SERVICES PROCUREMENT

(Leverage best procurement practices to achieve value for money)

Krishan K. Batra
President & CEO
ISM-INDIA

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Introducing the Presenter...
Krishan K. Batra has diverse & global experience of 4 decades in the
field of Technology & SCM. He enjoys engaging people in sustainable
transformation and inspiring business excellence. In his last assignment
with UN organization as Chairperson of the supply chain, he was
instrumental in re-engineering business processes and implementing
ERP worldwide.

He started his career with TATA Group after completing M.Tech from
IIT Delhi. Later he completed MBA from Syracuse University in USA.
Krishan has worked in Switzerland, Denmark and USA in various senior
capacity. He is the founder of UNSPSC which is global standard for
coding goods and services. He has worked with many organizations to
optimize supply chain and build their professional capacity. He was
awarded Hind Ratna for developing UNSPSC.

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 LEARNING OBJECTIVES
❖ Understand Role of Services Procurement
❖ Procurement Methods for Services
❖ Anatomy of RFP
❖ Developing RFP
❖ Sourcing and Selection of Suppliers
❖ Evaluation Methods
❖ Contract Management
❖ Performance Management
Objective: Learn the Processes & tools to optimize Services
Procurement

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SESSION 1

Overview of Services Procurement

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MISCONCEPTIONS ABOUT PROCUREMENT

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Misconceptions
• Procurement is not a difficult task. Anybody can
organise a sourcing project, it's a piece of cake.
• Procurement is not a function of choice, but
rather a necessary evil.
• Procurement is back office; it is a
service/support/control function.
• Indirect procurement is up to the requestors
(budget holders).
• Procurement is all about compliance and price
reduction.
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OVERVIEW
❖ Procurement of services is vastly more challenging and
complex than the procurement of goods.
❖ Procurement process involves higher buyer uncertainty,
and thus require extra efforts to mitigate.
❖ Services, as people tend to be, are dynamic! No two
people are same and neither is the service provided by
each individual.
❖ The same task can be handled in different ways, and even
the same job can be different based on the person doing it.
❖ Services Procurement is highly subjective, difficult to
categorize to commoditize, and dependent on the final
deliverable.

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Difference Between Goods & Services
Difference between goods and services procurement boils
down to the fact that it is difficult to put services
procurement in a box. This characteristic of services impacts
some of the most critical procurement strategies.
❖ Specs & Reqs: Fitting skills and requirements into the box
is likely the most problematic part of services.
❖ Demand: Goods can be quantified
❖ Quality Assurance: dealing with missed quality
expectations is more complex when it comes to services
❖ Technology: goods categories benefit from the
consistency that the solutions drive; yet when applied to
services procurement, that consistency can affect value

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Direct vs. Indirect Procurement
Direct Procurement — or direct spend, or direct cost —
involves the procurement of goods, materials and services
directly related to the production of goods and/or services that
a business is offering. Examples may include raw materials,
components, hardware and services related to mfg.

Indirect spend refers to expenses incurred for materials,

services and mintenance required to operate the business.
Examples: Marketing services (media buying, agency fees);
Professional Services (consultancies, advisors); travel and
lodging; MRO (maintenance, repair and operations);
Information Technology (hardware, software)
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Why Services Procurement is Complex?
❖ It’s much complex because the process is different.
❖ Services do represent an enormous portion of spend that
procurement is tasked with bringing under management.
❖ Indirect spend has been growing by approximately 7% per year
globally since 2011.
❖ Many procurement organizations still do not give indirect categories
the same attention they pay to direct sourcing.
❖ Indirect spend is often fragmented across multiple business units
and locations.
❖ The opportunity is simply too large and the negative impact of
unaddressed risk is too high.
❖ E-Procurement tools can’t address the need (Agility) and hence
Digital Technology can play key role.

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Understanding Procurement Terms
❖ Procurement is the process of getting the goods &/or
Services you need.
❖ Sourcing is finding and vetting the suppliers of those
materials.
❖ Strategic approach involves a longer-term focus &
procurement decisions are based on multiple factors. It’s
not as cut-and-dry as the tactical approach.
❖ Tactical sourcing is a short term, transactional activity.
❖ Strategic Sourcing is Long term sourcing process. It is
organized, collaborative and structured process (7 Steps)
❖ Strategic Procurement aligns all procurement decisions
with corporate objectives.

