ETHIOPIAN CIVIL SERVICE UNIVERSITY INSTITUTE OF TAX AND CUSTOMS ADMINISTRATION

DEPARTMENT OF PUBLIC PROCUREMENT AND ASSET MANAGEMENT

MA in Public procurement and Asset Management

NAME OF MODULE: ADVANCED PUBLIC

PROCUREMENT MANAGEMENT

Academic Year: 2013, 2nd Semester

CHAPTER ONE
E-Procurement
Objectives of the chapter
It is expected that the participants will learn international best practices with regard to the growing use and acceptance of e-procurement but, at the same time, focus their attention on the state of e-procurement practice, and potential, in their home countries. Through the lecture and case studies, participants will come to distinguish the use of electronic means to expedite and disseminate public procurement laws, regulations, and policies and, on the other hand, the use of e-procurement to advertise individual procurement opportunities, conduct competitive proceedings and conclude procurement contracts. It is also important that participants understand that eprocurement can be implemented in each country in a way and at a pace that makes practical sense in the applicable conditions.

1.1. Introduction
Electronic communications and technologies are used by government procurement entity (i)for dealing with suppliers, (ii) in communicating with public and other public bodies, and (iii) in the governments internal`s internal administrative process. They can be employed at all stages of the procurement cycle: in planning, in the procurement process itself

(advertizing, transmitting documents and information (such as specifications and invitations to the tender); and in the administering the correct (ordering, invoicing, payment etc). The notion of using electronic means in the procurement process is sometimes referred to broadly as electronic procurement or the shorter version, e-procurement. It is important to conceptualize e-procurement in broad terms, as referring collectively to the range of possible uses of electronic means at various stages, and for various purposes, in the procurement process and in the procurement system as a whole. Such a broad understanding of e-procurement also helps to accommodate an understanding that it can be introduced in each country to the extent and in steps that respond to the opportunities and limitations that are present. At the same time, such an understanding also helps countries avoid being unnecessarily timid in beginning to embrace the use of electronic means in the procurement process.

In its broadest sense, e-procurement involves electronic data transfers to support operational, tactical and strategic procurement. E-procurement has therefore been around for much longer than

the term itself which first came into usage after the establishment of the internet in the 1990s. From the 1960s until the mid 1990s, e-procurement primarily took the form of electronic data interchange (EDI). Nowadays, e-procurement is often supported by internet technologies and is becoming more prevalent. The historic context is demonstrated in the chart below:

Those involved in the procurement function need to understand the e-procurement concepts and tools to provide input into their development, use, evaluation and refinement as a means of improving procurement efficiency and effectiveness Procurement officers and managers can make

a contribution to decisions about investments in, and configuration and use of e-procurement tools by: having a general understanding of the various e-procurement applications identifying the procurement processes that are effectively supported by e-procurement understanding the sources of benefit of e-procurement identifying the risks associated with the adoption of e-procurement contributing to the development of e-procurement tools through identifying scope for ecommerce supported process improvement world wide web (www) internet tools and platforms that replace traditional procurement

1.2.E-procurement tools and applications

Some e-procurement tools and applications include: electronic systems to support traditional procurement EDI (electronic data interchange) ERP(Enterprise Resource Planning) systems internet as a support or complement to traditional procurement Electronic mail (e-mail) web enabled EDI extensible markup language (XML) EDI (Electronic Data Interchange) EDI is an application whereby electronic messages can be exchanged between computers programs of two separate organizations. Some features of EDI include: Messages are exchanged in groups, known as batches. Messages can automatically be sent, transmitted and stored between computers without retyping or keying data. EDI has to be implemented by each pair of organizations (sender and receiver) who wish to use it. This means that the implementation costs of EDI are relatively high. EDI is mostly used where the messages exchanged concern such matters as orders, confirmations, transport information and invoicing. EDI traditionally runs on so-called Value Added Networks, which are closed networks (unlike open networks like the Internet). ERP System

ERP systems are management information systems that integrate and automate many of the business practices associated with the operations of a company or organization. ERP systems typically handle the manufacturing, logistics, and distribution, inventory, shipping, invoicing, and accounting for a company or organization. ERPs aid in the control of many business activities, like sales, delivery, billing, production, procurement, inventory management, and human resources management.

Internet as a support or complement to traditional procurement There are various types of internet based applications that serve different purposes. Some Known applications that use the internet are described below: Electronic mail (e-mail) Email is an Internet based application through which electronic messages are exchanged between People. Web enabled EDI Web enabled Edi is like traditional EDI (see above), but run on the Internet; also known as EDIINT. Extensible Markup Language (XML) XML is used to allow for the easy interchange of documents on the World Wide Web. World Wide Web (WWW) The WWW is a major service on the Internet. The World Wide Web is made up of web servers that store and disseminate the Web pages, which are rich documents that contain text, graphics, animations and videos to anyone with an Internet connection.

Internet tools and platforms that replace traditional procurement Some internet tools and platforms that replace the traditional procurement include: E-sourcing E-tendering E-auctioning E-ordering and web-based ERP E-information

E-sourcing E-sourcing supports the specification phase; it can be used to pre-qualify suppliers and also For suppliers the benefit is: marketing and for the buying organizations the benefit is facilitating the sourcing of suppliers. E-tendering

E-tendering supports the selection stage and acts as a communication platform between the procuring organization and suppliers. It covers the complete tendering process from REOI via ITB/RFP to contracting, usually including support for the analysis and assessment activities; it does not include closing the deal with a supplier but facilitates a large part of the tactical procurement process. It results in equal treatment of suppliers; transparent selection process; reduction in (legal) errors; clear audit trial; more efficiency in the tactical procurement process and improved time management of tendering procedures.

E-auctioning The main issues dealt with in this topic are summarized below:

A. The potential benefits that may accrue from e-procurement in terms of the public procurement principles and objectives are:
Value for money by attracting wider participation of bidders, procuring entities can optimize both price and quality of what they buy; Economic development by taking up e-commerce itself, the public sector can drive the uptake by the private sector, especially small and medium enterprises (SMEs), of e-commerce, thus helping to propel the economy into areas of growth and modernization; Transparency one of the main advantages of e-procurement is that it boosts transparency in a procurement system, since the inherent nature of e-procurement is openness and maximization of publicity and access to information; Accountability by promoting transparency and record keeping, e-procurement helps to promote accountability of participants for the action that they take; Economy and efficiency by lowering transaction costs, e-procurement can lower the costs of conducting procurement transactions in terms of money spent to run the proceedings (e.g., avoidance of expensive print-media advertisements, replaced by web publication), as well as time and human resources required (better cost-to-spend ratios enabled); and Integration and mainstreaming of the procurement system with other key systems a prime example of this is the potential for linking procurement processes with integrated financial management information systems (IFMIS) (e.g., financial management).

B. Illustrations of various types of application of electronic means in the procurement process, including
1. Main possible features and functionalities of a public procurement website such a website should be what is referred to in practice as a single-portal website, which facilitates the easy

location of information about procurement opportunities, and other information about the procurement system and its procurement entities and activities; 2. Electronic functional equivalents of submission of bids - the technology exists and is already increasingly in use around the world to provide secure means of submitting bids electronically (into a secure electronic bid box), over the internet, and keeping them from being opened prematurely; 3. Electronic public bid opening similarly, technologies and procedures may be applied to stage electronic public bid opening (e.g., bidders attending the bid opening at their computer screens, over the internet); 4. Purchase cards - including possible security measures, which allows credit-card type of cards to be used by designated purchasing officials, as well as by officials during their business travel; 5. E-purchasing - including the concept of Purchase-to-Pay integrated e-procurement systems (P2P), and the related use of e-catalogues and e-market places. These are more sophisticated e-procurement mechanisms that provide a high degree of automation, from requisition all the way through payment; 6. Electronic reverse auctions this is an internet based procedure in which, during the reverse auction period, bidders may submit multiple bids so as to improve the ranking of their bids. Typically, the criteria at stake is price, but other aspects of a bid, which can be quantified in mathematical terms and evaluated by computer(such as delivery time, or quality grade) may also be subject to the auction; the method is used primarily for commodities or other standard goods; and 7. Electronic means in contract administration - a good example of how electronic means can facilitate improved contract implementation and administration is the use of electronic means of payment.

C. Role of third-party service providers

Service providers often play a key role in implementing e-procurement. For example, a third party service provider may host and conduct e-reverse auctions (for example, under a framework service agreement); adoption by the government of e-procurement presents an opportunity to help develop the software and third-party information technology (IT) service provision industry in a country.

D. Cost structures of e-procurement applications

Various options exist as to how to finance introduction and implementation of e-procurement. It is better to avoid placing too much of a burden, if any at all, on suppliers, as that may actually discourage them from using the e-procurement mechanisms.

1.3.E-procurement in the procurement cycle

The figure below shows the six forms of e-procurement plotted in the procurement process

Requirement Definition

Sourcing

Solicitation

Evaluation

Contracting

Contract Managem ent

E-Tendering E-sourcing Web-based ERP

E-ordering E-reverse Auction

E-informing

Each of these forms can be explained as follows: E-sourcing supports the specification phase; it identifies suppliers that can be used in the selection phase. E-tendering supports the selection phase; it facilitates the REOI and ITB/RFP activities, usually including support for the analysis and assessment activities. E-reverse auctioning supports the contract phase; it enables closing a deal with a supplier; E-ordering and web-based ERP is the process of creating and approving procurement requisitions, placing purchase orders, as well as receiving goods and services ordered, by using a software system based on the Internet. E-informing is not directly associated with a phase in the procurement process; it is the process of gathering and distributing procurement information both from and to internal and external parties using Internet technology.

1.4.E-procurement strategy costs, benefits and risks

Business cases aimed at adopting or enhancing e-procurement tools are often prepared by information technology and/or finance specialists. However, some of the most successful procurement implementations have been driven by those who best understand the procurement processes and outcomes to be achieved. Because of their understanding and proximity to procurement processes, those involved in the procurement function have a key role to play indentifying and assessing the costs and benefits of e-procurement tools and in providing input into how existing tools may be enhanced. The following costs and benefits as identified by de Boer, Harink et al. (2002), can be influenced by e-procurement The cost of expenditure on goods/services related directly to the production/service delivery. The cost of non-production of goods and services. The cost of operational procurement activities e.g., requisitioning, ordering, expediting and administrative support The cost of tactical procurement activities e.g., formulating specifications, selecting suppliers, negotiating with suppliers, contracting, disposals etc. The costs of strategic procurement activities e.g., spend analysis, transaction analysis, analysis, planning, developing procurement policies etc. Internal benefits arising from investments in particular inter-organizational relationships. The contribution of investments in particular inter-organizational relationships to revenues These costs and benefits should be assessed in relation to each e-procurement tool. While it is usually assumed that e-procurement will automatically deliver benefits, the actual benefits will depend on many factors including: cost of required investment, ability to convert associated Savings to cash, nature of the procurement process being automated, particular supply market and the extent to which the organization supports its implementation. Benefits Particular benefits of e-procurement in the public sector are thought to include greater transparency in procurement through electronic publishing of tender notices and contract onwards.

When developing a business case for adopting or enhancing an e-procurement tool, it is important to assess the baseline benefits and costs associated with the process or processes to be automated in order to understand the probable outcomes of e-procurement adoption or enhancement. In essence, it is important to understand what will change and how it will change when an e-procurement tool is implemented.

Risks
The implementation of e-procurement tools carries certain risks. One of the primary risks is missing opportunities to implement strategies that improve procurement management without the need for investment in e-procurement. This is because many of the benefits ascribed to e-procurement may be achieved simply by improving procurement practice. For example, it is often said that e-procurement reduces maverick buying. However, other measures, including the implementation of corporate buying strategies that offer value for money, do not need electronic tools.

Another risk is over-investment in e-procurement tools that do not deliver the expected benefits. This risk arises when there has been inadequate evaluation of the implications of the adoption or enhancement of e-procurement tools. The risk that users will not accept an e-procurement tool is another common risk. This risk often arises where users have not been adequately consulted about the adoption or enhancement of particular tools.

On the supply side, there is a risk that suppliers will not cooperate with the use of e-procurement tools. For example, some suppliers are sufficiently powerful to insist on the use of paper-based systems. Others may not have access to affordable internet based technology that would give them access to the e-procurement tools of purchasers. In markets that are already competitive with low profit margins, suppliers may choose not to participate in e-reverse auctions.

Normal methods of risk assessment and management (Risk Management) should be applied during the development of business cases for e-procurement development or enhancement.

1.5.Legal aspects of e-procurement

The accepted legal framework guiding e-procurement is the UNCITRAL Model Law on Electronic Commerce which states:

In the context of contract formation, unless otherwise agreed by the parties, an offer and the acceptance of an offer may be expressed by means of data messages. Where a data message is used in the formation of a contract, that contract should not be denied validity or enforceability on the sole ground that a data message was used for that purpose.

In adopting or adapting any e-procurement systems, the practical issues around these legal aspects need to be taken into consideration during the planning and implementation stages.

Chapter Two Public Procurement and Framework Agreements

Objectives
After completing this chapter the students are able to: Understand the concept of framework agreement? Differentiate framework agreements from other contracts Associate framework agreement contracts with that of other contracts Understand the benefits of framework contracts Discuss on the challenges of framework agreement contracts

2.1 Introduction
The Framework agreement, often known as an umbrella agreement, is an agreement which is reached between two parties to cover a long-term collaborative arrangement. Framework agreements are used typically where an employer has a long term program of work in mind and is looking to set up a process to govern the individual construction or supply packages that may be necessary during that framework term. Framework agreements allow an employer to instruct another party to carry out works or provide services, by reference to pre-agreed terms, over a (usually) pre-agreed period of time.

