Purchase Orders Vs Contracts by ner17598

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									    THE 2009 INTERNATIONAL PROCUREMENT
                  YEARBOOK

                         TABLE OF CONTENTS

SECTION                   DESCRIPTION                          PAGE NUMBER
NUMBER
   1    GLOBAL CONSTRUCTION PROCUREMENT                           1 - 22
        TOPICS
          • Procurement / Project Delivery Methods and
             Issues.
          • Recent History and the influence of World
             Events on Engineering and Construction Costs
             in the last couple of decades:
          • Project Execution.
          • Conventional approach: / Concurrent /
             Overlapping approach: / Fast track approach:
          • Various Types of Construction Projects.
          • How do Purchase Orders vary from Contracts
             - Engineering, Procurement and Construction
             (EPC):
          • List of Data / Engineering Deliverables
             supplied to Vendor to obtain fixed price quote:
          • The Importance of Front End Planning:
          • Defining the Project and the CAPEX Project
             Life Cycle Process.
          • Project Team and Selection of Professional
             Services.
          • Global Construction Procurement Purchasing /
             Contracting Challenges to be faced in the next
             couple of decades and beyond are as follows:
   2    PURCHASING / PROCUREMENT AND                              1 - 29
        CONTRACTING
          • Facility Procurement Steps.
          • Specifications.
          • The Buy Out / Procurement Procedure.
          • Purchase Orders.
          • Contracts.
          • Request for proposals (RFP).
          • The General Purchasing / Procurement
             Planning Process.
          • Fundamentals of the Purchasing / Procurement
             / Contracting Plan.



                                       1
       • Establishing Potential Bidders List / Pre-
         Qualify Bidders and Recommend list of Pre-
         approved EPC, A/E, CM firms, contractors
         and vendors.
       • Prepare Invitation to Bid Packages, Purchase
         Orders, and Contracts / Sub-Contracts etc.
       • Evaluation and Award of Purchase Orders
         Construction Contracts / Sub-Contracts /
         Service Contracts:
       • Purchase Order / Construction Contract
         Administration.
       • The Materials / Equipment Procurement /
         Purchasing Responsibility Matrix.
       • Planning for Commodities - Bulk /
         Prefabricated / Consumable Materials.
       • Major Equipment (Process – Production
         Equipment) Planning.
       • Front End Quality Planning.
       • Instituting a Quality Control Plan.
       • Instituting a Quality Control Plan.
       • Setting up and establishing an Inspection /
         expediting plan.
       • Some major issues to keep in mind regarding
         Purchasing / Procurement and Contracting.
3   PURCHASING ACTIVITIES                                 1 - 18
       • Purchase Orders vs. Contracts.
       • The Project Team / Organization.
       • Home Office Procurement Group.
       • The Four Step Purchasing – Procurement –
         Contracting process.
       • Purchasing – Procurement – Contracting. Job
         descriptions.
       • Purchasing – Procurement – Contracting
         Strategies.
       • Proposals / Bids / Request for Proposals (RFP)
         / Tender Evaluations.
       • Conclusion / Purchasing – Procurement –
         Contracting Tips.
4   QUALITY CONTROL (QC/QA), SAFETY,                      1 - 13
    INSPECTION, EXPEDITING and
    TRANSPORTATION ACTIVITIES
       • General standards / specifications.
       • Quality Assurance/Quality Control Basic
         Steps.
       • Submittals, Product Data and Shop Drawing.


