Defining Business Need

Diploma in Procurement and Supply

What is a through-life contract?
• Supplier designs and produces the procured item
• Installs and tests it
• Provides support for the item throughout its lifetime
use by the buyer
• If appropriate, decommissions and disposes of the
item at the end of its operational life
Elements in a through-life contract
Design Productio Installatio
n Ongoing support Decommissioning
andgtestin during
n operatioal and disposal
life
Benefits of through-life contracts
• They establish better informed management for the
acquisition and operation of the asset
• They help the buyer to understand its needs for the
asset, throughout its operational life and up to
disposal or decommissioning.
• They can provide faster and cheaper provision of
support and spare parts
Scope document for a through-life contract (1)
Item Comment
A brief overview of the asset to What is the asset? Why is a through-life contract needed?
be acquired and the need for a
through-life contract

Roles and responsibilities Who does what? How are responsibilities to be divided between
the buyer and the supplier?

Deliverables A brief description of the deliverables (outcomes or outputs)

from the through-life contract arrangement

Specific tasks In more detail, what will the supplier be required to do? What
materials and services will the supplier provide?
Scope document for a through-life contract (2)
Item Comment
Technical considerations A brief explanation of any technical considerations involved

Contract schedule Expected duration of the contract and any delivery dates and
milestones

Brief description of contract For example, arrangements for change controls, arrangements for
management payments to the supplier, legal requirements

Exclusions Any aspects of asset management that are specifically excluded

from the contract

Additions to scope Outline of services that would be additional to the scope of the
through-life contract, and so to be contracted for and paid for
separately
Consultation process
• Meetings and interviews
• Formal requests for responses and opinions on a draft
scope document
• Workshops
• Questionnaires
• E-mail correspondence
Contents of a through-life contract specification (1)
Section Comment
Introduction  Including information about the background to the
contract requirement
Scope of the A summarised scope of the contract
contract
Deliverables A statement of what the buyer wants as the output or
outcome from the contract
Detailed Specifications for each element of the contract
requirements requirements: what the supplier is required to deliver, in
terms of design and production, testing and installation,
ongoing operational support and disposal
Contents of a through-life contract specification (2)
Section Comment
Service levels  For services to be provided within the contract, the
buyer’s required level of service

Contract These are specifications for how the contract will be

management issues managed, in terms of matters such as acceptance testing,
making changes and arrangements for making payments
to the supplier

Sustainability Any social or environmental specifications

Contract period The duration of the contract (plus any provisions for
extending the contract, if required)
Detailed requirements (1)
• Design and production of the asset or system
• Installation and testing requirements
• Ongoing support operations:
• Provision of a repairs and maintenance service,
including replacement parts
• A software correction service
• Training of the buyer’s employees
• Technical documentation
• Decommissioning and disposal requirements
Detailed requirements (2)
• Throughput: the volume of inputs that can be
handled within a specified period of time
• Accuracy: the percentage of outputs that should be
error-free (or a maximum error percentage, or a
tolerance limit)
• Availability: the amount (percentage) of time that the
asset is available for operational use
• Any required product or production standards
Service levels
• A specification of the hours of service and response
times for a repairs service
• The level of support required when the contract
comes to an end and a new contractor is appointed:
this will be particularly important if the contractor
holds the user’s data
Acceptance testing: criteria for acceptance
Criterion Comment
Meeting the contract The delivered system should meet the user’s detailed specifications.
specifications There may be an error tolerance limit for each sub-section of the
system.
Usability: ease of use It should be easy to understand the system, and easy for users to
utilise the system’s different functions

Data volume The system must be capable of handling the (maximum) volume of
data specified by the user.

Performance The system may be required to function efficiently, for example with
rapid response times

Security and control Does the system provide data integrity, security and confidentiality?

Documentation Does the technical and user documentation provided by the supplier
meet the buyer’s specifications adequately?
Stages in acceptance testing
• Design of the test(s)
• Perform the tests
• Collate and report the results of the tests
• Evaluate the test results
What is change control? (1)
• An additional product or an additional feature to be
added to a machine or item of equipment
• A change in the nature or level of a service
• A programming change in an IT system, to process
data or transactions in an additional or different way
What is change control? (2)
A change control procedure is required in a through-life
contract by which changes:
• are requested and approved within the user’s
organisation, and
• designed and implemented
Why might changes be wanted?
• A fault might be discovered that must be corrected
• The user might identify different requirements that it
wants to incorporate in the item
• Regulatory changes might make a change to the item
necessary
• New technology might emerge that makes the
existing item obsolete or in need of updating
Change control procedure or mechanisms
Initiate a request for a change This will come from someone in the user
organisatio
n , gi vi ng the r eason for the
change and its expected consequences

