Module 9 - Managing Project Procurement - Facilitator Guide Rev 2

Managing Project Procurement Facilitator Guide Module 9

Copyright 2007 WorleyParsons Services Pty Ltd This document has been prepared on behalf and for the exclusive use of WorleyParsons. This document may not be reproduced without the express permission of the Business Process Owner

Level 12, 333 Collins Street Melbourne Vic 3000 Australia Telephone: +061 3 8676 3500 Facsimile: +061 3 8676 3505 www.worleyparsons.com WorleyParsons Services Pty Ltd ABN 61 001 279 812

Facilitator Guide Module 9 Managing Project Procurement Rev Description Orig Review WorleyParsons

Approval Date

A Initial draft Joslin Guest

1 Reissued for Use Jane Woodhead

Greta Ooms

Mike Reilly

7/12/07

2 Reissued for Use Mike Reilly

Greta Ooms

Mike Reilly

30/10/08

Rev 2 30/10/08 Managing Project Procurement Page i

Managing Project Procurement

About this Facilitator Guide........................................................................................ 1 Before You Start........................................................................................................... 2 Preparation .................................................................................................................... 2 Planning ......................................................................................................................... 2 Resources...................................................................................................................... 2 Agenda........................................................................................................................... 2 Resources Checklist ................................................................................................... 3 Agenda.......................................................................................................................... 4 Introduction .................................................................................................................. 6 Overview of Procurement ........................................................................................... 8 Responsibilities For Procurement ........................................................................... 10 Commencing the Procurement Process/Procurement Planning.......................... 11 SmartPlant Materials ................................................................................................. 18 Procurement Reports ................................................................................................ 20 Procurement Initiation............................................................................................... 21 Procurement Execution ............................................................................................ 22 Procurement Close-out ............................................................................................. 26 Summary and Feedback ........................................................................................... 27

Rev 2 30/10/08 Managing Project Procurement Page 1

ABOUT THIS FACILITATOR GUIDE

The Managing Project Procurement Facilitator Guide has been designed to assist facilitators to effectively deliver the training module. The guide provides support and guidance in how to engage the participants and work through the training materials in an effective way.

This module is the 9th module in the suite of WorleyParsons Project Management Skills Development Training. The modules in the suite are:

Module 1 Project Initiation, Scope Management and Project Close-out Module 2 Project Controls and Commercial Management Module 3 Managing Project Risk Module 4 Business Management Systems Module 5 HSE Management Module 6 Proposals Module 7 Managing Project Quality Module 8 General Management and Leadership Module 9 Managing Project Procurement Module 10 Construction Management and Management of Site Contracts

Managing Project Procurement Rev 2 30/10/08

BEFORE YOU START

Preparation

Read the module 9, Managing Project Procurement several times to thoroughly understand the content and be able to answer participants questions.

Planning

Plan to arrive at the training venue one hour before your presentation is due to start. Use this time to set up and check the technology, set out the materials and greet participants when they arrive. If you are well-prepared this will help create a relaxed environment that is supportive of learning.

Resources

For Resources Checklist, see page 3.

Agenda

For a sample Agenda, see page, see page 4.


RESOURCES CHECKLIST

Resources 9 Training materials

Managing Project Procurement, module 9 Participants Manual (one copy per participant)

Managing Project Procurement Module 9 Facilitators Guide (one copy for facilitator)

Managing Project Procurement Training Module 9 PowerPoint Presentation

Prepare flipcharts (Agenda) HandoutsActivity: Procurement Status Report Procurement Expediting Report

Attendance List

Evaluation sheet

Equipment

Tables and chairs in U-shape

Laptop with presentation loaded (and extra copy on CD)

Data show

Projection screen

Flipchart

Flipchart paper

Flipchart pens

Whiteboard

Whiteboard pens

Water and glasses

Minties in bowls

Chocolate for prizes (optional)


AGENDA

This is a sample agenda for the Managing Project Quality Training Module. This agenda assumes a 9.00am start and 4.30pm finish.

Topic Time

Introduction About this training session ) Learning Objectives ) 20 mins Learning Outcomes ) Agenda Module 9 Managing Project Procurement )

9.00-9.20

Overview of Procurement What is procurement? ) What does procurement involve? ) 30 mins What is the role of procurement in a project )

9.20-9.40

Responsibilities for Procurement WorleyParsons procurement capability ) 15 mins Procurement Resourcing )

9.40-9.55

Commencing the Procurement Process/Procurement Planning Commencing the Procurement Process for a Project 15 mins 9.55-10.10 Procurement Planning ) 20 mins Procurement Strategy )

10.10-10.30

Break (15 mins) 10.30-10.45 Procurement Strategy (continued) ) Project Procurement Plan ) Materials Management Planning ) 60 mins Contracts Planning ) Approving the Project Procurement Plan )

10.45-11.45

SmartPlant Materials Using SmartPlant Materials to record and track projects ) Setting up SmartPlant Materials ) 45 mins SmartPlant Materials Training )

11.45-12.30

Lunch (60 mins) 12.30-1.30 Procurement Reports

Procurement Status Report ) 30 mins Procurement Expedition Report )

1.30-2.00

Procurement Initiation Procurement initiation ) Purchasing initiation ) 25 mins Contracts initiation )

2.00-2.25


Topic Time Procurement Execution

Materials Management Execution ) Materials Management Pre-Award Process ) Materials Management Award Process ) Materials Management Post-Award Process ) Contracts Execution ) 20 mins Contracts Pre-Award Process ) Contracts Award Process ) ContractsPost-Award Process ) Purchase Order and Contracts Variation )

2.25-2.45

Case study Group Discussion 30 mins 2.45-3.15 Break (15 mins) 3.15-3.30

Procurement Close-out Responsibilities for close-out ) Materials management close-out ) 45 mins Contracts close-out )

3.30-4.15

Summary and Feedback 15 mins Summary and Feedback 15 mins 4.15-4.30


INTRODUCTION

Slide 1

1

Welcome to Worley Parsons Project Management Process (WPMP) Training

Module 9 Managing Project Procurement

Welcome Start on time. Welcome participants to the WorleyParsons Project

Procurement Management training. Introduce yourself and your role at WorleyParsons. Check that everyone has a copy of the Participants Manual. Explain that the Participants Manual is a valuable resource

during the training and for the future. Explain that the training will be interactive and encourage

participants to interrupt with questions and contribute examples from their experience.

