Procurement

A. Definition
B. Procurement Work Process with Sequences and Relations
C. Additional Definitions
D. Institute

A. Definition

Procurement is a work process of obtaining or buying goods or services from the external sources. The Procurement work process includes the supplier evaluation, selection and contract, and controls (inspection and expediting) of the purchased item, and delivery it to the demanded user or team (e.g., project equipment and materials to the construction team at the site), and making payment to the supplier.

Management is the activity in an organisation and the coordination of business in order to achieve defined objectives and goals that manages and controls resources (people, money, time, technology, procedure, etc.) efficiently and effectively. The Management includes to develop team objectives and goals, set up detailed execution plan and procedures, and coordinate with internal and external parties. Practice of modern management originates from the 16th century study of low-efficiency and failures of certain enterprises, conducted by the English statesman Sir Thomas More (1478-1535). The Management is also an academic discipline, a social science whose objective is to study social organisation.

Procurement Management is a work process of managing and controlling the procurement activities (e.g., bidder evaluation; bidding; contracting; expediting and inspection; transportation; payment; close-out etc.) to supply required equipment and materials or services to the project team on time, within budget and respected quality and quantity. The procurement work process is developed based on a fair and open competition. The procurement team evaluates and records a performance of suppliers (vendors) with the project team and related organisations to update company’s bidder list (supplier’s list) for the future business. Responsibility of the procurement team can be extended to a whole bulk material handling work process: the Material Management (from the bulk material take off (MTO) to field material control).

Contract Management is the process of managing legally binding agreements from the initial stages of deciding on the services needed, choosing of a provider of services, negotiation, and monitoring of the service until the contract ends that is the systematically and efficiently managing contract creation, execution, and analysis for the purpose of maximising financial and operational performance and minimising risk. The Contract Management is the management of contracts made with goods and services suppliers, partners, or employees, etc., that includes negotiating the terms and conditions in contracts and ensuring compliance, as well as documenting and agreeing on any changes or amendments that may arise during its implementation or execution.

Material Management is the process of planning, organising, and controlling the flow of bulk materials that is a systematic measuring and trending of bulk material quantities of the cost associated with the purchase, supply, and installation. The Material Management is one of the critical activities for the project success that involves all aspects of the supply chain, including sourcing and procurement, inventory management, transportation, and storage. (e.g., quantity forecasting and supplying of bulk materials from BM take-off, and material handling to construction installation) The Material Management within the procurement organisation is an integrated effort between estimating, project controls, engineering disciplines, and construction field material controls.

Logistics Management is a part of the work process of the procurement management and supply chain management that includes the logistics planning, implementation, and control of the produced or procured items effectively and efficiently. The Logistic Management consists of the transportation for movement, warehouse management for storage, and information management such as related information from the point of origin to point of end user; inbound and outbound movement; internal and external interfaces for the customs clearances to achieve the timely in its delivery with cost effective way and meeting the project or contract requirements.

Supply Chain Management (SCM) is the managing and controlling the supply chains (e.g., a source of raw material, fabrication or manufacture, logistics, expediting and inspection, end-user, and so on) effectively and efficiently to support the project and future business requirement.

Warehouse Management is the managing and controlling of the movement and storage of materials within a warehouse efficiently and effectively.

B. Procurement Work Process with Sequences and Relations

Procurement Work Process (Cycle) is the series of work steps to procure goods (equipment or materials) or services. The Procurement Work Process consists of identify to be procured items (grouping, to be handled together) is the first step, and create the final bidder list with pre-qualification, generate a request for quotation (RFQ, Inquiry and Requisition), release the RFQ to approved bidders, evaluate bidders' commercial and technical proposals, select a successful bidder (vendor, supplier or sub-contractor) through clarifications and negotiations, award and make contract (release a Purchase Order (PO)), expedite and inspect supplier's work progress and performance, held an acceptance test, hand-over material or service from supplier and make a final payment, and perform an appraisal for record and close-out. 

