cppp_mooc_courseware.pdf

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Certificate Program in Public Procurement (CPPP)

MASSIVE OPEN ONLINE COURSE (MOOC)

Certificate Programin Public Procurement(CPPP)

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This courseware is the supplementary self-study material developed for the CertificateProgram in Public Procurement to be delivered as a MOOC (Massive Open Online Course) atwww.procurementlearning.org. The South Asia Regional Procurement Services of the WorldBank has developed this course with consultants’ support and through extensiveconsultations with academic and management training institutes in India. For the purpose,these institutes have also formed a Charter for Public Procurement Studies (CPSS) topromote professionalisation during public procurement in India.

This courseware has been drawn from the detailed course content for the ProfessionalDiploma in Public Procurement (PDPP) to be delivered by CPSS member institutions, withsupport from the World Bank. Its contents may not be used or disclosed without WorldBank’s authorisation.

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World Bank Acknowledgements

South Asia Regional Vice President Philippe Le Houérou

India Country Director Onno Ruhl

Sector Director Idah Z. Pswarayi-Riddihough

Sector Manager Felipe Goya

Task Supervision Abduljabbar Al-Qathab

Task Team Leader A.K. Kalesh Kumar

Task Team Girish Bhatnagar

N.K. Mohan Das

Binu Malhotra

Latha Sridhar

Ashwini Bharat

Institutional Partner Members of the Charter

for Public Procurement Studies (CPSS)

Dr. B. S. Chetty – Administrative Staff College of India (ASCI),Hyderabad.

Dr. Raj Agarwal, Prof. Raj Kr. Singh – All India Management Association (AIMA),New Delhi.

Dr. N. N. Sarma – Assam Institute of Management (AIM),Guwahati.

Mr. Arun Talwar, Mr. Saket Sharma – CUTS Institute for Regulation and Competition(CIRC), New Delhi.

Mr. G. Sreekumar, Mr. Manku – HLL Academy (HLL), Thiruvananthapuram.

Mr. Krishan Batra – Institute for Supply Management, India (ISM),Gurgaon.

Mr. C. Subbakrishna, – Indian Institute of Materials ManagementMr. P P Sengupta (IIMM), Bangalore.

Mr. V. K. Garg/Mr. Girish Bhatnagar – Indian Railways Institute of Logistics andMaterials Management (IRILMM), New Delhi.

Dr. A K. Sharan, – National Institute of Finance ManagementMr. R. N. Ghosh (NIFM), Faridabad.

Dr. S. Chaturvedi – Symbiosis Centre for Distance Learning (SCDL),Pune.

e-Learning Design, Development – C&K Management, Hyderabad, a TMI Groupand Layout Company.

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Foreword

World over, public procurement is now recognised as a strategic tool for achievingdevelopment and meeting the social and environmental objectives of Governments, ratherthan using it as a tool for compliance of rules and regulations. Significant reforms inprocurement regulations, institutions and systems are being witnessed in many countries,including the South Asia region. These public procurement reforms are long-term initiativesand need the involvement of policy makers, judiciary and the civil society. Equally importantare initiatives that focus on building capacities of officials involved in procurementmanagement. These initiatives need to be addressed in a relatively shorter time with higherefficiencies and skill up-gradation of the staff involved. Making affordable and qualitylearning opportunities for procurement practitioners as well as students who want to pursue acareer in public procurement is a challenge. Particularly so in the South Asia region, where itis estimated that about 10 million public servants are engaged in public procurement in someform or the other, as part of their official responsibilities.

In this context and given World Bank’s own commitment to enhanced use of countrysystems and e-procurement, World Bank’s strategy for capacity building in public procurementis towards moving for larger systemic efforts. This is to ensure wider availability ofinstitutionalised learning options for aspiring candidates.

The objective of World Bank’s procurement capacity building initiatives in the SouthAsia region is to support the development of mass scale and affordable e-learning andblended courses suited to the country systems in the region, in partnership with leadingacademic and management training institutions in the region. As the first initiative, WorldBank is supporting the development of a Professional Diploma in Public Procurement (PDPP)through the Charter for Public Procurement Studies (CPPS) formed by 10 leadingacademic and management training institutions in India. CPPS, through its institutionmembers across the country, will admit, manage, conduct examinations and issue certificatesto candidates registering for the diploma program.

This Certificate Program in Public Procurement (CPPP) is a free precursor of the mainPDPP. CPPP is being offered directly by the World Bank to all aspiring learners in the SouthAsia region. It has been a joint effort of the partner institutions, consultants and the WorldBank Task Team. I thank them all for their contributions and efforts.

On behalf of the World Bank, I invite you to take the course atwww.procurementlearning.org. World Bank believes that this is a momentous beginning of aCapacity Building Program in the South Asia Region. It has the potential to reach a widertarget audience across the world in a cascading expansion.

(Felipe Goya)

Regional Procurement Manager – South Asia

The World Bank

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Introduction

This Certificate Program in Public Procurement (CPPP) is targeting in-service publicprocurement practitioners and aspiring students who want to pursue a career in publicprocurement management in the South Asia region. It is the outcome of a two-year-longresearch and development effort undertaken by the South Asia Procurement Services ofthe World Bank in association with premier academic and management training institutions inthe region. CPPP is integral to a larger Professional Diploma in Public Procurement (PDPP)and is to be delivered by partner institutions in India and other countries in the region.The delivery will be through a unique blended learning mode of distance learning, e-learningand face-to-face training. PDPP is an advanced diploma program to be launched from1st July 2014 and confirms to international standards.

CPPP content is drawn from 3 modules of the PDPP. It has been is contextualised for auniversal audience and has many relevant examples for South Asian countries. Studentswho pass the CPPP will carry credits for these three modules in the main PDPP, when theyjoin for the paid course through partner institutions. The three modules that have universalrelevance and appeal are (i) Introduction to Procurement and Public Procurement; (ii) PublicProcurement Operations and (iii) Governance Issues in Public Procurement. The objective ofthis certificate program is to orient the learner towards the principles of public procurement,management principles applicable to public procurement, essential operational aspects ofneed assessment, procurement planning, bidding, evaluation, and selection and awardprocess. The certificate program also provides knowledge on governance issues as well asinformation on the anti-corruption initiatives in public procurement.

We do hope the CPPP and PDPP will achieve their objectives of developing competenciesin existing and evolving public procurement practices; bringing in attitudinal changes in thelearner towards achieving prudence, transparency, fairness and equality; inculcating ethicalstandards and developing more professionalism; and highlighting Quality, Value for Moneyand Green Issues while undertaking procurement with public funds.

The program development process has been personally enlightening for me. I hopeCPPP will achieve the expected learning outcomes for the candidates in that they willunderstand the role and strategic importance of procurement, comprehend managementconcepts and principles, and acquire skills in preparing bid documents, evaluating andnegotiating bids, awarding of contracts, experiencing international best practices in publicprocurement, and understanding global markets.

I look forward to the effective use of these learning opportunities by in-serviceprofessionals as well as students who are interested in development management.

Abduljabbar Al-Qathab

Lead Procurement Specialist and Head, India Procurement Team

World Bank, India

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Table of Contents

WORLD BANK ACKNOWLEDGEMENTS .............................................................................. iii

FOREWORD ................................................................................................................ v

INTRODUCTION ........................................................................................................ vii

MODULE 1 Introduction to Procurement and Public Procurement .................. 1

UNIT 1 Introduction to Procurement and Public Procurement ...................................... 2

INTRODUCTION TO PUBLIC PROCUREMENT AND ITS STRATEGIC ROLE IN ORGANISATIONAL OBJECTIVES ............. 2

1.1 Role of Procurement in Organisational Objectives ......................................... 2

1.2 Strategic Importance of Procurement in the Organisation .............................. 3

1.3 Role of Public Procurement in an Organisation ............................................. 3

1.4 Strategic Importance of Public Procurement for the Government andSociety .................................................................................................. 3

1.5 Public Procurement as an Integral Part of Public Financial ManagementSystem .................................................................................................. 4

1.6 Basic Aims of Procurement – the 5 Rs of Procurement ................................... 5

1.7 How is Procurement in Public Sector Different from that in Private Sector? ..... 5

1.8 The Need for a Framework for Public Procurement ........................................ 7

1.9 Limitations in Public Procurement .............................................................. 7

REVIEW OF KEYWORDS AND CONCEPTS ........................................................................... 8

SELF-ASSESSMENT QUESTIONS AND EXPERIENTIAL EXERCISES ............................................ 8

UNIT 2 Management Concepts and Techniques............................................................ 9

MANAGEMENT CONCEPTS AND TECHNIQUES RELATING TO “RIGHT PRICE” .......................................... 9

2.1 The Concept of Value ................................................................................ 9

2.2 Total Cost of Ownership .......................................................................... 10

2.3 Value for Money (VfM) ............................................................................ 10

2.4 Value Analysis (VA) ................................................................................ 11

MANAGEMENT CONCEPTS AND TECHNIQUES RELATING TO “RIGHT TIME AND PLACE” AND “RIGHT QUANTITY” .. 12

2.5 Just-In-Time (JIT) ................................................................................. 12

MANAGEMENT CONCEPTS AND TECHNIQUES RELATING TO “RIGHT QUALITY” ..................................... 12

2.6 Total Quality Management (TQM) ............................................................. 13

2.7 Six Sigma (6 ) ...................................................................................... 14

MANAGEMENT CONCEPTS AND TECHNIQUES RELATING TO “RIGHT SOURCE” GAME THEORY ...................... 15

2.8 Theories of Competition: Game Theory ...................................................... 15

REVIEW OF KEYWORDS AND CONCEPTS ......................................................................... 17

SELF-ASSESSMENT QUESTIONS AND EXPERIENTIAL EXERCISES .......................................... 17

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MODULE 4 Public Procurement Operations .................................................19

UNIT 1 Planning for Procurement .............................................................................201.1 Introduction to Procurement Operations ................................................... 20

1.2 Planning for Procurement ....................................................................... 20

1.3 Need Assessment ................................................................................... 21

1.4 Developing Specifications ....................................................................... 21

1.5 Developing Procurement Plans ................................................................. 24



UNIT 2 Bidding and Evaluation .................................................................................282.1 Introduction ......................................................................................... 28

2.2 Standard Bidding Documents (SBD) .......................................................... 28

2.3 Securities to be Submitted by Bidders ...................................................... 30

2.4 Publication of Bids ................................................................................ 31

2.5 Clarification of Bidding Documents .......................................................... 31

2.6 Amendment of Bidding Documents ........................................................... 31

2.7 Modification; Alteration and Withdrawal of Bids......................................... 32

2.8 Pre-Bid Conference ................................................................................ 32

2.9 Receipt and Custody of Bids .................................................................... 32

2.10 Procedures to be followed during Bid Opening ........................................... 33

2.11 Late Bids .............................................................................................. 33

EVALUATION OF BIDS ............................................................................................. 34

2.12 Introduction to Bid Evaluation ................................................................ 34

2.13 Preliminary Examination ......................................................................... 34

2.14 Minor Discrepancy/ Infirmity/Irregularity/ Non-Conformity ......................... 35

2.15 Clarification of Bids ............................................................................... 35

2.16 Bidders Contacting the Organisation during Evaluation ............................... 35

2.17 Evaluation of Bids in Different Systems of Bids .......................................... 35

2.18 Evaluation of Price Aspects ..................................................................... 36

2.19 Reasonableness of Prices ........................................................................ 37

2.20 Negotiations ......................................................................................... 38

AWARD OF CONTRACT ............................................................................................. 39

2.21 Recommendations for Award of Contract ................................................... 39

2.22 Variation of Quantities at the Time of Award ............................................. 39

2.23 Parallel Contracts ................................................................................... 39

2.24 Notification for Award of Contract to Successful Bidder ............................... 40

2.25 Signing of Agreement/Issue of Supply Order .............................................. 40

2.26 Performance Security .............................................................................. 40

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2.27 Acknowledgement of Contract by Successful Bidder and Execution ................ 41

2.28 Rejection of Bids ................................................................................... 41



UNIT 3 Management of Public Procurement Operations ..............................................43

3.1 Organisation of Public Procurement Operations .......................................... 43

3.2 Procurement Agencies ............................................................................ 44

3.3 Roles, Responsibilities and Delegation of Procurement Powers ..................... 45

3.4 Committees: Many Committees Play a Key Role in Procurement Operations .... 46

3.5 Time Limit for Procurement and Accountability .......................................... 47

3.6 Record Keeping and Management Reporting .............................................. 48

3.7 Procurement Key Performance Indices (PKPI) and Management Reporting ...... 49

3.8 Information Technology in Procurement .................................................... 50



MODULE 6 Public Procurement and Good Governance ..................................53

UNIT 1 Governance Issues in Public Procurement ......................................................541.1 Values to Ethics and Laws – From Beliefs to Behaviour and Punishment ........ 54

1.2 Governance Issues in Public Procurement .................................................. 55

1.3 Governance Risk Areas in Public Procurement ............................................ 56



UNIT 2 Prevention of Corruption in Public Procurement .............................................62

2.1 Corruption ............................................................................................ 62

2.2 Negative Impact of Corruption on Society ................................................. 62

2.3 Prevention of Corruption......................................................................... 63

2.3.1 Codes of Conduct/Ethics for Public Servants including ElectedRepresentatives .......................................................................... 63

2.3.2 Transparency Systems .................................................................. 63

2.3.3 Competency and Training Systems ................................................. 64

2.3.4 Whistleblower Hotlines and Helplines – Protection of Witnessesand Whistleblowers ..................................................................... 64

2.3.5 Grievance Redressal Framework Against Arbitrary Exercise ofPowers by Public Servants ............................................................ 64

2.3.6 Corporate Ethical Commitment Against Corruption ........................... 65

2.3.7 Control/Enforcement ................................................................... 65

2.3.8 Banning and Blacklisting of Delinquent Firms ................................. 67

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2.4 Fighting Anti-Competitive Practices ......................................................... 67

2.4.1 Checkmating Anti-Competitive Practices......................................... 67

2.5 Leveraging Technology ........................................................................... 69

2.5.1 e-Governance ............................................................................. 69

2.5.2 e-Procurement ............................................................................ 69

2.5.3 e-Payment.................................................................................. 70



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Introduction to Procurement and Public Procurement

MODULE 1

Introduction toProcurement andPublic Procurement

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Introduction to Procurement and Public

Procurement

1.1 Role of Procurement in

Organisational

Objectives

Every organisation, whether in the privatesector or public sector, consumes externalresources in its pursuit to achieve theobjectives for which it was created and forwhich it exists. Such external resources can bematerials; machines; engineering construction andmaintenance; services and processes. They include

Un

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LEARNING OUTCOMES

AFTER STUDYING THIS UNIT, YOU WILL BE ABLE TO:

� Define procurement and describe its scope, role andstrategic importance to an organisation

� Define public procurement and describe its scope, roleand strategic importance to the government and society

� Describe the 5 basic aims of procurement called 5 Rs ofprocurement

� Describe the seven principles that differentiate publicprocurement from private sector procurement

� Describe the resultant limitations faced by publicprocurement

Introduction to Public Procurement and itsStrategic Role in Organisational Objectives

Defining Procurement

Procurement is a businessmanagement function. Itinvolves the science and artof supply management, asinterpreted by competentpractitioners andprofessionals.

consultancy and non-consultancy services;outsourced business processes; transportation,logistics and so on. They also include intangibleslike intellectual property, artwork, technologytransfer and goodwill, among others.

Procurement is the business managementfunction that manages the entire process ofacquisition of such external resources in anefficient and economical way by means of acontractual arrangement. This starts from theiridentification, sourcing, supply and access, riskmanagement and regulatory compliance untildisposal or cessation of such external resources.Procurement applies the science and art of supplymanagement of such external resource through abody of knowledge interpreted by competentpractitioners and professionals.

Procurement is also known by other names,of course, with varying scope, as Purchasing,Supply Management, Purchasing and SupplyManagement, Logistics, Materials Management,

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Supply Chain Management, Acquisition Managementand so on. This diversity also reflects in the namesof the professional bodies related to this function.

1.2 Strategic Importance of

Procurement in the

Organisation

The procurement function is of strategicimportance to the organisation. Economical,efficient and quicker procurement can help theorganisation, improve profitability, help incapturing large share of the market, reducing timefrom design to market, improving customersatisfaction, gaining better competitive value,help in enabling better products and services,faster and customer friendly channels of distributionand mass customisation, among others.

1.3 Role of Public

Procurement in an

Organisation

Public procurement refers to procurement ofexternal resources needed by the central or stategovernments as well as entities under theircontrol. These may be ministries and offices undertheir jurisdiction, urban local bodies, publicutilities, public sector companies and other unitsowned wholly or substantially by them. It can alsobe organisations established by the Constitutionof that country or any act of legislature – whose

expenditure is borne by the government. Publicprocurement covers such acquisitions of externalresources not only using public funds but alsousing any other source of funding, for example,grants and gifts and so on. It includes resourcesand inputs that support the work of governmentand ranges from routine items, such as stationery,temporary office staff, furniture or printed formsto complex expenditure areas, like constructionworks, Private Public Partnership projects, defenceequipment or support to major change initiatives.It also includes a growing expenditure of directdelivery of services to citizens through the privateand NGO sectors in areas such as work-for-welfare,adult education, weaker section subsidies andempowerment schemes, rural social care and health.

1.4 Strategic Importance of

Public Procurement for

the Government and

Society

Public procurement, generally, accounts fora large share of public expenditure in a domesticeconomy. Take the case of India1 where the annualpublic procurement is estimated to be more thanUS$ 300 billion, which is 25–30% of its GDP.Similarly, Bhutan2 spends about 25% of theirannual budget in public procurement. Maldives’public procurement expenditure is to the tune ofUS$ 2.2 billion and Bangladesh3 expends morethan US$ 3 billion annually on public procurement.

Due to the magnitude of the spendinginvolved, a small savings in public procurementcan release large financial resources by way ofeconomy and efficiency in its operations. Againciting India as an example, a mere 10% savingswould mean release of US$ 30 billion per year.This can lead to effective development for thecountry – particularly the poorer sections of thesociety. The starting points for a government’sactivities are larger ‘deliverables’ achieved through

1 http://www.cuts-citee.org2 http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2011/03/28/000333037_20110328002252/

Rendered/PDF/584440ESW0Whit1oFinal0Bhutan0Report.pdf3 http://www.lcgbangladesh.org/aidgov/2003-WB-Country%20Procurement%20Assessment%20Report.pdf

Defining PublicProcurement

Public procurement refers toprocurement of externalresources needed by thecentral or state governmentsas well as entities undertheir control.

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policy outcomes – a tolerant, safe society,well-educated citizens and so on. Governmentthen develops policies like Public ProcurementPolicy to meet these outcomes and engages inactivities to deliver them. Public Procurement isone of such activities. Due to the magnitude ofthe spending involved, public procurementcan have a market impact beyond the merequantities of goods and services purchased.Through its procurement policies, the publicsector can affect the structure of the market andthe incentives of firms. Procurement policy,therefore, may be used to shape a more inclusivenational economic growth by long term support toSMEs, disadvantaged sections, environmentalconcerns and the like.

1.5 Public Procurement as

an Integral Part of Public

Financial Management

System

Public Finance Management (PFM) basically,deals with all aspects of resource mobilisationand expenditure management in government.

It includes revenue collection, prioritisation ofprograms, budgetary process, efficient expendituremanagement and exercise of controls. The basicframework of the financial management systemis usually provided in the constitution ofthat country and elaborated further throughtheir legislations and rules. Public procurementis an integral and important part of thisPublic Financial Management System. As alreadydiscussed, even a minor improvement in theefficiency of public procurement will benefit andpositively impact the financial managementsystem. This can enable the Public FinancialManagement System to normalise the tax ratesand to release more funds for developmentalprojects.

The pace of public procurement reformsin South Asia varies from country to country.While Afghanistan, Bangladesh, Nepal andPakistan have Public Procurement Acts, publicprocurement in Bhutan, Maldives and Sri Lanka isgoverned by regulations and guidelines. TheGeneral Financial Rules (GFR) regulate publicprocurement at the Union Level and in mostof the states in India and only two States –Karnataka and Tamil Nadu have the publicprocurement laws.