Expectations Ask participants to introduce themselves (ask for a volunteer

then go round the room) name, role and expectations of the training.

Document participants expectations on the flipchart (optional).

Agree Ground Rules Say that its useful to establish ground rules for the session, and write on flipchart: Switch mobiles to off or silent Start and finishing on time Listen to others (Ask participants to contribute other Ground Rules). Ask for agreement to Ground Rules.

Safety Moment Explain the emergency procedures

Slide 2

2

Managing Project Procurement

X Introduction

X Overview of Procurement

X Responsibilities for Procurement

X Commencing the Procurement Process \Procurement Planning

X SmartPlant Materials

X Procurement Reports

X Procurement Initiation

X Procurement Execution

X Procurement Close-out

About this training session

Agenda Write agenda on flipchart (before the session starts) and walkthrough topics.


Slide 3

3

Learning Objectives

On completion of this module, you will be able to:

X Identify and understand the procurement methodologies and tools available to Project Managers for the management of EPCM projects

Present and discuss learning objectives.

Slide 4

4

Learning Outcomes

X Early involvement of the Procurement function in project planning is essential

X The projects procurement strategy and procurement plan must align with the overall project strategy

X Clear definition of the objectives of the Procurement Process iscritical for the project team

On completion of this module, you will be able to demonstrate anunderstanding that:

Present and discuss learning outcomes.

Slide 5

5

X Procurement is an integral part of the WorleyParsons growth strategy

X Procurement shall support the company to compete more successfully as a leading provider of professional services worldwide

Procurement in WorleyParsons Ask participants to explain what they think procurement is. Discuss procurement in WorleyParsons.

Transition We have covered our Introduction, and now we will move on to discuss an overview of Procurement.


OVERVIEW OF PROCUREMENT

Slide 6

6

Overview of Procurement

X Procurement is the process by which materials, equipment and third-party services are acquired for projects

X Key procurement interfaces include: Project Management Engineering HSE Quality Cost Estimation Project Controls Construction Management Legal & Risk

What is procurement?

Ask participants what each aspect means. Discuss answers.

Slide 7

7


X At the best possible total cost of ownership

X In the right quantity and quality

X At the right time

X In the right place

X For the direct benefit of the customer

What does procurement involve?

the acquisition of materials, equipment or third-party services:

Ask participants what does procurement involve?

Slide 8

8

Procurement and Capex

X The Capital Expenditure (Capex) of a Project can be split into a few elements:

Engineering and design approx. 10% of Capex Procurement:

Materials and equipment approx. 30 to 45% of Capex Contracts approx. 30 to 45% of Capex

Balance is owners costs, insurance, land purchases etc

X The above is indicative only and dependent on the type and location of a project. However, on average the Capex element managed by procurement ranges between 60% and 90% of the overall project value

Ask participants what are the elements of Capex.

Slide 9

9


X Procurement is the bridge between Engineering (design) and Construction (execution)

What is the role of procurement in a project?

Ask participants what the bridge between Engineering and Construction means. Discuss answers.

Slide 10

10


X Materials Management Purchasing, Expediting, Materials Control, Coordination of

Inspection (liaising with Quality), Traffic/Logistics, Warehousing/ Inventory Control etc

Legal agreement used is a Purchase Order

X Contracts Acquisition and management of third-party services Legal agreement used is a Contract

X Both Purchase Orders and Contracts are written and binding legalagreements between relevant parties to supply either goods or services against agreed conditions

Procurement is divided into 2 functions

Explain that there are 2 key functions in procurement. Explain what: Materials Management involves. Contracts involves.


Explain that contracts and purchase orders regulate procurement activities. Ask participants if they know what the difference is between a contract and a purchase order. Discuss participants answers.

Slide 11

11

Procurement Executive Directive

X To minimise risk exposure, procurement services are usually provided for and on behalf of Customers, in the Customers name or on Customer paper this is the companys preferred position

X However, this does not preclude provision of procurement services in WorleyParsons name or on WorleyParsons paper requires CEO to proceed in any event where additional supplier-related risks and liabilities are assumed (eg warranty obligations, delivery commitments, product liability, etc)

X In most instances, procurement services are provided on behalf of the Customer, requiring active interaction with the Customer andtheir various approvals to proceed

Continue discussion of Contracts.

Slide 12

12

EMS Workflows and Procedures 1/2

X Contracts services cover the provision of third-party services such as construction labor, inspection services, painting and sand blasting

X The provision of contract services is governed by the Contracts Workflow in EMS containing a number of procedures, guidelines, forms and templates

X Preferred Terminology: ITT = Invitation to Tender Contract = legal agreement for the provision of services

Contracts

Explain that Contracts is governed by by guidelines, procedures and forms and is available on EMS V3 These: Appiy to all contract situations and cover tendering, bid

evaluation, award, variations, administration, invoicing, payments, and close-out

Set out the key interfaces in WorleyParsons between Engineering; Quality Management; Healthy, Safety and Environment (HSE); Construction; contractor and cost-control accounting

Slide 13

13

EMS Workflows and Procedures 2/2

X Materials Management includes the purchasing of goods and equipment, subsequent expediting, inspection and receipt.

