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Final-63012_Feb2023-ObuksEjohwomu_Week2_Lecture21.pptxWhat does ‘Commercial’ Mean?
Procurement, Tendering and Contract Analysis
Lecture 2 [9 am - 12 pm]
10 February 2023
MACE 63012 | Simon_Th C
Dr. Obuks Ejohwomu
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
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Management of Projects (MoP)
MOP60061
Faculty of EPS
Semester 1 2017/18
Recap from previously…
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
2
Introduction to commercial management practices
Focus on decision-making as a core concept
Case studies
Feedback on in-class activity
BBC documentary: Group discussion presentation
Assignment brief: Enginuity
Mike Fletcher’s slides
Teams to appoint team leads
Lecture 1…
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
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3
https://docs.google.com/document/d/11DIK7UexnXP-n3fk5SJe1hPLrO7mP7OkLoZpimwuONY/edit#heading=h.ncae5vgek0w8
In summary…
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
4
Could be…
Buying a project
Buying Goods or Services for a project
Client
Could be…
Selling a project
Supplying Goods or Services for a project
Vendor
Social Value
Contract & Payments
Sell-Side
Buy-Side
Lead generation of
Win-Plans
Requirements Definition
Proposal Development
Bid Management
Negotiation
Project Marketing
Procurement strategy
Production of Requests
Appraisal criteria
Tendering Process
Downselect – Bid appraisal
Negotiation
Contract development
Award
Assign 1, 2
& 3
Assign 1 & 2
What does the commercial partner want?
How might they act?
What are the risks of this relationship?
How can we get the margin that we want?
How can we get the behaviour that we need?
Assign 1 & 2
A Commercial Manager
What does my job involve?
How do I create value for my organisation?
What do I need to be effective in this area?
Week 1
Week 12
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
10/02/2023
Anupam Dey 10081980
5
MCQs: Formative Assessments
Class/GoogleDoc Discussions
Small Group Tutorials
Guest Lectures
Group Work, Individual Presentation, Report Writing and Case Study Analysis
For deep learning you’d participate in:
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
6
Lecture 2: Today
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
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Today’s Learning Objectives
Define the term ‘commercial management’.
Deconstruct the concept of win-win.
Discuss the procurement motivation for undertaking a commercial project.
Discuss issues and strategies for protecting projects.
Understand contracting procedures and management.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Projectification involves the cultural and discursive societal processes whereby projects and project-‐like circumstances are institutionalised in individuals. lives, the organising of all sorts of work, and society at large.
10/02/2023
Anupam Dey 10081980
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Core Concept
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
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Core concept
Emphasis is on Win-Win and not 50:50 - this means buying the right product and services to fit the longer term needs of businesses, which are key driver for achieving best value, rather than quick price focused fit.
Leading businesses are constantly seeking innovation with their industry which support Win-Win.
Purchasing & Procurement managers need to understand the needs and wants of their internal customers, the constantly changing business environment, often affected by a range of factors including new customer requirements, changing regulatory requirements and new ways of working (Cary Sumpter Owner & Director Kelmat Services Ltd.).
Buyers and suppliers have to understand each others’ needs and expectations and work together to ensure that they develop relationships that will deliver successful business outcomes for both parties.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
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See Gilang 2017
Win-Win ≠ 50:50
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
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Is there a difference between Project Success and Project Management Success? Discuss.
In Class Discussion
Dr Obuks Ejohwomu
https://docs.google.com/document/d/1XRl6CKLgZStwD6cXdfh53yDcqEny7coxCQ33Pf3luCU/edit?usp=sharing
Combining the strengths of UMIST and
The Victoria University of Manchester
12
Recapping… Projects, programmes & portfolios…
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Commercial
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
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Defining the commercial management function?
The Management of contractual and commercial issues relating to projects, from project inception to completion (Lowe and Leiringer 2006).
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
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The role of a Commercial Manager is highly varied. Those working within the commercial departments of large, multinational corporations may take individual responsibility for sales, marketing, contracting, negotiations, finance, contract law or property management to name but a few.
In some smaller companies ( and in the case of entrepreneurs ) commercial managers would be expected to deal with all these various roles themselves, rather than oversee a department containing expert teams in each field. In either business environment, a commercial manager must be adept at understanding and engaging in all aspects of the strategic function, which is where a specialist qualification in commercial management comes to the fore
Commercial motivation for undertaking a project
To generate new products to replace old lines.
To create new plant and facilities that are more suitable to current needs.
To improve a business process so that it performs more effectively.
To obtain research information that could be used to advantage – remote social sensing.
To raise the organisation's profile in the market.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
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Commercial Strategy
Product development projects exist:
Sell what you can make.
Make what you can sell.
The make or buy decision.
Offensive/defensive market strategies
What is your buy/sell strategy?
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
16
How to Make Money?
Cost
Margin
Selling price
reduce
increase
Total Cost
“Why do organisations invest in projects? The simple answer is to make a profit; that is they expect the financial returns from the project to be greater than the money invested.”
Rodney-Turner, J. (1995) The Commercial Project Manager
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
How can we reduce cost or charge a higher price?
