BUSINESS - PRACTICE 9

Management of TVA's Supply Chain Process

WHAT

This policy is applicable to management of TVA's supply chain process. This includes all activities and supporting processes and systems related to sourcing strategy; supplier relations; contracting for products and services; transportation and TVA logistics; materials management, including receipts, warehousing, distribution, inventory strategy, inventory management, disbursement, and disposal of all surplus personal property. This excludes contracts for purchase and sale of power, purchase and transportation of fossil fuel, the sale of fossil operation by-products, the purchase and sale of land, the sale of services, loan agreements, and cooperative agreements.

WHO

• All TVA employees and agents involved in the activities associated with TVA's supply chain.

WHY

This policy has the overall objective of supporting TVA's goals and lowering total costs to TVA. The vision of TVA's Supply Chain Management is to reduce TVA's cost of power and support other operations by achieving world class supply chain management processes which focus on centralized sourcing with decentralized execution. TVA's success in supply chain management is dependent upon the joint efforts of line and supply chain personnel. Further, in addition to the policies listed below, all activities shall be conducted in compliance with all other applicable TVA policies and guidelines and federal laws and regulations governing TVA procurements and supply chain activities. The TVA Board has determined that it is impracticable for TVA to coordinate its procurement activities with the Federal Property and Administrative Services Act or the Federal Acquisition Regulation except in any individual case in which a contrary determination might be made.

Ethics

Supply Chain Management activities shall be conducted in a manner above reproach, and TVA personnel shall maintain the highest standards of professional behavior in all business activities. This requires that TVA personnel avoid improper influence, or the appearance of improper influence, in all activities with suppliers competing to sell products or services to TVA or to purchase TVA's surplus products. Additionally, TVA employees shall comply with the federal Standards of Ethical Conduct. A synopsis of these standards has been prepared for employees by TVA's Office of the General Counsel.

Best Value Determination

TVA's supply management decisions are made by weighing several policy criteria. As a competitive government corporation and in support of TVA's mission and goals, when managing TVA's supply chain, it is TVA policy to consider all factors (not necessarily price alone) relevant to determining how to achieve the best value for TVA.

These factors can include:

Cost/Quality

TVA shall award contracts that achieve the required quality of products or services at the lowest evaluated cost. The evaluated cost may include consideration of such factors as the initial price, technical ability, quality, reliability of suppliers' performance, TVA support costs, and life cycle costs to the degree each applies.

Competition

TVA obtains the benefits of adequate competition without encumbering TVA in a rigid procurement system. TVA provides "notice and opportunity for competition," unless impracticable, when TVA solicits offers in such a manner and from such number of offerors that it is reasonable to expect that offerors will submit acceptable offers competitive with market prices. In addition, when agreements and contracts may be extended beyond the initial term, TVA conducts sufficient market analysis to ensure favorable pricing and lowest overall costs continue to be achieved by TVA. Requirements for procurements involving the use of appropriated funds will be conducted in accordance with applicable regulations.

Leverage

It is TVA policy to utilize its leverage in the marketplace by combining its needs and using the most effective and efficient means of contracting to obtain the best overall value for TVA. To that end, TVA develops and uses leverage contracts for products and services that have been negotiated to provide the best overall value to TVA. All TVA organizations will use existing presourced leverage contracts for covered products and services unless a specific exemption is approved by the Senior Vice President, Procurement, a designated representative, or emergency conditions exist.

Standardization

It is TVA policy to use industry standard specifications and TVA standard specifications, rather than individual preferences. Standardization of equipment, consumables, and spare parts will be maximized across TVA organizations, where possible.

Inventory Optimization

In a competitive environment, operational units of TVA must have prompt and cost-effective access to products critical to continuing operations. It is TVA policy to establish systems and practices which minimize TVA's total cost of products through effective inventory stocking, materials handling, analysis, storage, and distribution practices.

Supplier Relations

As necessary for the efficient and effective operation of TVA and its programs, solicitations and resulting awards for various products and services may be limited to suppliers whose products or services have stood the test of TVA's requirements or whose experience or qualifications furnish reasonable assurance that their products or services will meet TVA's requirements. TVA reserves the right to conduct business exclusively with preapproved suppliers. Purchases shall be made from existing TVA Preferred Suppliers unless otherwise approved by the Senior Vice President, Procurement, or a designated representative. If there is no Preferred Supplier for a needed product or service, or if the Preferred Supplier does not offer the lowest overall cost and best value to TVA, the procurement may be made from another source; however, TVA's Supplier Relations shall be subsequently notified.