X The provision of Materials Management services is governed by the Materials Workflow in EMS containing a number of procedures, guidelines, forms and templates

X Materials Management activities are managed and tracked through SmartPlant Materials, WorleyParsons Materials Management system which starts from creation of the requisition through to final material reconciliation on site

X Preferred Terminology: RFQ = Request for Quotation Purchase Order (PO) = legal agreement for the supply of goods

Materials Management

Discuss Materials Management.

Slide 14

14

Overview of ProcurementWorleyParsons procurement process

Pre-award Activities* Materials Management* Contracts

Obtain quotationsSelect the preferred suppliers

Project Procurement PlanDetermine procurement

requirements

Procurement InitiationIdentify potential

suppliers

Post-award ActivitiesManage the supplier

Administer POs and contractsManage POs/ contract variation

Expediting / Inspection

Materials Field Administration Activities

Field PurchasingTransport/ Logistics

Receipt on site Warehousing

Close-out ActivitiesConclude the engagement of the

suppliersRecord the performance against

each order & contract

Explain that: The slide shows the procurement process for Materials

Management. The process for Contracts is essentially the same. The differences will be explained in the training where relevant.

WorleyParsons delivers procurement services through a suite of well defined business processes.

These processes are listed on page 6 of the Participants Manual.

Transition We have covered an overview of Procurement. Now we will move on to discuss the responsibilities for Procurement.


RESPONSIBILITIES FOR PROCUREMENT

Slide 15

15

Responsibilities for Procurement

X As Project Manager, you are responsible for the overall management of procurement activities associated with the project

X You are not responsible for the execution of procurement activities

That is the responsibility of your Project Procurement Manager

X To fulfill your responsibilities, you should work closely with the Procurement Manager

Explain the Project Managers role and responsibilities for project procurement. Tell the participants that the Project Managers specific responsibilities are listed on page 9 of the Participants Manual. Explain that execution of procurement is the responsibility of the Project Procurement Manager. Ask the participants to turn to page 9 of their Participants Manuals. Discuss. During discussion emphasize the necessity and benefits of taking advantage of the Procurement teams knowledge, experience and world-wide supplier contacts.

Slide 16

16

Responsibilities for Procurement

X Procurement specialists in each region

X Detailed procurement procedures, guidelines and associated documentation

X Deployment of SmartPlant Materials as the company-wide materials control system to record, track and report on procurement activity

X Global supplier database for materials, equipment and services

X Global Sourcing initiatives

X Supply arrangements with key suppliers

WorleyParsons procurement capability

Explain WorleyParsons procurement capability.

Slide 17

17

X Procurement staff managing the Materials Management and Contracts activities usually:

Work either from a core Procurement group in a key company location or

Form a part of a dedicated project procurement team

X Procurement activities on the project are usually led by an experienced Project Procurement Manager

X Where warehousing staff are required for specific customers or projects, they are usually located on site

X Inspection may involve in-house or third-party inspectors, depending on the location of the inspection activities

Procurement resourcing

Responsibilities for ProcurementExplain WorleyParsons procurement resourcing At point 1 explain that specialist Procurement staff should be

retained in key company locations. At point 2 explain that operationally, the Project

Procurement Manager reports to the Project Manager for direction of day-to-day matters relating to procurement.

Transition Get the group to suggest answers to the review questions on Page 15-16 of Participants Manual. We have covered responsibilities for Procurement. Now we will move on to discuss commencing the Procurement process/Procurement planning.


COMMENCING THE PROCUREMENT PROCESS/PROCUREMENT PLANNING

Slide 18

18

Procurement Process

X Establish exactly what the customer requirements are and whatWorleyParsons has committed to do

X Establish your procurement team and set out their responsibilities

X Procurement to participate in the Project Risk Assessment and ensure that risk mitigation is included in the Procurement Plan to be developed

X Procurement to incorporate appropriate flow-down conditions from the Prime contract (the agreement between Customer and WorleyParsons) in the Project Conditions to ensure compliance and alignment (e.g. including customers confidentiality requirements, alignment of warranty periods etc.)

X Procurement to develop the project procurement procedures, based on EMS but incorporating as appropriate Customers requirements (e.g. approval interfaces)

X Arrange to have the project set up on SmartPlant Materials

X Ensure WBS is established

Commencing the procurement process for a project

Explain that Project Managers are setting the basis under which procurement activities will be conducted. Explain that the details that need to be considered for the procurement plan include: Major items of materials, equipment and third-party services

that will be required The criticality and value of the goods and services that need

to be procured Major risks mitigation measures that need to be developed Market pressures that might impact on delivery times of

critical equipment and hence priority of procurement activities.

Slide 19

19

Procurement Planning

X Planning is at the crux of all project activities

X Procurement is no exception

X The aim of procurement planning is to:

Know what needs to be procured, when, where and how Identify critical long lead items and services Establish order and consistency in the way the procurement

activities are performed

Understand the risks involved in the project environment and identify mitigating actions

X The Project Procurement Plan is part of the Project Execution Plan

Planning

Emphasize the: Importance of planning Criticality of project procurement planning in overall project

planning.

