Section 8.0Procurement and Contract Management in LLGs 1 PROCUREMENT AND CONTRACT MANAGEMENT Training Slides for Lower Local Governments.

Section 8.0 Procurement and Contract Management in LLGs

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PROCUREMENT AND CONTRACT MANAGEMENT

Training Slides for Lower Local Governments


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Procurement and Contract Management: Course Objectives

At the end of the course, participants should be able to:• Understand the key pillars and objectives of the new public procurement

system in Uganda• Identify the roles of various parties in LG procurement• Explain and draw up good procurement plans• Describe the tendering process and methods• Learn how to write good specifications and tender documents• Evaluate bids correctly, award contracts properly, negotiate and prepare

enforceable contracts• Explain the required documents like LPOs, contract registers and certificates

of work done• Carry out effective contract supervision and follow –up• Describe the ethical code of conduct


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Module One: Session One:Conceptual Underpinnings

What is procurement?

To procure means to obtain something, especially with care and effort. Procurement is therefore the process of obtaining something. This course focuses on the procurement of goods and services.

The procurement process includes outright

purchasing, hiring, leasing,\or any other contractual means of engaging suppliers in the provision of services by the LG to the public.


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Module One:Session One: Problems in Public Procurements and Types of procurements

Protectionism: Local Governments tend to buy locally in an effort to try and appease/benefit voters. This may remove fair competition;

Accountability: accountability for the use of public resources is a necessity as LGs must account to the public (including disappointed Tenderers and potential suppliers) This requires detailed procedures, records and justifications for every procurement decision.

The purpose of accountability is to prevent abuse of the procurement process

Types of Procurements

Works: construction of bridges, roads,\ plants, the design, rehabilitation, maintenance and repair of buildings, etc

Supplies: includes procurement of materials, drugs, foodstuffs, etc

Services: cleaning contracts, revenue collection, studies, technical assistance, etc


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Module One:Session One: Objectives of Public Procurements

Objectives of procurement

• To purchase the right quality of goods and services, at the right time, in the right quantity, from the right source at the right price.

• To provide the LG with a constant flow of goods and services to meet its needs.

• To reduce costs through more effective purchasing by buying wisely, efficiently and ethically to obtain the best value for money.

• To ensure continuity of supply through having good relationships with existing suppliers and contractors, and developing other sources of supply

• To manage stocks in the best way so as to provide the best possible service to the public at the lowest cost


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Module One:Session One: Principles of Public Procurements

Principles of Public Procurement • Non-discrimination• Promotion of transparency, accountability

and fairness• Achieving value for money,- securing

economy and efficiency in procurement• Keeping of confidentiality until successful

bidder is notified of award• Following of the existing code of conduct• Use of open competitive bidding• Public accessibility• Award to the best evaluated offer


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Module One:Session One: Qualities of Procurement Personnel

Regulation 74: LGFAR require LGTBs

to demonstrate a high degree of

transparency and integrity. They should

apply the following principles:

• Preference for Ugandan manufactured goods

• Awarding of contracts to local contractors

• Preference to suppliers and contractors located in the local area

Qualities of Procurement Personnel

• Good communication and negotiation skills

• Understanding of the operations of a Local Government

• High ethical standards and integrity• Technical knowledge of products

being procured• Knowledge of contract and

commercial law• Costing and value analysis skills Good Practices• Emphasize transparency and

accountability• Avoid favouritism and corruption• LGTB to make all procurement

decisions


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Module One:Session One: The Procurement Framework

The Public Procurement and Disposal of Public Assets

Act 2003 (came into force on 21 February 2003)

• Governs public procurement for the whole public sector in Uganda

• The institutional framework consists of:

- the Public Procurement and Disposal of Public Assets Authority. This replaced the Reformed Central Tender Board.- the Procuring and Disposing Entities

The Authority has political, regulatory, data management

and capacity building functions. Procurement Entities

include Ministries, Commissions, Statutory Bodies and

other Government Departments


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Module One:Session One: Procurement Framework-The Local Governments Act 1997

Requirements of Sections 92 to 95

of the LGA dealing with LGTB;

• The creation of DTBs in each district to provide services to the District, Sub-counties and Administrative Units

• The creation of Urban Tender Boards for each Urban Council. The Urban Council may however opt to use the District LGTB

• Each Tender Board to have a Secretary at the rank of Assistant Chief Executive

Stipulations under Part IX of the Local Governments Financial and Accounting Regulations, 1998;• Establishment of LGTBs• LGTBs to be transparent and apply high

degree of integrity• LGTBs to award all contracts for works,

services and goods and to decide on disposal of assets

• Minister to set limits on the awards given annually by the CEO outside the TB authority

• Maintenance of a list of approved suppliers• Establishment of Technical Evaluation

Committees


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Module One:Session Two: The Procurement Planning and Methods

Procurement planning refers to the setting of procurement targets and activities by LGs in a manner that spreads them out in an annual calendar in accordance with resource

availability and needs

Forecasting and Budgeting

Procurement Requirements

The two methods used by LGs to

forecast requirements include:

(1)Bills of materials explosion- bills of materials (where available) are used to forecast requirements.