                                2
       • Issue and Approval of Shop Drawings and
         Samples.
       • The shop drawing / submittals approval cycle:
       • Expediting Checklist.
       • Transportation Issues.
5   CONSTRUCTION CONTRACTS AND                           1 - 19
    CONTRACT ADMINISTRATION
       • Five fundamental contract types:
       • Fixed Price / Hard Money / Competitively Bid.
       • Negotiated:
       • Design-Build:
       • Reimbursable Contracts / Cost-Plus / Pass
         through Contract.
       • Schedule of Rates / Unit Price Contract:
       • Request to bid letter / Request for proposal
         cover letter.
       • Request for Quotation (RFQ).
       • Instructions to bidders.
       • Bid opening / Analysis / Recommendation.
       • International Construction Contracts
       • Sample contracts.
       • Sample Design / Build Agreement relate to
         Manufacturing Facility Expansion:
       • Re-cap of main items.
6   INTERNATIONAL PROCURMENT ISSUES                      1 - 16
       • Globalization.
       • Checklist of issues when working in an
         overseas country.
       • Overseas Business Practices.
       • Import Permits / Government Procedures.
       • Currencies and Exchange Rates.
       • Metric Considerations.
       • Language Differences.
       • Special Considerations for Working in
         Developing Countries.
       • Final Thoughts on International Procurement.
7   COUNTRY DATA / GENERAL 2009 NOTES:                   1-4
       • Afghanistan                                       5
       • Albania                                           6
       • Algeria                                           7
       • Angola                                            8
       • Argentina                                         9
       • Armenia                                          10
       • Australia                                        11


                                3
•   Austria                     12
•   Azerbaijan                  13
•   Bahrain                     14
•   Bangladesh                  15
•   Belarus                     16
•   Belgium                     17
•   Belize                      18
•   Benin                       19
•   Bolivia                     20
•   Bosnia                      21
•   Botswana                    22
•   Brazil                      23
•   Bulgaria                    24
•   Burkina Faso                25
•   Burundi                     26
•   Cambodia                    27
•   Cameroon                    28
•   Canada                      29
•   Central African Republic    30
•   Chad                        31
•   Chile                       32
•   China                       33
•   Colombia                    34
•   Congo Democratic Republic   35
•   Costa Rica                  36
•   Cote D’ Ivory               37
•   Croatia                     38
•   Cuba                        39
•   Cyprus                      40
•   Czech Republic              41
•   Denmark                     42
•   Dominican Republic          43
•   Ecuador                     44
•   Egypt                       45
•   El Salvador                 46
•   Ethiopia                    47
•   Finland                     48
•   France                      49
•   Georgia                     50
•   Germany                     51
•   Ghana                       52
•   Greece                      53



                        4
•   Guatemala               54
•   Guinea                  55
•   Haiti                   56
•   Honduras                57
•   Hong Kong               58
•   Hungary                 59
•   India                   60
•   Indonesia               61
•   Iran                    62
•   Iraq                    63
•   Israel                  64
•   Italy                   65
•   Japan                   66
•   Kazakhstan              67
•   Kenya                   68
•   Laos                    69
•   Lebanon                 70
•   Libya                   71
•   Madagascar              72
•   Malawi                  73
•   Malaysia                74
•   Mali                    75
•   Mexico                  76
•   Morocco                 77
•   Mozambique              78
•   Namibia                 79
•   Nepal                   80
•   Netherlands (The)       81
•   New Zealand             82
•   Nicaragua               83
•   Niger                   84
•   Nigeria                 85
•   Norway                  86
•   Pakistan                87
•   Paraguay                88
•   Peru                    89
•   Philippines             90
•   Poland                  91
•   Portugal                92
•   Romania                 93
•   Russia                  94
•   Saudi Arabia            95



                        5
        • Senegal                      96
        • South Africa                 97
        • South Korea                  98
        • Spain                        99
        • Sudan                       100
        • Sweden                      101
        • Syria                       102
        • Tajikistan                  103
        • Thailand                    104
        • Togo                        105
        • Tunisia                     106
        • Turkey                      107
        • Ukraine                     108
        • United Kingdom              109
        • United States of America    110
        • Uzbekistan                  111
        • Venezuela                   112
        • Vietnam                     113
        • Yemen                       114
        • Zambia                      115
    International freight costs       116
8   GLOSSARY of INERNATIONAL         1 - 13
    PROCUREMENT TERMS:




                             6
THE 2009 INTERNATIONAL PROCUREMENT YEARBOOK
(SAMPLE)
Section 2 Page 4

The following Sections describe a number of project delivery methods, together with a
comprehensive write up on various procurement methods and practices that should assist
the reader in future construction buy out efforts. Developing an idea(s) or concept for a
new / expanded or upgraded facility and turning it into a finished fully functioning
project, is called Project Implementation or Project Realization this effort is a
complicated challenge. In general new facilities or expansion projects are very important
to most companies who wish to develop and expand there growth potential. When
considering a new facility or expanding an existing facility some key issues need to be
asked and resolved prior to commencing construction or procurement related activities.

