Procurement and Property Management

CHAPTER ONE
1. PROCUREMENT AN OVERVIEW
Chapter Objectives
After the completion of this chapter you should be able to:

Define public and private procurements;

Differentiate public and private procurements;

Mention the difference between purchasing and procurement;

Explain procurement procedures;

Mention different methods of procurement and their features.

1.1.

What is Procurement?

Procurement is the acquisition of goods and/or services at the best possible total cost of
ownership, in the right quantity and quality, at the right time, in the right place for the direct
benefit or use of corporations, individuals, or government. It is the process by which the
resources (goods and services) required by a project are acquired. It includes development of the
procurement strategy, preparation of contracts, selection, and acquisition of suppliers, and
management of the contracts. It is the process by which a person enters into a contract with an
external supplier to carry out work or provide goods or services.
Procurement can also be defined as the purchase of merchandise or services at the optimum
possible total cost in the correct amount and quality. These good and services are also purchased
at the correct time and location for the express gain or use of government, company, business, or
individuals by signing a contract.
The process of acquisition of goods or services required as raw material or for operational
purposes for a company or a person can be called procurement. The procurement process not
only involves the purchasing of commodities but also quality and quantity checks. Usually,
suppliers are listed and pre-determined by the procuring company. This makes the process
smoother, promoting a good business relationship between the buyer and the supplier.
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The synonyms for procurement, which are gain, purchase, buy, and acquire, can throw light on
the meaning of procurement. The process of procurement may differ from company to company,
and a government institution may have a slightly different procurement process compared to a
private company.
Procurement can also be simply defined as the procedure in which goods or commodities are
bought when prices are low. Procurement is advantageous if the goods are bought in bulk. Eprocurement is another method in which the electronic media is used for acquiring or purchasing
goods. Everything is processed electronically, from the search for the right bidder to the delivery
and payoff.
The procurement procedure may differ according to the product and the uses of the product.
Healthcare equipment needs to be efficient and reliable, and the procurement process is carried
out meticulously in order to avoid the purchase of faulty apparatus. Another important factor that
is usually included in the definitions of procurement is the amount in which the product is
bought. This is important because the amounts of goods bought are inversely proportional to
their cost.
Thus, procurement is a process that is carried out by almost every company and individual for its
own personal gain or for profits, which involves buying of commodities by choosing the
appropriate bidder.
Procurement is the full range of activities related to purchasing goods, services and works.
Procurement can range from contracting for an entire service to purchasing small assets such as
office equipment. Effective procurement supports to deliver high quality services which meet the
current and future needs of local people and are based on value for money.
1.2.

Purchasing vs. Procurement

There is a significant difference in procurement and purchasing. Purchasing merely reflects the
act of acquisition, while procurement encompasses more elements of the supply chain (logistics,
transportation, etc.). The procurement process does not end at the commissioning or contract
award stage, but spans the entire life cycle of the product or service from inception and design
through to contract management and disposal of any redundant assets.
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Too often, the terms purchasing and procurement are used interchangeably, they are in fact two
different disciplines. Purchasing is the acquisition of goods and/or services for payment while
Procurement is the process of obtaining goods and/or services. Procurement can be done via
payment, loan, exchange, and/or leasing. Procurement therefore is a more wide reaching method
of obtaining goods. The procurement process is not concluded at the obtaining stage but can
be said to span the life cycle of the goods. As the reach of procurement is far reaching, it is often
used as a catch all for a range of services that delivery value for money in relation to material or
service provision.
1.3.