TVA will monitor the performance of its suppliers in criteria considered important to the success of TVA and work with suppliers for continuous improvement. Performance may be considered in awarding contracts and determining a competitive supplier base.

TVA will establish strategic alliances as appropriate with suppliers for an enhanced competitive position. These alliances are long-term, cooperative relationships designed to leverage the strengths of individual participating companies to achieve significant ongoing benefits to each party. These alliances continue as long as significant value accrues to all parties. Alliances have mutually agreed upon specific goals, and all TVA organizations will support the attainment of the alliance objectives.

Diverse and Valley Business Development

TVA will maintain diversity in its supplier base. Supplier base diversity will be accomplished by identifying and providing opportunities for qualified small, minority-owned, and woman-owned businesses that have the potential to do business with TVA in a competitive business environment. In addition, TVA may assist diverse suppliers in qualifying for contracting opportunities by promoting joint ventures, partnerships, and sub-contracting relationships and in establishing education programs to aid in business development. TVA will promote the use of diverse preferred suppliers in subcontracting opportunities.

Further, TVA shall foster the economic development of the Tennessee Valley by including Valley businesses in the preferred supplier base. TVA's commitment is to maximize participation through the development of mutually beneficial business relationships with diverse and Valley firms who offer the best value to TVA.

Risk Management

Contracts involve more than the acquisition of products and services for a price. They also allocate risks and liabilities between the seller/buyer and TVA. Risks are allocated in contracts through several provisions, including but not limited to limitations of liability, indemnities, warranties, terms of payment, incentive fee programs, and insurance and bonding requirements. The amount of risk TVA assumes in any given contract may vary with the nature of the deliverables, amount of competition, the contracting objectives, and the price. TVA assesses the risks associated with nonstandard terms and conditions to ensure the risks are allocated acceptably between the parties. There are some risks that TVA will not accept without the approval of the Senior Vice President, Procurement, or designee and approval by the TVA Board, as necessary. These risks are:

• Payments in advance of the receipt of products or services.
• Agreements under which TVA assumes environmental liability other than its own.
• Acquisition of any product or service which expressly excludes a warranty.
• Indemnification of a contractor from losses arising from its negligence.
• Indemnification of a contractor against personal injury or death arising from a nuclear accident or nuclear energy hazard.
• Entering into any agreement that exposes TVA to a substantial risk of unlimited liability.

Additional Considerations for Contracts for Services

The TVA Act requires that contracts for the services of laborers and mechanics used in construction, alteration, maintenance, or repair of buildings, dams, locks, or other projects contain a provision requiring that wages be paid that are not less than rates of wages prevailing in the vicinity for work of a similar nature. Similar prevailing wage provisions are included in contracts for which the principal purpose is the provision of service, unless after considering all the relevant factors it is determined to be impractical to do so.

Prior to establishing purchase contracts for services, TVA must decide whether to perform work by its own forces or by contract. These decisions are based on weighing several factors, including the need to ensure competitive costs, ensure quality work and customer service, and enhance job opportunities and career development for TVA employees. TVA organizations will consider the availability, qualifications, and use of resources in other TVA organizations before contracting, particularly for staff augmentation services.

TVA's policy is to perform the following types of work using TVA employees:

• Full-time, ongoing transmission, dispatch, operational engineering and technical support, and plant operation and maintenance (not including specialized or intermittent services or functions).
• Resource management, environmental services, and reservoir operations.
• Baseline transmission engineering and construction.
• Management oversight and control functions.

TVA's policy is to perform the following types of work with contractors:

• Construction and modification of generating plants and facilities.
• Temporary craft support.
• Design engineering associated with the construction and major modification of generating plant projects.
• Transmission right-of-way clearing.
• Blocks of work normally performed by crafts that are not part of the TVA work force.
• Work requiring an outside opinion or independent review.
• Equipment maintenance or inspection services performed by equipment suppliers because of expertise or warranty considerations.

Decisions to contract work not covered by the policies above are evaluated using the Contract Decision Model. Use of the model is not required when one or more of the following conditions exist:

• An emergency situation exists, as defined in the Model.
• The work to be performed is less than 90 days in duration.
• The cost of the work is less than $200,000.

Segmenting the work in order to avoid use of the Contract Decision Model is prohibited.

Extensions of time periods of existing contracts, or the exercise of existing contract options that do not significantly change contract scope, do not require reapplication of the model.

For situations where contracting work is a consideration and the work is of a type performed by a TVA bargaining unit, the process provides the opportunity for union/employee involvement, including the opportunity to propose alternative approaches to accomplish the work.

