1 welcome to best and worst procurement practices session podgorica october 2007
TRANSCRIPT
1
Welcome to
Best and Worst Procurement Practices Session
Podgorica October 2007
2
Project Procurement Management:
Best & Worst PracticesBased on the
Presentations of Krishan Batra
Principal AdvisorUNDP/PSO
3
Learning Objectives
• Overview of Procurement Facts till 11• Procurement Authority and Delegation 12-22• Procurement Strategy & Procurement Planning 23-34• Procurement Methodology 35-51• Developing Specifications/SOW/TOR 52-56• Contracts Dos and Dont’s/proc tips 57-62• Shipping, Insurance & Shipping Terms 63-68• Risk Management 69-80• Procurement Accountability 81-82• Code of Ethics & Fraud Prevention 83-88• Contract Management 89-91• Procurement and Law• Procurement Certification and Dashboard• Supply Positioning/ LTAs
4
BEST PRACTICES
• Best Practices are defined as techniques that business units may use to help detect and avoid problems in the acquisition, management, and administration of contracts. Best practices are practical techniques gained from practical experience that may be used to improve the procurement process
5
Procurement Defined
The term “procurement” refers to the process of acquiring goods, works and services. The process spans the whole cycle from identification of needs through to the end of a services contract or the useful life of an asset.[1]
[1] UNDP Fin. Reg. 21.01(a) (March 2005).
6
UNDP Global Procurement Trends
(million USD)
639 580
1,118 1,1351,344
224350
506
8911,000
87 90 140 195 140
866 826
2,359
2,168
1,755
0
500
1000
1500
2000
2500
2002 2003 2004 2005 2006
NEX
DEX
IAPSO
Total
7
Components of Delivery
Consultants (SSA) ----- 10%
Travel ------ 8%
UNV ------- 5%
Fellowships ------- 2%
Project Personnel (SC) –12%
Project staff (200 & 300 Series) –18%
Goods
Service
----------- 45 %
63%
Goods and Services
45%
Project Staff (200 & 300
Series)18%Project
Personnel (SC)12%
Fellowships2%
UNV5%
Travel8%
Consultants (SSA)10%
PO Amount
6%
28%
13%
53%
< 2.5 K
2.5 K ~ 30 K
30 K ~ 100 K
> 100 K
< 2.5 K 2.5 K ~ 30 K 30 K ~ 100 K > 100 K Total
PO Count 74,285 44,957 3,540 1,527 124,309
Amount ($m) 138 644 318 1,250 2,350
PO Count
60%
36%
3% 1%
< 2.5 K
2.5 K ~ 30 K
30 K ~ 100 K
> 100 K
8
Procurement & Delivery:
• Delivery comprises mainly of following components: Goods, Services, Individual Consultants, Travel, etc. These fall under procurement.
• Procurement is the key pillar of delivery.
• Procurement is presently treated as a mechanical process.
• One needs different type of skill sets to manage different type of goods and services.
• One needs market and product knowledge. It is not about 3 quotations.
• It is about partnering with supply sources
• Move from tactical to strategic mode ( Presently we spend 100% of our time on fire fighting)
9
Average Contract Amount (1000 USD)
1,5631,894
* Overall $672,000
$814
$1,563
$463$549
$249$380
$1,894
$0$200$400$600$800
$1,000$1,200$1,400$1,600$1,800$2,000
HQ RBA RBAP RBAS RBEC RBLAC OTHER(PAPP)
10
AUDIT ISSUES
• Delegation framework• List of all contracts that required a waiver of the competition process.• Procurement plan.• Procedures in place for those country offices that did not submit plans. How many
of them submitted these plans?• Code of conduct for all staff in the procurement office.• Evidence of supplier review to prevent trade with terrorist suppliers.• Minutes of meetings of ACP.• Records of all fraud reported on the fraud system as well as processes in place to
address fraud.• Procedures in place to address green procurement.• Controls implemented to prevent splitting of orders.• Post Facto contracts – goods purchased without orders and delivered, Retroactive
– purchases without orders of contracts and the supplier has not delivered the goods/services.
• Results of training of program staff/statistics.• Expenditure reports for HQ (excluding personnel expenses).• Access to ATLAS.
11
HQ15%
RBA22%
RBAP20%
RBAS7%
RBEC18%
RBLAC18%
HQ
RBA
RBAP
RBAS
RBEC
RBLAC
95
144130
43
116 114
0
20
40
60
80
100
120
140
160
HQ RBA RBAP RBAS RBEC RBLAC
Certified Procurement Staff
12
Procurement Authority:• The Administrator has delegated oversight and
approval authority to CPO • The CPO delegates the authority to RR, Directors
and Heads of Bureaus for award of contract valued at less than $100,000
• Increase of procurement authority can be delegated by the CPO based on needs and capacity.
• RR and Directors can sub-delegate the authority in writing.
• Oversight mechanism is CAP and ACP.• Accountability
13
Advisory Committee on Procurement
• Established by CPO to oversee major contracts • Review contracts which involve commitments to a
supplier with respect to a single requisition or series of req in a calendar year valued at $100,000 or more
• Any amendment of a contract previously reviewed by ACP where the contract amendment or a series of amendments either increases the total amount by 20% or $100,000 whichever is less.
• Any amendment not previously submitted to the ACP where the revised total contract amount exceeds $100,000.
14
ACP:
• Disposal, Write-off or transfer of goods with asset value $30,000 or more
• All vehicle accidents or losses when gross negligence is the cause.
• Procurement of services related to individual consultants with contract amount exceeding $100,000.
