Unit-5

Legal aspects of Purchasing Management:

An introduction
A key management decision with significant legal ramifications is the level of
delegated authority or discretion granted to purchasing staff – i.e. are they
responsible for routine purchases only or do they control the acquisition of all the
company’s requirements? This will generally depend on the nature of the goods
purchased, levels of available expertise and the degree of autonomy and
centralisation of the purchasing function. Other factors to consider include the
following:

Authority Limits
It may also be advisable to establish the types of commitment and pre-set financial
limits that individual staff are permitted to enter into, with or without a counter-
signature or approval from their manager.

Awareness of Contract Law

Purchasing staff should be made aware of the legal issues likely to arise routinely as
part of their jobs, especially contract law, and in particular how and when the
company may be legally bound and how contracts may be varied or terminated.
Training in such areas should be considered.

Quality and Safety

As part of your risk management procedures, you should ensure that only reputable
suppliers are selected; that such suppliers comply with their obligations to you under
health and safety laws to provide and update safety information for substances and
industrial products; and that they co-operate with you generally in your risk
management and quality initiatives with respect to customers, employees and
others. Such co-operation can be reinforced by including contractual obligations in
your purchasing documentation.

Monitoring Supply Contracts

If you have numerous suppliers, it will be necessary to allocate responsibility for
ensuring that purchase or performance levels; ordering requirements and deadlines;
thresholds; contract dates; renewal, notice and termination dates and other contract
parameters are monitored and complied with.

Letters of Intent/Memoranda of Understanding

It is common for goods or services to be supplied before formal contractual
arrangements have been concluded to cover their supply. In such circumstances,
one party may request a letter of intent to document the understanding reached
about the supply of goods/services taking place before the formal contract is signed.
Practically, such pre-contract supply may be unavoidable but such arrangements
can be treacherous – advice should be taken as to the precise wording of letters of
intent so that you do not become contractually committed before you mean to. For
further guidance on use of Letters of Intent/Memoranda of Understanding, see our
Memorandum of Understanding (Commercial Transactions) and Letter of Intent with
Provision for Pre-Contract Services/Works template documents.

Tenders
If a substantial project is involved, you may consider seeking a competitive tender.
An important consideration here is the legal status of a tender especially as to
whether you are bound to accept the lowest tender. Going to tender may also mean
that expert advice is necessary to assist in terms of drafting the tender specification
and the comparison of the bids received which may well have been put together on
differing bases.

Indian Contract Act 1872

The Contracts or agreements between various parties are framed and validated by
the Indian Contract Act. Contract Act is one of the most central laws that regulates
and oversees all the business wherever a deal or an agreement is to be reached at.
The following section will tell us what a contract is.

Contract Act
The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as
“An agreement enforceable by law”. In other words, we can say that a contract is
anything that is an agreement and enforceable by the law of the land.

This definition has two major elements in it viz – “agreement” and “enforceable by
law”. So in order to understand a contract in the light of The Indian Contract Act,
1872 we need to define and explain these two pivots in the definition of a contract.

Agreement

The Indian Contract Act, 1872 defines what we mean by “Agreement”. In its section
2 (e), the Act defines the term agreement as “every promise and every set of
promises, forming the consideration for each other”. Now that we know how the Act
defines the term “agreement”, there may be some ambiguity in the definition of the
term promise.

Promise
 This ambiguity is removed by the Act itself in its section 2(b) which defines the term
“promise” here as: “when the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted. Proposal when accepted,
becomes a promise”.

In other words, an agreement is an accepted promise, accepted by all the parties

involved in the agreement or affected by it.

This definition thus introduces a flow chart or a sequence of steps that need to be
triggered in order to establish or draft a contract. The steps may be described as
under:

1. The definition requires a person to whom a certain proposal is made.

2. The person (parties) in step one have to be in a position to fully understand all
the aspects of a proposal.

 “signifies his assent thereto” – means that the person in point one accepts or
agrees with the proposal after having fully understood it.

1. Once the “person” accepts the proposal, the status of the proposal changes to
“accepted proposal”.
2. “accepted proposal” becomes a promise. Note that the proposal is not a promise.
For the proposal to become a promise, it has to be accepted first.