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Services Procurement Cycle

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Procurement Strategic Importance
❖ Procurement represents a major function of business.
❖ Considering that the average company spends 40-70 percent
of its revenue on purchases from third parties, procurement
can drive 5-12 percent savings.
❖ The potential impact is undeniable.
❖ Yesterday’s markets were best described with 60–80%
inhouse value-add, local/stable markets and slow
technological changes.
❖ Today’s and future markets, however, are characterized by
decreasing in-house value-add (reaching levels of 10% or less),
global and unstable markets (hyper-competition) and rapid
technological development.
NEED TO SHIFT BASIC MINDSET

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Key Tenants of Procurement
❖ Supply is at the forefront of the company: Improve
competitiveness.
❖ Top-Line Revenue is now a performance expectation of
supply: Corporate growth is necessity today.
❖ Slim and Extend the Supply Risks: Simplify the processes and
extend chain globally.
❖ Managing Risks:
❖ Procurement Professionals are CFOs of the Supply Chain:
Companies are financial entities in terms of performance and
measurement. By viewing procurement as financial ones, they
can enhance credibility & results.
❖ Take the initiative with Opportunities & Problems: Digital
Transformation for radical shift (Disruption).

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Key Procurement Trends

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PROCUREMENT SCORECARD

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4 PILLARS OF PRCUREMENT EXCELLENCE

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Risk /Benefit Analysis of SS
• Benefits: Improved value; Organized Supply Base; Greater
Innovation; Savings etc.
• Risks: Price can rise or supply disruption; To assess risks &
determine best sourcing strategies use Peter Kraljic Matrix.

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Strategy With Suppliers
Supplier collaboration means working with decision-makers at a supplier to
determine improvements that can be made that will have a measurable, positive
financial impact for both organizations.
Supplier development means devoting some of your organization’s resources to a
project that develops a supplier’s capabilities or expertise beyond current levels.
Supplier management means collecting metrics about a supplier’s performance for
your organization, sharing those metrics with the supplier, and discussing and
implementing ways that the supplier can improve its performance as measured by
those metrics.
Supplier rationalization means reducing the number of suppliers by consolidating
purchases with fewer suppliers.

Tactical suppliers are those that provide a product or service that does not directly
affect your organization's customers' experience with your organization.
Strategic suppliers are those that provide a product or service that does directly
affect your organization's customers' experience with your organization.

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Strategy for Working With Supplier

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Method of evaluation
H
Value judgement
Weighted (based on TCO)
scoring
Weighted scoring

increases
w/ high weight
M given to costs

As risk
Impact/
supply
opportunity/
risk rating
L As expenditure
Lowest increases Lowest total cost of
price ownership (TCO)

N
80% of items = 20% of value 20% of items = 80% of value
Expenditure
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Online Auctions
Benefits: Disadvantages

Reduction in acquisition lead time Adversarial or “win-lose” approach

Savings over and above those obtained via Suppliers vulnerable to coercion
negotiation
A “wake up” call to existing suppliers Suppliers may feel exploited

Access to wider range of potential Long-term adverse effects on economic

suppliers performance of the buyer
Less time “wasted” Promised massive savings not materialising

Suppliers get message that price is the

most important factor
Reverse auctions are suitable when:
- Purchasing certain commodities such as bulk material, stock commercial goods,
non-technical services
- Purchasing some services, where there is surplus supply (freight, hotel
accommodation)

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VMS for Services Procurement
When looking for a vendor management solution platform to
manage and optimize your service procurement spend,
evaluate if the following functionality and capabilities.
❖ Agile technology built on modern architecture, allowing
for a high degree of configurability and scalability.
❖ Diverse categories including contract labor, projects
worked assigned to a SOW, outsourced work, large
contracted deliverables, interns, volunteers, alumni etc.
❖ Robust integration capability with major systems and
micro applications, such as timekeeping, accounts
payable, human resource information systems (HRIS),
❖ Competitive Benchmarking & Analytical Capability

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Time Allocation in Procurement

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Power of Cross Functional Teams

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DIGITAL ERA
❖ In today’s market, business operations are under more
pressure than ever.
❖ Traditional business model are
struggling to keep up with
heightened customer expectations
& increased regulations.
❖ Outside influences on the market —
including how to pivot operations in
response to global pandemics.
❖ To ensure effective response, agility, and resilience,
organizations must look to the future of Product &
Process innovation.
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Future Era: Customer Driven
❖ Today’s supply chain is undergoing incredible
transformation as business models, products, technology
and customer needs change.
❖ Driving force is digital innovation, disruptive
Technologies & customer expectations.
❖ 4 Ps of Network Optimization:

