Tendering and Contracting: of Ango-American Coal-Mining Company - Case Study Example

Tendering and Contracting Student’s Name Subject Professor University/Institution Location Date Executive Summary Ango-American coal mining company has set up projects to meet the high demands for coal. In turn, at project completion, it aims to produce over 5 million tones of metallurgical coal every year in its ongoing commercial production by 2016. The company need for new systems fit-in on site to accommodate its functions has led to partnership and collaboration in tendering and contracting. The process is quite complex for mega projects in documentation, crafting of standard document, review and evaluation process. To make the best out the tendering process, Industry Capability Network has been a potential organization that Anglo-American has opted to co-work with to contract for its work packages. All the companies that have posted interests must go through evaluation by ICN gateway as they offer Anglo-American subcontracting service. In turn, the company has maximized its opportunities to get better local suppliers and outsourced providers who will be awarded contracts depending on agreed selection criteria and agreed standards. Procurement Manager has run educational consultation and education sessions at Moranbah to assist Anglo-American build their capabilities to work with the companies. This long approach to contracting and tendering is built on formal risk assessment. Having indicated three major risks that it faces with the tendering including; more expenses for repairs if the contractors damages the, expenses to find alternative contractors if the current contractor delays the work and expenses to rectify if finalized work is not fit for company purposes. The process has been to decide which contractor is the best and their readiness to resolve outstanding issues that might arise within their interaction at Moranbah. Table of Contents Executive Summary 2 Table of Contents 3 1.0 Introduction 4 2.0 Background Information 5 3.0 Рrоjесt Теndеring and Соntrасting 5 3.1 Selection Criteria 6 3.2 Time Factor 7 3.3 Quality Management 7 3.4 Costs 8 3.5 Organization and skills 9 3.6 After-tendering Process 10 Conclusion 11 References 12 1.0 Introduction The demand for coal has grown steadily and Anglo-American coal mining company has seen the need to move quickly and come up with efficient and effective methods that would increase coal production and quality compared to the current trends. From January 2013, the company has opened up construction and installation project at Moranbah mining site. The project team that is assigned to see things done has taken time to release and request for tender. The documentation is based on standard documents reviewed by in-house counsel (Zitron 2006). The bid team assumes a lot of flexibility in evaluation process and has settled for selective tender approach. Generally, underground packages have been issued throughout 2013/14. The tenders have included the installation of conveyor systems, gas drainage and underground electrical. This discussion revolves around tendering and contracting encompassing the whole process for procuring goods and services. It begins with needs identification, and decision on procurement requirement. It will also look at risk assessment, sought out and evaluated alternative solutions before awarding of the contract, delivery and payment of a contract. It will also deal with ongoing management of a contract and considerations in the process of project. 2.0 Background Information To achieve the value for money, it requires comparative analysis of the costs and benefits for each bid throughout the procurement cycle. Anglo-American has taken consideration of many more factors than cost. However, the value for money has been a principal consideration and it has been enhanced by selecting Industry Capability Network that encourages competition having dealt with major contractors for long. In turn, Anglo-American relies on ICN services to ensure non-discrimination in tendering process and promote the use of resources in efficient, effective and ethical manner. It has its procurement manager attached to ICN to ensure that the decisions made are transparent. 3.0 Рrоjесt Теndеring and Соntrасting From January 2013, available tender processes have been conducted through open tenders. The tenders are publically advertised without restriction on who to tender. Request for tenders, expression of interests and application for inclusion has been used to reach many contractors and suppliers (Russell, Hancher & Skibniewski 1992). Anglo-American relied on open tenders since it has never dealt with a quite extensive project in the past the case of the current project in progress. In addition, the project had many facets that have to include a tender at its own time according to the stage and installation requirement. A group of suppliers have been selected throughout 2013 and are still continuing through 2014. The challenges with direct sourcing have been noted. Mainly, they limit the number of suppliers and limit the evaluation process. Consequently, few suppliers may not offer the best packages and thus there had been a need to have more suppliers and compare them based on standards and set criteria. 