Thus, in other words, an agreement is obtained from a proposal once the proposal,
made by one or more of the participants affected by the proposal, is accepted by all
the parties addressed by the agreement. To sum up, we can represent the above
information below:

Agreement = Offer + Acceptance.

Enforceable By Law

Now let us try to understand this aspect of the definition as is present in the Act.
Suppose you agree to sell a unicorn for ten magic beans with a friend. Can you have
a contract for this? Well if you follow the steps in the previous section, you will argue
that once you and your friend agree on the promise, it becomes an agreement. But
in order to be a contract as per the definition of the Act, the agreement has to be
legally enforceable.

Thus we can say that for an agreement to change into a Contract as per the Act, it
must give rise to or lead to legal obligations or in other words must be within the
scope of the law. Thus we can summarize it as Contract = Accepted Proposal
(Agreement) + Enforceable by law (defined within the law)

So What Is A Contract.

Now we can define a contract and more importantly, understand what “Not” a
contract is. A contract is an accepted proposal (agreement) that is fully understood
by the law and is legally defined or enforceable by the law. So a contract is a legal
document that bestows upon the parties special rights (defined by the contract itself)
and also obligations which are introduced, defined and agreed upon by all the parties
of the contract.

Difference between Agreement and Contract

Let us see how a contract and agreement are different from each other. This will help
you summarize and make a map of all the important concepts that you have
understood.

Contract Agreement

A promise or a number of promises that are

A contract is an agreement that is
not contradicting and are accepted by the
enforceable by law.
parties involved is an agreement.

An agreement must be socially acceptable.

A contract is only legally enforceable.
It may or may not be enforceable by the law.

A contract has to create some legal An agreement doesn’t create any legal

obligation. obligations.

All contracts are also agreements. An agreement may or may not be a contract.

Essential Elements of a Contract

Essential Elements of a Contract as defined in Section 10 of the Indian Contract Act

1872

1.Agreement – Offer and Acceptance

2. Legal purpose
3. Lawful Consideration
4. Capacity to contract
5. Consent to contract
6. Lawful object
7. Certainty
8. Possibility of Performance
9. Not expressly declared void
10. Legal formalities like Writing, Registration etc.

All the above ingredients must be satisfied in every valid contract. It can be noted
that all contracts are agreements, but not all agreements are contracts.

Central Excise Duty: features, Nature, Scope

 Central Excise Duty is an important source of revenue for Govt. of India. Revenue
received from Central Excise about 2 Lac Crores Stands in second rank after Income
Tax Meaning of Excise Duty in India, term “Excise Duty” has not been defined,
either in the Constitution of India or even in the Central Excise Act, 1944. However,
the Constitution of India has vested in the Seventh Schedule, powers to levy various
taxes and duties by the Union as well as the states. Allocation of sources between
centre and states under the constitution of India grants to the Central Government
power to impose “Duties of excise on tobacco and other goods manufactured or
produced in India, except alcoholic liquors for human consumption, opium, narcotics,
but including medical and toilet preparations containing alcohol, which is called
“Central Excise”. Nature or Characteristics of Excise duty Central Excise duty is a
central tax imposed by Government of India.

The following features of the excise duty:

1. Imposition
2. Nature
3. Basis of Taxation
4. Payment
5. Scope
6. Maintenance of Records
7. Excise rate
8. Administration

Importance of Central Excise Duty in Respect of Revenue Excise Duty is the

most important source of income of Indian Govt. The Govt. earns huge revenue
through this. This tax is imposed on the manufacturing of goods. It is an indirect tax
and collected from manufactures. This tax was first imposed on the manufacturing of
cotton yarn in 1894. For the proper implementation of excise duty, Central Excise
Duty Act, 1944 and central Excise Tariff Ac, 1985 are applicable which is also known
as CEAT. At present this tax is applicable on various types of goods covered under
20 sections and 96 chapters there of and approximately it earns Rs. 2 lac crores per
year.