Slide 20

20

Procurement & Risk Management

X Procurement is an integral part of risk management on the project

Develop appropriate procurement/ contracts/ materials managementstrategies, identifying the various risks (market, forex, local content requirements, taxation and importation issues, logistics complexities, etc. to be managed)

Use EMS procurement procedures to the largest extent, however, recognize Customer requirements in the project specific procedure.

Ensure that the project specific procurement procedures are approved by the customer and shared with the project procurementteam

Develop the procurement schedule early, in line with the overallproject schedule, resulting in correct priorities to achieve theRequired on Site Dates

Continue discussion of planning.

Slide 21

21


What you need to plan for

Discuss the procurement bridge with regard to component activities in: Planning. Materials Management. Contracts.


Slide 22

Discuss the strategy development and detailed plan development phases of procurement planning.

Slide 23

23


X Project Procurement Strategy (PPS) is the: Process for identifying and documenting the procurement

opportunities applicable to the project

First step in developing the Project Procurement Plan

X Typically, the PPS is first developed during the scoping stages of a project

X Sometimes the customer provides the initial procurement strategy for further development in the Project Procurement Plan

Project Procurement Strategy

Introduce the concept of a Project Procurement Strategy.

Slide 24

24


X Purchasing activities can involve long lead times

X Certain materials and equipment may be particularly critical to a projects success

X Purchasing activities usually involve multiple countries (infrastructure and logistics, local legislation etc.)

X Market and technology developments can impact on the success of a project and therefore need to be monitored on an ongoing basis

During the development of the PPS, the following factors need to be considered:


Discuss the factors that need to be considered when developing a Project Procurement Strategy.

Slide 25

25


X The PPS is a hierarchical matrix covering the entire work scope of a project, broken down into separate work packages

X Only the major critical items are separately identified as work packages

X These packages are created and identified according to: Unique technical and commercial attributes of the work activities

they comprise

Methods by which they are to be executed


Continue discussion of the factors that need to be considered when developing a Project Procurement Strategy.


Slide 26

26


Example of a PPS matrix

N/AContractPart of Supplier B Purchase Order

Part of Supplier A Purchase Order

Commissioning / Start-up Assistance

Part of Project Management ServicesSpecialist Quality Contract All-in rates $10mQuality Inspection

Installation Contract Lump Sum $10m

Construction / Erection Services

Materials ControlConstruction Contract Reimbursable Cost and Equipment Rates with Incentives Fee - $100M total

Fabrication

Specialist Supplier B Lump Sum Purchase Order $100m total

Specialist Supplier A Lump Sum Purchase Order $200m total

Procurement

Facilities E & P Contract Reimbursable Costs with Fixed Fee $30m total

Design Contract Lump Sum $10mDesign

Project Management Services Contractor Reimbursable Costs with Incentives Fee $ 70m total

Project Management

Civil WorksBalance of PlantSpecial Equipment Item BSpecial

Equipment Item A

Components Physical

Discipline

Explain purpose and structure of the Project Procurement Strategy. Explain that The PPS should be structured in a manner and contain

information that allows it to be used to: o Develop alternative ways of structuring work packages

and executing the project. o Analyze trade-offs between the size of work packages,

resource availability and the number of interfaces required.

o Interpret and illustrate the interfaces between various work packages and those responsible for executing them.

It must show how the projects procurement activities (Materials Management and Contracts) interface with other work activities of the control, organization, technical and construction functions.

Explain that a Project Procurement Strategy template is included in the Project Procurement Plan Template (PPF-0102) EMS V3.

Slide 27

27


X The structure of the PPS depends on the:

Scope of work

Nature and complexity of the project

Requirements of the customer

X The PPS assists in:

Administrative and commercial planning Cost/schedule control functions of a project


Discuss the other uses of the Project Procurement Strategy.

Slide 28

Summarize by explaining the benefits of developing a Project Procurement Strategy. Explain how the Project Procurement Strategy: Can be used to facilitate communication between the

various project disciplines/departments Provides strategic input to the cost estimating, scheduling

and supplier administration activities. Invite questions and/or ask review questions on page 21 of the Participants Manual.

Slide 29

Explain at what stage of the WPMP the Project Procurement Plan is developed.


Slide 30

Discuss what sort of planning takes place in the various WPMP phases to emphasise the role/difference between the Project Procurement Strategy and the Project Procurement Plan.

Slide 31

31


X Documents the basis for obtaining and managing materials, equipment and third-party services required for project execution

X Addresses relevant aspects of both materials management and contracts for the project

X Maps out the various anticipated risks and constraints and identified mitigating actions

X Identifies critical supplies (see also Procurement Strategy) andoutlines general strategy

X Ensures that the procurement activities align with the overall project schedule

Project Procurement Plan

Explain that the Project Procurement Plan: Identifies the materials, equipment and third-party services

required to execute the project Specifies the methodologies and commercial basis for

procuring third-party services Provides procurement input to other parts of the project,

such as scheduling, cost estimating, finance and risk assessment to enable completion of their Identify, Evaluate or Define phase deliverables

Discuss the components of the Project Procurement Plan: The Project Procurement Strategy (PPS) Identification of the materials, equipment and third-party

services required (with emphasis on long-lead and critical items)

Review of the current market situation, supply options, foreign exchange considerations, etc for the materials, equipment and third-party services identified

Identification of the procurement organizational structure Early preparation of project vendor and contractor bid lists Identification of major procurement risks or issues, and

mitigation measures that can be put in place Other deliverables specified by the customer.

Slide 32

32


X The Project Procurement Plan: Must clearly define the deliverables of the procurement process Needs to be fit for its purpose


Discuss the criteria for a good Project Procurement Plan. Explain fitness for purpose, ie, the degree of details should reflect the: Scope of the work Nature, requirements and scale of the project Requirements of the customer, WorleyParsons scope of

work and the nature and complexity of the project.