3.1 Selection Criteria As Banaitiene & Banaitis (2006) argues, higher expenses and time-consuming trends are involved with formal tender. ICN has been chosen as reference organization to make sure that the process is undertaken with minimum cost and at the same time offers maximum benefits to prospective company (Bakker, Walker, Schotanus & Harland 2008). ICN provides the most structured and competitive process that is effective as they understand what the market has to offer. It involvement with tendering and contracting offers Anglo-American reach suppliers and present a formal mechanism to have a complete plan, change and inclusion of other services that are necessary to be arranged between the project owners and suppliers (Watt, Kayis & Willey 2010). In the procurement processes, decisions have been made after consultation with procurement manager (Rashid, et al 2006). Anglo-American has set its criteria for selection of suppliers. The successful suppliers must have done quite a number of successful fit-in and fit outs in Australia or other territories, without cash flow issues , with slightly lower price and accepting liability limited to standard contract (Holt, Olomolaiye & Harris 1993). Acceptance of un-limited liability is core to determine the suppliers that stand a better position to enter into negotiation and for selection (Hensher & Stanley 2008). The criteria have been agreed as the best applicable process to control the cost of tendering and maximize the probability to achieve the right outcome (Hatush & Skitmore 1997). The procurement manager deals with tendering and contracting planning following some key consideration as agreed with tender team. There are some key considerations that have shaped outsourcing including: 3.2 Time Factor The project has had a number of suppliers on site and each activity has been set to go for a particular time. Underground excavation and installation of long wall were the first activities on the site. The IT installation and electronic tools have been prepared for installation after the prior activities are completed. Similarly, ICN has been given sufficient time to undertake outsourcing. 3.3 Quality Management To ensure suppliers who offers quality, the project tender team comprise of in house personnel with sufficient resources to ensure that suppliers that are recommended by ICN undergoes thorough evaluation. In every case, suppliers’ capabilities to meet the deliverables have been confirmed after reviewing the documents and meetings that determine the capacity to meet the assigned responsibilities (Al-Reshaid & Kartam 2005). Procurement management has been important due to the need to reduce risks. Time factor has been a major consideration as the project has a finite end, 2016 when the owner will assume mining activities. One major area that might affect the project is obtaining clarifications from references and suppliers that can in turn lengthen timescales. Procurement manager has acted to ensure timely and effective decisions to avoid the delays. There are general instances that are related to such delays including the need to continuously update and adequately document various issues related to suppliers. The manager adopted an early approach and follow-up trend due to request made from most tenderers for increased time to respond (Edler, et al 2005). In turn, every supplier must have been confirmed two months prior to activity initiation. Tender team has worked hard to pull together responses towards tenderers queries. The main objectives of tender team are to consider time when negotiating the contract. Eventually, the greatest impact of timescales is worked on and this has not been underestimated. Typically, days are scheduled in procurement plan where major processes have taken weeks or months. 3.4 Costs To control the project interests, risk management have identified in control of a project that amounts to $US1.7billion (The Mining Advocate 2013). As Elhag, Boussabaine & Ballal (2005) observes, the tender from most suppliers that are priced higher have a major characteristic that in turn suit the cost related issues of the project. The suppliers with the best value for money in the total package have been preferred (Skitmore & Patchell 2005). Project cost includes the liability with major expenses like undertaking repairs in case there are damages in the process of fit in. The liability to incur the costs in case the project run over time and expenses to rectify if finalized deliverables are not fit for company purposes. Cost versus benefits considerations is considered as the project is undergoing or seeking large outsourcing arrangement (Dalrymple, Boxer & Staples 2006). It has established its own process by defining its requirements, consulted suppliers and getting written submission for them to show them the project plan. In the process, it has been easy to select the best suppliers after assessing them and agreeing a contract. The contract sets enforceable obligations that each party follows and keeps on the other party on those terms. As Chen, Wang, Liu & Chen (2010) argues, a contract is an explicit way of making the supplier notes what they are to offer, keep following those terms to the completion of the project. Consideration involves the prices offered for the project and the means of assessing the necessary process to fulfill them. Before the onset of the project, it was realized that, the cost of tendering could exceed the benefits of services sought by the organization. It has been a vital role of the procurement manager to check and work through the process. An elaborate team can coordinate roles and interlink the efforts at every stage with costs requirements. 