Merits of Excise Duty or Importance of Excise Duty

1. Major source of Government revenue

2. Psychological advantages to tax payer
3. Easier to collect
4. Balanced Industrial Growth
5. Less collection cost
6. Tax evasion difficult
7. Control over wasteful expenditure

Disadvantages or demerits of Excise Duty

1. Increase the Price of goods

2. The incidence is uniform
3. Reduces demand of goods
4. Increases project costs
5. Protect inefficient local industries
6. Modern technology becomes costly
7. Increases smuggling/tax evasion

Types of Excise Duties

1.Central Excise Duty

A. Basic Excise Duty: Basic duty of excise levied under Central Excise Act, Basic
excise duty (also termed as Cenvat as per section 2A of CEA) is levied at the rates
specified in first schedule to central Excise Tariff Act. The general rate of Excise
Duty is 12% and 3% education cess there on So, at present normal excise rate is
12.36%. There is partial exemption to a few products.

2. Provincial Excise Duty

Although Excise duty is imposed by Central Govt. Indian Constitution has given
rights to state government to impose and collect excise duty on intoxicants .

3. Duties under other Acts

Some duties and cess are levied on manufactures products under other Acts. The
administrative machinery of central excise is used to collect those taxes. Provisions
of Central Excise Act and Rules have been made applicable for levy and collection of
Central duties cesses. Other duties related to excise duty are as under –

A. Education Cess on excise duty: In case of excise duty, calculation of cess is easy. If
excise duty rate is 12% education cess @3% will be 0.36% i.e. 12.36%)

B. National Calamity Contingent Duty: A ‘National Calamity Contingent Duty’ (NCCD)

has been imposed vide section 136 of Finance Act, 2001.

C. Additional Excise Duty in pan masala and tobacco products: Additional Duty of

Excise by way of surcharge has been imposed under clause 85 of Finance Bill, 2005
w.e.f. 1-3-2005. Thus duty is payable @ 10% of aggregate of cigars, manufactured
tobacco, tobacco extract and essences.

D. Duty on Medical and Toilet preparations: A duty of excise is imposed on medical

preparations under Medical and Toilet preparations (Excise Duties) Act, 1955

E. Additional duty on mineral products: Additional duty on mineral imposed (like

motor spirit, kerosene, diesel and furnace oil) is payable under Mineral products
(Additional Duties of excise and customs) Act

Law of carriage of Goods

The globalization of various markets, international economic integration, removal of
barriers in business & trade and increased competition has significantly increased
 the dependency of business on transportation. Transportation these days has
become one of the crucial game changers in the field of business.

Proper transportation helps in stepping ahead in competitive positioning. Goods

need to be transferred from one place to another. A contract of carriage must be
entered in order to transport goods from one place to another. The association or
organizations that carry out the job of transportations are termed as transporters.

Goods may be transported either by land or by water or by air transportation system.

The transportation of a cargo using two or more modes of transportation is termed as
multimodal transportation.

There are four modes of carriage transportation in India:

 Roadways
 Railways
 Sea
 Airlines

Carriage of Goods by Land

The carriage of goods by land is governed by two laws the Carriage by Road Act,
2007 and the Railways Act, 1890. According to the Carriage by Road Act, a common
carrier can either be an individual, person or an organization, which carries out the
trade of transportation over the land or inland waterways for the purpose of raising
money.

 A private carrier is defined as an entity which carries its own goods or the goods
of selected persons.
 Private carriers are governed by the Indian Contract Act rather than the Carriage
by Road Act, 2007.
 The Carriage by Road Act, 2007 was passed to revise the then obsolete Carriers
Act, 1865.
 The act deals with the regulation of common carriers, limiting their liability and
declaration of value of goods delivered to them to determine their liability for loss or
damage to such goods due to the negligence or criminal acts carried out by themselves,
their servants or agents.
 Except Jammu and Kashmir, the act applies to the whole of India.

Carriage of Goods by Rail

The Railways Act, 1989, governs the carriage by railways. Some of the important
aspects of the act are as follows:

