Contracts and Procurement Management

Running head: CONTRACTS AND PROCUREMENT MANAGEMENT
CONTRACTS AND PROCUREMENT MANAGEMENT
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CONTRACTS AND PROCUREMENT MANAGEMENT
Contract management involves effective and efficient management of delivery, payment
and performance. Contracts and procurement are both vital elements for managing the project
successfully. There are certain risks involved in contracts and procurement of global projects.
The relationship with the vendor should be smooth and profitable as the global projects involve a
suite of management activities. As high value projects involves greater evaluation, monitoring,
risk management and sound decision making.
Illustration I: Risk Management Fundamental Step
Source: (Carvalho & Rabechini Junior, 2015)
Financial risks involved in the project:
Managing risk is crucial for achieving procurement of goods and services effectively
especially for complex or large projects. Typical risks for the contracts and procurement includes

CONTRACTS AND PROCUREMENT MANAGEMENT
sensitivity study of the financial projections, negotiating contract conditions, creating
contingency plans, analyzing the allowances in a cost estimate. Moreover scenario planning is
necessary for procurement appraisal (Carvalho & Rabechini Junior, 2015).
Construction risk- is one of the major risks involved in the project financing. In contacts
and procurements, the major source of income for the debt repayment is made by the revenue
generated from the project. This is also known as limited resource financing. Therefore timely
and proper construction of the project is a major consideration for all the parties involved.
Recommendation: The vendors and project sponsors are not directly involved for the
repayment of debt. Joint ventures and turnkey construction contract to minimize the construction
risk. The obligation to pay liquidated indemnities, damages or penalties is supported by
performance bonds, letter of credits and parent guarantees.
Operational risks- Once the global project is approved and constructed, the project and
procurement manger must make sure that it is operated efficiently after compliance of all the
obligations of the projects. The project is to be insured typically against property damage. It is
necessary to obtain business interruption or third party liability insurance.
Recommendation: The risks can be managed by applying ratio tests, limiting the size of
the debt, obtaining insurance coverage appropriately. Moreover, it is recommended to limit the
obligation of the company to third parties.
Supply risks-Majority of global projects has to rely on various commodities and raw
materials required for the project to be implemented. The prices of certain commodities can be
volatile and therefore create major financial risks for the project. It is important to execute a