(1) Past consumption analysis- analysis is made of past consumption data to project the future demands. Mathematical techniques like trend analysis and correlation may be used


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Module One:Session Two: Influences on Methods of Procurement

The choice of a procurement method is determined by the estimated value of the requirements, and the circumstances connected to those requirements.

Regulation 75 of LGFAR 1998 states that:-

• The LGTB shall award all contracts for works, services or goods and decide on the disposal of assets in its jurisdiction

• Each financial year the Minister shall determine the maximum amount the CEO may award outside the TB authority

• Contracts below the limits set by the Minister may be entered into by the CEO and reported to the LGTB


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Module One:Session Two: Methods of Procurement

Section 51 of the Public Procurement and Disposal of Public Assets Act, 2003 requires all public procuring entities to use open bidding as the preferred method of procurement and disposal. Other procurement methods are allowed by this Act because open bidding is both time consuming and costly

Methods of procurement included in LG regulations:


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Module One: Session Two: Methods of Procurement (continued)

1. Open Competitive National Tenders: Can be used for contracts for services.

2. Selective Competitive National Tenders: Used for minor works, major supply contracts if qualified suppliers are available, and for contracts for services.

3. Single Tender Negotiation: Involves sole sourcing where competition is not possible. The practice is to call quotations from a few (about 3) suppliers to quote for the supply of a given item. The method can be used by LGs in minor maintenance works and repair contracts and contracts for services.


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Module One:Session Three: Ethics and Integrity in Procurement

Ethics are moral principles that govern or influences a person’s behaviuor

Integrity is the quality of being honest and having strong moral principles. Not being corrupt or biased

The purpose of ethics in LG procurements is to ensure that the decisions made are neither tainted nor appear to be tainted by any question of conflict of interest. Procurement should be based on objective criteria.

Transparency and Integrity: Regulation 74 of the LGFARs requires LGTBs to demonstrate a high degree of transparency and integrity. Regulation 79(2) requires that a copy of the minutes of the LGTB shall be fixed on the Notice Board and that the Secretary to the LGTB shall keep a file of all notices, minutes and other documents for official inspection


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Module One: Session Three: Ethical Conduct

The main ethical principles:• A Council employee, or member of the

LGTB should\not use his/her authority or office for personal gain;

• Honesty among LG staff, LGTB members and suppliers/contractors should be paramount and a pre-requisite

• Employees of Council and LGTB members shall reveal any personal interest that may impinge on their dealings in the procurement process.

• Information gained during procurement work is confidential and shall not be used for personal gain

• They should avoid business arrangement that prevents the effective operation of fair competition;

• Business gifts should not be accepted from\ current or potential suppliers and contractors of the LG

• Employees and LGTB members should refrain from any hospitality (e.g. business dinners) that may be viewed by others as having an influence in decision- making


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Module One:Session Three: Corruption

Corruption is the use of public power for private gain. It can be in the form of embezzlement, nepotism, over-invoicing, claiming payments for no goods/services supplied and taking bribes, bid rigging, split purchasing,etc.Effects of corruption:• Impairs economic development• Leads to economic waste, inefficiency and

reduction in productivity• Generates administrative inefficiency and

ineffectiveness• Promotes nepotism• Frustrates competent and honest

suppliers/contractors

To deter corruption in procurements:

• Perform internal audit to monitor the procurement process

• Institute checks in the various stages of the procurement cycle

• Enforce procurement regulations

• Disqualify bidders who engage in any form of canvassing

• Penalise all those found guilty, blacklist errant suppliers, sanction staff and LGTB members by disciplinary action


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Module Two:Session One: Specifications Specification refer to a statement of requirements to be satisfied

by a product, material or process, indicating whenever appropriate, the procedures by which it may be determined and whether the requirements given have been satisfied.

Issues addressed by specifications:-– What exactly is required (quality, type,size,performance, etc)– How much is required?– When is it required?– Where should it be transported/delivered?– How should the quality be tested/Consequences of wrong specifications• Interruption of service delivery• Damage of purchases arising from inadequate packing• Additional costs arising from non-performance of items

bought


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Module Two:Session One: Types of Specifications

Types of Specifications:• Brand Name: means by which one

producer distinguishes his/her product from those of other producers in the same industry, e.g. ‘Tororo’ Cement, ‘Hima’ Cement and ‘Bamburi’ Cement.

• Technical Specifications: design, physical dimensions, processes, etc.

• Functional Performance Specifications: what a product is supposed to do or achieve and how well this can be achieved.

• Composition Specifications: make- up of a product expressed in physical characteristics, e.g. weight, volume, ingredients, etc.

5. Samples: may be used if the item is hard to describe and it is therefore more worthwhile to show it physically to suppliers.

Standards are specified levels of quality.Procurements must be of acceptable and well -defined quality. Categories of

standards include:-1. Industrial standards: usually

developed by trade and industrial associations.

2. National standards: standards agreed within a country, e.g. standards for the construction of classroom blocks under the SFG.


