Principles of procurement and contract

The interface with a supplier or contractor is governed by a purchase order or a contract, respectively. Although purchase orders and contracts have differences in format and content, they are essentially the same, in that they are both a form of contract which is arrived at by a process of offer and acceptance. The two-sided nature of a contract is often insufficiently understood by engineers - both sides have obligations and can expect to be penalized for non-performance. Even the fundamental process of offer and acceptance is subject to reversal. If an offer is accepted subject to certain conditions or changes, the conditional acceptance effectively becomes a counter-offer and the roles are reversed. In fact as suppliers bids are seldom accepted without qualification, the purchase order or contract issued by the project manager is usually the final offer, and is not binding unless accepted by the supplier or contractor. 

The fundamental principle of procurement in a market economy is of course that the best prices are obtained by competition. Competition can be effected in several ways, the most usual (which we will assume as a default case) being that the goods and services to be procured are defined, and competitive bids are solicited. 

However, the development of a commercial relationship or business deals by any means other than fair and open competition is susceptible to corruption, or even the perception of corruption, which can be equally damaging. 

How the engineering ommercial interfaces are set up is evidently critical for the planning of the project. The interfaces effectively define 

It is also counter-productive to technically format a construction bid in a way which is unacceptable to the target market. This can happen, for instance, if lump sums are invited for work which is regarded by the bidders as unquantifiable, which may result in high bid prices because the vendors include high contingencies, or because few bids are submitted. The engineering costs saved by the simple bid format may be much less than the increase in the direct construction costs. 

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