The concept of a framework agreement is that it is, essentially, an arrangement which establishes the contractual terms which will apply to subsequent orders made for the goods, services or works covered by the framework over the period of time during which it is in force. The inclusion of specific provisions in the Public Sector Directive covering framework agreements clarified the position in terms of the availability of framework agreements but also introduced restrictions and controls over their use and ambiguities about the legal rules.

Framework agreements, sometimes called Indefinite Quantity Contracts, are two-phase procurement instruments, in which the first competitive round generates sometimes one but more often multiple awards to contractors generally able and available to perform specific tasks yet to be ordered by the procuring entity. The second round of competition, between one or more of the contractors now in the qualified pool, yields a specific contract with one of them to supply the particular goods or services required. Framework agreements, sometimes called Indefinite Quantity Contracts, are two-phase procurement instruments, in which the first competitive round generates sometimes one but more often multiple awards to contractors generally able and available to perform specific tasks yet to be ordered by the procuring entity. The second round of competition, between one or more of the contractors now in the qualified pool, yields a specific contract with one of them to supply the particular goods or services required. Second brief round of competition is used to choose one of the contractors to handle each specific visit. The first round will generally include most of the features of the request for proposals method of procurement. The second round will generally resemble request for quotations from the qualified group of contractors. Variations on this approach are possible, depending on the number of contractors awarded a framework agreement.

2.2. The meaning and definition of framework agreement

There is some confusion as to the precise coverage of the rules on framework agreements. This confusion results primarily from lack of clarity as to the use of the terms framework agreements and framework contracts and also whether or not framework contracts are a type of public contract.

A mere framework agreement sets out the terms which will apply if the parties conclude a contract, but does not itself constitute a public contract obliging either of them to do anything. The suggestion that a framework contract is the same as any other public contract seems to confuse the establishment of terms for the delivery of works, services or supplies with an obligation to provide, receive and pay for those works, services or supplies.

The term binding framework is used in the (very rare) instance where the contracting authority must use the framework agreement for any purchases it wishes to make of the works, services or supplies which form its subject-matter. The large number of non-binding buying club framework agreements provides contracting authorities with a wide choice of potential suppliers. This means that contracting authorities are in a position to shop around for the supplier that offers the best deal. From the providers perspective, a key concern is that they may incur potentially considerable costs in tendering for appointment to a framework agreement with no guarantee of work once appointed. Framework agreements are sometimes criticized as anti-competitive, because the first round of competition, which yields no specific contract, resembles a pre-qualification and not a full and open round of competitive proposals. The second round involves price competition but it is only limited to the pre-qualified suppliers and contractors. Sometimes, in fact, procuring entities will only involve one or two or three contractors in the second round on the premise that full competition has already taken place in the first round. On the other hand, there are significant gains in cost and efficiency in the use of framework agreements from the perspective of the government. Much of the preliminary work of the procurement process is accomplished during the first round, at little cost to the government. The second round, focused on specific tasks or orders, is likely to generate substantially competitive prices. Record keeping in this method of procurement is particularly important, but complicated because of the two rounds of competitive action. Is this an arrangement which falls within the coverage of the framework provisions? Should it be advertised as a framework and, for example, be subject to the general limitation on the life of a framework of 4 years? Alternatively, is it a public contract not covered by the rules on framework agreements which can be awarded for a longer period without a general limitation?

Generally, a framework agreement can be defined by the Public Sector as: an agreement between one or more contracting authorities and one or more economic operators, the purpose of which is to establish the terms governing contracts to be awarded during a given period, in particular with regard to price and, where appropriate, the quantity envisaged. Or an agreement or arrangement which establishes the terms (in particular the terms as to price) under which an economic operator will enter into one or more contracts with the contracting authority in the period during which the framework agreement applies". The concept of binding and non-binding framework agreements: (ii) Binding framework agreements. The term binding framework is used in the (very rare) instance where the contracting authority must use the framework agreement for any purchases it wishes to make of the works, services or supplies which form its subject matter. In other words, these arrangements are exclusive.

A framework can be set up by: An individual contracting authority; A contracting authority acting on behalf of a number of contracting authorities; Central purchasing body acting on behalf of itself or a number of contracting authorities.

2.3. Can frameworks be used for all procurements?

Frameworks may not be suitable for all types of purchasing, and contracting authorities need to be certain that a framework will provide an economic and efficient means of purchasing. The most appropriate use of frameworks is where a contracting authority has a repeated requirement for works, services or supplies, but the exact quantities are unknown.

Contracting authorities must be in a position to manage a framework agreement, as the needs of both the contracting authority or authorities and the provider(s) must be met, and the operation of the framework agreement must be closely monitored.

Care must also be taken to ensure that framework agreements are not set up in such a way as to distort competition and that they are not improperly used.

2.4. What procedure is used for procuring a framework agreement?

Any one of the four main competitive procedures may be used for procuring a frame-work agreement although it is most common to use the open or restricted procedures. It is only when contracts are awarded under the framework agreement that different; framework agreementspecific provisions apply. It should be noted that a framework agreement is not a list of selected economic operators that are qualified to provide the works, services or supplies covered by the agreement. To be appointed to the frame-work agreement, economic operators will have to have both qualified and submitted tenders, who are evaluated by the contracting authorities, and it is those tenders that will provide the basis for future awards under the framework agreement.

2.5. Framework Agreements in the Context of Consulting Services

(Indefinite Delivery Contracts, Price Agreements or Standing Offers)
Indefinite delivery contracts refer to contracts in which an individual consulting firm or an association of firms is hired for a specified time period (usually three to five years) to undertake tasks as and when the need arises. The specific workload is unknown at the outset; all that is known is that advice is likely to be needed in a particular area. Indefinite delivery contracts are usually agreed upon because it is anticipated that the services will have two particular characteristics: Clients will need access to immediately available or on-call services for urgent assignments, and a lengthy competitive bidding process is impossible because of external circumstances. These services could include experts for urgent remedial actions in emergency situations caused by natural calamities, wars, epidemic or outbreaks. Each individual consultancy will be quite small, making an expensive competitive selection process inefficient, although, when added together, the amount of advice is substantial. These combined factors make it worthwhile to appoint suitable consultants who can be on standby and are called upon when needed. However, locking in one set of advisers over a considerable period of time raises a number of issues related to the selection of the consultants;

therefore, the quality and price of the services proposed must be addressed. Since it is not known how often or for what specific tasks the consultants will be called upon, they may not be able to submit a plan of work or a fixed total price. At the same time the long contract period and the unknown activation dates mean that consultants may always credibly claim that the requested expert is not available. Administering an indefinite delivery contract requires considerable time and energy from Clients staff, which must negotiate and administer each delivery order.

2.6. Setting up a framework agreement - Early considerations

A framework agreement can be set up by one or more contracting authorities for their own use or a central purchasing body for the use of other contracting authorities.

In either case, an agent may be employed to carry out the processes of advertisement, selection and award. In that event, liability for legal compliance remains with the contracting authority or authorities. Where a framework agreement is set up by contracting authority acting as a central purchasing body, that framework agreement can safely be used by other contracting authorities who are adequately identified at the time the central purchasing body places the contract notice and have consented to the central purchasing body doing so on their behalf.

Where a group of contracting authorities has collectively decided to set up a framework agreement, the allocation of liability is the most important matter for them to address as between themselves. It seems that the most effective way for them to do so would be to set up a framework users agreement or access agreement in order to apportion liability between themselves in an appropriate way. The Public Sector Directives definition of a framework agreement is an agreement between one or more contracting authorities and one or more economic operators.. Therefore, any entity which is not a contracting authority cannot validly establish a framework agreement intended for use by contracting authorities.

If it were to do so, then economic operators would be deprived of a remedy where the procurement (by the non-contracting authority) was carried out unlawfully.

2.6.1.Setting up framework agreements: the starting premise

As a matter of law, a framework agreement can be set up by: One or more contracting authorities for their own use; or A central purchasing body for the use of other contracting authorities

In either case, an agent may be employed to carry out the processes of advertisement, selection and award. In that event, liability for legal compliance remains with the contracting authority or authorities .

2.6.2.Duration of framework agreements

A framework agreement may not endure for more than three to four years except in exceptional circumstances, in particular, circumstances relating to the subject of the framework agreement. For example in Ethiopia a maximum contract period for the framework agreement is three years. This three-year rule exists to ensure that public procurement markets are opened up periodically to competition. Where any kind of justification for a longer period than four years is relied on, the grounds for doing so would be expected to appear in the contract notice

The Public Sector Directive and the Regulations do not stipulate any maximum duration for contracts awarded pursuant to a framework agreement, raising the question of whether the setting up of a framework agreement of duration longer than three to four years can ever be justified.

Where the view is taken that exceptional circumstance justify a framework agreement of a longer duration than four years, provision may be made that individual contracts called off pursuant to it will co-determine with the end of the framework agreement. Framework agreements for a longer duration than four years may have the potential to prevent restrict or distort competition.

2.7. Award of a framework agreement

Agreement with one economic operator: Where the framework agreement is with one economic operator then the contracts are awarded within the limits of the terms laid down in the framework agreement. The contracting authority may request the economic operator to supplement its tender if necessary but there must be no substantial amendments to the terms laid down in the framework agreement. Agreement with more than one economic operator: Where the agreement is with more than one economic operator, the contracting authority has a choice. There are two ways of awarding a contract: By application of the terms laid down in the framework agreement without re-opening competition, awarding the contract directly to a particular economic operator; or By running an additional competition, inviting all suitably qualified economic operators on the framework to participate (a mini-competition).

Contracting authorities should make it clear when setting up the multi-provider frame-work how contracts will be awarded, and the framework agreement should include provisions covering the manner of awarding the contract. In both cases the parties may under no circumstances make substantial amendments to the terms laid down in the framework agreement and the award must not be made improperly or in such a way as to prevent, restrict or distort competition.

Award to an economic operator without further competition: Where the contracting authority wishes to use the first option and to award a contract directly to one of the economic operators in the framework, then it must do so on the terms laid down in the framework agreement.

Award following a mini-competition: The contracting authority may use the second option of a mini-competition, where not all terms are laid down in the framework agreement. This process allows the terms referred to in the specification to be introduced or existing terms to be more precisely formulated.

All of the suitably qualified economic operators in the framework must be invited to participate in a competition on this basis so as to ensure equal treatment, non-discrimination and transparency. The Directive sets out the requirements for the conduct of the mini-competition.

Who can call off contracts under a framework agreement?

In order to call off a contract from a framework agreement a contracting authority must be an original party to the framework agreement. As a minimum "original party" means that the contracting authority must have been either: named in the contract notice; named in a document referenced in the contract notice; or be an identifiable member of a class of contracting authority named in the contract notice or a document referenced in the notice. There is no consensus as to whether "original party" also means that the contracting authority must have decided prior to the conclusion of the framework agreement that it wished to be eligible to use it.

Calling off under a framework gives rise to two principal issues: which framework supplier should get this particular call off, and on what terms? With single supplier frameworks the choice of supplier has by definition already been made and it is likely that most of the terms of the subsequent call off contracts should have been settled during the competition to identify the single supplier and whilst the process is still competitive.

With multi-supplier frameworks contracting authorities may choose to establish at the outset of the framework a mechanism that will identify which of the framework suppliers will be awarded any particular call off and in this case the terms of the call off should also largely be settled at the outset (each call off being analogous to a single supplier situation).

Alternatively, the contracting authority may identify the chosen supplier and finalize the terms of the call off contract, to a greater or lesser extent, by mini competition.

2.8. The advantages and the disadvantage of framework agreement

The first benefit is contractual certainty. A long, long time ago, we made a claim on behalf of a consultant that commenced:

By a Framework Agreement between the Plaintiff and the Defendant, it was agreed that, in consideration of the Plaintiff carrying out inception and feasibility work for the Defendant in relation to potential projects, the Defendant would engage the Plaintiff as consultants if and when the projects proceeded. The Defendant has obtained the benefit of that bargain, but has been in repudiator breach of it by engaging other consultants for projects that have proceeded. The Plaintiff claims a quantum meruit, to be assessed by reference to the benefit obtained by the Defendant and the cost of the work to the Plaintiff, alternatively damages in respect of the fees that it would have earned had the Framework Agreement been honored.

The Constructing Excellence website says this: When you are procuring over a period of time, a framework can deliver many benefits, such as: Reduced transaction costs; Continuous improvement within long-term relationships; Better value and greater community wealth; Solutions that delight customers.

Chapter Three
Sustainable Procurement
At the end of this chapter, the students are able to: Understand the concept of sustainable procurement in the public procurement process Understand the benefits of sustainable procurement in applying in the public procurement process. Apply the concept of sustainable procurement in the public procurement process. Include the concept of sustainable procurement concepts in the public procurement policy and regulations Advise suppliers/contractors how to include sustainable issues in the production or manufacturing process

3.1. Introduction
What Does Sustainable Procurement is meaning?
Procurement is the process by which public or private organizations buy supplies and services to fulfill various functions, e.g. shelter, transport, infrastructure needs, etc. However, procurement is not simply about the purchasing of goods and services. Procurement also has to meet the obligations of timeliness; effectiveness; efficiency; competition; transparency; equitable distribution; and, development. At the macro-level, public procurement creates a dynamic; a chain reaction which benefits the economic life of a country and supports development of the private sector. Thus, there is a direct link between the performance of the procurement function and the collective fulfillment of economic objectives.

