coming and might refuse to authorize advance payments until the defects identified are corrected (Mchopa, 2015). The law also focuses on enhancing transparency in the contract awarding process. This ensures the elimination of all corrupt deals in procurement procedures. The contract is by law only awarded to those who qualify based on merit. Law ensures fair competition. It also ensures any loan secured for project purposes should just be used for the designated purposes and nothing more. This ensures that a contract is legally bidding and with legal standards, the government ensures there is fair competition in contracts awarding (Thai, 2001).

Comparisons of the Critical Elements of a Contract Including Relationships between the Client, Supplier, Completion Terms and Payment Terms

A contract refers to an agreement involving two or more individuals that is executable by law. For a contract to be regarded as valid it needs to have five of the most essential elements which include acceptance and offer, capacity, lawful purpose, consent, and consideration. A legal contract starts by making an offer that has all essential and appropriate terms of the contract. The second party accepts the offer. After the acceptance of an offer a consideration; thing such as service or an item is exchanged among parties engaged in the contract. Both parties in each binding contract must possess the capacity or ability to comprehend the nature and terms of the contract. Every individual engaged in the contract need also to agree or consent freely to the agreement terms. Besides, each negotiated contract must be within the laws of the country, and thus ever contract must contain a legal objective or purpose (Jayshingpure et al., 2016).

Read also Essential Elements Of An Enforceable Contract – Fabulous Hotel Scenario

In a contract, the client refers to the individual seeking business goods or services or professional services. A client comes to the supplier with a problem to be addressed. The supplier is an individual or a business that offers specific goods or services. The client and supplier work together to develop a contract in which the supplier offers the products that the client needs, which the client makes payment based on the contractual payment terms. To ensure effective relationship the client and the supplier develop a contract that has contractual terms used to guide on what supplier is required to supply when to supply, how to supply, for how long, and in what condition among other things.

Read also Federal Contract Compliance Issues – Case Assignment

Contractual terms also define what the client needs to fulfill in terms of payment. Terms of payment include the amount to be paid and when the payment should be made. Payment can be made after the total completion of the project or on monthly bases based on the nature of the business or halfway on the project. The completion terms go hand in hand with payment terms such that the client and the supplier must agree on what the percentage of completion the supplier must attain to be given a certain percentage of the payment (Jayshingpure et al., 2016). 

Read also Business Contract – The Case of Johnny And Mark

Conclusion

Procurement is an important part of project management. To ensure the successful completion of the project, the project team needs to engage a qualified purchase team that defines the best vendor to assist in the supply of the needed materials. To achieve this, the purchasing team must go through a complex process of identifying the available vendors, and from them select the best vendor that will be able to supply the needed products and promptly. The team should also focus on getting the best sales deal from the vendor to minimize the operational cost. This is not a simple process. To manage this, the team must go through several professional steps. The team must also ensure to make rational decisions based on presented situations. The purchasing team should only award a contract to a vendor or vendors who can satisfy their needs without fail by ensuring the vendor’s operational credibility and financial ability. All legal standards also need to be considered to ensure that the contract is binding and the company does not suffer for the vendor’s mistake. The review of the process demonstrates the importance of making the right choice while selecting a vendor.

Share with your friends
Order Unique Answer Now

Add a Comment