Initiation

Bidder is a person or company who develops and submits a proposal (bid, or tender document), and a potential contractor or supplier when they are selected through the bid evaluation processes. (Also, called as the Tenderer)

Bidder List is a potential equipment and bulk material suppliers or manufacturers list for the project or a candidate list of the management, study, review, test and inspection, audit, survey, verification, authority approval, and any other activities which is performed by third parties including construction sub-contractors. The Bidder List for the procurement and subcontractor selection is an agreed document between contractor (main) and client (owner) before the bidder selection work process is commenced.

Pre-Qualification (PQ) is an initial evaluation in a bidding process to develop the bidder list that proves an applicant's ​ability, ​experience, resource, etc., to complete the job as required.

Requisition is a set of the procurement document that describes technical information used for the bid document or proposal for a bidder or supplier. (Refer to the Request for Quotation (RFQ); Material Requisition (MR); Purchase Requisition (or PO Requisition); Inquiry)

Request for Quotation (RFQ) is a bidding document for procurement that is a normally combined Inquiry (non-technical) and Requisition (technical) document.

Material Requisition (MR) is a procurement document prepared and developed by engineering disciplines that is used to request proposals for technical supplying or manufacturing requirements. A MR consists of the data sheet, quantity, applicable code, and specifications, etc. 

Inquiry is the bid document (normally, non-technical bid document) developed by a buyer, and sent to goods or services supplier candidates (bidders) including a general item description and quantity, and terms and conditions, etc. (Refer to the Request For Quotation (RFQ))

Terms and Conditions (Ts & Cs) is the details of rules applied to the contracts that is the contractual conditions applicable to an agreement, contract including the purchase orders (POs) for goods and services. (Refer to the General Terms and Conditions; Special Terms and Conditions)

General Terms and Conditions are an integral part of an agreement or contract, usually standard for a company or corporation that is the rules, provisions, requirements, specifications, and standards.  The General Terms and Conditions are a general definition of the legal relationships and responsibilities of the parties to the contract and how the contract is to be administered. They are not specific to the particular project or transaction but apply to all projects or transactions. (Refer to the Terms and Conditions (Ts & Cs); Special Terms and Conditions)

Special Terms and Conditions are the rules, provisions, requirements, specifications, and standards for a specific project that is an integral part of an agreement or contract. The Special Terms and Conditions are a specific definition of the legal relationships and responsibilities of the parties to the contract and how the contract is to be administered. (Refer to the Terms and Conditions (Ts & Cs); General Terms and Conditions)

Bid Evaluation/ Clarification

Bid is a written or ​formal ​offer, or complete proposal in response to an ITB (Invitation to Bid), RFQ (Request for Quotation), or Inquiry. The Bid includes price, time frame, terms of sale, and description of goods and services to be supplied. (Also, called as the Tender (UK) or Proposal)

Proposal is a written offer in response to an ITB (Invitation to Bid), ITT (Invitation to Tender), RFQ (Request for Quotation) or Inquiry that is the bidder’s or contractor’s plan or suggestion document. The Proposal includes price, time frame, terms of sale, and description of goods and services to be supplied. (Also, called as the Tender (UK) or Bid (USA))

Bid Evaluation is a contractor selection process that is the evaluation of proposals to select the successful supplier, contractor, or subcontractor among proposed bidders in accordance with the bid evaluation criteria. The Bid Evaluation consists of a Commercial Bid Evaluation (CBE) and Technical Bid Evaluation (TBE).

Bid Evaluation Criteria is a guideline of the contractor selection process that is the quality and quantity provisions of the technical and commercial basis and conditions including the proposed cost, commercial terms and conditions, and other commercial related proposal converted to cost for the Commercial Bid Evaluation, and experiences, technical capabilities, resources, and execution plan, etc., for the Technical and Execution Bid Evaluation. The Bid Evaluation Criteria is weighted for each evaluation categories including the bidder management commitments that should be prepared and developed prior to the bid (ITB (Invitation to Bid) or RFQ (Request for Quotation) requests.

Commercial Bid Evaluation (CBE) is one of the contractor selection processes that is a comparison table of the cost and commercial related items or conditions (e.g., proposed currency, payment method, guarantee and liability, bond and insurance, etc.) for proposed bidders, contractors, or subcontractors. The Commercial Bid Evaluation is performed based on the bid evaluation criteria including the categorised weighted values for the proposed price analysis; terms and conditions; financial stability of the bidder; terms of payment; and delivery schedule, etc.

