Public Procurement Methods

 

Procurement methods refer to the procedures used by the procuring entity to acquire goods, services and works. These methods can be competitive and non-competitive. There’s a preference for using competitive methods of procurement given that they tend to promote transparency, economy and efficiency, and limit favoritism.

Types of procurement methods

  • Open Tendering method
  • Alternative procurement methods
    • Restricted Tendering,
    • Direct procurement
    • Request for Proposals,
    • Request for Quotations,
    • Low-value procurement
    • Specially permitted procurement procedures
      • Concession / public private partnership
      • Design competition

Of the above-mentioned procurement methods, open tendering and request for proposals, are considered competitive procurement methods because the solicitation documents are advertised and open to any qualified firm interested in competing for the assignment. In contrast, request for quotations and direct procurement are considered non-competitive procurement methods because the invitation to submit offers is not advertised, and it is sent only to firms or individuals specifically invited by the procuring entity.

With respect to restricted tendering, there’s debate as to whether it is a competitive or non-competitive procurement method. I consider it a non-competitive procurement method because the solicitation documents are sent to a limited number of suppliers, contractors, or service providers.

Deciding which procurement method to use

A decision to use a particular procurement method must be based primarily on the stipulations of the procurement guidelines, manuals and procedures; which necessarily stem from the procurement legal framework. It’s also important to consider (among others):

  • The value and complexity of the requirement
  • The degree to which the procuring entity is able to clearly define the requirement
  • If there is a need for prospective bidders to participate in finalizing the specifications of the requirement
  • The urgency of need
  • Market availability

5.2 Open tendering (competitive bidding, open competition or open solicitation)

This is defined as the process by which a procuring entity, based on previously defined criteria, effects public procurements, by offering to every interested bidder equal simultaneous information and opportunity to offer the goods and works needed.

The procurement notices used to call for bids is called invitation for bid or invitation to tender.

The General Rule:

As a general rule, all procurement of goods, services and works by all procuring entities shall be conducted by open competitive bidding. The winning bid shall be the lowest evaluated responsive bid with regards to work specification and standard

The fundamental requirements of open tendering are that they should:

  • Be open to all qualified and interested bidders,
  • Be advertised locally (and internationally, when required)
  • Have objective qualifications criteria,
  • Have neutral and clear technical specifications,
  • Have clear and objective evaluation criteria, and
  • Be awarded to the least-cost provider, without contract negotiations.

When to use this method

It is presumed that the open tendering procurement method fosters effective competition and adds value for money; however, there are arguments to the contrary given that the open tendering method is strictly procedures-based and was primarily designed for the procurement of simple goods. As a result, it is not suitable for complex procurements where the focus is more on the output and outcome of the contracting process rather than on strict adherence to standards.

Stages in Open tender process

  • Procurement plan
  • Prepare specifications
  • Prepare tender documents
  • Advertise and sell tender documents
  • Preparations and submission by tenderers
  • Opening tenders
  • Tender evaluation
  • Contract award
  • Contract preparation
  • Signing of contract
  • Performance of contract

Preparing a procurement plan

  • Preparing specifications follows preparation and approval of a Procurement Plan or Materials Requirements Plan (MRP)
  • A procurement Plan shows the items that will be required by a particular User and therefore the items that will be procured by the Procurement Entity. The Plan shows what will be procured and when and to meet which needs
  • To prepare a Procurement Plan a Procurement Entity is required to engage Users in identifying their needs for the next one year during the Government budget planning cycle. The procurement entity then takes into account the needs and prepares aplan showing what will be bought during the year for the entity.
  • Procurement Planning is compulsory for all those institutions that utilize Public funds such as LATF
  • A Procurement Plan showing the materials required is derived from the Bill of Quantity (BQ) or Bill of Material (BM) that must be prepared showing exactly what will be required
  • When preparing the procurement plans all the procurement items covered by the budget will be grouped and prepared into procurement packages.
  • The procurement will be grouped into goods, works, services and consultancy services. As a general rule the groups should not be mixed in procurement except in special cases where they are considered inseparable.
  • The procurement plan will indicate the procurement method to be used for each procurement package and also the estimated total cost of the resultant contract.

