CM-PE-708 Procedure for Purchasing

Table of Contents

1. Purpose
2. General
3. Responsibilities
4. Procedure
5. Flowchart
6. References

1. Purpose

This procedure describes Company normal purchasing activities pertaining to the supply of equipment and materials for projects.

This procedure also applies for the supply-part of supply and erect orders.

2. General

Company standard forms shall be used for all purchasing and material receipt activities covered by this procedure, except where otherwise requested by the client.

All records, reports, bid analysis, etc., shall be in a currency required by the client with conversions from other currencies at the client agreed rates.

The language for purchasing documents and communications shall be English.

Company shall give the client advance notice in good time of proposed meetings between Company and suppliers, together with date and time and subject of meeting.

2.1 Function and Policy

The Purchasing Group, as part of the overall procurement effort, has the responsibility to develop and execute the source, evaluation, placement and administration of all purchases necessary for the successful completion of projects undertaken by Company

It is the intent that the purchasing of materials and services be at minimum costs for the required quality consistent with completion of the project within the specified time. Purchasing therefore shall be conducted on a worldwide competitive basis except where Government Regulations or client specifications require otherwise. Where client's approvals are required Company shall secure such approvals prior to initiating action with suppliers and/or subcontractors.

Purchasing will only be executed through proper transactions with financially sound reputable firms who have been pre-qualified as suitable and acceptable suppliers.

2.2 Organization

The Purchasing Group is composed of Project Procurement Coordinators, Senior Project Buyers, Project Buyers and Purchasing Assis­tants, together with support personnel carrying out filing and distribution activi­ties. The entire group is under the direction and control of the Manager of Purchasing who, in turn, reports to the Manager Procurement.

The Purchasing Group operates within the team framework of each project. A constant interchange of information and action decisions takes place with various project, engineering, scheduling, cost, and construc­tion activities. Large scale project teams may be physically located such that all disciplines are in one area to facilitate communica­tions. The actual level of staffing is variable to best suit the needs of the individual project.

3. Responsibilities

The Manager Purchasing is responsible for:

• the assignment of a Project Procurement Manager and buyers at job start.
• approval of bid analyses and purchase orders.

The Project Procurement Manager is responsible for:

• handling and issuing purchase orders and bid analyses in accordance with this procedure.

The Lead Specialist Engineer is responsible for:

• preparing and issuing the requisition with a request of pur­chase to the Project Procurement Coordinator.

The Cost Engineer is responsible for:

• the inclusion of the budget value in the bid analysis.

4. Procedure

4.1 Purchasing Duties

Normal purchasing duties for projects will include the following:

• participating in the production of a project procurement requirements document together with a project suppliers list.
• issuing requests for quotations and subsequently expediting and obtaining quotations.
• evaluation and analysis of quotations and participation in supplier selection and negotiations.
• issuing purchase orders and amendments.
• spare parts procurement.
• administration and commercial control of purchase orders from issue through close out.

These duties are described in more detail in paragraphs 4.2 through 4.7.

4.2 Project Procurement Requirements

4.2.1 At the start of a project the Manager of Purchasing will assign a Project Procurement Manager or a Senior Project Buyer to be responsible for the organization, control, recording and reporting of all procurement matters for the project. In addition, he will act as a liaison contact between Company and the client regarding procurement. 4.2.2 The initial action to be taken by the Project Procurement Manager or Project Buyer is to carefully review the procurement procedures issued by the client and clarify with the client any areas which are not clear and specific.

4.2.3 In the event that client requirements are at variance with Company's standard procedures or paperwork, then these variances must be discussed with the client with the aim of minimizing changes. Following Company/client agreement, the project procurement requirements shall be documented in the appropriate sections of the Project Procedure and Execution Manual or in separate Project Procurement Procedures/Standards (ref. 6.5).