Sustainable procurement is about combining social and environmental factors with financial considerations when making purchasing decisions. It involves looking beyond the traditional economic parameters and making decisions based on life-cycle costs, associated environmental and social risks and benefits as well as broader social and environmental implications.

By adopting a sustainable procurement policy procuring agencies, Funds and Programs can develop and adopt policies and practices that: Secure best value for money, price, quality, availability, functionality; Support a precautionary approach to environmental challenges; Are cleaner and safer; make efficient use of resources, ensure adequate management of chemicals; Incorporate environmental costs, reduce pollution and risks for humans and the environment; and,

Influence purchasing decisions to support issues such as poverty eradication, international equity in the distribution of resources, labor conditions, and human rights.

The most important environmental and social challenges in todays consumer society are: Reducing the emissions of greenhouse gases Reducing the emissions of hazardous chemicals Avoiding over-consumption of resources and limiting the volume of waste Stopping the use of ozone depleting substances Safeguarding biodiversity Promoting safe and equitable work environment Supporting local entrepreneurs

In procurement, it is therefore important to manage: Consumption of raw materials and energy Chemicals in products Polluting emissions Waste generation Work conditions Diversity of supplier

3.2. Aim and challenge

Traditional procurement has focused upon value for money considerations. The aim and challenge of sustainable procurement is to integrate environmental and social considerations into the procurement process, with the goal of reducing adverse impacts upon health, social conditions and the environment, thereby saving valuable costs for public sector organizations and the community at large. Sustainable procurement forms a key part of an overall push for sustainable development by governments.

3.3. Potential benefits

Potential benefits of sustainable procurement include: long-term efficiency savings more efficient and effective use of natural resources reducing the harmful impact of pollution and waste reducing the impact of hazardous substances on human health and the environment encouraging innovation providing strong signals to the sustainable products market Practical expression of organizations commitment to sustainable development.

3.4. What are the Key Elements of Sustainable Procurement?

Sustainable procurement policies and processes incorporate appropriate safeguards and checks to avoid abuses or inadvertent infringement on key issues, the most important of which are noted below.

Adverse Environmental Impacts

Procurement can play a key role in promoting sustainable production and consumption patterns. It is widely recognized that industrial development will only be truly sustainable if it is built on firm ecological foundations. The growing attention to issues of sustainable consumption and production (SCP) is the result of decades of work on cleaner production and eco-efficient industrial systems. SCP represents the latest step in a progressive evolution from pollution control; an evolution which has gone from:

Pollution Control

Cleaner

Eco -design

Product-systems

Eco-innovation

Production
Mitigating negative Outputs

Focus on Production

Focus on Products

Processes

Incorporating energy and resources consumption during life-cycle, transport logistics, end-of-life collection and component reuse or materials recycling

new products and productsystems and enterprises designed for win-win solutions for business and the environment

Local Entrepreneurship Strategic procurement practices can also support the development of local entrepreneurs by requiring that a certain percentage of goods and services be locally sourced.

Human Rights Human rights are increasingly acknowledged as a business issue. They are inextricably linked to corporate risk and reputation management. The expansion of supplier sourcing from developing countries means that procurersand public organizations procurers in particular given where the organization does businessare increasingly exposed to companies operating in countries with repressive governments, where there is ethnic conflict and weak rule of law, or poor labor standards. The procurement function must include processes that identify companies that flaunt their responsibility to uphold the universal human rights both towards their employees and the communities in which they operate. Labor Rights With the rise of globalizationand with it the extension of global supplies chainsprocurers have the unique opportunity as well as responsibility to ensure that procurement supports workers rights. Companies operating in global markets are increasingly expected to assume some level of responsibility for labor practices along their supply chains. This responsibility can and should also form an integral component of the procurement function, by ensuring that the contracted companies operate within the universally accepted ILOs core conventions on labor standards. At a minimum, procurers should be aware of a prospective suppliers performance concerning: Rights to freedom of association and the effective recognition of the right to collective bargaining;

Elimination of all forms of forced or compulsory labor; Effective abolition of child labor; and, Elimination of discrimination in respect of employment and occupation.

While the above four elements do not cover the full range of labor rights issues they do address some of the deepest and most challenging aspects of this subject area. Gender and the Empowerment of Women

The Millennium Development Goals (MDGs) set a target to: Eliminate the gender disparity in primary and secondary education preferably by 2005, and to all levels of education no later than 2015. The procurement function can promote gender equity and the empowerment of women by adopting practices that support minority businesses, particularly those owned by women. A straight-forward and simple approach is to use an evaluation preference that awards additional points to minority businesses Poverty Eradication The MDGs call for the eradication of extreme poverty and hunger by: halving between 1990 and 2015, the proportion of people whose income is less than one dollar a day and halving between 1990 and 2015, the proportion of people who suffer from hunger. Public procurement can contribute to the eradication of poverty by providing capital investment through local and regional sourcing strategies in the respective economies. By sourcing products and services in-country or within particular region procurement can: Support job creation; Stimulate increases in income; Improve the purchasing power of the local population; Generate economic opportunities within communities; and, Contribute to economic development.

3.4.

Governance and public procurement

Sustainable procurement can play a strategic role in achieving and ensuring good governance. Good governance encompasses a functioning regulatory system, as well as institutional set-up, well-designed processes and proven capacity to meet identified needs. Effective public

procurement is a good indicator of how well those processes are managed. Moreover, a well functioning procurement system can ensure: Better value for money; Increase in efficiency and effectiveness of delivery; Reduction in the potential for corruption; A positive, country-level investment climate; Non-discriminatory practices; Transparency; and, Accountability.

What are the Benefits of Sustainable Procurement? Tradition procurement focuses on value for money considerations. The aim and challenge of sustainable procurement is to integrate environmental and social considerations into the procurement process with the goal of reducing adverse impacts on human health, social conditions and the environment, thereby saving money for organizations and the community at large. The benefits that can accrue to an organization practicing sustainable procurement include: A more open debate both internally with staff and externally with partners; Better inter-organization co-operation with different departments/services, e.g. finance, environment, industry, etc.; Improved relationship with employees and users of dangerous products, e.g. chemicals used by cleaning services; and, A general improvement of transparency and ethics with and from suppliers Specific benefits of sustainable development include: Contributing to the modernization and international competitiveness of local industry which can encourage foreign investment and employment generation; Improving the efficiency in the public sector so that more money can be invested in social and economic development; Improving working conditions, e.g. labour standards, health and safety; Assisting disadvantaged groups in society; Reducing harmful emissions and waste generation; Improving air and water quality; Reducing the use of nonrenewable natural resource;

Complying with a growing international trend in requirements and/or expectations of donor community; Complying with Multilateral Environmental Agreements and Labor Conventions ratified at the national level; Alleviating global environmental problems e.g. global warming, ozone depletion; Setting an example of engagement; Demonstrating commitment and strong political will to encourage change in other countries; Improving the efficiency and transparency of procurement procedures and structures; and, Generating savings through life-cycle costing and the avoidance of superfluous purchasing.

Procurement can also support long-term sustainability objectives if designed with these objectives in mind. Below are a series of sustainability objectives (listed in BOLD) with corresponding results arising from sustainable procurement activities.
Results More efficient and effective use of natural resources and the environmental effects of obtaining those resources; Reduce the harmful impact of pollution and waste; Eliminate or reduce toxic materials entering the environment thereby reducing the impact of hazardous substances on human health and the environment; Encourage innovation; Reduce waste and landfill through purchasing recycled content products and products that create less waste; Provide strong signals to the sustainable products market; Practical expression of the organizations commitment to sustainable development saving money through re-using materials and products; Help to 'close the loop' to make recycling viable; Save water; Reduce greenhouse gas emissions; and, Preserve the natural habitat for flora and fauna.

Results

Reduce costs through greater energy efficiency, resources efficiency, reduced waste disposal, reduced risk management; Lower costs for some products and services; and, Increase productivity and reduced time lost from illness because of the improved work environment.

Promote long-term Efficiency savings Use public resources More efficiently

Results Increase the availability of green products at cost effective prices; Expand the market for green products, as well as for products with reduced packaging; and, Improve the level of information available to buyers about the content and performance of products making it easier to buy green

Stimulate the market to innovate and produce more sustainable options

Results

Demonstrate to industry and the community that the organization is serious about Sustainability

Results

Reduce exposure to toxic materials and emissions, through se of more benign products for cleaning, pest control, building and fleet maintenance; and, The Challenge of Sustainable Procurement Generate a more Improve working comfortable energy The relevance and practical application of the environmental aspects of a public procurement conditions efficient working environment. can be demonstrated fairly easily. Green requirements can be detailed in the technical

Provide leadership to governments, industry and community at large Demonstrate social and environmental responsibility; Reduce the potential negative publicity associated with the use of products, services and suppliers with poor environmental and social records; and, Compliance with international policy and legal frameworks concerning sustainable development and procurement.

demands for the production technology and the selection of materials. Performance and

quality standards included in the technical specification can be easily defined and introduced at any stage of the procurement process. The relevance and specification of social and ethical aspects of sustainable procurement on the final product is more difficult to measure as it involves social behavior which often cannot be quantified. This makes it hard to verify and benchmark the effects of social and ethical behavior in tender evaluation.

Some ways to measure the effects of social and ethical behavior in the tender evaluation include using voluntary initiatives such as the Global Compact as a way to pre-screen potential vendors. Performing upstream activities, i.e. ahead of the procurement process, such as factory audits of suppliers, pre-qualification of suppliers and the establishment of more long-term agreements to ensure that those vendors solicited for bids meet minimal social and/or ethical criteria. Checklists that outline minimal criteria against which procurers can assess a potential vendor is another way to check that social and ethical criteria have a good possibility of being met.

Questions and Answers

Moving from procurement based on the concept of best value for money to procurement based on broader ethical and environmental issues naturally raises a host of questions. Below is a selection of questions that are frequently asked as companies and organizations transition from procurement to sustainable procurement. The next section, How to Transition to Sustainable Procurement will address the transition process step-by-step? Why to link procurement and sustainable development? In committing to sustainable procurement benefits accrue to the organization including: Controlling costs by adapting a wider approach to the whole life costing; Involving the local business community to help build a more sustainable supply chain for the future; Complying with environmental and social regulation (meeting country regulations); Managing risk and reputation;

Building; and, Improving internal and external standards.

Procurement is a well-placed tool to facilitate the promotion of sustainable development. Through the development of procurement criteria that support sustainability principles, requisitioners and procurers can send strong signals to the market in favor of goods and services that promote sustainability. Key procurement criteria such as energy efficiency or water conservation can help engage businesses in emerging and developing economies to curb emissions while contributing to goal of meeting the international challenge of climate change. Simultaneously, employing such measures will increase the competitiveness of these businesses in international markets, where issues as climate change and resource depletion are already addressed in public procurement policies, e.g. Japan, EU, USA, Canada.

What defines as sustainable product?

A sustainable product is the result of a design process in which environmental, social, ethical and economical questions were partly or totally integrated. National or product eco-labels are useful to help identify products. Company policies can also be used to help the procurer understand the sustainable characteristics of its products.

Does sustainable procurement require more work from the procurer?

Like any change, it takes time to become familiar and comfortable with the new process. Once requisitioners and procurers understand what sustainable procurement meansand how to incorporate new criteria into the tending documents and evaluate bidsthen the process is the same.

Is it easy to find sustainable products in all categories?

Increasingly companies are rising to the challenge of addressing sustainability issues. In the majority of markets it is becoming easier to define a sustainable leader. In markets that are still evolving there is a need to ensure that sustainability principles are being followed rather than

simply talked about in promotional literature. For this reason, sustainable procurement criteria need to be carefully adapted and complemented with training of requisitioners and procurers to support and encourage a gradual migration of companies towards cleaner production and more sustainable business practices overall. This is particularly important in developing markets.

Can most companies meet sustainability criteria?

The ability of a company to meet defined criteria will depend on its size and location. In many countries, national or inter-regional legislation, i.e., European Union, already stipulate that products not contain hazardous materials, use resources efficiently and provide end-of-life, takeback or recycling options. Products that are sold in these countries must therefore meet these requirements. The difficulty arises when sourcing products from countries were regulation is weak. Here the presence of ISO 14001 can demonstrate a commitment to environmental stewardship. However being ISO 14401 certified does not automatically mean that the company supplies sustainable products and services. Reference to an international voluntary initiative, e.g. the Global Compact, or certification by a particular eco-label can also be used as proxies of commitment.

How can criticism about unfair advantage best be managed?

To avoid concerns about unfair competition, e.g., because of defined sustainability criteria or geographical focus, it is important that a request for proposal (RFP) clearly outlines ALL the criteria that will be used to assess a bid. These criteria must also then be weighted so that bidding organizations can clearly see where they may bring added value. Sustainability criteria should be defined as ideals not as absolutes, the latter which limits competition. Phrases such as: XXX is committed to supporting local suppliers, small and medium-sized enterprises and ethnic minority-owned-businesses, outlines the organizations priorities but does not prevent a business not fitting that description from submitting a bid. Procurement criteria that cover a broad set of issuestechnical, financial, environmental, social and ethicalnot only support sustainable procurement principles but provide opportunities to a wider range of potential suppliers.

Is sustainable procurement more expensive than business as usual procurement?