Technical Bid Evaluation (TBE) is one of the contractor selection processes that is an evaluation and examination of the bidders’ (contractors’) or subcontractors’ technical bid document or proposals. A TBE work process is evaluating and assessing the technical capability including quality, experience, compliance with specifications, operating cost, and performance penalty to meet the project requirement as well as the execution capability.

Bid Bond is issued by a bidder to an owner to ensure that the bidder will undertake the bid terms and conditions when the bidder enter the contract after his proposal is accepted. Generally, the Bid Bond is the one of bid document (proposal document), and will replace the bid bond with a performance bond after the contract is agreed.

Award/ Contract

Purchase Order (PO) is a type of agreements for the acquisition of materials, equipment, or services that is a procurement contract issued by a buyer (owner) to a seller (contractor). A PO document includes both parties’ signature, dates including key milestones, purchasing specifications, description of purchasing goods or services, a quantity and quality, performance, delivery timing, prices, payment conditions, and a general and special terms and conditions.

Contract is an agreement between two or more parties, to exchange providing a specific work (Scope of Work) with agreed compensations (mainly cost and/or any others specified in the contract) with terms and conditions. The Contract terms and conditions including both parties’ obligation, liability, payment, and other terms and conditions are legally binded. The Contract dispute settlement process and change management work process is a part of contract. In addition to a signed document, resulting from acceptance of offers by award notices, letters of intent (LOI), and other orders such as POs are one of the contracts.

Purchase Requisition (or PO Requisition) is the completed final technical information of the procurement document that is updated and modified document after bidder’s proposal reviewed, clarified, and negotiated for the purchase order (PO). A PO Requisition includes the specifications, quantities, and time frame, etc., that gives the authorisations to a vendor or supplier to proceed works based on this document.

Blanket Order is a purchase order (PO) consisted of the price basis and all applicable terms and conditions that applies for bulk materials supply for the large and mega project construction. After its acceptance by the supplier, purchase order (quantities) may be made against it periodically. (Also, called as the Framework Agreement or Umbrella Agreement)

Letter of Credit (L/C) is a written commitment document to guarantee payment by a buyer’s bank (Issuing Bank) to a seller (Beneficiary or Negotiating bank) who will receive payment subject to production and delivery conditions are met as defined in the L/C documents. The most common L/C Documents are Bill of Lading (B/L, BOL), Commercial Invoice, Certificate of Origin, and Insurance Policy.

Types of Letter of Credit (L/C) are Standby Letter of Credit (L/C), Irrevocable Letter of Credit (L/C), Revocable Letter of Credit (L/C), Unconfirmed, Confirmed and Transferable L/C.

Confirmed Letter of Credit (L/C) is an extra security for the seller with the letter of credit to be confirmed by the bank that the buyer’s bank agrees to guarantee payment even if the issuing bank fails to make it. The Confirmed Letter of Credit provides more security than an unconfirmed one.

Irrevocable Letter of Credit (L/C) (or Irrevocable Credit) is a guarantee for payment issued by a bank for goods and services purchased that the issuing bank cannot cancel or amend without the beneficiary’s prior written approval, its obligation to pay the credit provided the conditions included in the Letter of Credit (L/C) document are met within a specified time frame.

Standby Letter of Credit (L/C) is a type of the formal Letter of Credit (L/C). The Standby Letter of Credit (L/C) is the demand to pay must be in conformity with the terms and conditions of the Letter of Credit and presented prior to the expiration date, in the event that the contracting company cannot pay or perform a committed obligation to that third party.

Consignment is an amount or arrangement of goods in which goods are left in the possession of another party to sell.

Consignee is a person or organisation to whom a good or document is officially sent or delivered, generally a buyer.

Consignor is a ​person or organisation who delivers a good, generally a seller, supplier or vendor.

Vendor is a successful bidder and contracted as a supplier, manufacturer or fabricator through the commercial and technical bidding processes among an approved bidder list. The Vendor is a party of the supply chain who supplies purchased goods such as equipment, tagged item or commodity bulk material as per the purchase order (PO) contract.