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1.6 Basic Aims of

Procurement – the 5 Rs

of Procurement

In every procurement, we try to achieve aright balance on the following five parameterscalled the 5 Rs of procurement. The whole processof procurement is designed to achieve these aims.

i) Right Quality

Procurement aims at the required qualityfor the purpose, available in the market,rather than the best quality, since that mayhave adverse cost, technical, maintenanceand operational implications. Therefore,procurement tries to get just the rightquality that will suit the needs – no moreand no less.

ii) Right Quantity

Similarly, buying large quantities irrespectiveof your current needs is as wrong as buyingjust the immediately required quantity.There are extra costs and systemic problemsinvolved with buying an item too frequentlyin small quantities or with buying largequantities and then storing them forprolonged use. Hence, the right quantity ispurchased, which balances extra costsassociated with larger and smallerquantities. There are methods to calculatesuch right quantities.

iii) Right Price, refined further by conceptsof Value for Money (VfM), Life CycleCosting (LCC) or Total Cost of Ownership(TCO)

It is not correct to aim at the cheapestmaterial available. The price should be justright for the quality, quantity and otherfactors involved. The concept of pricecan be refined further to include conceptsof Life Cycle Costing or Total Cost ofOwnership or Value for Money to take intoaccount not only the initial price paid foran item but also take into considerationother costs like maintenance costs,operational costs and disposal costs.

iv) Right Time and PlaceIf we need the material in our factory in3 months’ time, it will be costly to get ittoo late or too early. We may incur costs instoring it. Similarly, if the vendor deliversthe material in another city, extra time andmoney would be involved in transporting itto our factory.

v) Right SourceSimilarly, the source (or supply) of materialhas to be just right for our needs. Buying afew packets of printer paper directly from alarge manufacturer may not be right. On theother hand, if our requirements are verylarge, buying such items through dealers ormiddlemen may also not be right.

1.7 How is Procurement in

Public Sector Different

from that in Private

Sector?

Despite similarities, public procurement,due to the following seven principles that arepeculiar to it becomes quite different fromprocurement in the private sector.

i) Transparency Principle: Transparency,fairness, equality, competition and appealrights entail the prospective participantsto know and understand the actual meansand processes by which contracts areawarded and managed. It implies clarity,

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openness, lack of secretiveness, equalopportunities, non-discrimination andabsence of arbitrariness in processesas well as simultaneous and symmetricavailability of information for all likelyparticipants.

ii) Responsiveness Principle: Publicprocurement is obliged to be responsive tothe aspirations of its many stakeholders.For example, the stakeholders are citizens,taxpayers, electorate, elected officials,management, procurement officers and soon. They may have different objectives,which may well be conflicting.

iii) Professionalism Principle: Professionalism,economy, efficiency, effectiveness andintegrity are parts of this principle. Thesesynergic attributes enjoin upon the publicprocurement to do what it promised to doand to avoid improper, wasteful or corrupt,fraudulent and collusive practices. It alsomeans that the methodology adopted forprocurement should be reasonable andappropriate for the cost and complexity ofthe subject matter of procurement.

iv) Constitutional Principle: The Constitutionof a country normally has certainprovisions regarding Fundamental Rightsand Public Procurement. Courts have overa time extended and interpreted theseto circumscribe and confine publicprocurement within certain limits. Theseare not applicable to procurement byprivate sector.

v) Multiplicity Principle: Public organisationshave to achieve many goals at the sametime besides organisational goals like:

• Promoting public trust in governance

• Conflicting expectations of the generalpublic, which the organisation issupposed to serve (for example,cheap and at the same time efficienttransportation)

• Support to broader social, policyand program objectives of thegovernment (like job and employmentcreation, strengthening of localindustry and economic growth)

• Affirmative procurement from backwardregions, weaker sections and Small andMedium Enterprises

• Facilitating administrative goals ofother departments of government(ensuring tax or environmentalcompliance by participants)

vi) Public Accountability Principle: Publicprocurement entities and their officersmust be accountable for all the aboveprinciples to several official bodies in thatcountry. In the case of India, these are theParliament and Parliamentary Committees,Central Vigilance Commission (CVC), CentralBureau of Investigation (CBI), Comptrollerand Auditor General of India (C&AG). Thereare similar accountability institutions inother South Asian countries. A publicprocurement officer is, therefore, obligedto operate under intense public scrutiny.

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vii) Transactional Principle: Because ofpublic accountability, each individualprocurement transaction is usuallyevaluated independently instead ofjudging the entire procurement processover a period, as is done in the privatesector. Thus, in public procurement, thecompliance of rules and procedures assumepredominant importance, unlike in theprivate sector. Training of procurementmanagers in respective sectors alsoreflects this difference in focus.

1.8 The Need for a Framework

for Public Procurement

There are differences between publicprocurement and private sector procurement.Hence, there arises the need to lay down aframework consisting of special legislations(besides the relevant commercial laws of thecountry), guidelines, rules and manuals for publicprocurement to cover the above-mentioned sevenprinciples. The rules and regulations within theframework are cumulative – international, nationaland local. Public procurement is bound to beexecuted within strict limits imposed by such a

framework at various levels. This framework,under which Public Procurement has to function,becomes the determining characteristic of publicprocurement.

1.9 Limitations in Public

Procurement

The public procurement framework and itsunique governance characteristics lead to certainlimitations in public procurement, which have tobe kept in view in the context of the framework ofregulations:

• Due to a complex interplay of variouselements of the Framework for PublicProcurement, some of these could bemutually contradictory or elusive.

• The Framework becomes quite extensiveand may become hunting ground for lawyers,arbitrators, facilitators and intermediaries.

• Compliance may become the focus of publicprocurement, instead of outcomes thereof.

• Since there is not much elbowroom for thepublic procurement official to go evenmarginally beyond the terms of contract,every dispute could end up in disputeresolution forums.

Remember!

A framework of rules andregulations, under whichPublic Procurement has tofunction, becomes thedetermining characteristic ofpublic procurement.

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• Because of the transactional nature of theFramework, establishing and engaging inlong-term, strategic relationships withsuppliers in public procurement is difficult,although the public sector does deal withsome very important long-term investments(e.g. in infrastructure or industrialdevelopment). This is also contrary tomodern trend in private sector towardsintegrated Supply Chain Management (SCM)and Supplier Relationship Management(SRM), which enable better value for money.Recent developments in establishingstrategic procurement adopted by developednations like USA and European countries arein its early stages. However, these pointtowards innovations possible in long termGovernment–Supplier relationships.

REVIEW OF KEYWORDS AND

CONCEPTS

� Procurement is the function that managesthe acquisition of external resources neededby an organisation in the pursuit of itsobjectives

� Economical, efficient and quickerprocurement can strategically help anorganisation in the pursuit of its objectives

� Public procurement refers to procurement ofexternal resources needed by the central orstate governments as well as the entitiesunder their control

� Due to the magnitude of the spendinginvolved, public procurement has thepotential to release large financial resourcesby way of economy and efficiency in itsoperations, leading to the effectivedevelopment for the country

� Public procurement policy can be used toshape a more inclusive national economicgrowth

� Public procurement is an integral andimportant part of the Public FinancialManagement System

� In every procurement, we try to achieve aright balance on five parameters (called the5 Rs of procurement)

� Despite similarities, public procurement, dueto seven principles that are peculiar to it,becomes quite different from procurement inthe private sector

� Because of differences between publicprocurement and private sector procurement,there arises the need to lay down a frameworkunder which public procurement is conducted

� The public procurement framework and itscharacteristics also lead to certain limitations

SELF-ASSESSMENT QUESTIONS

AND EXPERIENTIAL EXERCISES

1. What are the two main areas of strategicimportance of public procurement for anation?

2. Why do we need a framework under whichpublic procurement is conducted?

3. Find out and list the categories of “externalresources” needed by your organisation inpursuit of its objectives. Classify these intoGoods, Works, Consultancy and Services.

4. Find out if there has been any disruption inthe activity of your organisation due tonon-availability of such external resources.What were the consequences?

5. What is the budget of your organisation foracquisition of such external resources? Whatpercentage of it is the total expenditure ofyour organisation?

6. In your family’s purchases, do youconsciously or unconsciously use the 5 Rsof procurement?

7. What will be your considerations for buyinga new desktop computer (PC) for yourhome? Will these considerations be takeninto account when you buy a PC for yourorganisation?

8. Discuss with procurement officials in yourorganisation whether they encounter anylimitations in achieving the objectives ofthe organisation while making procurements.

9. If you have friends in the private sector,discuss with them, in the context of whatyou have learnt, the way procurement iscarried out in their organisation.

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Management Concepts and TechniquesU

nit

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LEARNING OUTCOMES


� Imbibe the essence of management concepts and techniquesrelated to “Right Price” in Procurement like Value for Money(VfM), Value Analysis

� Imbibe the essence of “Just-In-Time” (JIT) that is related to“Right Time and Place” and “Right Quantity” in Procurement

� Imbibe the essence of management concepts and techniquesrelated to “Right Quality” in Procurement like – Total QualityManagement (TQM), Quality Circles, Six Sigma and so on

� Acquaint yourself with the essence of Game Theory that isrelated to “Right Source” in Procurement

Management

Concepts and

Techniques Relating

to “Right Price”

2.1 The Concept of Value

Value is a management and economicsconcept. It represents the extent of satiation, of ahierarchy of needs of a person, by a productbought for this purpose. This is subjective anddifficult to quantify. This is because differentpersons would have different hierarchy of needsand would perceive different extents of satiationor value from the same product. There are threesources of the value of a product. The first sourceof value is from the functional usage of theproduct (known as use value) and the secondsource comes from the status associated with theownership of the product (esteem value). This canbe shown as the difference between a luxurybranded gold-plated, diamond encrusted pen and

a disposable non-descript functional pen thoughboth fulfil the same function and have the sameuse value. However, the luxury branded pen, inaddition to the use value, also has additionalesteem value. The third source of value comesfrom the price that one can get by exchanging orscrapping the product at the end of the usefullife of the product. This is called the disposalvalue. Normally, when people buy a car, they doconsider the estimated disposal value of differentchoices of models. Value is the sum-total of allthe three values.

Three Sources of a Product’s Value:

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2.2 Total Cost of Ownership

While the value of a product covers allcomponents of value over the “whole-of-life”, thecosts incurred on the product should also takeinto consideration total of various elements ofcosts incurred over whole-of-life of the product.For this purpose, future costs are discounted topresent value (not to be confused with the valuewe are discussing – this is an economicdiscounting concept). For example, it would notbe prudent to buy a cheap car, which has veryhigh cost of operating it. This is called variouslyas “Whole-of-Life” (WOL) or “Life-Time-Cost” (LCC)or “Total Cost of Ownership” (TCO). TCO is apreferred nomenclature in procurement andis defined as the total of all costs associatedwith a product, service, or capital equipmentthat are incurred over its expected life. Typically,these costs can be broken into four broadcategories:

• Purchase price. The amount paid to thesupplier for the product, service, or capitalequipment

• Acquisition costs. All costs associated withbringing the product, service, or capitalequipment to the customer’s location.Examples of acquisition costs are sourcing,administration, freight, taxes, and so on

• Usage costs. In the case of a product, allcosts associated with converting thepurchased part/material into the finishedproduct and supporting it through its usablelife. In the case of a service, all costsassociated with the performance of the

service that is not included in the purchaseprice. In the case of capital equipment, allcosts associated with operating theequipment through its life. Examples ofusage costs are inventory, conversion,wastage, lost productivity, lost sales,warranty, installation, training anddowntime, among others

• End-of-life costs. All costs incurred when aproduct, service, or capital equipmentreaches the end of its usable life, net ofamounts received from the sale of remainingproduct or the equipment (salvage value) asthe case may be. Examples of end-of-lifecosts are obsolescence, disposal, clean-up,and project termination costs

2.3 Value for Money (VfM)

Besides value of a product or service,customer also has his own notion for “value” of aparticular sum of money. This is different fordifferent people or even for the same person indifferent circumstances. When the perceived valueof a product matches the perceived value of theamount of money (cost of the product), thecustomer feels he has got the full value for hismoney. This is called the value for money. Inprocurement, Total Cost of Ownership (TCO) istaken to evaluate value for money. Given thelimited resources available to the government,ensuring VfM in procurement is the key toensuring the optimum utilisation of scarcebudgetary resources. It usually means buying theproduct or service with the lowest whole-life costs

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that is ‘fit for purpose’ and meets thespecification. Where an alternative is chosen thatdoes not have the lowest whole-life costs, thenthe additional ‘value added’ benefit must be clearand justifiable. Assessment of supplier bids shouldbe conducted only in relation to a published set ofevaluation criteria. These must be relevant tothe subject of the contract, and any ‘added value’that justifies a higher price must flow fromthese defined criteria. VfM also incorporatesaffordability; clearly, goods or services that areunaffordable cannot be bought. This shouldbe addressed as soon as possible within theprocess, ideally at the business case stage beforeprocurement commences. In order to addressthis issue, a change in procurement approach,specification or business strategy may be required.VfM is often primarily established through thecompetitive process. A strong competition froma vibrant market will generally deliver a VfMoutcome. However, where competition is limited,or even absent, other routes may have to be usedto establish VfM. These can include benchmarking,construction of theoretical cost models or ‘shadow’bids by the procurement agency. For majorcontracts, this can require considerable financialexpertise and external support. A value for moneyassessment, based on the published conditionsfor participation and evaluation, may includeconsideration of factors such as:

• Fitness for purpose

• Potential supplier’s experience andperformance history

• Flexibility (including innovation andadaptability over the lifecycle of theprocurement)

• Environmental sustainability (such asenergy efficiency and environmentalimpact) and

• Total Cost of Ownership

2.4 Value Analysis (VA)

Value analysis can be defined as a processof systematic review that is applied to productspecification. This is to identify and eliminateproduct and service features that add little valueto the product, but incur disproportionate costto the process of manufacturing or provision ofthe service. As such, the VA process is used todevelop a specification, which can improve theValue for Money of the procurement, especially incomplex equipment, works and services. VA

approach when applied in manufacturing Industryto pre-manufacturing stages such as conceptdevelopment, design and prototyping – is calledValue Engineering (VE). VA process is carried outby a team consisting of representatives fromall the departments involved with theprocurement and usage of the product overits whole-of-life. There are 5 stages of thisprocess. They are:

• Orientation Stage: Formation of team,selection of the product for VA,understanding the usage of the productfunctions and cost elements

• Functional Analysis Stage: The product isbroken down into its various functions andthese are analysed and ranked in the orderof essentiality and usefulness

• Creative Brainstorming: This is aninteractive and creative process to analysevarious – “What if” alternatives

• Analysis and Evaluation: The team assigns“Worth” and “Costs” to various functions of

Remember!

Value for Money is when theperceived value of a productmatches the customer’sperceived cost of the product.The customer, thus, feels he hasgot full value for his money.

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the product. Value potential is the differencebetween the “Worth” and “Cost” of afunction. The team then evaluates whether itis possible to eliminate or replace completely,substitute or modify the functions with lowor negative value potentials. A report isthen made giving the recommendations

• Implementation: Based on the team’sreport, the departments involved in theusage of the product over its “Whole-of-Life”, take a final call on the recommendationsof the VA Team

Management

Concepts and

Techniques Relating

to “Right Time and

Place” and “Right

Quantity”

2.5 Just-In-Time (JIT)

“Just-In-Time” has been defined as “aninventory control philosophy, whose goal is tomaintain just enough material in just the rightplace, at just the right time to make just the rightamount of product.” The essence of JIT purchasingis to purchase materials and be “just-in-time” forconsumption. JIT has been successfully used inthe manufacturing sector (Automobile massproduction in particular) to achieve low inventorycarrying costs, higher quality, fast response toengineering changes, administrative efficiency andbetter productivity. However, JIT is notonly an inventory policy, not even aseries of techniques, but also anoperating philosophy. JIT purchasingalso requires permanent changes inhow a firm conducts business. It isnot a one-time effort or a projectbut rather a continuous improvementprocess. A true JIT purchasing systemrequires cultural and personnelmind-set changes on the part ofthe purchaser and the supplier.

Perhaps most important, JIT purchasing does notmean pushing inventory back to the supplier. JITpurchasing requires cooperation, coordination,and information sharing to eliminate inventoryacross the supply chain.

The essence of JIT is to have:

• Manufacturing smallest quantity of productin one lot

• Single source in a close geographical area,stay with the same suppliers – no annualre-bidding

• Suppliers evaluated on ability to providehigh quality products

• Fully specified essential product charac-teristics only

• Less formal system – reduced paperwork

• Vendor certification of quality – receivinginspections eliminated

• Frequent deliveries in small lot-sizes

By the very nature of the long-termpreferential tie-ups with a small number ofvendors in JIT, it is difficult to implement inpublic procurement, except in rare situations likeproprietary products and 'cold chain operationsof vaccines' and so on.

Definition

Just-in-Time is defined as“an inventory controlphilosophy, whose goal isto maintain just enoughmaterial in just the rightplace at just the right timeto make just the rightamount of product.”

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Management

Concepts and

Techniques Relating

to “Right Quality”

2.6 Total Quality

Management (TQM)

Quality is the ability of product or service tosatisfy customers’ expectations. Total QualityManagement (TQM) is the optimisation andintegration of all the functions and processes of abusiness, through a process of continuousimprovement, with an aim to provide totalsatisfaction to customers. Its main difference fromother quality assurance systems is its focus onthe customer satisfaction. The seven features ofTQM are:

• Customer focus: Goal is to identify andmeet customer needs

• Continuous improvement: A philosophy ofnever-ending improvement

• Employee empowerment: Employees areexpected to seek out, identify and correctquality problems

• Use of quality tools: Ongoing employeetraining in the use of quality tools

• Product design: Products need to bedesigned to meet customer expectations

• Process management: Quality should bebuilt into the process; sources of qualityproblems should be identified and corrected

• Managing supplier quality: Qualityconcepts must extend to a company’ssuppliers

One of the most well-known techniquesused is the Plan–Do–Study–Act Cycle. Theplan–do–study–act (PDSA) cycle describes theactivities a company needs to perform in orderto incorporate continuous improvement in itsoperation. This cycle is also referred to as theShewhart Cycle or the Deming Wheel. The circularnature of this cycle shows that continuousimprovement is a never-ending process.

Plan: The first step in the PDSA cycle isto plan. Managers must evaluate the currentprocess and make plans based on any problemsthey find. They need to document all currentprocedures, collect data, and identify problems.This information should then be studied and usedto develop a plan for improvement as well asspecific measures to evaluate performance.

Do: The next step in the cycle isimplementing the plan (do). During theimplementation process, managers shoulddocument all changes made and collect data forevaluation.

Study: The third step is to study the datacollected in the previous phase. The data areevaluated to check whether the plan is achievingthe goals established in the plan phase.

Act: The last phase of the cycle is to actbased on the results of the first three phases. Thebest way to accomplish this is to communicate

Seven Features of TQM

• Customer focus

• Continuous improvement

• Employee empowerment

• Use of quality tools

• Product design

• Process management

• Managing supplier quality

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the results to other members in the company.Then, implement the new procedure if it hasbeen successful. This is a cycle; the next step is toplan again.

Team Approach: TQM stresses that qualityis an organisational effort. To facilitate thesolving of quality problems, great emphasis isgiven to teamwork. Using techniques, such asbrainstorming, discussion, and quality controltools, teams work regularly to correct problems.One of the most common types of teams is thequality circle, a team of volunteer productionemployees and their supervisors whose purpose isto solve quality problems.

2.7 Six Sigma (6 )

“Six Sigma (6 )” is the application of astatistical methodology to business processes.Its aim is to improve effectiveness in valueand productivity, thereby raising profitability.Sigma ( ) is a letter in the Greek alphabetthat is used to indicate standard deviation1. Toachieve Six Sigma, a process must not producemore than 3.4 defects per million opportunitiesfor non-conformance. A defect is defined aseverything that is outside customer specification.Like many popular initiatives, Six Sigma hasblossomed into a whole culture of strategies, toolsand statistical methods to improve operatingprofit. It goes further than merely reducingdefects. It stresses improvements to businessprocesses in general, including reduction in costs,shorter cycle times, greater customer satisfactionand other important metrics. An essential goal ofSix Sigma is to eliminate any suggestion of thewaste often to be found in organisationalprocesses. Six Sigma involves the application oftwo subsidiary initiatives, which go by the

acronyms DMAIC and DMADV. DMAIC stands forDefine, Measure, Analyse, Improve and Control.The aim of this method is to improve existingprocesses, which have not come up tospecification in respect of quality. The othermethod, DMADV, stands for Define, Measure,Analyse, Design and Verify and is an improvementsystem, which focuses on new processes orproducts. This method can also be applied if anexisting process or product needs more thanjust small improvements. Both these Six Sigmamethods are carried out by executives who haveattained certification in the use of Six Sigma.There are various levels of such certificationstarting from 'Green Belt' to 'Black Belt' and finally'Master Black Belt'.

