The Procurement Process and Contract Types : L10 Chibwe D. MWELWA (MSc Procurement, MBA, BSc, MEIZ, FCIPS, FZIPS, MCCOMI) Email: chibwemwelwa@gmail.com Course: Project and Contract Management Assessments: CA=40 %; Sessional= 60%.

PROCUREMENT PROCESS & CONTRACT TYPES PROCUREMENT PROCESS & CONTRCAT TYPES L10

Procurement Process

Procurement Process Procurement is the process by which goods and services are acquired. Procurement is a very Important function both in the Government / Public and Private. In Zambia close of 10% GDP is controlled by public procurement. In Private companies 50-80% of Production costs are controlled by the procurement function. Thereby impacting the bottom line of the most production companies directly.

Procurement Cycle

THE PURCHASING CYCLE Identification of Need & Procurement Plan User department/section generates the need. Need identification is not a province of suppliers/contractors. Need for Procurement Plan (takes into account lead time i.e. from identification of need, to receipt of goods, works or services) This is for planning purposes This is to allow for suppliers to start preparing for the launch of the procurement

Purchasing Cycle ddingProces Identification of Need & Procurement Plan The Budget confirmation Confirmation of Source of Funds The Procurement Plan The Approval/Clearance Specification Drafting

THE PURCHASING CYCLE BIDDING PROCESS / TENDER PROCESS Open, fair, and competitive procedures used in a transparent manner in the procurement process. Solicitations based on clear and accurate descriptions of what need to be acquired. Contracts awarded only to qualified and capable suppliers / Contractors. No more than a commercially reasonable price shall be paid

Notices for Adv. BIDDING PROCESS / TENDER PROCESS General Procurement Notice (GPN) Required to alert prospective bidders to the procuring entity. The notice usually includes information on the estimated value and brief description of the requirements. The GPN is issued usually in a minimum of 45 days prior to first procurement action. Specific Procurement Notice (SPN) Required to alert prospective bidders to prequalify or bid for specific contracts. Published in newspapers and/or websites Notices for Adv.

BIDDING PROCESS / TENDER PROCESS SPECIFICATIONS Specification must define quality Quality is suitability for intended purpose. Specifications must be neutral / Generic (i.e. avoid use of brand names). Where a standard exists, such shall be used. Services specifications come in form of Terms of Reference (TOR) i.e. define minimum performance levels Works specifications come in form of scope of works, bill of quantity and material specifications or standards.

BIDDING PROCESS / TENDER PROCESS OPENING OF TENDERS Tenders shall be deposited in a tender box. Tenders submitted within the stipulated period shall be opened; Opened Publicly By an authorized officer, On a day other than a public holiday or day after a public holiday

BIDDING PROCESS / TENDER PROCESSOpeni Bids OPENING OF TENDERS / TENDERS Time for opening is immediately after submission deadline Late bids cannot be accepted; should be returned unopened The same opening procedure will apply for each bid; Any question relating to the process of evaluation may be answered but only with reference to the bidding document No statements referring to evaluation are to be made in the bid opening. For that reason, no bids are rejected at bid opening Only the relevant points are to be read in a bid opening, using a Bid Opening Checklist form.

EVALUATION PROCESS Evaluation Panel TECHNICAL EVALUATION COMMITTEE (TEP) Membership 3 – 5 members Ad-hoc Cannot be a standing committee Technical capacity One or more members should be technically knowledgeable of subject matter Conflicts of Interest None, declared, perceived?

EVALUATION PROCESS Evaluation Panel TECHNICAL EVALUATION COMMITTEE (TEP) Administrative Compliance and Preliminary Examination Technical Evaluation Financial Evaluation Post Qualification Preparation of Evaluation Report(s) All stages are progressive!