Vendor Data Sheet is a document developed by a Vendor or Manufacturer that is summarised the performance and other technical characteristics of a product used for the fabrication and operation of the equipment. The Vendor Data Sheet is developed based on the project specification and data sheet which was provided by purchaser. The Vendor Data Sheet is a base of the equipment inspection prior to a shipment.

Vendor Information is a vendor (manufacturer or supplier) generated and supplied information of their fabricated or manufactured goods based on the project specification which was included in the RFQ (Request for Quotation) package. The Vendor Information includes data sheets, specifications, procedures, and drawings, etc. (Also, called as the Vendor Print; Vendor Drawing)

Vendor List is a selected or contracted suppliers list for a project or company. Additional goods or materials can be purchased or supplied from the Vendor List without any further technical qualification work process and can be used for the standardisation.

Expedite and Inspection

Expedite means to make faster, shorter or happen more quickly that ensures goods or services to complete or deliver in time. The Expedite is the monitoring progresses and activities ensuring compliance by a contractor or supplier with the contract or purchase order terms and conditions.

Expediting Level is a classified degree of expediting requirement and frequency as a desk (by telephone or email), periodic visiting, or resident expediting to ensure goods are delivered on time.

Inspection is the ​act of ​measuring process ​carefully involving examining, gauging, testing the material, equipment, or activity in accordance with the procedures and specifications to ensure its conformance with specific requirements. The Inspection may be performed visually or with special tools or equipment, and the results are usually compared to specified requirements and standards.

Pre-Inspection Meeting (PIM) is a meeting to review and setting up all the requirements of the quality control and inspections in detail with respect to engineering, fabrication and manufacturing plans and procedures for the supply items between a buyer and supplier after a purchase order (PO) is released. A PIM is held before inspection of equipment or material carry out for mutual confirmation of necessary inspection documents such as drawings and inspection procedures, inspection items, necessity of inspection records, applied standards and codes, criteria for acceptance, witness inspection items, and inspection schedule, etc.

Inspection and Test Plan (ITP) is the inspections and testing plans and procedures document which is used in a manufacturing shop for the procured equipment and material. An ITP working process starts with an agreement between the purchaser and manufacturer, and the manufacturer provides the inspection and test plan and procedures to the purchaser, which explains the equipment specification and related information such as cost and schedule impact. Before the start of manufacturing, the purchaser must provide an acceptance of the Inspection and Test Plan (ITP) to the manufacturer.

Inspection Level is classified into a desktop inspection (review of the inspection report or result), visiting (witness) and resident inspection. In ISO 2859, General Inspection Level (GI): Level I (Low sampling, suitable for very good quality levels); Level II (Normal sampling, suitable for normal quality levels); Level III (High sampling, suitable for lower quality levels). The Inspection level is a part of statistical sampling plans, which are used to determine the number of units to inspect and the criteria for acceptance or rejection based on the results of the inspection.

Third Party Inspection (TPI) is the inspection and testing activities by a third party individual or organisation who is performing with the purpose of certifying compliance of purchased or manufactured products, or services to the international standards, codes, and customer technical specifications during and/or after manufacturing. The Third Party Inspection people or organisation provides technical control, testing and inspection, assessment, and approval services who must not be involved in design, procurement, fabrication, construction and installation.

Material Certificate is a quality assurance document which a metallic product is in compliance with the codes, regulations, and international or local standards, and validated by the authorised inspection representative. The Material Certificate certifies material’s technical parameters such as chemistry, mechanical or other physical properties, manufacturing routes, heat treatment details, testing results, etc., that is issued by an authority who is an independent of manufacturing. (Also, called as the Mill Certificate)

Mill Certificate is a certificate document of the steel industry that is used to certify the product is produced by manufacturing standards of the mill.

Logistics

Freight Forwarder is a company or an organisation who is specialised in arranging storage and shipping of goods or cargo on behalf of its shippers. The Freight Forwarder usually provides a full range of services including: tracking inland transportation; preparation of shipping and export documents; warehousing, booking cargo space; negotiating freight charges; freight consolidations; cargo insurance, and filing of insurance claims, etc. The Freight Forwarder usually transports under his own bill of loading or airwaybill with his agents or associates at the destination, and provides document delivery, deconsolidation, and freight collection services, etc.