Efficient procurement means ensuring value for money, which is the optimum combination of entire-life cost and product quality to meet the identified need. First, it is important to consider whether a new product is really required at all or whether an alternative solution can be found. Second, all too frequently the only financial factor considered is the purchase price of a product. In reality the cost of maintaining the product over its useful life and the cost of its disposal must also be factored into the purchasing decisionparticularly if the product contains toxic elements as the disposal of toxic products may also involve substantial financial costs. For example, in the case of buildings the largest costs over the life-time of the building are operational costs. High, energy-efficiency standards in renovation and new construction make considerable financial sense, as do the use of energy efficient products such as computers and light bulbs.

Chapter Four Public private Partnership (PPP) Objectives

At the end of this session, it is expected that the participants will have learned international best practices with regard to the appropriate consideration of public-private partnerships for infrastructure development and the provision of public services, with special reference to the perspective of public procurement. Participants will examine the state of PPP and its potential in their own countries. Participants will be expected to be able to identify the special features of PPP, including the complex variety of contractual relationships among the public and private parties to a PPP project. Participants will be expected to know the types of projects for which PPP is an attractive approach to infrastructure financing, and the variations of procurement procedure (e.g., unsolicited proposals) which are common in PPP projects.

4.1.

Introduction

A Public-Private Partnership is a long-term contractual agreement between a government agency and a private partner for the delivery of goods or services. As partners, each party shares in the potential risks and rewards inherent in the delivery of the goods or service, including financial risks and responsibilities, and quality assurances for the taxpayer. Public-Private Partnerships are not privatizations because the government entity involved in the agreement retains control and ownership of the project. In fact, partnerships under the Oregon Innovative Partnerships Program are no different from the way in which many other essential services are already delivered in Oregon, like electricity and gas utilities, which are largely developed and managed by a private partner but operated under governmental regulation. In the context of public procurement, the notion of public-private partnerships (PPP) refers in particular to procurement of public infrastructure and/or public services on the basis of private investment and/or the award of concession contracts. Because the private parties are involved as investors, lenders, insurance companies, as well as engineering and construction companies, the

PPP model varies substantially from the conventional procurement activity involving public funds and private suppliers or contractors.

This portion of the course describes procurement-related issues raised by the use of what is commonly referred to as public-private partnership based contracting (PPP). As the term is used here PPP refers to the acquisition by the public sector of public infrastructure facilities and/or service on the basis of private investment and/or the award of concession contracts.

Terminology used in this field is quite diverse and it may or may not be used in any given case in the same manner, with the same degree of precision, or with the same exact meaning, as it may be used in other instances. The diversity of terminology originates no doubt in large part from the diversity of commercial and contractual variants and analytical models that populate this sphere of contracting.

PPP projects may involve construction or refurbishment of infrastructure of a great possible variety of types, and it may involve operation and maintenance of such facilities (with or without a construction or rehabilitation component). PPP can also be understood to encompass traditional public services concessions, for example, in the awarding of a concession contract to operate bus lines for passenger transport.

Terminology encountered in practice to describe various types of these contracting variants include, for example build-operate-transfer (BOT), and project finance. A common thread in many if not most of these forms is that the private investment and cost of construction and/or operation is recouped during an operation period, during which revenues generated by the use of the facility are used to recoup financing and other costs, and to generate the profit of the investor/service operator.

PPP is practiced widely, especially in the developed countries. It can be an important vehicle for mobilizing private finance to achieve important public purposes. As the same time, it is of paramount importance to ensure that the use of PPP is targeted at appropriate cases and subject to thorough feasibility assessment, so that PPP is not used reflexively in situations where it may

be better, from the standpoint of the public interest, to retain certain activities wholly under public sector management and operation. That is where it is important for a country to have the needed capacity to make such assessments and appraisals of possible projects. From the public procurement standpoint, it is in the public interest to ensure that the award of contracts based on PPP should be subject to the fundamental principles of public procurement, including economy and efficiency, value for money, competition, fairness, transparency and accountability while at the same time providing any special procedures that might be needed to take into account the particular nature and circumstances of PPP contracting. In addition, effective implementation of PPP projects may also depend heavily in some cases on the existence of effective regulatory mechanisms in the operation areas of the projects.

4.2.

Understanding Public- Private partnership

The Government recognizes that there are some things which the private sector does best and others where the public sector has more to offer. The old argument, as to whether public ownership was always best or whether privatization was the only answer, is simply outdated. The Government firmly believes it will only deliver the modern, high quality public services that the public want and increasingly expect if it draws on the best of both public and private sectors.

The starting point is, therefore, recognition of the contribution that the public and private sectors can each bring to the partnership.

This portion of the course describes procurement-related issues raised by the use of what is commonly referred to as public-private partnership based contracting (PPP). As the term is used here PPP refers to the acquisition by the public sector of public infrastructure facilities and/or service on the basis of private investment and/or the award of concession contracts.

Terminology used in this field is quite diverse and it may or may not be used in any given case in the same manner, with the same degree of precision, or with the same exact meaning, as it may be used in other instances. The diversity of terminology originates no doubt in large part from

the diversity of commercial and contractual variants and analytical models that populate this sphere of contracting.

PPP projects may involve construction or refurbishment of infrastructure of a great possible variety of types, and it may involve operation and maintenance of such facilities (with or without a construction or rehabilitation component). PPP can also be understood to encompass traditional public services concessions, for example, in the awarding of a concession contract to operate bus lines for passenger transport.

Terminology encountered in practice to describe various types of these contracting variants include, for example build-operate-transfer (BOT), and project finance. A common thread in many if not most of these forms is that the private investment and cost of construction and/or operation is recouped during an operation period, during which revenues generated by the use of the facility are used to recoup financing and other costs, and to generate the profit of the investor/service operator.

PPP is practiced widely, especially in the developed countries. It can be an important vehicle for mobilizing private finance to achieve important public purposes. As the same time, it is of paramount importance to ensure that the use of PPP is targeted at appropriate cases and subject to thorough feasibility assessment, so that PPP is not used reflexively in situations where it may be better, from the standpoint of the public interest, to retain certain activities wholly under public sector management and operation. That is where it is important for a country to have the needed capacity to make such assessments and appraisals of possible projects.

From the public procurement standpoint, it is in the public interest to ensure that the award of contracts based on PPP should be subject to the fundamental principles of public procurement, including economy and efficiency, value for money, competition, fairness, transparency and accountability while at the same time providing any special procedures that might be needed to take into account the particular nature and circumstances of PPP contracting. In addition, effective implementation of PPP projects may also depend heavily in some cases on the existence of effective regulatory mechanisms in the operation areas of the projects.

4.3.

The fundamental role for Government

First and foremost, while the best way to deliver the Governments objectives may be through some combination of public and private sectors, Government retains the responsibility and democratic accountability for: deciding between competing objectives; defining the chosen objectives, and then seeing that they are delivered to the standards required; and Ensuring that wider public interests are safeguarded.

In the case of PPPs introduced into public services, this means that, while responsibility for many elements of service delivery may transfer to the private sector, the public sector remains responsible for: deciding, as the collective purchaser of public services, on the level of services that are required, and the public sector resources which are available to pay for them; setting and monitoring safety, quality and performance standards for those services; and Enforcing those standards, taking action if they are not delivered.

Similarly, in the case of state-owned businesses, while PPPs bring the private sector into the ownership and management of the business, the Government remains responsible for safeguarding public interest issues. This includes, in particular, putting in place independent regulatory bodies, remaining in the public sector, whose role is to ensure that high safety standards are maintained, and that any monopoly power is not abused.

4.4.
1.

PPP Main Issues

Some of the key issues raised by PPP contracting are listed below. Legal and institutional framework - elements of a comprehensive legal and institutional framework to support the whole PPP process, starting with project identification, appraisal and design, and carrying through implementation and operation, include, for example:

a. Necessary legislative frameworks and policies (important work has been done in this field by the United Nations Commission on International Trade Law (UNCITRAL), which has prepared model legislative provisions on publicly financed infrastructure, including the procurement aspects); b. Required levels of capacity to conduct the PPP project identification, appraisal and implementation process; c. Clarity in allocation of authority to enter into PPP arrangements; d. Coordinated public sector structures; e. Sound public procurement system, with the appropriate procedures for PPP contracting; f. Capacity for contract negotiation and drafting; g. Effective dispute settlement measures; and h. Effective regulatory structure. 2. Project selection as already noted, it is indispensable that the process of identifying, appraising and designing PPP projects should be effective, and that it enable the right projects to be done on a PPP basis in the right way, and to protect the public interest in cases where PPP is not the optimal or appropriate avenue. 3. Procurement methods the important characteristics of procurement procedures for PPP contracting that should be made available by the procurement system include: a. An open procedure for seeking expressions of interest from interested contractors, followed by the establishment of a short-list from which proposals are solicited; b. The possibility of a single-stage or a two-stage procedure for consideration of proposals and selection of the project company/concessionaire; c. The establishment of a short-list from which proposals are solicited;

d. The possibility of a single-stage or a two-stage procedure for consideration of proposals and selection of the project company/concessionaire; e. Application of best practices in drawing up the request for proposals with a view to eliciting responsive proposals; f. Sophisticated criteria for evaluation and ranking of proposals;

g. Procedures for dealing with unsolicited proposals, while safeguarding the basic principles and objectives of the procurement system; and h. Requisite levels of sophistication and protection of the public interest in the formulation of the project agreement/concession contract, including coverage of all key issues. In summary, key principles of PPP include: a. Selection of PPP projects should be based on thorough assessment of whether such a project is in the public interest in any given case, including whether the activity can be given over to management by the private sector or should remain within the public sector.

Such an approach is necessary to protect the public interest. PPP projects should be considered on the basis of financial and technical feasibility assessment (e.g., is the expected rate of return on an electricity project sufficient to connect the promised number of new users to the grid?). b. It is crucial to develop public sector capacity for identification and selection of PPP projects, as well as for managing and monitoring their implementation from the public side of the table.

In order to ensure that the use of PPP takes place only in appropriate cases, and that such projects are properly planned, awarded and implemented, it is crucial to ensure that there is adequate capacity available in and on behalf of the public sector purchasing and end-user entities.

c.

Procurement of PPP projects should be conducted in accordance with the fundamental principles and objectives of public procurement.

This is feasible and in fact essential. Not to do so potentially exposes the allocation of very significant infrastructure and services contracts to non-transparent and questionable practices. That has been shown by experience potentially to result in serious harm to the public interest, especially when private interests exert improper and corrupt influence on public officials to gain control and exploit essential infrastructure and services on an improper basis. A sound project planning and procurement system can help mitigate such risks.

4.5.

THE OBJECTIVES OF PPPs

In bringing the best of the public and private sectors together, the key test of any partnership arrangement is not whether it is classified to the public sector or to the private sector. Instead, what matters is whether it provides the structure most likely to deliver the Governments objectives. The Government develops public private partnerships with three broad objectives in mind: to deliver significantly improved public services, by contributing to increases in the quality and quantity of investment;

to release the full potential of public sector assets, including state-owned businesses, and hence provide value for the taxpayer and wider benefits for the economy;

To allow stakeholders to receive a fair share of the benefits of the PPP. This includes
customers and users of the service being provided, the taxpayer and employees at every level of the organization.

4.6.

Sharing the benefits fairly between all stakeholders

PPPs should create genuine economic benefits for all involved. This means ensuring that the benefits of PPPs are shared fairly: Between public and private sectors. Private sector partners and investors benefit from the new and profitable business that PPPs represent. But it is for Government to ensure there is a fair deal for the public sector; Within both public and private sectors, that all the stakeholders receive a fair share of the benefits. This includes the customer, the taxpayer, private sector investors and employees at every level of the organization.

Discussion questions:
1. Are PPP projects practiced or contemplated or being implemented in your country? If so, in
what sector(s) and what types of projects?

2. How those types of contracts are awarded what type of procedures is applied? 3. Are there legislative or regulatory provisions on the procurement procedures to be followed
in the award of PPP contracts?

4. What are the main advantages and disadvantages of PPP contracts that might have been seen
in practiced?

5. What are the main obstacle to planning and implementation of PPP projects? 6. What are your recommendations as to how best to handle procurement of PPP projects?

Chapter Five Green Procurement

Objectives of the Chapter
By the end of the session, it is expected that the participants will understand international best practices with regard to green and sustainable procurement and be able to identify and explain the principle objectives of green procurement, e.g., to curtail negative environmental impact associated with procurement transactions, to encourage the development of environmentallyfriendly products and services, and to assure compliance with critical environmental law and regulation. Participants will also be expected to be able to identify the main procurement techniques available for advancing environmental protection (planning, lifecycle costing, recycling, etc.).

5.1. Introduction
To make an environmental policy work it is essential to look at the public procurement procedure itself. A green procurement policy can, if it is not carefully implemented, founder on practical issues such as when to ask for it, who to ask for it and what criteria to use. Public procurement is in essence a question of matching supply and demand, just as with any private procurement procedure, the only difference being that contracting authorities have to exercise special caution when awarding contracts. This is because they are public entities, funded by the taxpayers money. This special caution can be translated into two main principles: getting the best value for money Acting fairly Best value for money Contracting authorities have the responsibility to get the best value for taxpayers money for everything they procure. Best value for money does not necessarily mean going only for the cheapest offer. It means you have to get the best deal within the parameters you set. The protection of the environment can be one of these parameters and can therefore act

as an equal factor amongst the others for the award of the contract. So value for money does not exclude environmental considerations.