Procurement Procedures

The procurement procedures vary according to the type and nature of organizations. The
following are some common procedures used by organization or government.
Schematic of the Procurement Process: This shows the recommended sequence to be followed
prior to placing purchase orders.
Identifying the Requirement: A full description of the requirement should be included on the
requisition to ensure the correct goods are supplied. Where the requirement is complex then a
full specification should be given.
Sourcing: It is expected that purchase orders should be placed only with approved suppliers. In
sourcing, the identification of alternative and appropriate suppliers should only take place when
there are insufficient or no suitable suppliers approved or as a market testing activity.
The Tendering Process: Efficient purchasing arrangements is necessary to ensure that value for
money is obtained at all times. Strategic purchasing can provide a full tendering service or give
help and guidance in the procedures.
Award Criteria and Offer Evaluation: It is essential that documentary evidence is retained to
confirm that value for money has been obtained. The evaluation of offers should always take into
account price, quality, delivery and compliance with the specification.
Negotiation: Negotiation, in purchasing, is the means of reaching a common understanding
through bargaining with a supplier. It may occur at any stage of the procurement cycle except
whilst bids are being submitted during a tendering process. The buyer-seller relationship should
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be based on mutual trust. All negotiations should be conducted ethically. Information including
prices and specifications should never be disclosed from one supplier to another, although this
does not rule out careful use of such information by implication for those tenders that qualify.
Confidentiality of Negotiation: Prices and other trading terms secured should be held as strictly
confidential as possible. All bids and other documents exchanged with potential contractors
during contract negotiation should be respected as totally confidential.
Contract of Award: When the most advantageous offer has been established, then the business
can be awarded. A contract is awarded when both parties sign a form of agreement setting out
the organizations requirement in full. This concludes the tender process for the successful
tender.
For most straightforward purchases a purchase order should be raised to confirm the agreement.
More complex arrangements may require formal documents that both parties must sign.
Unsuccessful tenders should be informed once the successful contractor has acknowledged the
order. It is appropriate to provide a debriefing facility to inform bidders of the reasons for their
failure, and ways in which they might improve their chances in the future. This should never
involve the transmission of price or other commercially sensitive material. If the contract is
subject to Public Procurement Regulations then a notice of contract award must be published.
Ordering Process: All goods and services must be subject to an official order. When generating
orders user departments should be mindful of the cost of processing purchase orders and consider
alternative procurement methods. Order numbers and order document of the organizations
should be printed. All orders should be clearly marked with appropriate contractual details and
the agreed price.
After confirmation that the terms and conditions are acceptable, the agreement may be signed by
an authorized body in accordance with the policy of the organization. Each agreement must be
accompanied by an official purchase order.
Cancellation of Orders: Once an order has been despatched to the supplier, the supplier must be
advised in writing of any change or cancellation. Orders, which are no longer required should be
deleted in order that the commitment is also deleted from the system.

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Follow Up and Delivery: All goods should be inspected on receipt. Delivery notes must be
retained, signed and dated as evidence of checking the physical goods. Where it has not been
possible to check the goods, the delivery note should be clearly marked received but not
checked.
When goods are rejected, particular notice should be taken of time limits given on the delivery
note for advising discrepancies or rejection. Any such notification should be handled initially by
telephone but always confirmed in writing. Rejected goods should be clearly marked as such
and placed in a secure area where there is no possibility of usage or loss.
Invoicing and Payment: The treatment of invoices and payment of accounts is covered in this
procedure.
Retention of Documents: For legal and audit purposes orders and order records must be
retained for a specified period of time determined in the policy of an organization or government.
Order records should be sufficient to justify the action taken in each case.
Payment Terms: Payment terms should be negotiated with the supplier as part of the contract
terms.
1.4.

Methods of Procurement

Methods of procurement method depend on the nature and size of a project and its procurement
element and the urgency with which the goods or services to be procured are required.
Commonly used methods of procurement include International Competitive Bidding (ICB),
National Competitive Bidding (NCB), Limited Bidding (LB), Shopping, Direct Contracting and
Force Account.
a. International Competitive Bidding
Experience has shown that in many cases International Competitive Bidding (ICB) open to all
eligible and qualified bidders. The purpose of International Competitive Bidding (ICB) is to give
all eligible and qualified prospective bidders to give them equal access and a fair opportunity to
compete for contracts for required goods and services. Bidding opportunities must therefore be
advertised internationally and all eligible bidders given reasonable possibilities to participate.
These notification requirements distinguish ICB from other methods of procurement.
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ICB requires formal bidding documents which are fair, non-restrictive, clear and comprehensive.
The bidding documents and technical specifications relating to the project should clearly
describe the criteria and methodology for evaluation of bids and selection of the successful
bidder. Language is important in international competitive bidding.
Bids should be opened at a time and place specified in the bidding documents and data sheets, in
the presence of the bidders or their representatives who wish to be present. The name of the
bidder and total amount of each bid, and of any alternative bids if they have been requested or
permitted, should be read aloud and recorded when opened. .
Under ICB, the organization or government should award the contract within the period of
validity of the bids to the bidder whose bid has been determined to be the lowest evaluated
responsive bid. Such a bidder must also meet the appropriate standards of capability and
financial resources.
Factors to be considered under ICB are:

Size, nature and location of a project;

Size of contract; and

Value of contract.