15
Scope of ACP ReviewObjective: Mitigate Risk
•Procurement Process: Transparency, Method
•Specification/TOR/Quality
•Availability of Funds
•Value for Money/Cost Details/Consulting Fee
•Evaluation Modality
•Performance Security/Warranty
•Shipping/Insurance
•Licensing/Copyrights
•Use of LTA
•Type of Contract
•Payment Terms
•Environmental Impact
16
Regional Distribution of ACP Cases
(By Number)
* Total 1052 cases
HQ12%
RBA20%
RBAP15%RBAS
10%
RBEC21%
RBLAC22%
17
Regional Distribution of ACP Cases (By Amount)
HQ21%
RBA28%
RBAP15%
RBAS9%
RBLAC17%
RBEC10%
18
% of Cases Approved after First Round of Review
78%
67% 66%57%
78%87%
80%
0%10%20%30%40%50%60%70%80%90%
100%
HQ RBA RBAP RBAS RBEC RBLAC OTHER(PAPP)
* Overall 73 %
19
Common Reasons for Rejection Failure to undertake a competitive exercise
TOR or Statement of Works or Specifications incomplete
TOR or Statement of Works or Specifications too restrictive or biased
Incorrect evaluation methodology or criteria Failure to submit requested documentation for
ACP review Conflict of interest Value for money not obtained Incorrect procurement method used Incorrect shipping terms cited Cost Matrix not provided No information about the software, as to
number of licenses, who will maintain etc.
20
Oversight at a Glance:
• Number of cases from RBLAC: 265• Number of cases from RBAP: 236• Number of cases from RBA: 205• Number of cases from RBEC: 75• Number of cases from RBAS: 89• Number of cases from HQ units: 138• Number of cases withheld for approval: 31%• Number of cases if “subject to” is included:
Nearly 55%
21
Indicators for Delegation:
• Procurement Volume• Procurement Capacity
– Number of certified procurement persons– Head of Procurement– Roving Procurement Officers
• Quality of Submissions to CAP/ACP• Effective use of Atlas• Procurement Plan• Audit Rating (Procurement)
22
Tips on the Increased Authority• One of the offices was refused the delegation due to the below :• • 1 During 2006, the number of POs raised by your office was
1,726. • 2 The number of cases that exceeded $100,000 was nearly 16
and number of cases exceeding $300,000 was hardly 4 cases. Even during 2007 the trend is similar.
• 3 The ratio of cases exceeding $100,000 forms hardly 1% of total number of POs while the number of cases exceeding $300,000 forms an insignificant part of total number of cases and contract amount.
• 3 One of the major criteria of deciding the threshold for procurement authority is that there should be at least an independent review/ oversight of 5% of the cases
23
Procurement Strategy
This is the way forward to implement an overall change programme designed to place procurement process at the heart of UNDP activities so that it is able to contribute effectively to the UNDP’s mission.
This is the foundation stone of strategic procurement.
24
Procurement Strategy: Objectives
To ensure that procurement supports UNDP’s principles.
To achieve best value for money on all procured goods, works and services.
To provide a corporate focus to procurement. To detail the way forward on reforming and
improving the procurement function. To encourage long-term thinking and a
commitment to strategic procurement. To reduce the cost of the procurement process and
ensure continuous improvement To give due consideration to environmental
concerns (Green Procurement).
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Objectives
To ensure that risk is appropriately managed. To promote cooperative arrangements. To promote the development and use of
performance measures. To ensure that procurement is undertaken in
accordance with high professional standards and probity.
To develop the scope for doing business electronically (e-Procurement)
To develop management information system To ensure a structured approach to procurement
training and development for staff.
26
Organization
A Center-Led Action Network (CLAN) approach is suited for an organization with widespread activities taking place with a high level of local autonomy. In CLAN, purchasing action stays at the local level but buyers do not act in isolation.
LocalConnection
Center
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Procurement Blueprint: Building Blocks
The key factors which form a procurement strategy include
Contribution and Influence
Oversight Tools and Policy
Organization
Relationships
Systems
Staffing and Training
High Performance Standards
Promote best procurement practices/mitigate risks
CLAN approach; High level of networking
Vendor management (LTAs, UNGM, Supply Positioning)
Promote e-procurement
High Quality Professionals
28
Relationships• Procurement can no longer be considered
an isolated function, working at arm’s length• it focuses on:
- the relationship with suppliers- developing Long Term Agreements- the United Nations Global Market (UNGM)- Procurement Marketing (presenting UNDP as preferred customer)
29
Project Procurement: Key Activities
Project Procurement Activities
Planning ProcurementPerformance
(Contract Administration)
30
Public Procurement Life Cycle
Procurement Plan
Procurement Implementatio
n
Procurement Evaluation
Procurement Formalization
31
Procurement Planning:
• This should take place well before taking any purchasing action.
• It should not be limited to specific requisition but part of positioning the procurement unit to best advantage
• The first task is to establish the significance to the buying organization of the purchased items and then to gain an understanding of the market conditions.
• This require the use of following three techniques– Supply Positioning– Supplier Preferences– Vulnerability management
32
Procurement Plan:
• A procurement plan describes which product will be acquired from vendor as well as when and how they will be acquired. What, When, How
• Template– Items to be procured– Evaluation criteria– Procurement Method– Schedule/ Date of delivery– Ownership rights of the source code– Ownership rights of the production
• One of the major initiative to improve procurement system
33
Procurement PlanningProcurement planning, prior to any action taken in Atlas, is
essential for the timely solicitation of quotations, bids or proposals; the award of contracts; and the delivery of inputs. Procurement planning entails more than the selection of a procurement method for various goods, works and services and when to schedule activities, but combines the legal and institutional frameworks in which procurement must be carried out. Business Units should consider the following:
Types of goods, works or services required;Method of procurement;potential sources;Estimated costs;Source of funds;
Requisitions;Delivery time and place;Evaluation criteria;Justification for non-competitive procurement; andReview of CAP and ACP.
