In these two lectures we will look into the world of the

IT procurement process, suppliers and contracts.

Part I IT suppliers and supplier management

Part II The procurement process

Part III IT contracts

IT suppliers, procurement and contracts Torleif Nesheim

UiO March 2014

Part 1: IT suppliers and supplier

management

Torleif Nesheim

UiO

March 2014

”ITIL supplier management”

ITIL is the leading system of generic processes for the IT industry. ITIL is now very comprehensive and very generic. This means that every orgaisation wanting to adapt ITIL, will have to ”translate” ITIL into its own format and purpose. No one is ”100% ITIL compliant”. As with the ISO standards of the 90-ties, adapting to ITIL is very demanding and resource consuming, -at the same time optionally very productive.

These are the ITIL Supplier Management sub-processes and their process objectives: Providing the Supplier Management Framework Process Objective: To provide guidance and standards for the procurement of services and products. This

includes the provision of the Supplier Strategy and the preparation of standard Terms and Conditions. Evaluation of new Suppliers and Contracts Process Objective: To evaluate prospective suppliers in accordance with the Supplier Strategy, and to select the

most suitable supplier. Establishing new Suppliers and Contracts Process Objective: To negotiate and sign a binding contract with a supplier. This process is mainly applied for

significant investments, either in externally provided services or in technology. Processing of Standard Orders Process Objective: To process orders for commodity products and services, and to order pre-defined items within

the boundaries of existing contract frameworks. Supplier and Contract Review Process Objective: To verify if the contractually agreed performance is actually delivered, and to define

improvement measures if required (see "Supplier and Contract Review") Contract Renewal or Termination Process Objective: To carry out regular renewals of contracts, to assess if those contracts are still relevant, and to

terminate contracts which are no longer needed.

ITIL Supplier management sub-processes

Obtain value for money from suppliers and contracts.

Ensure that contracts with suppliers ar aligned to business needs, and support and align with agreed targets in SLR´s and SLA´s in conjuction with SLM.

Manage relationship with suppliers.

Manage supplier performance.

Negotiate and agree contracts with suppliers and manage them through their lifecycle.

Maintain a supplier policy and a supporting and contract management information system (SCMIS).

SLR service level requirement

SLA service level agreement

SLM service level management

SCMIS supplier and contract information management system

ITIL´s goals for ”supplier management” (from the Service design book)

The IT suppliers deliver everything from printing paper to advanced software, servers and professional services. Normally you have too many..

Who are your IT suppliers

A supplier strategy is an internal code for how the organisation wants to relate to external suppliers in a strategic context:

Overall ”code of conduct” for the relationship with suppliers

Process guidelines for different kinds of procurement types

Structure for internal organizing; roles and responsabilities

Repository for internal authorizations

Policy for what kind of information to share with different kind of suppliers and partners in different parts of the procurement process/ confidentiality

Clustering of vendors into strategic, tactical and operational groups

Strategy for numbers of perferred vendors in differens sectors.

Criteria for real partnership.

Policy for the use of standard contracts etc.

Policy for handling of contracts, contract repository, (ITIL: SCMIS), and contract lifecycle management

What is a supplier strategy?

To qualify for the concept of partnership between customer and supplier, there is the condition for a real and longterm mutual benefit structure between the parties. There must in other words be a win-win situation.

Normal price reductions and discounts etc. is no partnership.

”Partnership” between customer and supplier

Mature and well goverended orgainizations have a supplier strategy; - make it!

Use the ITIL framework, when relevant, useful and convenient

Cluster your suppliers into grade of importance and citicality for the business. Build a trusting and long term relationship with those most important.

The main and common challenge is that organizations have to many suppliers; make a serious attemp to structure and reduce numbers

Establish a repository for all your IT contracts and manage their life cycle . This is paricularly important for leasing agreements and software licence contracts.

Care for your suppliers, but do not let them too close!