3.5 Organization and skills Anglo-American has taken procurement as an important part of the project since it impacts on its capacity to complete successfully or fail. It has acknowledged that outsourcing for projects is the most complex process that requires resources. In turn, it has put in specialists around the organization that are added when needs arises. Procurement manager has coordinated the work of tender team and worked closely with senior management, financial, technical, supplier management, project management ad service delivery. The company has also combined important organizational skills from HR, administration, legal, legal premises and other as a hub of a team that has the necessary expertise to call and use the suppliers. The work is thus coordinated and shared to maximize the benefits and reduce avoidable costs. Competent internal resources have allowed the company to keep the procurement costs down. In addition, external expertise has been used mostly for two major reasons: The tender team needs an external member that fully understands the roles and perspectives of every internal expert as well as communicates to them in their own terms. This has been acknowledged as finance can have different interests from HR or IT in the project as an example (Caniëls & Roeleveld 2009). Secondly, there is a need for an organization that has gone through the process many times before. In turn, the organization is able to deal with critical issues promptly and there will be no time lost due to the needs to start from scratch (Iossa, Spagnolo & Vellez 2007). Rarely would the Anglo-America have the necessary expertise and experience to head up multiple outsourcing and tendering projects. It may have some experience working on some major aspects on tenders but a crucial overall perspective is highly required. In turn, Anglo-America has come up with sales personnel, specialists and executives that have done contracting and tendering on a daily basis. The team that has been set is matched with ICN. 3.6 After-tendering Process After recommendation from ICN, Anglo-American has made its procurement manager accountable after getting into contact with the vendor (Hensher & Stanley 2008). Discussions start as an organized and fine process getting suppliers buy decisions and counter on their sense of liability. As Eriksson & Laan (2007) observes, negotiations are geared towards seeking lower-cost but also higher-quality service. As Tadelis & Bajari (2006) observes, that has necessitated the need for competent people from both sides and high-quality contract in order to address the requirements from supplier’s offering. Immediately, procurement manager drafts the text and agreements to demonstrate clear view of key details at hand. Procurement manager and venders also set agreements on the way to evaluate proposals and how other issues will be addressed in the process of deploying the project (Soreide 2006). In addition, the project has needed on-site workforce that has range from 400 to 500 workers. During peak activities, 700 workers are required to work on shifts bases in some months (The Mining Advocate 2013). After majority of earthworks is completed, conveyor drifting advances and installation of overhead conveyors, there will be minimal human labor on site. Procurement manager in Anglo-American has connected with locals to seek specific labor requirements and promote coaching and mentoring before the onset of activities for locals to meet or satisfy Anglo-American requirements. Conclusion In conclusion, Anglo-American tendering process has shown how the process can be made easier by clearly setting out each party’s obligations and captures the essence of how services will be provided. Organizational skills and personnel’s capacity is very important as they are able to capture the essence and how the services will be offered. Tendering is an extensive processes and it is the ultimate duty of the project owners to determine the means to evaluate and easily compare suppliers. Every effort should be made to have suppliers confirm their skills and expertise in the area if their roles in the project, prices and level of liability. The agreements are then required to be tabled down or documented for future reference and consideration. Apart from internal skills and organization, there is also need for external skills with every effort made to get the best suppliers and commit them to the project. The role cannot be accomplished easily without having a party with expertise in the area. Eventually, time, cost, legal, quality and liability factors should be considered before commencing on or offering a contract to a supplier. 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