Remember!

To achieve Six Sigma, aprocess must not producemore than 3.4 defects permillion opportunities fornon-conformance.

1 A measure of the variations in a set of data from its mean. The more spread apart the data from the mean, the higher thedeviation. Standard deviation is calculated as the square root of such variances.

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Management

Concepts and

Techniques Relating

to “Right Source”

Game Theory

2.8 Theories of Competition:

Game Theory

Game theory is the formal study of conflictand cooperation. The concepts of game theoryprovide a language to formulate structure, analyse,and understand strategic scenarios. Game theory isthe branch of decision theory concerned withinterdependent decisions. The problems of interestinvolve multiple participants (may be individuals,groups, firms or combinations of these). Each ofthem has individual objectives related to acommon system or shared resources. Game theoryarose from the analysis of competitive scenarios.Hence, the problems are called games and theparticipants are called players. However, thesetechniques apply to more than just sport, and arenot even limited to competitive situations. Inshort, game theory deals with any problem inwhich each player’s strategy depends on whatthe other players do. Situations involvinginterdependent decisions arise frequently, in allwalks of life. A few examples in which gametheory could come in handy include:

• Businesses competing in a market – say in aprocurement tender

• Diplomats negotiating a treaty

• Gamblers betting in a card game

These situations call for strategic thinking –making use of available information to devise thebest plan to achieve one’s objectives. Everyone isfamiliar with assessing costs and benefits in orderto make informed decisions between severaloptions. Game theory simply extends this conceptto interdependent decisions, in which the optionsbeing evaluated are functions of other players’likely choices. The appropriate techniques foranalysing interdependent decisions differsignificantly from those for individual decisions.To begin with, despite the rubric game, theobjective is not to win. Even for strictlycompetitive games, the goal is simply to identifyone’s optimal strategy. Using this methodology,whether or not we end up ahead of another playerwill be of no consequence. Our only concern willbe whether we have used our optimal strategy. Ingaming, players’ actions are referred to as moves.The role of analysis is to identify the sequence ofmoves that one should use. A sequence of movesis called a strategy. So, an optimal strategy is asequence of moves that results in the bestoutcome. It does not have to be unique. Morethan one strategy could result in outcomesthat had equal payoffs, and they would all beoptimal, as long as no other strategy could resultin a higher payoff. There are two fundamentaltypes of games; sequential and simultaneous.

Game Theory

Game Theory deals with anyproblem in which eachplayer’s strategy depends onwhat the other players do. Anoptimal strategy is a sequenceof moves that results in thebest outcome.

16


In sequential games, the players make alternatemoves (as in an auction). In simultaneous games,the players can act at the same time (like bidderssubmitting bids in a bidiing process). These typesare distinguished because they require differentanalytical approaches.

Game theory is exciting because althoughthe principles are simple, the applications arefar-reaching. Interdependent decisions areeverywhere, potentially including almost anyendeavour in which self-interested agentscooperate and/or compete. Game theory can beused to design credible commitments, threats,or promises, or to assess propositions andstatements offered by others.

Application of Game theory to publicprocurement indicates that for commonly availableand bought items, to obtain VfM, exactly similar(symmetric) information should be available to asmany prospective bidders as possible. Thus,transparency and open tendering are based onsound theoretical foundations.

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CONCEPTS

� Value is a management and economicsconcept, which represents the extent ofsatiation of a hierarchy of needs of a person,by a product bought for this purpose

� Total Cost of Ownership (TCO) takes intoconsideration the sum total of variouselements of costs incurred over the whole-of-life of the product. For this purpose, futurecosts are discounted to present worth

� Value for Money is said to be obtained whenthe Perceived Value of a Product matches thePerceived Value of the Amount of Money(Cost of the product), and the customer feelshe has got the full value for his money

� Value Analysis (VA) can be defined as aprocess of systematic review that is appliedto product specification. This is to identifyand eliminate product and service featuresthat add little value to the product, but incurdisproportionate cost to the process ofmanufacturing or provision of the service. VAapproach, when applied in manufacturingindustry to pre-manufacturing stages, suchas concept development, design andprototyping – is called Value Engineering(VE)

� Just-in-Time is “an inventory controlphilosophy, whose goal is to maintain justenough material in just the right place atjust the right time to make just the rightamount of product.” The essence of JITpurchasing is to purchase materials that are“just-in-time” for consumption

� Total Quality Management (TQM) is theoptimisation and integration of all thefunctions and processes of a business,through a process of continuousimprovement, with an aim to provide totalsatisfaction to customers

� Six Sigma (6 ) is the application of astructured, data-driven statisticalmethodology to business processes. Its aimis to improve effectiveness in value andproductivity, thereby raising profitability.

It stresses improvements to businessprocesses in general, including reduction incosts, shorter cycle times, greater customersatisfaction and other important metrics

� Game theory is the branch of decision theoryconcerned with interdependent decisionsinvolving multiple participants, each ofwhom has individual objectives related toa common system or shared resources.Game theory deals with any problem (liketenders in public procurement) in which eachplayer’s strategy depends on what the otherplayers do



1. What are the different types of “values”perceived in buying a car? How does suchconcept of “value” make a difference inyour selection when you buy a car for yourfamily or your field office?

2. If you or your friend has replaced your oldcar (or computer) with a new one, make arough conceptual estimate of the Total Costof Ownership (TCO) of the replaced equipment.

3. Does open competitive process alwaysensure VfM? Under what conditions does itnot ensure VfM? What can be done toobtain VfM in such adverse situations?

4. In procurement of helicopters for DefenceMinistry, in your view, what can be done toobtain value for money?

5. Join with your friends and as a team do arough “Value Analyses” (VA) of the featuresof the Smartphone you have. What are thefeatures that can be removed to improve itsVfM?

6. What can be the dangers and risks inimplementing “Just in Time”? Why would itbe difficult to implement JIT in publicprocurement?

7. Study the material on TQM and Six Sigmathoroughly. Are the two techniques samebut packaged differently? What are thefundamental differences that set themapart?

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8. A simple game called “Prisoners’ Dilemma”illustrates theoretical importance of GamesTheory. The game is briefly discussed below.Play it as many times as you like withdifferent participants and statisticallyanalyse and rationalise the result.

“Two members of the same criminal gangare arrested and imprisoned. Each prisoneris in solitary confinement with no means ofspeaking to or exchanging messages withthe other. The police admit that they do nothave enough evidence to convict the pair

on the principal charge. They plan tosentence both to a year in prison on alesser charge. Simultaneously, the policeoffer both prisoners a bargain. If one of theprisoners testifies against his partner,he will go free while the partner will getthree years in prison on the main charge.However, if both prisoners testify againsteach other, both will be sentenced to twoyears in jail. Let the game be played by twopersons (prisoners) with a third one as areferee (police officer).”

19

Public Procurement Operations

MODULE 4

Public ProcurementOperations

20


Planning for Procurement

1.1 Introduction to

Procurement Operations

Procurement operations in public procurementcan be studied by dividing it into following steps:

a) Planning for Procurement

b) Preparing Bid Documents

c) Publication, Receipt and Opening of Bids

d) Evaluation of Bids and

e) Award of Contract

Un

it 1

LEARNING OUTCOMES


� Describe the process of need assessment of requirement

� Describe the various types of specifications

� Describe the process of procurement planning

� Describe the ABC categorisation of requirements

1.2 Planning for

Procurement

Procurement operations and planning ofprocurement have the same relationship as thatexists between a building and its foundations.Planning for procurement has, therefore, greatleverage in procurement operations. Amount oftime and effort invested here would save multipleamounts of time and effort in subsequentprocurement operations. It may well decide

21


success or failure of the entire procurementoperations. It consists of following steps:

a) Need Assessment

b) Developing Specifications

c) Developing Procurement Plans

1.3 Need Assessment

Procurements are initiated based on anindent (Requisition in case of goods orprocurement proposal in case of services ordetailed project report in case of works) from theuser department. Need assessment is the processby which, details of requirement are assessedbefore such an indent is prepared. It is animportant process to ensure economy in quantity(or scope in services); Technical requirement(or terms of reference in services) and timelinessin procurement. Records of the basis of decisionsand approvals in need assessment should bemaintained to ensure transparency andaccountability. As is evident from list of issuesgiven below – there is equal involvement ofcommercial and technical aspects. Hence, it isimportant to involve procurement and financefunctions in the need assessment.

During needs assessment, the followingissues are decided:

i) Expression of need and methods ofsatisfying the needs. In works, this mayinvolve surveys and soil investigations.

ii) Techno-economic evaluation of variousalternative methods of satisfaction of theneed and selection of a particular solution.

iii) Compatibility and inter-operability withexisting infrastructure or systems.

iv) Estimation of costs including BOQ (Bill ofQuantities) in case of works.

v) Budgetary provisions and availability offunds.

vi) Description of the requirement for theselected solution.

vii) Time-schedule and place of product/work/service delivery.

viii) Sustainability criteria and legal requirementsof environment or pollution control andclearances from local authorities, ifrequired, and

ix) Obtaining technical, administrative andbudgetary sanctions.

1.4 Developing

Specifications

Specifications are the detailed qualitativerequirements of procurement. In case of goods,they should indicate the material composition,physical, dimensional and performanceparameters, tolerances if any, manufacturingprocess wherever applicable, test schedule,preservation and packing, among others. In caseof works, the specifications give materials to beused (and their specification, tests, storage),method of executing the work (methods andrecords of measurements, acceptance tests,any temporary work involved) and schedule ofrates as applicable. In case of services, instead ofspecifications, the qualitative requirements are

22


specified in Terms of Reference (TOR) andSchedule of Work (SOW). This stage has thegreatest impact on value-for-money inprocurement. A specification should provide alevel playing field for all prospective bidders.It should:

i) Meet the essential needs

ii) Be objective, functional, generic andmeasurable

iii) Set out required technical, qualitative andperformance characteristics

iv) Provide a level playing field

v) Normally, be based on respective NationalStandards (Bureau of Indian Standards,Bangladesh Standards and BangladeshStandards and Testing Institution; PakistanStandards and Quality Control Authority;Sri Lanka Standards Institution; Standards,Productivity and Innovation Board –Singapore) or in special cases onInternational Standards (InternationalStandards Organisation: ISO)

Types of Specifications: There are differenttypes of specifications. They are:

i) Proprietary Specifications

ii) Brand or Trade Names

iii) Tailored Technical Specifications

iv) Tailored Performance Specifications

v) External Technical and PerformanceStandards and

vi) Specifications Involving Sample

• Proprietary Specifications

Patents or Intellectual Property Rights tosome specifications are owned by only oneorganisation (Proprietary Firm). These areavailable only with the proprietary firm andare protected by the intellectual propertyrights. Hence, proprietary specifications are

normally not available with the buyer andfirm’s certificate of quality is accepted.However, essential technical andperformance characteristics required forinspection should be made available.

• Brand or Trade Names

Using brand or trade names (along withmodel number, if required) gives sufficientinformation for procurement. Quality of thebranded product is generally reliable.Procurement of branded product cannotensure value-for-money and Maximum RetailPrice (MRP) or Manufacturer’s Price List,often includes heavy margins forwholesalers and retailers. In publicprocurement, specification by brand name isnot allowed. However, if it is inescapablethen specification of Brand Name with “orequivalent” has to be included. Unless thealternatives in the market are nearlyequivalent and comparable, the stipulationof “or Equivalent” leads to intractablecomplications at the evaluation stage of thetender. This is appropriate for commonlyused items where quality is more importantthan cost or where it is not possible tomake technical or performance specification– like furniture or items of personal use,etc. In a proprietary procurement, use ofbrand name is permissible.

• Tailored Technical Specifications

Tailored technical specifications give alot of detail on how to achieve what isrequired. Tailored technical specificationslimit the ability of the supplier to offermore cost-effective solutions and put thebulk of the performance risk on the buyer.Tailored technical specification isappropriate when the buying organisationhas design expertise that the suppliers donot have and the procurement is of highvalue and of critical and complex nature(the commercially available products donot meet the requirements even withminor changes) to justify the effort ofdevelopment. The tailored specification canbe used to verify that the supplies meet allthe requirements. Tailored technical

Attention!

Specifications forprocurement should be sodeveloped thatthey provide a level-playingfield to all prospectivebidders.

23


specification may require the supplierto design a tailor-made product. This canlead to restricted competition and addsignificant cost and time. Over-specifying –or specifying something that will greatlyrestrict competition – is a common problemthat attracts criticism.

• Tailored Performance Specifications

Performance specifications might describeonly the essential performance requirements,and leave the supplier to establish the bestway to achieve them. This widens thecompetition. Suppliers can use their fullexpertise and innovation to develop theoptimum solution, i.e. value-for-money. Inthis case, the supplier carries the bulk ofperformance risk. These specifications maybe appropriate where suppliers possessgreater design or functional expertise than thebuying organisation, or where technology ischanging rapidly in the supplying industryor where innovation is important. Sincethey rely heavily on supplier’s capability,it is particularly important to pre-qualifysuppliers when using performancespecifications. It is also important tocommunicate how the bids will beevaluated, and the criteria to be used for

measuring whether the desired performancehas been achieved. The buyer requires lesseffort in developing specifications. However,this is matched by increased complexity ofevaluation of bids in procurement, especiallywhere the supplier is using technology withwhich the buyer is unfamiliar.

A performance specification can include:

i) What is to be performed and therequired levels of outputs

ii) Operational and maintenance performance

iii) The maximum costs associated withattaining the required levels of output

iv) Rules for measuring performance

• External Technical and PerformanceStandardsWidely recognised standards exist for manycommon products, services, processes,safety requirements and so on. Standardsenable buyers and sellers to speak thesame language, using common parameters,terminology and/or symbols. Standards alsooffer value-for-money and better lead timesin an atmosphere of wide competition andstandardisation of production. There isless effort required in developing thespecifications for evaluation of bids. Suchspecifications should be the first choice ifthese meet the requirements adequately.There are a number of different categoriesand sources of standards. Some of them are:

i) Industry standards:

Respective national standards: (Bureauof Indian Standards, BangladeshStandards and Bangladesh Standards

Remember!

In public procurement, overspecifying, or specifyingsomething that will greatlyrestrict competition, is acommon problem that oftenattracts criticism.

24


and Testing Institution; PakistanStandards and Quality Control Authority;Sri Lanka Standards Institution;Standards, Productivity and InnovationBoard – Singapore)

ii) International standards: These areestablished by institutions, such asthe International Organisation forStandardisation (ISO), European UnionDirectives

• Specifications Involving Sample

In public procurement of goods, normally,purchase is to be done as per drawing/standard/specification, etc. and purchaseas per sample is discouraged. In certainnational or international standards, theremay be built in sample clause. Usually,such clauses are stipulated to illustrateindeterminable characteristics such asshade/tone, size, make-up, feel, finish andworkmanship, etc. In some specifications,there may not be a sample clause but suchindeterminable characteristics may not bespecified and may be left to be agreedbetween seller and buyer. In either case,supply is to be in conformity with an agreedsample in such respects only, whereas forthe remaining characteristics the suppliesmust be in conformity with the laid downstandard. In such cases also, calling forsample along with tender and deciding thetender on basis of evaluation of sample mayNOT be done. If desired, a purchaser’s samplemay be put on display for prospectivetenderers, indicating the example of desired

indeterminable characteristics, which finalsupplies from successful bidder(s) will haveto meet – in addition to meeting thespecifications or drawings. In the tenderenquiry, the methodology and tests thatwill be done should be made clear forensuring compliance of supplies (and pre-production sample, if indicated) with thepurchaser’s sample. Such purchaser’ssamples would also have to be laterprovided to successful bidders for guidance.If required, in addition to or instead ofpurchaser’s sample, provision for submissionof a pre-production sample to the inspectionagency/user by successful bidder(s) may bestipulated for indeterminable characteristics,before giving clearance for bulk productionof the supply.

1.5 Developing Procurement

Plans

Advance procurement planning is necessaryso that appropriate procurement strategies canbe developed to achieve the larger goals ofprocurement. These procurement strategies cannotbe built in ad-hoc and emergency procurements.Procurement plans facilitate a structured andconsidered approach to the management ofprocurement activities. Procurement plans mustbe undertaken at both the organisational leveland for vital category individual procurementprojects or aggregated vital categories ofexpenditure. Procurement plans should haveinterface with budgetary allocations.Procurement plans should include the followingactivities:

i) Deciding the agency for procurement

Points to Ponder

Advance procurement planningis essential for evolvingappropriate procurementstrategies to achieve the largergoals of procurement.Procurement plans should alsohave an interface withbudgetary allocations.

25


ii) The scope or quantity of the subjectmatter of procurement, if determined;

iii) In the interest of efficiency, economy andtimely completion of supply (but not tolimit competition among bidders) decideappropriate packages of the requirement;

iv) Limitation on participation of bidders asper the Government’s Purchase Policyregarding preference to certain sections ofindustry, if any;

v) The method of procurement to be followed– suitability for e-Procurement or ReverseAuction; Framework Contracting;

vi) Need for pre-qualification, if any;

vii) Deciding on the mode of procurement and

viii) Review of the procurement plan atpre-defined intervals

• Organisational Procurement Plans

Every procurement agency must preparean organisational procurement plansufficiently before start of the budgetaryyear. Organisational procurement plansset out:

i) Procurement objectives

ii) Finalisation of annual requirements

iii) Identification of common use itemsfor collaborative purchasing

iv) The procurement profile of theprocurement agency including specificvital category procurements

v) Procurement systems, processes andpractices, including managementand resources available for theprocurement operations

vi) Procurement strategies that willachieve the stated procurementobjectives (Skills development ofofficers in procurement chain andimprovement of capability andmaturity of procurement organisation)

vii) Deciding how the procurement canfulfil the social or developmentobjectives of Procurement Policy

viii) Procurement measures, targets andannual comparisons against targets

• Individual Vital Category ProcurementPlans

In a similar manner, procurement agenciesshould also develop individual procurementplans for vital category of procurements andfor common-use-items, since these havesignificant impact on the goals of PublicProcurement.

• Finalisation of Annual RequirementsThe first step in procurement planning isthe finalisation of the annual requirements.Annual requirement is finalised at thebeginning of the year considering thefollowing parameters:

i) Performance target of the organisation

ii) Demand forecasting based on historicaldata, estimation of requirement basedon new projects and current stock andorder levels

iii) Consolidation of requirements raised byall user departments

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• Review of the Procurement Plan

A mid-year review of the annualprocurement plan should be undertaken. Inthis review, the quantities procured shouldbe compared to the actual consumptionduring the period. Procurement departmentshould send the consumption data for thelast six months to the user departmentsasking them to re-look at the proposedrequirement for the next six months.This modified demand is then sent backto the purchase department. Necessaryadjustments in contract execution may bemade based on modified requirements planfurnished by user departments. Advancingand postponement of delivery period, ifcalled for, may be negotiated with thevendors, without levy of LiquidatedDamages. If review so indicates, ‘quantityoption clause’ may also be exercised.

1. Deciding on Mode of Procurement

After finalisation of procurement plan,the mode of procurement for goods/services should be decided. Any one ofthe modes of procurement may be useddepending on the nature and expectedvalue of procurement of the item and/or type of requirement.

2. ABC Categories of Requirements –Pareto Principle

The Pareto Principle (also known asthe 80-20 rule) states that, forinventory/procurement, roughly 80%of the value of inventory/ procurementcomes from 20% of the items stocked/purchased. Based on this, items arenormally classified into A, B and Ccategories as follows:

“A Category Items” inventory/procurement will typically contain

items that are 20% of total items butaccount for 80% of total value, and

“B Category Items” inventory/procurement will typically containitems that are 30% of total items butaccount for next 15% (81% - 95%) oftotal value, and

“C Category Items” inventory/procurement will typically containitems that are 50% of total items butaccount for next 5% (96% - 100%) oftotal value.