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Module Two:Session One: Standards and Specifications

3. Regional Standards:Products sold within a regional market like that of the UN must comply with, for instance, EU Directives.

4. International Standards: Established by institutions like the ISO and enable buyers and sellers to use common parameters and to speak the same language

Quality is the term used to describe the total characteristics of an entity on its ability to meet stated and implied needs

Bid Documents: Tender documents for procurement in LGs should include:-• Instructions to tender• Description of the method of evaluation• Relevant set of general conditions• Special conditions• Technical specifications, drawings, ToR• General information• Applicable tax and customs arrangements• Price breakdown and BoQs• Bid Form• Bid guarantee• Contract Form• Advance payment bond form for contracts• Manufacturer’s letter of authorization• Pre-bid conference


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Module Two:Session Two: Bidding and Supplier Sellection

Tendering can be defined as a formal offer to supply goods, carry out works, or provision of services . This offer is carried out within agreed prescriptions that includes the price.

•Bidding is used by LGs to ensure transparency and and receive the best value for money

•An invitation to tender is put in the newspapers


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Module Two:Session Two: Supplier Evaluation and Selection

Stages in bid evaluation:1. Preliminary examination2. Technical evaluation3. Financial evaluation- to compare costs of the eligible,

responsive and technically compliant bids

When selecting, suppliers consider:• Ability to meet requirement• Customer services• Quality assurance capacity• Addition to local conditions• Past performance • Price, O & M costs• Supplier financial strength• Guarantees offered


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Module Two:Session Two: Orders and Contracts

A contract is a written agreement that allocates the risks and rewards of a transaction between the parties involved

The contents of a contract are determined by the statements in the tender documents.

Supplier/Contractor’s obligations:• To deliver the goods/services as agreed• To deliver the documents that are related to the goods• To transfer the title of ownership of a product• To ensure the conformity of goods/services• In general, to act in good faith and deal fairly• Civil liability of the manufacturer in case of injury to

persons,or objects


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Module Two:Session Three: Problems in Contracting

Some of the problems encountered in

contracting include:

• Applicable law

• Bidding strategy

• Change of ownership/management

• Changed circumstances

• Currency fluctuations and FE controls

• Delays

• Delivery

• Differences in business cultures

• Dominance

• Lack if specificity

• Language problems

Tips on making valid contracts

• Know what the LG wants to obtain

• Know the supplier/contractor

• A good contract is one where all parties win

• Never allow the supplier to make promises that cannot be accomplished

• Avoid ambiguous drafting

• Keep technology in mind

• Keep intellectual and industrial property rights in mind

• Have a clear dispute resolution clause

• Have a termination clause

• Be mindful of the business culture


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Module Two:Session Three: LPOs

Local Purchase Orders (LPOs)Goods and services procured in Uganda by a LG are ordered vide a Local Purchase Order which must be prepared in triplicate and signed by the following:

– Head of Department or Deputy– Chief Executive– Chief Finance Officer

LPOs are raised in the names of the supplier based on a tender award by the Procurement Committee. The tender board minutes are always quoted as reference to the source of authority.


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Module Two:Session Four: Contract Management

Fundamental concern in contract management: parties involves understanding their roles.

Local Government (Tender) Regulations, 2003:-– Supplies, works and services performed/delivered to

specifications;– Strict adherence to general and special conditions;– Appropriate and immediate action taken in the case of

breach of contract. A Contract File is opened for each contract signed; contents:-

– Signed copy of contract– Correspondences between Council and

Supplier/Contractor– Any modifications agreed– Documents of any negotiations– Copies of Supplier's or Contractor's invoices– Copies of payment vouchers for any payments made


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Module Two:Session Four: Contract Supervision

Contract Supervision: each LG should appoint a supervisor as its agent for monitoring the progress and execution of the contract

Payments: every HoD must be vigilant and check that no irregular payments are made to contractors (Reg.86 LGFAR)

Contract Amendments: changes in the terms and conditions of an awarded contract, and involves the following steps by Supervisor:– Preparation of technical details of variations– Notification of intention to vary terms and

conditions– Issuing orders for the variation (with the approval

of the LG.


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Module Two:Session Four: Performance Measurement

The Contract Review report contents

– Summary of findings confirming general status of project and identifying key issues

– Report on progress against schedule

– Report on performance against budget

– Report on quality issues

– Report on any other issues that may be relevant such as safety and environmental issues

– Appendices giving supporting detail to the main sections


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Module Two:Session Four: Certification of Work

Certification of work done: Regulation 84, LGFAR- where contract payments are made by installments, a certificate will be prepared for each installment, showing the sum being certified, the cumulative total payments and any deductions.

Supervision and follow-up: The Contract Supervisor is responsible for:-

– Day- to-day technical supervision of the contract

– Keeping a works register of the progress of works

– Inspecting and testing components and materials

– Performing all roles specified in the contract

– Consulting Superiors before making major decisions


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Module Two:Session Four: Disputes

Termination: is a lose-lose situation considered as a last resort

Problems should be resolved amicably between the parties:

•When agreed upon, record the details, and both parties must then sign

•If there is no agreement, third party involvement is necessary.