Slide 33

33


X The Project Procurement Plan may also include details about the targeting of procurement efforts

X The Project Procurement Manager will consider the assessment in the strategy development

Criticality-Value Assessment


Bottleneck, e.g. special alloy steel grade Ensure continuity Develop alternatives Revise specifications

Critical, e.g. turbine compressor Form closer relationships Direct negotiations

Routine, e.g. piping bulk blanket orders Simplify procurement process Automate Rationalise supplier base

Leverage, e.g. customers standard agreement Maximise commercial advantage Competitive tender Standardisation

Criticality

Low

Low High

Value Potential

High

Explain that the Project Procurement Plan needs to assess the criticality of procured items. Show the Criticality-Value matrix. Discuss. Explain the criticality-value assessment for procurement is different to the engineering criticality assessment that determines the levels of inspection. Discuss. Invite answers to review questions on Page 25 of Participants Manual.


Slide 34

34



X Where the complexity and / or size of the project warrant it, the Project Procurement Plan may be further developed in separate plans:

A detailed Project Materials Management Plan

Separate detailed Project Contracts Plan for major contract packages

Separate detailed Procurement Plans for key procurement packages

Explain that the Project Procurement Plan has 2 components, to deal separately with: o Materials and equipment (Materials Management) o Third-party services (Contracts)

Explain that for large or complex projects a Project

Procurement Plan may need to be broken separate: o Project Materials Management Plan(s) o Project Contracts Plan(s)

Slide 35

35


The various elements of the Procurement Plan are further defined in the Materials Management Plan, including:

X Specific strategies for buying materials and equipment

X Associated activities for managing the expediting, traffic/logistics etc

X The materials control and reporting systems

X Prioritization of procurement activities and associated engineering deliverables in line with the ROS (Required on Site dates) as defined in the project schedule

Materials Management planning

Explain the purpose of the Materials Management Plan. Explain (again) that the Materials Management Plan: Can be a subset of the Project Procurement Plan or For complex projects, can be a separate plan.

Slide 36

36


X Level of procurement effort based on cost, schedule, criticality, and other relevant factors

X POs/activities already executed and/or underway prior to engagement of WorleyParsons

X Transition of early purchase agreements from the customer

X Material control systems

X Quality management, verification and inspection, which includes an outline of inspection to be undertaken

X Site materials management plans

Materials Management planning (contd)

Discuss what Materials Management planning focused on. Discuss criticality in terms of: Schedule Financial profitability Safety Design/execution efficiency Manufacturing complexity. Explain that consolidation can be within the project or with other projects.

Slide 37

37


Subsets of the Material Management Plan

X Engineered equipment planning

X Bulk materials planning

X Prefabrication planning and modularization

Materials Management planning

Explain that prioritization and level of procurement effort based on cost, schedule, criticality, and other relevant factors. Introduce the categories of materials and equipment that need to be considered separately in the development of the Materials Management Plan.

Slide 38

38


X The primary objective is to ensure that items are acquired and released in time to meet the overall project schedule

X The dates on which items are required on site to meet construction needs drive the engineering and procurement planning and activity for engineered equipment

X A major equipment list for the project needs to be developed early

Engineered equipment planning

Briefly discuss engineered equipment planning. Explain some of the drivers for engineered equipment Planning ROS dates Lead times for supplier data and fabrication Milestones required in the acquisition process for

engineered items Methods for vendors to report progress.


Slide 39

39


X Planning for bulk materials can be more complex than planning for engineered equipment

X Bulk materials control starts with an examination of the projectschedule to assess:

What bulk materials are required over time Critical required on site (ROS) dates

Bulk material planning

Briefly discuss bulk materials planning. Explain that quantities required are never exactly known until the job is complete. Explain that planning for acquiring bulk materials should also evaluate opportunities to consolidate purchases and establish POs to take advantage of volume discounts.

Slide 40

40


X Procurement planning: Is usually very complex for extensive prefabrication modularization often involving multiple sites

X An extensive prefabrication program demands an early procurementplanning effort that addresses the interfaces between vendors, fabricators and site construction

Prefabrication planning and modularization

Briefly discuss prefabrication planning and modularization.

Slide 41

41


X The Contracts Plan can be: Subset of the Project Procurement Plan or Separate planscomplex projects

X The main focus of project contracts planning is the selection the best contractor under the best available terms and conditions

X Needs to: Analyze the options and the marketplace for the required

services

Define the number, type, scope, timing, interfaces, compensationbasis, etc of major contracts to be developed for the project from early planning through start-up

Contracts planning

Explain the purpose of the Contracts Plan. Invite answers to review questions on Page 28 of Participants Manual.

Slide 42

42


X For Projects in the Define phase the Project Contracts Plan needs to document:

Critical contracting issues (e.g. labour resource constraints, market constraints) for the major contracts

How will the impact be managed and the risk mitigated? What is the schedule to meet timely completion of the Project?

Contracts Planning in Define Phase

Explain what types of matters need to be considered in the early stages of developing a Contracts Strategy/Plan. Emphasise the following points for the Define phase: Detailed individual contract bidders lists applicable to each

of the major contracts The number, scope, estimated value and timing for each

contract Critical or long duration contracts requiring special attention Pre-qualification approach to bidder selection Contractor selection criteria Interfaces with other functions Other considerations based on the latest construction work-

hour/ schedule estimates. Summarize the major contracting issues for the project and actions necessary to address them.