Additional Considerations for the Disposal of Surplus Products

• TVA's organizations notify Investment Recovery when excess items which are no longer needed are identified. Items which are not needed by any organization become surplus, and TVA generally disposes of surplus items through redeployment, sales, and negotiated transfers.
• TVA retains and preserves in a TVA Historical Collection items that are or may become important to the history of TVA's mission, programs, and projects. Items included in or being considered for inclusion in the collection generally are not declared excess or surplus.
• The beneficiaries of TVA's property disposal program include:
  • TVA organizations
  • Distributors of TVA power
  • Employees and retirees and their immediate families
  • The general public
  • Federal, state, and local entities
  • Not-for-profit organizations
  • TVA contractors and cooperators
• TVA transfers items without competition by lease, sale, or donation to federal, state, and local entities; not-for-profit organizations and TVA contractors and cooperators where the transfers will support TVA programs or corporate interests or promote the public interest.
• TVA sells hazardous or potentially hazardous items only to those who agree to use them for their intended purpose. If these items are not sold, they are disposed of in accordance with pertinent regulatory requirements.
• Items (except hazardous or potentially hazardous ones) which cannot be economically sold or transferred for a positive net return to TVA may be abandoned in a location conveniently accessible to the public, including TVA employees.
• TVA employees may purchase surplus property under competitive procedures, but they may not purchase by direct, noncompetitive negotiation, except owning organizations may allow departing employees to purchase items which are located in the employees office if those items are valued at $1,000 or less and have a personal meaning to the employee. Items may be sold to employees and retirees and their immediate families for their personal use before offering the items for sale to the general public.
• Surplus items acquired with either appropriated or power-system funds are sold or transferred by negotiation at prices that will provide fair value to TVA unless sales or transfers at less than fair value are desirable to further TVA programs or corporate interests. When items acquired with power funds are sold or transferred at less than fair value, a direct, commensurate benefit must accrue to the power system.

HOW

Supply Chain Management Authorities

The TVA Board of Directors has reserved the following authorities for itself:

The Board of Directors

• Approves TVA's supply chain policies and delegates authority.
• Approves, through the annual business planning process, each organization's contract plan for products and services contracts.
• Approves all new purchase contracts and individual incremental changes exceeding $5 million, except for individual uranium purchases.
• Approves all individual uranium purchases in excess of $15 million; the total amount of all individual uranium contracts shall not exceed $60 million in any given fiscal year. This delegation only applies to uranium purchased for use through fiscal year 2010.
• Approves purchase contract changes when the cumulative total (including original contract amount) exceeds $5 million, and approves additional cumulative changes in excess of $5 million.
• Approves all purchase contracts and incremental or cumulative changes exceeding $2 million where the intent to contract was not previously included in the annual business planning process. This policy shall apply for all awards for services beginning fiscal year 1997, and will become effective on awards for products beginning in fiscal year 1998.
• Approves any sales contract for products exceeding $2 million either incrementally or cumulatively.
• Approves any procurement or sales action that involves novel policy considerations, unusual conditions, full indemnification of contractors, exposure of TVA to unlimited liability, or modification of a contract term that degrades the value of the previously approved contract.
• Reviews proposals to contract work that will replace current TVA employees with contractors.

The Board has delegated the following responsibilities to the Senior Vice President, Procurement, who may subdelegate.

The Senior Vice President, Procurement, is responsible for supply chain process ownership and oversight of all TVA supply chain efforts. This responsibility includes, but is not limited to, the following:

