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Chapter 7.

Procurement Methodology And Strategy

Procurement Method

Procurement methods are 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 favouritism.

To acquire goods, services and works, the procuring entity has to adopt an appropriate
procedure. These procedures are called procurement methods.
Procurement methods are many, and they go by different names depending on the procurement
category.

These are:

 Open Tendering,
 Restricted Tendering,
 Request for Proposals,
 Two-stage Tendering,

 Request for Quotations, and


 Single-source Procurement.

Procurement Objective – Value For Money

The basic objective of any procurement is to focus on and enhance the value for money.

To achieve this objective, the information provided by respondents in relation to the following
will be utilized to help determine best value for money

a) Pre-Qualification Requirements (if specified);


b) Compliance and Disclosure;
c) Qualitative Requirements; and
d) Price schedule requirements.

Procurement selection criteria

All public sector agencies require their procurement to be completed within fixed timeframe
and budget and to the maximum quality. Some public sector agencies, however, focus on
some other important criteria that can be used as a guide to assist decision-makers with a
basic understanding of the attributes of a particular procurement system they should not use
as the sole basis for selection. This is because of the fundamental complexity associated with
matching client needs and priorities with a particular method. The National Economic
Development Organization (NEDO, 1985) identified some generic criteria that public sector
agencies could use to select their priorities for projects. These are:

1. Time: is early completion required?

2. Certainty of cost: is a fixed price needed before any commitment to procurement is given?

3. Price competition: is the selection of the procuring team by price competition important?

4. Flexibility: are variations indispensable after work has begun on-site?

5. Complexity: does the procurement need to be highly specialized, technologically advanced


or highly serviced?

6. Quality: is high quality of the product, in terms of material and workmanship and design

concept, important?

7. Responsibility: is single point of responsibility the client’s after the briefing stage or is direct

responsibility to the client from the designers and cost consultants desired?

8. Risk: is the transfer of the risk of cost and time slippage from the client important?

Procurement selection process

Tools and techniques that are currently available for procurement selection have their
advantages, but they fail to explain the dynamic nature of procurement public sector needs.
Identifying the need to choose the best suitable procurement system, a systematic procurement
toolkit has been designed that covers both the qualitative and quantitative considerations. The
method to procurement selection comprises six steps and is presented in the below figure. It is
believed that the business case for the capital works project is undertaken before the selection
of the procurement system. Steps to be undertaken before the selection of the procurement
system include the:

 Identification and quantification of the need and demand for a new facility;
 Identification of options to fulfil the requirements of stakeholders and undertaking of
initial risk analysis;
 Justification of preferred option(s) and undertaking of financial and economical
assessments; and
 Selection of an ideal project option/brief, conducting of a risk/benefits analysis,
business case and obtaining the client’s authority to proceed.

The identification of project goals and limitations is key to the selection process. At the end
of each step identified in figure below, the activities are compared with the project objectives
and constraints to ensure that they are being considered appropriately. After the completion of
each step important decisions are made, the justification for these decisions is also given so as
to make the process transparent and provide a learning tool for future capital works projects.
Prior to the selection of a procurement method, all related project information (e.g. business
case and risk assessment) should be reviewed and summarized by the procuring staff and
stakeholders which will facilitate the the selection process. Information derived from these
documents should be used to inform the procurement method selection process. There are
essentially two distinct stages to the selection of proposed procurement process:

Stage 1 covers steps 1 to 4 when the procurement methods are identified and evaluated in a
‘Procurement Review Session’ with procuring staff members and stakeholders. During these
steps several procurement options are identified and evaluated through quantitative weighting
approach and a qualitative review process.

Stage 2 covers steps 5 and 6. Each step starts with a review of what has been undertaken and
the reconsideration of the procurement choices made in the context of the project objectives
and constraints.
Modes Of Procurement And Bidding Systems

Modes Of Procurement

in public procurement, offers from potential bidders must be called according to a procedure
that achieves a balance between the complexity of the procedure, on one hand, and need for
the widest competition, on the other hand. Various methods of procurement and bidding
systems are there to suit different procurement circumstances to achieve the stated balance.

During the requirement identification stage, the time frame for the completion of goods and
services is set. At the very stage the most appropriate method of procurement is determined
depending on the need. The mode of procurement should be chosen at this early stage because
it affects the procurement lead-time.

At this stage, it is also important to decide if a competitive or non-competitive procurement


method will be used. The procurement category, complexity of a requirement, and monetary
value are all important factors to consider while deciding for the procurement method.
A decision to use a particular procurement method must be based on the provisions of the
procurement rules.