Slide 43

43


X For Projects in the Execute phase, the Project Contracts Plan review the constraints and identify mitigation measures similar to the Define phase projects but not just for major contracts.

All anticipated contracts are identified. If the project is a continuation of a Define phase project, the

Contracts Plan developed for the Define phase will be reviewed and updated by the Project Procurement Manager to reflect project progress and significant new developments

X A list of matters that typically need to be considered are listed on page 32 of the participants manual

Contracts Planning in Execute Phase

Explain that Contracts planning takes place during the Execute phase of a project.

Slide 44

44


X The customer must approve the Project Procurement Plan as part of the Project Execution Plan

Approving the Project Procurement Plan

Explain that the Project Procurement Plan is approved by the customer as part of the Project Execution Plan. Invite questions and/or ask review questions on page 33 of the Participants Manual.

Transition We have covered commencing the Procurement process/Procurement planning. We will now discuss SmartPlant materials.


SMARTPLANT MATERIALS

Slide 45

45

SmartPlant Materials

X WorleyParsons uses a suite of project management systems to record, track, control and report on projects

Introduce WorleyParsons Business Management Systems and SmartPlant Materials. Explain that SmartPlant Materials functionality is covered in greater detail in module 4, Business Management Systems.

Slide 46

46


X SmartPlant Materials is used to: Identify Record Trackmaterials and equipment required and purchased for a project

Explain SmartPlant Materials functions for Procurement.

Slide 47

47


SmartPlant Materials has four integrated modules, which are described on page 36 of the workbook

Explain that SmartPlant Materials has four integrated modules.

Slide 48

48


X Maintains the Material Stock Code catalogue

X Generates bulk requisitions via interface to design systems (e.g. PDS)

X Generates equipment and services requisitions

X Preparation of RFQs

X Supports bid evaluations

X Creates and, if required, amends POs

X Facilitates expediting

X Facilitates Traffic/Logistics

X Facilitates stores management

X Can undertake invoice reconciliation via Invoice Matching Interface module

Tell participants that a brief description of the modules is provided on page 36 of the Participants Manual.

Slide 49

49


X SmartPlant Materials imports bills of materials from 2-D/3-D engineering design software and other sources

X SmartPlant Materials supports better material planning on site and material reconciliation through the ability to track imported bills of materials from Requisition to Material Issue

X Materials are identified as being in any of the following phases: Requisition RFQ Purchasing Expediting Shipping Warehouse receipt Storage Material Issue

Explain that SmartPlant Materials imports bills of materials from 2-D/3-E engineering design software.


Slide 50

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X SmartPlant Materials was designed as a system for controlling materials and equipment, not for administering contracts

X SmartPlant Materials can, however, be used to record basic information about contracts

Using SmartPlant Materials for recording and tracking contracts

Explain that SmartPlant Materials is used chiefly for recording and tracking materials and equipment. Explain that SmartPlant Materials functionality for contracts tracking is limited. Briefly explain how contracts are tracked.

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X Each individual project needs to be set up in SmartPlant Materials so that its procurement activities can be recorded, monitored and reported

X SmartPlant Materials should be set up as soon as the Project Procurement Plan or Materials Management Plan has been approved

X You are responsible for ensuring that SmartPlant Materials is set up properly

X You work with the project Procurement Manager to identify and obtain the information for the set up

Setting up SmartPlant Materials for a project

Explain setting up SmartPlant Materials for a project. Say this is done so that so that its procurement activities can be recorded, monitored and reported. Explain that two important principles apply to the setup and use of SmartPlant Materials: It is important to set up SmartPlant Materials as early as is

practicable to ensure that potential critical materials procurement issues (for example, bulk materials requirements, control of materials from supplier to fabricator to project site) are identified and appropriately addressed

Clear definition of the deliverables in SmartPlant Materials underlies effective project procurement reporting.

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SmartPlant MaterialsTraining

X When you need to start using SmartPlant Materials, you will receive specific training on how to use it

X Contact the Business Systems Group to arrange the training

Training in SmartPlant Materials

Explain that project managers will be provided in training in how to use SmartPlant Materials. Invite questions and/or ask review questions on page 42 of the Participants Manual.

Transition We have covered SmartPlant materials. Now we will move on to discuss Procurement reports.


PROCUREMENT REPORTS

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Procurement Reports

X Procurement activities are monitored and reviewed regularly

X SmartPlant Materials generates a range of reports which you use to monitor progress and identify actions to be taken to address issues

X Two particularly important reports for the management of procurement activities are the:

Procurement Status Report Procurement Expediting Report

Procurement reports

Explain that SmartPlant Materials produces reports. Introduce the: Procurement Status Report Procurement Expedition Report. Explain that the Project Procurement Manager is responsible for providing these reports to the Project Manager. Explain that the Project Manager and the Project Procurement Manager, together, must review the reports regularly, and take appropriate action on any issues identified.

Handout sample reports: Procurement Status Report. Procurement Expedition Report. Discuss the sample reports.

Transition We have covered Procurement reports. Now we will move on to discuss Procurement initiation.


PROCUREMENT INITIATION

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Procurement Initiation

X The Project Procurement Manager is responsible for completing the activities that enable purchasing and contracts to be initiated

X The initiation activities should be completed during the early stages of the project

X The initiation activities are:

Purchasing initiation Contracts initiation and formulation

X Part of the initiation activities is the development of the Project terms and conditions for purchase orders and contracts.

These may be provided by the Customer as we will typically be acting on their behalf.

The conditions shall be checked for alignment with the Prime contract.

Overview of procurement initiation

Explain that the Project Procurement Manager is responsible for project initiation. Explain that this session is an overview of project initiation. Emphasise that when initiating procurement you need to think through your close-out requirements.

