I interviewed Dan Plute who discussed Indirect Spend Management.
Yes, my name is Dan Plute. I’m the CEO-owner of a company called Material and Contract Services. We specialize in providing project support, consulting, and outsource procurement services. Prior to starting my company, I worked for an international engineering construction company called Bechtel, Bechtel International. We’ve been a business for over 20 years and provide support mostly to the Western U.S. market. We have done work both in the private and public sectors.
What is spend management?
Spend management, to me, is the ability of an individual or a department to manage and control the dollars that are expended for the procurement of goods, services, materials, and equipment. And it’s the ability to manage the funds in a way that will save the company money and provide less risk and less volatility in selecting a domestic or international supplier or provider of their services.
There are various techniques that you use to manage the control of the dollars expended. Typically, you would do kind of a spend analysis. In a spend analysis, you would try to identify the major commodities that are purchased and major services that are purchased by the company. You break that down into segments by the same vendor or same commodity and try to leverage the dollars spent and get better volume procurement agreements in place.
How do you propose and prepare an RFP for construction work?
I think the key element for an RFP document is the ability to be able to add it to the ascribed, the scope of work that’s going to be required for the contractor to perform. The scope of work can be broken down into phases, anywhere from, you want to start off with one phase, the second phase, or whatever it should be.
But you clearly define the work elements that will be required to perform for the work element. You break it down into categories, you could break it down into labor elements, such as groundwork, permits, structural steel. You could break it down into interior work, roofing, plumbing, electrical, heating. You try to break it down into elements that will be able to identify the total number of labor hours and the labor cost to provide the support for the various phases.
I think the second most important element in the RP process is the deliverable statement. The deliverable statement will define what you expect the contractor construction company to perform for you. Again, it’s linked in to the scope-of-work statement; and, again, you can identify the phased-in approach, where you identify a certain amount of work to be performed. At the end of that phase, you see significant progress. You can link the phases into a payment schedule, as an example, and say once you complete the cement work or the groundwork and you approve that work element, then you go ahead and authorize payment.
I think the third phase of an RP for construction work would be what I call the contract completion. Again, the contract completion clearly defines what you expect the contractor to do for you, for the work that you have paid for. You may have some holdback clauses into the contract closeout that will assure that the plant or construction work is built to your specifications before you finalize the payment.
Also in the contract closeouts, you have certain methods that you have to review the completed work, and you would expect them to provide you, the contractor, documentation on the equipment that was purchased, put together, kind of the phased-in approach to the warranty. How did you do the warranty? The contract closeout could have startup conditions and terms into it which says that you’ve got to prove that the plant will operate to capacity or how to present capacity, say, within a 30-day time window. If not, there may be some holdback clauses in the contract closeout to protect your interests.
Again, the three main elements of what I call a construction contract would be to scope work statements that define what you want to do. The deliverable statements are basically what the contractor is going to do for you, and it provides the various levels of cost for the various phases. And the third element’s what I call the contract closeout.
Who needs to know how to do this?
I think you're looking at a procurement contrast professional; they’re generally very closely linked in to your engineering-construction group or the design engineering individual who would be laying out the whole construction project. I think the important thing, then, is to be able to go out to the marketplace and identify who the key players will be to perform the work that you're looking for.
I think in that particular phase, you’ll spend quite a bit of time looking at their qualifications, how long they’ve been in business, relative past experience providing the construction work that you’re looking at. You probably do a due diligence on them, do a D&B report or other various means to determine their financial strength. You’d look at the key players that would be linked in to provide the work for you. You’ll probably have some project completion terminology in there so that the key people have to stay in the project until it’s over with.
I guess the key thing is, again, you really do your review and qualify the contractors. If there’s going to be subcontracting, you try to get some terminology in there that protects you from the prime not paying the subcontractors. Again, the key people that you’d be looking at for the RP would be the contract administrator, procurement professional, and somebody within your engineering construction department that would link the two together to be able to finalize the agreement.
Again, Dan Plute. Thank you.
About Dan Plute
CEO at Material and Contract Services and Owner,
Procurement Services Associates