4.2.4 In addition, the Project Procurement Coordinator or Project Buyer shall, in conjunction with the Manager Purchasing and the Project Manager, prepares a list of suppliers which they consider acceptable for the supply of major equipment and materials. The list shall, if required, be reviewed by the client, revised where necessary, following discussions between Company and the client and re-issued as an official reference document for the project, checked by the Purchasing Manager and approved by the Project Manager, as part of the Project Procedure and Execution Manual (ref. 6.4). The client and/or Company may add or delete names subject to mutual prior agreement.

4.3 Issuing Requests for Quotations and Subsequently Expediting and Obtaining Quotations

4.3.1 Information received by the Project Procurement Coordinator to solicit quotations is composed of:

a. Requisition and Attachments

Requisitions and attachments for material and/or equipment are compiled by specialist engineers for the accounts handled by their respective sections e.g. by the Material Control Section for piping and the balance by project engineers.

Requisitions shall contain the following information:

either (a) a brief description of the material and/or work, together with the reference numbers and issue status of the drawings, specifications, standards or codes/norms applicable (for example: requisitions for pressure vessels, structural steel, etc.).

or (b) a full technical specification of the material (for example requisitions for piping materials, mechanical equipment, instruments, etc.).

In case of piping and other bulk materials, or for equipment where the requisition and attachments have been checked and approved for purchase, the first issues of the requisitions and attachments will be certified.

In all other cases, the first issues of the requisition and attachments will be marked "for bids". Requisitions and attach­ments "for bids" must be replaced by certified issues before the order can be placed.

b. Request for Purchase (RP)

RP's are prepared and initialled by specialist groups or project engineers and approved by the responsible Project Manager.

The original RP is used for transmittal of original issues of requisitions and their attachments to the Project Procurement Manager for action.

The following information shall be included in the RP:

• indication whether issue is for bids or for purchase.
• numbers and issue number of requisitions and attachments.
• documents required from supplier (unless details are includ­ed in requisition).
• inspection Instructions to be followed.

c. Revised Request for Purchase

The revised RP is used for the transmittal to the Project Procurement Coordinator of revised or additional information, such as new issues of requisitions and/or attachments, additional information or instructions for suppliers etc. Numbers and issue numbers of transmitted documents are included in the same way as on original RP's.

4.3.2 Immediately upon receipt of the request for bid package, the Project Procurement Coordinator shall register receipt in the "Purchasing Status Report" and distribute package to the appropri­ate buyer for checking and process. In the event that the informa­tion is incom­plete, insufficient or inaccurate, the matter is referred to the Project Manager for resolution.

4.3.3 Concurrently and prior to the issue of each inquiry for major supplier designed equipment and package units, Company shall advise the client by means of a notification form in duplicate, the list of proposed bidders will be selected from the approved supplier list, together with the requisition number and a brief description of the equipment or materials. These bidders should be considered by Company to be satisfactory in respect of technical capability to meet specifica­tion, adequacy of shop facilities and capacity and past performance, quality and delivery wise. One copy of this list will be signed and returned by the client together with their approval or comments and instructions.

4.3.4 A sufficient number of inquiries shall be issued to ensure the receipt of a least three valid quotations for all items of equipment, materials, services etc., except those falling in one or more of the following categories not requiring competitive bids:

a. value under $500.

b. published price structure common to all suppliers.

c. following prior Company/client agreement, due to engineering preferences, standardization or delivery requirements.

d. item is identical to a previously bid and recently purchased item.

e. modifications or additions are necessary after approval of selected bid by the client. In such cases, Company shall negoti­ate price revisions with the successful bidder following prior client approval.

4.3.5 Inquiries for equipment items shall be issued in rational groups as regards dimensions, material specifications, equipment types, standardization etc., each group containing a sufficient number of items to encourage low price quotations.