Review the request. Approve the change: The proposed change might be rejected at this stage,
formal
n authorisatio f or the change for example because the expected benefit
s do not
justify the cost of making the change

Prepare a (documented)nspecificatio This should include the reasons for making the
for the change change and the required deliverables

Negotiate the change specificatio

n wi th Although
n the original specificatio shoul d inc l ude a chang e
the supplier. Agree pricing. Document the management procedure, there must be a negotiatio n about
agreement for the change the price payable for the supplier to make the change

The supplier makes the required change For a change to an IT system, the amended
and documents the details of the change software should be given a unique version number

Delivery and installatio

n . Ac cep tance g
n The user needs to bed satisfie tha t the supplier
testin. Op er atioal im
p l eme n tatio has made the change to the user’s specificatio
n
Specification for change control procedures
• The procedure for notifying the supplier that a
change is required by the user
• The procedure for the supplier’s response and
negotiating the change, including the price payable to
the supplier for making the change
• A procedure for resolving disputes
Sustainability in contract specifications (1)
• Economic sustainability (Profit) 
• Environmental sustainability (Planet)
• Social sustainability (People)
Sustainability in contract specifications (2)
• The extent to which internal and external customer
requirements can be steered in the direction of sustainability
• The extent to which specifications offer inclusion or exclusion
of certain supplier groups (social sustainability)
• The extent to which environmental sustainability can be
‘designed’ in to products and services at the development and
specification stage
• The extent to which the process of specification promotes
efficient resource usage and adds economic value (an aspect
of economic sustainability)
Sustainability in contract specifications (3)
• To seek cost-effective (and where necessary, innovative)
alternatives to environmentally or socially unsustainable
materials, products and processes
• To minimise waste, including packaging, waste produced by
the product (or service), and waste generated by the eventual
disposal of the product
• To maximise the re-use and recycling of materials
Sustainability in contract specifications (4)
• To ensure ethical and socially responsible trading and
employment practices in all tiers of the supply chain
• To maximise access to contracts for small, diverse, local
suppliers
• To maximise resource and cost efficiency in sourcing, supply
and production processes
Social criteria
• The well-being of employees in the supplier’s
organisations, or throughout the supply chain
• Promoting the well-being of communities, individuals
or small businesses in the area(s) where the
supplier’s operations are located
Examples of contract specifications based on social criteria (1)
Example Comment
The supplier must comply with all Where the supplier and buyer are in the same country, the supplier may be
laws and regulations relating to required to ensure its own compliance with the country’s labour laws.
employees’ rights
If the supplier is based in another country, the buyer might specify that the
supplier’s work practices should comply with International Labour
Organization standards

Health and safety at work The contract may also specify a requirement for the supplier to comply with
laws and regulations on health and safety at work.
If the supplier is based in another country, the buyer might specify that the
supplier must ensure health and safety at work for its employees.
Examples of contract specifications based on social criteria (2)
Example Comment
Promoting local A public sector buyer might include specifications aimed at promoting the social and
communities and economic well-being of areas and communities where the supplier has its operations.
local employment

Reference to ISO ISO 26000 provides guidance for organisations on socially responsible practices, on matters
26000: Guidance on such as human rights, labour practices, fair operating practices and community
Social Responsibility involvement and development.  A buyer might specify that the supplier should seek to
comply with the guidance in ISO 26000.
Environmental criteria (1)
Example Comment
Energy efficiency. Specification This might be a requirement where there is no
of maximum energy use for a requirement for the use of renewable sources of energy.
machine or item of equipment

Specification of maximum There might be a requirement for maximum levels of

levels of pollution pollution, measured as emissions of carbon dioxide
equivalents into the atmosphere when a machine is in
operation, or as maximum levels of water pollution.

Minimisation of waste To minimise waste, including packaging, waste produced

by the product (or service), and waste generated by the
eventual disposal of the product
Environmental criteria (2)
Example Comment
Clean-up and There might be a requirement for the supplier to clean up a site when
decommissioning an item of equipment reaches the end of its operational life.
requirements

Use of recyclable parts or Recycling of materials reduces environmental damage.

packaging
Sourcing of raw materials A contract might specify that the supplier should use raw materials that
come from a sustainable source.
Compliance with a A contract might specify that the supplier must have a certificate of
recognised environmental compliance with a recognised environmental management standard,
standard, such as ISO such as ISO 14001.
14001.
Environmental criteria (3)
• An environmental policy statement, including commitment to prevent
pollution, improve environmental performance, and comply with all legal
requirements
• Identification of all aspects of the organisation’s activities that could impact
on the environment
• Performance objectives and targets for environmental performance
• Implementation of an EMS to meet those objectives and targets, including
employee training, instructions, procedures etc
• Periodic auditing and review, with corrective and preventive action taken
where necessary