Be very conciderate of what information suppliert are given about your business. Information is power!

Partnerskap exists only when there is a real and material win-win situation

Suppliers: summary

Part II

The procurement process - from idea to signed contract

Torleif Nesheim

UiO, March 2014

DIFI quote / www.difi.no : ( translated TN)

A procurement strategy is at set og basic and longterm goals for the organizations procurement process. This strategy defines the content and direction for support activities and resources neccesary to reach the goals. The purpose of the procurement strategy is to increase the value creation of the organisations procurement through distinct goals, plans and activities. Thus to contribute in securing the best possible goods and services for sosciety ( the business) with the optimal price, - and at the same time creating a sound, longterm and sustainable future for the general supplier market. We have previously looked at the supplier strategy. The supplier stragegy will in most cases be a sub entity

of the Procurement strategy.

Procurement strategy

There is a lot of considerations to take when procuring ! OBS: An increasing number of IT procurements touches all the 5 main areas and the four

stakeholders in the model below. Too often this is forgotten and IT professionals tend og focus on the ”IT tunnell”

CUSTOMERS

TECHNOLOGY

ORGANIZATION

PROCESSES SYSTEMS

DATA

AUTHORITIES

AND LAW

COMPETITORS SUPPLIERS

THE PROCUREMENT PROCESS

Implementation Planning Delivery Stabili-

sation Procurement

Change management and information strategy

Business governance and project management

Quality assurance

Spesification and

preparing of RFI and

RFQ

Business idea,

ownership and

mandate

Negotiations

and contracts

Current

situation/ aligning

with business

strategy

Benefint definition and clear ownership for stakeholders

The procurement process consists of the two first phases in the generic project model: =

Planning and Procurement. It is important to establish the supporting processes (the four arrows

below) as early as possible.

Short

-

listing

1 2 3 4 5 6

Evaluation and supplier process

1 Idea - and mandate phase

The business is normally in a hurry. The worst thing you can do at the start of a complex IT Procurement process in to plunge into the slippery mud, without clear spesifications, explicit mandate, a realistic set og milestones, business ownership and responsabilities. It is utterly important to get the right angle from the ski jump. • Clear high level spesifications and shared perception of current situation, strategy and goals • Explicit mandate and a well made business case with a realistic consept og benefits • Financial backing with preferred flexibility • Proven governance and a personal project owner with clear responsbilities • Well considered expectations for the use of internal personell resources

All this should be in place in high level format before the project owner invite the board of directors to make a go-decition. Details later.

Organising large and medium size, complex IT projects must be adapted to the kind

of developement and delivery in each case. It is not always neccesary with huge project orgnisations. On the other hand: all key roles must be in place and there must be a clear and well known process for importans decitions and a path for escalations

Project organization and roles

This is after the go-decision has been made.

As project manager you should now have the planned resources to start working

Large puchases should be in line with overall strategies and budgets. Make sure everbody knows.

From time to time, people don’t agree. It is important to chart disagreements and inconsistens personal agendas in order to finally march in the same direction. Bring in the officers to make decitions

Well designed and clear information to everybody involved is an important part of the work in this phase.

2 Charting of current situation and aligning

of strategies and goals

The most important condition for a successful procurement is a professional spesification, deskribing in relevant detail the object of procurement. Lack of quality in the spesification is the most common reason for failure, loss and disappointment connected to buying new IT goods or services. Most of what you forget to spesify, you will have to pay for as a supplement later.

The spesification is the basic content of the Requests to the marketplace.

RFI means ”Request for Information” og RFQ means ”Request for Quotation”.

An RFI is normally used when the customer expects to meet a substantial number of suppliers and wants to sort out those considered best suited to deliver the Quotation. The RFI contains only a very high level spesification.

RFQ is the the real request for quotes and contains the spesification of what the customer wants to be delivered. It is important to define the perferred format of the quotes from the suppliers in order to facilitate an effective evaluation.