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X Purchasing initiation involves setting up the project base for the Purchasing documentation and databases

X The main activities are: Identifying PO provisions (including standard Terms and

Conditions)

Preparing standard documentation, including Instructions to Bidders, master Request for Quotation, master purchase order document

Carrying out vendor pre-qualification Establishing a project vendor list

Overview of purchasing initiation (Materials Management)

Procurement InitiationExplain that the Project Procurement Manager is responsible for project initiation. Explain that this session is an overview of project initiation.

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X Contract initiation and formulation involves: Setting up the project base for contracts documentation

(including standard Terms and Conditions)

Establishing the contracts system for the project

X The main activities are: Establishing the contract types, sites conditions, HSE etc Preparing common enquiry requirements and special contract

provisions

Carrying out contractor pre-qualifications Establishing the contractor list

Overview of Contracts initiation and formulation

Procurement InitiationBriefly describe Purchasing initiation. Briefly describe Contracts initiation. Discuss importance of early establishment of agreed Terms and Conditions.

Transition We have covered Procurement initiation. Now we will move on to discuss commencing Procurement execution.


PROCUREMENT EXECUTION

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Procurement Execution

X All procurement execution activities are undertaken by the Project Procurement Manager and the Procurement team

X You are responsible for ensuring that the procurement activities are executed in accordance with the Project Procurement Plan

X You and your Project Procurement Manager need to hold regular meetings to:

Review the status of procurement activities Identify issues early and determine the action required to

minimize any adverse impact

Overview of procurement execution

Explain that the Project Procurement Manager is responsible for project execution. Explain that this session is an overview of project execution. Explain that project execution consists of: Pre-award activities. Award Activities. Post-award activities. Explain that pre-award activities: Cover the technical and commercial activities in the

procurement of a projects materials and equipment Span from Engineerings specification of the requirement to

award of a PO to the selected vendor. Explain the Project Managers and Procurement Managers responsibilities for procurement execution. Discuss.

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X The purpose of the Purchasing Pre-award Process is to award the POs under which the projects materials and equipment are obtained

X The pre-award process ensures that all bidders are treated fairly and equitable, that the confidentiality of the information is maintained and that the recommendation to award is in accordance with the agreed evaluation criteria

Agreed evaluation criteria may be as simple as Technically acceptable, lowest cost or more complex Total Cost of Ownership (TCO). Consider that TCO often requires Customer input as well.

Competitive bidding is indicated. However, if single source is considered for purchase orders, justification must be provided. This may include proprietary technology or customers standardisation preference.

X Project Purchasing pre-award activities occur predominantly during the Execution phase

X For long-lead items some activities may occur in the Define phase

Materials Management executionpurchasing pre-award process

Materials management execution purchasing pre-award process Explain why the Materials Management pre-award process is critical. Explain that the Procurement team implements the pre-award purchasing process.

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X Preparing enquiry packages, including special terms and requirements (for example, supplier data, support, spares)

X Issuing the enquiry packages and managing bid preparation and receipt process

X Managing all communications with bidders during bidding and evaluation

X Evaluating the bids

X Preparing recommendations for award, conducting post-bid negotiation and facilitating final issue

X Entering all data related to the purchases into SmartPlant Materials


Explain how the pre-award process is implemented. Emphasise need to build all requirements (eg documentation, reporting, inspection, etc) into the RFQ. It will cost more post-award.

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X Maintains the required level of confidentiality of information

X Ensures that engineering deliverables are aligned to support timely procurement activities

X Maintains the interfaces between Engineering, Quality and Construction

X Involves the Project Procurement Manager in the regular team progress meetings

X Undertakes and completes procurement activities in accordance with the Project Procurement Plan


As Project Manager, you will need to ensure that the procurementteam:

Discuss the Project Managers and Procurement Managers responsibilities.


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X Purchase Order documents are to be prepared by Engineering and Procurement on receipt of the approved Award Recommendation

X Kick-off meetings are arranged as required

X Post-award activities are initiated by the project procurement team

X Once internal and other approvals have been obtained to place a contract or a PO the Procurement Manager is the only person with the authority to confirm the commitment for the contract or PO with the supplier on behalf of WorleyParsons and/or our customers

Materials Management executionpurchasing award process

Materials management execution purchasing award process Discuss the Procurement Managers responsibilities. Explain that the procurement team is responsible for ensuring compliance with the PO contractual requirements, as consistent with prioritized project objectives.

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X Confirm that the cost of the awarded POs is within the project budget

X Provide relevant information to the projects Cost Controls Manager

Materials Management executionpurchasing award process

You are responsible for ensuring that the award process is properly undertaken

You need to:

Discuss the Project Managers responsibilities.

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X This process covers award of a PO through to receipt at site andfinancial close-out

X The purpose of the Purchasing Post-award Process is to:

Administer the POs to obtain the projects materials and equipment on schedule and in accordance with specifications

Provide cost and schedule information to Project Services Identify PO issues for Risk Management activities Liaise with Inspection to ensure compliance to specifications

X The Purchasing Post-award Process covers the technical and commercial activities in the manufacture and delivery of materials and equipment

X Ensure all meetings and vendor contact are coordinated by Procurement.

Materials Management executionpurchasing post-award process

Materials management execution purchasing post-award process Explain the post-award activities. Explain that the aim of the post-award process is to receive at the specified location, materials and equipment, and associated supplier data covered by the PO at the cost, in accordance with the technical specification and on the date for delivery specified.

