joão n. veiga malta & diomedes berroa sr. procurement specialist jveigamalta@worldbank
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João N. Veiga Malta & Diomedes BerroaJoão N. Veiga Malta & Diomedes BerroaSr. Procurement SpecialistSr. Procurement Specialistjveigamalta@worldbank.orgjveigamalta@worldbank.org
João N. Veiga Malta & Diomedes BerroaJoão N. Veiga Malta & Diomedes BerroaSr. Procurement SpecialistSr. Procurement Specialistjveigamalta@worldbank.orgjveigamalta@worldbank.org
Framework ContractsFramework ContractsFramework ContractsFramework Contracts
DefinitionsDefinitionsDefinitionsDefinitions
EC: Framework Agreements = agreement between EC: Framework Agreements = agreement between one/more contracting agencie(s) and economic one/more contracting agencie(s) and economic operator(s) … to establish the terms governing operator(s) … to establish the terms governing contracts to be awarded during a given period … contracts to be awarded during a given period … with regard to price and … the quantities with regard to price and … the quantities envisagedenvisaged
USA: Government-Wide Acquisition Contracts USA: Government-Wide Acquisition Contracts (GWAC) Indefinite Delivery/Indefinite Quantity (GWAC) Indefinite Delivery/Indefinite Quantity (IDIQ), Multiple Award Schedules (MAS) = multiple (IDIQ), Multiple Award Schedules (MAS) = multiple standing contracts with subsequent competition standing contracts with subsequent competition for task or delivery ordersfor task or delivery orders
DefinitionsDefinitionsDefinitionsDefinitions
UNCITRAL: Framework Agreements = transaction UNCITRAL: Framework Agreements = transaction to secure the supply of a product or service over a to secure the supply of a product or service over a period of time (periodic/recurrent purchase period of time (periodic/recurrent purchase arrangement, periodic requirements arrangement, arrangement, periodic requirements arrangement, periodic supply vehicle)periodic supply vehicle)
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back office function
sourcing considerations
largely goods
suppliers
simple process
low value, low risk
central to strategic management
strategic business decisions
complete service solutions
strategic partners
complex contracts & relationships
high value, high risk
Changing Nature of Government BuyingChanging Nature of Government Buying
Government procurement is being driven by budget and performance expectations to become more complex and strategic
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Value ChainValue Chain
Re-Focus of Procurement Systems and Re-Focus of Procurement Systems and CapabilitiesCapabilities
Re-Focus of Procurement Systems and Re-Focus of Procurement Systems and CapabilitiesCapabilities
Potential GainPotential Gain
Simple Procurement
Basic Expertise
Codified Process
Compliance Management
Transactions Technology
Complexity & Risk
Complexity & Risk
Complex Procurement
High Level Expertise
Risk Process
Performance Management
Knowledge Technology
RationaleRationaleRationaleRationale
Facilitated by electronic means, framework Facilitated by electronic means, framework agreements are increasingly applied in public agreements are increasingly applied in public procurementprocurement
Countries worldwide, including client countries (e.g. Countries worldwide, including client countries (e.g. LCR), use framework agreements as part of their LCR), use framework agreements as part of their public procurement systemspublic procurement systems
EU Directive refers to framework agreements and EU Directive refers to framework agreements and dynamic purchasing systemsdynamic purchasing systems
Rationale Cont.Rationale Cont.Rationale Cont.Rationale Cont.