Acting fairly-Acting fairly means following the principles of the internal market, which form the basis for the public procurement directives and the national legislation based on these directives. The most important of these principles is the principle of equal treatment, which means that all competitors should have an equal opportunity to compete for the contract. To ensure this level playing field, the principle of transparency must also be applied. Chapter 2 Green Procurement Defined The notion of green procurement is an inherent part of the wider notion of sustainable development and, within that, sustainable procurement. Sustainable procurement aims to conduct public procurement taking into account social, economic and environmental considerations, while respecting the principle of value for money and minimizing negative effects on the environment. Among the objectives of green procurement are, for example: a. Restoration of the environment and curtailment of negative environmental impact, e.g., by use of fewer resources for production and operation, eliminations of toxins, fuel efficiency, durability, recycling and less waste at the disposal stage; b. Encouraging innovation and the development of environmentally friendly industries and products for the purpose of moving to a green market and the economic opportunities that it will provide; and c. Encouraging compliance with environmental policies and rules, including those affecting public purchasers and their suppliers.

It is important to note that the notion of sustainable procurement, which encompasses green procurement, includes techniques and objectives such as reduction of greenhouse gas emissions, use of renewable energy, reduced consumption and waste of water, reduction of waste by way of diversion from solid waste stream and recycling, prioritization of fuel efficiency in vehicle fleet management, and fostering corporate responsibility.

The importance of environmental consideration in the public procurement process is being recognized in legislation of an increasing number of countries, as well as at the regional and international levels. The proposed draft revised text of the WTO Agreement on Government Procurement expressly authorizes the use of technical specifications related to conservation of resources and environmental protection, as well as for bid evaluation criteria.

5.2. Green Procurement: Main Challenges

The main issues concern types of techniques and initiatives that are being applied to advance green procurement policies and programs in public procurement systems. Some of the main steps in such initiatives are listed below: a. Procurement planning the importance of the planning stage in the procurement cycle is particularly critical from the green procurement standpoint (e.g., drawing up environmentally friendly technical specifications and requirements, market research to identify possible green products (i.e., environmentally friendly alternatives, reviewing environmental impact assessments to guide the procurement process)); b. Technical specifications and evaluation criteria these can concern, for example, energy consumption and emissions, as regards vehicles, use of recycled content in construction materials, water usage and waste performance of faucets; c. Eco-labeling there are advantages to the use of eco-labels (for example, to summarize environmentally friendly technical requirements), but safeguards should also apply to their use (e.g., as to the soundness of the eco-labels, appropriateness of the specifications, accessibility to interested parties); d. Life-cycle-costing - this approach to evaluation of bids is a pillar of green procurement; it encompasses purchase and installation costs, use and operation costs, and disposal costs at the conclusion of the useable operational period; based on net present value calculations (NPV); e. Energy consumption and management this aspect is a fundamental dimension of green procurement, and includes improved energy efficiency, reduction of emissions, production of energy from renewable sources, and reduction of water consumption. Related techniques

include, for example, distributed generation of energy (e.g., fuel cells, cogeneration), metering of consumption, facility audits, energy rating of appliances, environmentally friendly energy purchasing policies (e.g., from efficient and low-carbon generating facilities, and promotion of water-use efficiency); f. Water efficiency sometimes not readily thought of as part of green procurement, but really a key ingredient of a green procurement strategy; relates to indoor applications (use of efficient plumbing facilities for toilets, showers, sinks) as well as outdoor applications (landscape irrigation control technologies, water use to diminish use of potable water for outdoor use); g. Recycling going are the days when bidding documents and technical specifications would insist that products always be made of entirely new and unused materials; that culture is being replaced by the opposite one, in which higher scores may be given to products with recycled content, where appropriate, and to diversion of material from the solid waste stream at production as well as at disposal; h. Green buildings elements of green procurement in the construction sector include:

Integrated design - sitting, energy, water, materials, indoor environmental quality are considered and integrated in a multidisciplinary planning and design approach; Energy efficiency and renewable energy those are targeted, taking into account intended use and occupancy, and subject to verification and metering; Water efficiency for example, by environmentally friendly storm water management; Environmentally preferable building materials and specifications for example, by utilization of recycled industrial materials; Indoor environmental quality implementation of standards for aspects such as ventilation, moisture control, day lighting, use of low-emitting materials, and other factors for acceptability for human occupancy;

Reduction of toxics reduction of presence of, for example, asbestos, mercury, and pesticides;

Reduction of waste use of bio-based construction materials, recycling of construction waste; and Smart growth and sustainable development involvement of local communities in driving reduction of toxic pollution and other environmental harm to their communities.

Bio-based production this involves acquisition of biologically based materials in line with green principles (e.g., timber products certified as coming from sustainable production); and Price differential one should not automatically assume that green products will always be cheaper, even from a whole-life costing perspective.

5.3. What is the connection between public purchasing and the environment?
Public authorities are major consumers in any country, spending some 16-20 % of the countrys gross domestic product. By using their purchasing power to opt for goods and services that also respect the environment; they can make an important contribution towards sustainable development. Green public procurement covers areas such as the purchase of energy-efficient computers and buildings, office equipment made of environmentally sustainable timber, recyclable paper, electric cars, environment-friendly public transport, organic food in canteens, electricity stemming from renewable energy sources, and air conditioning systems complying with state of the art environmental solutions.

5.4. Implementation Strategy

Green procurement may be implemented in a phased manner. Certain products may be appropriate for early implementation (e.g., energy efficient automobiles, recycled content paper, organic food, and green construction materials).

Capacity Building

Components of capacity building include training programs, guidance and information materials for practitioners.

Management Tools

Various management tools are used in practice, including environmental management systems (EMS), compliance management plans, data collection, reporting, audits, and award programs.

In summary, some key principles of green public procurement systems include:

a.

Green procurement is in line with basic public procurement principles Green procurement cane be understood and implemented as consistent with value for money (e.g., whole-life costing principles), economy and efficiency, transparency, and other principles.

b. Green public procurement and the announcement effect By implementing green procurement, the public sector leads by example, which is a most effective type of leadership, providing an example and a standard for civil society and the private sector to follow in protecting the environment from further damage and helping to restore it for the present and future generations. c. Green procurement as economic development By implementing green procurement, the public sector can help to drive the private sector to develop future oriented capacity to meeting growing markets for environmentally friendly technologies and products. d. Capacity building as an essential element of green procurement As in other important areas of specialized procurement issues, effective planning and implementation of green procurement requires the requisite capacity building programs. There is quite a bit of ferment in the green procurement field, and it is possible to obtain a substantial amount of information and orientation from the experiences of other countries.

5.5. What is the connection between public purchasing and the environment?
Public authorities are major consumers in any country, spending some 16-20 % of the countrys gross domestic product. By using their purchasing power to opt for goods and services that also respect the environment; they can make an important contribution towards sustainable

development. Green public procurement covers areas such as the purchase of energy-efficient computers and buildings, office equipment made of environmentally sustainable timber, recyclable paper, electric cars, environment-friendly public transport, organic food in canteens, electricity stemming from renewable energy sources, and air conditioning systems complying with state of the art environmental solutions.

Green purchasing is also about setting an example and influencing the market place. By promoting green procurement, public authorities can provide industry with real incentives for developing green technologies. In some product, works and service sectors, the impact can be particularly significant, as public purchasers command a large share of the market (in computers, energy-efficient buildings, public transport, and so on). Finally, if you consider life-cycle costs of a contract, green public procurement allows you to save money and protect the environment at the same time. By purchasing wisely, you can save materials and energy, reduces waste and pollution, and encourages sustainable patterns of behavior.

Discussion Questions
4. What types of green procurement policies are contemplated or being implemented in your country? 5. Are there legislative or regulatory provisions dealing with green procurement issues?

6. To what extent has the legislative and regulatory framework in your country focused on green issues? Give some examples of developments. 7. What are the most significant obstacles to planning and implementing green procurement initiatives? 8. To what extent are people with technical expertise relevant to green procurement active on those types of issues in your country? 9. Are environmental impact issues taken into account in the planning of procurement?

Chapter Six
Ensuring Accountability and Control in Public Procurement
Objectives
At the end of the session, the students are able to: Understand the concept of accountability in public procurement Understand the importance of record keeping for enhancing transparency in public procurement Introduce internal and external control systems in the public procurement system Discuss how to apply accountability issues in the public procurement process

6.1. Accurate Records: a Pre-condition for Accountability and Control

Within the public sector, procurement is seen as increasingly important in delivering value to governments and ultimately to tax payers and society. Procurement officials are in the public eye because of the significant impact of procurement on the economy.

The cornerstone of a public procurement system operating with integrity is the availability of mechanisms and capacity for ensuring effective internal control and audit. Furthermore, mechanisms for lodging complaints and challenging administrative decisions contribute to ensuring the fairness of the process. In order to respond to citizens demands for greater accountability in the management of public expenditures, some governments have also introduced direct social control mechanisms by closely involving stakeholders not only the private sector but also end-users, civil society, the media or the public at large in scrutinizing integrity in procurement. 6.2.Accurate Records: A Pre-Condition for Accountability and Control

Accurate written records of the different stages of the procedure are essential to maintain transparency, provide an audit trail of procurement decisions for controls, serve as the official record in cases of administrative or judicial challenge and provide an opportunity for citizens to monitor the use of public funds. Agencies need procedures in place to ensure that procurement decisions are well documented, justifiable and substantiated in accordance with relevant laws and policies in order to promote accountability.

Written records may be kept in paper and/or electronic form. Some countries have used information systems to coercively support the documentation of all steps of the public procurement process and to allow real-time monitoring of officials performance and integrity. Information systems often have the advantage of recording information per user, which keeps officials accountable for their actions and can help track irregularities in the process. Information systems have been used to record and analyze data on: The financial aspects of procurement, in particular accounting records Characteristics of procurement processes, such as the criteria used, the frequency and reasons for using exceptions to competitive procedures, The number of administrative complaints and recourse mechanisms, The number and types of controls carried out on procurement

Keeping records depends on the objective sought. The most frequent objective of records is to provide an audit trail. The maintenance of proper accounting records is an important element of internal control. Records can also contribute to the safeguarding of assets, including the prevention and detection of fraud. The type of records, level of documentation and retention time on procurement may be proportionate to the nature and risk of the procurement. In particular, records will vary depending on the timeframe, the complexity and the sensitivity of the purchase, as well as the procedure used. For example, records will be stricter for exceptions to competitive procedures.

In most countries, appropriate records are not only kept by the procurement agency and/or internal control agencies but also made available to the public. The objective is then to provide bidders and other stakeholders with the necessary information for challenging the fairness of

the procedure. Records might cover part of the procedure - for example the contract award or the whole procurement process. The records might be restricted to bidders, or on the contrary open to other stakeholders-for instance, in Italy citizens and consumer associations that have a concrete interest. In a few countries (e.g. Brazil, Chile, Poland, Sweden, and the United States), records on procurement are publicly available. In Sweden anybody who has an interest can have access to records, which enables the media, law-enforcement agencies and the public at large to uncover cases of mismanagement and potential corruption in public procurement. More importantly, freedom of information acts as a deterrent since the risk of detection of illicit or questionable practices increases. In Brazil, it is mandatory for federal public administration bodies to disseminate through Internet all the information relative to budgetary and financial execution, including public procurements. This provides an opportunity for citizens to monitor the use of public funds. Another example is the General Controllers Office in Mexico that makes public the data on all administrative sanctions applied since 2001 to federal public servants, as a result of disciplinary investigations. In Ethiopia for example, the black listed suppliers or contractors or consultants are publicly post on the website by the PPA.

6.3. Internal control: a management instrument for improvement

Without an adequate internal control system, an environment is created in which assets are not protected against loss or misuse; good practices are not followed; goals and objectives may not be accomplished; and individuals are not deterred from engaging in dishonest, illegal, or unethical acts. It is particularly important to have functioning internal controls in procurement, including financial control, internal audit and management control.

It is the responsibility of procurement authorities to set up effective internal control systems that monitor the performance of procurement officials, assist compliance with laws and regulations and help ensure the reliability of internal and external reporting. This responsibility is even more important in a context of decentralized procurement. For instance, in Brazil, the Internal Control of the Federal Executive Branch is carried out by the General Controllers

Office through the Federal Secretariat of Internal Control and decentralized units. Decentralized units play a fundamental role in implementing control efforts.

A clear chain of responsibility

An important condition of accountability is to clearly define the delegated levels of authority for approval of spending and sign off and approval of key stages. The level of authorities responsible for the approval process may vary according to:

The value of the procurement, for which a chain of approval hierarchies should be in place. The business needs of the organization and the officials experience.

Managers have a crucial role in ensuring proper supervision over procurement. Internal procedures in agencies often require senior-level review of key decision points in procurement. For example, in the United States, the definition of evaluation criteria, evaluations and contract award selections are usually subject to senior-level reviews. Furthermore, internal guidance through policies and guidelines can help define the level of responsibility and the obligations for reporting to different authorities for instance in Mexico and the United Kingdom. In Mexico, the policies and guidelines must be published on the website of each government agency In addition to strengthening controls, some countries have ensured enforcement through effective, proportional and timely sanctions.

6.4. External Audit: An Independent Review

Countries have recognized the essential role of audit in detecting and investigating fraud and corruption in procurement as well as suggesting systemic improvements. If internal audit is used in some countries - such as Belgium, Finland, Switzerland and Ethiopia - the vast majority of countries use external audits conducted mainly by supreme audit institutions with jurisdiction over the whole public service. For instance, in Finland and Switzerland, the State Audit Office carries out external financial audits and performance audits of procurement.

