Procurement Management

Procurement objectives

“To acquire goods and services in a manner that

enhances access, competition and fairness
and results in best value or, if appropriate, the
optimal balance of overall benefits to the state
and its people”.
 Four pillars of Public Procurement

Public Procurement

Efficiency Value for

Transparency Accountability
money
 Best value
 It represents the best combination of price and
qualitative merit among offers.
 In determining best value, the buyer considers other
variables besides the quoted price, such as total
acquisition cost, technical sophistication, service &
spare parts support, previous performance, security
considerations and any other factor that has value to
the buyer.
 The considerations have to be within the tender
terms & Conditions only
The latest Guidelines of 2017 have brought in
concept of VfM, Value for Money
 Procurement
Risk Management
 Inflexible specs inflate price

 Rigid (closed) Specs tend to increase the price due

to lack of competition / single-vendor-situation .
 The Specs should be broad-based to the extent
possible to promote competition.
 Standard specification should be adopted to further
promote competition.

 GFR also prescribes for Description and specs

to avoid any ambiguity, vagueness or bias apart
from being able to generate competition
 Additional features enhance price

 Every requirement included in the Specs

tends to increase the price.
 So it should be need-based
 To achieve this, it should be subjected Value
Analysis

 Standards of Financial Propriety in GFR also

require this
 Stringent terms push price up

 Stringent terms tend to increase the price.

 So the terms should be balanced.
 The EMD should be for a reasonable amount
 The tender documents to incorporate time limits for
release of EMD and PBG
 Stringent terms push price up

 The delivery schedule should allow reasonable

time to the supplier.
 The payment terms shouldn‟t be open-ended
 The L/D provisions should incorporate a ceiling
 FM clause to be incorporated if requested by the
supplier

More and Stringent the conditions in tender – be

sure to see the impact in bids
 Greater risk leads to higher price
 Risk is an uncertain event that will have adverse
impact. It should not be too great for the
supplier.
 Risk should be borne by the party best able to
carry.
 Risks passed on to the supplier tend to
increase the price.

Bidders will seek higher margins

for higher risks
 Intricacies in Public Procurement
 Formulating broad-based specifications
 Promoting competition
 Providing equal opportunity
 Allowing reasonable time
 Securing best value for money
 Ensuring fairness and transparency
 Implementing Government / PSU policy
 Minimizing emergency procurement
 Obtaining approval of Competent Authority

Financier determines the Rules

GoI Policy & Framework
 Trends in proc procedure

 Introduction of GeM
 Inclusion of provisions in the tender documents
reg critical aspects of specs
 Incorporation of price discovery clause in the
tender documents
 Efforts to take decision on the date of opening of
price bid

MII policy, MSME policy,

VfM concept, e-tenders
 Trends in proc procedure- Efficiency

 By making optimum use of available resources

 By discarding unproductive activities from the
processes/procedures;
 By reducing the procurement lead-time
 By reducing the delivery and transaction costs
 e-Procurement

e- Procurement

e Procurement

„e‟ means it is electronically enabled

 e-Procurement

 e-Procurement applies Information and

Communication Technologies (ICT) to the
procurement process.
 The prefix „e‟ simply denotes that the latter is
electronically enabled. That is to say, it is an
approach that enables organisations to
communicate with interested parties via
internet.
 e-Procurement process

 Procurement planning
 e-Notification
 e-Tendering
 e-Submission of offer
 Date and time-locking of e-tenders
 Opening of e-tenders with public key of two
officials of the procurement organisation
 e-Procurement process

 Evaluation of offers and award decision

 e - Auction
 e-Ordering
 Inspection of goods/works/services
 e-Invoicing
 e-Payment
 Dispute Resolution
 Advantages of e-Procurement

 Greater transparency in tendering process

 Reduction in tender-process cycle time
 Reduction in procurement lead time
 Reduction in administrative cost
 Real time access to information for decision
makers
 Instant and round-the-clock access to
information on internet
 Advantages of e-Procurement

 Standardisation of proc. procedure across

depts
 Minimisation of possibility of cartel formation
 Appreciable savings in procurement cost
 Enhanced level of security
 All transactions are readily available for audit
 What is GeM?

 Government e-marketplace (GeM) is for Govt.

users to cater to their demand for goods/
services
 Purchaser is the contract placing authority, i.e.
Govt. Departments, CPSUs etc
 Vendors / Sellers are the firms who offer their
goods/services on gem as per gem terms. They
may be OEMs or their channel partners.
 What will Sellers offer on GeM?