Revised Procurement Model Law of UNCITRAL will Revised Procurement Model Law of UNCITRAL will include framework agreementsinclude framework agreements
USA: 40% of $400 billion federal procurement USA: 40% of $400 billion federal procurement volume through interagency framework agreementsvolume through interagency framework agreements
Benefits and RisksBenefits and RisksBenefits and RisksBenefits and Risks
Benefits include:Benefits include: reduced transaction costsreduced transaction costs increased efficiency of the procurement processincreased efficiency of the procurement process cost savings by aggregated demandcost savings by aggregated demand mandatory use – reducing maverick buyingmandatory use – reducing maverick buying
Risks include:Risks include: lack of transparency and competitionlack of transparency and competition market distortion/concentrationmarket distortion/concentration Potential for misapplication in procurement of Potential for misapplication in procurement of
ServicesServices discrimination against SMEsdiscrimination against SMEs
Standard ComponentsStandard ComponentsStandard ComponentsStandard Components
Typically for common use goods, services, or Typically for common use goods, services, or worksworks
Competitive selection of and award to Competitive selection of and award to one/multiple economic operators (EO) with terms one/multiple economic operators (EO) with terms and conditions set out in the framework and conditions set out in the framework agreementagreement
Subsequent purchase orders (call-offs, contracts, Subsequent purchase orders (call-offs, contracts, etc.) based on the terms and conditions set out in etc.) based on the terms and conditions set out in the framework agreementthe framework agreement
Different Models (e.g. UNCITRAL)Different Models (e.g. UNCITRAL)Different Models (e.g. UNCITRAL)Different Models (e.g. UNCITRAL)
Traditional Framework Agreements (Model 1):Traditional Framework Agreements (Model 1): One EO and defined terms (period, min/max One EO and defined terms (period, min/max
quantity, price)quantity, price) Option of multiple EOs (purchasing orders Option of multiple EOs (purchasing orders
based on lowest price or availability)based on lowest price or availability) Facilitated by E-CataloguesFacilitated by E-Catalogues
Different Models (e.g. UNCITRAL)Different Models (e.g. UNCITRAL)Different Models (e.g. UNCITRAL)Different Models (e.g. UNCITRAL)
Closed Framework Agreements (Model 2):Closed Framework Agreements (Model 2): Multiple (at least 3) EOsMultiple (at least 3) EOs Not all terms need to be definedNot all terms need to be defined Competitive purchase orders (e.g. ERA, Competitive purchase orders (e.g. ERA,
quotations)quotations) Open Framework Agreements (Model 3):Open Framework Agreements (Model 3):
Same as Model 2Same as Model 2 Admit new EOs (e.g. DPS)Admit new EOs (e.g. DPS) No obligation for purchaser/EONo obligation for purchaser/EO
IssuesIssuesIssuesIssues
Type of goods, services, worksType of goods, services, works
Legal Obligations for purchasers and Eos – Legal Obligations for purchasers and Eos – mandate Vs non-mandatedmandate Vs non-mandated
Number of framework awardees and equal Number of framework awardees and equal treatment within framework agreementtreatment within framework agreement
Terms of framework agreementsTerms of framework agreements
Issues Cont.Issues Cont.Issues Cont.Issues Cont.
Terms of framework agreementsTerms of framework agreements
Competition within framework agreementsCompetition within framework agreements
Thresholds for framework agreements and Thresholds for framework agreements and purchase orders within a framework agreementpurchase orders within a framework agreement
Examples (Practice)Examples (Practice)Examples (Practice)Examples (Practice)
ChileCompra – electronic catalogue for frequently-ChileCompra – electronic catalogue for frequently-demanded products allows government agencies demanded products allows government agencies to purchase without the expense and delays of to purchase without the expense and delays of inviting bids (average price reductions of 7-10%)inviting bids (average price reductions of 7-10%)
WAEMU Directive – framework agreements WAEMU Directive – framework agreements typically based on max/min quantity or value for typically based on max/min quantity or value for the duration of one year – with option to extend the duration of one year – with option to extend for another yearfor another year
Examples (Practice)Examples (Practice)Examples (Practice)Examples (Practice)
USA GSA – Millenia Lite = MA IDIQ GWAC for IT, USA GSA – Millenia Lite = MA IDIQ GWAC for IT, period of three years with option of 7-year period of three years with option of 7-year extension, $ 20 billion ceiling, competed task extension, $ 20 billion ceiling, competed task order requests among prime contractors (e.g. $ order requests among prime contractors (e.g. $ 107.5 million task order to CSC)107.5 million task order to CSC)
QUICK GAINS Opportunity for Savings
QUICK GAINS Opportunity for Savings
Provide information and concrete proposals to Provide information and concrete proposals to achieve quick economic savings in government’s achieve quick economic savings in government’s expenditures (purchasing).expenditures (purchasing).