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The main activities in the Purchasing Post-award Process are:

X Expediting (including Supplier documentation)

X Inspection coordination

X Traffic/Logistics

X Receiving on site, warehousing and preservation

X Change/Claim administration

X Invoice payment


Explain the requirements for effective post-award performance management.

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Effective procurement performance requires:

X Use of SmartPlant Materials

X Monitoring the vendors engineering and manufacturing processes

X Meeting documentation obligations

X Measuring and assuring conformance to the technical specification

X Administering delivery of the materials and equipment

X Managing any changes to the PO technical and commercial provisions

X Managing any claims by the vendor for additional payment or schedule time



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X The Construction Manager involves the Project Procurement Manager in construction progress review meeting


As Project Manager you are responsible for ensuring that:

X For most items, weekly status meetings are sufficient

X For critical items, daily review meetings between the Construction and Procurement Managers may be required

Discuss the Project Managers responsibilities for post-award procurement activities. Emphasise the need for the Procurement team to keep up-to-date with the project procurement needs, including any changes to the project affective procurement activities.

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X The Materials Field Administration Process governs the day-to-day procurement activities on site

X The actual administration is the responsibility of your Project Procurement Manager

X Materials Field Administration may include site administration, purchasing and contracting

Materials Management executionpurchasing materials field administration process

You are responsible for ensuring that the requirements for materials field administration are included in the Project Procurement Plan

Materials management execution purchasing materials field administration process Explain that the post-award procurement activities include field administration.

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X The purpose of the Contracts Pre-award Process is the contracting of third-party services

X Project Contracts pre-award activities predominantly occur during the Execution phase

X For early contracts, some activities may occur in the Define phaseX The deliverables of the Contracts Pre-award Process are:

Bidders lists Enquiry packages Approved recommendations for award Contract documents

X Cost and schedule information provided to Project Services and contracts issues input into Risk Management activities

Contracts executioncontract pre-award process

Contracts execution contracts pre-award process Explain why the contracts pre-award process is critical. Emphasise importance of specifying all requirements (eg HSE, documentation, reporting, inspection, etc) in ITT. It will cost more post-award.

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Contractor selection

X A thorough prequalification process will normally be executed for major contracts, e.g. fabrication contracts. This will involve multiple disciplines to prepare the questionnaire for the relevant work scope, typically including construction, engineering, quality, HSE as well as project controls and procurement.

X Competitive, sealed bids are indicated for major contracts

X If single source is considered for service contracts, justification must be provided. This may include proprietary technology (e.g. software) or customers preference.

X Once internal and other approvals have been obtained to place a contract or a PO the Procurement Manager is the only person with the authority to confirm the commitment for the contract or PO with the supplier on behalf of WorleyParsons and/or our customers

Contracts executioncontract award process

Contracts execution contract award process Discuss contractor selection.

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X The Contracts Post-award Process covers the technical and commercial activities

X The main activities are: Awarding contracts Administering and monitoring the contractors Managing any changes to the contract Managing any claims Processing any payments and back charges, reconciling

quantities and finalizing all contract obligations

Providing cost and schedule information to Project Services Identifying any contracts issues for Risk Management activities

Contracts executioncontracts post-award process

Contracts execution contracts post-award process Explain the activities for Contracts post-award.


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X PO and contract variation must be processed in accordance with the Management of Project Change Process

X You and the Procurement Manager must sign-off any variances before they can take effect

Purchase order and contracts variation

Purchase order and contracts variation Explain the process for contract variation. Invite questions and/or ask review questions on page 54 of the Participants Manual.

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X The scenario for the case study is on page 55 of your workbooks

Discussion topics:

X What would you say are the key procurement issues on the project?

X What can be done to remedy the situation?

Case studygroup discussion

Case study group discussion Complete the case study on page 55 of the Participants Manual.

Transition We have covered Procurement execution. Now we will move on to discuss commencing the Procurement close-out.


PROCUREMENT CLOSE-OUT

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Procurement Close-out

X The Procurement team completes the procurement close-out tasks

X You are responsible for ensuring that the Project Procurement Manager and the procurement team do this

Responsibilities for procurement close-out

Explain the responsibilities for project close-out.

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X Project Materials Management close-out activities generally occur late in the Execution phase

X Close-out must follow the requirements for finalization of supply as set out in the Project Procurement Plan

X The main objectives of materials close-out are: Materials reconciliation Surplus management Final inspection (this is a Quality activity) Receipt Final Vendor Documentation Claims resolution Closing out of all PDs

Materials Management close-out

Explain when project close-out occurs.

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X Close-out must follow the requirements for finalization of supply as set out in the Project Procurement Plan

X The main objectives of contracts close-out are: Provision of acceptance certificates Confirmation of warranties Handover of documentation Final inspections (Quality activity) Claims resolution and payment reconciliation

X Demobilization of the site by WorleyParsons and the contractor does not necessarily indicate final close-out of the project

Contracts close-out

Explain the main activities for project close-out.

Invite questions and/or ask review questions on page 59 of the Participants Manual.

Transition We have covered Procurement close-out. Now we will move on to summary and feedback.


SUMMARY AND FEEDBACK

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Summary and Feedback

X Review learning objectives and outcomes

X Summary Overview of Procurement Responsibilities for Procurement Commencing the Procurement Process \Procurement Planning SmartPlant Materials Procurement Reports Procurement Initiation Procurement Execution Procurement Close-out

X Questions

X Evaluation

Ask for final questions. Review agenda on flip chart to summarise topics covered. Note any issues requiring follow up. Hand out evaluation forms and ask participants to complete them. Collect evaluation forms.

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Module 9 Managing Project Procurement

Thank you for your participation

Thank participants for their participation and contributions.