According to section 61 of the act, every railway administration must maintain rate
books, which contain the rate authorized for the carriage of goods from one station to
another and make them available for the reference of any person during all
reasonable hours without making demands for any fees.
 According to section 63, if the goods are entrusted to a railway administration for
the carriage, then such type of carriages shall be at railway risk rate, except where
owner’s risk rate is applicable in respect of such goods. The goods shall be deemed to
have been entrusted at the owner’s risk rate, if no rate is opted.
 According to Section 64, a forwarding note should be executed by each and
every person entrusting any goods to a railway administration for carriage in the form as
specified by the Central Government. The correctness of the forwarding note in assured
by the cosigner of the note. He shall be held responsible and shall be subjected to
compensation for losses caused due to incorrectness or incompleteness of the
forwarding note.
 According to section 65, a railway receipt shall be issued by the railway
administration, as specified by the Central Government, in case the goods are to be
loaded by a person or on the acceptance of the goods. The weight and the number of
packages should be stated in the railway receipt.
 According to section 67, dangerous and offensive carriage should not be carried
by any person unless the danger involved and offensiveness of the carriage is approved
by the railway administration as a response to a notice containing the risks involved in
the transportation of the carriage submitted by the person who is transporting the
carriage or the dangerous and offensive nature of the carriage is distinctly marked on the
package of the carriage.

Carriage of Goods by Sea

The law relating to shipping in India is contained in the Indian Bills of Lading Act, The
(Indian) Carriage of Goods by Sea Act 1925 and the Merchant Shipping Act, 1983.

The Indian Carriage of Goods by Sea Act 1925 applies to carriage of goods by sea
under bills of lading, or similar documents of title, from a port in India to any other port in
or outside India. The substantive rights, recognised by the statute, are of equal
application to foreign merchant ships as they are to Indian merchant ships. The Brussels
Convention, 1922 has been adopted by virtue of the Act and has been made applicable
to India.

Carriage of goods covers the period from the time when the goods are loaded on to the
vessel till the time that they are discharged.

This Act establishes the responsibilities, liabilities, rights and amenities of a carrier
covered by the bill of lading.

Under Article III to the Schedule to the Act, the Carrier is responsible to inter alia make
the ship seaworthy, properly man, equip and supply the ship, and properly and carefully
load, handle, stow, carry, care for and discharge the goods.

A Bill of Lading issued by the carrier constitutes prima facie proof of the receipt of goods
by him.

The Shipper is deemed to have guaranteed to the carrier the accuracy of the marks,
numbers, quantity and weight of the goods at the time of shipment, and is liable to
indemnify the carrier from any loss, damage and expenses arising out of any inaccuracy
in such particulars.
Under Article III Clause 6, notice of loss or damage to be given at the time of taking
delivery at destination, or within 3 days of delivery if damage is not apparent. Else, such
delivery is prima facie evidence of the delivery of goods by the carrier as described in
the Bill of Lading.

Suit to be brought within one year after delivery of goods, or date of delivery, or within
an additional 3 months if allowed by Court, unless parties agree to a longer period.

Under Article III Clause 8, clauses, covenants or agreements excluding or lessening the
liability of the carrier for negligence, fault or failure in duties and obligations of carrier,
are null and void

As per Article IV of the Schedule: “Neither the carrier nor the ship shall be liable for loss
or damage arising or resulting from unseaworthiness unless caused by want of due
diligence on the part of the carrier to make the ship seaworthy, and to secure that the
ship is properly manned, equipped and supplied, and to make the holds, refrigerating
and cool chambers and all other parts of the ship in which goods are carried fit and safe
for their reception, carriage and preservation in accordance with the provisions of
paragraph 1 of Article III. Whenever loss or damage has resulted from unseaworthiness
the burden of proving the exercise of due diligence shall be on the carrier or other
person claiming exemption under this section.”

Clause (2) of Article IV excludes the liability of the carrier in case of any act, neglect, or
default of the master, mariner, pilot or the servants of the carrier in the navigation or in
the management of ship; fire (unless caused by the actual fault or privity of the carrier);
perils, dangers and accidents of the sea or other navigable waters; act of God; act of
war; arrest of seizure under legal process; quarantine restrictions; act or omission of the
shipper or owner of the goods etc.

Clause (5) of Article IV, limits the liability of the carrier to 666.67 Special Drawing Rights
per package or unit or two Special Drawing Rights per kilogram of the gross weight of
the goods, unless the nature and value of goods have been declared by the owner of the
goods before shipment and inserted in the Bill of Lading.

However, this limitation does not apply in cases of proven acts or omissions of the
carrier done with the intent to cause damage, or recklessly and with knowledge that
damage would probably result.

