If the parent organization lacks key skills or relationships, it might work with other organizations as partners—especially on international projects.
Partnership on Mining Project
In the Argentina mining project example, the United States parent organization had project management, engineering, procurement, construction, and mining technology expertise. The company also had relationships with major mining equipment vendors. The U.S. construction company partnered with an Argentinean company that had expertise and relationships important to the success of the project.
The Argentinean company contributed local knowledge of the construction workforce; local engineering and construction practices, knowledge, and expertise in the government permitting processes; and an existing relationship with potential key suppliers and local vendors.
A partnership is a formal arrangement to execute the project with each party contributing resources. In most partnerships, both parties benefit from the success of the project and share the costs associated with a less successful project. Critical to the success of a partnership is the clear definition of roles and responsibilities on the project, a common understanding of the project goals, and a scope of work for each partner.
Building the relationship between major partners on the project is similar to building relationships with clients. On a large, complex project, a partnership alignment session is often required to build the trust required for open communication channels. Maintaining the relationship permits more effective problem solving and coordinated action on the project. A well-managed partnering relationship can contribute to the achievement of project goals, reduce overall costs, and shorten the project schedule. In most cases, the parent organization is aware of weaknesses in the project resources or skills and searches for a potential partner that has the needed resources or skills. In our Argentinean example, the parent company knew that construction experience in Argentina would be important to a successful project. Both companies will research the capability of the other company to assure that the partnership is appropriate for both companies.
Biotech Plant Partnership in Puerto Rico
On a project to build a new biotech plant in Puerto Rico, a large engineering and construction company selected a Puerto Rican civil engineering company to design the site work on the project. Because the plant was needed quickly, the project schedule was an important component of every discussion and meeting the project end date was a major goal. The Puerto Rican Company was asked to begin developing the civil drawings early, before much of the needed information had been developed. This was a situation where a partnering relationship would benefit the project. Both companies would mutually support each other to achieve project goals and both would benefit from project success.
In this situation, the project procurement plan specified the development of a subcontract for the civil engineering, and a contract was developed with a clear scope of work and a cost based on completing the work in the contract on time and according to specification. Because the aggressive project schedule required the civil engineering company to begin work before all the needed information was available, change orders were required when new information became available. The contract allowed several days to evaluate the impact of the change on cost and schedule, and the time evaluation process began to cause delays in the project.
Eventually, a new contract was developed to make the Puerto Rican company a partner. These new partnering arrangements allowed the engineers to get early information and contribute ideas that would shorten the schedule. This case is an example of the need to evaluate the project goals and environment and develop a procurement strategy that matches the conditions of the project.
KEY TAKEAWAYS
- Commodities are purchased through suppliers using a request for quote (RFQ) and selected on the basis of price. An exception is the key supplier relationship where the supplier-organization relationship is long term and the supplier passes along some of the savings of avoiding the bidding process.
- Vendors provide products and services that are designed for the project based on a request for proposal (RFP) that invites the vendors to meet the goals of the request using their products and skills.
- If the organization lacks key skills or relationships, it might form a partnership arrangement with another company to share the benefits and risks of the project.
EXERCISES
- Commodities are described in an (three-letter acronym).
- The objectives of the work are described in an (three-letter acronym), and the details of how to accomplish those objectives is proposed by the vendor.
- If a project takes place in a different country, the project team might seek a with a local company to provide local contacts and expertise in local issues.
- What is different about a key supplier relationship?
- What is the difference between an RFP and an RFQ?
- How is a partnership different from a vendor relationship?
Internalize your learning experience by preparing to discuss the following.
If you were building your own house, what would be an example of something that would be procured using an RFQ and something that would be procured with an RFP? Describe how your choices meet the descriptions of products or services procured from suppliers or vendors.
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