Preparation of specifications 

  • A Specification is simply a definite description of what is needed or wanted for use by the User. The User must approve specifications
  • Specifications take the forms of:-
  • Brand name (Builds bias in the procurement process)
  • Trade Description
  • Description of purpose or use by an expert
  • Blue print, Engineering drawing or Dimension sheet
  • Chemical analysis
  • Statement of physical characteristics
  • Standard statement drawn by the purchaser or User
  • Public standard drawn or defined by a central purchasing agency of the government
  • Specifications must be updated on the basis of market realities, must be part of the bid documents, must come before the preparation of bidding documents and must be prepared by those who know what is required or by a procurement agent or a consultant in case of complex specifications

Preparation of Tender documents

  • There are standard tender documents for each type of procurement
  • All procurement entities are supposed to use standard tender documents as provided by the PPOA
  • The documents are available from the Government printer. Due to lack of capacity in some LAs, assistance of the competent departments of the Government should be sought especially in the preparation of tender documents for civil works, water projects and other technically sophisticated projects.

Critical and first line documents include:-

  • Advertisement to invite tenders for the project or Request For Quotation (RFQ)
  • Blank Bill of Quantities (BQ) or Schedule of Materials
  • Supplier Questionnaire or Confidential Business Questionnaire (CBQ)
  • Work plan showing details of the work/s
  • Order Amendment form

Advertise and Sell Tender documents

  • Financial limits or ceilings must be observed
  • The advertisement must be placed in a newspaper (not a periodical) of general nationwide circulation at least twice during the21 days the advertisement will run and the newspaper should have been under continuous publication for at least two (2)years
  • The period during which potential suppliers are given time to respond to advertisements is 21 days
  • The tender advertisements should specify project/item description, required qualifications, closing and submission dates etc.
  • Open tender may sometimes be costly. It is therefore sometimes deemed necessary to identify potential bidders on the basis of compliance criteria after which a short-list of prequalified suppliers is prepared and each invited to bid
  • Technical complexity is what should determine whether there should be pre-qualification or open tender without prequalification
  • Tender documents should not be sold for more than Kshs. 5,000.

Preparation, submission and opening of tender documents

Tenders shall be received and opened in the manner stated in the tender documents. Improperly filled documents will be rejected.

  • For the purpose of receiving tender bids, each LA shall maintain a tender box and a tender register
  • Tenders shall be opened by a tender committee of at least three members
  • Bidders shall be allowed to attend the tender opening to witness the process of opening
  • Evaluation shall be done by an Evaluation Committee. The committee shall have at least three
  • The evaluation committee members must be technically qualified to carry out evaluation
  • Evaluation shall be conducted in the manner indicated in the tender documents.
  • The Evaluation Committee shall prepare an evaluation report which shall indicate the tenderer or vendor who is recommendedfor contract award.
  • The evaluation report will also contain details of all the other vendors and reasons for rejection of their proposals
  • The contract shall be awarded by the tender committee
  • Where samples are requested for a Register of samples shall be maintained

Evaluation of Tender

  • Preliminary evaluation should lead to the decision of who to evaluate technically
  • Application form for Adjudication of tender/quotation shall be filled
  • Technical evaluation will be conducted by the technical evaluation committee on resources, equipment, legality and other related matters. The members must be technically qualified to undertake evaluation
  • Financial evaluation will be conducted by secretariat but only on the bidders who have been technically qualified.
  • Evaluation must be done within 30 days after opening of tenders.
  • Tender security may be requested for – Not to exceed 2% of the estimated value of contract. If tender security is demanded the financial institution (or Insurance Company) proposed by the vendor it must be one approved by the PPOA.
  • Members must append their signatures on the various documents as directed by the secretary of the tender committee

Contract award

  • The secretary to the tender committee should prepare all the required documentation
  • The agenda for each procurement item should be prepared after proper analysis of the bids
  • The secretary should prepare a price comparison schedule for analysis
  • The analysis of bids/price schedule should be tabled before the tender committee for adjudication and award
  • Awards should be made to the lowest evaluated bidder for standard off-the-shelf items, and to the best evaluated bidder for specialized items
  • Decisions should be collective and by consensus. All members must commit themselves to the decisions in writing (signatures must agree with their specimen signatures already on record)
  • The minutes of the tender committee should be taken and recorded by the secretary
  • The Clerk can veto the decision of the Procurement Committee under given situations

Contract preparation

  • The first thing here is for the tender committee to make its decision on who to award the contract on the basis of all the available information
  • Awards by tender committee shall be final and binding unless successfully appealed against or vetoed by the Chairman of the committee
  • The award should be mailed to or collected by the successful bidder
  • Once the successful bidder has responded accepting the award, then a formal contract should be entered into in case of contract of high value
  • The contract document should contain all the necessary terms and conditions. Samples are obtainable from the PPOA
  • The terms of a contract and manner of performance may be altered by an agreement of the parties
  • The terms of contract are basically worked out on the basis of the 5 RIGHTS – e.g. time and place of performance, quality and quantity, how delays will be handled, monitoring for compliance, claims, disputes and appeals, obligations of the parties and the basis for payment/s etc.