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Impact of Digitalization on KPIs
Procurement KPI 2011 2015 2022 Impact of Digitization
(Expected)

Overall Cost of >0.5% ~ 0.5% < 0.5% Leaner procurement function,high cost
Procurement optimization

Spending Visibility & 15-25% 50-70% > 95% Increased use of advanced analytics and IoT
Understanding support to help establish strong spending insights

Tail Spend 45-55% 25-35% < 10% Elimination of maverick purchases using
automation and an efficient purchasing
experience for end-users

Contract & Policy 45-55% 65-75% > 95% Increased use of cognitive systems to aid users to
Compliance Level increase compliance, automation, and quality.

Strategic Suppliers 45 – 55% 75-85% 100% High control through constant partnership with
strategic suppliers.

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POLL 1

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SESSION 2

PROCUREMENT METHODS

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Service Procurement Phases

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Understanding RFP

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Understanding RFx
The difference between the RFI, RFQ and RFP is what
information they provide:
An RFI educates — RFI responses explore how a vendor
might solve a problem or fill a need
An RFQ quantifies — RFQ responses provide the cost of
meeting a specific need
An RFP compares — RFP responses evaluate the merits of
each vendor compared to others

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RFI BASICS
❖ An RFI is a casual introduction in supplier management.
❖ Questions should be open ended and high-level
❖ Perfect if you’re early in the buying process or if you have
vague project requirements
❖ An RFI gives you a general overview of the vendor
landscape

Advantage: They’re fast. You could email your initial

questions to a shortlist of providers, get responses within a
week, and then use their responses to craft an effective RFP

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How to write an RFI?
Start very high level:
❖ Let vendors confirm or challenge the research you’ve
conducted.
❖ You aren’t promising them work at this point, but you’re
gauging interest and scope
❖ You are gathering information and testing the waters, so
you can be brief
❖ Seek their perspectives, not their capabilities (you’ll judge
these later)
❖ See what questions they have while it may seem counter
intiutive, it can give valuable insight into how a company
thinks and their level of expertise.

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RFQ BASICS
❖ RFQ includes a list of requirements
❖ It is centered around a vendor’s capabilities, costs, and
payment terms
❖ Used when you already know exactly what you’re looking
for.
❖ An RFQ lets you know if vendors can provide the solution
you want and what it will cost.
Advantage: It’s incredibly specific. Organizations issuing
RFQs are typically committed to making a purchase and
already know what type of features and functionality they
want to see — this document allows them to evaluate all
solutions that meet their needs based on price
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How to Write RFQ
RFQs don’t typically contain questions, as an RFI or RFP would.
Instead, it’s a list of requirements, presented as line items, that
vendors provide prices for. You’ll want to include:
❖ A detailed list of products, features and functionality
required
❖ Quantity or duration required
❖ Date of expected delivery
❖ Expected payment terms
Only use this document if you are already well aware of the
marketplace conditions and offerings. This allows you to
compare similar solutions based on price, rather than learning
about solution offerings you may not currently be aware of.

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RFP BASICS
❖ RFP questions should be very specific
❖ You should share internal information about your process
and needs
❖ You should have clear-cut needs and be ready to buy
❖ You should be ready to move beyond exploration and
into commitment
❖ An RFP helps you compare vendors based on your
priorities

Advantage: They’re very thorough and offer a side-by-side,

fact-based comparison of vendors’ capabilities — learn
about RFP vendor scoring.
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How to Write RFP?
❖ Be specific. Give parameters for the types of service or
product you’re looking for.
❖ Ask for examples of their work.
❖ Make sure your priority questions are as thorough as they
need to be
❖ If you’re unsure of a seller’s expertise or competency for
your needs, address it. Ask them for examples, references
❖ Vague questions (at this point) don’t do anyone any
favors. You have specific expectations, whether you
realize it or not.
❖ So if you’re having problems writing exact requirement
questions, collaborate with someone outside the
situation who can help challenge assumptions.
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How are RFIs, RFQs and RFPs related?
RFIs, RFQs and RFPs are often used in combination with one
another or independently. Sometimes you’ll need to start
with a request for information to better understand your
market, and then with that knowledge you may move to
issue an RFQ or RFP. Each is a different tool, so which do you
use?
The core purpose of each type of RFx document is to help
select the perfect vendor. To select the perfect vendor, To do
that you need answers to your critical questions, but how do
you ensure you ask the right questions? It often comes down
to whether you should issue a request for information (RFI),
request for quotation (RFQ), or request for proposal (RFP).
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RFI vs. RFQ vs. RFP