Incoterms are the international commercial terms made by the International Chamber of Commerce (ICC) that is used in international commercial trading or procurement processes. The last revision (1999) is named INCOTERMS 2000, and a new revision of Incoterms, to be called Incoterms 2020. (e.g., Ex-Work; FOB (Free on Board); FAS (Free Alongside Ship); C&F (Cost & Freight); CIF (Cost, Insurance & Freight); DAP (Delivered At Place (named place of destination)), etc.)

Customs Clearance is a gateway pass certificate of the imported or exported goods, materials or cargoes that the national customs authority grants to enter or leave the country. The Customs Clearance is typically given to a shipping agent or freight forwarder to prove that all applicable customs duties have been paid and the shipment has been approved.

Customs Duty is a tariff or tax imposed on imports or exports of goods and services when they transported across international borders. The purpose of Customs Duty is to protect each country's economy, social, and environmental sustainability by controlling the flow of goods and services.

Packing List (Shipping List or Packing Slip) is a shipping document of a particular package or shipment that includes the type of good, size, quantity for a delivery package, and the itemised details of the package contents, and cost per shipping unit (does not need to include customer pricing), etc., for the customs clearance and invoicing. The Packing List is to inform all parties, including transport agencies, government authorities, and customers, about the contents of the package, usually inside an attached shipping package.

Bill of Lading (B/L or BOL) is a shipping document issued by a carrier or his agent that is a carrier acknowledges receipt of freight, describing the freight and setting forth a contract for carriage including who pays the freight charges. The Bill of Lading document is a legal document that consists of an evidence of contract (consignor's and consignee's name) of carriage, name of the vessel and ports, receipt of goods or cargo, and document of title to the goods or cargo, etc.

Certificate of Origin is to certify the actual country of origin of the goods that is a document required by an importer or government agency of importing country.

Country of Origin (COO) is the country where shipped goods are produced, manufactured, designed or from which the services are supplied. For multinational brands, COO may include multiple countries within the value-creation process. Rules of origin are the criteria needed to determine the national sources of a product that are substantially different in basic characteristics or in purposes or utilities from its components.

Country of Origin Labelling (CoOL) is a consumer labelling law that requires retailers to identify the country of origin on certain foods referred to as covered commodities. A CoOL is the made-in image or nationality bias that may adopt unique local terms such as terroir used to describe wine appellations based on the specific region where grapes are grown, and wine manufactured.

Shipping Insurance is an insurance that applies for goods or materials which is transported by mail or courier services instead of the Marine and Cargo Insurance.

Marine Cargo Insurance is the insurance of properties as they move from a point of origin to final destination. The Marine Cargo Insurance covers the loss of or damage to goods or cargoes while in sea or air as well as subsequent land transportations both domestic and international. (Refer to the Shipping Insurance)

Overage, Shortage and Damage (OS&D) is an inspection report for the purchased materials that is prepared by a buyer at the time of goods or cargoes (equipment and materials) are delivered at the receiving area (mainly, construction site of warehouse), or handed over them from a supplier based on the purchasing terms and conditions. The OS&D Report provides information on the cargo quantity and condition in which it was received that may be filed depending on where and how the incident occurred and who is responsible or liable for them.

ETA stands for Estimated Time of Arrival.

C. Additional Definitions

Activated Shelf Life is the period of time that is expected to remain within its approved product specification while stored under defined conditions from the date of manufacture.

Antidumping Duty (Anti-Dumping Duty) is a duty levied on imported commodities by a domestic government imposes on foreign imports that may be priced below fair market value.

Barcode is a machine-readable code in the form of numbers and a pattern of parallel lines of varying widths that is an optical, representation of data, printed on a commodity and used especially for stock control. (Refer to the QR Code (Quick Response Code))

Barge is a ​long ​boat with a ​flat ​bottom, used for ​carrying ​oversize or heavy ​materials on ​rivers or ​canals with own power or towed by another. (Refer to a Lighter Aboard Ship (LASH) System)

Bid Rigging is the process in which a number of bidders illegally forms a consortium to fix the winner of the bid that can take many forms, but one frequent form is when competitors agree in advance which firm will win the bid. The Bid Rigging is a fraudulent scheme in the bidding on procurement, project contracts, government construction contracts that is a particular form of collusive price-fixing behaviour by which firms coordinate their bids in an orchestrated act of collusion, or between officials and firms.