3 Spesification and request for quotes

Det finnes et regelverk om offentlige anskaffelser som består av følgende elementer:

Lov om offentlige anskaffelser / www.lovdata.no / www.regjeringen.no

Gjelder for alle offentlige organisasjoner, stat, kommuner, fylkeskommuner, helseregioner etc. Loven er ganske kort. Støtet kommer først i forskriften..

Forskrift om offentlige anskaffelser

Forskriften er skremmende lang og derfor med et omfattende sett av regler og bestemmelser

KOFA – Klagenemda for offentlige anskaffelser

Statlig organ som passer på at ovvennevnte regelverk bli fulgt

www.kofa.no

Andre nyttige linker:

www.difi.no og www.anskaffelser.no

Se også Stortingsmelding 36/2008-2009: ”Det gode innkjøp”

Norwegian law and rules for procurement in government orgaizitions

Organize the evaluation of the quotes so as to involve the project owners organization and let them take ownership from day one.

You will normally need meetings with the most preferred vendors to claify open spots in the quote. The customer should have full control of the agena in such meetings.

Visit reference customers, preferrably without the vendor on you heels..

You should inform the vendors of the whole process and its main milestones.

The vendors will try in many ways to obtain both formal and informal information about your process and your business. Close the grid and decide who is allowed to speek to vendors as long at the process in ongoing

Do noe relate informally to vendors during the procurement process. Watch you hability closely.

4 Evaluation and supplier contact

Never put forward a supplier decition before all key conditions are in place in the contract with supplier no 1, and in the project plan.

Shortlisting should be based on facts and douments should be transparent. Readers are most often smart..

Try to reach consensus in the project team. This is a good condition for a successful project.

Write the decition paper with all facts open and logically described, preferrable both as a Word document and a Pwp presentation.

5 Short-listing and decition

This will be covered in the next part.

6 Negotiations and contract

The procurement process: Summary

• Ensure your process is aligned with the procurement strategy and complies with laws and other rules. • Organize the procurement process with relevant participation in order to obtain consensus within the

business. • Ensure you have a dedicated project owner and keep her close. • Put a lot of consideration and energy into making a professional and comprehensive spesification. • Handle the market with professionalism and respect, but keep vendors at a suitable distance. • Be clear about your own autorities and escalation process. • Hold the initiative and control in all processes that involve the supplier • Visit reference customers, and beware and take care if you find none.. Look for their smiles to reach their

eyes.. • Never put forward a decision proposal before all key elements in contracts and plan are ready. • Base your decision documentation on on defined criteria and facts and let them be transparent. • Seek consensus in the choise of vendor.

Part III

IT contracts

Torleif Nesheim

UiO

March 2014

A supplier contract is a contract between a customer and a supplier og goods or services. Normally between two parties, there might be more than two parties in a contract.

Basically the contract shoule descirbe:

The spesified object of the delivery

Prices and milestones for payment

The total commitment of the supplier

The total commitment of the customer

Overall scedule and milestones

Conditions when things go wrong = legal matters

We can immediately see that a supplier contract has a legal side and a part descibing alle matters of delivery. Normally more than 90% of the work with the contract is connected to matters of delivery.

What is a supplier contract?

Jus

Fag

There are 3 sets of standard contracts for the Norwegian market. A ”standard contract” is a prewritten, generic text, comprising both legal conditions and matter related content, aimed at a specific type of puchase, for instance consultancy services, hardware, leasing, outsourcing etc. In most cases you will have to modify and invent a lot of stuff to make the standard contract suit your purpose.

Statens standardavtaler This is the most mature set of contracts and has grown through the

years to be quite comprehensive. Has a clear bias towards benefits for the customer.

Den norske Dataforening Originally aimed spesificly towards developement with agile

PS2000 avtalene methods. The set has grown to be more comprehensive

IKT Norges avtaler Content almost similar to the SSA, but may be more balanced in its

bias.

