DPS 304: Procurement Management

PUBLIC PROCUREMENT

Public sector• Organizations owned and controlled

by the state or governmentObjectives

• Provide an essential service• Provide it cheaply or free of charge, therefore it is available to everybody• They are generally beneficial to society. It is good to have healthy and well educated people in the country

• Private sectorOrganizations owned and controlled by

private individuals and organizations•

Objectives

- To survive in a competitive market- To maximize their profits- To make returns for their shareholders (dividends)

• To some people the distinction between public and private sectors creates two different worlds, which require completely different approaches to purchasing and supply management.

• Globally all nations have a combination of both public and private and non profit making organisations

• the relative size of each sector in a particular country depends on the nature of its economy.

• Private firms more concerned with competition. Their success comes from their ability to take up any opportunity

• Public firms will wait for govt subsidisation and support, even when they don’t perform well

• Private sector firms are profit-maximisers, and managerial decisions are assessed on the basis of the extent to which they contribute to organisational profit. This does not apply in public sector organisations

Private firms directly enjoy the benefits of their activities. Public sector indirectly enjoy such

Private firms are more involved in risk taking than public firms, which follow procedures and stay in more comfortable zones

There are less regulations in the private sector, which makes the parties free to get deeply involved in any activity, compared to the much regulated public sector

Private sector work in relatively more flatter structures compared to hierarchical public bureaucratic structures

Private firms are smaller in terms of operations, size, spend, etc than public

There is better communication in private firms (mainly informal) than public firms

Private sector firms serve a limited constituency of share holders, employees etc. The constituency is much wider in the public sector

• Competitive tendering is an important tool in the private sector buyer’s portfolio of techniques but is not generally suitable in relation to materials for which long-term partnerships are sought. Public sector buyers, however, are usually constrained to use competitive tendering in all cases

• Buyers in the public sector may be required to account for their actions to a wide constituency.

• Another difference is in the sheer diversity of items that may be purchased by a public sector organisation, which of course is related to the diversity of services it provides

European procurement directives, PPDA Act and regulations 2005 (Kenyan case) regulate the activities of public sector buyer whereas private sector buyers are not affected.

• Budgetary control is another area where differences surface. In the public sector, the demand for funds is limitless. Private sector firms, by contrast, have only a limited number of attractive investment opportunities

• A public sector buyer may enjoy less flexibility than his private sector counterpart

• There is confidentiality between buyers and suppliers in private sector while in public sector, Confidentiality is limited because of public interest in disclosure

Differences in objectives, organisational constraints and so on may not necessarily lead to differences in procedure

Similarly, the 6 rights (quality, quantity, source, place, time and price) considerations are present in public sector organisations as well as in private firms

Public sector buyers may not be seeking to maximise profit; however, their prime objective is to achieve value for money and is just as strong a motivating influence as the profit motive

Another similarity is in the area of customer satisfaction. The public sector buyer will also work in an environment where providing a quality service to delight customers is part of the corporate motivation

It is the role of the buyer to obtain value for money, regardless of whether the organisation operates in the public or private sector

Legal framework;- Public Procurement and Disposal Act 2005

Bodies invold;- Public Procurement Oversight Authority Public procurement Oversight advisory Board Public procurement administrative review

board

Accountability Responsiveness Professionalism Transparency Open competition Confidentiality Non-discrimination and fair play

Ethical conduct and integrity Internal audit checks Overcoming Operational

constraints Public accessibility Award to the best-evaluated

bidder

• Procurement planning is part of the procurement process of acquiring of works, services and supplies that are required to meet organizational needs in an efficient, cost effective and timely manner in accordance with established or agreed procedures.