4.3.6 Inquiries shall request the supplier to include the following in his quotation:

a. itemized and total prices.

b. equipment or material prices to include statutory requirements concerning design, inspection etc.

c. realistic delivery dates, backed-up where necessary by prelimi­nary schedules.

d. packing and shipping specifications and methods.

e. shipping weights and dimensions.

f. delivery point.

g. details of start-up assistance included in bid and rates for such work not included in bid, etc.

h. details of documentary and drawing requirements.

4.3.7 For applicable equipment items, suppliers shall be instructed to submit with their quotations a supplementary quotation including quantities and unit and total prices for recommended spare parts for start-up and twelve months' operation.

4.3.8 The project procurement requirements included in the purchase order shall indicate the required delivery point. For equipment which by reason of exceptional dimensions or weight necessitates special transport arrangements, suppliers shall always be requested to quote for the equipment ex-works and a separate price for transport to the job site, with purchaser's option to order ex-works or delivered free job sites.

4.3.9 Allowed bidding time should normally be not more than 4 weeks for the average lot of equipment items, except for large machines and complicated package units. Every effort to be made by expediting, commencing shortly after inquiry issue, to have suppliers submit their quotations with the allowed bidding time.

4.3.10 In cases where the client requires sealed bidding, bidders shall be so notified in the inquiry together with the firm closing date for submission.

4.3.11 Any subsequent changes to specifications or required quotation terms, or any supplementary information furnished on requests to any one bidder shall be notified to all bidders. Any extension to bidding time granted to one bidder shall automatically be granted to all bidders.

4.3.12 Suppliers shall be requested to address their quotations to Company in the number required per the Document Distribution Schedule (DDS)

4.3.13 Suppliers shall be instructed to direct all questions on the inquiry to the buyer, who will see that they are properly processed within the Company organization.

4.3.14 Concurrent with the dispatch of the "Request for Quotation" to the suppliers, a Procurement file shall be established including a copy of the inquiry, listing the names of the suppliers consulted and copies of the requisition, drawings, specifications, etc., applicable.

4.3.15 A copy of each "Request for Quotation", with a list of suppliers consulted, shall be distributed in accordance with the DDS. The date of issue of the "Request for Quotation", the due date for receipt of quotations, and the number of suppliers consulted shall be recorded in the "purchasing status".

4.3.16 Suppliers shall be expedited to ascertain whether they will or will not quote and to confirm that they will quote on time. Notes regarding the answers received from these queries are to be indicated on the file. Suppliers declining to bid should confirm their refusal in writing, which should subsequently be referenced on the "bid analysis".

4.3.17 The receipt of quotations shall be recorded in both the Purchasing Status Report and the relevant file. Quotations should not, as a general principle, be distributed until after closing date or all bids have been received, whichever is earlier. Distribution is then as per DDS.

4.3.18 In the event that a sealed bid procedure is required, the procedure for opening shall be contained in the project procurement requirements document and will be executed accordingly. Distribution is then per DDS

4.3.19 All quotations shall be treated as confidential and their contents shall not be divulged to other bidders or parties other than Company and client personnel.

4.3.20 If Company, or any of its associated companies are to bid, then that quotation, together with the quotations from all other suppliers for that same requirement, shall be sent unopened to the client, who will prepare the bid summary and notify Company of the successful bidder.

4.3.21 Whenever any supplier is given the opportunity to discuss a "Request for Quotation" and as a result received additional and/or clarifying particulars, all other suppliers bidding for these same requirements should be receiving the benefit of these same additional and/or clarifying particulars in the form of an addendum to the original inquiry. Where necessary, bidding time shall be extended to accommodate all bidders.

Request for Quotation" to the suppliers, a Procurement file shall be established including a copy of the inquiry, listing the names of the suppliers consulted and copies of the requisition, drawings, specifications, etc., applicable.