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Simple version of RFP

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RFP Format/Anatomy
❖ The statement of purpose.
❖ Background information.
❖ Scope of work.
❖ Outcomes and performance standards.
❖ The deliverables.
❖ Terms and conditions.
❖ Payments, incentives, and penalties.
❖ Contractual terms and conditions.
❖ Requirements for proposal preparation.
❖ Evaluation and award process.
❖ Process schedule.
❖ Contracts.

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RFP PROCESS

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SOW

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Statement of work vs. scope of work
The terms “statement of work” and “scope of work” are
sometimes used interchangeably. However, there is a
distinction. A scope of work is one part of the statement of
work.
The SoW is a comprehensive document that outlines the
project’s goals, deliverables, costs, etc. The scope of work
section details how those project objectives will be achieved.
The scope of work also describes the high-level steps or tasks
involved in the project and sets clear bounds on the extent of
work to be done within a given project.

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What makes up a SOW?

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PROCESS FOR DEVELOPING SOW

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SOW Language Tips
How a detail is written is just as important as the detail itself.
❖ Write in an active voice, using strong nouns and verbs. “All
freelance telecommunications staff must arrive on-site by 8
a.m.”
❖ Use ‘working’ words (analyze, evaluate, examine, generate) as
opposed to lay language (look at, think about, do.)
❖ Avoid unenforceable language and terms left open to
interpretation – “The contractor *may* wear PPE.” May
implies the worker has a choice to wear it. “All work is
*subject to approval. *”
❖ Approval from whom and by what standard? It’s an
unenforceable edict.
❖ Never use etc, so forth, or any other open-ended statement.

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POLL 2

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Online

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SESSION 3

VENDOR SELECTION

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TRADITIONAL PROCESS

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VENDOR SELECTION

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RFP Response Evaluation & Vendor
Selection
❖ What is it?: A transparent and collaborative model that helps
the evaluation teams to objectively examine the proposals and
select the best one.
❖ Who uses it?: Intended for project managers, proposal managers
and procurement specialists.
❖ Why: Preparing and issuing RFPs is only half the battle; it is
equally important to fairly evaluate the received responses to
reach your goals.
❖ How: Rate proposals before and after demo. Final Evaluation
❖ Results: Unbiased selection of the best vendor & audit trail
❖ Benefits & Impact: Quality, Efficiency, Engagement & Agility

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Supplier Appraisal = Critical

If supplier appraisal is not carried out as carefully

and systematically as needed, there is an
increased risk that suppliers chosen by the firm
will fail to perform adequately


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 Appraising Suppliers is:

❑A way of determining how a supplier will perform

❑A basis for developing a list of approved suppliers
❑A basis for developing a supplier development
program.
❑A basis for developing a vendor rating system
❑The start of a business relationship

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Initial Short Listing of Vendors
After vendors have submitted their proposals, the RFP issuer can
begin a preliminary evaluation. During this stage, the issuer will
identify a subset of vendors who are most qualified to address
their needs. This subset is known as a shortlist. Steps to select
your shortlist:
❖ Compare critical factors to vendor strengths
❖ Eliminate vendors who are not qualified or cannot
compete
❖ Identify differentiation factors for an in-depth
comparison
❖ Questions for evaluating vendor proposals
❖ Did they provide a timely and accurate proposal?
❖ How long has the supplier been in business?

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 The Supplier Appraisal Process
Set supply targets
Position the item Analyse supply markets
& priorities

Set item-specific supply strategy

(& desired supplier relationship)
1
Determine the criteria for supplier appraisal
2
Reassess overall Identify potential suppliers
supply risk New supplier
contacts us
3 Screen the potential suppliers

4 Research further information on suppliers

5 Weight the criteria & rate the suppliers

6
Undertake a SWOT analysis of shortlisted suppliers

7
Record the outcome on a supplier database
8
Review the outcome with the suppliers
9
Determine supplier 59 Leading excellence
development strategy in procurement and supply
Determining appraisal criteria...
The Performance Equation

Performance = Capability x Motivation

Evaluate the
supplier’s ability Evaluate the
to supply your supplier’s interest &
company potential commitment

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Your appraisal criteria will relate to:
Quality
Availability

Cost
Supplier service &
responsiveness
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The value of your business to a supplier

Classifying your expenditure as a proportion

of the supplier’s turnover
Classification Percentage
High (H) More than 15%
Moderately high (M) 5% - 15%
Low (L) 0.8% - 5%
Negligible (N) Less than 0.8%

X
5
2

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The level of attractiveness of your
business to a supplier:

Are your business strategies compatible?