Given the aforesaid limitation of liability of carriers under the Act, value of disputes
concerning loss, damage or destruction of cargo, in several cases, may not meet the
‘Specified Value’ under the Commercial Courts Act i.e. Rs. 1 Crore. However, there may
be cases where the plaintiffs would seek to get around this limitation by alleging willful
misconduct or recklessness of the carrier. The veracity of such allegation would be
crucial to determine the jurisdiction of the Commercial Courts.

Carriage of Goods by Air

Carriage by Air Act, 1972 came into force on May 15, 1973, superseding the erstwhile
Indian Carriage Act, 1934. It is an Act to give effect to:-

• the Warsaw Convention for the Unification Of Certain Rules Relating To International
Carriage By Air, 1929 as amended by the Hague Protocol on September 28, 1955; and

• the Montreal Convention (Convention for the Unification of Certain Rules for
International Carriage by Air) signed on May 28, 1999.

The Act makes provision for applying the rules contained in the said Conventions to
international and non-international carriage by air and for matters connected therewith .

The above Conventions govern the liability of air carriers for injury or death of
passengers, for destruction or loss of or damage to baggage and cargo, and losses
caused by delay in international carriage of passengers, baggage and cargo. These
Conventions have been incorporated as Schedules to the Act.

Public Purchasing
Procurement Processes in Contract Management
Procurement Management process will help you to purchase goods and services
from external suppliers.

It gives you a complete procurement process and procurement procedures, which

explain step-by-step, how to purchase from suppliers.

Procurement inefficiencies cost organizations a huge chunk of cash in delayed

purchases, missed discounts, and transaction disputes. Attempting to speed up the
procurement process with outdated tools like spreadsheets and emails is like trying
to start a microwave with steel and flint.

To take advantage of early purchase and payment discounts, organizations need to

toss stone-age procurement practices out the window and embrace technological
solutions. Modern procurement tools can transform a painfully slow procurement
strategy to world class overnight.

If your procurement process still relies on ancient tools, it’s time for a major
technology makeover. Here’s all you need to know to power up the procurement
process.

The contract management Procurement process includes:

(i)Managing Service Delivery

To ensure that the products are delivered as and when they are ordered.
 (ii) Managing the Relationship

This is the communications between the vendor and the purchaser.

(iii) Managing the Contract

This is the ongoing contract administration to ensure that the day-to-day

procurement activities follow the spirit and sections of the contract.

(iv) Seeking Improvements

Improvements within a procurement environment mean greater efficiencies and an

increase in profits.

(v) Ongoing Assessment

The entire procurement activities are assessed on a continual basis to ensure that
the contracts are adhered to and the purchasing processes followed.

(vi) Managing Change

In a long term procurement relationship, there are sometimes changes in activities,

requirements or products available. All of these changes need to be noted and
handled effectively.

Procurement contractural relationships are fundamental to the the ability of a

company to deliver their services and/or provide products to their customers. If
deliveries are late the company may be unable to service their customers.

Poor quality products reflect upon the company and their customers may go
eleswhere. Problems can be expensive to solve and impact directly upon the
success and profits of the purchasing company.

A thorough understanding of the contract management process and all that it entails
are crucial to the success of a company. The key activities within a contract
management process are:

 The purchasing company should possess a purchasing strategy that focuses on

value for money and efficient procurement activities. All staff and vendors should be
aware of these strategies and the resulting activities are required to follow them.
 Key Performance Indicators (KPI’s) should be in place with all vendors. These
should be used to measure vendors’s performance as well as encourage them to reach
for excellence.
 There should be a detailed master agreement in place with each vendor that
details the expected performance and quality service that is to be delivered on a regular
basis. This is a core requirement of any contract management process.
 Ongoing and regular monitoring of each vendor should be instigated and
maintained. This can be undertaken by the installed software wherever possible. At the
very least, delivery, prices, quality and exception handling should be monitored.
 Regular ad hoc tests as to service, product quality and communication should be
undertaken and the actions taken on the results.
 Continual improvements of vendor/purchaser relationships should be undertaken.
 All potential risks should be identified and managed.
 All issues, exceptions and problems should be managed and escalated to the
appropriate management level. They should all be resolved within an appropriate time
frame.
 In the event of poor vendor performance, the appropriate remedies should be put
into place in a timely manner. These might include financial penalties, training or
removal of the supplier relationship.

