PROCUREMENT PLANNING
Planning is important for all entities that undertake procurement. It is necessary to prepare a procurement plan for an organization every year. This plan should always be prepared before the commencement of the year.
Contents of a procurement plan
- Procurement planning should be able to answer the following questions:
- Which output/outcome will the procurement contribute to?
- Why does an entity want to procure?
- What does it want to procure?
- When does it want to procure it?
- Where does it want to procure it from?
- How does it want to procure?
- Who in the entity does the procurement?
- When are the funds available and from where?
- How can you be more efficient in the procurement process?
The contents of the procurement plan
Executive summary
- Objectives of the procurement plan
- Output and outcomes that the plan should deliver
- A detailed breakdown of procurements to be undertaken in order of priority
- Type and method of procurement to use
- The quantities of requirements and the unit of measurement
- The procurement value
- Confirmed source of funding for the procurements
- Total time the procurement process will take (lead time)
- Planned 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
- Levels of authorization
Stakeholders in the firm’s procurement process
Key stakeholders in public procurement
Benefits of procurement planning
- It enhances team work of the all the stakeholders.
- Within the organization, it fosters interdepartmental relations and harmony.
- It helps an organization to achieve organizational goals/objectives timely
- Planning helps to minimize emergencies
- Organizations that plan become efficient and effectively make procurement. There are cost reductions in acquisitions of
goods, works or service - The procurements follow time schedules that were planned and this help in cash flow management
- Fraud detection method: It easier to detect fraud since with planning you set what to achieve and how to achieve it, including the costs.
- It facilitates efficient and effective inventory management
- It is a tool for performance management. Plans have activities to undertake, the period to accomplish them; and at what cost.
- A procurement plan can help an entity save money by obtaining price reductions through quantity discounts
- It enables consolidating of requirements for greater economies;
- It also provides sufficient time to go through the procurement process, undertake the required reviews and obtain required approvals before submission of requisitions.
Challenges in procurement planning
- Bureaucracy and red tape: while bureaucracy is necessary, a lengthy red tape may discourage the attainment of the organizational objectives via procurement.
- Lack of skilled manpower: There could be lack of ample planning skills and competences necessary to prepare user needs at functions for the preparation of the annual procurement plan.
- Lack of top management support: The process of planning requires the support of senior management. Where this support is lacking, the plans will never be implemented.
- High expectations from user departments: The users usually have high expectations that are not likely to be met with the available funds.
- Related to the above point, is the inability to link plans with budgets
- Undue influence from top managers: Top management tends to influence the final procurement decisions. They also influence what is put in the procurement plan.
- Over centralization of the budget: Usually in big organizations, and public entities, there is a tendency to concentrate the functions of the procurement and the budget at the centre.
Consequences of lack of procurement planning
- High costs: Lack of planning results in guess work without market scanning. This will result in high costs of acquisition and contracting.
- Wastes: There can result wastes in the form obsolete and outdated fashion items being purchased that will not serve the current purpose.
- The organization will not be able to aggregate the items to be purchased in big orders that can attract discount purchases.
- There can be time wastage as there are no planned items to be acquired and the time of acquisition.
- There are can be conflicts within the organization due to a lack of a plan document, showing responsibilities in the procurement process.
- Without a procurement plan, top management plays a lot of influence on items to be procured.
- Non-essential items may be purchased ahead of the core requirements because of lack of a procurement plan to show what should be purchased (why and when).
Public procurement systems
It used to be perceived as simple ordering or clerical function of government. It is now a function to obtain the right goods, capital assets or services (meeting quality requirements) in the right quantity, for delivery at the right time to the right place, from the right source (a responsive reliable supplier); at the right price.
Principles of public procurement
- Value for Money:
- Efficiency, effectiveness & economy:
- Transparency:
- Open competition:
- Fairness:
- Accountability:
- Confidentiality:
- Equity (non – discrimination):
Consequences of non-compliance with procurement principles
- Biased decisions
- Emergency procurement
- Cost overruns
- Waste
- Collusion, fraud, bribery and extortion which are contrary business ethics
- Infighting among key players
- Delays in procurement and delivery of what had to be purchased
- Court cases
METHODS OF PUBLIC PROCUREMENT
- Open domestic bidding.
- Open international bidding.
- Restricted domestic bidding
- Restricted international bidding
- Quotations or Proposal procurement
- Direct procurement
- Micro procurement
- Force Account
- Community purchase
Guiding Principles for Evaluation of Bids
The following principles guide the evaluation process:
- All bids to be assessed against the same criteria
- Evaluation criteria to be made known to all bidders in the bid/solicitation documents
- The principle of equitable and fair assessment to be applied in the evaluation of bids
- Evaluation of bids is the responsibility of the Evaluation
Steps in evaluation of bids
Preliminary examination: After the bidding closing date, day and time, the process of evaluation of bids starts. It starts with the preliminary examination of the bids.
Technical evaluation of bids: Under a competitive bid process, the method used for the evaluation of supplies or works (construction of roads, buildings, etc.) is technical compliance. This method favours a lowest cost or price in terms of the total price of the bid. So the bidder who is technically compliant and has a lowest price will emerge the best evaluated bidder.
Evaluation of services procurement: six methods used in the evaluation of consultants: Quality and Cost Based Selection (QCBS), Quality Based Selection (QBS), Fixed Budget Selection (FBS), Single Source Selection (SSS), Least Cost Selection (LCS), and Selected Based on the Consultants Qualifications (CQS). See the World Bank section for details.
Financial evaluation of bids: A financial evaluation will be conducted for all those bids that have passed the technical evaluation stage. The process will require that the evaluation committee (EC)
examines and compares to determine the best evaluated price.
Combine Technical and financial evaluation: The combination will be based on a ratio that was stated in the bid documents (for example 70:30; 80:20; 90:10). The best evaluated price does not always have to be the lowest. The bid documents will have explained this.
Key principles of professional ethics
- To be impartial and act objectively
- Observe the principle of confidentiality
- To avoid a conflict of interest in your work
- To always ensure that you observe the duty of care
- To ensure openness and full disclosure
- To ensure optimal use of resources of the organization
- To observe professional responsibilities as prescribed by both the letter of appointment and the professional ethical code of conduct.
- Duty of care is discussed in the section of business and law
Ethical or legal?
A common tendency to think that what is ethical is always legal. Legal means that once one has committed such an act, they face courts of law. Ethical has to do with morals or values.
- Some acts can be both ethical and legal.
- In some countries, smoking in public is no longer only an ethical issue, it is also a legal one.
The person who commits abortion will face both public humiliation and courts of law. Values: What are values? Ethics are determined and shaped by one’s values within a cultural context. E.g., what is wrong in one community may not necessarily be treated as bad in another. There are however, some ethics that are respected globally
Types of fraud
Unethical behaviour in procurement
- Vendor collusion to win contracts in turns. Collusion between bidders
- Bid trading – procurement staff opening and substituting bids
- Bribery, gifts and gratuities
- Employees form companies
- Offers for employment in exchange for tenders and contracts
- Access to confidential information by those who do not need to know
- Taking official decisions outside the office
- Conflict of interest
- Improper use of evaluation criteria
- Using restrictive specifications to make it difficult for the bidders to tender
- Unclear instructions to bidders which at times discourages bidders from tendering.
