1. FBO Workshop - May 13-15, 2003, Addis Ababa
Procurement or
Purchase Management
Principles and Experiences under National HIV/AIDS Programs in Africa
Nadeem Mohammad
World Bank ; AIDS Campaign Team for Africa (ACTafrica)
FBO Workshop - May 13-15, 2003, Addis Ababa

2. Objectives of the presentation
Part I
Understanding applicants.
Definition, policy and process.
Lessons learned.
Part II
Methods/procedures.
Legal aspects of procurement.
Procurement management.
FBO Workshop - May 13-15, 2003, Addis Ababa

3. I.1.Understanding applicant groups
In a National HIV/AIDS Program, there are typically 4 applicant groups:
Grassroots level civil society groups
Community Based Organizations and Local Non-Government Organizations (CBO/LNGO/FBO)
Organized, large NGOs, FBOs, private sector organizations and similar organizations; and
Public-Sector agencies or line ministries.
FBO Workshop - May 13-15, 2003, Addis Ababa

4. I.1.Understanding applicant groups
Procurement rules apply differently to each of these groups but the basic principles are same:
Grassroots level
Usually a single method applies
CBO/LNGO/FBO
(middle level)
Generally 2 methods apply for different values of purchase
NGO, FBO, Pvt.Sector (national level)
More than 2 methods apply for different values of purchase
Line Ministries (national level)
FBO Workshop - May 13-15, 2003, Addis Ababa

5. I.1.Understanding applicant groups.
Applicant groups are recognized based on their management capacity and area of expertise; whether they can work at the national level, district, or at the community level.
A FBO can be a national level organized entity having fulltime professional staff like accountants and managers, OR a community level small semi-organized entity operating in one or in a few communities.
Procurement methods are simpler at the lowest levels!
FBO Workshop - May 13-15, 2003, Addis Ababa

6. I.2.Definition, policy and process…
i) What is procurement?
Procurement is the way of purchasing resources in a transparent and cost effective manner which facilitates in the implementation of a subproject.
ii) What is procurement policy?
General aspects of a procurement policy, practiced by governments and donors, are:
FBO Workshop - May 13-15, 2003, Addis Ababa

7. I.2.Definition, policy and process…
Transparency, fraud prevention is important so that everyone will know that funds are being honestly spent and accounted for;
Equal opportunity ensures that the sellers are provided with equal opportunity to offer their goods and services;
Economy and efficiency (value for money) means that goods and services will be purchased at a reasonable price (lower cost, best quality and timely availability).
Effectiveness means that the goods and services will fulfill subproject objectives.
The ability of a seller to provide the goods and services has to be documented so that there is assurance that what is promised, can be provided.
FBO Workshop - May 13-15, 2003, Addis Ababa

8. I.2.Definition, policy and process…
iii) What is procurement process?
- Procurement process involves clear understanding of:
What to buy? How to buy? and What legalities are involved in the process?
As long as these aspects are clearly known, procurement becomes simpler to manage.
- Procurement requires a clear understanding of:
Identifying the need, that is, what is needed, how much is needed and when it is needed?
The choices of procurement methods and identifying where to buy from; and
Legally buying what is needed.
FBO Workshop - May 13-15, 2003, Addis Ababa

9. I.2.Definition, policy and process
The process
Establish a Procurement Committee
Choose a procurement method
Make group of similar items
Method A
Method B
Method …..
Make a procurement plan
Procurement Committee of at least 3 people
Making group of similar items mean that
To get the best price for goods, services or civil works, similar items should be grouped into packages. For example, registers, pencils, pens, file folders can be grouped into one package and called “stationery”. Procurement packaging has several advantages:
·         
Examples of packages
Stationery: Account registers, pencils, pens, file folders and flipcharts.
Medicines: Painkillers, Anti-diarrhea, ORS, Vitamins, Antibiotics, Antacids, Cough syrups.
Home-base care kits: (a) Towel, soap, waste bag, bathroom scale; (b) Pair of scissors, razor blades, cotton wool, gauze, disposable gloves, specimen bottles, thermometers, bandages. (c) Various food items including rice and beans bags. (d) Soap making items for income generation activities. (e) Other.
It offers a better business chance to the sellers to supply in bulk;
Items purchased in packages often result in lower unit cost – therefore cost savings;
It simplifies actual purchase. All similar items are purchased in one go for a period of time. This reduces the hassle involved in buying similar things intermittently; and
It reduces overhead costs such as frequent advertising, bookkeeping and logistics.
- Select a seller
- Sign contract, or get receipt
Advertise (let people know)
Update procurement plan & identify needs for the next period
FBO Workshop - May 13-15, 2003, Addis Ababa