Is it easy to do business with your company?

How good is your financial situation & payment record?

Will the supplier benefit from being associated with you?

Do you offer a good potential for future business

development & expansion?
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Assessing financial health: 9
12

6
3

Financial statements:

The Balance Sheet - shows the

financial situation in terms of Assets
& Liabilities at a point in time

The Profit & Loss Account - shows the

financial situation in terms of
Revenues & Outflows over a
period of time
Different companies use different accounting
practices, and accounting rules vary from one
country to another
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Financial ratios:
Ratios for profitability (I)

Gross profit as
Gross profit x 100
a percentage of
Turnover
turnover

Net profit as a
Net profit x 100
percentage of
turnover
Turnover
(net profit margin)
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Financial ratios:
Ratios for solvency (I)

Current assets
Current ratio
Current liabilities

Current assets - stocks Acid ratio

Current liabilities (quick ratio)

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What comes next?
SWOT analysis

Categorise the appraised suppliers

Record the assessments

Review the outcome

with suppliers

Determine what you can do to further develop or

motivate certain key suppliers

Update your overall assessment of the level of supply risk

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 SWOT Analysis - an example
Ours: • We are their first client in a
new market Ours:
• Small but growing business
• Relatively small purchase volume

Theirs: • Leader in their home market • Lack of negotiation skills

• Deal in both raw materials & • Lack of experience in our market
finished products
Theirs:
• Better access to market
information • Excess capacity
• Good technical support • No product differentiation
capacity S W
• Long term contract O T
- guaranteed supply • They may force us into sole source contract
that restricts sourcing elsewhere
• They provide training to our • They may sell to our competitors too
product design staff • They may withdraw from our market if
not successful
• Possibility to buy back some • They may increase prices at the
of our production end of the first contract

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 Having a supply strategy means
knowing:
❑ How many supply market segments to buy from
❑ How many suppliers to buy from
❑ What type of relationship to have with your
suppliers (arms length or collaborative)
❑ What type of contract to have
❑ Which operational procurement strategies to pursue

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The Supply Positioning Model: 4 types of purchase items

M
Impact/ Bottleneck Critical
supply
opportunity/
risk rating Routine Leverage
L

N
80% of items = 20% of value 20% of items = 80% of value

Expenditure
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Spend Intelligence
Procurement can aggregate and classify organization’s spend
data for its purpose of reducing costs, improving operational
performance and ensuring compliance. For the organizations
that are using multiple disparate systems for item purchases
and expense reports, they can migrate their data.

Procurement can help the user generate answers to the

following questions affecting their spending, including:
❖ What are the organization really spending?
❖ With whom the organization spending it?
❖ Is the organization getting what’s been
promised for that spend?

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Spend Analysis

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Spend Analysis Do’s & Don’ts
True insight into an organization’s spend is an essential factor in the
ability for procurement professionals to see where opportunities
exist to support developing a roadmap alongside the data.
✓Do cleanse, consolidate, and classify
✓Do scope out needs and assess opportunities
✓Do bring in stakeholders
✓Do use data as a tool, not the end result
✓Don’t ignore time parameters
✓Don’t ignore low-spend suppliers
✓Don’t bury yourself in details
Every data point should contribute towards your strategic sourcing
initiatives.