Fundamental principles of Public Buying

Public procurement principles are the foundation of public procurement and should
be addressed in the public procurement rules. They govern the management of
public procurement, and also set the framework for a code of conduct for public
procurement practitioners and all other officials directly or indirectly associated with
the public procurement process.

As a practitioner you must have a clear understanding of public procurement

principles, and know how to apply them to guide your day-to-day decision-making
process. By integrating these principles into your work ethic, the outcome of your
decisions will always be in line with the goal of public procurement.

As a public procurement practitioner you are a public servant. You manage public
funds, are bound by an ethical code of conduct, and are accountable for what you do
or fail to do when managing those funds.

Transparency, integrity, economy, openness, fairness, competition and

accountability are some of the fundamental principles of public procurement. They
are briefly discussed below.

Transparency

Transparency in public procurement is important. Information on the public

procurement process must be made available to all public procurement
stakeholders: contractors, suppliers, service providers, and the public at large,
unless there are valid and legal reasons for keeping certain information confidential.
Examples of confidential information are: proprietary information belonging to
companies or individuals participating in the solicitation process, and certain military
and defense-related procurements, to mention a few.

When a public procurement requirement is announced, electronically, through press

release, the internet, and other venues, the announcement must include sufficient
details for interested contractors, suppliers and service providers to determine if they
are qualified to compete. The solicitation documents, particularly, must be available
at a reasonable price, if not free of charge.
 After reading the solicitation documents, interested contractors, suppliers and
service providers should also be able to determine:

 the nature of the requirement and its scope

 the closing date for submission of offers or information
 the evaluation and selection criteria
 how and where offers should be submitted
 the number of copies to be submitted, and point of contact for additional
information and response to queries (clarifications)
 the deadline for submission of queries
 the schedule of pre-bid meetings and site visits (if applicable), and any other
pertinent details

Additionally, if there is a change to the solicitation documents, all stakeholders

should be notified using the same publications that were used for the initial
notification, so interested contractors, suppliers or service providers can take
necessary and timely actions to comply with the change.

Integrity

In public procurement integrity is twofold. There is the integrity of the procurement

process, and that of public procurement practitioners.

Integrity of the Public Procurement Process

Integrity is essentially reliability. Bidders, and all other stakeholders, must be able to
rely on any information disseminated by the procuring entity, formally or informally.
The integrity of the procurement process assures confidence in the public
procurement system. When solicitation documents are made publicly available, the
information they contain must be dependable and free of ambiguities or bias.

When reviewing solicitation documents, prospective bidders should be able to

determine if they are qualified to undertake the assignment. They also should be
able to assess the need for association with other bidders and the type of
association they would need to form given their qualifications and the requirements
of the assignment.

Bidders should have a clear understanding of the requirement, and know how they
will be evaluated. Evaluation and selection criteria must be clearly stated in the
solicitation documents. These criteria should remain unchanged unless there is need
to modify them. If modification is required, the solicitation documents should be
amended, published and made available to all prospective bidders. Any changes in
the offer submission date, should allow bidders sufficient time to adjust their offers
accordingly to meet the new submission deadline.

Integrity of Public Procurement Practitioners

Practitioners working within procuring entities, and other government officials
involved in the public procurement process, must display personal and professional
integrity. Ideally there shouldn’t be any inconsistency between the two.
Public servants involved in the public procurement process should, at all times, be
perceived as honest, trustworthy, responsible and reliable. They must always keep
the purpose of the procurement requirement in mind, and strive to ensure that they
responsibly manage public procurement as mandated by the public procurement
rules.

Economy

Synonymous with efficiency, value for money, and commercially reasonable price,
the principle of economy emphasizes the need to manage public funds with care and
due diligence so that prices paid for goods, services and works are acceptable and
represent good value for the public funds expended on them.

Everyone associated with the public procurement process or directly responsible for
facilitating the acquisition of goods and services with public funds, should strive to
avoid fraud, waste and abuse of public resources; whether it is the result of over
specifications of required goods, paying unreasonably high prices for substandard
goods, collusion with other bidders, or other forms of unacceptable practices.

Openness

Public procurement requirements should be open to all qualified organizations and

individuals. The public should also have access to information pertaining to public
procurement requirements. Access to public procurement information is not
absolute. Confidential and proprietary information belonging to organizations and
individuals participating in process should not be available publicly, and the extent of
their disclosure should be detailed in the procurement rules or other relevant
regulation.