   •   Have we created / defined a business / future manufacturing / growth plan.
   •   What does the business need to do to carry on in business or to possibly expand?
   •   If at a new location how will we staff the new facility?
   •   Can we buy or lease an existing facility.
   •   Is there an outline / scope description of what is to be constructed?
   •   What is the best location for the proposed facility, in North America or overseas?
   •   Can we add onto or “shoe-horn” the manufacturing process into one of the firms
       existing facility?
   •   When will the “new” or upgraded existing facility be required, next year or three
       years from now?
   •   How will the project be funded, do we need to obtain a loan, or can we utilize a
       portion of next years profits to fund the expansion, how much will the facility cost
       and how long will it take to engineer, procure and construct.

Section 3 Page 4

As was previously mentioned, the basic Procurement effort can be divided into two main
categories:

(1). Procurement by using Purchase Orders (P.O.): Prepared for goods and services.
(2). Procurement activities by utilizing Contracts / Sub-Contracts:

A purchase order is many times the easiest procurement document to prepare (it may be a
one page document), it is usually related to a specific item or component or a commodity
/ bulk item, i.e. a pump or a tank, a vendor provides a specific pump or tank, draws it
from stock or fabricates the item and then delivers it to the site for an agreed price in a
stipulated time frame, or we need 150 cubic yards of 3,000 psi concrete we would
purchase the concrete many time by using a P.O., unless we had awarded a contract to a
contractor to supply concrete as part of there contract.



                                             7
Section 3 Page 18

Purchasing – Procurement – Contracting includes the buy-out of all manufacturing /
process equipment, materials, supplies, labor, and services needed for a new facility /
building project(s). Purchasing – Procurement – Contracting is all the necessary
activities in the planning, solicitation, monitoring and eventual closeout of each
purchase order and contract. Basically the Purchasing – Procurement – Contracting
process can be broken down into four distinct phases, as indicated in Figure 3.3 below.


   (1). Planning.         (2). Solicitation /        (3). Contract            (4). Close
   Determine the          Pre –                      Administration.          out
   scope of the           Qualification.             Ensure                   activities.
   Purchasing –           Produce bid                submittals,              Retention
   Procurement –          documents and              quality and              release
   Contracting            identify potential         financial terms          Punch lists
   effort.                Contractors and            of purchase              O/M manuals
                          Vendors, negotiate         orders and               Back-charges
                          best terms and             contracts are            Warranty
                          conditions.                fully complied           issues.
                                                     with.




Figure 3.3: The Four Step Purchasing – Procurement – Contracting process


Section 5 Page 2 & 3

The attributes / features of a “good” contract are that it should define and spell out in
easily understood language what is to be completed / performed, the terms and
conditions, it should clearly state the obvious, when and were and for what price, it
should elucidate / describe and the responsibilities and obligations of both parties. A
contract should not be “long winded” or written in legal terms it should be clear and
concise focus in on the important subject matter. The main provisions of a construction
contract are:

   1. A scope of work description, what are we engineering, procuring and
      constructing.
   2. Is there a list of basic definitions?
   3. Who are the key players in the contract?
   4. What are the contact sum / price?
   5. What are the payment terms?
   6. How is retention dealt with?
   7. Are there any bonding requirements?