 Sellers shall offer their Goods/Services

indicating:
 Specifications,
 Prices in Indian Rupees,
 Terms of delivery,
 Delivery period,
 Warranty/ Guarantee,
 Validity etc as per GeM terms
 Price to remain firm for 10 days

 Seller to ensure Goods/Services would be New,

Latest and complete in all respects
 These can be changed by seller at any time.
 When a buyer selects a product at any point of
time, the same shall be valid for a period of
10 days regardless increase in price
elsewhere.
 Duties and Taxes

 Prices shall be on inclusive basis

 Statutory variations in taxes and duties if any
shall be applicable during the Original / Refixed
delivery period.
 Bill form shall be on line and will be provided by
the purchaser. The Seller is to give certain
undertakings on this form regarding passing on
the benefit of refund to the purchaser
 How to place Contract?

 Purchaser to award the contract digitally signed

on line on GeM;
 Purchaser to obtain necessary administrative
and financial approval within 5 days, ensure
adequate funds are available and indicate head
of account to which the amount will be debited.
 Weightage for Quality

 Determine weightage for quality and price and

state in the tender documents how the bids
would be evaluated
 Specify the characteristics that would be
considered for quality marking
 Quality considerations

 L1-- Rs I Cr ; Tech Ev —80 Marks

 L2-- Rs 1.2 Cr; Tech Ev—90 Marks
 F1=100 F2 = 1/1.2X100=83
 If weightage for quality is 90% & price 10%,
 L1 scores 80x0.9+100x0.1=82
 L2 scores 90X0.9+83X0.1 =89.3
 If weightage for quality is 50% & price 50%
 L1 scores 80x0.5+100x0.5=90
 L2 scores 90x0.5+ 83x0.5=86.5
 Price Variation clause
M1 L1 P0
a
P1= P0(F+ M +b L )
0 0
 Where P1 is the adjustment amount payable
 P0 is the Contract Price at the base level
 F is the Fixed element
 a is the assigned percentage to the material element
 b is the assigned percentage to the labour element
 L0 and L1 are the wage indices at the base month and year
and at the month and year as stipulated in the contract
 M0 and M1 are the material indices at the base month and
year and at the month and year as stipulated in the contract
 Life Cycle Cost of Plant & Machinery

Discounting Method is adopted to determine the present

value (PV) of future payments ( Annual Op & M cost or
AMC charges ). This facilitates LCCA and equitable
comparison of offers

R 1
R2 …. Rn
PV = + 2+ +
(1+i) (1+i) (1+i)n

 i = Interest Rate
 R1, R2 = Rates ( Expenses ) each Year
 n = No of years
 Qualifying criteria- Broad features

 A minimum average turnover

 Experience in similar projects
 Successful track record of timely completion of
similar projects
 Availability of qualified manpower and P&M and
quality control facilities
 Availability of service facility near the site
 Qualifying criteria-Works (Est 100crs)

 Completed in last 5 years at least (i) one similar

project of Rs 80 crs (or more) or
 (ii) 2 similar projects of least Rs 50 crs each or
 (iii) 3 similar projects of at least Rs 40 crs each .
 End-users’ certificate to be submitted in the
requisite format regarding completion of project
 Technical Committee
 One or two reps of User (major users)
 Rep of Procurement Division
 An external expert
 Committee to be constituted with the approval of
competent authority.
 Purchase Committee
 One or two reps of User (major users)
 Rep of Procurement Division
 Rep of FA
 Committee to be constituted with the approval of
competent authority.
 In high value cases, the committee only makes
recommendation to the competent authority who
takes the decision. It is then named: Purchase
Advisory Committee
 Tender custody and opening

 To the extent possible tenders should be received

and opened by officer(s) who would not deal with
that case at the tender processing, contract award
and contract management stage.
 After public opening, the tenders should be
passed on to the concerned officer for tender
evaluation and other activities assigned to him
 Evaluation of bids
 Bids received should be evaluated in terms of
the conditions already incorporated in the
bidding documents;
 No new condition which was not incorporated in
the bidding documents should be brought in for
evaluation of the bids. Rule 173 (xii)
 Determination of a bid‟s responsiveness should
be based on the contents of the bid itself without
recourse to extrinsic evidence. Rule 173 ()xii
 Rejection of Bids