Standard contract for Norwegian law

Statens Standard-

kontrakter:

• Kjøpsavtalen – stor og liten

• Vedlikeholdsavtalen – stor

og liten

• Driftsavtalen

• Tilpasningsavtalen

• Programutviklingsavtalen

• Bistandsavtalen

• Oppdragsavtalen

• Systemutviklingsavtalen

• Rammeavtalen

• Abonnementsavtalen

• Distributøravtalen

• Leverandøravtalen

PS-2000 standard-

kontrakter

(Iterativt basert system-

utvikling):

• PS2000 Rammeavtale utv.

• PS2000 Smidig/iterativ

• PS2000 Forvaltningsavtale

• PS2000 IT Driftsavtale

IKT Norges

standardavtaler:

• Rammeavtale

• Kjøp av utstyr og tjenester

samt disposisjonsrett til

programmer

• Kjøp av utstyr og disposi-

sjonsrett til standard pro-

grammer

• Vedlikehold og program-

service

• Konsulentbistand

• Systemutvikling

• Systemutviklingsprosjekt

• Vedlikeholdsoppdrag av

spesialutviklede program-

mer

• ASP-tjenester

• IT-driftsytelser

(Outsourcing)

• SaaS

When you buy stuff from Tata, Oracle, Microsoft etc. It is normally of uncertain success to show up with a Norwegian standard contract. These companies have their own contracts always to be used. Normally based upon the laws in their country of origin.

It woul be an uncareful exagreation to insist that these contracts are biased towards customer benefits….

It is recommended to try changing som of the conditions in these contracts if you:

Wishes intensely for a very bad and unsuccessful day

Or may be, if yuo love visiting company lawyers in India or California at lenth

Internastional vendor contracts

KS 1 is the Process for assuring that government financed projects are aligned with political decitions, when the total cost exceeds NOK 750 million. The review is to be performed between the prestudy and the preproject.

KS2 is the process for assuring that the coice of consept , estimates and governance model holds quality before financial proposal is put before the Stortinget.

KVU is a qualityr assurance process for big road and railway projects in order som secure the right choise of hig level solution consept, ie: brigde or tunnel for the outer Oslo fjord..

KS 1 and KS2 has been applied for som very large national

IT projects.

Processes for quality assurance in the Norwegian government sector

Organize the team with both subject matter skills and commercial skills, and decide the escalation process.

Never put forward a decision proposal for chosing av venodor before every key element in contract and plan is finalized.

Try to find out as much as possible about the vendor and his people participating, including their escalation path.

Always negotiate with at least two vendors in parallell. Use the larger part of your resoruces with the vendor with highes score.

Let vendors involved know that there are processes going in parallell. Keep them alert and on their toes.

Never negotiate with a time limit, and if you must, the conuterpart must under no circumstance know about it. Find out if the vendor has a milestone he wants to reach.

Never negotiate with salespeople only. Ensure that responsible subject matter people participate on the vendor side. All respect for sales people, but they tend to promise too much..

Strategies and thumbnails for making a useful contract ( 1 )

Never let your project owner sit at the negotiation table. Keep her invisible for the vendor and use it when apropirate.

You may bring in the project owner for pivot discussions at the very end.

Take the editing responsability yourself. Keep the control.

Always have someone taking detailed notes from negotiation meetings, and use them if neccesary.

Always have a strategy. Chose what is important for you and get your way there.

Use tactical breaks in negotiation and show you are discontent, but never show anger.

Put price negotiations at the end of your scedule, and never talk prices before every delivery is defined.

Avoid redundant descripitions in contracts; - One thing one time.

Thumbnails continued ( 2 )

Remember therefore:

A happy and sound supplier is a supplier who makes a reasonable profit by delivering to you in a serious manner. Do not misuse your power as a customer.

A good contract is one tha makes both customer and vendor a little discontent.

The ”be considerate and fair” poster