Normally buffer levels, permitted inventorylevels and types/modes of procurement aredecided based on such categorisation. Aone-time exercise may be done for commonitems by procurement department and forlocal items by the units concerned tocategorise items in such categories.


CONCEPTS

� Need Assessment: The first step in theprocurement operation is to identify andfully define the need in relation to theactivity. Poor identification of needs maylead to assets being procured, which do notfully meet the need of the procurementagency. This may incur wastage of time, effortand cost. Or, they may be inefficiencies,leading to sub-optimal assets being procured.

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Having fully defined the requirements, alloptions for satisfying that need are carefullyevaluated before finalising the indent

� Specifications: Specifications are thedetailed qualitative requirements of the itembeing procured. These indicate various detailslike the material composition, physical,dimensional, performance parameters andso on

� Tailored Technical Specification: Tailoredtechnical specification gives a lot of detailon how to achieve what is required. Itrequires the supplier to design a tailor-madeproduct

� Tailored Performance Specification: In thistype of specification, only the essentialperformance requirements are described. It isup to the supplier to establish the best wayto achieve them

� Industry Standards: These are the generallyaccepted requirements followed by themembers of an industry

� National Standards: Standards laid down inrespective countries by Bureau of IndianStandards, Bangladesh Standards andBangladesh Standards and TestingInstitution; Pakistan Standards and QualityControl Authority; Sri Lanka StandardsInstitution; Standards, Productivity andInnovation Board – Singapore

� International Organisation forStandardisation (ISO): The InternationalOrganisation for Standardisation, known asISO, is an international standard-settingbody composed of representatives fromvarious bodies of national standards

� ABC Categorisation of Items to beProcured (Pareto Principle): Inprocurement activity, Pareto Principle that is,80-20 rule) is applied for categorisation ofinventory/procurement into three categoriesas ‘A Category Items’, ‘B Category Items’,and ‘C Category Items)

The Pareto Principle states that 20%contribute to 80% of achievement/value/costand so on.

In procurement activity, “A” category itemsare those items, which are only 20% of the

total items but account for 80% of totalvalue; “B” category items constitute 30% oftotal items but account for the next 15% oftotal value and “C” category items are 50%of total items but account for next 5% oftotal value.



1. What are the likely issues that could beexamined during the Need Analysis of:

a) Construction of a bridge over a majorriver near a provincial capital?

b) Procurement of an aircraft for thenational airlines?

c) Consultancy for assessing the impactof HIV/Aids Program of the Government?

d) Hiring service for security arrangementin a factory?

2. What is the purpose of having aspecification in procurement? What are thepros and cons of different types ofspecifications?

3. List the various categories of expenditurein a normal household like yours(Entertainment; eating out; groceries,telephone and TV dish; car and transport;vacations; children’s education; clothing;house rent; miscellaneous and so on).Estimate the quantum of expenditure ineach category and total these. Identify ‘A’category expenditures as per the ParetoPrinciple. (To do this, list the categories inthe order of quantum of expenditures fromhighest to the lowest. Add a column on theright showing cumulative expenditure fromtop till that item as percentage of totalexpenditure. Draw a line when cumulativeexpenditure reaches 80% of the total. Itemsabove this line are ‘A’ category. What are ‘A’category expenditures? Is miscellaneousexpenditure among these?

4. Study the system of procurement planningin your organisation and compare it withthe one given in this chapter.

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Preparing Bid

Documents

2.1 Introduction

Bid documents are prepared to provide cleartechnical and commercial terms of reference forthe proposed procurement, based on the standardbid documents of the organisation. Terminology forbidding documents in the USA and internationalprocurement like RFI, RFP and RFQ has nowadaysbecome prevalent even in indigenous procurement.Common usage is as follows:

• RFI – Request for Information: (Expression ofInterest - EOI Bid): An open enquiry thatscans the market seeking broad data andunderstanding

• RFQ – Request for Qualification (like PQB):An opportunity for potential suppliers to getpre-qualified/ short listed for subsequentprocurement bid. Lays down precisequalification criteria for short listing ofvendors, to whom RFP would be issued

Bidding and EvaluationU

nit

2

LEARNING OUTCOMES


� Describe and prepare bid documents

� Describe the process of receiving and opening of bids

� Describe the process of bid evaluation

� Describe the process of negotiations

� Describe the process of award of contract

• RFP – Request for Proposal: Bid floated totarget suppliers like after the RFI or RFQ

2.2 Standard Bidding

Documents (SBD)

The standard bidding documents aregrouped broadly under different sections.

Here are the invariable parts of theStandard Bid Documents that are to be normallyincluded unchanged:

i) General Instructions to Tenderers (GIT)

ii) General Conditions of Contract (GCC)

iii) Bid Form (Bid Cover Letter)

iv) Price Schedule

v) Bank Guarantee Form for EMD

vi) Bank Guarantee Form for PerformanceSecurity

Formats to be Filled by the Bidder:

Here are the parts of the Standard BidDocuments, which are to be framed keeping inmind the special requirements of the procurement.

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Care must be taken that instructions/directivescontained in the Procurement Policy are notviolated and approval of the competent authoritymust be taken. The parts of the Standard BidDocuments are:

i) Bid Notice/Notice Inviting Tender (NIT)

ii) Special Instructions to Tenderers (SIT)

iii) Special Conditions of Contract (SCC)

iv) List of Requirements

v) Technical Specifications and Quality ControlRequirements

vi) Qualification/Eligibility Criteria

vii) Contract Form

Some broad guidelines for preparing the biddocument are provided in the subsequentparagraphs.

• Bid Notice/Notice Inviting Tender (NIT)This model should be used for publishingthe bid notice. The invitation for bidsspecifies the minimum acceptable functional,technical and contractual requirements, andthe evaluation criteria governing the awardof a contract. NIT should be brief butshould contain sufficient details for aprospective bidder to decide whether toparticipate in the bid or not; and if hedecides to participate – how to go aboutthat.

• General and Special Instructions toBidders (GIT and SIT)

The General Instructions to Tenderers (GIT)contain all the relevant information as wellas guidance to the prospective bidders forpreparation and submission of a responsivebid. The GIT clearly states the paymentterms, date, time and venue for obtaining,

submitting and opening the bids. It alsostates the qualification criteria. Anychanges warranted by special circumstancesare to be indicated in the SpecialInstructions to Tenderers (SIT). Inprocurement of services, such changes fromGIT are brought out in Bid Data Sheet (BDS)instead of the SIT. It is also indicated inthe SBD that the provisions in the SITwould supersede the correspondingprovisions in the GIT.

• Conditions of the Contract (GCC and SCC)

The General conditions of contract (GCC) aregeneral and should be used unchanged withall types of contracts. Special conditions ofContract (SCC) of contract may be includedin the tender documents, depending uponthe need, and with the prior approval ofcompetent authority. It is also indicated inthe SBD that the provisions in the SCC willsupersede the corresponding provisions inthe GCC.

• Qualification/Eligibility Criteria

Qualification or eligibility criteria should bestipulated in the bid documents. The bidderhas to ensure that he provides convincingproof of having fulfilled these criteria.

• Bid Validity

The minimum period for which the bidshould remain valid for acceptance isspecified in the bid documents. It couldbe for example 90 days in case of singlebid tender system and 120 days in case oftwo-bid system from the date of submissionof offer. A bid valid for shorter periodcan be rejected, as being non-responsive.In exceptional circumstances, the consentof the bidder may be requested, in writingfor an extension to the period of bidvalidity. The bid security provided shouldalso be suitably extended. A bidderaccepting the request and grantingextension should not be permitted tomodify his bid.

• Agents of SupplierOne agent cannot represent two suppliersor quote on their behalf in a particularbid enquiry. One manufacturer can also

Mandatory!

Bid Documents should beframed keeping in mind thespecial requirements of theprocurement, taking care thatinstructions/directivescontained in the ProcurementPolicy are not violated andapproval of the CompetitiveAuthority is taken.

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authorise only one agent/dealer. There canbe only one bid from:

• The principal manufacturer directly orthrough one agent on his behalf

• The foreign principal or any of itsbranch/division

• An agent on behalf of only one principal

2.3 Securities to be

Submitted by Bidders

Securities to be filled in by the bidders are:

• Earnest Money Deposit (EMD)

Earnest Money Deposit (EMD) is also knownas Bid Security. To safeguard against abidders withdrawing or altering their bidduring the bid validity period in the case ofadvertised or limited bid enquiry, EMDshould be obtained from all the biddersalong with their bids.

The amount of EMD could be for examplebe 2% of the estimated value of the goodsto be purchased for bids of smaller valueand 1% for the bid of larger value.

The bidders who are currently registeredand, also, would continue to remainregistered during the bid validity periodwith procurement organisation or centralprocurement agency may be exempted frompayment of earnest money. In case thebidder falls in these categories, it shouldfurnish certified copy of its validregistration details.

Acceptable forms of earnest moneyshould be specified for example:• Account Payee Demand Draft• Fixed Deposit Receipt• Banker’s Cheque

In case of separate PQB bid before floatingprocurement bids, EMD may be taken onlyonce from the successful bidders and EMDmay not be asked from them in theprocurement bid again. The EMD clause inPQB bid should cover this aspect.

The EMD should remain valid for aspecified period beyond the final bidvalidity period (say 45 days).

• Forfeiture of Earnest Money Deposit

EMD of a bidder should be forfeited, if thebidder withdraws or amends its bid orimpairs or derogates from the bid in anyrespect within the period of validity of itsbid. Further, if the successful bidder fails tofurnish the required performance securitywithin the specified period, its EMD shouldbe forfeited.

• Refund of Earnest Money Deposit

EMD furnished by all unsuccessful biddersshould be returned to them without anyinterest whatsoever, at the earliest afterexpiry of the final bid validity period (saywithin 30 days after conclusion of thecontract). EMD of the successful biddershould be returned after receipt of performancesecurity from it as called for in the contract.

• Performance SecurityTo ensure due performance of the contract,Performance Security (also calledPerformance Bank Guarantee – PBG orSecurity Deposit – SD) should be obtainedfrom the successful bidder who has beenawarded the contract irrespective of itsregistration status. Bank guarantee must beverified from the issuing bank. Performancesecurity should be specified as a percentageof the value of the contract (say 10%).Performance security may be furnished inspecified form (as account payee demanddraft or bank guarantee from a scheduledcommercial bank in an acceptable form).

Security should be furnished by aspecified date (generally, 21 days afternotification of the award) and it should

Remember!

Earnest Money Deposit (EMD)must be obtained from all thebidders to safeguard against abidder withdrawing/alteringthe bid.

EMD could be in:

• Account Payee DemandDraft

• Fixed Deposit Receipt

• Banker’s Cheque

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remain valid for a specified period beyondthe date of completion of all contractualobligations of the contractor (say 60 days),including warranty obligations. Performancesecurity should be forfeited and credited tothe organisation’s account in the event ofa breach of contract by the contractor.Performance security should be refunded tothe contractor without any interest, after heduly performs and completes the contract(say within 60 days of completion of allobligations).

Publication, Receipt

and Opening of Bids

2.4 Publication of Bids

Adequate publicity in national newspapers,organisation’s website and Central PublicProcurement Portal should be ensured as per thepolicy of the organisation.

• ICB bids should also be published inInternational press at least 6 weeks prior tothe deadline of submission of bids, inaddition to national newspaper(s) of widecirculation. Copies of the bid enquiry maybe sent to the country’s embassies abroadas well as the foreign embassies in thecountry. The selection of embassies woulddepend on the possibility of availability ofthe required goods/services in such countries.

• In addition to publication of advertise-ments, attention of reputed suppliers,organisation’s registered vendors and also

past or current successful suppliers may alsobe drawn, wherever possible.

• In limited bidding, direct written enquiriesalong with detailed specifications ofrequirements should be sent by registeredmail/reliable courier/other recordedmethod to organisation’s registered bidderswithout open advertisement. To avoidsituations where some of selected prospectivebidders may not receive the bid documentsby post/courier, the bid notice may also beput up on website with a note that:

“This notice is being published only as anabundant precaution and is not an openinvitation to quote in the Bid. Participationin this bid is by invitation only and islimited to the selected organisation’sregistered bidders for the item, who havebeen sent this Bid by post/courier.Unsolicited offers are liable to be ignored.”

• Newspaper cuttings in each case should becollected and kept on record as proof ofpublicity, actually achieved as far aspossible. Print out of the bids published inthe website should be kept in the file.

2.5 Clarification of Bidding

Documents

A prospective bidder requiring anyclarification of the bidding documents shouldnotify to the organisation in writing, well beforethe due date of submission of the bids. Responseshould be sent in writing to the clarificationssought prior to the date of opening of the bids.Copies of the query and clarification notes should

32


be sent to all prospective bidders who havereceived the bidding documents.

2.6 Amendment of Bidding

Documents

At any time prior to the date of submissionof bids purchaser may, at his own initiative orin response to a clarification requested by aprospective bidder, modify bid documents byamendments. The amendments should be notifiedin writing by registered/speed post or by fax/telex/e-mail, followed by copy of the same byregistered post to all prospective bidders. Inorder to afford prospective bidders a reasonabletime to consider the amendment whilepreparing their bids, the purchaser may, athis discretion, extend the deadline for submissionof bids.

2.72.72.72.72.7 Modification; Alteration

and Withdrawal of Bids

The bidder, after submitting its bid ispermitted to submit alterations/modifications toits bid so long as such alterations/modificationsare received duly sealed and marked like originalbid, up to the date and time of receipt of bid. Anyamendments or modifications received after theprescribed date and time of receipt of bids are notto be considered. The bidder may also withdrawhis bid after submission provided the writtennotice of withdrawal is received prior to deadlineprescribed for submission of bids. A withdrawalnotice may be sent by fax but followed by asigned confirmation copy by post not later thanthe deadline for submission of bids. No bid may be

withdrawn in the interval between the deadlinefor submission of bids and expiration of the periodof bid validity specified. Withdrawal of a bidduring this period should result in forfeiture ofbidder’s bid security (EMD) and other sanctions.

2.8 Pre-Bid Conference

If found necessary, where technicalspecification is considered to be complex,technical specification and techno-commercialconditions of the bid, should be fine-tuned in apre-bid conference.

2.9 Receipt and Custody of

Bids

The following key guidelines should befollowed for receipt and custody of bids:

Receipt and custody of bids should bedone in a transparent manner to maintaincredibility of the process. Purchase departmentshould maintain a bid box for receiving thebids to facilitate easy access to bidders.Separate bid boxes should be provided for eachday of the week of bid opening and should besealed by nominated competent authority.

For oversized bids which cannot bedropped into bid boxes, or in cases where thebid is required to be submitted by hand, itshould be ensured that the names anddesignation of at least two officers arementioned in the bid documents. Theinformation about these officers should also bedisplayed at the entrance/reception of thepremises where tenders are to be deposited.The officials authorised to receive the bidshould provide a receipt signed by them withdate and time to the bearer of the bid. Heshould also sign on the cover; duly indicatingthe date and time of receipt of the bid(s).

Bids received by courier should bedeposited in bid box until the date and time ofbid opening. The officer who deposits thesebid(s), should sign on the cover, duly indicatingthe date and time of receipt of the bid(s).

Important Info!

The purchaser, prior to thedate of submission of bids maymodify bid documents byamendments.

However, these modificationsshould be notified in writingto all prospective bidders.

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2.10 Procedures to be followed

during Bid Opening

The Bid Opening Committee (BOC) shouldprepare a list of the representatives attending thebid opening and obtain their signatures on thesame. The list should also contain therepresentatives’ names, the corresponding bidders’names and addresses, and the authority lettersbrought by the representatives. BOC membersshould also sign the list with date and time.

The Bid Opening Committee should collectbids from Bid Box at prescheduled time. All thebids received on time should be opened in thepresence of Bid Opening Committee and thebidders or their authorised representatives(who have submitted regular bids) at theprescribed time, date and place. The authorisedrepresentatives, who intend to attend the bidopening, are to bring with them letters ofauthority from the corresponding bidders. BOCshould ensure the bid envelopes are duly sealedand untampered. Before opening each bid,envelope should be held up for all participants, tosee that it is in sealed and untampered condition.

Ensure all mandatory requirements (forexample: EMD, specific supporting documents andso on), as specified in the bid-documents, arefulfilled. However, the Bid Opening Committeerejects no bid at the bid opening stage.

The Bid Opening Committee shouldannounce the salient features of the bids likedescription and specification of the goods, quotedprice, terms of delivery, delivery period, discountif any, whether EMD was furnished or not and anyother special feature of the bid for the informationof the representatives attending the bid opening.

After opening, every bid should benumbered serially, initialled, and dated on the

first page by one of the officials authorised toopen the bids. Each page of the price schedule orletter attached to it should also be initialled withdate, particularly the prices, delivery period etc.,which should also be circled and initialled withdate. Discounts and rebates should also be circled,and in case there is no discount, it should bewritten prominently – “No Discounts”. Blank bids,if any, should be marked accordingly by the bidopening officials. Amounts and quantities in theprice schedule, mentioned only in figures shouldbe circled and written in words by the BOC.

The original (and duplicate, if any) copiesin a bid set are to be marked accordingly by thebid opening panel.

Alterations/overwriting/use of whitener/columns left unfilled in bids, if any, made by thebidders, should be initialled with date and timeand numbered by the officials opening the bids tomake it clear that such alterations were presenton the bids at the time of opening. Wherever anyerasing or cutting is observed, the substitutedwords should also be encircled and initialled withdate and time – to make clear that such erasing/striking of the original entry was present on thebid at the time of opening.

An on-the-spot report containing the namesof the bidders (serial number wise) salient featuresof the bids, as read out during public opening ofbids should be prepared by the bid openingofficers duly signed by them with date and time.

The bids, which have been opened, the listof the representatives attending the bid openingand the on-the spot report are to be handed overto the nominated purchase officer.

Money documents should be handed over torepresentative of Finance Department for safecustody and monitoring.

In case of samples, which accompany thebid, proper codification needs to be done onsamples as well.

2.11 Late Bids

A bid, which is received after the specifieddate and time for receipt of bids should be treatedas “late” bid and should be ignored.

Attention!

No bid is rejected by the BidOpening Committee at the bidopening stage.

A bid received after thespecified date and time forreceipt of bids should be treatedas “late” bid and ignored.

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Evaluation of Bids

2.12 Introduction to Bid

Evaluation

In any purchase decision, the core issues tobe decided by the competent authority arewhether the bids meet the essential bidrequirements, prices being charged are reasonableand the procedures followed are proper, fair andtransparent. This responsibility is not dischargedmerely by selection of cheapest offer but mustconform to the following yardsticks of financialpropriety:

• Whether the offers have been invited inaccordance with Procurement Policy and aredone after following fair and reasonableprocedures in prevailing circumstances

• Whether the authority is satisfied that theselected offer should adequately meet therequirement for which it is being procured

• Whether the price of the offer is reasonableand consistent with the quality required

• Above all, whether accepted offer is themost appropriate one taking all relevantfactors into account and keeping with thestandards of financial propriety

Evaluation of bids is one of the mostsignificant areas of purchase management. Theentire process of bid evaluation and placement ofcontract must be transparent. All the aspects thatare to be taken into account for evaluating thebids including the method to be adopted forevaluation of bids and the techniques fordetermining the most favourable evaluatedresponsive bid for placement of contract are to beincorporated in the bid enquiry document. Theseshould be done in a clear and comprehensivemanner without any ambiguity and/or confusingstipulations therein. This is because the interestedbidders can formulate their competitive offers in ameaningful manner and participate in the biddingprocess with confidence.

All the bids are to be evaluated strictly onthe basis of the terms and conditions incorporatedin the bid enquiry document (based on which

offers have been received) and the terms,conditions etc. stipulated by the bidders in theirbids. No new condition should be brought in whileevaluating the bids. Similarly, no bid enquirycondition (specially the significant/essentialones) should be overlooked while evaluating thebids. Aim should be to ensure that no bidder getsundue advantage at the cost of other biddersand/or at the cost of organisation. The process ofbid evaluation is as follows:

2.13 Preliminary Examination

The Bid Opening Committee should forwardall the bids to the member secretary of thenominated Tender Committee (TC) for furtherevaluation. All the bids so received should first bescrutinised by the TC to see whether the bidsmeet the basic requirements as incorporated inthe bid enquiry document and to identify theunresponsive bids, if any. The bids that do notmeet the basic requirements are to be treated asunresponsive and ignored. The following are theimportant points for which a bid may be declaredas unresponsive and to be ignored, during theinitial scrutiny:

• The bid is unsigned

• The bidder is not eligible as perqualification criteria

• The bid validity is shorter than the requiredperiod

• Required EMD has not been provided

• Bidder has not agreed to give the requiredperformance security

• The goods quoted are not meeting therequired specification, etc.