 Rejection of all bids is justified when:

 (a) Effective competition is lacking.
 (b) None of the bids is substantially responsive
 (c) Bids‟ prices substantially higher than the cost
estimate or available budget
 (d) None of the proposals meets the minimum
technical qualifying score. Rule173 (xix)
 Lack of competition

 Lack of competition should not be determined

solely on the basis of number of bidders. Even
when only one bid is submitted, the process may
be considered valid provided following 3
conditions are satisfied: Rule173 (xx)
 Lack of competition

 The conditions are:

 (a)The procurement was satisfactorily advertised
and sufficient time was given for bid submission,
 (b)The qualifying criteria was not unduly
restrictive and
 (c) Prices are reasonable in comparison to
market value. Rule173 (xx)
 Single-tender contract

 When a Limited or Open tender results in only

one effective offer, it shall be treated as a single
tender contract. Rule173 (xxi)
 Contract award

 Contract should ordinarily be awarded to the

lowest evaluated bidder whose bid has been
found to be responsive and who is eligible and
qualified to perform the contract satisfactorily as
per terms and conditions incorporated in the
bidding documents. Rule173 (xvi)
 Contract award

 However, where the lowest acceptable bidder

against ad-hoc requirement is not in a position to
supply the full quantity required, the remaining
quantity, as far as possible, may be ordered from
the next higher responsive bidder at the rates
offered by the lowest responsive bidder.
Rule173 (xvi)
 Negotiation

Planning- „Cases are won in advocate‟s chambers‟ is the

Step 1
guiding principle in pre-negotiation stage

Step 2 The parties outline their preferred option

A series of offers/ suggestions/ new ideas as

Step 3
parties discuss and modify their preferred option

Step 4 The parties reach an agreement

 When you negotiate…
 Get a detailed exercise done regarding cost
analysis or price analysis before entering into
negotiation
 For major negotiation have a rehearsal. Tell
yourself what you‟re going to say, how will you
say and in what order. Try to imagine all the
possible responses and develop your counter
moves.
 Do your research, gather relevant data, develop
solid logic and argument for seeking price
reduction
Treat the other party with respect

Treat as equal, find time, lend

a ear, appreciate, let them
know they are important
All-important law in human conduct

Always make the other person feel

important

Dale Carnegie
 Negotiation- Planning
 Know the item .
 Collect information reg cost.
 Assess your bargaining strength
 Ascertain seller‟s bargaining strength
 Know the seller‟s reps
 Be clear about your negotiational limits
 Decide team composition & roles
 Negotiating positions

Minimum Objective Maximum

80

Party A‟s position

(Buyer)
Heart

Party B‟s position

(Seller)
Minimum Objective Maximum
90 100 quoted
Cost or Limit
 Narrowing the differences

 Give respect to seller‟s reps

 Be a good listener
 Develop options for mutual gain
 Use positive statements
 Give assurance to resolve pending problems
 Focus on interests not on positions.
 Reaching an agreement

 Employ objective criteria

 Separate people from the problems
 Be considerate of sellers
 Provide diversions
 Make every effort to clinch a satisfactory deal
 Draft a statement detailing the agreements
reached; seek comments(and signature)
 QCBS Formula (Fin Min)

PL T (1-x)
CS = (x) + TH
P
P = Bid Price (evaluated)
P = Lowest Bid Price (evaluated)
T = Tech Score of the Bid
TH = Highest Tech Score
X = Weightage for the Price
CS = Combined Score
 QCBS example

 L1-- Rs I Cr ; Tech marks —80 Marks

 L2-- Rs 1.2 Cr; Tech marks —90 Marks
 F1=100 F2 = 1/1.2X100=83
 If weightage for quality is 80% & price 20%,
 L1 scores 89x0.80 + 100x0.20 =91.2
 L2 scores 100X0.80 + 83X0.20=96.6
 If weightage for quality is 50% & price 50%
 L1 scores 89x0.5+100x0.5=94.5
 L2 scores 100x0.5+ 83x0.5=91.5
 Steps in contract management
 Preparation of LOI/ LOA
 Drafting of Contract
 Contract Acknowledgment
 Submission of Performance Security
 Opening of Letter of Credit
 Extension of delivered period
 Steps in contract management
 Inspection of Stores/ works
 Transportation/Clearance of stores
 Site inspection/ Acceptance
 Release of Payment
 Dispute Resolution
 What is a contract?