Where such tactics involve the work of other parties, i.e. buyers, suppliers, business partners, these things become points of negotiation, made permanent through binding contracts and imposition of penalties - commercial management! But what if players are seeking to maximise their profits? And what will competitors be seeking to do?
When the decisions begin to affect other parties in the industry and the long term behaviour of the organisation, even its structure, they become strategic.
Cost
Margin
Selling price
reduce
increase
Total Cost
Fundamental Conflict
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Institutional, Economic and Legal factors
Competitors, New Entrants and Substitutes
The Commercial ‘Space’
Stewart (2011, 2016)
Information Negotiation Contract
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Comments?
10/02/2023
Anupam Dey 10081980
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Lowe (2013)
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Procurement
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
21
Procurement is the process by which the resources (goods and services) required by a project are acquired.
It includes the development of the procurement strategy, preparation of contracts, selection and acquisition of suppliers, and management of the contracts.
What is procurement?
APM BOK 6th edition (Section 5.4)
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
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Why the different procurement routes?
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
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Largely for Risk Allocation..
Source: ASCE Library
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Procurement
How do I buy/sell my goods or service?
Five (5) main procurement routes:
Traditional/conventional
Design and Build (D&B)
Turnkey
Management
Partnering
Customised/Hybrid systems
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
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Procurement Risks
| Procurement type | Client Risk | Vendor Risk | Price | Built speed | Comment |
| Traditional/ Conventional | High | Low | Low | Very slow | Design by Client, built by vendor |
| Design & Build | Medium | Medium | Medium | Fast | Client need to know what they want |
| Turnkey | Low | High | Very high | Fast | Client specifies and wait for completion |
| Management | Low | Medium | High | Medium | 3rd party takes responsibility for delivery |
| Partnership | Medium | Medium | Medium | Slow | Client & Vendor signs charter before start |
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
26
Which of these methods will you recommend for the purchase of the Chernobyl Safe Confinement Project?
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Tendering and the tendering process
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
27
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The role of a Commercial Manager is highly varied. Those working within the commercial departments of large, multinational corporations may take individual responsibility for sales, marketing, contracting, negotiations, finance, contract law or property management to name but a few.
In some smaller companies ( and in the case of entrepreneurs ) commercial managers would be expected to deal with all these various roles themselves, rather than oversee a department containing expert teams in each field. In either business environment, a commercial manager must be adept at understanding and engaging in all aspects of the strategic function, which is where a specialist qualification in commercial management comes to the fore
Tendering and the tendering process
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
28
Tendering
https://www.ojec.com/usefullinks.aspx
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Tendering can be defined as the process by which offers are sought, received, accepted or rejected for the execution of works or supply of goods. When it is in the public sector, it is referred to as procurement process.
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Tendering process generally involves the following key steps:
Tender Planning
Tender Documents Scrutiny
Choice of Tendering Method
Preparation of Tendering Documents
Advertisement of Tender Solicitation
Receipt and Opening of Tenders
Tender Analysis
Preparation of Tender Analysis Report
Tendering process
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Contract Analysis
The Nature of Contracts
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
What is a Contract?
An agreement that affects the legal relationships between two or more persons.
A promise or set of promises for the breach of which the law in some way recognizes a duty.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
What is Contract Analysis?
Review, monitoring and management of contractual terms and conditions through the procurement process.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
When Disputes Arise, the Contract Will be Crucial
If the language is clear, the dispute may be quickly resolved.
If not, litigation is a common result.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Descriptors of Contracts
Bilateral vs. Unilateral
Executed vs. Executory
Express vs. Implied
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Bilateral and Unilateral
Bilateral:
both sides expressly make promises
Unilateral:
promise is made by only one party
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Unilateral Contracts Example
An advertisement to deliver a particular product upon receipt of a payment of a given amount. The contract is formed when the payment is made.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Executory Contract Example
The purchase of a reserved seat at a performance or sporting event. One party promises to hold a particular seat for the other party for the specified event, i.e., one party has a promise outstanding.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Executory Contracts
An alteration contract stated: “Material and labour to be supplied for £3,075 to be paid as follows: £150 on signing the contract; £1,000 on delivery of materials; £1,500 on completion of rough carpentry and plumbing; £425 upon project completion”. After materials were delivered, contractor had been paid £1,150. Contractor did rough carpentry and plumbing and requested payment of £1,500. Payment was refused. Contractor sued for payment.
Q: How much is the contractor entitled?
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Executory Contracts
Decision:
The contract is entire.
The single amount of £3,075 was the single consideration for the whole job, with the payment schedule not absolutely allocating value to each portion.
Contractor is entitled to £3,075 less the cost of completion.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Elements of Contracts
Meeting of the minds
Offer and acceptance
Consideration
Lawful subject matter
Competent parties
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Meeting of the Minds
Contractor was to build a building that was in compliance with all applicable laws, regulations, and codes. When construction was well underway, it was discovered that the building had major deficiencies related to fire escape laws. The owner contended the contract had been breached. The contractor said it was his first building in that city and was not aware of the laws.