4.4 Analysis of Quotations and Supplier Selection and Negotiations

4.4.1 Bid analysis shall be performed by Company buyers and engineers as follows (ref. 6.2):

a. for Company designed equipment, bid analysis shall be prepared by the buyer who shall make a preliminary supplier selection in consultation where necessary with Company Inspection/Expediting Department as regards supplier's capability, delivery performance and shop loading. Quotation(s) of selected suppliers only shall be checked for technical conformance with specification by Company specialist engineers (ref. 6.2).

b. for supplier designed equipment, Company specialist engineers shall make a technical evaluation and comparison of the offered equipment (ref. 6.2). The buyer shall make a commercial evalua­tion and comparison and closely consult with the specialist engineers with a view to eliminating from their technical review those quotations which are commercially unacceptable.

c. for bulk materials, the buyer shall perform the complete analy­sis of bids and supplier recommendation, consulting with special­ist engineers in cases of doubt regarding specification.

4.4.2 Pre-preparation of bid analysis forms shall commence immediately after issuing of inquiries in order to save time when quotations are received. The bid analysis shall list names of all suppliers contacted and must state reasons for non-bid and show references of letters or telex of refusal.

4.4.3 During the bid analysis phase, exceptional care should be exercised in all supplier contacts, in order to produce maximum advantage to the purchaser from a competitive market.

This will include:

• maintain silence except where contact on technical questions is essential.
• re-direct all telephone inquiries on the situation of sup­pliers' bids to the buyer.
• keep two or more suppliers running parallel through the final moment of commitment.

4.4.4 Bid analysis forms shall show the evaluation of all bids on a comparable basis, proper account being taken where applicable of differences in installation, operating, maintenance, spare parts and expediting costs, together with any important cost effects on other equipment, materials or construction work. The client will advise Company the payout period to be used for the evaluation of compara­tive operating and maintenance costs.

4.4.5 Complete bid analysis forms shall also include the cost control budget value, certified correct by signature of the Company cost engineer for all equipment and material orders, and all engineered package items, and the delivery time in the field, based on the quoted delivery time and possible slippage, compared with the schedule date in the field.

4.4.6 Following completion the preliminary bid analysis is distributed in accordance with the DDS. For items requiring engi­neering review, the original is distributed to the specialist engineer. For other items, the original is distributed to the Project Manager.

4.4.7 Following agreement between the Project buyer and engineers, the select­ed supplier(s) shall be indicated on the bid analysis form together with the reason for selection. Where negotiation with one or more suppliers is proposed by Company, an indication of this intention shall be given against the name of the supplier(s) in the tabulation.

4.4.8 Where field labour is involved, Company Construction Department shall sign the bid analysis form to signify their approval of the selected supplier's competence and proposed methods for performing this work.

4.4.9 The Manager of Expediting and the Manager of Inspection will countersign the final bid analysis form in order to reflect their assessment of the capabilities from the proposed supplier to meet the contractual and quality requirements.

4.4.10 On completion of the final bid analysis, it is to be reviewed and signed by the specialist engineers and by the Project Procurement Manager for an order value up to US$ 250,000 or equivalent amount, the Purchasing Manager for an order value up to US$ 1 million or equivalent amount. An additional signature is required from the Procurement Manager if the order value exceeds US$ 1 million or equivalent amount. The bid analysis shall then be transmitted to the Project Manager for his approval and subsequent submittal to the client.

4.4.11Client's approval of bid analysis shall not normally be required for commitments with a total value less than US$1,000, but a copy of bid analysis shall be transmitted to the client for record in cases of commitment values between US$100 and US$1,000. Client approval for bid analysis is always required regardless of the amount covering the purchase or rental of Company, or Company Associated Company owned equipment or material, or services to be supplied. The client will return the bid analysis form to the Project Manager with their signed approval or comments which may include the request for additional technical or commercial discussions with bidders.

4.4.12 Suppliers selected for negotiation shall be called in by the Company buyer for this purpose in the presence of the designated client representatives. Negotiations shall normally be conducted solely by Company and the client purchasing representatives who will call in Company cost engineers or specialists on a part-time basis whenever clarifi­cation or advice is needed during the negotiations. Company should nominate the purchasing representative responsible as chairman of each meeting with suppliers.