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 Summary of typical quadrant characteristics
of the Supply Positioning Model
Routine Leverage Bottleneck Critical

Impact/supply
opportunity/ risk Low Low High High
to your company
Standard or non- Often non- Often non-
standard purchase Standard Standard standard, but standard, but
items could be either could be either
Number of
Many Many Few Few
suppliers
Level of
expenditure for Low High Low High
your company
Attractiveness of
your business to Low High Low High
suppliers
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Moving Around the Supply Positioning Model
Classic Almost Almost Classic
bottleneck critical bottleneck critical

Bottleneck Critical
Almost Almost
I/SO/R routine Elements of leverage
rating all quadrants
Almost Almost
bottleneck critical

Routine Leverage

Classic Almost Almost Classic

routine leverage routine leverage
Expenditure
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 Your overriding objective...
...is to increase leverage!
Bottleneck Critical

Reduce Risk
Reduce Risk
I/SO/R
rating

Increase expenditure

Routine Leverage
Expenditure
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 Identify different items that
can be grouped together (e.g.,
office & computer
consumables)

Group the requirements of

different sites and users
Group your requirements with
those of other companies
(e.g., amongst SMEs)
Increase expenditure

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Review the specifications and
go for standards where
possible
Identify new sources through

Reduce Risk
supply market analysis
Work with suppliers to
develop their capabilities

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 The supplier-buyer relationship /
contract continuum

Spot Regular Call-off Fixed Partner- Joint Internal

purchase trading contracts contracts ship ventures provision

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Addressing Services Procurement
Challenges
❖ Lack of subject matter expertise needed to effectively
manage the spend, or simply not enough capacity in general to
accomplish a company’s strategic objectives
❖ Internal variation in requirements across departments
❖ Vast base of suppliers providing the multitude of services with
no true awareness of their full capabilities or performance
record
❖ Competing business objectives where procurement wants
savings, for example, but business stakeholders want quick
delivery and are focused on ROI
❖ Confusing processes for engaging and dealing with suppliers
and their workers
❖ Internal perception of the procurement function
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OVERCOMING CHALLENGES
Innovation: Flexible model that can be adapted to best fit your
company’s unique requirements and procurement strategies
Reporting: Insights into the details and performance of all elements
of your services spend to align processes and practices for better
decision-making, engagement, and return.
Supply base management: An understanding of supplier sources,
capabilities, and performance for more rational decision-making.
Market intelligence: Market analytics information to enable
performance benchmarking, better decision-making, and improved
ROI
Stakeholder relationship management: Increased understanding of
expectations from, and alignment

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Evaluation Methods
1.Quality & Cost Based Selection (QCBS) 2. Least Cost
Selection (LCS) 3. Selection Based on Consultants’
Qualifications (CQS) 4. Quality Based Selection (QBS)
5. Selection under a Fixed Budget (FBS) 6. Single Source
Selection (SSS)

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Evaluation methods
Companies usually use one or a combination of the following
evaluation methods:
❖ Lowest responsive/compliant/acceptable offer
❖ Weighted scoring system.

Lowest responsive/compliant/acceptable offer is typically

used for RFQs and ITBs.
Weighted scoring system is used for RFPs. However, this is
changing and weighted scoring system can also be used for
ITBs and RFQs. In some cases a combination of the two are
used.

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Weighted scoring Method
When using the weighted scoring method, the award of a
contract should be made to the supplier whose offer has
been evaluated and determined as:
❖ Responsive / compliant / acceptable, and
having received the highest score out of a pre-determined
set of weighted technical and financial criteria specific to the
solicitation.
❖ This method may be used for more complex procurement
where:
▪ Evaluation criteria cannot easily be quantified
different aspects of value for money (e.g. price and quality)
need to be considered and balanced

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Objective Vendor Selection: TIPS
❖ Take the process seriously
❖ Decide if an RFP is the right call
❖ Identify your scoring criteria before sending the RFP
❖ Invite a small number of vendors (more vendors you invite,
the more complicated your scoring & comparison)
❖ Set weights on sections and individual questions
❖ Use simple weights, like a 0-5 or 0-10 scale
❖ Compare responses apples to apples
❖ Make your selection

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Evaluation Template

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POLL 3

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SESSION 4

CONTRACT MANAGEMENT

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Importance of creating a careful
contract
The process of creating and signing any contract requires extreme
care. Indeed, they are crucial should any litigation become
necessary.
❖ Eliminating misunderstandings and confusion
❖ Reinforcing the commitment of both parties
❖ Providing clear financial expectations
❖ Limiting and defining your liability
❖ Serving as a valuable reference document
Once your contract is final and complete, your RFP can be closed.
At this point, it’s time to inform vendors of the outcome and
provide feedback about the reasons behind your decision if
possible

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Contracts
❖ All contracts contain similar elements: costs, payment and
delivery terms, SLAs, guidance for dispute resolution, etc.
❖ In the case of services procurement, however, the structure
may be very different than with product categories.
❖ There will possibly be a Master Services Agreement (MSA)
that serves as the basis for multiple Statements of Work
(SOW[s]). This reflects the fact that the service in question
is defined broadly at first, followed by multiple detailed
project-like agreements that define the outcomes, work
expectations and timelines. Both the MSA and SOW(s) will
be needed to connect the upstream contract to
downstream delivery.