Bill of Quantity (BOQ or BQ) is all the quantities from the engineering BOM (Bill of Material) of all disciplinary works (e.g., piping, electrical, civil, structure, insulation, etc.) to be sent to suppliers for pricing or purchasing that is the product specifications and details required to build a construction project. A BOQ or BQ document includes itemised list of materials, parts, and labour required to construct for a specific scope of work that is used in bidding or tendering in the construction industry. (Refer to the BM or BOM)

Bulk Material is a non-tagged item material that can be ordered and sold by weight (steel bar, etc.), volume (cement, oil, etc.), length (cable, wire, lumber, etc.), or in lots. The Bulk Material can be purchased from a standard catalogue description and bought in quantity for distribution as required that is called as the Framework Agreement, Blanket Orders or Umbrella Agreement. (e.g., pipe, conduit, fitting, steel, re-bar, cable and wire, sand, gravel, clay, cement, chemicals, etc.)

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D. Institute

Chartered Institute of Procurement and Supply (CIPS) is the premier global organisation serving the procurement and supply profession. Dedicated to promoting best practice, CIPS provides a wide range of services for the benefit of members and the wider business community, and exists to promote and develop high standards of professional skill, ability and integrity among all those engaged in purchasing and supply chain management. CIPS assists individuals, organisations and the profession as a whole. As an influential professional body, CIPS helps all kinds of organisations achieve all-round excellence in procurement and supply management. We do this by offering a range of products and services to equip you with the knowledge, training, and practical skills you need to derive maximum benefit from your procurement practices. (http://www.cips.org/)

General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating international trade. According to its preamble, its purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis." It was negotiated during the United Nations Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed by 23 nations in Geneva on October 30, 1947 and took effect on January 1, 1948. It lasted until the signature by 123 nations in Marrakesh on April 14, 1994 of the Uruguay Round Agreements, which established the World Trade Organization (WTO) on January 1, 1995. (Source: Wikipedia)

International Air Transportation Association (IATA) is an air transport trade organization that sets standards for safety and standardization of forms, including air waybills. The IATA is to be the force for value creation and innovation driving a safe, secure and profitable air transport industry that sustainably connects and enriches our world. (Source: www.iata.org/)

Institute for Supply Management (ISM) is with more than 48,000 active members worldwide, ISM is the largest global organization dedicated to advancing the practice of procurement and supply management. ISM is the leader in supply chain, driving value to its members with its two widely renowned certifications, the Report On Business®, countless educational resources and extensive networking events around the globe. (Source: www.instituteforsupplymanagement.org)

International Trade Organization (ITO) was the proposed name for an international institution for the regulation of trade. Led by the United States in collaboration with allies, the effort to form the organization from 1945 to 1948, with the successful passing of the Havana Charter, eventually failed due to lack of approval by the US Congress. Until the creation of the World Trade Organization in 1994, international trade was managed through the General Agreement on Tariffs and Trade (GATT). (Source: Wikipedia)

The history of the World Customs Organisation (WCO) began in 1947 when the thirteen European Governments represented in the Committee for European Economic Co-operation agreed to set up a Study Group. This Group examined the possibility of establishing one or more inter-European Customs Unions based on the principles of the General Agreement on Tariffs and Trade (GATT). It is now the voice of 180 Customs administrations which operate on all continents and represent all stages of economic development. Today, WCO Members are responsible for processing more than 98% of all international trade. (Source: www.wcoomd.org/)

World Trade Organization (WTO) deals with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. The WTO was born out of negotiations, and everything the WTO does is the result of negotiations. The bulk of the WTO’s current work comes from the 1986–94 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT). The WTO is currently the host to new negotiations, under the ‘Doha Development Agenda’ launched in 2001. (Source: www.wto.org/)

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