• Government procurement process is essentially bureaucratic and the challenge is to manage the bureaucracy and ensure that GOK objectives are met

• The G.O.K has made procurement planning mandatory for government institutions - without it public procurement becomes very problematic for the PE and staff involved in the procurement cycle

Levels of procurement plans can be summarized in 3;

• Multi annual procurement plans (more than one year)

• Annual procurement plans (one year)

• Short periodic procurement plans (monthly, weekly, daily)

Regulations emphasizes issues that must be considered during the procurement planning: Aggregation of requirements Allocation of biddable lots Avoiding splitting of requirements Use of framework contracts in procurement where appropriate Undertaking of common or joint procurement with other PEs (where possible) Pre-qualification to cover groups of contracts Scheduling of available resources

specifies that requirements shall be aggregated for:

All departments A complete financial year Any other appropriate

circumstance

states that aggregation of requirements must take into account: Supply market structure of the items required Similarity of items to be procured Optimum no., size and type of contract Items under the same method of procurement Requirements at the same timing (bidding or use) Items subject to same conditions of contract Potential savings in time or transaction costs Facilitation to use preference and reservation schemes

User departments to prepare multi-annual rolling procurement plans based on the budget

A procurement plan must be integrated into annual and multi annual sector expenditure programme

Accounting Officer Contracts Committee Heads of Departments Finance/Accounts Department Procurement and Disposal Unit Management Users of the respective departments

Determine departmental workplans/programmes Clear assignment of individual responsibility for preparation of a Procurement plan Carry out a Needs Assessment/Review to determine the procurement requirements Determine purpose of the procurement and its timing Involve and consult key stakeholders Carry out market research for prices, source of supply, type of supply market,etc Make clear specifications/TOR/SOW of requirement

Check past records within & outside the PE for previous prices, sources, quality, timing, etc Confirm likely timing of the procurement Estimate total acquisition cost of specified procurement Identify source of funding for the procurement Make budgetary proposal and seek approval Planned expenditure allocations should be realistic and achievable Prioritize the procurement requirements Determine the method of procurement to be used Determine the total time of the procurement process

Write down procurement plan Forward procurement plan to PDU Consolidate procurement plan Agree with other departments/Finance on the

procurement cashflow allocations over the period Match procurements to funds/cash flow Obtain approval of the procurement plan and

funding Prepare combined work plan Circulate approved procurement plan to Users Review and update of the Procurement Plan

A detailed breakdown of procurements to be undertaken in order of priority

Type of procurement The quantities of procurements

required and the unit of measurement. The procurement value Confirmed source of funding for the

procurements

Method of procurement for each or group of requirement(s).

Total time the procurement process will take(lead time)

Realistic time (date) when each procurement will be required by the user

Latest date when each procurement will be initiated by the User

Financial year of initiation of the procurement Financial year of payment for the procurement

Organizational/departmental goals are met as planned Procurement objectives met timely Efficient and realistic budgeting Aggregation of requirements Use lots for different categories of procurements Emergency procurement minimized Improved cash flow planning Reduction of administrative and transaction costs Procurement performance measurement Enhanced team work Harmonious working relationship Value for money

Procurement planning; • Is a strategic and critical success factor in

procurement and general management . • Increases efficiency, productivity and

optimum use of resources within an organization

• Requires very good team work of all the people involved

• Requires high professional ethical behavior• Is a key professional performance

parameter for procurement staff, Users, Contract Committee, Accounting Officer.

Open domestic bidding Open international bidding Restricted domestic bidding Restricted international bidding Quotations and proposals Direct procurement Micro procurement

Specifications Standardization

Definitions Specs - It is a statement of attributes of a

product, service or works A statement of requirements A statement of needs to be satisfied by the

procurement of external resources

Specification

Selection

Contracting Ordering

Monitoring

After-care

• Reasons why purchasing staff should have knowledge in specification

• To obtain the best quality products, services and works in terms of fitness for use at least possible total cost

• Purchasing staff are intermediaries between user and the supplier. They check completeness of product or service specifications. So when negotiating with suppliers, they must know what they are negotiating for.

Satisfaction of user requirements depends on obtaining reliable suppliers

They should be experts in all that will be discussed in a purchase. They should not look lost

Staff should be able to advise on whether specifications will cause commercial, environmental or legal problems.

