chapter 3: the Procurement Process
About this Chapter
Procurement is normally thought of as a process with a number of different steps.
This chapter describes some different options at each step. This chapter does not make specific recommendations for procurement for local development: those are presented in later chapters.
Procurement can be described as a step-by-step process. The number of steps and the terminology for each step can vary. To keep the steps as general as possible (so that they can be applied to any type of procurement) we can describe the steps as:
◦ Step 1 Planning
◦ Step 2 Preparation
◦ Step 3 Search
◦ Step 4 Evaluation
◦ Step 5 Decision
◦ Step 6 Delivery and Payment
As illustrated in the figure below, these basic steps can be applied to any kind of procurement, from building a highway bridge to shopping for groceries.
Step Building a
highway bridge Recruiting a
consulting firm Buying groceries 1. Planning Annual Procurement Plan Annual Procurement Plan Plan a shopping trip
2. Preparation Bid Document with technical design, specifications and bills of quantities; cost estimate
Draft terms of reference and the Request for Bid documents
Range of Modalities for Community Contracting
Invitation to Bid Pre-Bid Conference
Diagram : Roles and Responsibilities in Local Procurement
BID BID
Other bids rejected
Any bidder can submit a bid with evidence of the one offering best value
for money
Range of Modalities for Community Contracting
Invitation to Bid Pre-Bid Conference
Diagram : Roles and Responsibilities in Local Procurement
BID BID
Other bids rejected
Any bidder can submit a bid with evidence of the one offering best value
for money
Continued
15 Chapter 3: The Procurement Process Step Building a
highway bridge Recruiting a
consulting firm Buying groceries 3. Search Advertise and distribute
bid documents Request Expressions of Interest; then invite selected firms to submit proposals
Identify different shops that sell the required items
4. Comparison Receive bids and decide which represents the lowest cost for meeting the technical specifications
Decide which firm can provide the highest quality service, usually considering cost as an additional factor
Compare prices and quality
5. Decision Executive decision to award the contract to the best bidder
Executive decision to award the contract to the best bidder
6. Execution Contractor constructs the bridge and project owner pays the contractor
Firm provides the services and project owner pays the firm
Planning
Public procurement is usually undertaken according to a Procurement Plan. This will be based on the annual plan and budget of the organization, which will usually include a number of activities that require a procurement process. Soon after the budget is prepared, the officials responsible for procurement identify what items require procurement and what type of procurement is needed, and the dates when procurement actions must begin in order for the procurement to be completed by the time the service, goods or works are needed.
Preparation
In this phase detailed decisions are made about the product that will be procured and the procurement method, including the conditions of contract that will apply. All these details are included in the Bid Document which has to provide bidders with all the information that they need to calculate an appropriate bid price. The bid document will include:
• A detailed description of the product (services, goods or works);
• Instructions to the bidder on how to prepare and submit a bid. This will include
information on who is permitted to submit a bid (for example, the procurement may be limited to qualified bidders) and information on the process that will be used to evaluate the bids and award the contract.
Bidders submit evidence
Range of Modalities for Community Contracting
Invitation to Bid Pre-Bid Conference
Diagram : Roles and Responsibilities in Local Procurement
BID BID
Other bids rejected
Any bidder can submit a bid with evidence of the one offering best value
for money
Range of Modalities for Community Contracting
Invitation to Bid Pre-Bid Conference
Diagram : Roles and Responsibilities in Local Procurement
BID BID
Other bids rejected
Any bidder can submit a bid with evidence of the one offering best value
for money
Range of Modalities for Community Contracting
Invitation to Bid Pre-Bid Conference
Diagram : Roles and Responsibilities in Local Procurement
BID BID
Other bids rejected
Any bidder can submit a bid with evidence of the one offering best value
for money
Range of Modalities for Community Contracting
Invitation to Bid Pre-Bid Conference
Diagram : Roles and Responsibilities in Local Procurement
BID BID
Other bids rejected
Any bidder can submit a bid with evidence of the one offering best value
for money
Chapter 3: The Procurement Process 16
• Information on the conditions of the contract proposed by the buyer, including any guarantees or insurance required from the contractor, when and how payments will be calculated and made, and any penalties that will apply if the contractor is unable to adhere to the conditions of the contract.
search (Advertising)
The “search” step varies according to the size and type of procurement. For a small, simple procurement, “search” may involve simply inviting one or more suppliers to quote prices. For competitive procurement, search includes advertising and distribution of bid documents.
This may be done in one stage (open bidding, with any firm permitted to submit a bid) or there may be a two stage process. At the first stage, firms are invited to express their interest in bidding and to submit some preliminary information. A short-list of pre-qualified firms is then prepared based on this information. The pre-qualified firms are then invited to prepare and submit detailed bids. Sometimes, the government or agency may have a permanent list of pre-qualified contractors or suppliers specialized in a particular activity (for instance, consulting services, or construction works) and the firms on the appropriate list are invited to submit bids.
evaluation
Evaluation is undertaken to determine which of the bids represents the best value for money for the buyer.