Two steps: (1) Diagnostic and proposals of cost Two steps: (1) Diagnostic and proposals of cost reduction strategies; (2) Implementationreduction strategies; (2) Implementation
Effective entry point to engage country clients to Effective entry point to engage country clients to pursue significant subsequence changespursue significant subsequence changes
Key ingredients: Clients’ ownership, CMU/SMU’s Key ingredients: Clients’ ownership, CMU/SMU’s commitment, management expectation, team commitment, management expectation, team workwork
Provide information and concrete proposals to Provide information and concrete proposals to achieve quick economic savings in government’s achieve quick economic savings in government’s expenditures (purchasing).expenditures (purchasing).
Two steps: (1) Diagnostic and proposals of cost Two steps: (1) Diagnostic and proposals of cost reduction strategies; (2) Implementationreduction strategies; (2) Implementation
Effective entry point to engage country clients to Effective entry point to engage country clients to pursue significant subsequence changespursue significant subsequence changes
Key ingredients: Clients’ ownership, CMU/SMU’s Key ingredients: Clients’ ownership, CMU/SMU’s commitment, management expectation, team commitment, management expectation, team workwork
QGs in LAC through the use of Framework QGs in LAC through the use of Framework contractscontracts
QGs in LAC through the use of Framework QGs in LAC through the use of Framework contractscontracts
Country Status Categories Analyzed
Estimated SavingsConservative/ Aggressive in
US$M
Lending /non lending instruments
Ceara (Brazil) Implementation 8 50
Actual savings
Loan component
Peru PA 8 87/540 OS funded pipeline component
Panama Implementation 8 44/68
40m actual savings
1st phase OS in 2005 (CPAR). 2nd phase, under a TA, and supervised under IDFs
Guatemala PA 8 64/103 OS 2005 ( PHRD pipeline component)
Costa Rica PA 10 308/434 OS 2007. 1st phase linked to PERs
Honduras PA 10 56/101 OS 2007. Second phase to be implemented under a TA (Note)
El Salvador PA 10 40/80 TA 2007
Mexico PA 8 6373/ 10,451 OS, 2007. 1st phase linked to the CPAR
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CASE: Difference in prices purchasing bond paper is up to 37% CASE: Difference in prices purchasing bond paper is up to 37%
Sec. O
bras
Pú
blicas
Precio por Papel [Lempira resma]
Un
iversidad
Au
tónom
a
Bond Paper
53.50; 650 u
53.75; 80 u
Sec. d
eS
egurid
ad
81.20; 200 u+ 25%
76.72; 150 u
84.00; 600 u
82.88; 50 u
Sec. d
eE
du
cación
72.80; 200 u
67.20; 750 u
61.60; 1100 u
Sec. d
eS
alud
Sec. d
eF
inan
zas
61.56; 1012 u
69.44; 3 u
61.56; 1012 u
59.34; 700 u
Segu
ridad
Social
54.58; 1832 u
53.00; 1724 u
66.25; 1420 u63.20
PromedioPonderado - 12%
Implications for the Bank - LACImplications for the Bank - LACImplications for the Bank - LACImplications for the Bank - LAC
LAC - many countries adopting framework LAC - many countries adopting framework contractscontracts
More transparent alternative to shoppingMore transparent alternative to shopping
Framework contract prices better than individual Framework contract prices better than individual NCB e.g. Computers in ChileNCB e.g. Computers in Chile
Implications of FA for the Bank - LACImplications of FA for the Bank - LACImplications of FA for the Bank - LACImplications of FA for the Bank - LAC
ChileCompra – framework agreements (electronic ChileCompra – framework agreements (electronic catalogue) accepted as alternative to shoppingcatalogue) accepted as alternative to shopping
Future - challenge to ensure that Bank funded Future - challenge to ensure that Bank funded procurement can be carried out through procurement can be carried out through framework contracts whilst not closing framework contracts whilst not closing opportunities for NCBopportunities for NCB
João N. Veiga Malta & Diomedes BerroaJoão N. Veiga Malta & Diomedes BerroaSr. Procurement SpecialistSr. Procurement Specialistjveigamalta@worldbank.orgjveigamalta@worldbank.org
João N. Veiga Malta & Diomedes BerroaJoão N. Veiga Malta & Diomedes BerroaSr. Procurement SpecialistSr. Procurement Specialistjveigamalta@worldbank.orgjveigamalta@worldbank.org
Framework ContractsFramework ContractsFramework ContractsFramework Contracts
Thank YouThank YouThank YouThank You
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