34
Procurement Planning
WHAT?WHEN?
HOW?
35
Procurement Methods
• Request for Quotation (RFQ) most flexible and least formal contract amount exceeds USD $2,500 but less than USD $100,000.
• Invitation to Bid (ITB) normally used when entity is not required to propose technical
approaches to a project activity (i.e., goods and civil works) contract amount is USD $100,000 or more.
• Request for Proposal (RFP) used in the procurement of complex goods (e.g., functional
specifications cannot be expressed) and services recommended for all contracts exceeding USD $100,000.
• Direct Contracting value of procurement is less than USD $2,500 there is no competitive marketplace for the requirement There is a Long Term Agreement (LTA) there is genuine exigency for the requirement.
Purchasing Card
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Ten Commandments of Bidding
• Suitable Package• Early Warning• Non-discrimination• Accessibility• Neutrality• Formality• Confidentiality• Consistency• Objectivity• No Negotiation before award
37
Purchasing a service:
• Services are more difficult to evaluate than goods. Goods have objective standards
• Supplier of services are often reluctant to provide benchmark
• Excellent services are easy to monitor but mediocre or poor services are difficult to evaluate.
• Goods can be returned whereas services cannot
• Poor quality services may continue undetected and cause greater problems
• Because of above differences the reputation and the experience of supplier is more important
• Key purchasing criteria: Reputation, References, Experience, Current Clients, Equipment, price etc.
38
Purchasing Services:• Many services such as secretarial and cleaning are often
bought as generics. Other services such as application software development , advertising are bought as professional.
• Word of mouth is the one of the key ways in which buyers of services exchange information.
• There are five roles, Users, Buyers, Influencers, Deciders, gatekeepers
• Market Research, pre-qualification of suppliers• Interviewing the companies and asking them to make
presentation for better clarification before technical evaluation.
39
Why an RFP?
• In competitive contracting, there are two methods : ITB or a RFP.
• ITB is used when goods or service is well defined and can be specified in detail. Selection solely on the basis of cost.
• RFP is a negotiated procurement process and provides flexibility to the contractor and the company.
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Designing an Effective RFP:
“Never tell people how to do
things. Tell them what you want
to achieve and they will surprise
you with their Ingenuity”
41
RFP: Introduction
• Tool to promote competition for procurement of services.• A vehicle that allows both buyer and supplier to establish
a dialogue and to work from same set of rules.• RFP should encourage creative thinking by suppliers• A successful RFP process require that it has clear
technical requirements, project budget, implementation and project management details.
• Use RFI if you wish to validate technology and requirements.
• If you don’t know where you are going, any road will get you there.
• Allow time for an independent review of the RFP.• Only qualified suppliers should participate in the RFP
42
Basic Elements of an RFP:
• Statement of Purpose: the nature of the services to be provided and the overall objectives of the contract.
• Background Information: Overview of the program, statistics, existing facilities, an honest accounting of current problems and strengths.
• Service Specification: Sets out in specific and measurable terms the services required,
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Basic Elements of an RFP:
How they are to be delivered and the duration they are required.
• Performance Standards: Minimum performance standards and method of monitoring
• Instructions to the Offerors• General Terms and Conditions• Special Terms and Conditions• Evaluation and award process
44
Anatomy of an RFP:
• Project overview and administrative information• Technical Requirements (Requirements are the
heart of this)• Management Requirements.(Project Plan)• Supplier Qualifications and references• Pricing Section• Contracts and licenses• Appendices
45
Value Tree:
• Overall Value– Technical Factors
• Reliability• Quality
– Management Factors• Personnel (Education, Performance, Exp.)
– Price Factors• Cost and Fee• Realism• Reasonableness
46
Evaluation Factors:
• Key Considerations: Management, Technical and Financial
• Analysis: – What things should be evaluated– What are their attributes– Which attributes are relevent– What is their relative importance
Best Value: Value of a proposal is the sum of the weighted values of the applicable evaluation factors for award.
47
BEST PRACTICES: RFP
• Pre-proposal conference.• RFI (If technical requirements are not
clear)• Product Demonstration particularly for
software• References and site visits• Word “must” is used to designate the
mandatory requirements. • Debriefing the unsuccessful suppliers
48
Best Practices: RFP
• A Requirement states a need and is measurable.• Requirements must be meaningful• Requirements must not include the solution• Requirements shall not be combined that may restrict
competition. • Pricing should be broken down into individual
components and tasks.• “ Shall” indicates a requirement and hence no exception.
“Will” is used to denote the statements of intent. “Should” is used to describe project goals
49
Best Value for Money:
To get the best value for money, you must consider costs that the buyer will incur in addition to the Offeror’s price, including:
• Cost to administer the contract
• Life-cycle cost of the product
• Quality of the product
• Past performance of the supplier
50
Evaluation Team: RFP
• Evaluation team shall be of 3-5 persons and a Chairperson
• Evaluation team is normally the one who wrote RFP. The specialists may be used to evaluate particular section.
• Attention to details to grasp the difference between proposals
• Should not be handled as a consensus method.
51
RFP: Decisional Rules
• Lowest Priced technically acceptable– Technical factors are used to qualify offerors– An offer is either acceptable or not– Price is the only factor for decision
• Best Value:– Define the factors that contribute to value– Relative Importance of each– How to measure the value of individual factor
performances
52
Specifications for Goods:
• Functional Specification: What?• Performance Specification: How much?• Reference to product standards• Inspection and testing: Pre-shipment
testing• Incidental Services: Supervision during
installation, Training, Operation Manual• Final Acceptance: Criteria for final
acceptance
53
Terms of Reference (TOR)• TOR may be compared to technical specifications for the
purchase of goods or works.• Areas to be covered are:• Objective: What is the anticipated result of services.• Background: What is the history of assignment. Any
constraints.• Scope of Work: What is the consultant expected to do?