4.4.13 For bulk materials, the suppliers' agreement shall be obtained on price levels for eventual additional requirements. Where sizes, types, shapes, etc., not specifically included in the original inquiry quotation, or purchase order shall be supplied at prices compatible with those for items included in the original listing.

4.4.14 Every effort should be made to negotiate out of the price any rebates granted to foreign suppliers by their government for export business. Where such rebates are granted to the exporter of goods, Company as consignor, shall rebate this to the client.

4.4.15 The total value of payment at any time during execution of the order shall not exceed the value of the work done to that date. All progressive payment terms shall be tied to easily identifiable stages of progress.

4.4.16 Prior to negotiations with suppliers, Company shall discuss with the client on their proposed strategy. Following conclusion of negotia­tions, bid analysis forms shall be updated to show the results of the negotiations. Client's agreement must be obtained by the Company Project Manager to the final supplier selection and to the final commercial conditions agreed upon based on the results of the negotiations.

4.4.17 Where delivery of equipment is highly critical to the schedule, a penalty clause subject to prior client approval, shall be negotiated with the supplier in all cases where it will tend to minimize delivery slippages. Such penalty clauses must incorporate "key dates" for transmittal of final essential engineering information to the supplier, turnaround time for supplier's drawings submitted for approval and any other essential dates which serves to eliminate argu­ments in the event of application of penalty. The terms of the penalty should be such that the supplier continues to suffer an increasing penalty for continuing delays, as compared with a short penalty period following which the supplier could reduce his effort.

4.4.18 In cases of non-competitive bidding, the normal bid analysis shall still be completed stating the reason and then processed as normal.

4.5 Issuing Purchasing Orders and Amendments

4.5.1 The Project Manager shall not release any equipment, material, or services for purchase, unless final bid analysis approval has been given by the client. The necessary documentation consisting of a "certified" for purchase requisition and attachments is transmitted to the Project Procurement Manager under cover of a request for purchase.

4.5.2 The Project Procurement Manager registers the receipt and passes the package to the relevant buyer who prepares a purchase order.

4.5.3 The purchase order number shall consist of the Company project number followed by the Company requisition number and the suffix letter "A" for the first or only order covering the requisition and letters B, C, D, etc., for subsequent orders in the event that the requisition is split for ordering (ref. 6.2).

4.5.4 The text of the purchase order shall normally include the following clauses:

a. brief description of material or equipment together with references of applicable engineering documents.

b. item number, Account Codes, sizes, type number or other rele­vant descriptions, unit and total prices, and where applicable reference to the appropriate client Equipment Identification Number.

c. total price and delivery conditions.

d. statement that price is firm for the life of the order or details of agreed escalation formula.

e. statement that price excludes added value tax or equivalent and clarification regarding exclusion or inclusion of packing, import duties, customs clearance costs, etc., in the total price.

f. inspection requirements, including local Government require­ments, where necessary and a statement regarding the costs thereof which shall normally be borne by the supplier.

g. details of progress reports, if any are required from supplier.

h. delivery date and point together, where applicable with refer­ence to preliminary schedule, forming an integral part of the order.

i. any special clauses, depending on the nature of the material or equipment, which were included in the negotiation, priced technical alternates with option dates by which Purchaser will make final decision, details of acceptable departures from specifications, etc.

j. for the unit price orders, where it is not possible to fix an exact total price, the file and distribution copies of the order shall bear an approximate total price based on the unit prices and estimated total quantities which will finally be required for the entire project.

k. penalty clause as referred to in negotiation clause (paragraph 4.4.17).

l. payment terms in accordance with negotiations (paragraph 4.4.15).

m. guarantee clause - reference to pre-printed terms attached to order together with any special guarantees required for perfor­mance of the equipment.

n. installation and start-up assistance statement of what is included in price and delivery rates for what is not included.

o. unit prices to be used for predictable specification changes such as nozzles and support clips on pressure vessels etc.

p. reference to "packing, marking, shipping and invoicing instruc­tions" shall be attached to the order.

q. quotation reference together with statement that this is for reference only and does not apply where it is in contradiction with the purchase order or its attachments.