Direct procurement

Procuring services, goods, and works from single source is referred to as: single-source
procurement, sole-source procurement, sole-source selection, direct procurement, among
others. This is plainly a non-competitive procurement mode. This method of procurement
should be used only under special circumstances, namely:

 In emergency situations;

 when just one individual or firm is qualified to fulfil the requirement;

 for the continuation of the on going work, or additional work, that cannot be
acquired from another firm or individual due to patent, compatibility issues, or
exclusive rights;

 when this method gives a clear advantage over the use of a competitive method;

 when the total cost does not exceed the threshold set for this method of
procurement;

 for the acquisition of related goods that are available only from one source;

 for other situations contemplated in the procurement legal and regulatory


framework.

The use of this method should be preceded by a rigorous approval process.

A checklist should be maintained to show requesting entity, containing enough detail to justify
the need for fulfilling a procurement requirement from a single source. Such justification
should recognize the requesting entity, describe the requirement, address why the requirement
can only be fulfilled from single source, including action taken to identify other sources, in
addition to the total cost and planned future actions to prevent the need from using this method.

Request for Quotations

The request for quotations, also known as invitation to quote and shopping, is a procurement
mode mostly used for small value procurements of readily available standard goods, small
value services procurements, small value construction works.

This procurement method does not require the preparation of tender documents as open
tendering, request for proposals or two-stage tendering.

This method is considered non-competitive and the invitations are simple as the procuring
entity determines which suppliers, contractors, or service providers to request quotations from
as long as a minimum of three are invited.

This procurement method should be used under conditions mentined in the procurement legal
and regulatory framework and, therefore, can be requested in writing: fax, email, courier.
Occasionally, there are limitations set on the time and frequency within which this method can
be used for the procurement of related goods, services or works. The aim is to prevent the
procuring entity from splitting requirements in order for them to fall within the threshold level
where the request for quotation method can be applied.

Quotations got in response to a request for quotation should be evaluated to determine the
fulfillment of the technical specifications or scope of work of the requirement. Only after the
technical and administrative fulfilment is obtained, a price comparison is made between firms,
and then a procurement order is signed with the bidder offering the lowest price quotation
within the specified delivery or completion date.

Following are the advantages and disadvantages of using request for quotations
Advantages

 Procurement lead-time is considerably reduced because there is no need


to develop solicitation documents, or to advertise requirements. Also,
the time needed for quotations submission is equally reduced.

 The number of quotations received is equal to the number of bidder’s


quotations that were requested from, so it takes less time for selection.

 The requesting or procuring entities have a rather good idea of from


where and from whom the goods, works or services can be procured, so
there is a more probability of response to the request for quotations.

Disadvantages

• There are some irregularities, for the procuring entity decides which
contractors, suppliers, or service providers to send request for
quotations, so the competition becomes very limited.

• Can be mishandled because of the breaking of requirements into


smaller sizes to apply this method of procurement.

• Lead to requesting quotes from a limited number of firms even if the


goods, services or works are available from a larger number.

Two-Stage Tendering

Two-stage tendering is akin to the ‘request for proposals’ because the financial and technical
proposals are submitted independently, but one after the other. An important feature of this
procurement method is that the submission of proposals takes place in two stages. Moreover,
bidders are given chance to assist in defining the technical requirement and the scope of work.
Two-stage tendering method is used for the procurement of goods, services and construction
works, and there are several ways in which the process may be carried out. Two of the most
common are illustrated below:

1: The first procedure is the following

I. The first stage is used to find responsiveness to the request for offers and for clarifying
and reaching agreement on the technical specifications. In this first stage, bidders are
invited to present a technical plan with their best solution to fulfil the requirement. The
proposal is evaluated and rated, and the firm with the highest-ranked technical proposal
are called for discussions to reach on an agreement on the suggested technical solution.

II. Stage two is used to receive the final offer from the technically highest-ranked firm.
This process is very analogous to the quality-based selection (QBS) procedures used
for requesting proposals from consulting firms when the Terms of Reference (TOR) are
hard to define under highly complex and specialized requirements. In second stage,
upon reaching an agreement, the terms of reference (TOR) or technical specifications
are settled, and the highest-ranked firm is invited to first propose a financial scheme
based on the decided technical solution, and then to contract negotiations.

2: The second procedure is as follows

I. Under this modality of the procedure, in the first stage prospective bidders are requested
to submit proposals on a partially developed technical specifications, and they are
expected to contribute to the completion of the technical specifications and provide a
methodology and work plan for carrying out the assignment. The technical proposals
submitted are evaluated for responsiveness to the solicitation documents. A
clarification and discussions meeting is held with all responsive bidders, and minutes
of this meeting are prepared and distributed to all responsive bidders. The results of this
meeting are used to finalize the technical specifications and the scope of work. First
stage responsive bidders are then invited to submit technical and financial proposals
based on the amended technical specifications and scope of work.
II. In the second stage, responsive bidders submit technical and financial proposals as
requested. The technical proposals are evaluated first, keeping the financial proposals
sealed and secured. Firms that meet the minimum technical qualifying mark or greater,
as stated in the call for proposals, are then invited to the public opening of their financial
proposals. In the next step the financial proposals are evaluated, and the firm achieving
the highest score on the combined technical and financial proposals evaluation is
invited to contract negotiations. If negotiations fail, the next highest ranked firm is
called for contract negotiations.