Degree of details. Are there any specific decision points during the performance of work?
• Purchases: Are any hardware requirements connected with the assignment? When should such deliveries to the client be made and on what terms?
• Reports: How and when will the report be presented?• Contributions: What is the client going to provide in the way
of facilities, professional support and physical facilities?
54
Specifications for Civil Works:
• Introduction: General Description• Scope of Works: List of activities to be performed.• Time Schedule: Starting date and completion date• Detailed Design and Drawing:• Bill of Quantity: Estimated quantity of each item• Site investigation report: Soil conditions, Ground
Conditions.• Specifications and Standards: Set of instructions• Inspection and Testing: Specification of tests.• Commissioning: Final Inspection.
55
Tips on writing an effective SOW
• Be clear-use simple, direct language.• Use active, not passive tenses ( The seller shall conduct
the test as opposed to a test should be conducted---, language is the dress of thoughts)
• Spell the buyer’s obligation carefully• Provide a ceiling on the extent of services• Identify all constraints and limitations• Include standards that will make performance
measurement possible and meaningful• In case of goods, focus should be in providing functional
and performance specifications
56
Outline of SOW/TOR:
• Background
• Outputs/ deliverables desired
• Inputs to be provided
• Schedule of completion
• Standards by which to measure performanceOther Issues:
1) Use active Verbs (2) Avoid “Should” or”May
(3) Use “Shall” for contractor and “will” for UNDP
57
Contracting Do’s & Don’ts
• SOW
– Incorporate the SOW as an addendum
– It should state expectation in terms of quality, performance, delivery and so on
– This is accurate representation of deliverables
• Keep it Simple: Should stay away from attempts to draft legalese. Leave it to legal department
• Post Contract Processes
• Online Contracting
– Take advantage of online contracting for low value procurement
– Don’t forget to check T&C
58
Contracting Do’s & Don’ts:
• Risk Assessment– Be aware that each contract has a finite amount of risks that
is acceptable– Focus should be shift as much risk to supplier – Don’t use the supplier terms and conditions
• Contract Methodology– Determine the contract type that mitigates risks– Don’t overlook the importance of TOR
• Contract Execution– Include your T&C in RFQ, ITB & RFP– Have the supplier sign and return the RFP as a pre-requisite
for being awarded business.
59
Practical Tips:
• Procurement must be framed with clear and accurate clients requirements and appropriate evaluation process.
• If there is one thing you have to get right, it is evaluation methodology. Once its is put out, you have crossed the rubicon.
• Purchasers must be scrupulous in ensuring fairness of the process, even if it means issuing an addendum or clarification to all vendors.
• Bid closing time is the closing time-being late means automatic disqualification.
• Vendor must be legal and viable business entity• Evaluation team should comprise of multidepartment team –no
conflict of interest
60
Practical Tips:
• Hard work at the start pays off for both buyer and seller• While developing specifications, determine if the requirement is a
mandatory requirement i.e. must meet for consideration of offer.• Benchmark the each specific requirement. Suppose you give 10
marks to a point, what benchmark the vendor will have to meet.• Purchaser should act as a non-voting member to give guidance on
procedural matters.• Purchaser will invite end users and other knowledgeable persons to
participate• Evaluation panel should comprise of either 3 or 5 members.• Best value concept (Combined Scoring Concept)
61
Performance Security• Required to ensure compliance with contract requirements• Buyer require some form of performance guarantee• Performance Bond: Irrevocable and unconditional type. A
performance bond is issued by a surety or bonding company. Legal terms of bond are more complicated but have the same effect as a bank guarantee.
• Letter of Credit: A confirmed, Irrevocable standby letter of credit may be used as an alternative.
• Performance security are limited to percentage of the value of the contract.
• Performance Security should not be the only remedies for breach• The remedies may be cancellation, Liquidated Damages ( To cover
late delivery)• Retention Clause
62
Global Fund Procurement:• Procurement forms nearly 80% of the project amount.• Focus is on HIV/AIDS, Malaria and TB• UNDP is involved in 28 countries as PR and for support services in
5 countries• Total project amount is nearly $650 m but annual delivery is nearly
$200 m. • OLPS has one full time Procurement Advisor working very closely
with the country offices and major suppliers. • Major suppliers are IDA, Mission Pharma, CIPLA, UNICEF, UNFPA,
IAPSO etc. UNDP has LTA with them.• OLPS Procurement Advisor is focusing on assisting the country
office to improve delivery, help them in transferring knowledge to the counterpart, help them build supply chain.
63
Shipping Terms: INCOTERMS
• “ E” Term: EXW
• “F” Terms: FCA, FAS (Free alongside Ship), FOB
• “C” Terms: CIF, CFR, CIP (Carriage and insurance Paid To), CPT
• “D” Terms: DAF (Delivered at Frontier), DEF (Delivered Ex Ship), DEQ (Delivered Ex Quay, DDU, DDP
64
Bill of Lading:• This can be likened to transferable cloakroom tickets• They acknowledge receipt of goods in a certain conditions• This is a document of title• A clean bill of lading states that goods are received in good
conditions• The document covering the carriage of goods by sea is called B/L• It covers:
– Beneficiary– Port of shipment and destination– Marking and number of boxes– Weight and dimensions– Whether freight is pre-paid“Receiving of Goods-Received but contents unchecked”
65
Third Party Inspection
• Carried out to ensure that goods conform to standards and specifications of the purchase contract.
