1. Procurement Management
Principles and Process
Strengthening Fiduciary Management in Multi-Sectoral National HIV/AIDS Program for Sub-Saharan Africa
Network of National HIV/AIDS Program Practitioners in Africa (NAPPA) and
World Bank AIDS Campaign Team for Africa (ACTafrica)
July 2003
Presentation # 3
Duration = 25 min

2. Objectives of the presentation
To review the overall principles of procurement including: policy, process, methods and legal aspects; and
To recognize different needs of different users at community, district and national levels.

3. 1. Beneficiary organizations…
In a National HIV/AIDS Program (NAP), there are typically 3 levels of beneficiary organizations:
Community level: Grassroots level civil society/community groups;
Intermediary level: Or district/local government level entities like a district, regional HIV/AIDS committees, Local NGOs, CBOs;
National Level: Organized, large NGOs, private sector organizations and similar organizations; and Public-Sector agencies or line ministries including the National AIDS Program.

4. 1. Beneficiary organizations
Procurement rules apply differently to each of these levels/organizations; but the basic principles are same:
Procurement methods are simpler at the lowest levels!
Organization level
Methods applicable
Community level entities
Usually a single method applies
Intermediate (e.g. district) level entities
Generally 2 methods apply for different values of purchase
National level entities including ministries
More than 2 methods apply for different values of purchase

5. 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:

6. 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.

7. 2. Definition, policy and process…
iii) What is procurement process?
Procurement process involves 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.

8. 2. Definition, policy and 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

9. 3. 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

10. 3. 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
For example, between $30,000 to $100,000
Use NCB
(ICB can also be at the national level )
Advertise and select a bidder/seller
For example, up to US$ 30,000
Three quotations method (or Shopping)
Obtain 3 quotations from sellers
For example, up to US$200
Direct* purchase form a seller (or where there is only one source)
Shop around for the best price and keep a receipt
Threshold is a financial value which determines a procurement method to apply.
*Standard items e.g., school books and uniforms for orphans, selected items for home-based care; may be acquired through Direct Purchase method!

11. 3. 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.

12. 3. 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? (and estimated dates for each step; applicable to larger value items)

13. 3. 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, TV;
Distribution of flyers;
Local news papers .

14. 3. 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. In this case, the price must be reasonable and should be negotiated.
Quotations based method: at least 3 quotations or performa invoices are required, an agreement is signed or an official receipt is obtained. Quotations must be sought preferably in writing from a minimum 3 reputable and qualified suppliers
Give examples of “exceptional” situations.

15. 3. Methods or Procedures…
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 signed,
Service or goods are delivered;
Final payment is made.
Under the health sector lending by the World Bank, about 80% of the procurement is done through the National Competitive Bidding method!

16. 4. Contracts…
Contracts between NAP and beneficiary organization or suppliers:
General/standard contract
Service contract (see below)
Contract between beneficiary organization and suppliers:
Contract
Receipt (official, unofficial, signed voucher)
A Service contract is an agreement between NAP and NGO/CBO who have satisfactory fiduciary capacity to deliver well defined deliverables/outputs within an agreed cost and time period. In such a case, the NGO/CBO can apply its own fiduciary processes!

17. 5. Management & administration…
a) Purchase Committee
A minimum of 3 members are suggested for a Purchase Committee. More people may be invited to provide relevant technical advice.
Key responsibilities of a 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.

18. 5. Management & administration…
b) Financial management
Have an accountant
Have a bank account
Payments by cheques/cash
Receipts/vouchers
Account statements
Controls and Audits
Maintain stores
Reporting

19. 5. Management & administration…
c) Common reasons for price escalations during implementation are:
There is a general increase in prices by the government for one commodity or a general increase in the sales tax or VAT.
Seller increases price of items or commodities that a beneficiary/NAP has been buying in the past.
A service provider (consultant) who has completed his/her previous contract with the beneficiary organization 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.

20. 5. Management & administration…
d) Monitoring and Evaluation
All grant beneficiaries are subject to procurement audit, i.e; how the basic principles are being practiced, and paper trail of all purchases. Following documents are to be kept:
The procurement plan;
Request for quotation; Proof of advertisement; Copies of the quotations received; summary of evaluation;
Contracts signed;
All receipts; Payment record (voucher);
Record of items in storage.
When “misprocurement” happens, then actions per country’s laws are undertaken which includes reimbursement of money spent by the organization.