• The bidder has quoted for goodsmanufactured by a different firm without

Did You Know?

No new condition can beincluded while evaluatingthe bids. The aim should beto ensure that no biddergets undue advantage atthe cost of other bidders orat the cost of theorganisation.

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the required authority letter from theproposed manufacturer

• Against a schedule in the List ofRequirement (incorporated in the bidenquiry), the bidder has not quoted for theentire requirement as specified in thatschedule. (e.g. the bidder fails to quoteinstallation and commissioning whererequired).

• The bidder has not agreed to essentialcondition(s) having significant bearing onthe cost/utility/performance of the requiredgoods. (E.g., warranty clause, etc.)

2.14 Minor Discrepancy/

Infirmity/Irregularity/

Non-Conformity

Sometimes, non-conformities/errors betweenthe quoted prices in figures and that in words;or discrepancies between the original copyand the other copies of the same bid set; someminor informality and/or irregularity and/or non-conformity are also observed. The same should betaken care of as indicated in the bid document.

2.15 Clarification of Bids

During evaluation and comparison of bids,purchaser may, at its discretion ask the bidder forclarification of its bid. The request for clarificationshould be in writing and no change in prices orsubstance of the bid should be sought, offered orpermitted. No post bid clarification at theinitiative of the bidder should be entertained.

2.16 Bidders Contacting the

Organisation during

Evaluation

From the time of submission of bid to thetime of awarding the contract, if a bidder needs tocontact the Organisation for any reason, relatingto this bid enquiry and/or its bid; it should do soonly in writing.

2.17 Evaluation of Bids in

Different Systems of

Bids

Two-Stage Bidding: PrequalificationBidding (PQB) is the first stage of a two stagebidding procedure for selection of competentqualified bidders by using a PrequalificationCriterion (PQC), prior to the issue of the“Invitations to Tender” to pre-qualified biddersfrom first stage of bidding for the Procurement inthe second stage of bidding. Evaluation in PQBstage should be strictly done as per the criteriaprescribed. In case relaxation is considerednecessary, re-tendering may be done. PQCcredentials and data called should be verified(except in cases where the offer does not meetthe specified PQC criteria, as per credentialssubmitted by the Bidder himself). Decision of thePQB shall be conveyed to the successful as well asunsuccessful bidders. Reasons for disqualificationof unsuccessful bidder(s) should also becommunicated to them. RFP is only issued toqualified bidders.

Attention!

Evaluation in thePre-Qualification Biddingstage should be strictly doneas per the criteria prescribed.

In case any relaxation isconsidered necessary,retendering may be done.

Two-Stage Bidding

Stage 1Pre-Qualification

Bidding

Stage 2Invitations to

Tender

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2.18 Evaluation of Price

Aspects

Evaluation of price aspects should take intoaccount the following aspects:

i) Normally, the comparison of the responsivebids should be on CIF destination basis,duly delivered and commissioned, as thecase may be.

ii) In the case of goods manufactured in Indiaor goods of foreign origin already located inIndia, sales tax and other similar taxes andexcise duty and other similar duties, whichshould be contractually payable (to thebidder), on the goods if a contract isawarded on the bidder.

iii) In the case of goods of foreign originoffered from abroad, customs duty andother similar import duties/taxes, whichshould be contractually payable (to thebidder) on the goods if the contract isawarded on the bidder.

As per the policies of the Government fromtime to time, the purchaser reserves its option togive price preference to small scale industries incomparison to the large scale industries. Thisprice preference cannot, however, be taken forgranted and every endeavour needs to be made bysuch firms to bring down cost and achievecompetitiveness.

In case the list of requirements containsmore than one schedule, the responsive bidsshould be evaluated and compared separatelyfor each schedule. The bid for a scheduleshould not be considered if the completerequirements prescribed in that schedule are notincluded in the bid.

Single Bid (Envelope) System: Forprocurement of technically simple requirementssingle bid system calls for Technical details(including any eligibility criteria) of the offer aswell as price quoted in the same bid envelope. Thelowest priced bid that meets the Technical (andeligibility criteria) requirements laid down in theBid Documents is declared as successful.

Two-Bid (Envelope) System: Inprocurement of technically complex and criticalrequirements, the bidders are asked to bifurcatetheir quotations in two separately sealed parts –first part, called the Techno-Commercial Bid,containing the relevant technical details of theiroffer with reference to the specification and alliedtechnical details incorporated in the tenderenquiry documents indicating confirmation totechnical and commercial conditions and, in thesecond part, called the Financial Bid, the pricequotation along with other allied issues.

The techno-commercial bids are onlyopened first in the presence of willing biddersin the first instance, at the prescribed timeand date by the Bid Opening Committee andthe same is scrutinised and evaluated by theTender Committee with reference to parametersprescribed in the tender documents. The technical(quality) evaluation criteria can be either afail/pass criteria or it may be more complexgrading and ranking system in which a technicalscore are assigned. Bids which meet the technicalparameters and commercial conditions aredeclared as techno-commercially acceptable offers.

Thereafter, in the second stage, theFinancial Bids of only the techno-commerciallyacceptable offers (as decided in the first stageabove) are opened in their presence after givingthem due notice about the date, time and venueof opening of bids. The Financial Bids ofunacceptable bidders is returned unopened to therespective. Financial evaluation would be done asper the system of selection laid down in the BidDocuments. In Goods and Works, it may meanselecting the lowest priced offer out of theFinancial Bids opened of the Techno-commerciallyacceptable offers. In services in some cases PriceScores and Technical Score may be weighted andcombined to form a combined score. The offer withhighest combined score may be declared a winner.

Did You Know?

If bids have been invited ona variable price basis, theyshould be evaluated,compared and ranked on thebasis of the position, asprevailing on the day of bidopening, and not on thebasis of any future date.

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If the bids have been invited on a variableprice basis, the bids should be evaluated,compared and ranked on the basis of the positionas prevailing on the day of bid opening and noton the basis of any future date.

The organisation, through the aboveprocess of bid scrutiny and bid evaluation, shoulddetermine to its satisfaction whether the bidder,whose bid has been determined as the mostfavourably evaluated responsive bid, is eligible,qualified and capable in all respects to performthe contract satisfactorily. If, there is more thanone schedule in the List of Requirements, then,such determination should be made separately foreach schedule.

Price in the quotation should be in currencystipulated in the SBD. The contract price shouldbe normally paid in the currency/currencies inwhich the price is stated in the contract.

For leveraging indigenous shipping industry,normally bids may be called on FOB/FAS basis.

The foreign bidders are normally asked inthe bid documents to quote both on FAS/FOBbasis and also on C&F/CIF basis duly indicatingthe break-up of prices indicating freight,insurance – with purchasers reserving the right toorder on either basis. They are also to indicate theCustom Tariff Number and the custom dutyapplicable in the country. In the case of FAS/FOBoffers, the freight and insurance should be addedto make it CIF cost. Port Handling Charges ,Custom Duty, Countervailing Duty and Surcharges,as applicable on the date of opening of bid, aswell as Clearing Agency charges, Inland freightand Octroi/entry tax, as assessed, should be addedover CIF to arrive at FOR/FOT destination. FOR/FOTdestination price for domestic offers may becalculated as in NCB Bids. For bids with LCpayment, likely LC charges (as ascertained fromour bankers) should also be loaded.

In ICB bids, all offers are to be converted tocountry’s currency based on the “BC selling”Exchange Rate of specified bank on the date ofBid Opening (Financial Offer).

In case both indigenous and foreign biddershave quoted in the Bid, the comparison of theoffers would be done on the basis of FOR/FOTDestination including all applicable taxes andduties (on the principle of total outgo from the

organisation’s pockets). In case there are nodomestic bidders comparison of offers can be doneon the basis of CIF/landed costs since the rest ofcosts would be same for all bidders.

2.19 Reasonableness of

Prices

i) Price evaluation

The following are the various methodsin which a price can be analysed for“Estimated Rate” in the indent or forReasonableness of Rates in the Bid:

i) Estimated rate in the indent

ii) Last purchase price accepted asreasonable/workable during lastpurchase.

iii) Prevailing market price ascertainedthrough a market survey or budgetaryquotations from one or moreprospective suppliers or publishedcatalogues or MRP printed on theitem (with ascertained appropriatediscount). User department shouldcollect the documents and authenticatethe same

iv) Costing analysis based on costs ofvarious components/raw materials ofthe item

v) Price of a similar/nearly equivalentitem

vi) Rough assessment from the price ofthe assembly/machine of which theitem is a part or vice versa

vii) Through Market Intelligence Cell(MIC) or External Expert CostingAgencies

viii) As a last resort, rough assessmentfrom the opportunity cost of notusing this item at all

These methods are not mutually exclusive.They can be supplemented with escalationsto cater for inflation, price increases of rawmaterials, labour, energy, statutory changes,price indices and so on. to make themusable in conditions prevailing currently.

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In case of various foreign currencies, therate should be reduced to a commondenomination of country’s currency.

ii) Price Indices:

For price indices, internet should beaccessed by officers dealing with purchases/associated with Tender Committee fromimportant sites. For price indices ofindigenous items, appropriate websiteshould be accessed for the latest indices/trends. For metals and other mineralsaccess http://www.mmr.online.com orwww.metalprices.com (subscriptionrequired) or www.asianmetal.com(subscription required) for updates. TheWorld Economic Outlook – a monthly reportfrom IMF, gives inputs on price trends ofdifferent countries. LME (London MetalExchange) gives price trends of nonferrousdetails, which often show volatile trends.Organisation/Chamber of Commerce alsopublish regular data on Price Indices andPrice Variations – to which we cansubscribe. Important publications likebusiness/commercial newspapers and so on.should be subscribed to similarly.

A ready database of important priceindices derived from above sources may bekept updated for ready reference.

2.20 Negotiations

i) Only as rare exception

Normally, there should be no negotiation.Selection of contractors by negotiationsshould be a rare exception rather thanthe rule. It may be resorted to only in theexceptional circumstances, such as:

• When the procurement is done onproprietary basis

• Items to be procured are supplied byonly limited sources of supply

• Items where there is suspicion of cartelformation

ii) On Competent Authority’s Approval

Before recommending negotiation, adequatecare should be taken to re-scrutinise therates received to avoid infructuousinstances of negotiations. The decisionwhether to invite fresh bids or to negotiateand in the latter case, with whom tonegotiate, should be taken by thecompetent authority after receiving therecommendations of the Tender Committee.After the approval, negotiations should beconducted by the Tender Committee.

iii) Counter-Offers are Negotiations by otherMeans

Normally, all counter-offers are consideredas negotiations by other means and theprinciples of negotiations should apply tosuch counter-offers. For example, counteroffer to L1, in order to arrive at anacceptable rate should amount tonegotiation. However, any counter-offer toL2, L3, etc. (at the rates accepted by L1) incase of splitting of quantities, as pre-disclosed in the bid, should not be deemedto be negotiation.

iv) With Whom to Negotiate

The negotiations should be held only withthe most favourable acceptable bidder (L1),who is techno-commercially responsive/approved for supply of bulk quantity and onwhom the contract would have been placedbut for the decision to negotiate.

Hard Facts

Selection of contractors bynegotiation should be anexception, rather than a rule.It may be resorted to only inexceptional circumstanceslike when:

• Procurement is onproprietary basis

• There are only limitedsources of supply

• There is a suspicion ofcartel formation

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v) Procedure for Negotiation

After the competent authority has decidedto call specific bidder for negotiation, thefollowing procedure should be adopted:

i) The period of validity of the originaloffer must, therefore, must be extended,wherever necessary.

The bidder to be called in for negotiationsshould be addressed as per a legally draftedformat. A declaration for negotiations should beobtained from the bidder to the effect that therates originally quoted by them should remainopen for acceptance in the event of failure of thecontemplated negotiations.

Before the negotiation is started, anattendance sheet may be signed by the partiespresent in the negotiations. Negotiations meetingshould be started only after obtaining signeddeclaration for negotiation as mentioned above.

Revised bids should be obtained in writingfrom the selected bidders at the end of thenegotiations. If necessary, negotiating party maybe given some time to submit their revised offer.However, in case the selected bidder prefers tosend a revised bid instead of being present at thenegotiation, the offer should be taken intoaccount. In case a bidder does not submit therevised bid, its original bid should be considered.

The revised bids so obtained should be readout to the representatives of the bidder present,immediately after completing the negotiations.

Award of Contract

2.21 Recommendations for

Award of Contract

The Purchase Agency inviting bids shouldaward the contract, subject to approval from theCompetent Authority, to the bidder whose bid hasbeen determined to be substantially responsiveand has been determined to be the mostfavourable evaluated bid, provided further that thebidder is determined to be qualified to performthe contract satisfactorily and the credentialshave been verified. Any agreement required to be

signed with the supplier should be vetted by thefinance representative of the Tender Committeeand approved by the Competent Authority.

2.22 Variation of Quantities at

the Time of Award

Tender Committee may vary the quantityby not more than the percentage specified inthe bid documents (say about 25%), based onrecalculation of requirements on the latest facts,if allowable as per SBD.

2.23 Parallel Contracts

If so declared in advance in the SBD,parallel contracts, with more than one bidder(for the same tender) may be concluded in thefollowing cases:

• When the order quantity is large andthe existing suppliers/bidders are notcapable of meeting the bid requirementsindividually

• When due to the critical/strategic/specificnature of the supplies/goods, it is desirableto have multiple sources of supply. Forsuch cases, specific permission should besought from the Competent Authority andthe clause should be added to the biddocuments, clearly stating that theorganisation reserves the right to split thecontract quantity between suppliers, andthe details of the percentage of split arealso to be specified upfront in the BidDocuments

• A bid may not be split into smallerquantities for the reason that one supplier

Award of Contract

Subject to approval from theCompetent Authority, Awardof Contract is to the bidder,whose bid has beendetermined to be substantiallyresponsive, most favourableand whose credentials havebeen verified.

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may not be able to supply the entirequantity

• The proposed share of the most favourablebidder (L1) contractor and the rest ofthe contractors/bidders should be clearlydefined, along with the minimum number ofsuppliers sought for the contract, and theminimum supply capacity

2.24 Notification for Award of

Contract to Successful

Bidder

Prior to the expiration of the period of bidvalidity, the successful bidder should be notifiedin writing. The notification of award shouldconstitute the conclusion of the Contract.

Upon the successful bidder’s furnishing ofthe signed contract form and performancesecurity, each unsuccessful bidder should bepromptly notified and their bid security bedischarged. Bid Security of the successful suppliershould be adjusted against the Security Deposit orreturned as per the terms of the Bid Documents.

After notification of award, if a bidderwishes to ascertain the grounds on which its bidwas not selected, it should address its request tothe purchaser. The purchaser should promptlyrespond in writing to the unsuccessful bidder.However, purchaser need not go into confidentialdetails in its reply – which can be legally misused.

The details of the resulting contract shouldbe published on organisation’s website.

2.25 Signing of Agreement/

Issue of Supply Order

The Competent Authority should enter intoan agreement. It should be ensured that thecontract is unambiguous and transparent. Itimplies that there is no scope for anyinterpretations other than those already beenagreed to between the parties.

It should also be ensured by TC that anydeviation or variation quoted by the supplier inhis bid is not left un-discussed and ruled upon inthe TC. Otherwise, there may be delay inacceptance of contract by the supplier.

Supply order or agreement should beissued/entered strictly as per approval ofCompetent Authority.

2.26 Performance Security

Purchase department should ensure thatthe supplier receiving the contract furnishesthe required Performance Security in theprescribed form by the specified date, failingwhich necessary action including forfeiture ofthe Earnest Money Deposit should be takenagainst the supplier.

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2.27 Acknowledgement of

Contract by Successful

Bidder and Execution

Promptly after the successful bidder isnotified that its bid has been accepted, the biddershould be sent the Contract Form provided in theBidding Documents, incorporating all agreementsbetween the parties. The supplier shouldacknowledge and unconditionally accept, sign,mention date and return the contract form within7 days from the date of issue of contract. Whileacknowledging the contract, the supplier mayraise some issues and/or ask for somemodifications against some entries in thecontract; such aspects should be immediatelylooked into for necessary action. Thereafter,supplier’s unconditional acceptance of thecontract must be obtained. If both the parties(viz. the organisation and the supplier)simultaneously sign the contract across the table,further acknowledgement from the supplier is notrequired.

2.28 Rejection of Bids

Purchaser would be justified in rejecting ofall bids when none of the bids are substantiallyresponsive. It is also a good practice to dorebidding if L1 bidder withdraws the offer.However, the lack of competition should not alonebe the criterion, based on number of bidsreceived, for rejection.


CONCEPTS

� Different Systems of Bids:

� Two-Stage Bidding: In this system,the first stage is the Pre-QualificationBid, with the aim of short listing bidderswho have requisite qualifications. Inthe second stage, RFP is issued only tothe bidders who qualify in the firststage

� Two-Bid (Envelope) System: Inprocurement of technically complexand critical requirements, bids arecalled in two separately sealedparts. The first part, called theTechno-Commercial Bid, contains therelevant technical details. The secondpart, called the Financial Bid, includesthe price quotation along withother allied issues. Techno-commercialbids are evaluated first to short listthe technically qualified bidders.Financial bids of only such shortlisted bidders are opened and evaluated

� Bid Documents: These are the documentsrequired to be submitted in response to theNotice Inviting Tender (NIT). These includethe prescribed bid form, drawings,specifications, time lines, charts, price breakdowns and so on. Bids not accompanied byall the required documents are consideredincomplete bids and are usuallyautomatically rejected. Bid documents areprepared to provide clear technical andcommercial terms of reference for theproposed procurement, based on thestandard bid documents of the organisation

� Common Usages in Bid Documents:

� RFI – Request for Information(Expression of Interest – EOI Bid).This is an open enquiry, which scansthe market seeking broad data andunderstanding

� RFQ – Request for Qualification (likePQB). This is an opportunity forpotential suppliers to get pre-qualified/short listed for subsequentprocurement bid. It lays down precisequalification criteria for short listing ofvendors to whom RFP would be issued

� RFP – Request for Proposal: This is abid floated to target suppliers likeafter RFI or RFQ

� Invariable Parts in Standard BiddingDocuments (SBD):

The documents to be included normally are:

i. General Instructions to Tenderers(GIT): General Instructions to

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Tenderers (GIT) contain all therelevant information as well asguidance to the prospective biddersfor preparation and submission of aresponsive bid.

ii. General Conditions of Contract (GCC):The general conditions of contract(GCC) are general and should be usedunchanged with all types ofcontracts.

iii. Formats to be Filled by Bidder: BidForm (Bid cover letter), Priceschedule, Bank guarantee form forEMD, Bank guarantee form forperformance security.

iv. Documents are to be framed keepingin mind special requirements ofprocurement: Bid Notice/NoticeInviting Tender (NIT), SpecialInstructions to Tenderers (SIT),Special Conditions of Contract (SCC),List of Requirements, TechnicalSpecifications and Quality ControlRequirements, Qualifications/EligibilityCriteria, Contract Form.

� Publication, Receipt and Opening of Bids:This consists of the following steps:

� Publication of Bids

� Clarification of Bidding Documents

� Amendment of Bidding Documents

� Modification, Alteration and Withdrawalof Bids

� Pre-Bid Conference

� Receipt and Custody of Bids

� Bid Opening

� Evaluation of Bids: This consists of thefollowing steps:

� Preliminary Examination

� Clarification of Bids

� Evaluation of Bids

� Negotiations

� Recommendations for Award of Contract

� Notification for Award of Contract toSuccessful Bidder

� Signing of Agreement/Issue of SupplyOrder

� Acknowledgement of Contract bySuccessful Bidder and Execution



1. Which are the portions of biddingdocuments that are to be framed keeping inmind the special requirements of thespecific procurement?

2. Mention the main purpose of following:

i) NIT

ii) GIT and SIT

iii) List of Requirements

iv) EMD

v) Performance Security

3. Distinguish between the provisionsregarding the following in the SBD:

I. Clarification of Bidding Documents

II. Amendment of Bidding Documents

III. Modification, Alteration and Withdrawalof Bids

IV. Clarification of Bids

V. Bidders Contacting the Organisationduring Evaluation

4. Seek permission to attend the bid openingof one NCB tender. Observe the procedurefollowed and compare it with the onedetailed in this unit.