• Inspection can be carried out during manufacture, at the pre-shipment and post shipment stage and/or after arrival/installation at the site.
• Cost of inspection varies from 1-2% depending on scope• Legal liability is very limited• Inspection before shipment is suitable for
– Where goods are procured from a distant source– Where transportation costs are significant factor– Where the return of rejected goods would be impracticable.– Where inspection at the point of destination would be
unsatisfactory.
66
Freight Forwarding• Shipping term determine the involvement of buyer in
arranging transportation, and their port and custom clearance.
• To arrange transportation, it is necessary to know:– What modes of transport techniques are available– What services are available and are appropriate– What are the current and prospective freight rates– What documentation is involved– What are the risks and to what extent carriers will
indemnify for loss and under what circumstances.• Buyers often this knowledge and turn to freight forwarders• They have knowledge of port, custom rules• They work on commission basis. They also receive
commission from the carrier.
67
Cargo Insurance:
• Protection against financial losses resulting from damages, fire, war, strikes, pilferage and theft, breakage, non-receipt of entire or part of consignment and damage suffered by goods during transit and declared general average.
• Coverage should cover cost of goods+ Freight+ 10% to cover admin cost.
• Duration of coverage (Pre-shipment and post shipment)• Insurance during storage• Blanket Policy of UNDP ( Rate 0.24%)• Claim Procedure• Does it cover when goods are in transit over land or on
its own wheel
68
Cargo Insurance:
• Institute Cargo Clauses: A, B and C Type• CIF/CIP only require C cover without war and
strikes• C Type does not cover Drop Damage, Loss
Overboard.• A Type covers all risks except war and strikes• C Type cover GA, Fire, Explosion, Perils of the
sea, overturning• Damage due to Improper packing and Delay are
not covered by any type.
69
Risk Management
• Risk is part of the procurement environment
• It involves systematic identification, analysis, treatment and where appropriate accepting the risks
• Agreements to limit a supplier’s liability to UNDP and third party (Indemnity. Guarantee, warranty)
70
Risk Management:
• Selecting a procurement method
• Seeking, clarifying and closing offers• Identifying the preferred supplier• Evaluating Offers• Negotiating the contract• Managing the contract• Evaluating the procurement process• Disposals• Impact of each of the above on cost, timetable, user
acceptability, integrity and competence
71
Risk Cost Delivery
Ethics
Overstatement of Needs.
V V N
Understatement of Needs.
V V N
Insufficient Funding.
V V N
Impractical Timeframe for Supply.
V V N
No Available Solution.
V V N
Fraud. V V M
Risk: Identifying Needs
72
Risk: Writing Requisitions
Areas of Consequence
Risk Cost Delivery Ethics
Narrow/ Biased Specifications
V V M
Definition of Inappropriate Product.
V V N
73
Risk: Solicitation DocumentsRisk Cost Deliver
yEthics
Terms and Conditions Unacceptable to Suppliers.
V V V
Uncertainty amongst Contracts due to Conditions of Contract.
V V V
Provision of Inadequate Information.
V V V
Biased Requirements. V V V
Inadequate Requirements.
V V V
74
Risk Cost Delivery
Ethics
Failure to Identify Potential Sources.
M V V
Lack of Market Research.
M V V
Supplier Monopoly.
M V V
Selection of Inappropriate Method.
M V V
Risk: Procurement Method
75
Risk Cost Delivery
Ethics
Failure to Adequately Address Suppliers’ Inquiries.
N M V
Actual or Perceived Favoritism in Providing Information.
N M V
Breach of Confidentiality.
N M V
Risk: Seek, Clarify and Close Offers
76
Risk Cost Delivery
Ethics
Failure to Observe Effective Evaluation Procedures.
V V V
Breach of Confidentiality.
V V V
Failure of Offers to meet Needs.
V V V
Failure of Evaluation to Identify a Clear Winner.
V V V
Risk: Evaluation of Offers
77
Risk Cost Delivery
Ethics
Selection of Inappropriate Supplier.
V V V
Selection on Inappropriate Product.
V V V
Insufficient Number of Responses.
V V V
No Response from Known High-Quality Suppliers.
V V V
Risk: Award of Contract
78
Risk Cost Delivery Ethics
Unmatched Expectations of Buyer and Supplier.
V V V
Deadlock on Agreement. V V V
Undue Concession to Suppliers.
V V V
Failure to Accommodate Standard Conditions.
V V V
Grossly Unfair or Onerous Requirements.
V V V
Failure to Reflect the Terms Offered and Agreed in the Contract.
V V V
Inadvertently Creating a Contract without Proper Approvals.
V V V
Risk: Negotiate the Contract
79
Risk Cost Delivery Ethics
Failure to Assess Supplier’s Performance.
N N V
Failure to Assess the Process.
N N V
Loss or Damage of Goods in Transit.
N N V
Fraud. N N V
Risk: Evaluate the Procurement
80
Risk Cost Delivery Ethics
Variations in Price and Currency Fluctuation.
V V V
Unwillingness of Supplier to Accept the Contract.
V V V
Failure of Either Party to Fulfill the Contract.
V V V
Inadequate Administration of Contract.
V V V
Acceptance Before Completion.
V V V
Increase in Scope of Work. V V V
Intellectual Property. V V V
Third Party Liability.
Risk: Managing the Contract
81
Procurement Accountability:• Definition: The accountability in procurement
means that staff is responsible for actions and decisions that they take in relation to procurement and for the resulting outcomes. The staff is accountable through established lines of accountability.
• How does accountability help? The accountability encourages the efficient, effective and ethical use of the organizational resources. This is the main watchword for UNDP procurement process.