 A contract is a promise or set of promises

between the parties which the law will enforce.
 Offer + Acceptance = Agreement
 Agreement + Legal Comp = Contract
 All contacts are agreements, but all agreements
are not contracts
 What makes an agreement?
Set of Promises

Agreement

Offer Acceptance
Promise made by S Promise made by P
 Elements of contract

 Offer and Acceptance

 Intention to create legal relationship
 Lawful consideration
 Competency of parties
 Free consent of parties
 Lawful object
 Certainty and possibility of performance
 Legal formalities
 Legal aspects of contract
Offer and Acceptance

 A contract results from an offer and acceptance

 Until there is an agreement either party may
withdraw from the incompletely formed
transaction
 Once acceptance is made, no new terms and
conditions can be introduced unless mutually
agreed
 Legal aspects of contract
Consideration

 Consideration is an essential element of contract

 It must move at the desire of promisor
 It may move from promisee or any other person
 It may be past, present or future
 It must be something of value - S 2(d)
 Offer, acceptance and consideration are called
trinity of contract
 Contract Management-LOI

 Place LOI after settling all the terms.

 Release promptly bid security of unsuccessful
bidders.
 Provide clarifications to unsuccessful bidders on
request.
 May hold meetings with unsuccessful bidders on
request
 Contract Management- Ack

 Obtain acknowledgment
 Issue required A / L promptly
 Watch submission of performance security
 Watch submission of advance sample & drgs.etc
 Accord priority to their approval
 Obtain C .D . E. certificate
 Contract Management- L. C.

 Arrange prompt opening of L . C.

 Ensure timely completion of civil works
 Request for monthly supply plan
 Initiate steps for TOT
 Monitor progress in compliance of provisions of
offsets (plough back into India)
 Contract Management- Inspection & Delivery

 Monitor progress in supply /performance

 Keep watch on DP
 Take prompt decision on request for DP extn.
 Extend DP with LD and denial clauses
 Inspect stores at mfr‟s works within DP
 Arrange prompt clearance at Port of entry
 Inspect stores / works at site
Contract Management- LD and Payment

 Issue CRC promptly to supplier

 Settle P V & LD claim quickly
 Ensure timely payments
 Release performance security in time
 Advise parties not to keep contract alive
beyond DP/ extended DP
 Issue performance notice if contract is kept alive
 Dispute resolution

Strategy for dealing with disputes

Prevention of disputes Settlement of disputes

 Prevention of disputes
 Preparing broad-based specifications
 Drafting unambiguous T/E terms and non-
restrictive qualifying criteria
 Evaluating bids as per those terms and criteria
 Drafting contract in line with the bid
 Dispute resolution

 Bilateral settlement

 Conciliation

 Arbitration

 Court battle as a last resort.

 Periodic review of contract

 Monitor the Contract regularly

 Check whether you (purchaser) have performed
your part- adv payment, providing facilities,
approving drawings, opening LC, Clearances
 Check whether supplier‟s performance is as per
contract schedule
 Arrange site visit by your officer located nearer
to the Plant
 Hold meetings in ur office to monitor progress
 Economic evaluation of long term
Contracts and Price Agreements
 These contracts, normally, stipulate a clause
providing option to both the parties to terminate
the contract after serving a notice with a
prescribed time period and on expiry of the said
time period
 The purchaser may consider termination if the
price trend is downward.
 Simultaneously, prompt action may be taken to
conclude a fresh contract
 Monitoring/Renewal of contract

 Are supplies being made in time?

 Is user satisfied with the quality?
 Is the contractor making service calls as
scheduled in the contract?
 Does the contractor quickly corrects the
problems?
 What is the price trend?
 Consider renewal if the trend is not downward
and their performance is satisfactory
 Contract termination

 Cancel contract only when breach/anticipatory

breach occurs
 Give performance notice before cancellation if
necessary
 Fulfill all laid-down requirements while making
Risk Purchase after cancellation
 Claim General Damages if valid R/P has not
been made
 Requirements for valid Risk Purchase

 Specs must be same as was adopted initially

 Mode of procurement same or ATE
 Risk purchase contract must be concluded
within a reasonable time which is normally 6
months from the date of breach
 Lowest acceptable offer should not be ignored
 If it is ignored, risk purchase loss will not be
legally recoverable
Thank you