5. What are various methods of ascertainingreasonableness of the prices received in thetenders?

6. Mention the similarities and differencesbetween:

I. Variation of Quantity at the Time ofAward

II. Parallel Contracts

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3.1 Organisation of Public

Procurement

Operations

Most of the public organisations havemany different functional departments. Theyalso have many regional or field units, reportingto the organisation’s Headquarters (HQ).Organisations having significant procurementshave a dedicated procurement organisation tocarry out the procurement operations. Thestructure of procurement organisations is based on“Type of goods/services/works” so that eachprocurement unit develops expertise in aparticular market. Internal customers, however,are better served if procurement organisation isstructured based on internal clients served, sothat internal clients have to deal with only oneprocurement division for better customersatisfaction. Thus, large procurement organisationsare structured based on markets, but there arenodal officers to provide single window interfaceto internal clients.

Management of Public Procurement

OperationsUn

it 3

LEARNING OUTCOMES


� Describe the organisation of procurement operations

� Describe the various centralised and decentralisedprocurement agencies

� Describe the roles and responsibilities of variousexecutives related to procurement

� Describe the functions and composition of variouscommittees involved in public procurement

� Describe the time limits for procurement

� Describe Record Keeping, Key Performance Indices andManagement Reporting for public procurement

� Describe Information Technology systems in publicprocurement, like MRP, MRP-II, ERP and e-Procurement

The most basic building block of a purchaseorganisation is a self-contained procurement unitwith minimum staffing that handles a particularmarket segment of requirements. Under a procurementorganisation, there may be a number of such units.

In a procurement organisation, besideprocurement units, there are also ancillarysections dealing with:

• Tender Section: Advertising, BiddingDocument Sale, Issue, Receipt, TenderBoxes, Tender Opening

• Policy Section: Policy and Instructions

• Supplier Relations Management andRegistration

• Legal and Arbitration Section

• Information Technology Systems and MasterData Management

• Direct Contracting/Local Purchase Section

• Administration and Management Services

• HRD and Training

• Liaison and Expediting Section

• Procurement Performance Measurement andManagement Reporting

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3.2 Procurement Agencies

Procurement operations can be entrusted todifferent agencies. Usually, these agencies are asfollows:

i) Centralised procurement of common useitems and services

Centralised procurement of common useitems and services, in appropriatecategories of procurements, across all publicprocurement agencies in an organisationleads to improved procurement outcomes;better utilisation of procurement skills andresources; greater purchasing leveragethrough aggregation of volume; and spreadof best practice. This could be achievedby clubbing demands from differentprocurement agencies, for a normal contractor a framework contract by identified leadprocurement agency. These commonprocurements can be organisation-wide orbe common to a few units in theorganisation. Such centralised procurementarrangements should be well publicised inthe organisation – list of items or services;lead procurement agencies; time tablefor submission of requirements to leadagencies; and framework contractarrangements. The demand for these itemsor services should be estimated at thebeginning of the previous year and tendersfor such planned procurement shall befinalised much before the start of the year.

ii) Decentralised procurement in field units

Centralised procurements do have demeritof longer procurement cycles and lack of

agility to address dynamic situations in thefield. Modern management trends arealso toward larger decentralisation. Abalance has to be arrived at betweencentralised procurement and decentralisedprocurements by field units.

iii) Procurement by purchase department

Ideally, the purchase department, (In FieldUnit or HQ) should consolidate requirementsof all user departments and then floattender for annual procurement. Thepurchase department should carry out theannual procurement for the following typesof requirements:

i) Requirements of more than onedepartment

ii) Regularly used items throughout theyear in large quantities

However, for procurements that are notcovered in annual tender, the purchasedepartment should do ad-hoc procurementsthrough appropriate mode of procurement.The purchase department may carry out theprocurement of these following types ofrequirements:

i) Requirements not covered in annualtender

ii) Requirements that are not commonlyencountered and hence not plannedin annual tender

iii) Requirements for which futuredemand could not be anticipated atthe time of annual tender

iv) Procurement by user field department

In situations when emergency or ad-hocprocurement is absolutely necessary toaddress specific requirements, the userdepartment in the field units, may beempowered to do emergency/ad-hocprocurements through LTE/Spot Purchase.This should be subject to financial limitsspecified for such modes of procurements,after duly recording the reasons of suchpurchase at their level and keeping thepurchase department informed.

Factoid

Centralised procurement ofcommon use items and servicesacross all Public Procurementagencies leads to:

• Improved procurementoutcomes

• Better utilisation ofresources

• Greater purchasing leverage

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The purchase department should do thefollowing as a precautionary measure toavoid emergency/ad-hoc procurement:

a. At the beginning of the year, thepurchase department should ask allthe user departments, through awritten inquiry, to submit requirementsfor operations for the whole year.

b. The purchase department shouldupdate the list for annual procurementby adding emergency procurement inthe past three years.

c. Possibility of execution of suitablerate contract should be explored toavoid any requirement of makingemergency purchases at userdepartment.

3.3 Roles, Responsibilities

and Delegation of

Procurement Powers

Delegation of Powers (DOP)/Schedules ofPowers (SOP)

All organisations lay down the powersrelated to procurement matters as delegated tovarious levels of executives in HQ and Field Units.For procurements, it lays down the composition ofTender and Other Committees and OfficersCompetent to approve recommendations of suchCommittees. It also defines the levels ofCompetent Authorities to decide Single TenderProcurements; Signing of Indents; use of SingleSource or Restricted Sources above a prescribedThreshold; Signing of Contracts; Post ContractDecisions and Write-Offs. Wherever “CompetentAuthority “is mentioned, it means executivesdelegated with procurement powers for theconcerned procurement operation.

Typically, the roles, responsibilities anddelegations may be on the following lines:

• Head of Organisation (CEO) in HQ or FieldUniti) CEO is the final competent authority

for all procurements up to the limit asper DOP and is the member in TenderCommittee for higher values ofprocurement.

ii) CEO should supervise the administrationof procurement department underhim.

iii) In all procurements initiated at fieldlevel but within the competenceof organisation HQ, the Field CEOshould record his approval withthe concurrence of his ‘ FinancialAdviser’ and ensure harmonisationof divergence of views betweendepartments as far as feasible beforethe proposal is sent for approval toorganisation HQ.

• Deputy Head of Organisation (Dy. CEO) inHQ or Field Unit

Procurement powers and responsibilities ofthe CEO may be shared between CEO andDy.CEO. This is to lighten the burden of CEO.

• Chief Finance Officer in HQ or Field Unit(CFO)

i) He should concur with any deviationin the GIT and GCC of the SBD and SITand SCC.

ii) He is member of the Tender Committees.

iii) In all procurements initiated at fieldlevel but within the competence oforganisation HQ, he should recordhis concurrence before the proposal is

46


sent for approval to the organisationHQ.

iv) He should vet all agreements beforetheir release.

v) He is responsible for safe custody ofEMD, SD and ensure their validity asper the contract

vi) He should supervise all financialapprovals and payments of contractor/supplier bills in time.

• Heads of User Departments in HQ or FieldUnits (HOD)

i) He would be responsible for approvingannual procurement plan for hisdepartment.

ii) He participates in various committees.He delegates subordinates responsibilityfor tender evaluation and qualityassurance of goods/works/services.

iii) He is responsible for timely preparationand submission of indents of materialsin his jurisdiction.

iv) He is responsible for emergencyprocurement by user department asper DOP.

• Head/Executives of ProcurementOrganisation in HQ or Field Unit

i) They are responsible for ensuringcompliance of all laid down proceduresin all procurements.

ii) They are responsible for planning,aggregating and procurements.

iii) They are also responsible for procure-ment management: finalisation ofprocurement plan, initiating timelyprocurement, monitoring of stages oftenders, compliance to timelinesstipulated in the tender, ensuringvalidity of tender offer, amendment ofcontract and acceptance of deviationafter seeking approval of competentauthority.

iv) They are member secretaries in TenderCommittees of his level.

v) They are responsible for service levelsto internal customers.

vi) They are responsible for drafting andconcluding contracts with successfulbidders.

vii) They are responsible for all aspects ofcontract management.

viii) On completion of contractual obligations,initiate action for release of EMD/SD.

ix) Head of procurement agency supervisesthe administrative actions of allofficers and staff of the stores andpurchase functions.

3.4 Committees: Many

Committees Play a Key

Role in Procurement

Operations

i) Bid Opening Committee (BOC)

Role and Mandate: The key role andmandate of the Bid Opening Committee(BOC) is to ensure transparency andintegrity of the Bid Opening Process.

Composition: The bid opening committeeshall comprise one purchase officer, oneofficer from the finance department and oneofficer from technical section. The BOCopens the bids on the date.

ii) Tender CommitteeRole and Mandate: Nomination ofTender Committee (TC) members, whereverrequired shall be approved by CEO onthe recommendation of procurementorganisation. The key role and mandate ofthe TC should be as follows:

i) The TC should check whether theparticipating bidders satisfy the

Remember!

Many committees play akey role in ProcurementOperations.

They include the:

• Bid Opening Committee

• Tender Committees

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eligibility criteria in respect of thetender notice and declare the eligibleparties (responsive tenders). Bids ofonly the eligible bidders shall beprocessed for evaluation thereafter.The evaluation criteria for evaluatingthe tender should be predetermined,pre-disclosed and documented in thetender documents

ii) To evaluate the techno-commercialresponses of the bidders and ensurethat they meet user requirements, incases where two-bid system is used

iii) To mark the scores of the bidders asper the tender terms and conditionsof the tender document

iv) To rank the bids by scores/marksawarded or prices and identify thepreferred bidder to be considered forapproval by the competent authority

v) Make comparative statement in caseof both technical and price/financialbid.

vi) The TC shall have the mandate tocarry out the evaluation of alleligible tenders and select thepreferred eligible bidder, dulymonitoring compliance of laid downpurchase procedures in all stages ofthe tender, reasonability of estimatesand bids (e.g. ascertaining whetherrates are reasonable or not) and, ifrequired, associated technical detailsof the tender.

vii) To prepare the Tender Committeerecommendations and forward to thecompetent authority.

Composition: Composition of thecommittee and Competent Authority shallbe as DOP. Appropriate ProcurementExecutive should be the membersecretary of the committee. The specificcomposition of the committee should bevalue-based as well as depend upon thenature of procurement.

iii) Local Procurement Committees

Procurements up to a low threshold valueare done by local procurement committees.

iv) Market Intelligence CellMarket Intelligence Cell (MIC) should becreated in the Procurement Organisationand it shall be assigned the followingtasks:

i) To gather and compile informationon the prices, trends, indices of endproducts and input raw materials

ii) To ensure inter-unit sharing of priceindices and price database

iii) To maintain data base on pastcontracts showing details of items/services procured, their essentialspec(s), unit rate, quantity, totalvalue, mode of procurement, numberof tenders received, number oftenders considered acceptable,reasons for exclusion of overlookedtenders, un-negotiated rates of L1and contract rates in order to help inascertaining reasonableness of pricesof future procurements

3.5 Time Limit for

Procurement and

Accountability

The ill effects of delay in processing andclearance of various procurement activities needsno emphasis. The decentralisation of decision-making mechanism and delegation of financialpowers are aimed at facilitating faster decisionmaking and obtaining best value for money.However, the delegation of powers also implies‘‘authority with accountability’’. Every individual inthe chain of the procurement operation isaccountable for taking action in a specified timeso that the requirements are met on time. Typicaltimelines for procurement are given in thenext page.

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Sample Time Frame for Procurement

Receipt of Indent and Floating the Bids

Raising Indent T i.e. Day-1

Indent Approval T+ 1 week

Preparation of Tender Enquiry T+ 2 week

Competent Authority’s Approval and Floating Bids T+ 4 week

Procurement Operation

Receipt and Opening of Bids Let B be the date of opening of Bids

Preparation of Comparative Statement B+2 weeks

TC Evaluation–Techno Commercial (in two bid) B+6 weeks

Approval of Techno-Commercial offer byCompetent Authority B+8 weeks

Price Bid Opening and Evaluation by TC B+ 9 weeks

TC Recommendations Preparation B+10 week

Competent Authority’s Approval B+12 week

Preparation and Despatch of Contract B+13 week

3.6 Record Keeping and

Management Reporting

All the procurements done by theorganisation are subject to post audit by internalaudit, statutory audit and various internal andexternal vigilance agencies. Hence, all thedocuments related to the procurement shouldbe filed and kept systematically and safely. Filesshall be properly numbered in notes andcorrespondence side. Period of retention of varioustypes of documents should be laid down. Salientrecords and management reporting are as follows:

Procurement Register (PR): ProcurementRegister (manually or electronically) is at theroot of all procurement records for monitoringefficiency and throughput of ProcurementOrganisation. This is used for recording keyinformation, which includes:

• Date of request for procurement/Indent/Planned Procurement Activity

• Name of the department making therequest/Annual Procurement Plan

• Procurement Number

• Mode/Method of Procurement

• Date of invitation for bids/preparation ofbid document

• Date of decision of Tender Committee

• Contract date and number

• Name(s) of supplier(s) and all otherparticipants to the tender

• Codes, unit size, short description andquantity of units, unit price, total cost peritem/services and expected delivery date

• Date of receipt of shipping document

• Date of delivery and the total quantitydelivered

• Stores receipt voucher date and number

PR would help in monitoring the progress ofprocurement operations.

Purchase department should also maintainfollowing basic records (either in manual orelectronic form):

• Purchase order log: Contains a numericalbrief record of all Purchase Orders issued. Itcontains Purchase Order numbers, supplier’sname, brief description of purchase, totalvalue of the order and so on

• Open order file: Contains status of alloutstanding orders

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3.7 Procurement Key

Performance Indices

(PKPI) and Management

Reporting

As in all management and financialfunctions, it is possible to measure the pulse ofprocurement by using certain key performanceindices. Periodic management reports can bedevised to reflect these PKPIs from variousprocurement divisions, procurement agencies indifferent categories of procurements. Some of thePKPIs are given here.

3 PKPIs (in a period)• Number and value of indents, contracts received/

finalised

• Average price rise in procurements for repeateditems

• Proportion of procurement, number and valuewise, taking place based on limited/selectivebidding

• Proportion of procurement, number and valuewise, taking place through e-procurement

• Number of and oldest indent pending for issueof Tender

• Number and oldest tender pending for whichaward decision has not been taken

• Average time taken for award decision

• Number and oldest of contracts in whichdeliveries have been delayed by more than50% of delivery time

• Number and percentage of contracts which havegone into dispute

• Average percentage (of the total contract price)of contract variations/price variations paid

• Percentage of tenders in which complaints havebeen received

• Number and oldest of complaints not redressed

• Average time taken for examining and redressingcomplaints

• Productivity per head – number and value wisetenders finalised/on hand

• Number and percentage of staff who have notundergone specified training

• Number and percentage of staff who haveundergone training in the period

• Closed order file: Contains historical dataof all completed purchases

• Vendor record file: Contains the names,addresses of suppliers; materials that avendor can supply; delivery and qualityrecords

• Rate contract file: Contains the purchaserecords of items/services under a termcontract. It is especially important whenthe contract is an open one against whichorders may be placed

• Purchase reports: Since the PurchaseDepartment handles a sizable portion oforganisation finances, it is desirable tohave some summary reports periodically(monthly/quarterly/half yearly/annually)available to the management. Some ofimportant reports are:

• Total value of purchase

• Allocation of purchase value againstmajor items/services

• Budget for purchase for the next year

• Proposal for revision of budget incurrent year

Besides the above, the purchaseorganisation should maintain all the records ofissue, receipt, opening, evaluation of tenders,award of contracts i.e. all pre-order and post-orderrecords in chronological order and the filesbe kept in an identified place and shouldbe retrievable for scrutiny whenever neededwithout wastage of time. The records ofcomplaint handling, correspondences withclients, consultants, banks and vendors, amongothers, also should be kept separately and shouldbe retrievable.

Attention!

All procurements done by anorganisation are subject topost audit by internal audit,statutory audit and differentinternal and external agencies.

Hence, all documents relatedto procurement must be filedand kept systematically andsafely.

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3.8 Information Technology

in Procurement

Information Technology application inprocurement has evolved in many stages. Here aresome of them:

i) Material Requirements Planning (MRP)The main theme of MRP is “getting the rightmaterials to the right place at the righttime” with focus on optimising inventory.MRP was pioneered in the 1970s with thework of Joseph Orlicky. This techniquecalculates material requirements andschedules supply to meet demand across allproducts and parts in one or more plants.Information technology plays a major rolein MRP systems. It is able to utiliseinformation about manufacturing needs(linked with customer demand) as well asinformation about inventory levels. MRPsystems use four pieces of information todetermine what material should be orderedand when. They are:

i) Master production schedule – wheneach product is scheduled to bemanufactured;

ii) Bill of materials – the parts or materialsrequired to make each product

iii) Production cycle times and materialneeds at each stage of the productioncycle

iv) Supplier lead times

ii) Manufacturing Resource Planning – II(MRP-II) and Enterprise ResourcePlanning (ERP)

MRP integrated the procurement toproduction schedules in a factory. Since1970s, management thinking was tointegrate all enterprise-wide processes fromstrategic planning, to management controland to operational control. MRP systemslie in-between management control andoperational control processes. Later,MRP got subsumed by an IntegratedManufacturing Resource Planning (MRP-II todistinguish from Material RequirementsPlanning) incorporating managementfunctions like Strategic Planning, Sales,Accounting, Customer RelationshipManagement, Supplier RelationshipManagement to improve management’scontrol of manufacturing and its supportfunctions. In today’s corporate environment,MRP-II has evolved into ERP (or EnterpriseResource Planning). ERP or MRP-II representsa group of software programs designed totie together disparate company functions tocreate more efficient operations in areassuch as assembly or delivery of products orservices. This links company’s informationresources such as human resourceinformation system, financial management,accounting, sales and so on.

iii) Electronic Procurement (e-Procurement)

e-Procurement is the combined use ofinformation and communications technologythrough electronic means to enhanceinternal and external purchasing and supplymanagement processes. The intention is toautomate, possibly, the entire procurementoperation, in an online web-based real-timeenvironment using a range of technologies.

e-Procurement

The benefits of e-Procurementinclude enhanced efficiency,reduction in processing costs,transparency and fair dealing.

However, it brings with itconcerns about privacy andsecurity.

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For e-procurement to be implemented,enactment of appropriate legislation isessential. Electronic Commerce Act(Ireland); Electronic Transactions Act (UK,USA, Australia, New Zealand, Singapore, SriLanka); Electronic Transactions Ordinance(Hong Kong and Pakistan); InformationTechnology Act (India) and InformationCommunication Technology Act (Bangladeshand Sri Lanka) cover these aspects.

Digital signatures are used to ensureauthentication, confidentiality, data integrityand non-repudiation of all operationscarried out within the e-procurementsystem.

Benefits of e-procurement includeenhanced:

• Efficiency and reducing processingcosts: Integration and automation ofmany workflow processes

• Economy: Greater business access andcompetition

• Equity and fair-dealing

• Transparency, uniformity, complianceand integrity

• Breaking down the physical barriers ofspace and time

e-Procurement brings with it concernsabout privacy and security. These include:

• Authentication – ability to establishthe parties’ identities with certainty

• Confidentiality – ensuring that thereis no eavesdropping on transactionsin progress

• Data Integrity – ensuring that themessage sent is identical to the onereceived

• Security – data must be protectedfrom loss, theft, misuse, alteration ordestruction


CONCEPTS

� Delegation of Powers (DOP)/Schedules ofPowers (SOP): This refers to the powerslaid down in the procurement matters by anorganisation for various levels of executivesin the Head Quarters and field units

� Market Intelligence Cell: It is normally aunit functioning under COPS, which isintended to provide quality input to thepurchase function. This cell providesinformation on the prevailing price trends ofgoods and services and maintains relevantdata base, including data on past purchases

� Procurement Register (PR): Procurementregisters are to be maintained byProcurement Department for recording keyinformation on annual procurements. Thisregister should capture information onrequest for procurements and also status onprocurement activities. Procurement Registerfacilitates monitoring the progress of theprocurement operation

� Procurement Key Performance Indices(PKPI): These procurement indices aredevised by each organisation to study

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periodically the pulse of procurement activityby various procurement divisions. Some suchPKPI indices are number and value of indentsor contracts received or finalised, averageprice rise in procurements for repeated itemsor services, number of and oldest indentpending for issue of tender and so on

� Material Requirements Planning (MRP):Material Requirements Planning (MRP) is acomputer-based production planning andinventory control system. MRP is concernedwith both production scheduling andinventory control. It is a material controlsystem that attempts to keep adequateinventory levels to ensure that requiredmaterials are available when needed. MRP isapplicable in situations of multiple itemswith complex bills of materials. The majorobjectives of an MRP system are tosimultaneously:

1. Ensure the availability of materials,components and products for plannedproduction and for customer delivery

2. Maintain the lowest possible level ofinventory

3. Plan manufacturing activities, deliveryschedules and purchasing activities



1. Discuss the pros and cons of centralisationand decentralisation of procurement in a

large organisation having multiple businessunits and spread over a large geographicallevel.