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Delivery
❖ When a product is purchased, either procurement or
someone else in the organization can literally handle it.
❖ There is no question that the item has been delivered.
❖ The evidence of services delivery comes in a different
form: perhaps it is the appropriate hourly coverage or
clear proof of an objective-driven outcome.
❖ Even when the evidence is clear, procurement needs to
maintain visibility into who performed the service to
ensure that the right person (billing at the agreed upon
rate) did the work.
❖ This also has to tie directly back to a contract — are the
terms and obligations being met?
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PROCESS
NORMAL VS SCIENTIFIC

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The Negotiation Process
1. Preparation
2. Fact Finding
3. Bargaining

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Effective Negotiation

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Negotiation Tool: Should be Cost
Analysis
Suitable in case of monopoly service providers. No
alternative.

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What is a works contract?
❖ Works contracts are nothing but integrated contracts
of supply plus services.
❖ These are called composite contracts wherein scope
involves the supply of goods and provision of services.
❖ This is not a third category, but, a combination of supply
and services.
❖ In certain situation, it may not be possible to divide the
scope of work into goods and services.

Examples: Repair of a computer together with supply of

damaged parts; Turnkey Plants

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Service Contract
❖ These are the contracts for Provision & Receipt of Services
between the parties.
❖ The party who provides the SERVICES is known as Service
Provider .
❖ Party who receive the services is known as Service Receiver.
❖ Services are intangible products rather than physical goods.
❖ Services include all such actions, deeds and effort
performed by one person for another to satisfy a
need/desire (of another person) in the course of business or
commerce.
Examples: …..

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SERVICES PROCUREMENT CONTRACT

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Types of Service Contracts

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Types of Service Contracts

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Creating Service Contract: Steps
❖ Identifies the Parties Involved (Name and registered
address of the companies; names, address, and contact
details of the representatives/signees)
❖ Describe the Services that will be Provided (List of
contract services to be performed)
❖ Outline the Appropriate & Schedule of Payment
(Payment amount and schedule)
❖ State the Terms of the CONTRACT & Possible Renewal
Provisions. (Terms and conditions of the contract;
renewal clause or life insurance policy)
❖ Personalize the Agreement to Suit the Transactions
(Individualized content)
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Service Contract vs. Service
Agreements

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Dos and Don’ts of a Service Contract
Dos
1. Do use simple headings & number paragraphs.
2. Do consider the standards of labor law and contract law.
3. Do review the correct use of conjunctions.

Don’ts
1. Don’t forget to punctuate.
2. Don’t assume that readers define certain words the way
you do.
3. Don’t write wordy sentences.
4. Don’t agree to any modifications without memorializing it
in writing.
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Performance Management

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SERVICE LEVEL

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SLA
❖ SLA is a formally negotiated agreement between two
parties.
❖ It is a contract that exists between customers and their
service provider, client or between service providers.
❖ It records the common understanding about services,
priorities, responsibilities, guarantee, and such —
collectively, the level of service.
❖ For example, it may specify the levels of availability,
serviceability, performance, operation, or other
attributes of the service.

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SLA: Criteria to achieve a good SLA
1. Any SLA is open for negotiation, but only in initial purchase.
2. Define Availability as you would expect it.
3. Always keep in mind the distinction between reaction time
and correction.
4. Make precise definitions of problem severity levels and tie
them in with reaction and correction times.
5. Define response time for all levels of severity
6. Define channels of communication and escalation
7. Define the conditions under which the SLA criteria are
applied to a problem.
8. Define measurements and reporting.
9. Tie in penalties and contract back-out options.

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 Final Thoughts…
❖ Align procurement skills and talent with changing business
needs.
❖ Measure and manage procurement performance and
business value.
❖ Obtain more value from existing suppliers through
supplier relationship management.
❖ Obtain more value from existing categories through
category management.

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POLL 4

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THANK YOU!
(Best wishes in your quest to become Business Leader)

For More Information visit

www.ism-india.org
or
contact me :
Krishan.batra@ism-india.org

Tel: +91 9971171220

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