10. FBO Workshop - May 13-15, 2003, Addis Ababa
I.3.Lessons Learned…
a) At subproject proposal preparation stage
Underestimation in the assessment of applicant’s procurement management capacity; therefore weaknesses in capacity building and problems during implementation;
Applications unrealistic in terms of achievement targets and existing capacity;
Lack of access to professional fiduciary staff;
Haven’t figured out when to buy, how to buy? and from where to buy?
Lack of clear understanding of procurement process, methods and legalities;
NAPs do not have sufficient capacity to continuously sensitize a large number of applicants.
Give example of rice bags procurement for home based care.
Conclusion: Lack of assessment in procurement capacity, lack of planning, lack of understanding of procedures.
FBO Workshop - May 13-15, 2003, Addis Ababa

11. FBO Workshop - May 13-15, 2003, Addis Ababa
I.3.Lessons Learned
b) During subproject implementation stage
Difficult/dense guidelines from NAP;
Lack of training;
Lack of procurement advisory service from NAP to handle situations;
NGO/CBO/FBO doesn’t have access to preferably a fulltime fiduciary person;
Communications problems – unclear guidance.
FBO Workshop - May 13-15, 2003, Addis Ababa

12. II.1.Methods or Procedures…
Understanding of some key terms are necessary to clearly understand the methods or procedures:
a) What are Thresholds?
b) Packaging, Planning, Advertising
c) Procurement procedures or methods
FBO Workshop - May 13-15, 2003, Addis Ababa

13. II.1.Methods or Procedures…
a) What are Thresholds? (values are set by NAP)
Threshold: When the value of an item or a package of items is:
Use this method
Key activity
e.g., above US$500
Bidding methods
Advertise and select a bidder/seller
e.g., between US$100 to US$499.99
Three quotations method
Obtain 3 quotations from sellers
e.g., below US$100
Direct purchase form a seller
Shop around for the best price and keep a receipt
Threshold is a financial value which determines a procurement method to apply.
Values shown in the 1st column are thresholds for the use of a method
FBO Workshop - May 13-15, 2003, Addis Ababa

14. II.1.Methods or Procedures…
b) i-Packaging
To get the best price for goods, services or civil works, similar items should be grouped into packages. For example, registers, pencils, pens, file folders can be grouped into one package and called “stationery”.
Home-base care kits: (a) Towel, soap, waste bag, bathroom scale; (b) Pair of scissors, razor blades, cotton wool, gauze, disposable gloves, specimen bottles, thermometers, bandages. (c) Various food items including rice and beans bags. (d) Soap making items for income generation activities. (e) Other.
FBO Workshop - May 13-15, 2003, Addis Ababa

15. II.1.Methods or Procedures…
b) ii-Planning
A procurement plan shows following information for all resources to be purchased during implementation:
Item description (What to buy?)
Month when needed (When to buy?)
Quantity (How many to buy?)
From where to buy?
Estimated cost
Which procurement method will be used?
FBO Workshop - May 13-15, 2003, Addis Ababa

16. II.1.Methods or Procedures…
b) iii-Advertising
Advertisement is necessary to:
Inform everyone about the business opportunities available;
Promote transparency and accountability;
Generate competition to get the best prices.
There are many ways for advertisement:
Posting of a notice in the public places including shopping areas, a tree, community hall/center, government offices;
Community discussion groups/congregations;
Use of local radio station;
Distribution of flyers;
Local news papers .
FBO Workshop - May 13-15, 2003, Addis Ababa

17. II.1. Methods or Procedures…
c) Procurement procedures or methods
Direct purchase method: quotations not required, receipt is needed, apply below a threshold or use in exceptional situations.
Quotations based method: at least 3 quotations or invoices are required, price is negotiated, an agreement is signed or an official receipt is obtained.
Give examples of “exceptional” situations.
FBO Workshop - May 13-15, 2003, Addis Ababa