Factors that can be taken into account during evaluation include:
1. The bid price;
2. The quality of the works, goods or services offered by the bidder. There may be explicit differences between the quality offered by different bidders (for example, different vehicle models). For works and services, the evaluation may take into account past performance by the same contractor.
3. The timing: When the goods will be delivered or when the works or services will be complete.
4. Quality of after-sales service: For example, guarantees and service offered for goods.
5. Other factors that may affect the cost to the buyer, for example, the timing of payments to the contractor. If most of the payments are early in the contract period, this represents a bigger cost to the buyer than if the payments are mostly late in the contract period.
6. Other factors that the buyer may want to consider; for example, preferences for local firms.
For small procurements, particularly for goods and works, evaluation is usually made much simpler by ensuring that all the bidders are offering the same quality and under the same contract conditions. Bidders that cannot meet the technical specifications or comply with the contract conditions are disqualified. Evaluation is then just a matter of choosing the lowest priced bid.
For professional services, the quality of the service will depend on the staff the contractor will employ. Although there are many different systems of evaluation in use, in most cases the capacity of these staff will be the most important factor in the evaluation. Selection is
17 Chapter 3: The Procurement Process based largely on the quality of the bid, within a budget constraint or with price taken into consideration as a secondary factor.
decision (Award of contract)
Bid evaluation is a technical task. Although it is often not distinguished clearly from the final decision to award a contract, these should be understood as two separate steps. Bid evaluation can be undertaken by any technically qualified staff or advisers. The final decision to award a contract is usually taken by the senior officer of the buyer institution, who will be accountable for any error. In some cases the decision may be made or approved by a legislative body such as a council.
The authority responsible for awarding the contract should review the evaluation documents to ensure that (1) due process has been followed and (2) the decision reached is rational and in accordance with the procurement rules. The authority then issues the Notification of Award of Contract.
In most procurement systems, notification of award of the contract to the winning bidder automatically creates an enforceable contract between the buyer and the bidder. That is, the bidder does not have the choice to withdraw his or her bid at this stage.
It is common for a further process of negotiation to take place between the buyer and the contractor or supplier, after the winning bidder has been identified and before the contract is signed. These negotiations may cover details of how the contract will be implemented and the timing. In most contracting systems in which price is a factor in the selection of the contractor, no further negotiation on price is permitted at this stage. However, the contract may allow the buyer to vary the quantity of works, goods or services, according to the unit prices submitted by the bidder. Such a change in quantities, known as a “variation” is not negotiation: It is a decision that is made by the buyer alone.
delivery (contract Administration)
Once the contract is signed, the contractor or supplier is responsible to deliver the works, goods or services in accordance with the contract. Usually, it is the end product that is specified in the contract, so how the end product is delivered is a matter for the contractor.
The buyer employs staff or an independent engineer to monitor the work of the contractor and to determine when payments are due. The supervisors or engineers do not interfere in the work of the contractor, so long as the contractor is acting in compliance with the contract.
The contract conditions may allow the buyer to increase or decrease the quantity of works, goods or services. This will result in an adjustment to the contract price, calculated according to the unit prices in the bills of quantities. Such a change is known as a “variation order.” The contract may also allow the buyer or the engineer to instruct the contractor to carry out certain types of work for which the bills of quantities do not include a price. The contract will describe the procedure for setting a price for such work. The contract normally sets limits on the size or nature of variation orders that are permitted.
In the simplest contracts, the contractor carries out a pre-defined quantity of work and is paid a defined lump sum amount. A variation order has the effect of changing the pre-defined lump sum. However, in more complex contracts it may be necessary to measure
Chapter 3: The Procurement Process 18
the amount of work carried out by the contractor after the work is complete. Examples of
“re-measured” contracts include:
• Large engineering projects, for example a highway construction where the exact quantity of each different type of work needed may not be known in advance;
• Consultancy contracts where the number of staff days finally worked may be different from the number estimated in the contract.
Payment
In most systems the decision to release payment to the contractor is ultimately made by the chief executive of the purchasing agency, who is accountable for the decision. The chief executive will make the decision based on recommendations from the Technical Supervisor.
In some systems, where the supervisor acts as “Engineer” (meaning a qualified person or firm that is employed by the buyer but has some independent authority) a certificate issued by the Engineer may be contractually binding upon the buyer.
In a very simple contract there may be just one payment. However, in a large contract or a contract that requires a long time to complete this will cause financial difficulties for the contractor. Therefore, payment may be made in stages throughout the contract. Any payment that is made in advance (before the related work is carried out) increases the risk to the buyer. Where advance payments are permitted they are usually covered by some form of security or guarantee.
In large engineering contracts, it is normal that all payments until the final payment are provisional (known as “interim payments”). By making the payment, the buyer has not acknowledged that a particular part of the work has been satisfactorily completed. Any payment made in error can be corrected by adjustments to later payments.
19 Chapter 4: Overview of Procurement Methods