Possible criteria for selecting public procurement cases for audit include: Total value and complexity of the procurement; New acquisition rather than routine procurements; Order value per contractor and number of orders per contractor (whether specific contractors receive unusually often or unusually large orders);as well as General aspects such as critical statements of external and internal supervision authorities (e.g. Ministry of Finance, internal auditors), handling in political committees, coverage in the media, complaints, legal proceedings or professional experience of auditors. Performance audits help provide information on the actual benefits of procurements, which contributes to improving operations, facilitating decision making by parties with responsibility to initiate corrective action, and enhancing public accountability. In Austria, the Court of Audits plays a key role in conducting external audits and making recommendations for the improvement of processes, in particular for public procurement In order to keep the public informed, information on external audits is routinely published in two-thirds of countries. Procurement expenditures are also usually reported to council of Ministers through Ministry of Finance and Economic Development in Ethiopia.

Co-coordinating controls Public procurement operations are subject to various controls: local controls, accounting controls, controls made by fiscal authorities, as well as external controls and audits. As public procurement has become more decentralized, a key concern is the lack of co-ordination between various controls, which has led to some loopholes and overlaps in controls over the procurement process. Only a few countries have mechanisms to ensure coordination of control. For example, Ethiopia Public Procurement by PPA co-ordinates its audits at an early stage with other external audit institutions (Office Auditor General), internal auditors and Ethics and Anti Corruption Agency some times review of their audit plans and results and through regular reporting on its own activities.

6.5. Taking a Risk-Based Approach

There is growing recognition across countries that a sound system of internal and external controls therefore depends on a thorough and regular evaluation of the nature and extent of the risks to which the organization is exposed. A specific focus has been to identify risks to integrity in the procurement process resulting from a simple mistake in performing an administrative task to a deliberate transgression of relevant laws and related policies. In order to prevent and detect individual irregularities and systemic failures in procurement processes, governments have increasingly mapped out risk factors and vulnerabilities to the integrity of the public procurement process, for example in Ethiopia, Ethics and Anti-Corruption Commission usually following risk-based approach

In Korea, ex-post audits focus on specific corruption-prone work areas that are identified through an annual internal survey on the level of integrity. This has helped raise awareness among auditors and public officials of the areas most prone to irregularities and corruption. In Belgium, internal and external control mechanisms have helped identify risks to integrity at different points of the public process and provide recommendations for tackling vulnerable points.

Other experiences include the development of a risk mapping methodology together with civil societyfor example national chapters of Transparency International to identify vulnerabilities, point out aspects that need to be controlled in each process to lessen risks, and improve procurement processes. Some countries have also started to employ a probity auditor for conducting external audits of procurements that are at risk because of their complexity, high-value or sensitivity. A probity auditor is an independent person who verifies that processes followed by an agency are consistent with Government regulations and good practice principles in terms of fairness, transparency and openness in procurement:

A level of independent assurance about the conduct of a bid process, in particular its openness and fairness to all parties concerned;

Additional oversight of the procurement process, especially in contracts that are vulnerable to mismanagement and potentially corruption.

To be effective, the circumstances in which a probity auditor may be required should be clearly defined. One potential pitfall is that probity audits are used by agencies as an insurance policy to avoid accountability for decisions made.

In order to help prevent and detect irregularities and corruption in public procurement and constantly improve the system, there is growing awareness of the need to provide specialized training for both procurement officials as well as investigators. The objectives of module training may vary accordingly: For procurement practitioners, to introduce preventive and effective internal control procedures. The training may take the form of an analysis of existing laws and regulations, a typology of risks as well as proposals for improving internal controls. For control and investigation officers in charge of verifying procurement procedures, to help them detect fraud and corruption. This may be done through a list of indicators of fraud making it possible to identify, demonstrate and prove fraudulent arrangements.

6.6. Challenging Procurement Decisions: Complaint and Recourse

Mechanisms
A sound procurement system uses the participation of bidders, public officials and other stakeholders as part of the control system by establishing a clear regulated process for facilitating the exposure of wrongdoing in the administration, as well as enabling the fair and timely resolution of bidders complaints.

6.6.1. Reporting Mechanisms for Officials

Whistle blowing can be defined as a means to promote accountability by encouraging the disclosure of information about misconduct and possibly corruption while protecting the whistleblower against retaliation. If two thirds of countries have developed procedures for public officials to facilitate the exposure of wrongdoing in the administration (e.g. complaint desk,

hotline, etc.), few countries have developed whistle blowing protection in the public service (e.g. Canada, Korea, the United Kingdom, Ethiopia and the United States). There is growing recognition of the potential of this mechanism for detecting large-scale irregularities and corrupt acts in the use of public funds, including in public procurement, which would not have been identified by other control mechanisms. However, the number of cases of breaches detected through whistleblowing is still limited. One of the main reasons is that whistleblowers are often the target of retaliations such as harassment, intimidation, demotion, and dismissal. Other frequent barriers in countries include the duty of loyalty and fidelity to the employer as well as a cultural resistance from employees stemming from the assimilation of whistleblowers with informants or denunciators in past history.

Encouraging employees to blow the whistle and protecting them from reprisals are two interconnected issues: any increase in protection has the potential to encourage people to disclose wrongdoing. This may take the form of measures to prevent reprisals or on the contrary compensation schemes where reprisals occur. A number of countries - such as Canada, Korea and Norway - have recently initiated reforms to introduce or strengthen the protection for whistleblowers in the public service, through legal protection, anonymity or the setting up of a protection board. An emerging approach is to provide incentives to encourage whistleblowing, for example through financial rewards or advantage in career progress.

6.6.2. Recourse Systems for Challenging Procurement

Decisions
Recourse systems, like audit systems, fundamentally serve a procurement oversight function. They provide a means of monitoring the activities of government procurement officials, enforcing their compliance with procurement laws and regulations, and correcting improper actions.

Furthermore, they provide an opportunity for bidders and other stakeholders to contest the process and verify the integrity of the award. There is common recognition that effective recourse systems for challenging procurement decisions should provide timely access, independent review, efficient and timely resolution of complaints and adequate remedies. However, the practice varies significantly across countries.

Timely Access to Recourse Mechanisms

Both the procurement and the recourse system itself must be organized in a manner that permits bidders to initiate recourse before the contract starts. While countries generally provide a recourse mechanism after the award, bidders are also able in some countries to challenge procurement decisions at other stages of procurement, and even sometimes after the end of the contract. In Sweden, there is a possibility to make a complaint at any stage of the procurement process and even after one year through a claim for damage in civil court. The records for the procedure are made available not only for bidders but also for other interested parties.

Independence of Complaint and Review Systems

In order to avoid litigation and provide an opportunity for contracting authorities to make the necessary adjustments, a vast majority of countries encourage and in some cases, for instance in Germany and Ethiopia make it mandatory for bidders to submit their complaints directly to the procuring authority.

A complaint to the contracting authority may offer clear advantages, especially in cases when a genuine or obvious mistake rather than a deliberate breach of public procurement law is the reason for the dispute or when the case involved delicate interpretations of the law. Furthermore, the bidder can avoid confrontation with the contracting authority as well as the costs involved when using quasi-judicial or judicial review.

On the other hand, time-consuming complaint proceedings can prolong the overall review procedure if it only the prelude to quasi-judicial or judicial review. Another concern is to ensure that the decision is not biased by the public official or the procuring agencys interests.

Ensuring Public Scrutiny

There is an emerging trend in several countries to involve more and more stakeholders not only private sector organizations but also end-users, civil society, the media and the public at large in the procurement process. Interestingly, in recent years some countries have introduced direct social control mechanisms by involving stakeholders in scrutinizing integrity in public procurement.

6.6.3. Independent Oversight Bodies

In order to ensure public scrutiny, it is common for the legislative branch to undertake reviews of procurement activities, either through permanent committee or an ad hoc committee for investigating a specific issue. Several countries formed a parliamentary committee to review projects, conduct investigations and/or organize hearings on large-scale procurements, which hold important risks for public funds. Countries that have established a parliamentary committee for procurement usually aim at preventing mismanagement and corruption by: Making the link between the procedures for financial planning and control for major public procurement projects; Providing the Parliament with a formal position in the agenda setting process; and Empowering the Parliaments budgets right.

Another common form of independent oversight is the Ombudsman/Mediator, who may conduct investigations into procurement activities and resolve matters by conciliation (e.g. Australia, Belgium, Brazil, Luxembourg, New Zealand and the United Kingdom). Last but not least, Supreme Audit Institutions also contribute to scrutinizing government actions, with the preparation of reports for Parliaments.

Direct Social Control

An emerging practice is the use of direct social control by involving stakeholders in scrutinizing integrity in public procurement. The involvement of stakeholders private sector, end-users, civil society, the media or the public at large aims at ensuring integrity in procurement, either through monitoring of the process, as a simple observer, or direct participation of stakeholders at key decision-making points. Although a majority of countries have strong accountability mechanisms, more and more countries have involved representatives from NGOs, academics, end-users organizations and/or industries to scrutinize the integrity of the procurement process. In particular Integrity Pacts have been used in various regions of the world to bind both government officials and stakeholders to ethical conduct, using civil society as an independent eye in the process. They have two main objectives, namely to enable: Companies to abstain from corruption by providing assurance to them that the competitors will similarly refrain from corruption, and the government agencies are also committed to prevent corruption; and Governments to reduce the high costs and the distortion effect of corruption in public procurement.

Chapter Seven Ethics in Procurement and Procurement Risk

Objectives
After the end of the session the students are able to: Understand what a public procurement ethics is Apply code of ethics in Public procurement professionals Understand the public procurement risk Analyze the public procurement risk Apply risk mitigation in the public procurement process

6.7. Introduction: Ethics

There are two definitions of ethics as follows: The moral principles governing or influencing conduct. The branch of knowledge concerned with moral principles (The concise Oxford dictionary of current English).

Ethics is the discipline relating to right and wrong, moral duty and obligation, moral principles and values, and to moral character. Most procurement related principles, such as fairness, integrity; transparency and accountability are based on ethics.

Given that public procurement undertakes procurement using public funds entrusted to the organization by a funding source or beneficiary, it is imperative that all activities conform to the highest standards of ethical conduct. Every business unit of the organization as well as all individuals acting on behalf of public organization must observe the highest standards of ethics throughout the procurement process.

Ethics is the basis on which most of the procurement related principles, such as fairness, integrity, and transparency, are based.

Professional standards of ethical conduct, no matter what the organization, contain typical characteristics, including commitments to: Behave honorably in all aspects of work and professional activity. Conduct oneself in such a manner as to maintain trust and confidence in the integrity of the acquisition process. Avoid clever practices intended to take undue advantage of others or the system. Uphold the organizations standards and policies and all relevant legislation. Avoid conflicts of interest.

7.2. Codes of Conduct

Organizations and professions often seek to address standards of conduct through the adoption of codes of conduct. Professional codes of conduct generally are written in broad conceptual terms rather than in specific situational or descriptive terms. They leave room for interpretation and often may seem ambiguous. Procurement professionals cannot abide merely by the letter of the law or the specific words in any code, but rather, they are guided by the spirit of the law or the broader concept that the code is intended to express. One reason why many procuring organizations avoid detailed and specific codes is these may give the impression that anything not prohibited is permitted or that anything not specifically addressed is not important. People in other professions who have not been trained in or are not appreciative of procurement ethics may not realize that a situation not specifically identified in the code may still be vitally important. Those who do not understand the foundation of a general requirement may not be able to apply a code in a specific situation.

No matter how hard policy-makers try, they will never specify in law, code, regulation, rule, or other written requirement everything that a procurement officer needs to know regarding what is allowed or appropriate and what is prohibited or shunned. It is necessary for procurement officers to understand what the law or rule is intended to accomplish.

7.3.

Ethical concepts and Principles

Some ethical concepts and principles that relate to the procurement process are:

 Loyalty and respect for rules and regulations Integrity Impartiality and fairness Transparency Confidentiality Avoidance of appearance of impropriety Due diligence. Loyalty and respect for rules and regulations

The public procurement officer should: Stand by decisions that are in the organizations interest even if they are unpopular. Understand the rules and regulations pertaining to his or her profession and organization. Know why the rules and regulations are necessary. Know what caused the rules and regulations to be enacted. Respect the need for the formality of rules and regulations. Interpret and apply rules in accordance with their intent. Be able to perform procurement responsibilities effectively and efficiently and still abide by the pertinent rules. Permitted exceptions to requirements should be kept to a minimum and be fully justified and documented. If a rule or regulation must be reconsidered or changed, the procurement officer should pursue the appropriate process to submit the recommended revision through established channels and include complete documentation to explain and justify the proposed change. During this process, the existing regulations, rules and procedures must be followed. The procurement officer must perform regulated tasks consistently according to the specified procedures and take a leadership role to help co-workers and stakeholders understand and follow them as well.