Signing of contract

  • After the contract award by the tender committee the Chairman of the Tender Committee shall ensure that the contract is prepared which shall then be signed by the two parties to the contract.
  • The contract shall be based on the format provided in the tender documents i.e. the tender documents submitted by the successful tenderers/bidders and any clarification provided
  • The contract shall not be signed until after 14 days after the notification of contract award. This is to allow time for any possible appeals
  • The contract shall be deemed to be formed when it is signed by both parties.
  • A formal contract may not be necessary for contracts below Ksh. 500,000. Signed orders which are also signed by the supplier shall be sufficient in this case.

Performance of contract

  • After the contract is signed the supplier/ contractor shall be responsible for performing the contract in accordance with the terms and conditions of the contract and the relevant committee shall be responsible for the management of the contract.
  • The contract must be well managed otherwise weak administration or management of procurement contracts is an invitationto corrupt practices. There is need to ensure that the supplier/ contractor delivers the specifications or quantities specified inthe contract and that members of the committee have the skill and knowledge in confirming compliance with specifications.
  • In managing the contracts the Chairman of the Committee shall use the Procurement File which shall have been well kept. This file shall be maintained in such a way as to contain all information on the procurement process up to contract award.

Receipt, Inspection and Acceptance of Goods

The Inspection and Acceptance committee shall immediately after delivery of goods, works or services:-

  • Inspect and where necessary test the items involved
  • Inspect and review the goods, works or services in order to ensure compliance with the terms and specifications of the contract
  • Accept or reject on behalf of the LA (Procuring Entity), the delivered goods, works or services.
  • Ensure that the correct quantity has been received.
  • Ensure that the goods , works or services meet the technical standards defined in the contract
  • Ensure that the goods , works or services have been delivered or completed on time or that any delay has been noted andacted on
  • Ensure that all required manual or documentation have been received and
  • Issue interim or completion certificates or goods recorded notes as appropriate and in accordance with the contract.
  • Sign all the relevant documentation

Distribution of key documents

  • The receipt, inspection and acceptance of goods must be done through filling or confirming details on the documents already signed.
  • For accountability and safety of documents, the established rules for the distribution of documents must be followed.

Distribution of LPO (S20): 4 (four) copies:

  • Original: given to the supplier to retain
  • Duplicate: given to the supplier and to accompany the goods.
  • Triplicate: For payments then attached to payment voucher.
  • Quadruplicate: retained in the pad.

Distribution of S11: 3 (three) copies

  • Original: kept by the store man issuing out the goods in a safe file.
  • Duplicate: Kept by the user receiving the goods in a safe file too.
  • Triplicate: Retained in the pad

Distribution of S10: 2(two) copies

  • Original: submitted as a bid to the quotation box.
  • Duplicate: kept by the bidder

Disposal of stores

  • This is charged to the procuring entity’s Disposal Committee that must be established (section 128) of the ACT and Regulation 92.
  • The committee is meant to dispose unserviceable, obsolescent, obsolete or surplus stores or equipment.
  • The committee shall recommend a method of disposing the items which may include any of the following:-
  • Sale by public tender
  • Sale by public auction
  • Transfer to another public entity or parts of a public entity without financial adjustments.
  • Destruction, dumping or burying.

Trade-in.

The relevant documents must be filled. The key documents used for disposal record include the following:-

  • Board of survey form (F.O.58)
  • Disposal certificate
  • Destruction certificate
  • Standard tender document for disposal
  • Some disadvantages of the open tendering process are:
  • Lengthy timeframe for completion of the procurement action,
  • Requires strict adherence to procedures,
  • Assumes existing internal capacity for the completion of clear and precise specifications,
  • Restricts suppliers’ participation in determining the technical specifications,
  • Limits the possibility of building long-term relationship with suppliers,
  • Focuses only on a least-cost solution,
  • Suppresses innovation, and
  • Excessive formalism may limit supplier participation in the tendering process.