There are also procurement methods, such as restricted or selective bidding, that
limit the availability of solicitation documents to only those firms meeting certain
qualifications. The request for quotations (or shopping), and direct contracting (sole
source) also present certain limitations on competition given that the request for
offers is limited to a certain number and type of organizations or individuals.

The evaluation of offers received is always kept confidential until the evaluation
panel reaches a final conclusion and after the evaluation report is cleared by a
designated approving authority. This would be defined in the procurement rules.

Most defense procurements are confidential, restricting relevant information to a

“need-to-know” basis only.

Except for confidential defense procurements, the results of the public procurement
process should be published and made available on relevant websites. In addition,
public procurement information (except for confidential/proprietary information)
should be open to all on a restricted access basis.
 Fairness

There are different interpretations of fairness in public procurement, so rather than

define fairness as treating all bidders equally, better to mention how fairness is
achieved in public procurement.

To achieve fairness in the public procurement process:

 Decision–making and actions must be unbiased, and no preferential treatment

should be extended to individuals or organizations given that public procurement
activities are undertaken with public funds.
 All offers must be considered on the basis of their compliance with the
stipulations of the solicitation documents, and offers should not be rejected for reasons
other than those specifically stated in the solicitation documents and the procurement
rules.
 A contract should only be signed with the supplier, contractor or service provider
whose offer is compliant and best responds to the objectives of the requirement in terms
of technical capability and price.
 Suppliers, contractors or service providers should have the right to challenge the
procurement process whenever they feel they were unfairly treated or that the procuring
entity failed to carry out the procurement process in accordance with the public
procurement rules. Such challenges must be based on the solicitation documents and/or
the public procurement rules.

Competition

The public procurement process should not be manipulated for the benefit of any
organization or individual. Given that public procurement is funded primarily with tax
payers’ money, all eligible organizations and individuals should be allowed to
participate by submitting offers in response to a specific requirement for which they
are qualified.

Public procurement requirements should be widely disseminated to increase the

chances of a good market response, leading to the award of competitively-priced
contracts.

Despite this principle, not all contracts are awarded using a competitive process
because this sometimes depends on the urgency of need and the resulting
procurement method used to fulfill a specific requirement.

The use of non-competitive procurement methods, although justified under certain

conditions, should be kept to a minimum. Examples of non-competitive procurement
methods are: shopping (also called request for quotations or invitation to quote) and
direct contracting (single/sole sourcing). Each of these non-competitive procurement
methods have their purpose and should not be misused.
Accountability

Accountability in public procurement means that anyone involved in the procurement

process is responsible for their actions and decisions with respect to the public
procurement process.

As public servants, procurement practitioners, and others involved in the public

procurement process, are accountable and exposed to sanctions as a remedy for
any behavior that contravenes the public procurement rules. You also have an
obligation to report and/or answer to a designated oversight entity, and the public, on
the consequences of your actions and decisions.

Tendering: Introduction
To tender is to invite bids for a project or accept a formal offer such as a takeover
bid. Tendering usually refers to the process whereby governments and financial
institutions invite bids for large projects that must be submitted within a finite
deadline. The term also refers to the process whereby shareholders submit their
shares or securities in response to a takeover offer.

For projects or procurement, most institutions have a well-defined tender process, as

well as processes to govern the opening, evaluation, and final selection of the
vendors. This ensures that the selection process is fair and transparent. Regarding
tender offers related to takeover attempts, the conditions of the offer are clearly listed
and include the purchase price, the number of shares requested, and a deadline for
a response.

A request for tender (RFT) is a formal and structured invitation to suppliers to submit
competitive bids to supply raw materials, products, or services. Because this is a
public and open process, laws were created to govern the process to ensure fair
competition among bidders.

For example, without laws, bribery and nepotism may flourish. Tender services are
available for potential bidders and include a wide range of tenders from private and
public sources. These services include crafting suitable bids, coordinating the
process to ensure deadlines are met, and ensuring compliance with applicable laws.

The Process of Tendering

The process of tendering is very simple. But care must be taken while preparing it
because it is considered as the official document. And thus, once it is submitted it
becomes a legal document and you have to follow the terms and conditions of that
tender.