Integrity
Public procurement officers are expected to maintain superior standards of integrity and moral values. The International Civil Service Advisory Board identifies integrity as, one of the fundamental, if not paramount, standards of conduct. Their report explains:

Integrity, while perhaps not subject to exhaustive and precise definition, must be judged on the basis of the total behavior of the person concerned. Such elementary personal or private qualities as honesty, truthfulness, fidelity, probity and freedom from corrupting influences, are clearly included. For the international official, however, the Charter also requires integrity as a public official, and especially as an international public official. Perhaps the clearest expression of this is the fact that he has dedicated himself to regulate his conduct with the interests of the public organization only in view. It follows that he must subordinate his private interests and avoids placing himself in a position where those interests would conflict with the interests of the organization he serves. The concept of integrity enshrined in the Charter of the United Nations embraces all aspects of behavior of an international civil servant, including such qualities as honesty, truthfulness, impartiality, and incorruptibility. These qualities are as basic as those of competence and efficiency, also enshrined in the Charter Cultural differences including nationality, ethnicity, industry or profession, must be set aside. Generic principles of integrity that extend beyond and rise above such differences must be allowed to prevail, especially in connection with the business transactions conducted by public procurement officers. Integrity, to a procurement officer in the international marketplace, means believing that the public trust is so important that it cannot be compromised. A procurement officer should therefore demonstrate integrity by: Upholding the principles of the public the public servant. Demonstrating the values of the public organization, including impartiality, fairness, honesty, and truthfulness, in daily activities and behaviors. Acting without consideration of personal gain. Resisting undue political pressure in decision making. Not abusing power or authority. Taking prompt action in cases of unprofessional or unethical behavior.

Impartiality and Fairness

In a report by the International Civil Service Advisory Board impartiality features as a key requirement. The report states: Impartiality implies objectivity, lack of bias, tolerance, restraint - particularly when political or religious disputes or differences arise. The staff members personal views and convictions remain inviolate, but he has not the freedom of a private person to take sides, to enter a dispute as a partisan, or publicly to express his convictions on matters of a controversial nature, either singly or as a member of a group.

According to The concise Oxford dictionary of current English, fair is defined as just, unbiased, and equitable; in accordance with the rules. In the context of impartiality and fairness and accordance with the definition above, the procurement officer should: Set aside all personal and organizational biases. Apply the same standards of evaluation to all the suppliers (equal treatment).

For example, if one supplier requests additional information, all suppliers should receive that information at the same time. Or, if one offer is disqualified in the evaluation process and the award placed with the next highest priced offer, the reason for disqualifying the lower offer must be applied to all evaluations uniformly. Fairness implies being reasonable as well as impartial, and treating the public organizations trading partners with professional, businesslike courtesy, as well as with strict adherence to the policies and procedures for conducting the transaction.

Transparency
Transparency means unimpeded visibility. Because public procurement involves the use of and accountability for public funds, transparency is, perhaps, paramount in all procurement activities. All transactions are subject to scrutiny but not all organizations experience such scrutiny to the degree of the public organization. Therefore, procurement officers and assistants must always conduct themselves in such a way that any scrutiny would not damage the public organization or its leaders, other public organizations, staff, or programs.

Confidentiality
Confidentiality needs extra consideration in public procurement, due to the delicate nature of the information that is handled in procurement processes, such as pricing of products, marketing strategies, etc. A breach in the confidentiality of the data handled in the procurement process could result in discredit of the public organization and distrust from governments, partners or suppliers. Staff members shall exercise the utmost discretion with regard to all matters of official business. They shall not communicate to any Government, entity, person or any other source of information known to them by reason of their official position that they know or ought to have known has not been made public except as appropriate in the normal course of their duties or by authorization of the head of the organization. The disclosure of information may seriously jeopardize the efficiency and credibility of the organization. International Civil Servants are responsible for exercising discretion in all matters of official business. They must not divulge confidential information without authorization. Nor should international civil servants use information that has not been made public and is known to them by virtue of their official position to private advantage. These obligations do not cease upon separation from service. Confidentially might seem in contradiction with transparency, but what this means is, the way the overall procurement process is conducted needs to be clear and transparent, while truly proprietary data needs to remain confidential.

Avoidance of the Appearance of Impropriety

In the private sector, appearances are tempered by the wishes or standards of the organization`s leadership. Employee behavior is judged according to legality and the satisfaction of owners or customers. However, international public-sector procurement officers must adhere to more conservative standards.

Due Diligence

Due diligence in the context of public procurement refers to carrying out duties carefully and thoroughly and avoiding careless practices or techniques. Due diligence requires that all activities by procurement officers be pursued in a manner that goes beyond the minimum effort. For example, diligent public procurement officers should: check the references of potential suppliers develop impartial evaluation criteria carefully analyze the offers received not cut corners for the sake of convenience

7.4.

Stewardship

According to The concise Oxford dictionary of current English, a steward is a person employed to manage anothers property. When the steward is a public organization staff member, the person whose property the steward is managing consists of the entire worlds population - an immense responsibility. Spending money that comes from all the tax payers and a variety of other public sources is a special kind of stewardship with which public procurement officers are entrusted. They must spend public money only in the way that it is meant to be spent and must not deviate from the procedures to suit their own convenience. It is therefore the main role of each public procurement officer to execute their procurement function according to the highest standards of professionalism and in the respect of the values, objectives and interests of the organization. This implies the procurement officer must adhere to the principles of fairness, impartiality, transparency, stewardship, to avoid conflict of interest and any impropriety, and to respect and apply the organizations relevant policies, rules and procedures.

7.5. Ethical Risks and Actions to Manage Them

Some of the common ethical risks in the procurement process include:

conflict of interest fraud Corruption Coercion Collusion.

Conflict of Interest
A very common risk situation related to ethics in procurement is the risk of a conflict of interest. Conflict of interest can be defined as a direct or mutually exclusive clash between the interests of organization and the private or personal interest of a public procurement officer. The Standards of Conduct in the International Civil Service (standards of conduct) states that: Staff members shall not use their office or knowledge gained from their official functions for private gain, financial or otherwise, or for the private gain of any third party (). Staff members shall not be actively associated with the management of, or hold a financial interest in any profit-making business or other concern, if it were possible for the staff member or the profit-making, business or other concern to benefit from such association or financial interest by reason of his or her position with the public organization A public official who has occasion to deal in his or her official capacity with any matter involving a profit-making business or other concern in which he or she holds a financial interest, directly or indirectly, shall disclose the measure of that interest to the head of the organization and, except otherwise authorized by the head of the public body, either dispose of that financial interest or formally excuse himself or herself from participating with regard to any involvement in that matter which gives rise to the conflict of interest. In the context of procurement, a public procurement officer should: Declare with immediate effect any potential conflict of interest. Not use information obtained for professional reasons for personal profit. Disclose and dispose the financial interest involved. Not participate in any conflicting procurement process.

Excuse or withdraw from any procurement process where the procurement officer may have a conflicting interest.

Declaration
It is good practice to have officials involved in the procurement process, including those participating in offer opening panels, evaluation committees or contracts committees sign, in advance of their duties, a declaration of no conflict of interest. Honesty, truthfulness, impartiality, and incorruptibility are to be applied whenever a conflict of interest or the appearance of conflict of interest arises in the course of conducting procurement.

Gifts and Relativities

A common conflict of interest situation public procurement officers have to face is whether or not to accept gifts from suppliers, partners or governments. Offering gifts to customers is a very common practice in the private sector. It is a marketing strategy based on the universal sense of reciprocity: if we receive something, we feel obliged to give something in exchange; i.e. there is no such thing like a free lunch. Suppliers often offer different types of gifts, for example perishable products, hospitality, free training courses or experiences like exhibitions, fair trades, and sometimes in kind donations, etc. that are related to the activity of the specific public organization. Identifying covert gifts is not always easy, especially when at times, for example, training activities may be seen as beneficial for the organization; however, very careful review of the impact should be taken into account: would receiving the gift benefit one company over the others? Would acceptance be fair to the competitors? In cases where the content of such training / events is deemed appropriate and beneficial for the organization in a technical sense, self financial support, i.e. for travel expenses should be considered. It can be difficult to judge how to behave in a particular situation, and what would be the appropriate action. The table below provides some examples of good practice:

If the gift is Low value, e.g. chocolates, given at the end of the year High value, e.g. a gold watch

Then Accept it but tell suppliers it will be shared with all colleagues in your office.

Return it, and thank the supplier but say you are not allowed to accept it. Thank the supplier, but tell them it will be put in a lottery (if there is such a policy in your organization) where it will be drawn.

Relatively high value, e.g. a good bottle of wine, given at the end of the year Sent to your private address

Immediately return it to the supplier, and tell the supplier it is unacceptable practice to send gifts to public organization staff members private addresses.

In the context of gifts and gratuities, the standards of conduct state that: No staff member shall accept any honour, decoration, favour, gift or remuneration from any Government. No staff member shall accept any honour, decoration, favour, gift or remuneration from any non-governmental source. A public procurement officer should: Be able to identify covert gifts. Not accept any gift from governmental or non-governmental sources, but reports them to the designated authorities. Be aware of the reasons for not accepting such benefits. Be aware of the impact on the organization if accepting such benefits.

7.5.1.Fraud

Fraud means the intentional, false representation or concealment of a material fact for the purpose of inducing another to act upon it to his/her detriment, for example in order to influence the competitive selection process or the execution of a contract. There are four common fraud scenarios in procurement. These are: A person with responsibility for buying defrauds his or her employer. Suppliers defraud their customers. Suppliers and buyers work together to defraud the buyers employer. Buyers make personal gain at the expense of the supplier.

7.5.2.Corruption
Corruption means the practice of offering, giving, receiving, or soliciting, directly or indirectly anything of value to influence the action of a public official in the competitive selection process or in contract execution. There are two common types of corruption: Approach Includes Direct Indirect Cash paid to the procurement officer, to settle the buyers personal debts or paid to a third party for the buyers benefit. Cheques paid directly to the buyer or members of his family, paid to businesses in which the buyer has an interest. Cheques paid to settle the buyers personal debts. Shares and share options. Free or discounted goods or services. Employment of a member of the buyers family, or employment of the buyer on a consultancy basis. Future offers of the same. Inside information which will benefit the buyer. Threats of blackmail or violence. Free travel and expenses to visit exhibitions or to visit suppliers

factories. Invitation to entertainment events.

7.5.3.Coercion
Coercion means harming or threatening to harm, directly or indirectly, persons, or their property to influence their participation in the procurement process, or affect the execution of a contract.

7.5.4. Collusion
Collusion means a scheme or arrangement between two or more suppliers, with or without knowledge of the public organization, designed to establish prices at artificial, non-competitive levels.

Potential Warning Signs of Unethical Practices

There are some typical signs that may indicate or warn of unethical practices. These include, but are not limited to the following: deviations from correct procedures overcharging by the supplier poor record keeping missing files poor or no separation of duties (for example, the same person issues the order and approves the payment) poor control (for example, only one person signs a contract) buyers extravagant life style buyers frequent absence from the office excessive entertaining by suppliers resistance to audit reluctance to delegate excessive secrecy dictatorial management style

unnecessary meetings with suppliers not allowing other staff to deal with certain suppliers established suppliers reluctance of entering competitive tendering Supplier cartels.

Tools and Mechanisms to Prevent and Detect Unethical Practices

Some tools and mechanisms that may be used to prevent and detect the occurrence of unethical practices are listed below.

Management Responsibility
Management should maintain the highest standards of integrity in its everyday dealings. Where senior management behaves dishonestly, corruption and fraud will spread to all levels. Managements responsibility is to set the highest standards of integrity and be an example for everybody in the organization to follow. Managers should also point out correct behavior to employees and draw the line between acceptable and unacceptable behavior.

Management is also ultimately responsible for the operations and assets under their command. It is their responsibility and in their interest to ensure that the organization has the necessary procedures and control systems in place to ensure maximum security and minimize the risk of corruption and fraud.

Code of ethics
All organizations should develop a code of ethics for all staff to follow. A code of ethics is a formalized statement containing ethical codes of conduct for the organizations members to follow. The Code of Ethics will clearly state what type of behavior is expected from the members, and what type of behavior is unacceptable.

Organizational Procedures
To prevent fraud and corruption an organization should have in place the following organizational procedures:

Procedures Pre-employment screening Classification and protection of information Data security standards Incident reporting

Including The background of all job applicants should be checked before they are employed and granted access to premises and assets. Clear desk policy, secure filing cabinets for all employees, sufficient number of paper shredders, secure disposal of all waste paper Procedures should be introduced for all data processing resources. Instructions on minimum standards should be enforced All employees should be responsible for reporting losses and security incidents. All incidents, regardless of how small they are, should be reported.

Accounting Controls
The integrity of accounting systems is an essential element in preventing fraud. Controls should ensure that details of all goods and equipment moving in and out of the organization are recorded on serially numbered documents or computer records, and copies of documents recording movements are retained securely. Maximum use should be made of numerical controls, using documents with pre-printed serial numbers.

Levels of authority to approve accounting transactions should be clearly defined and regularly audited. Each system should define who will be held responsible for losses, errors and concealment. Areas of responsibility should be identified and enforced. Books and records should be protected in the same way as all of the assets of the organization.

Segregation of Duties
This is the most basic and one of the most effective ways of preventing fraud, since it removes the possibility of closed loops, that is, one person having the authority to budget, provision, order and pay. Each transaction should be divided into a number of stages and no one person should ever have the authority to handle all of the stages.

Control Systems
Control systems in procurement protect honest buyers and suppliers from false accusations of dishonesty, encourage them to work honestly and effectively, and prevent and detect corruption. It is often difficult to get the right balance between under- and over-control and many organizations have control systems which are either too restrictive or too lax. An effective and well-balanced control system needs to be flexible, allowing honest buyers and suppliers to operate efficiently, while at the same time minimizing the risks of dishonesty.