18. II.1. Methods or Procedure
Bidding methods:
Local, national or international advertisement is made depending on the value of purchase;
bidders bid with their quotations;
bids are opened publicly,
successful bidder is selected,
contract is negotiated and signed,
service or goods are delivered;
final payment is made.
FBO Workshop - May 13-15, 2003, Addis Ababa

19. FBO Workshop - May 13-15, 2003, Addis Ababa
II.2. Legal Aspects…
a) Legal agreements/contracts
Between NAP and CSO/FBO
Between CSO/FBO and sellers/service providers
b) Conflict of interest
NAP
FBO
Seller or Supplier
FBO Workshop - May 13-15, 2003, Addis Ababa

20. FBO Workshop - May 13-15, 2003, Addis Ababa
II.2. Legal Aspects…
a) Legal agreements/contracts
Complete the targets specified in the approved proposal;
Finish subproject implementation in the specified time presented in the proposal;
Maintain acceptable standards of quality during implementation;
Utilize funds only on items specified in the approved subproject proposal;
Maintain all receipts against expenses; and
Provide detailed account of all expenditures.
FBO Workshop - May 13-15, 2003, Addis Ababa

21. FBO Workshop - May 13-15, 2003, Addis Ababa
II.2. Legal Aspects
b) Conflict of interest
Enterprises owned by the CBO/FBO members and their immediate relatives are allowed to participate only under the Bidding Methods but not under the quotations based method. Direct purchase method may be accepted from such sources if it is the only efficient and economical source.
FBO Workshop - May 13-15, 2003, Addis Ababa

22. II.3.Procurement Management…
a) Purchase Committee
A minimum of 3 members are suggested for a FBO Purchase Committee. A FBO may invite more people to form this committee to provide relevant technical advice.
Key responsibilities of a FBO Purchase Committee:
Prepare a procurement plan; Identify procurement needs; Approve what to buy and when to buy; Group similar expenditure items into relevant/convenient package(s); Carry out the procurement steps; and Keep procurement and financial records.
FBO Workshop - May 13-15, 2003, Addis Ababa

23. II.3.Procurement Management
b) Financial management
Have an accountant
Have a bank account
Payments by cheques/cash
Receipts/vouchers
Account statements
Audit of accounts
Maintain stores
FBO Workshop - May 13-15, 2003, Addis Ababa

24. II.3.Procurement Management
c) Price escalations
Common reasons for price escalation
There is a general increase in prices by the government for one commodity or a general increase in the sales tax or VAT.
Local seller increases prices of items or commodities that FBO has been buying in the past.
A service provider increases his/her fees during an on-going assignment/contract.
A service provider who has completed his/her previous contract with FBO may ask for increase in his/her fees for the next contract or assignment.
Common reasons for price escalation
Suggested actions
1) Update the subproject plan based on the general price increase and inform NAP.
Do not wait for any re-approval, but continue to implement subproject activities according to the updated plan.
2) Ask the seller reasons behind the price escalations and contact NAP immediately for advise.
Seek alternate sellers in nearby areas.
3) This is not allowed. A consultant may not increase his/her fees during an ongoing assignment. However, if there is a genuine need and it is justified that due to some unforeseen factors at the beginning of the assignment, NAP may allow the CBO/NGO to increase the consultant fees.
4) A consultant may make such a demand. FBO must assess the valid reasons behind the demand and contact NAP for any advise. Such increase may be allowed on the basis of annual average salary increases in the country.
FBO Workshop - May 13-15, 2003, Addis Ababa

25. II.3.Procurement Management
d) Monitoring and Evaluation
All NAP’s grant recipients are subject to procurement audit, i.e; how the basic principles are being practiced, and paper trace of all purchases. Following documents are to be kept:
The procurement plan;
Proof of advertisement;
Copies of contracts signed;
All receipts;
Payment record (voucher);
Record of items in storage.
When “misprocurement” happens, then actions per country’s laws are undertaken.
FBO Workshop - May 13-15, 2003, Addis Ababa