• Develop overall supply chain policies, strategies, and implementation guidelines, including the Contract Decision Model.
• Implement supply chain-related legislation, regulations, and Executive Orders.
• Establish and monitor inventory stocking policies and stock level risk analysis methods to minimize inventory levels while enhancing the operational effectiveness of TVA line organizations.
• Implement TVA's strategic sourcing efforts which analyze key commodities and develop strategies to reduce TVA's total cost.
• Develop, execute, and direct the commercial relationship in all purchase or sale contracts or agreements and changes thereto.
• Direct supply chain process redesign to ensure improved efficiency and effectiveness. Changes in basic programmatic assignments related to supply chain activities will be made with either Chief Officer or Board approval.
• Establish, monitor, and report performance objectives for the supply chain process.
• Manage TVA's supply chain information, automated supply chain systems, and corporate contract reporting.
• Specify the knowledge and skills necessary to successfully accomplish procurement objectives, and responsibilities for personnel involved in the supply chain process.
• Direct the supplier relations function which includes approving all sources for TVA, processes for monitoring supplier performance, communicating supply chain issues with suppliers, conducting formal recognition, and establishing strategic alliances. The nuclear Acceptable Suppliers List remains the responsibility of TVA Nuclear.
• Maximize TVA's return on initial investment through implementation of strategies for disposal of surplus materials and products including reassignment, sales, or negotiated transfer.
• Assess the risks associated with supply chain strategies, policies, procedures, and practices including the assessment of nonstandard commercial terms and conditions.
• Establish payment terms and conditions with suppliers for items delivered and/or services provided under contracts. The Senior Vice President, Procurement, will be responsible for supplier inquiries regarding payment status; and the Vice President & Controller will be responsible for the internal control structure surrounding TVA's cash disbursement system.
• With respect to supply chain activities, make determinations required by the "head of the agency" or similar designations, unless by law the Board is required to make such determinations.
• Establish dollar limits and policies for field purchases. Field purchases include field purchase orders, credit card purchases, Automated Sourcing Process (ASP) purchases, and other small dollar purchase mechanisms. (Principles and Practices, Business Practice 3, Credit Cards, covers policy for credit cards.)

ROLES

All TVA organizations identify their needs and overall requirements for products and services and are responsible for their effective management and utilization. This includes:

• Prepare annual and longer-term plans for anticipated procurements within the scope of the annual business plan. Plans are coordinated as part of the business planning process across TVA organizations.
• Prepare work scopes or specifications consistent with sound standards and TVA policy.
• Evaluate technical aspects of proposals.
• In conjunction with and under the commercial leadership of Supply Chain Management, participate in the contract formation process to assure that organizations' strategic and mission critical issues are appropriately addressed.
• Execute releases, work authorizations, task orders, and other forms of performance requests against pre-established contracts.
• Handle all aspects of technical contract administration.
• Provide input on sourcing, including recommendations on preferred supplier status.
• In conjunction with Supply Chain Management, aggressively pursue corrective actions if products or services procured do not meet acceptable standards.
• Follow all policies outlined in this Business Practice as well as implementation guidelines issued by the Senior Vice President, Procurement.
• Participate on councils as established by the Senior Vice President, Procurement.
• Make field purchases in accordance with delegations authorized by Supply Chain Management. Releases against leverage contracts must be used for field purchases when available, unless an exemption is approved by the Senior Vice President, Procurement.
• Ensure proper application of the Contract Decision Model.
• Implement materials management policies, strategies, and guidelines including accurate inventory control, warehouse maintenance, material receipt, storage utilization, and issue process.
• Assess risks associated with the technical performance of suppliers including the potential cost impact resulting from differing technological approaches and variance in the quality of products and services.
• Provide procurement or contract data as required to the Senior Vice President, Procurement, for reporting.

Information Services

Authorizes all acquisitions by TVA of automated data processing and telecommunications products and services, referred to as Information Technology Resources (IT Resources). Information Services approves requests for:

• Contracts providing for contractors' acquisitions of IT Resources for TVA.
• Contracts requiring significant use of IT Resources.
• Contracts which require interface with TVA's IT Resources (hardware, software, and telecommunications).

Chief Financial Officer

The Vice President and Controller is responsible for the internal control structure surrounding TVA's cash disbursement system.

Office of the General Counsel

• Advises on legal matters arising in connection with Supply Chain Management, including claim resolution as outlined in Principles and Practices, Business Practice 12, Legal Representation.
• Assists in the development of terms and conditions.
• Represents TVA in legal proceedings and assists in other administrative proceedings including alternative dispute resolutions, bid protests, and contractor claims.

Office of the Inspector General

• Audits TVA organizations for compliance with Supply Chain Management policy and applicable laws and regulations.
• Assists in the evaluation of proposal cost/pricing to include pre-award reviews of contractor records as appropriate.
• Conducts post award contract compliance reviews as appropriate.

Councils

Cross-functional management and decision making are necessary to ensure consistent development and application of policy, strategy, internal and external communication, and integrated process improvements. The forum to accomplish this consistency is the formation of two councils: the Services Council and the Materials Management Council. Both Councils will be chaired by the Senior Vice President, Procurement. Organizations are expected to actively participate in the councils and to operate in an environment of mutual trust and respect. The success of the councils is dependent upon critical organizations' perspectives being brought forward from all parts of TVA in order to achieve the best integrated results for TVA. The membership of the councils will consist of senior management from all major TVA organizations on an as-needed basis.

 

This practice is based on Board action of February 11, 1997.

 Last Revised 3/2003