Indicate fitness for use Communicate the requirements of user

or purchaser to the supplier Compare what is actually supplied with

the requirements (purpose, quality, and performance) stated in the specification

Provide evidence, in the event of a dispute, of what the purchaser required and what was supplied

Those relating to things Raw materials Components Assemblies Final products Complex structures

Those related to actions Functions (what it is intended to do) Processes (how it shall be done) Procedures (how it shall be tested) Services Performance (what should be achieved)

• Technical (product requirements)– physical or chemical properties (what the properties

are of the product, or what the product has)– more or less ‘conventional’

• Functional (functionality requirements)– outcome, result, process, purpose (what the product

has to do or provide, it is not important how…)– more or less ‘modern’, but risky– may be difficult

Example bridge Technical: measurements, material

characteristics, procedure requirements Functional: looking for ‘a way to cross the

river 24 hours a day’ and give some requirements like number of users

Functional specifications enable suppliers to be creative and produce a better product, especially if they have more knowledge that buyers

Identification – title, designation, number, Issue number – publication history Contents list – guide to layout Foreword – the reason for writing a specification Introduction – description of the content in general and

technical aspects Scope – range of objectives Definitions – terms used with meanings special to the

text Requirements/guidance/methods/elements – main body Index – cross references References- to national, regional/international standards

TOR, Scope of works or Specifications serve to define factors such as the functionality, design, capacity, performance reliability, durability, flexibility, means of disposal, Size, color, safety requirements and conditions of use, which can be included in a product, service or works.

• Users/User Departments.• Business contacts e.g. suppliers/other

buyers• Special events such as fairs, exhibitions• Technological research institutions,

government institutions and international institutions

• Published documents such as directories, consumer reports

• Records kept• Internet

The Procurement &

disposal unit

Management (PDE)

The user/SOR specialist writer

The Provider

If something is not specified, it is unlikely to be provided – extras are charged for by suppliers

Every requirement increases the price – do rigorous value analysis

The shorter the specification, the less time it takes to prepare it – save on staff costs

The specification is equally binding on both the purchaser and the vendor – omissions, incorrect information, uncertainty in meaning etc favour the vendor in a dispute

Specifications should so far as possible be presented in performance terms rather than as a detailed design esp. if purchaser has little expert knowledge

Specifications should whenever possible be ‘open’ not closed – make requirements flexible & encourage competition

Specs must not conflict with national or international standards or health or environmental laws & regulations

Standard – specs for recurrent use Write spec for non-standard requirements – for most

industrial & consumer products, use Manufacturers’ standards National or international standards

Search for existing standards first eg www

Use of brand name Use brand name when;

Manufacturing process is secret or covered by a patent – eg for medicines

Only small quantities are bought Testing by the buyer is impracticable There is a strong preference for the branded item on the

part of the design staff Item is effectively advertised to create a preference or

demand for use Vendor’s manufacturing process calls for a high degree of

workmanship or skill which cannot be defined exactly in a spec.

Disadvantages of specifying branded items Cost of item is than unbranded Naming of brand leads to a closed specification

Specification by sample Can be provided by the buyer or seller Ideal when specifying print works or materials such as cloth Sample should first be identified, labelled & retained by

both the purchaser & supplier

Specification by a user or performance specification Purchaser informs supplier of the use. Ideal if buyer has

little technical knowledge

Standards are documents that stipulate or recommend minimum levels of performance & quality of goods & services & optional conditions for operations in a given environment

The concept of standardization is applied in two different areas.

The first is concerned with the standardization of things, their size, shape, color, physical properties, chemical properties, performance characteristics, and so on

The second application deals with the managerial aspects of business activity standardizing such things as operating practices, procedures and systems

Standards relate to one or more aspects of product quality e.g Dimensions thus encouraging interchangeability & variety

reduction Performance requirements for a given purpose Environmental requirements relating to such matters as pollution,

waste disposal, noise pollution etcNOTEThere are several kinds of standards; Individual standards – by a user Company standards – prepared & agreed by various

functions Association or trade standards National standards International standards - ISO

Clear specs & removal of uncertainty in requirements

Reliability & cost reduction Saves time in specs development Saves design time & production time Accurate comparison of quotations Less dependence on specialist suppliers & greater

scope for nego Reduction of error & conflict thus increasing

supplier goodwill Facilitation of global sourcing by reference to ISO Saving on inventory cost – variety reduction Reduced investment in spares for capital equipment Reduced cost of material handling

Elimination of need to purchase costly branded items

Irregular purchase of non-standard equipment supplies are revealed

Can be done proactively or reactively Benefits

Reduced holding costs Release of money tied up in stock Easier specs when ordering Narrower range of inventory A reduced supplier base