82
Accountability:
– Procurement Policy: – Documentation: It is important and provides record
of procurement activities. This need to be strengthened.
– Disclosure: Annual procurement plan must be published to provide confidence.
– Notification: The revised procurement plan calls for publishing all major procurement notices and award of the contract. This is being followed to a limited scale.
– Dealing with complaints: The procurement protest procedures
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Why focus on Ethics?
• Increased business volume=>higher pressure
• Added Scrutiny (Due to recent cases of misconduct)
• A breach of ethics affects credibility, which is difficult to recuperate.
• Impropriety can harm the reputation of the organization
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Definition of Ethics
• Ethics is the discipline related to the issue of right and wrong, moral duty and obligation, moral principles and values, and to moral character.
• Ethics: Greek word “ethos’…implies character and customary behaviour.
• Morality: Latin word “mores’…refers to social customs.
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Common Ethical Risks
• Conflict of interest• Fraud• Corruption• Coercion• Collusion
– Ethics encourages responsible conduct, while compliance prevent misconduct.
– Ethics is self imposed while compliance is externally imposed
– Ethics is personal responsibility while moral compliance is legally driven
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Procurement Ethics:
• Conflict of interest: A conflict of interest may exist when a staff is involved in an activity or has a personal interest that might interfere the objectivity in performing the function. (Code to guide relationship) It can arise:– When an staff takes outside employment or has financial interest– When personal relationship with staff of other business entity
could influence the decision.• Gifts and Gratuities:
– May not accept gifts or gratuities from any supplier for themselves or for their family
– May not take advantage of their position to seek discounts on procurement for personal use. This is construed as a gratuity
– May accept advertising novelties.
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Procurement Ethics:
• Integrity:– Open and effective competition– Environmental sustainability
• Ethics vs. Compliance ( Ethics encourages responsible conduct and compliance prevent misconduct; Ethics is self imposed)
• Code of conduct (Established in the new CAP User Guidelines)
• Ethical belief is a personal choice, however ethical conduct can be mandated by an organization.
• Ethics are moral boundary or values within we work
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Fraud vs. Corruption
• Fraud is defined as “dishonestly obtaining a benefit by deception or other means” and includes both tangible and intangible benefits.
• Fraud means the intentional , false representation or concealment of facts for the purpose of inducing another.
• Corruption means the practice of offering, giving, receiving directly or indirectly of value to influence the action of procurement staff.
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Contract Management
• It is post-award phase– Compliance with contract requirements
• Time and quality control• Dealing with performance problems• Management of bid/performance security
– Measurement of performance and reporting• Certification of reporting• Contract Close –out
– Management of contract changes• Variation orders• Contract amendments
– Resolution of claims and disputes• Settlement of claims• Contract termination
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Contract Administration:• Def.: Those activities and actions taken by the buyer and
supplier during the time from contract award to contract closeout. They may include follow up, expediting and supplier management function.
• Issues to be addressed: Inspection procedures, penalties for non-conformance, Payments, rejection, termination, debriefing, procurement protests, PO closing in Atlas, claims for losses, consultants charging billable hours without measurement of progress, new person being assigned, substitution of products etc.
• Step One: Ensure that there is a designated contract administrator
• Step 2: Define the duties of the contract administrator and assist in developing contract administration plan
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Contract Administration:
• Step 3: Perform random checks. Non-compliant situations must be identified.
• Step 4: Ensure good communication
• Step5: Participate in the contract renewal or rebid decision. Enter the vendor rating and close the PO in Atlas.
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Procurement certification
• Course has been designed in-house by OLPS• Addresses basic procurement policy and standard Atlas
Procedures.• Objective: 1.Enhance learners’ comprehension of UNDP
procurement policy and processes 2. Increase the level of competence utilizing the Atlas Applications.
• Target group is “Buyer”• Online programme ( 6 hrs for online course and 2 hours for the
exam.)• Course managed by LRC• Status:
– Number of people enrolled:731– Number of people who have passed simulated assessment: 345 – Number who took official assessment: 321– Number who passed: 220
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Thank you!
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Supply Positioning (Portfolio Analysis):
Supply Positioning provides a mechanism for discriminating between the components of the total purchasing requirements whether goods, works or services, and a tool for developing specific strategies to meet the needs of the organization with respect to each group of purchases.
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Supply Positioning
Few major sourcesFew alternativesQ/S/R criticalLow value
Few sources/monopolyHigh costQ/S/R criticalNo alternatives
Many sourcesMany alternativesLow value
Many sourcesMany alternativesHigh cost
STRATEGIC SECURITY STRATEGIC CRITICAL
TACTICAL ACQUISITION TACTICAL PROFIT
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Purchasing Goals
Ensure suppliesCost insensitivityFrequent review
Ensure suppliesClose price managementContinuous review
AutomateDelegateGive low attention
Profit contribution
Take risksSeek opportunitiesWheel & deal
STRATEGIC SECURITY STRATEGIC CRITICAL
TACTICAL ACQUISITION TACTICAL PROFIT
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Purchasing Action Scenarios
Long term contractsBuffer stocksPrice indexationFind alternativesContingency planning
Medium or long-term contractSupplier informationSupplier developmentPrice managementContinuous review
Simple purchasing proceduresSystems contractingStockless purchaseCash purchases
Short-term contractsActive sourcingMarket knowledgePrice determination
STRATEGIC SECURITY STRATEGIC CRITICAL
TACTICAL ACQUISITION TACTICAL PROFIT
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Long Term Arrangements:
– call-offs are covered by UNDP Standard Terms and Conditions combined with special terms and conditions appropriate to the items being procured and will, in general, provide better protection than individual small purchases under the supplier's standard conditions
– the agreed range of items or services should be at short notice thus reducing or avoiding stock holding for goods and reducing down-time on equipment maintenance and repairs
– the supplier benefits in terms of planning stock levels and continuity of supply
– a mutually beneficial longer-term working relationship can be established with suppliers
– Call-off create legal obligation and not LTA
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Long Term Arrangement: – LTA offer a number of advantages:– they offer the value for money advantages of centralized
procurement without the commonly associated level of bureaucracy
– a single tendering exercise over the life of the arrangement reduces administrative effort and cost for the Department
– the initial tendering process will have identified competitive suppliers, who should then offer more competitive prices on the basis of the expected value of business
– quality assurance and legal requirements will have been dealt with at the outset
– Completion Report
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Procurement Concerns & Solution:
• Concerns– Number of certified procurement
persons is low– Number of international
procurement professionals is 5– Procurement being led by
programme persons without sufficient knowledge of market and process.