Controls in Procurement
Procurement procedures should be set out in a manual provided to all staff involved in procurement. Procedures, authorities, responsibilities and penalties for not adhering to procedures should be clearly defined. When setting the strategy for a particular procurement, the following factors should be taken into account: The threshold above which contracts and orders must be put out for competitive tenders should be clearly defined and enforced. As far as possible, spot, short-term, or emergency orders should be avoided. Cost-plus contracts should be avoided if possible, but if they cannot be avoided special care should be taken to verify the suppliers expenses.

Financial Approval Policy

The policy on financial approval for procurement actions should be clearly communicated to all relevant staff. The consequence of abuse should be defined. Approval levels should not be set artificially low, but at a realistic level sufficient to enable employees to do their jobs efficiently. Standard terms and conditions of contract, and standard forms should be included in all solicitation documents as well as in all contracts and purchase orders. Standard forms used in procurement should be developed.

Control Over Goods and Services Received

Controlling the receipt and storage of goods is a vital aspect of eliminating opportunities for fraud.

Risk Management
Risk is exposure to loss as a consequence of uncertainty. There are a variety of risks faced during the procurement process. There are global risks and risks in every phase and stage of the process, with certain risks of greater importance during each stage. Understanding the main categories of risk faced in the procurement process assists in risk assessment and planning practical management and operational measures that should be taken to mitigate those risks.

Risk Analysis and Management

The impact of risk can be measured by the likelihood of an unwanted event occurring and the consequences if it does occur. For planning purposes, the impact of risk could be the same for both small damage resulting from a highly probable recurring event and very large damage resulting from a rare event. But the two situations would be managed in different ways. For example, the highly probable event could perhaps be made less frequent through improved procedures and professional practice, whereas insuring (or self-insuring) for the damage of the rare event could be a practical alternative if it can be combined with a class of similar risks.

Risk Analysis
Risk analysis is a planning stage which seeks to identify the origin, probability and magnitude of the risks. It helps direct attention to which risks warrant close attention and have the greatest potential for reducing exposure. There are distinct risks at each stage of the procurement process. Risk analysis should form part of each stage of procurement planning and be regularly updated.

Risk Management
Risk management seeks to mitigate the impact of the risk by reducing the likelihood of its occurrence and/or reducing avoidable consequences through planning, monitoring and other appropriate actions. Whether in general or in the specific case, procurement officers should

identify and analyze all risk factors that are likely to occur on a project, and then decide on the most appropriate management response for each risk/combination of risks. Responses may include:

ignore reduce transfer manage, and Decide which party is most appropriate to manage each of the risks identified.

Neither in the business world nor the public sector can risk be avoided entirely, rather it is part of the normal work environment within which we operate. It can to some extent be managed. Some measures to manage risk are based on the quality of the procurement process applied across all activities, while other measures may be targeted to specific risks inherent in certain categories of procurement.

A useful tool to analyze risk and focus management attention is the risk analysis and management matrix. During procurement planning, activities are placed on a risk continuum from low to high and an impact continuum from low to high as shown in the figure below. Risk Analysis and Management Matrix

IMPACT

MAJOR CRITICAL
MINOR MAJOR

PROBABILITY

Benefits of Risk Management

The benefits of effective risk management include:

Greater confidence of right supply at right time, to further specific activity goal better control of uncertainty reduced impact of risk improved decision making realistic estimates less likely to be exceeded stronger team communication Lower probability of damage to the image of the organization.

In managing risk, it is important to understand the extent to which a party has control over the risk and the ability to do something about it. Responsibility for risk should be allocated according to the ability each party has to manage the risk. Efforts to make a party responsible for risks over which it has no control are likely to lead to dispute and additional costs in time or money. In fact, such risk avoidance leaves the risk in place, when it is in the interest of the organization that it be managed.

Sources of Risks
Risks to successful procurement can come from several types of sources, namely:

external factors project complexity project planning procurement process Fraud, corruption and unprofessional conduct.

External factors can include political, economic, and even nature. Among the more frequent external factors are the public organization and partner government decision making processes that are used to approve activities and their budgets. While political and budgetary factors are

generally outside the control of the procurement officer, to reduce the risk of late supply, it is appropriate to begin the procurement process with sufficient lead time, and include appropriate caveats to potential suppliers when a solicitation is issued in advance of authorization, ensuring that it will not lead to binding commitments until and if such authorization is received.

Project complexity may lead to objective difficulty in specifying requirements, either because conditions are not fully known or the requirement is subject to change for political or other reasons. Risks can be reduced by early involvement of procurement officers in the project team, and by regularly reviewing the requirement. In some cases, such as major civil works, this may call for appropriate contractual arrangements that recognize the specific uncertainties involved. Where project planning not properly carried out, this can contribute to each of the negative outcomes referred above, as well as to friction in relations among colleagues. The risks can be best reduced through early involvement of procurement officers in planning respective activities to ensure that requirements for and of procurement are properly integrated. The procurement process contains in each of its stages, multiple specific risks and consequences. Managing these risks is part of the professional responsibility of each procurement officer. Fraud, corruption and unprofessional conduct can enter into any stage of the procurement process, producing the risk of loss of organizational resources and budget for inappropriate supply, with corresponding great damage to the image of the organization. Key among the measures to mitigate these risks are:

Transparent process competition separation of functions clear rules and procedures standard documents professional training of staff effective control systems Accountability.

Competition, transparency and separation of functions are the foundation of risk mitigation, since they ensure any fraudulent or corrupt behavior will not go unnoticed. These needs to be linked to

senior management that does not tolerate such behavior, provides training, systems, authority and controls so staff may carry out the procurement function correctly. All those involved in the procurement process should consider themselves, risk managers and be aware of the potential risks at each stage in the procurement cycle in both planning and undertaking their activities.

Risk and Risk Management in the Procurement Process

There are risks in each phase of the procurement process, and there are organizational and commercial measures that can be taken to mitigate those risks. Examples of typical risks, possible consequences and what to do at each stage are listed in the tables below:

Strategic Organizational Procurement Analysis and Planning

Risk Possible Failure to secure ongoing supply critical to the Organization. Consequences Failure to achieve key organizational results. Total costs of procurement too high. What to do Analyze organizations procurement portfolio, function & capability and undertake strategic Procurement planning.

Planning of a procurement activity

Risk Insufficient lead time. Possible Consequences Inadequate supplier response. Higher prices. What to do Involvement of procurement Officers in project planning phase.

Requirement definition
Risk Biased or restrictive specifications/ToR/ SoW. Possible Consequences Claims of unethical or unfair dealings. Inadequate supplier response. What to do Use functional performance specifications. Apply relevant international

Inadequate specification/ToR/ SoW.

Significant variety in offers received. Insufficient responses. Offer of goods/services that do not meet needs. Difficulty in evaluating competing offers. Possibility that evaluation process may not stand up to audit scrutiny.

Requisition Splitting. Claims of unethical or unfair behavior. Inability to achieve economies of scale. Higher total cost of acquisition.

standards where available. Follow advice in the organizations Procurement Manual. Be familiar with the requirements of the specification/ToR/SoW. Get training in writing specifications/ToR/SoW. Allow industry to preview requirements. Seek offers again and incur extra management effort. Training requisitioners in procurement. Separation of functions to ensure possible breaches are identified and prevented.

Sourcing
Risk Wrong approach to market. Possible Consequences Inadequate or inappropriate supplier response. Higher prices. Selection of inappropriate procurement method. Claims of unethical or unfair dealing. Breach of contract Inadequate supplier response. Claims of unethical or unfair dealing. What to do Analyze supply markets.

Misrepresentation of facts by potential suppliers. Outdated information on potential suppliers. Informal commitments to suppliers by requisitioners

Independently verify
supplier qualifications. Maintain supplier rosters. Train requisitioners. Separation of functions.

Selection of procurement strategy

Risk Delayed requisitions to create false emergencies. Possible Consequences Claims of unethical or unfair dealings. Higher total cost of acquisition. What to do Early involvement of procurement officers in project planning. Training of requisitioners Seek justification of emergencies. When not justified follow regular procurement process. Agree on desired outcomes &

Selection of inappropriate

Inadequate or inappropriate result.

procurement strategy.

Not achieving best value.

objectives with client. Seek offers again and incur extra management effort.

Preparation and issuance of solicitation documents

Risk Use of inappropriate evaluation criteria. Possible Consequences Inadequate or inappropriate result. Not achieving best value. Loading of costs in offers. Many qualifications to tenders. Too few bids. What to do Consider implications of the evaluation criteria. Seek offers again and incur extra management effort. Check with the market. Develop commercially acceptable terms. Use standard conditions of contract. Check that responsibility for risks is not allocated to suppliers for factors outside their control. Use standard conditions. Seek the legal offices approval to conditions of contract. Allocate risks appropriately. Ensure that staff is suitably trained. Review documents before issue. Know your market.

Terms and conditions unacceptable to suppliers.

Uncertainty among suppliers because of new and unusual conditions of contract.

Provisions of inadequate information.

Actual or perceived favoritism in providing information.

Loading of costs in offers. Disruption. Adverse impact on the organizations professional recognition. Loading of costs in offers. Great variation in offers. Difficulty in clarifying and closing offers because of extensive requests from suppliers for clarification Supplier complaints. Political intervention. Withdrawal of offers.

Implement standardized procedures for responding to inquiries. Advise all suppliers of all responses to inquiries received.

Receipt and opening of offers

Risk Actual or perceived breach of confidentiality. Possible Consequences Supplier complaints. Political intervention. Mistrust by suppliers. What to do Establish formal security procedures. Perform regular security audits and reviews. Advise suppliers of security

measures. Train staff.

Evaluation
Risk Failure to observe effective evaluation procedures. Possible Consequences Inconsistency in evaluation of offers. Potential for ethical dilemmas. What to do Perform regular audits of procedures.

Failure of offers to meet needs.

Subjectivity in outcome of evaluations. Need to re-tender.

Ensure that staff are suitably trained and experienced. Ensure that the specification is understandable. Know the marketplace. Ensure that selection criteria are appropriate, well defined, and measurable before tenders are called. Ensure that users are involved with the evaluation. Improve technical evaluation procedures responsibility for handling in-confidence documents. Use a proven and recognized way to notify the suppliers of the requirement. Allow for sufficient time for suppliers to prepare offers. Consider publishing two to three year forward estimates of major purchase budgets. Seek early industry participation. Know your market. Request tenders from selected suppliers.

Failure of evaluation to identify a clear winner, leading to selection on subjective grounds Or new criteria. Selection of inappropriate supplier.

Claims of unethical or unfair behavior.

Failure of the goods/services to meet the need.

Insufficient number of responses.

Need to start procurement again. Delays to procurement schedule. Poor value for money due to limited competition.

No response from known high-quality suppliers. Failure of offers to meet needs. Greater uncertainty about suppliers capabilities.

Procurement review and award

Risk Contract approval not obtained.

Possible Consequences Delays in contract award.

What to do Ensure adherence throughout process to rules and procedures. Ensure adequate documentation of process.

Contract finalization and issuance

Risk Masking, by apparent agreement, of different expectations of buyer and supplier. Deadlock on details of agreement. Possible Consequences Contract disputes. Delivery delays. Possible cost variation. What to do Define terms carefully. Record each partys obligations. Clarify all ambiguities. Before signing the contract keep full and accurate documentation. Investigate better ways of sharing risks. Distinguish between essential and non-essential goals and requirements for negotiations. Negotiate on commercial terms. Ensure that negotiators are adequately trained. Distinguish between essential requirements and others before negotiating. Consider variations in the contract. Refuse the offer. Negotiate on commercial terms. Consider fairness and reasonableness of terms. Ensure that negotiators are adequately trained. Make a final check of the draft contract with the supplier. Keep records of all negotiations and agreements. Ensure that staff is appropriately trained. Establish procedure to ensure that appropriate approval is obtained first.

Delays in delivery. Need to restart the procurement. Increase in costs because of legal action.

Undue concession to suppliers

Failure to secure Mandatory conditions.

Reduction in value for money. Claims of unethical and unfair practices. Purchase of less suitable product. Inefficiency and misuse of resources. Inability to finalize contract. Delays in delivery. Possible variations in cost. Inefficiency and misuse of resources.

Grossly unfair or Onerous requirements on the supplier in the contract conditions. Failure to reflect the terms offered and agreed in the contract. Inadvertently creating a contract without appropriate prior approval.

Contract disputes. Invalidity in the contract. Legal action. Poor working relationship with the supplier. Contract disputes.

Increased expense to negotiate out of the contract and paying damages. Committing other associated work before main contract exists or falls through.

Contract management
Risk Variations in price and foreign exchange. Possible Consequences Cost overruns. What to do Agree on prices and the basis of prices. Determine the basis and formula for calculating variations in the solicitation document. Seek legal redress if nonacceptance causes loss. Negotiate the concerns of the supplier but ensure that the integrity of the contract remains. Review past Performance Record. Ensure proper contract management. Hold regular inspections and get progress reports. Ensure that all staff working on the project knows the contract conditions and the buyers responsibilities. Establish appropriate recordkeeping systems. Maintain accurate records and documentation.

Unwillingness of the supplier to accept the contract.

Delays in delivery. Need to restart the procurement.

Failure by either party to fulfill the conditions of the contract.

Contract disputes. Failure or partial failure to satisfy the needs. Delays. Inability of anyone to work on the project or procurement. Legal action.