Advantages:

 It is a more flexible method of awarding contracts as it lets the participation of


potential bidders while defining the technical specifications and scope of work.

 The preferred bidder is more likely to have a good understanding of the


requirement, which potentially reduces risks in the implementation of the
contract.

 Prospective bidders can also suggest improvements in the technical


specifications and scope of work of the assignment.

 In the second stage tendering, time is reduced.

 The technical approach can be modified to match the fixed technical


specifications and scope of work.

 Risk can be mitigated given the early participation of potential bidders in the
definition of the technical specifications and scope of work.

 A financial proposal is presented only after getting agree on the technical


specifications and scope of work.
 A contract is negotiated on the basis of the agreed technical specifications and
scope of work.

 The qualifications of the preferred bidder are clearer.

Disadvantages:

 More procurement lead-time because of the two-stage submission process.

 Negotiations with the highest ranked bidder in the second stage can be difficult
and prolonged.

 There is risk of price escalation, and negotiations becoming adversarial in the


second stage.

 Once a firm is selected for negotiations, competition is lost, and this may impact
price.

Request for Proposals

The Request for Proposal (RFP) is a two-envelope procurement method that is used for goods,
services or works. It is good to use when suppliers, contractors or services providers are
expected to propose a specific solution (methodology and workplan) 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 RFP, are opened and evaluated.

The RFP method differs from open tendering in six fundamental aspects:
1) Proposals are submitted in two sealed envelopes,

2) At the opening event, the financial proposals are left unopened and are safeguarded,

3) Financial proposals are opened only after completion of the evaluation of technical
proposals,

4) Only the financial proposals of the firms achieving the minimum qualifying mark or
more are opened,

5) Selection is based on a proposed solution and not on price,

6) 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.

Under the directives of most international development banks (World Bank, Asian
Development Bank, African Development Bank, etc.) and some donor entities (Millennium
Challenge Corporation) the request for proposals are used primarily for hiring consulting firms.
But the two-stage procurement procedure, is used only for the procurement of goods, works
and non-consultant services. The procurement manuals of many countries also follow this
system of using request for proposals primarily for the selection of consulting firms.

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

I. Quality and cost-based selection (QCBS)


II. Quality based selection (QBS)
III. Fixed budget selection (FBS)
IV. Least-cost selection (LCS)

Despite all sthe above, the essential characteristic of the RFP is that:

I. sealed proposals (financial and technical) are received in response to the RFP,

II. the technical proposals are opened and evaluated before the financial proposals are
opened,

III. only the financial proposals of the firms achieving at least the stipulated minimum
qualifying mark on their technical proposals, are publicly opened,

IV. the final score is usually the sum of the weighted score of the technical and financial
proposals, and

V. the final contract is awarded based on the highest combined score instead of minimum
price, except in the case of least-cost selection.

Restricted Tendering

In restricted tendering method request for tenders is limited to a selected number of contractors,
suppliers or service providers. This method of procurement is also referred to as Selective
Tendering and Limited Bidding.

Although is falls in the category of competitive procurement method but 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.
Any decision to use the Restricted Tendering procurement method must comply with the
policies and procedures governing the procurement system.

The key feature of this method is that competition becomes limited to a selected number of
firms because:

only a few firms are qualified to fulfil the desired requirement,

some conditions warrant the use of a limited number of firms in order to cut the cost and time
of the selected process.

Open Tendering

Open tendering is the most common and widely used procurement method. It is also a
competitive method for acquiring goods, services and works. It is used in compliance with the
predefined procedures detailed in the procurement guidelines and standard bidding documents.

In open tendering or open competitive method, the procurement notices are used to call for bids
known as Invitation for Bids or Invitation to Tender.

The essential requirements of open tendering are as follows

 It should be open to all competent and interested bidders,


 It should be advertised locally (and internationally, when required),
 It should state objective qualifications criteria,
 Clear and neutral technical specifications must be given
 Clear and objective evaluation criteria must be mentioned and
 It should be awarded to the least-cost provider, without contract negotiations.

It is believed that this procurement method encourages effective competition and can enhance
value for money; however, this method is strictly procedures-based and has been
predominantly designed for the procurement of simple goods. It is not deemed appropriate for
complex procurements where the emphasis is more on the outcome and output of the
contracting process rather than on strict adherence to standards.
There are certain disadvantages of using open tendering method which have been mentioned
below:

 Extra timeframe needed to complete the procurement action,


 Requires strict observance to procedures,
 Assumes existing internal capacity for the completion of clear and precise specifications,
 Restricts the participation of suppliers’ 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.

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