Procurement Processes and Contract Management
Source-to-pay
Procurement runs as a cycle: identify need and specification, then source (RFI for market information, RFQ for well-defined goods, RFP when you buy a solution and want proposals), evaluate against weighted criteria, negotiate, award, issue the purchase order, receive, match PO/receipt/invoice, and pay. Keep the RFQ/RFP distinction straight: an RFQ asks for price against a fixed specification; an RFP asks how the supplier will meet a need.
Contract types and risk allocation
Risk should sit with the party best able to manage it. Firm-fixed-price suits a well-defined scope and puts cost risk on the seller. Cost-reimbursable forms (cost-plus-fixed-fee, cost-plus-incentive-fee) suit uncertain scope and put cost risk on the buyer. Time-and-materials is buyer-risky because hours can run. Unit-price and indefinite-delivery arrangements suit repetitive or undefined quantities.
Contract management
A workable contract has a clear statement of work, deliverables, acceptance criteria, KPIs and service levels, pricing and payment terms, warranties, indemnities, limitation of liability, termination rights, dispute resolution and change control. Change control is where value leaks: no work outside a written change order, and price/time impact agreed before execution.
Traps
Choosing cost-plus for a commodity with a stable spec (overpaying), or fixed price for a 30%-defined development (bidders pad or fail). Verbal changes, missing acceptance criteria and auto-renewal clauses are frequent distractors.
Rule of thumb
Scope certainty drives contract type: above 80% defined, fixed price; 40–80%, fixed price with incentives or unit price; below 40%, cost-reimbursable with a fee cap.