5.3 Alternative procurement methods

  1. Restricted tendering

Restricted tendering is a procurement method that limits the request for tenders to a select number of suppliers, contractors or service providers. This method of procurement is also called: Limited Bidding and Selective Tendering. Although considered a competitive procurement method, competition is limited to only firms shortlisted or invited by the procuring entity. A process should be in place for arriving at the number and specific firms that will be invited; that number however is dependent on the stipulations of the public procurement legal framework.

When to use this method

  • Due to complexity or specialized nature of the goods, works or services is limited to prequalified contractors
  • The time and cost required to examine and evaluate a large number of tenders would be disproportionate to the value of the goods, works or services to be procured; and
  • There is only a few known suppliers of the goods, works or services as may be prescribed in the regulation
  1. Direct procurement

This is where goods, services and construction works are acquired from only one source. It is also called sole-source procurement, single-source procurement, or sole-source selection. This is clearly a non-competitive procurement method.

When to use this method

  • For emergency situations;
  • When only one firm or individual is qualified to fulfil the requirement;
  • For the continuation of previous work, or additional work, that cannot be acquired from another firm or individual due topatent, compatibility issues, or exclusive rights;
  • The use of this method represents a clear advantage over the use of a competitive method;
  • The total cost is within the threshold set for this method of procurement;
  • For the procurement of related items that are available only from one source;
  • For other situations contemplated in the procurement legal and regulatory framework.

Procedure

  • The procuring entity may negotiate with a person for the supply of the goods, works or services being procured;
  • The procuring entity shall not use direct procurement in a discriminatory manner; and
  • The resulting contract must be in writing and signed by both parties.
  1. Request for proposal

The Request for Proposal (RFP) is a two envelope procurement method that can be used for goods, services or works. It is used when suppliers, contractors or services providers are expected to propose a specific solution (methodology and work plan) to fulfilling a specific requirement.

Firms are required to submit technical and financial proposals in two separate envelopes. The technical proposal is evaluated first and ranked according to pre-established evaluation criteria, and only the financial proposals of those firms that achieved the minimum qualifying mark (score), indicated in the Request for Proposal, are opened and evaluated.

The RFP method differs from open tendering in six fundamental aspects:

  • Proposals are submitted in two sealed envelopes,
  • At the opening event, the financial proposals are left unopened and are safeguarded,
  • Financial proposals are opened only after completion of the evaluation of technical proposals,
  • Only the financial proposals of the firms achieving the minimum qualifying mark or more are opened,
  • Selection is based on a proposed solution and not on price,
  • The sum of the combined weighted score of the technical and financial proposals determines the winning firm with which the contract is negotiated.

There are some differences in addition to the above, on the application of the request for proposals that introduces a bit of confusion with respect to this method. As with other methods, the use of this one must strictly adhere to the stipulations of the governing procurement legal framework.

The following are examples of the selection procedures for consulting services that use the RFP procurement method:

  • Quality and cost-based selection (QCBS),
  • Quality based selection (QBS),
  • Fixed budget selection (FBS), and
  • Least-cost selection (LCS).

Types of request for proposals

  • Request for proposals without negotiations
  • Request for proposals with dialogue (Article 48), and
  • Request for proposals with consecutive negotiations (Article 50).

In spite of all of the above, the essential characteristic of the RFP is that:

  • Sealed proposals (technical and financial) are received in response to the RFP,
  • The technical proposals are opened and evaluated before the financial proposals are opened,
  • Only the financial proposals of the firms achieving at least the stipulated minimum qualifying mark on their technical proposals, are publicly opened,
  • The final score is usually the sum of the weighted score of the technical and financial proposals, and
  • The final contract is awarded based on the highest combined score rather than lowest price, except in the case of least-cost selection (the subject of a future post).

Procedures

  • Notice inviting expression of interest. This will set out the following
  • The name and address of the procuring entity;
  • A brief description of the services being procured and, if applicable, the goods being procured;
  • The qualifications necessary to be invited to submit a proposal; and
  • An explanation of where and when expressions of interest must be submitted.
  • The procuring entity shall advertise the notice inviting expressions of interest in at least two daily newspapers of nation-wide circulation.
  • Terms of reference. This will set out
  • The specific requirements the services or the goods being procured and the time limit for delivery or completion; and
  • Anything else required under the regulations to be set out in the terms of reference.
  • Determination of qualified persons: After the deadline for submitting expressions of interest the procuring entity shall examine each expression of interest to determine if the person submitting it is qualified to be invited to submit a proposal in accordance with the notice inviting expressions of interest.
  • Request for proposal is sent to qualified persons. This will set out;
  • the name and address of the procuring entity;
  • the general and specific conditions to which the contract will be subject,
  • instructions for the preparation and submission of proposals which shall require that a proposal include a technical proposal and a financial proposal;
  • An explanation of where and when proposals must be submitted;
  • The procedures and criteria to be used to evaluate and compare the proposals including:
    • The procedures and criteria for evaluating the technical proposals which shall include a determination of whether the proposal is responsive;
    • The procedures and criteria for evaluating the financial proposals; and
    • Any other additional method of evaluation, which may include interviews or presentations, and the procedures and criteria for that additional method;
    • A statement giving notice of the restriction on entering into other contracts; and
    • Anything else required, under this Act or the regulations to be set out in the request for
  • Evaluation of proposals
  • Notification of successful proposal
  • Negotiations with submitter of successful proposal
  • Contract requirement. The resulting contract shall be in writing and sets out the following;
  • The maximum amount of money that can be paid under the contract; or
  • The maximum amount of time that can be paid for under the contract.