– Afghanistan and Indonesia need a competent procurement chief.
– Only 31% of the procurement/ contracts goes through PO module.
• Solution– Focus on staff training and
certification.
– There is need to hire experienced procurement chief for countries dealing with complex procurement.
– Procurement persons shall be involved upfront at programming stage.
– Because of high volume there is need to have international procurement experts.
– There is need to ensure that all contracts exceeding $2,500 go through PO module
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Procurement Concerns & Solution:
• Concerns– CAP capacity in many
countries is poor.– Not many experts to deal with
complex procurement such as civil works, communications, software etc.
– Afghanistan and Indonesia are without a procurement chief
– Procurement is still a tactical function.
• Solution– Need for training the CAP
members– For complex procurement
there is need to hire experts who understand the subject.
– These both countries need competent procurement chief.
– There is need to strategize the function. Procurement plan is mandatory.
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Supplier Sourcing: Best Practice
• Decide:
• Select:
• Monitor:
• Supply Intelligence: Researching suppliers is time consuming job. D&B has largest database. It has 100 millions suppliers of the world. D&B rating
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Procurement and the Law:
• Why Have conditions of contract: Goodwill
• Formation of Contract
– Offer, Acceptance and Consideration ( battle of Forms)
– Oral Contract
• Contract Performance ( Fulfillment of according to its terms)
– Delay in supplier’s performance
– Liquidated Damages
– Termination of Contract
– Force Majeure (French Term: Unexpected event)
• Rights and Obligations of buyer and seller
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Procurement & the Law:
• Securing Contract Performance– Warranties– Performance Guarantees– Inspection
• Termination and Remedies:• Settlement of Disputes;
– Negotiation– Arbitration (UNCITRAL)– Litigation (Judicial Contest)
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Procurement & Law:• How is contract discharged?
– By performance, Substituted contract, Time, Termination, Bankrupcy
• Intellectual Property• Letter of Intent;• Payment Terms; Performance Security• Remedies for lateness or failure to perform to specification
– Liquidated Damages– Time is of the Essence( Time of performance shall be
essence of this contract) Any delay converts into breach of contract
– Force Majeure
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General Rating
Procurement Volume 30,000,000Purchase Order Raised Count 1345
Total value 20,000,000non-PO Vouchers above 2,500 (USD) Count 400
Total value 980,000NEX Procurement 20,000,000DEX Procurement 10,000,000Agency Procurement 0
Count 6Total value 180,000Count 3Total value 300,000
+ Overall 35%
+ Management of Direct Payment (non-PO) 6 days+ Management of Payment (PO) 14 days+ Lead Time 10/7
Submission of Plan YesApproval of Plan Yes
Quality of Submissions + Total 6Delegated Procurement authority 50,000 (USD)POs issues between 100,000 and Delegated Authority
Count 3
Total value 170,000POs issued above delegated authority Count 6
Total value 600,000
Number of staff with buyer profile 8Number of staff Certified 5
Procurement Volume
High value transactions (PO)30,000 ~100,000
Advisory Committee on Procurement
Procurement Capacity
> 100,000
Low value transactions (PO)
Process Time
Procurement Plan
Procurement Dashboard Indicators
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Procurement Dashboard
Remarks
Business Unit PO Non- PO Total
% B
ased
on
PO
# o
f S
ub
mis
sio
ns
Ap
pro
ved
afte
r 1
st R
evie
w
# o
f Bu
yers
# o
f Certifi
ed
% o
f Certifi
ed
Rovin
g O
fficers
Pro
ucre
men
t P
lan
Au
dit R
atin
g
(Pro
cu
rem
en
t)
Afghanistan 11,071 142,278 153,349 7% 20 50% 68 15 22% 1 YES D Need Competent Procurement ChiefBangladesh 4,843 5,542 10,385 47% 7 71% 33 5 15% YES PS Staff to be TrainedBhutan 123 3,343 3,466 4% 4 25% 35 4 11% S Emphasis on AtlasCambodia 978 21,926 22,904 4% 9 78% 29 10 34% S Emphasis on AtlasChina 1,012 39,159 40,171 3% 1 100% 37 3 8% YES S Staff Training & CertificationEast Timor 2,499 628 3,127 80% 6 100% 28 4 14% 1 PS Significant improvement since last auditFiji 2,704 5,022 7,726 35% 4 50% 25 20 80% PS Emphasis on ACP Quality submissionIndia 4,743 29,323 34,066 14% 12 67% 36 4 11% S Staff Training & CertificationIndonesia 60,985 21,107 82,092 74% 31 58% 40 10 25% 2 YES PS Need Competent Procurement Chief & TrainingI ran (I slamic Republic Of) 1,087 5,191 6,278 17%