                                             8
   8. When will the project be completed?
   9. What is the definition of Substantial Completion / Completion
   10. Who will insure the project, what insurance levels are required?
   11. How will changes in scope be handled (cost and schedule).
   12. Force Majeure (Actions beyond the control of both parties to the agreement –
       what happens if a hurricane rips the roof off the partially built building).
   13. Termination or suspension provisions.
   14. Are there any bonus provisions for early completion?
   15. Are the any liquidated damages.
   16. How are taxes / duties handled?
   17. What are the warranty requirements
   18. Safety requirements

The above main issues / contract clauses are perhaps some of the important topics that
will need to be spelled out in precise detail; there will be other issues that will need to be
added to the above to comply with the distinctive requirements of the construction
contract.

There are numerous of types / forms of construction contracts and project delivery
methods that are employed to build facilities in the USA and overseas, this Section will
endeavor to touch on some of the most frequently used construction contracts and project
delivery methods.
Listed below are some of the more frequently used contract application, a more detailed
discussion of some of these contracts will be covered in the following Sections.

   •   Lump sum (there are numerous versions of this contract type)
   •   Negotiated
   •   Design and build
   •   Reimbursable / Cost plus (there are numerous versions of this contract type)
   •   Schedule of Rates / Unit Price
   •   Bonus / Penalty Incentive Contracts
   •   FIDIC form of contract
   •   Design, build and operate
   •   Prime contracting
   •   Turnkey
   •   Convertible contract (Were a project starts off as a Reimbursable / Cost plus
       contract and is converted to a lump sum / not to exceed contract).
   •   BOT Contracts (Build Operate and Transfer).
   •   Construction management
   •   Guaranteed maximum (GMP)
   •   Major Fortune 500 companies have developed there own standard forms of
       contract.




                                               9
Section 7 Page 6 (111 Countries)

ALBANIA: Located on the eastern shore of the Adriatic Sea, Albania has steep
mountains and a long stretch of coast. Albania is an interesting land of unique religions
and ethnic cultures.




   1.    Type of Government: Emerging Democracy
   2.    Capital: Tirana 352,000
   3.    Major Cities: Elbasan, Korce, Shkoder, Sarande.
   4.    Population: 3.70 million
   5.    Area: 28,500 sq km
   6.    GDP: $9.7 billion
   7.    GDP per Head: $6,470
   8.    Inflation Rate: 4 - 7%
   9.    Time: + 6
   10.   VAT / Sale Tax: 20%
   11.   Exchange Rate: 90.57 AL
   12.   Freight from USA: 8.5 – 11.5 / 34 days
   13.   Local freight: 2% - 3% of equipment / material purchase price.
   14.   Government website: http://www.instat.gov.al
   15.   Import duties: Refer to website mentioned above:
   16.   Electricity: 220 v 50 Hz
   17.   Telephone code: 355
   18.   Professional Architect / Engineer / Accountant / Purchasing Agent etc: $7 - $18
   19.   Skilled Worker rate: $3 - $7
   20.   Unskilled worker rate: $2 - $4
   21.   Worker Productivity vs. USA Gulf Coast (Houston = 1.00): 1.60 – 1.95
   22.   Location Factor vs. USA Gulf Coast (Houston = 1.00):0.95
   23.   Local Bulk Material Factor vs. USA Gulf Coast (Houston = 1.00) : 0.85 – 0.90
   24.   Major Sea Ports: Vlore, Durres.




                                                10
 Section 7 Page 116

Order of Magnitude costs for shipping / ocean freight – Materials / Equipment: from
the USA (East Coast or West Coast port) to various countries (using 20’ – 40’ containers).
These values exclude shipping to and from US port and local port. (Note there is 35.315 CF
in 1 M3)

List of 35 countries


 Section 8 Page 1

                                      Glossary of
                           International Procurement Terms
     •   A.A.C.E.: American Association of Cost Engineers.
     •   A.C.E.C.: American Consulting Engineering Council.
     •   Af.D.B.: The African Development Bank.
     •   A.I.A.: American Institute of Architects.
     •   A.N.S.I.: American National Standards Institute.
     •   A.S.E.A.N.: The Association of South East Asian Nations.
     •   Absolute ownership: The owner(s) possesses all right, title, and interest in the said
         property or article.
     •   Acceptable quantity level: Acceptable percentage of damage or defects in a lot:


 13 pages of International Procurement Terms




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