4) Request for Quotation

The request for quotations is a procurement method that is used for small value procurements of readily available off-the-shelf goods, small value construction works, or small value services procurements. It is also called as invitation to quote and shopping, and it does not require the preparation of tender documents to the same extent as open tendering, request for proposals or two-stage tendering. The invitations are not complex, and this method is considered non-competitive because the procuring entity determines which contractors, suppliers or service providers to request quotations from as long as a minimum of three are invited.

When to use this method

  • The request for quotations method of procurement is for goods that are readily available and for which there is an established market; and
  • The estimated value of the goods being procured is less than or equal to the prescribed maximum value for using requests for quotations.

Procedure

  • Procuring entity prepares a request for quotation setting out the following;
    • The name and address of the procuring entity;
    • The specific requirements relating to the goods being procured;
    • An explanation of where and when quotations must be submitted; and
    • Anything else required under this Act or the regulations to be set out in the request for proposal
  • The procuring entity will then;
    • Give the request to such persons as the procuring entity determines;
    • The request must be given to as many persons as necessary to ensure effective competition and must be given to at least three persons, unless that is not possible; and
    • Give the request to each person early enough so that the person has adequate time to prepare a quotation.
    • The successful quotation shall be the quotation with the lowest price that meets the requirements set out in the request for quotations.
  • The following shall apply to the resulting contract;
    • The procuring entity shall place a purchase order with the person submitting the successful quotation; and
    • The person submitting the successful quotation shall confirm the purchase order in writing.

Advantages of request for quotations

  • Procurement lead-time is significantly reduced given that there’s no need to prepare solicitation documents, or to advertise requirements. And the period for quotations submission is also equally reduced.
  • The number of quotations received is limited to the number of bidders quotations were requested from, so the selection process time is also reduced.
  • The procuring and/or requesting entities would usually have a pretty good idea of where and from whom the goods, services or works can be procured, so there’s a higher probability of response to the request for quotations.

Disadvantages of request for quotation

  • Lends itself to irregularities because the procuring entity decides which suppliers, contractors or service providers to send request for quotations to, and competition is very limited.
  • Could be abused as a result of the breaking of requirements into smaller sizes in order to apply this method of procurement.
  • Could easily lead to requesting quotes from a limited number of firms even if the goods, services or works are available from a greater number.
  1. Low-value procurement

This is a procurement method used where;

  • The estimated value of the goods, works or services being procured are less than or equal to the prescribed maximum value for that low-value procurement procedure; and
  • Any other prescribed conditions for the use of the low-value procurement procedure are satisfied.
  1. Specially Permitted procurement procedures (concession/public private partnership and design competition)

Concessioning: means a procurement that encourages the mobilization of private sector resources for the purpose of public financing, construction, operation and maintenance of development projects and may include builddown and operate, build-own-operate and transfer, build-operate and transferor similar types of procurement procedures;

Public-private partnership: means an agreement between a procuring entity and a private party under which;

  • The private party undertakes to perform a public function or provide a service on behalf of the procuring entity;
  • The private party receives a benefit for performing the function, either by way of;
    • Compensation from a public fund
    • Charges or fees collected by the private party from the users of a service provided to them; or
    • A combination of such compensation and such charges or fees;
  • The private party is generally liable for the risks arising from the performance of the function depending on the terms of the agreement;

Design competition: means a procurement procedure for obtaining competitive bids for services which are creative in nature and which require that part of the services be carried as part of the bid to facilitate evaluation of the bids and such services include architecture, landscaping, engineering, urban design projects, urban and regional planning and fine arts.

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