4 100%28 0 0% S ACP Quality, Staff Training & Certification
Korea, Democratic People's Rep 691 756 1,446 48%
0 0%27 1 4% S Staff Training & Certification
Korea, Republic of 27 1,928 1,954 1% 0 0% 25 0 0% S Staff Training & CertificationLao People's Democratic Rep 1,102 7,876 8,978 12%
8 75%31 10 32% S Emphasis on Atlas
Malaysia 905 2,881 3,786 24% 3 33% 51 0 0% MD ACP Quality, Staff Training & CertificationMaldives 21,609 11,636 33,245 65% 2 50% 42 1 2% 2 S ACP Quality, Staff Training & CertificationMongolia 736 2,617 3,353 22% 1 100% 39 6 15% 1 S Staff Training & CertificationMyanmar 18,777 6,138 24,915 75% 2 50% 27 1 4% S ACP Quality, Staff Training & CertificationNepal 6,366 5,739 12,105 53% 16 75% 33 4 12% S Staff Training & CertificationPakistan 9,266 25,237 34,503 27% 6 100% 30 4 13% 1 S Staff Training & CertificationPapua New Guinea 929 1,618 2,547 36% 0 0% 33 1 3% S ACP Quality, Staff Training & CertificationPhilippines 2,902 7,426 10,328 28% 6 17% 30 3 10% 1 S ACP Quality, Staff Training & CertificationSamoa 137 2,638 2,775 5% 0 0% 24 0 0% S ACP Quality, Staff Training & CertificationSri Lanka 11,256 11,251 22,508 50% 5 60% 37 16 43% S Significant improvement since last auditThailand 2,497 6,024 8,521 29% 10 90% 43 7 16% S Staff Training & CertificationViet Nam 1,063 5,869 6,932 15% 1 0% 46 1 2% S ACP Quality, Staff Training & CertificationRBAP 168,310 373,150 541,460 31% 158 66% 877 130 15% 9
D = Deficient, MD = Marginally Deficient, PS = Partially Satisfactory, S = Satisfactory
OtherACPProcurement Volume in '000s of USD Procurement Capacity
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Procurement Dashboard
Procurement Vol in USD ACP Procurement Capacity OtherAudit Rating
Country PO Non - PO Total% Based on PO
Quality of Submissions - Total
% of cases approves after first review
Number of staff with buyer profile
Number of staff certified
% of staff certified
Procurement Plan
Argentina - Buenos Aires $15,232,179 $243,642,994 $258,875,173 6% 12 100% 12 6 50% YES
Barbados - Bridgetown $1,429,510 $2,290,040 $3,719,550 38% 0 0% 12 0 0%
Bolivia - La Paz $31,402,858 $5,060,608 $36,463,466 86% 2 100% 36 2 6%
Brazil - Brasilia $202 N/A $202 100% 17 100% 12 10 83% YES
Chile - Santiago $4,311,227 $25,441,969 $29,753,196 14% 6 50% 7 0 0% YES
Colombia - Bogota $111,926,232 $44,688,572 $156,614,804 71% 39 85% 12 0 0% YES
Costa Rica - San Jose $3,176,714 $418,482 $3,595,196 88% 1 0% 7 3 43%
Cuba - Havana $561,521 $10,835,090 $11,396,611 5% 0 0% 3 0 0%
Dominican Republic $1,311,986 $4,943,154 $6,255,140 21% 2 50% 9 3 33%
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Procurement Dashboard
Country PO Non - PO Total% Based on PO
Quality of Submissions - Total
% of cases approves after first review
Number of staff with buyer profile
Number of staff certified
% of staff certified
Procurement Plan Audit Rating
Ecuador - Quito $15,735,921 $12,223,982 $27,959,903 56% 20 90% 17 2 12%
El Salvador - San Salvador $10,715,599 $4,934,498 $15,650,097 68% 1 100% 10 0 0% YES
Guatemala - Guatemala City $3,582,304 $80,938,909 $84,521,213 4% 7 100% 46 2 4%
Guyana - Georgetown $3,877,994 $1,944,303 $5,822,297 67% 0 0% 10 0 0%
Haiti - Port-au-Prince $5,405,958 $26,801,573 $32,207,531 17% 14 71% 23 0 0%
Honduras - Tegucigalpa $27,446,598 $66,555,328 $94,001,926 29% 49 96% 33 1 3%
Jamaica - Kingston $771,125 $1,255,450 $2,026,575 38% 0 0% 10 0 0%
Mexico - Mexico City $23,353,959 $2,423,941 $25,777,900 91% 28 75% 20 0 0%
Nicaragua - Managua $17,826,834 $6,918,182 $24,745,016 72% 11 100% 8 1 13%
Panama - Panama City $115,633,082 $46,664,487 $162,297,569 71% 8 75% 36 3 8% YES
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Procurement Dashboard
Country PO Non - PO Total% Based on PO
Quality of Submissions - Total
% of cases approves after first review
Number of staff with buyer profile
Number of staff certified
% of staff certified
Procurement Plan Audit Rating
Paraguay - Asuncion $3,230,508 $23,653,197 $26,883,705 12% 1 100% 13 2 15%
Peru - Lima $8,051,615 $101,629,950 $109,681,565 7% 0 0% 11 3 27% YES
Procurement centre Panama $4,597 $20,024 $24,621 19% 0 0% 0 0 0%
Trinidad & Tobago-Port ofSpain $3,695,479 $2,360,938 $6,056,417 61% 5 40% 5 2 40%
Uruguay - Montevideo $760,363 $12,284,152 $13,044,515 6% 5 100% 5 5 100%
Venezuela - Caracas $20,155,547 $13,357,135 $33,512,682 60% 11 100% 13 0 0%