Q: Is ignorance of the law an excuse?
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Meeting of the Minds
Decision:
No. When a contract is entered stipulating compliance with certain laws, it is the contractor’s duty to ascertain what the laws are.
The Contractor’s Legal Problems by Hayward - p. 27
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Meeting of the Minds
A purchaser agreed to buy a cargo of cotton being shipped “to arrive ex Peerless from Bombay”. Two ships (each named Peerless) sailed from Bombay: one arrived in October, the other arrived in December. The parties were not in agreement on the same ship.
Q: Was there a binding contract?
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Meeting of the Minds
Decision:
There was no agreement since there was no meeting of the minds (mutual mistake).
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Meeting of the Minds
A company entered a purchase agreement with a supplier of roofing materials for a set price. The contract could be altered due to “strikes, fires, transportation, and business conditions that render performance commercially impracticable”. Both parties were beneficiaries of the clause. The price of roofing materials spiraled up (+25%). The supplier refused to deliver at the agreed price contending it was “commercially impracticable”.
Q: Was the supplier obligated to deliver?
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Meeting of the Minds
Decision:
Yes. Although it may be “commercially unprofitable”, the clause in the agreement did not apply. The contractor bought the supplies from another firm and successfully sued the original supplier for the difference in the prices.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Offer and Acceptance
A newspaper ad offered £100 reward for the return of a rancher’s horse. Mr. McAdams found the horse. He was not aware of the reward. He returned the horse to the rancher who gave him £2 for his efforts. Later, McAdams learned of the reward and asked the rancher for the remaining £98. This was refused.
Q: Should McAdams be paid?
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Offer and Acceptance
Decision:
Since there was no timely communication of the offer, the acceptance of £2 was all McAdams was entitled to.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Offer and Acceptance
A large shipment of materials was ordered. The order was delivered at the train station. The company inspected the shipment, found some items to be deficient, and rejected the entire order.
Q: Must the company accept the material that is satisfactory?
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Offer and Acceptance
Decision:
On an entire contract of sale the buyer may, within a reasonable time after learning the facts, reject the entire shipment if part of it does not comply with the terms of the sale.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Offer and Acceptance
When a local cement supplier ran out of stock, a contractor ordered 850 bags to be delivered by an upriver source at a higher price. Shortly after placing the order, the local supplier’s cement shipment came in. The contractor decided to buy from the local supplier and pay damages for returning the cement upriver. Two days later a shipment of 1,000 bags from upriver arrived. Since 850 bags had been ordered, the contractor said he refused the entire shipment of 1,000 bags.
Q: Must the cont’r buy any upriver cement?
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Offer and Acceptance
Decision:
A seller who “knowingly sends more or less than the quantity ordered is guilty of an intentional violation of the contract...” The seller got greedy and padded the order. The contractor owed nothing.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Offer and Acceptance
A company ordered a specified amount of supplies on a form which specified “delivery, August-September-October”. The company ordered no material in August and none was delivered. The supplier delivered a portion of the order in September. The company refused to accept the order, stating that failure to deliver any supplies in August cancelled the contract.
Q: Must the company accept the supplies?
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Offer and Acceptance
Decision:
The supplier could deliver portions in each month or satisfy the order with a single shipment in any month. The company could not refuse the shipment.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Consideration
A vendor agreed to supply some materials and the purchaser agreed to pay £200,000. This price was negotiated after some light fixtures were deleted. The contract was signed and work was begun. Two weeks later, the vendor called the purchaser and told him “the materials costs are much lower than anticipated and I will include the light fixtures as part of the original contract at no additional cost”. When the materials arrived, the light fixtures were not included.
Q: Is the vendor liable for the light fixtures ?
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Hen the materials
Consideration
Decision:
No. There was no consideration for the promise to supply the light fixtures.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Competent Parties
A sixteen year old boy went to a car dealer. The boy paid £600 down on a new car. The boy signed an agreement to pay the balance on an installment basis. Within an hour of driving away from the showroom, the car ran over an embankment. The boy was not hurt, but the car was totaled. The boy sought to have the contract voided. The car dealer filed suit.
Q: Must the boy fulfill the contract?
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
Competent Parties
Decision:
The contract was declared void, plus the £600 was returned to the boy.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
A case study analysis of The New Safe Confinement Project at Chernobyl
Take Home GoogleDoc group discussion:
https://www.youtube.com/watch?v=f5ptI6Pi3GA
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
60
Intended Learning Outcomes
Define the term ‘commercial management’ and list the range of areas in project-based work covered by this term, as identified by PMI, APM and cutting-edge research.
Identify relevant underpinning theory for the description and prediction of commercial outcomes.
Identify the various procurement routes involved in commercial work in projects and produce the typical decisions and documents involved in project buy/sell relationships.
Relate the practice of commercial management and the work of the commercial manger to the successful outcomes of projects and project organizations.
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
61
10/02/2023
Anupam Dey 10081980
Thank you for your attention!
Dr Obuks Ejohwomu
Combining the strengths of UMIST and
The Victoria University of Manchester
62