4.5.5 Commitments by fax or telex shall be immediately confirmed by a formal Purchase Order (PO).

4.5.6 In order that commitments are controlled, purchase orders and amendments are to be approved and signed as follows:

a. the Project Procurement Manager or Project Buyer initials the PO or amendment next to the buyer's name in the bottom left-hand corner of the form.

b. the Project Procurement Manager reviews and signs all PO's and amend­ments with a value up to US$ 250,000 or equivalent amount, the Purchasing Manager all PO's and amendments up to US$ 1,000,000 or equivalent amount and the Procurement Manager signs all PO's and amendments with an equivalent order value of > US$ 1,000,000.

4.5.7 Suppliers shall be expedited to promptly return the signed yellow acknowledgement copy of the purchase order, signifying their acceptance of all the terms and conditions thereof.

4.5.8 Should the supplier refuse to accept any of these terms and condi­tions, Company and the client shall liaise together to determine the action to be taken with the supplier.

When Company is in receipt of a properly completed acknowledgement, letters of regret will be prepared and issued to the remaining bidders.

4.5.9 Except as noted below, amendments to purchase orders covering changes in specification, quantity, price, delivery, penalty, cancellation charges, payment terms or other important contractual conditions shall not be made without prior approval by the client.

The following do not require prior price change approval by the client:

a. changes in bulk material quantities, provided that any conse­quent increase in cost is within the scope of the approximate final total commitment value calculated at the time of the original bulk material blanket commitment and that the basic unit prices are the same as those specified in the original order.

b. changes foreseen in the purchase order terms and for which the price or other basis for calculation is clearly established in the purchase order and which fall within the limits of esti­mated extra costs included in the approved bid analysis.

in this category shall include, for example nozzle changes, support clips, etc., for pressure vessels, escalation amounts, priced technical alternates, sliding discount scales, etc., provided that the supplier's invoices properly explain the changes and the purchasing files contain the documented basis for changes.

Note:

Although price changes foreseen and established in the purchase order do not require prior client approval if included in the approved bid analysis, all changes, additions, and/or deletions of a technical nature must always have prior client approval. In any case, client will be notified.

4.5.10 If any item exceeds the provisions referred to above, it must have the approval of the client before the amendment is issued. This is normally done using an amendment request form developed to suit the requirements of the project.

4.5.11 Each amendment shall show the previous total value of the order, the total value of the addition or reduction in cost due to the amendment and the new total value.

4.6 Spare Parts Procurement

4.6.1 As noted in clause 4.3.7, the supplier shall be instructed to submit with their quotations for equipment a supplementary quotation for recommended spare parts for one year operation.

4.6.2 As soon as equipment has been selected and before commitments have been made, suppliers shall be requested to update or give a firm date/percentage for updating existing quotations covering recommended spare parts for start-up and twelve months operation, with identification between parts needing replacement due to wear and parts recommended as insurance spares.

4.6.3 In addition to the above quotations, suppliers shall be instructed to furnish complete parts lists, sectional drawings identifying the parts, inter-changeability information on spare parts, and the required number of installation, operation and maintenance manuals.

4.6.4 Company shall review the list of parts recommended by suppliers for start-up and twelve months operation, will make changes to the list where considered necessary and submit the corrected list to the client for approval, following which Company will place the order for the spare parts unless the client decides to place direct orders themselves.

4.7 Administration and Commercial Control of Orders

Details of purchase orders and amendments shall be recorded, immediately following issue in the "Purchasing Status Report".

Procurement files shall be established by the relevant buyer and maintained by the procurement filing clerk in accordance with ref. 6.3.

5. Flowchart

6. References