Module 10 Organizing Procurement Session 10.7 Procurement of Goods: Evaluation and Award

Instructional Objectives Describe how to prepare a list of acceptable suppliers. Describe the bid evaluation process and characterize the major activities and issues. Compare the advantages and disadvantages of giving preferences (for example, to local industries). 2

Instructional Objectives (continued) Describe the problems that arise from (a) deficiencies in bids and (b) challenges to selection and how those problems may be addressed. Given a case example (or vignettes), evaluate bids and propose an award. See outline for additional objectives. 3

Preparation of List of Acceptable Suppliers One-stage process (if readily available) Two-stage process (if custom designed or complex) (Prequalification) Submission of technical proposals Submission of price proposals 4

Prequalification Criteria Supplier’s production capacity Track record (experience under operational conditions) of the product(s) Experience and reputation of the supplier(s) Financial position of the supplier(s) Capability and reputation for after sale service 5

Bidding Documentation Bid submission procedure Describe goods sought Enunciate evaluation procedures for bids Set out conditions of contract for successful bidder Complexity of documents will vary by situation 6

Way to Classify Documentation “Mechanism” of bidding process Conditions of contract Procedures for clarification, modification, and withdrawal of instructions Prices, currencies, preferences, payments, and so forth. Securities Evaluation criteria 7

Mechanism of Bidding Process Form of bid Number of copies Language to be used The addressee Validity of bid Date, time, and place for submission 8

Conditions of Contract (Format) General Conditions Inspection and shipment Documentation Payment terms Performance securities Damage and delays 9

Conditions of Contract (Format)-2 Special conditions Insurance Procedures for testing and inspection Special payment terms, currency or price adjustment Regulations for import of equipment Preferences Other deletions/additions to general conditions Procedures for clarification/modification 10

Bids/prices, Currencies, and Preferences Typically complex Bids may be in different currencies, including local currency Evaluation and payments in various currencies Goal: remove currency risk from the bidders (should lead to lower level of bids). Goal: permit bidders from countries with relatively weak currencies to bid. Goal: ensure fairness to all bidders. 11

Bid/prices, Currencies and Preferences (continued) International institutions’ requirements Bids be expressed in currencies of member countries Not more than three currencies plus local Local expenses expressed in local currency 12

INCOTERMS Rules (1990) EXW: ex works (the place being named) FOB: free on board (named port of shipment) CFR: cost and freight (named port of destination) CIF: cost, insurance, and freight (named port of destination) CIP: carriage and insurance paid (named place of destination) 13

Insurance Duration Supplier’s Obligation Buyer’s Obligation EXWORKS loaded Warehouse FOB (on Ship) CIF (at Port) Port of Entry CIP Final Destination Final Site

Currency Conversion Must convert bids to common currency for evaluation/comparison and determination of lowest evaluated bid Three decisions involved: The common currency to be used The conversion rates to be used The date selected for the conversion 14

Conditions for Granting Local Preferences The local product must contain a specified level of local inputs as required by each IFI. For example, the World Bank requires that the aggregate cost of domestic labor and raw materials and equipment must account for not less than 30 percent of the ex works price. The local supplier must be engaged in production of such goods at the time of the submission of the bid. 15

Security Bidding stage—to ensure bidders are serious Protects buyer if bidder declines to sign contract Should be reasonable amount (1% - 5%) Performance stage—to ensure manufacture/ delivery Protects buyer Should be reasonable (5% - 10% of contract) 16

Bid Evaluation Should be based on criteria (session 10.6) Two-stage process Commercial—price, freight, insurance, and so forth Technical Delivery may be staged over time. Bid documents should set out delivery requirements. 17

Payment Terms Should conform to generally accepted commercial practices Technical evaluation starts with evaluated cost Life-cycle costing preferable Include streams of fuel and maintenance costs Include salvage/resale value to present value Merit point evaluation (alternative) 18

Award Made within period of validity of bids to bidder with Lowest evaluated bid Must meet standards Successful bidder should not be required to take on work not in the contract. Buyer reserves right to reject any or all of bids without stating reason. 19

Rejecting Bids May discourage future bids Reasons for rejecting bids include The lowest bid exceeds the estimate by a substantial margin. All bids were judged to be nonresponsive. There was an obvious lack of competition in the bidding process. 20

Summary Prepare a list of acceptable suppliers. Prepare bidding documentation. Mechanisms Conditions of contract (general and specific) Determine how will handle currency conversions and comparisons Determine if preferences will be applied Determine what security is required (bid and performance) Set evaluation criteria. Evaluate and award. Reject (all) bids, but only exceptionally and with caution. 21