2. Study the organisation chart, telephonedirectory and take a tour of the PurchaseDepartment of your organisation. How is itorganised? Which are different non-purchasesections/units and what are their functions?

3. Study the delegation of powers/schedule ofpowers relevant for procurement of yourorganisation. What are the different levels/designations/grades of pay scales of peopleto whom various powers are delegated?What are the various committees dealingwith procurement, as mentioned in thisdocument? Compare them with thedesignations and committees mentioned inthis unit.

4. What are time limits for procurement laiddown in your organisation? Compare thesewith those given in this unit.

5. Study the records and registers maintainedin your purchase office. Note the columnheadings used in these registers. Comparethem with the ones mentioned in thisunit.

6. What are the Procurement PerformanceIndices used in your organisation? Comparethem with the ones given in the textbox ofthis unit.

7. Go to IT services department of yourorganisation and study the type of IT usedfor procurement.

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Public Procurement and Good Governance

MODULE 6

Public Procurementand GoodGovernance

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Governance Issues in Public Procurement

1.1 Values to Ethics and

Laws – From Beliefs to

Behaviour and

Punishment

Values and Morals; Integrity and Ethics;Codes and Law are a spectrum of overlapping andrelated concepts.

Values can be defined as those things thatare important to or valued by an individual orgroups and organisations. Values also help usidentify the levels of importance and tell us whichvalues are more useful when we have to trade offmeeting one value over another. Morals have agreater social relevance to values and tend tohave a broader acceptance.

Values and Morals are extraordinarilyimportant tools for making judgements, assessingprobable outcomes of contemplated actions, andchoosing among alternatives. Values and Moralsdetermine ‘what is right and what is wrong’.

Adherence to moral and ethical principles,soundness of moral character, and honesty

Un

it 1

LEARNING OUTCOMES


� Describe the graded concepts from Values; Morals;Integrity; Ethics; Codes and Laws

� Describe the governance issues in Public Procurement

� Describe the governance risks in the various stages ofprocurement

constitute integrity. Ethics and Codes are well-founded standards of right and wrong thatprescribe what individuals ought to do, usually interms of rights, obligations, benefits to society,fairness, or specific values. Thus, integrity, ethicsand codes are values and morals in action.

Values, morals and integrity are neitherwritten down nor overtly prescribed by society andare more individual and voluntary beliefs.However, ethics and codes are often written downand externally prescribed for groups andorganisations.

Laws determine whether an act ispermissible and, if not, what should be thepunishment. Legal issues are based on specificlaws and, if not obeyed, will result in legalconsequences. Codes of Profession may not haveforce of law but do have punitive consequencesfor its members. Ethical, moral and integrityissues, though do not have a force of law, possessa nature that affects the society or has socialconsequences for the people involved.

As we move from larger concept of value tospecific concepts of laws, we move from voluntaryto coercion; social sanctions to punitive;

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beliefs to behaviour and punishment, andgenerality to specifics.

Even if it was the case that you never brokeany laws or codes, you cannot say that you livedyour best, because being a part of civilisedsociety means to go beyond what the law demandsof us. It means to live according to values, morals,integrity and ethics, most of which ask more of usthan the law does. The answer to “What should Ido?” should therefore not be, “What can I getaway with legally?” but “What does ethics ask forand what do values, morals and integrity requireof me?”

While considering the difference betweenethics and morals, it may be helpful to consider acriminal defence lawyer. Though the lawyer’spersonal and social morals find murder immoraland reprehensible, the code and ethics ofthe group demand that the accused client bedefended as strongly as possible. Group’s code andethics must override personal morals for thegreater good of upholding a justice systemin which the accused are given a fair trial andthe prosecution must prove guilt beyond areasonable doubt.

This is a simpler example – in areas otherthan law such choices are not so clear-cut and thegood of society must have an upper hand. Forexample, when ethics and morals clash at theworkplace, the company ethics can play againstpersonal morality. Corporate greed or ambitions ofbosses that blur company’s own ethical lines mayexpect its salesman to win a public contract byhook or crook. Should the salesman follow hisvalues and morals or face consequences of failureto win the contract? In practice, border-lines mayoften be quite blurred.

1.2 Governance Issues in

Public Procurement

Purchasing agency as well as bidders,suppliers, contractors and consultants underpurchasing agency contracts should observethe highest standard of ethics during theprocurement or execution of such contracts.Governance issues faced in public procurement aredefined as follows:

i) “Corrupt practice” means the offering,giving, receiving, or soliciting, directly orindirectly, at any stage, of anything of valueto influence the action of a public officialin the procurement process or in contractexecution;

ii) “Fraudulent practice” meansmisrepresentation or omission of facts,directly or indirectly, at any stage, in orderto influence a procurement process or theexecution of a contract;

iii) “Collusive practice” means a scheme orarrangement, directly or indirectly, at anystage, between two or more bidders, with orwithout the knowledge of the purchaser,designed to establish bid prices at artificial,non-competitive levels;

iv) “Coercive practice” means harming orthreatening to harm, directly or indirectly,at any stage, persons or their property toinfluence their participation in theprocurement process or affect the executionof a contract;

v) “Conflict of interest” means a bidding firmor any affiliate was either involved in theConsultancy Contract from which this

Remember!

Purchasing agencies, as well asbidders, suppliers, contractorsand consultants involved inpublic procurement contracts,should observe the higheststandard of ethics, both duringprocurement and execution ofthe contracts.

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procurement is linked; or if they are part ofmore than one bid in the procurement; or iftheir personnel have relationship with anyof the procuring organisation’s personnelinvolved in the procurement process atany stage;

vi) “Obstructive practice”: (i) deliberatelydestroying, falsifying, altering or concealingof evidence material to the investigation ormaking false statements to investigators inorder to materially impede purchasingorganisation’s investigation into allegationsof above mentioned unethical practices;and/or threatening, harassing orintimidating any party to prevent it fromdisclosing its knowledge of matters relevantto the investigation or from pursuing theinvestigation, or (ii) acts intended tomaterially impede the exercise of the Bank’scontractual rights of audit or access toinformation.

A particular violation of good governancemay span more than one of above mentionedunethical practices. The following policiesshould be adopted in order to maintain goodgovernance during procurement, if it isestablished that a bidder or contractor directlyor through an agent is engaged in any ofthe above mentioned unethical practices incompeting for the contract or in executing acontract:

i) Bids of such bidders should be rejected ifcontract has not yet been awarded

ii) Proposal for award should be rejected ifevaluation has been completed

iii) A contract should be cancelled if it hasbeen awarded

iv) In case any individual staff is foundresponsible, suitable disciplinary or criminalproceedings should be initiated againsthim/her

v) Firms or individuals should be banned/blacklisted after following due process

1.3 Governance Risk Areas

in Public Procurement

Each stage of public procurement hasdifferent governance risk areas (red-flags), whichneed to be addressed:

i) Need Assessment: Decision on procurementof goods, works or services, or to out-sourceservices and on technical requirements

• The decision does not follow apolicy rational or an existing needbut rather the desire to channellisebenefits to an individual or anorganisation. For example, demand iscreated for a good that is not neededsimply to benefit the company’sowner;

• Specifications and terms ofreference are made to favour a specialsupplier or contractor and not toproperly address the need identified;

• Unknown specifications: In suchprocurement where technical

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specifications need to be iteratedmore than once, expression of interestshould be invited indicating broadobjectives, constraints and so onas the first stage of a two-stagetendering process. During the firststage of tendering, technicaldiscussions/presentations may beheld (keeping records of suchdeliberations) with the short listedmanufacturers/suppliers, which areprima facie considered technicallyand financially capable of supplyingthe material or executing theproposed work, and associating otherstakeholders who could add value tothe decision making. One or moreacceptable technical solutions couldbe decided upon laying down ageneric detailed specification in amanner that is consistent with theobjectives of the transparent andequitable procurement. Thereafter, thesecond stage of tendering of callingfor techno commercial bids as per theusual tendering system under singlebid or two-bid systems may be done.

• Specifications involving samples:Procurements should not be done

where samples are asked to besubmitted along with the offer andthe evaluation is based on thesubjective evaluation of samples. Ifrequired, provision for submission ofan advance sample by successfulbidder(s) may be stipulated forindeterminable parameters such as,shade/tone, size, make-up, feel, finishand workmanship, before givingclearance for bulk production of thesupply.

ii) Procurement planning: Decision, specificcharacteristics and contracting method,agency responsible and so on

• Packaging and bundling ofrequirement is done to avoid opencompetition or reduce competition

• Exceptions to an open biddingprocess are abused, leading to singlesource processes

• Participation of relevant stakeholdersis limited, making it difficult to assessthe need and relevance of thespecification as they are being defined

• Evaluation criteria are not set fromthe beginning or are not objective,thereby making them prone to beingabused

iii) Bidding process: Execution of biddingprocess

• Invitation to tender (an open bid) isnot well publicised, thereby restrictingthe number of bidders that participate

• When short-lists are used,companies bribe to be included or togain access to them

• Invitation to tender is publicised butvery little time is given to presentoffers, making it difficult for bidderswithout prior knowledge of thecontract to present bids

• Abuse of confidentiality or lack ofpublicity creates unequal playing fieldfor bidders

• In single-source processes, lack ofpublicity or transparency leads tounjustifiable decisions

Attention!

There are different risksthat public procurementfaces, which need to beaddressed to ensure goodgovernance.

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• Bidders or contractors collude toinfluence prices or to share the marketby artificially losing bids, or notpresenting offers

iv) Contract award: Decision is made to selectthe winning bidder (in open bids) or thecontractor (in single-source processes)

• Evaluation criteria are not clearlystated in tender documents, leavingno ground to justify the decision

• Evaluation of bids is subjective orleaves room for manipulation andbiased assessments

• Independence and neutrality of TCmembers: Tender Committee shouldgive an undertaking at the appropriatetime that none of them has anypersonal interest in the companies/agencies participating in the tenderprocess. Any member having interestin any company should refrain fromparticipating in the Tender Committee

• Pre-qualification criteria: Pre-qualification bidding has potential ofgetting misused or being appliedwithout considering the restrictivenature of competition. Pre-qualificationcriteria should be relevant to thequality requirements and shouldneither be very stringent nor very laxto restrict/facilitate the entry ofbidders. These criteria should beclear, unambiguous, exhaustive andyet specific. In addition, there shouldbe fair competition

• Involvement of agents ininternational contracts: Purchasesshould preferably be made directlyfrom the manufacturers. Either theagent on behalf of the foreignprincipal or the foreign principalitself can directly bid in a tender,but not both. Further, an agentparticipating in a tender on behalf ofone manufacturer, should not beallowed to quote on behalf of anothermanufacturer along with the firstmanufacturer in a subsequent/paralleltender for the same item

• Tender negotiations: Normally, thereshould be no post-tender negotiations.In certain exceptional situations, forexample, procurement of proprietaryitems; items with limited sources ofsupply and items where there issuspicion of a cartel formation;negotiations may be held with L-1. Incase of L-1 backing out, there shouldbe re-tendering

• Contract awards are not publicisedand, therefore, are not the grounds forthe decision

v) Contract implementation and supervision:The contract is signed with the selectedbidder or contractor

• Advance payments: Any mobilisationor other advance payments should beinterest bearing and applicable onlyfor selected works. Terms of suchadvances should be expressly stated inthe NIT/Bid documents. The advancepayment may be released in not lessthan two stages depending upon theprogress of the work. In case ofmachinery and equipment advance,insurance and hypothecation to theemployer should be ensured. Advanceshould be progressively adjustedagainst bills cleared for payment.Interest should be charged on delayedrecoveries. irrespective of the reasonstated. Subsequent instalments shouldbe released after getting satisfactory

Points to Ponder!

Pre-qualification criteria inbidding should be relevant toquality requirements. Theyshould neither be verystringent, nor very lax, torestrict or facilitate the entryof bidders.

The criteria should be clear,unambiguous, exhaustive yetspecific, and ensure faircompetition.

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utilisation certificate from thecontractor for the earlier instalment. Incase of interest-free advance, recoveryshould be time-based and not linkedwith progress of work and if the contractis terminated due to default of thecontractor, the “mobilisation advance”would be deemed as interest bearingadvance at specified interest rate

• Contract changes and renegotiationsafter the award are of a nature thatchanges the substance of the contractitself

• Supervising agencies/individuals areunduly influenced to alter thecontents of their reports; so changesin quality, performance, equipmentand characteristics go unnoticed

• Contractor’s claims are false orinaccurate and are protected by thosein-charge of revising them

• Subcontractors and partners,chosen in a non-transparent way, areunaccountable or are used tochannellise bribes

vi) Appointment of consultantsAppointment of consultants should beabsolutely need-based and for only specialised

jobs. The selection of consultants shouldbe made in a transparent manner throughcompetitive bidding. The scope of workand role of consultants should be clearlydefined. There should be no majordeviation in the scope of work after thecontract is awarded. The role of theconsultants should be advisory andrecommendatory. The final authority andresponsibility should be with thedepartmental officers only. The consultants/firm hired to provide consulting servicesfor the preparation or implementation of aproject, and any of its affiliates, should bedisqualified from subsequently providinggoods or works or services related to theinitial assignment for the same project.The payment clause should recognise thata certain type of output, such asArchitectural Design of Four Hostel Blocks,may be repetitive). That is, the same ratefor the first work (for example First HostelBlock) need NOT be paid for mere repetitionof work involving a minor variation.

vii) Anti-competitive practices

Another governance risk area in publicprocurement involves anti-competitivepractices like bid rigging, collusion orcartels occurring when bidders, that would

Mandatory!

The selection of consultants inpublic procurement should be ina transparent manner throughcompetitive bidding.

Their scope of work should alsobe clearly defined.

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otherwise be expected to compete, secretlyconspire to frustrate buyer’s attempts toget value-for-money in a bidding process.Anti-competitive conspiracies can takemany forms. These strategies may result inpatterns that procurement officials candetect. Therefore, steps can be taken tothwart such attempts.

i) Bid-coordination: The bidders colludeto quote same or similar rates thatare much higher than the reasonableprice to force the buyer to settle theprocurement at exorbitant prices.

ii) Cover bidding: Cover bidding isdesigned to give the appearance ofgenuine competition by way ofsupporting bids for the leadingbid-rigger.

iii) Bid suppression: Bid suppressionmeans that a company does notsubmit a bid for final consideration insupport of leading bid-rigger.

iv) Bid rotation: In bid-rotationschemes, conspiring firms continue tobid, but they agree to take turnsbeing the winning (or the lowestqualifying) bidder in a group oftenders of similar nature.

v) Market allocation: Competitorscarve up the market and agree notto give competitive bids for certaincustomers or in certain geographicareas.


CONCEPTS

� Values: These are things that are importantto or valued by an individual or the society.Values are the rules based on which we takedecisions about right and wrong, shouldand shouldn’t do, and good or bad. Theyalso tell us which things are more or lessimportant, which are useful and when do wehave to trade off meeting one value overanother

� Morals: Morals have a greater socialrelevance to values and tend to have a verybroad acceptance. They are far more aboutgood and bad than other values. We thusjudge others more strongly on morals thanvalues. Values and morals determine what isright and what is wrong

� Integrity: Adherence to moral and ethicalprinciples, soundness of moral character,and honesty constitute integrity

� Ethics: These refer to well-foundedstandards of right and wrong that prescribewhat humans ought to do, usually in termsof rights, obligations, benefits to society,fairness, or specific virtues. Thus, integrityand ethics are values and morals in action

� Codes and Laws: The difference betweencodes and ethics is that codes havepunitive elements and ethics have onlyconsequences by way of social disapproval.Laws determine whether an act ispermissible and if not what should be itspunishment

� Corrupt Practice: It refers to the offering,giving, receiving, or soliciting, directly orindirectly, at any stage, of anything of valueto influence the action of a public officialin the procurement process or in contractexecution

� Fraudulent Practice: It means amisrepresentation or omission of facts,directly or indirectly, at any stage, in orderto influence a procurement process or theexecution of a contract

� Collusive Practice: It refers to a scheme orarrangement, directly or indirectly, at anystage, between two or more bidders, with orwithout the knowledge of the purchaser,designed to establish bid prices at artificial,non-competitive levels

� Coercive Practice: It means harming orthreatening to harm, directly or indirectly,at any stage, persons or their property toinfluence their participation in theprocurement process or affect the executionof a contract

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� Conflict of Interest: It means a biddingfirm or any affiliate is either involved inthe Consultancy Contract to which thisprocurement is linked; or if they are part ofmore than one bid in the procurement; or iftheir personnel have relationship with anyof the procuring organisation’s personnelinvolved in the procurement process at anystage

� Obstructive Practice: It refers to: (i)deliberately destroying, falsifying, alteringor concealing of evidence material to theinvestigation or making false statements toinvestigators in order to materially impedethe purchasing organisation’s investigationinto allegations of above mentionedunethical practices; and/or threatening,harassing or intimidating any party toprevent it from disclosing its knowledge ofmatters relevant to the investigation orfrom pursuing the investigation, or (ii) actsintended to materially impede the exerciseof the bank’s contractual rights of audit oraccess to information

� Governance Risk Areas in PublicProcurement: Governance risks are differentat different stages of public procurementlike: Need assessment; Development ofspecifications; Procurement plans; Biddingprocess and Evaluation of bids; Contractexecution; Appointment of consultants andAnti-Competitive practices

� Anti-Competitive Practices: Anti-competitive practices like bid rigging,collusion or formation of cartels whenbidders, who would otherwise be expectedto compete, secretly conspire to frustratethe buyer’s attempts to get value-for-moneyin a bidding process



1. Discuss in a group your perception ofdifferences between Values; Morals; Ethics;Codes of Profession and Laws. Apply suchdiscussions to recently well-known scams inpublic procurement.

2. Discuss in a group, the negative impact ofthese scams on the society and country.

3. Categorise misdemeanours in such scamsunder:

a) Corruption

b) Fraud

c) Collusion/Conspiracy

d) Coercion

e) Obstruction of investigation

f) Conflict of interest

4. Governance risks in public procurementafter a tender is floated, evaluated andawarded are well-known. There are risksthat are more severe in the followingstages:

a) Need assessment before preparing theproposal/requisition/indent for goods/works or services

b) Procurement planning in procurementoffice after receipt of such indent andbefore floating the tender

c) Contract implementation and supervision

Discuss these risks and the means ofavoiding them in your context.

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2.1 Corruption

Based on James S Nye’s definition,“Corruption is behaviour, which deviates from thenormal duties of public role because of personalgains (personal, close, private clique), pecuniaryor status; violates rules against certain types ofpersonal gains. This includes such behaviouras bribery (use of reward to prevent the judgementof a person in position of trust), nepotism(bestowing of a patronage by reason ofrelationship rather than merit) and mis-appropriation (illegal appropriation of publicresource for private uses)” (James S Nye inHeidenheimer, 1970: 566-567). It broadly refers toabuse of public office for personal gain.

Prevention of Corruption in Public

ProcurementUn

it 2

LEARNING OUTCOMES


� Describe the important CVC Guidelines

� Describe the various types of anti-competitive behavioursand how to checkmate them

� Describe how to leverage Information Technology as atool to reduce corruption

2.2 Negative Impact of

Corruption on

Society

Corruption has multi-dimensional effects onthe political, economic, social and environmentalfronts. In political sphere, corruption impedesdemocracy and the rule of law. In a democraticsystem, public institutions and offices may losetheir legitimacy when they misuse their power forprivate interest. Corruption may also result innegative consequences, such as encouragingcynicism and reducing interest in politicalparticipation, political instability, reducingpolitical competition, reducing the transparency ofpolitical decision making, distorting politicaldevelopment and sustaining political activitybased on patronage, nepotism and money, amongothers.