Admin Compliance/Prelim Exam (Compliance) Eligibility Bid/Proposal Submission Form Power of Attorney Legal Status Bid Security Financial Capacity (see Post-Qualification) Manufacturer’s Authorization Reference Checks (see Post-Qualification)

TECHNICAL EVALUATION COMMITTE EVALUATION PROCESS TECHNICAL EVALUATION COMMITTE The purpose of tender evaluation is to identify the lowest evaluated bidder [BEST EVALUATED] i.e. which when awarded the contract, shall ensure: Best value for money is obtained Delivery/completion shall be on schedule The right quality and quantity is supplied

AWARD AND APPROVAL PURCHASE APPROVAL Purchase approval must be obtained from the appropriate authority prior to contract award. The approving authority is determined by the value of the purchase. The Tender Regulations stipulate the financial limits for each approving authority. Retrospective approval cannot be granted, i.e. after the contract award has already been made. The Tender Regulations have a procedure for emergency/urgent purchases

AWARD AND APPROVAL CONTRACT AWARD Contract award notification to the supplier/contractor shall be in writing and shall be by the purchasing officer. Simple or low value/risk contracts can be by local purchase order. However, complex and high value/risk contracts must be written with relevant Conditions of Contract. Advance payments are generally not permitted. Where this is unavoidable, the supplier/contractor must submit an advance payment guarantee of equivalent value from a financial institution.

Contract Administration / Contract Implementation Ensure supplier’s goods, services and works delivered comply with contract requirements (time, quality and cost). Ensure management of relationship between the parties involved in the contract for future business. Ensure all contractual obligations are being done correctly and in line with the specification and quality envisaged in the contract.

Closeout Process CLOSE OUT Closing out the transaction consists of three elements: receiving the goods or accepting the services, paying for the goods or services, and ensuring the satisfactory life cycle of the product or service.  If it is works going into the Defects Reliability Period

POST CONTRACT APPRAISAL/ VENDOR RATING This is intended to assess whether the purchase has been conducted in accordance with the procurement plan. Deviations are evaluated to ensure they are not repeated and corrective adjustments made to the procurement and associated plans. After delivery, vendor performance is rated against quality,delivery, service and cost elements.

60 – 108 DAYS FLOATATION 4/8 WEEKS AUTHENTICATION 3 DAYS EVALUATION IFB FLOATATION 4/8 WEEKS AUTHENTICATION 3 DAYS EVALUATION 21 DAYS ZPPA/PC AUTHORITY 10 DAYS AWARD 14 DAYS TOTAL PERIOD 60 – 108 DAYS

Contract Types Cost – Plus – Award – Fee (CPAF) An award pool is created. The level of award is determined by an award committee. Downside: admin cost are high due to award committee.

Contract Type cont…. Cost-Plus- Percentage of Cost (CPPC) Supplier is reimbursed for allowable costs of performing the contract and receives a profit as an agreed upon percentage of the costs. No limit on the supplier’s profit. If supplier’s costs increase, so does the profit. Susceptible to abuse. No motivation for supplier to reduce costs. The buyer bears 100% of the risk.

Contract Type cont…. Cos-Plus-Fixed Fee (CPFF) Supplier is reimbursed for allowable costs of performing the contract and receives as profit a fixed fee payment based on the percentage of the estimated costs. Primarily used in research projects where the effort required to achieve success is uncertain until well after the contract is signed.

Contract Type cont…. Cost-Plus-Incentive Fee (CPIF) Supplier is paid for allowable performance costs along with a predetermined fee and an incentive bonus. Primarily used when contracts involve a long performance period with a substantial amount of hardware development and test requirements. Risk is shared by both buyer and seller.

Contract Type cont…. Fixed-Price-Plus-Incentive Fee (FPI) Most complex type of contract. Consists of target cost, target profit, target price, ceiling price, and share ratio. Risk is shared by both buyer and seller, but risk is usually higher for seller. Usually used when contracts are for a substantial sum and involve a long production time.

Contract Type cont…. Firm-Fixed Price (FFP) Supplier agrees to perform a service or furnish supplies at the established contract price. Will also be called Lump Sum. Supplier bears the greatest degree of risk Best specifications are available and costs are relatively certain. Common type of contract.

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