Characteristics of international competitive bidding:

Advertisement;

Currency of payment;

Language;

Public bid opening (date, hour, place);

Bid security;

Domestic preference scheme;

Source of procurement;

Award of contract;

Currency of bid;

Rejection of all bids or retendering.

Currency of bid comparison;

b. National Competitive Bidding (Local Competitive Bidding)

NCB system generally incorporates (as ICB) timely notification through advertising in local
newspapers, adequate competition, clarity of procedures, fair treatment for all bidders and award
to the lowest evaluated bidder. Eligible foreign firms are also allowed to participate in
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procurement under NCB procedures. The essential differences include the use of national
advertising and the use of language in bidding documents. The currency of the bid and payment
are also in the local currency.
c. Limited Bidding (LB)
Selective Bidding (limited bidding, or repeated order) procedures are similar to those for open
bids (ICB) except that the purchaser preselects qualified firms, which will be invited to submit
bids. It may be a suitable method for awarding contracts where:

There are only a limited number of suppliers of the additional particular goods or services
needed; or

Other conditions limit the number of firms that are able to meet contract requirements, or
justify departure from full open bidding procedures.

In these cases, an organization or government may invite bids from a list of qualified firms,
selected in a non-discriminatory manner. The list should be compiled from a wide geographical
distribution and include foreign firms wherever possible.
LB is an option generally where there are a limited number of possible suppliers or where
contract values are small or other special circumstances that may justify departure from ICB.
Bids should be solicited from a list of potential suppliers broad enough to ensure competitive
prices, including all known suppliers if their number is small. The geographical spread of the list
should also be as wide as practicable. Advertising, prequalification and application of domestic
preferences are not required when goods and services are procured under LB procedures.
d. Shopping (Request for Quotation in Ethiopia, Pro Forma)
Shopping is an appropriate method for procuring readily available off-the-shelf goods or
standard commodities in quantities of small value and in some cases, small simple works.
Shopping does not require formal bidding documents, and is carried out by requesting written
quotations from several local or foreign suppliers or contractors - usually at least three - to ensure
competitive prices. In evaluating quotations submitted by bidders under shopping, price and
ability to meet required delivery requirements are usually the main selection considerations for
these simple purchases.
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e. Direct Purchase/Negotiation/Single Bidding

Direct purchase without competition is another method of procurement. It allows for direct
purchase and negotiation or single tender of goods and services of a supplier or limited number
of suppliers. In this case, no competitive bidding is used if the price to be paid is reasonable or if
it does not offer advantage. Where appropriate, organizations should inquire the prices paid by
other recent purchasers of goods or examine recent contracts of a similar nature, to determine the
fairness of the quoted price for single source procurement. Any differences in the quantities
ordered or delivery requirements should be considered when comparing prices. The contractors
or suppliers hired by direct contracting must be qualified to perform the works or supply of
goods on time, meeting specifications and fulfilling the special requirements of the sole source
contract. They should also be required to meet any performance security and warranty conditions
that would normally apply in a competitive bidding situation.
Direct Purchase may be used in exceptional cases where:

The extension of an existing contract awarded for goods, works or services of a similar
nature would clearly be economic and efficient and no advantage would be obtained by
further competition;

Standardization of equipment or spare parts, to be compatible with existing equipment,

may justify additional purchases from the original supplier. For such purchases to be
justified the original equipment should be suitable and the price should be reasonable;

The required product can only be provided by a single supplier because of exclusive
capabilities or rights; or

It is a case of extreme urgency, such as in response to natural disasters.

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