In our society, the impact of corruption isoften manifested through political intolerance,problems of accountability and transparency tothe public, low level of democratic culture, withno principles of consultation and participatorydialogue, among others.

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The economic effects of corruption can becategorised as minor and major. However, both inone way or the other; have serious impact on theindividual community and country. First andforemost, corruption leads to the depletion ofnational wealth. It is often responsible forincreased costs of goods and services, thefunnelling of scarce public resources touneconomic high profile projects at the expenseof the much needed projects such as schools,hospitals and roads, or the supply of potablewater. It also leads to diversion and misallocationof resources, conversion of public wealth toprivate and personal property, inflation,imbalanced economic development, weakeningwork ethics and professionalism, hindrance ofdevelopment of fair market structures andunhealthy competition, thereby deterringcompetition. Large scale corruption damages theeconomy and impoverishes entire population.

In social sphere, corruption discouragespeople from working together for the commongood. Frustration and general apathy amongthe public result in a weak civil society.Demanding and paying bribes becomes thetradition. It also results in social inequality andwidened gap between the rich and poor, civilstrife, increased poverty, jealousy, hatred andinsecurity, and lack of basic needs like food, waterand drugs.

2.3 Prevention of Corruption

Fighting corruption requires a multi-prongedstrategy. A comprehensive system for preventingcorruption would consist of:

2.3.1 Codes of Conduct/Ethics for

Public Servants including

Elected Representatives

We have discussed the relative roles ofvalues, morals, integrity, ethics, codes and laws inensuring ethical behaviours. A clear enunciation ofEthical Standards and Codes of Conduct for PublicServants in general and Public ProcurementExecutives in particular is a basic requirement forpreventing corruption. Conflict of interest codeand post-employment code usually form part ofsuch codes of conduct. Although codes of conductare laid down for their Government Servants,a separate code of conduct particularly forProcurement Executives needs to be enunciated inthe Procurement Law of the country.

2.3.2 Transparency Systems

Public procurement regime in a countryis best founded in a Public Procurement Law.

In a Nutshell

Corruption discourages peoplefrom working together for thecommon good. Frustration andgeneral apathy, thereby, resultin a weak civil society.Demanding and paying bribesbecomes the tradition.

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Public procurement laws have been passed inAfghanistan, Bangladesh, Nepal and Pakistan.In Bhutan, Maldives and Sri Lanka, publicprocurement is still governed by regulationsand guidelines. In India, except for two states,public procurement at the Union level and in mostStates is regulated by General Financial Rules,although Public Procurement Bill, 2012 is underconsideration of the Parliament.

Apart from the Public Procurement Law,there is still a need for Rules and Manuals ofProcedures for Transparent Public Procurement.Most of the countries do have such rules/regulations with varying levels of alignment withinternational best practices. Such laws, rule ormanuals should ensure that the decision makingsystem is transparent and publicised.

To eliminate secrecy, it’s necessary to havea Right to (freedom of) Information Law in theCountry. India (2006) and Pakistan (2013) havealready promulgated such Act and Bangladesh haspromulgated an Ordinance (2008).

Since public procurement is but a part of alarger Governance Process, ensuring transparencymay have to go beyond the public procurementregime. Some of the following steps for ensuringtransparency go beyond such boundaries:

i) Simplification of administrative procedures

ii) Deletion of redundant over-regulation laws,permits, procedures

iii) Reforms in political system to makemonetary contributions transparent

iv) Reforms in monetary system to eliminateblack economy/large cash transactions

v) Clear demarcation of public and privatedomains for public servants

vi) Financial or interest disclosure/assetdeclaration

2.3.3 Competency and Training

Systems

Lack of training and competency is one ofthe main reasons for poor governance in publicprocurement. In this context, certification for

Public Procurement Executives is also desirable.Usually such issues are tackled in PublicProcurement Law. But, most countries lackinstitutions dedicated to training andprofessionalisation of public procurement.

2.3.4 Whistleblower Hotlines and

Helplines – Protection of

Witnesses and

Whistleblowers

In the last unit, we have seen that theremay be instances when a Public ProcurementExecutive is required to go beyond normal boundsof official secrecy to highlight serious governanceissues for redressal. Such an action is fraught withdangers for the whistleblower. Therefore, there is aneed to provide hotlines and helplines forwhistleblowers in vigilance organisations. Thereis also a need for Whistleblower ProtectionLaw. While such laws do not yet exist, TheWhistleblowers’ Protection Bill, 2011, is underconsideration of the Upper House in India.

2.3.5 Grievance Redressal

Framework Against Arbitrary

Exercise of Powers by Public

Servants

Any bidder, who claims to have suffered,or may suffer loss or injury due to a manner inwhich procurement has been conducted by theprocurement organisation should be able to seekreview. However, the review should not be laterthan the specified time (say 10 days) frompublishing of the notice announcing the Awardof Contract.

However, the following are excluded fromreview:

• Selection of procurement method

• Choice of selection procedure

• Issues related to ambiguity in contractterms may not be taken up after a contracthas been signed. All such issues should behighlighted before consummation of thecontract by the supplier

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• Complaints against specifications areprovided under the premise that they areeither vague or too specific so as to limitcompetition, may be permissible

Other cases include unethical behaviour onthe part of any Executive of the Procurement Agencywho is connected with any stage of procurement.

It is also salutary to have an independentGrievance Redressal Mechanism. Normally, PublicProcurement Laws lay down a two-tier or three-tier grievance redressal mechanism.

2.3.6 Corporate Ethical

Commitment Against

Corruption

Without a proactive ethical commitmentby the corporate sector against corruption,fight against corruption may not go very far.Industry associations should thus encouragecorporate sector to develop and adopt ethicalself-regulatory standards against corruption inpublic procurement. Integrity Pact developed by

Transparency International is also an effort in thisdirection. It provides a framework, whereincorporate bidders get bound by a legal documentwith punitive measures to eschew corruption andanti-competition.

2.3.7 Control/Enforcement

Laws Relating to Control and Enforcementof Anti-Corruption: Laws relating to investigationand prosecution for corrupt behaviour by a PublicServant or other stakeholders may consist of:

a) Country’s Penal and Criminal ProcedureCodes

b) Public Procurement Law

c) Anti-Corruption Law: Many countries haveenacted specific laws in this regard.Bangladesh, Pakistan and India have thePrevention of Corruption Acts. Bhutan hasthe Anti-Corruption Act 2011.

Remember!

Any bidder who may sufferloss or injury due to themanner in which procurementhas been conducted by theprocurement organisationmay seek review, but within10 days from publishing thenotice announcing the Awardof Contract.

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Investigation and Prosecution Agencies:Although it is desirable to have an integratedagency for investigation and prosecution ofcorrupt people, most of the countries have aplethora of such agencies with overlappingjurisdictions. These agencies may be:

a) Ombudsmen: Some countries have suchOmbudsmen Institutions at national orprovincial levels. These institutions have alarge degree of independence and statutorystatus. In India a “Lokpal and LokayuktasAct, 2014” has been recently passed tocreate such an institution, though withrestricted scope.

b) Public Finance Audit Agencies: Suchagencies are known as “Auditor General” inSri Lanka and Pakistan and “Comptroller andAuditor General” in India and Bangladesh.Role of such agencies is to audit all receiptsand expenditure of the National andProvincial Governments, including those ofbodies and authorities substantiallyfinanced by the government. His/her duty isto uphold the constitution of the countryand laws of the Parliament in the field offinancial administration. Since publicprocurement forms a major part of theGovernment expenditure, such audits coverall aspects of this function. The reports ofthese auditors are taken into considerationby the Parliament. Investigations by suchinstitutions are normally restricted to theexamination of documents and no punitivepowers are given to them.

c) Anti-Corruption Commissions: In somecountries (Bhutan, Bangladesh and Sri

Lanka) Anti-Corruption Commissionshave been created by enacting suitablelegislations to carry out investigationsand prosecutions in case of Corruption.Such organisations are known as NationalAccountability Bureau in Pakistan (createdunder National Accountability Ordinance,1999). In India and Afghanistan these arecalled “Central Vigilance Commission”. Theseagencies inquire or cause an inquiry orinvestigation to be made either on areference made by the Government or on itsown volition. It reviews the progress ofpenal actions or prosecutions ordered by itafter such investigations. Most of theseagencies also carry out preventive checksand system audits. There is provision ofplacement of an annual report of such anti-corruption agencies in the Parliament. Inmany countries, such agencies are hamperedin their fight against corruption, since theydo not have authority of police to arrest,seize properties or enforce compliancefrom non-government agencies. Such tasksare normally carried out by special policebureaus – as Criminal Investigation Bureau(CBI) in India.

d) Chief Vigilance Officer (CVO) inProcurement Organisations

CEOs and Heads of procurementOrganisations have the primaryresponsibility for maintenance of purity,integrity and efficiency in their respectiveorganisations. These authorities are assistedby an officer called the Chief VigilanceOfficer (CVO) in the discharge of vigilancefunctions. The CVO acts as a specialassistant/advisor to the chief executive andreports directly to him in all mattersrelating to vigilance. As the head of theVigilance Division of the organisationconcerned, he serves as a link between hisorganisation and the Anti-CorruptionCommission. The functions of CVOs can bebroadly divided into: (i) Preventivevigilance; (ii) Punitive vigilance; and(iii) Surveillance and detection.

e) NGOs, Media and Civil Society: Non-Government Organisations, Media and Civil

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Society play an educative, vigilant andcrusader’s role in fight against corruption.Enactment of Right to Information orOmbudsmen legislation has happened as aresult of relentless campaign by suchinstitutions.

2.3.8 Banning and Blacklisting of

Delinquent Firms

Banning/blacklisting of any firm is a potenttool for preventing corruption. Since, it restricts afirm’s right to participate in public procurement –it is open to judicial review. Hence, it should bedone in a manner that will stand scrutiny in aCourt of Law. The banning of business could be ofthree types, namely:

i) Banning confined to a public sector firm orany autonomous public body;

ii) Banning confined to one ministry; and

iii) Banning to be implemented by all ministries;

The proceedings are to be conducted by aReviewing Officer (RO) at the respective level.Being a quasi judicial process, the firm has to beafforded adequate opportunity to representits case. The firm has to be provided sufficientground and documents on which the proposedproposal to ban is based. It may be givensufficient time to submit a written response. Itshould also be afforded opportunity to presentits case in person before the RO, in addition towritten submission. After the written and oralsubmissions, the RO may prepare a written reportfor approval by the Nominated Banning Authority

– who will approve the final orders including theperiod of the ban.

2.4 Fighting Anti-Competitive

Practices

Many countries have enacted FairCompetition Laws to make such anti-competitivebehaviour as a criminal offence. Nepal (2006),India (2002/2007), Pakistan (2010) andBangladesh (2007) already have Competition Act.Such an Act also provides for a Statutory Body(Competition Commission) to investigate oradjudicate and punish for any violation.

2.4.1 Checkmating Anti-Competitive

Practices

There are some characteristics whichfacilitate collusion. Based on the characteristicsthat facilitate collusion, buyer can devisestrategies to deny any advantage to such bidders:

a) Lack of Buyer’s Awareness of the MarketRealities:

• Buyers should carry out need assess-ment and procurement planning phase

In a Nutshell

Banning or blacklisting ofany firm is a potent toolfor preventing corruption.It restricts a firm’s rightto participate in publicprocurement and is opento judicial review.

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during which the choices ofspecifications choices are made withan eye on market characteristics, likelylevel of competition and procurementrisks involved.

• Implement a regular training programon bid rigging and cartel detectionfor your staff, with the help of thecompetition agency or external legalconsultants.

b) Lack of Free Competition: Small number ofbidding firms makes it easy for bidders toreach an agreement on how to rig bids.Protective Entry Barrier helps supportbid-rigging efforts.• Avoid unnecessary restrictions that

may reduce the number of qualifiedbidders. Reduce constraints on foreignparticipation in procurement wheneverpossible. Do not over-emphasise theimportance of performance records.Whenever possible, consider otherrelevant experience.

• Avoid large monetary guarantees frombidders and reduce the preparationcosts of the bid.

• Reconsider packaging and bundling ofrequirements. Whenever possible, allowbids on certain lots or objects withinthe contract, or on combinationsthereof, rather than bids on the wholecontract only.

• Avoid any kind of preferential treatmentfor a certain class, or type of suppliers.Do not favour incumbents.

c) Undifferentiated Specifications: Identicalor simple requirements; with little or notechnological change and few, if any,substitutes make it is easier for firms toreach an agreement and maintain thatagreement over time.

• Use performance specifications andstate what is actually required,rather than providing a productdescription. This demands specificationdifferentiation

• Define your specifications allowingfor substitute products or in termsof functional performance andrequirements whenever possible

d) Stability of Demand and Packaging:

• Avoid predictability in your contractrequirements regarding the size andtiming of tenders.

e) Procedural Opportunities for Collusion:

• Avoid packaging contracts with almostidentical values that can be easilyshared among competitors.

• Do not disclose or unnecessarily limitthe number of bidders in the biddingprocess.

• Use post-qualification to avoid collusivepractices among a pre-qualified group.Avoid a very long period of timebetween qualification and award, asthis may facilitate collusion.

• Avoid bringing potential supplierstogether by holding regularly scheduledpre-bid meetings. Open tenders enablecommunication and signalling betweenbidders by using electronic bidding orallowing tender boxes in more thanone location.

• Consider if procurement methods otherthan single stage tenders such as,negotiated tenders and frameworkagreements can be used.

• Include in the tender offer a warningregarding the provisions in the biddocument and in the Competition Lawabout the punitive measures foranti-competitive practices. Considerthe aspect that makes it mandatoryfor bidders to sign a Certificate ofIndependent Bid Determination.

• Ensure that bidders disclose upfront ifthey intend to use subcontractors,which can be a way to split the profitsamong bid riggers.

• As joint bids can be a way to splitprofits among bid riggers, be

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particularly vigilant about joint bidsby firms.

• Avoid splitting contracts betweensuppliers with identical bids.

• Reserve the right not to award thecontract if it is suspected that thebidding outcome is not competitive.

• Undertake comparison checks betweenlists of companies that have submittedan expression of interest andcompanies that have submitted bidsto identify possible trends such asbid withdrawals and use of sub-contractors. Conduct interviews withvendors who no longer bid on tendersand with unsuccessful vendors.

• Establish a complaint mechanism forfirms to convey competition concerns.For example, clearly identify the personor the office to which complaintsmust be submitted and provide theircontact details. In addition, ensurean appropriate level of confidentiality.

• Beware of using the services ofindustry consultants to conduct thetendering process, as they may haveestablished working relationshipswith individual bidders. Instead, usethe consultant’s expertise to clearlydescribe the criteria/specifications andconduct the procurement processin-house. Ensure that they signconfidentiality agreements and theyare subject to a reporting requirementif they become aware of impropercompetitor behaviour or any potentialconflict of interest.

2.5 Leveraging Technology

Leveraging technology is an effectivetool in prevention of corruption. InformationTechnology creates a virtual scenario whereprocesses are anonymous and withoutintermediators (obviating a human interface),available 24 × 7, irrespective of location.Therefore, it can be a great tool to reducecorruption. Various facets of IT relevant foreGP are:

2.5.1 e-Governance

e-Governance is an effective tool inreducing corruption. All the governmentdepartments having public dealings with respectto regulatory, enforcement and other functionsshould upload the information pertaining to therules and procedures governing the issue oflicenses/permissions and others on their websites.They should make available all the applicationforms on the websites in a downloadable formbesides providing the status of individualapplication on the organisation’s website. Thismethod has gone a long way in reducingcorruption at the public interface in manycountries.

2.5.2 e-Procurement

e-Procurement helps in reducing corruptionin the following ways:

• Greater transparency and fair competition:Bidders get access to all the biddingopportunities. There is even a provision of

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sending alerts to the registered bidder onSMS/email as and when a bid of his/herinterest is published. The information to allthe bidders is same – as the bid documentsare downloadable and tamper-proof and thebidder’s submissions are kept confidentialtill bid-opening. Any corrigendum isimmediately available to all bidders. Biddersneed not come physically to drop their bids,where they may face Mafias, Cartels andLocal Thugs. Bidders get the evaluationsummary immediately on bid-opening. Eventhe progress of processing the procurementcan be viewed online.

• Standardise procurement processes acrossthe organisation/Government

• Uniformity of procurement processes, forms,conditions of bid and contract is essentialfor reducing corruption. This is achievedthrough e-Procurement

• Minimise delays and humancapriciousness in tender processing:Dilatory tactics are an important weaponin the hands of corrupt officials.e-Procurement helps in drastically cuttingprocurement delays. Due to the automatedprocess, the chances of human errors(deliberate or otherwise) are obviated. Theevaluation summary is automated and inreverse auction, even evaluation isautomated, thus reducing human element.

2.5.3 e-Payment

Payments are a great source of corruption.Electronic Transfer of Payment (ECS, EFT andRTGS) should be made mandatory. The contractorneed not physically go to the payment office

if e-payment is facilitated. Many e-payment systemsallow online submission of bills and also help theuser keep track of payment process.


CONCEPTS

� Corruption is abuse of public office forpersonal gains

� Effects of Corruption: Corruption hasmulti-dimensional effects on the political,economic, social and environmental fronts.In political sphere, corruption impedesdemocracy and the rule of law. In theeconomic sphere, corruption leads to thedepletion of national wealth. Moreover,large scale corruption hurts the economyand impoverishes the entire population. Insocial sphere, corruption discourages peoplefrom working together for the common good

� Prevention of Corruption requires multi-pronged strategies, such as laying down ofCodes of Conduct; Transparency Systems(Public Procurement Law; Rules and Manualsof Procedures; Right to Information Act;and some measures, which go beyond thepublic procurement regime); ensuringCompetency and Training; Whistle Blower

Remember!

Industry consultants may haveestablished workingrelationships with individualbidders. Therefore, they shouldnot be hired to conduct thetendering process.

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Protection; Grievance Redressal Mechanism;Corporate Ethical Commitment; Control/Enforcement of Anti-Corruption Activities(Ombudsmen; Public Finance AuditingAgencies; Anti-Corruption Commissions;Departmental Vigilance Organisation; NGO,Media and Civil Society) and BanningProcedures

� Fighting Anti-Competitive Practicesrequires devising procurement strategies todeny any advantage to bidders contemplatinganti-competitive behaviour

� Leveraging Information Technology is aneffective tool in prevention of corruption

� e-Governance involves replacing manualinterfaces by web-enabled interfaces forregulatory, enforcement and other functionsof governance

� e-Procurement is removal of manual interfacesand paper documents by web-enabledbidding and award of contract process

� e-Payment: Electronic payment systemdirectly releases payment through banks



1. Study the various ill-effects of corruptionand rank the 3 effects that damage thesociety the most.

2. Relate the steps for prevention ofcorruption listed in this module with thesteps taken in your country/organisation.List the areas requiring further steps and

measures needed to prevent corruption.Is it that some of the steps listed cannotbe implemented under the existingcircumstances?

3. Compare and contrast similarities anddifferences in jurisdiction and impactof various agencies for fighting corruptionas listed in this unit. Which agency has thelargest impact and which has the least?

4. Go to the websites of various such agenciesand study their scope and activities.

5. Study the mechanism used for grievanceredressal in your organisation, as listed inyour bidding documents and website.What additional measures would yousuggest to improve the image of yourorganisation? In addition, study and findout the:

a. Number of complaints received.b. Average time taken to deal with these

complaints.c. What is the area of procurement,

which attracts the maximum numberof complaints?

6. Which situations give rise to anti-competitivepractices? How can we checkmate suchnefarious designs?

7. How can technology help fight corruption?Is your organisation’s website showing thecontact details of authorities to whomvigilance complaints can be made? Try thesemobile numbers. Is it easy to get responsefrom these numbers?

8. What are the plans of your organisation fore-procurement and e-payment?

cppp_mooc_courseware.pdf

Documents

public procurement reforms

public procurement pdpp

supply management

ivcertificate program

iiicertificate program

india ism

management training

new delhi