The tenders should be submitted in the sealed covers. Specific date and time need
to to be mentioned on the top. It should also be accompanied with specified
enclosures like EMD which earnest money deposit. This is normally 2% of the
estimated value in the tender.
This is done to make sure that there are no non-serious bidders bidding for the
contract. The deposited money will be refunded once the bidding process is
successfully over. The firm that gets the contract has to replace this EMD with
performance guarantees and has to offer up to 10% of the estimated amount and the
experience certificates.

Once the bidding process is over, the first thing done is the technical details that are
mentioned by the bidders are taken up to the discussion by the bidders. If the bid is
accepted and you are not signing the contract than the EMD is forfeited.

Usually, in the bidding process, the firm with the lowest bid gets away with the
contract. In order to curb the fraud, the governing body can reject all the bids without
giving any proper reasons. The court that is given the jurisdiction can also intervene
in the matter of any dispute.

Terminologies used in Tendering

Alternative bid: Initiate an offer that is alternative to the tender requirements.
Meaning the offer is different to what is being asked for in the tender procedure.
Often the alternative bid provides advantages or benefits over the stated
requirements regarding cost and/or performance. Also known as variant bid (see
variant bid).

Award criteria: A list of key criteria or requirements, which is required for a contract
to be awarded.

Bid: A formal proposal to deliver goods or services at a specified price, as well,

describing that the tender contract requirement will be met.

Bid Management: Involves the process of managing the submission of a tender for

a contract and managing the bid team. One of the elements behind a great bid
management is a good bid team. It is common for larger businesses to have a
dedicated bid writing department.

Closing date: Also known as the deadline for submission. This is the date and time
that a tender submission needs to be delivered and received. Tenders submitted
after this date might not be considered in the competition.

Commission:  In context with procurement, this usually refers to the European

Commission. More about the European Commission here.

Common Procurement Vocabulary – CPV (codes): The European Union

developed CPV codes with a purpose to help procurement identify, consistently and
correctly find tenders that are of interest by using a standardized vocabulary. The
codes generically describes products or services. You can read more about CPV
codes here. 
Conditions of contract: Are set rights and obligations that the contracting parties
need to follow when a contract is awarded.

Contract: A binding agreement between two parties to perform/deliver specified

goods and/or services. 

Contract award: Follows when the procurement process is finalized, contracts are

awarded to the winner of the tender competition.

Deliverables: Also known as statement of work or statement of requirement.

Deliverables are usually detailed in the specification of the approach to market
documentation and are linked to details.

E-procurement – The term is used to describe cloud-based solutions for conducting

purchases of goods and/or services electronically.

Electronic tendering /e–tenders: An electronic tendering solution facilitate the

entire tendering process from the announcement of requirements to placing the
contract awards. This include all required documents in an electronic format.

ESPD – European single procurement document: Is an electronic self-declaration

document to be submitted by suppliers interested in tendering for contracts for the
supply of goods or services in the public sector. You can read more about ESPD
here. Or visit this site directly.

EOI (Expression of interest): A multi-staged process that is used early in the

procurement process. EOI is generally used when information required is very
specific and the buyers are unsure if the suppliers are able to deliver these
requirements. Potential suppliers are shortlisted and examined before seeking
detailed bids from the shortlisted tenderers.

Framework Agreement: Is an agreement with suppliers that set out terms and
conditions for making specific purchases governing contracts to be awarded.

Goods: Any physical/tangible item.

Governance: The framework of authority and control within an organization and

establishment and implementation of policies.

ITT (invitation to tender): Also called request for tenders. This is the initial step in a
tendering process where selected suppliers are invited to compete and submit an
offer within a specified timeframe.

JV (Joint ventures): Normally a business entity created by two or more parties with

the purpose to achieve a specific task, such as win a tender, PFI, PPP and so on.

Offer: Same as bid (see bid).

OJEU: Official Journal of the European Union (previously called OJEC – the Official
Journal of the European Community). This is a publication where all tenders from the
public sector with value above threshold must be published.

Parties: A person or organization involved in the signing of the contract. Normally

comprise of a supplier and a client with shared rights and responsibilities.

PEPPOL (Pan-European Public Procurement Online): The guidelines for online

acquisitions established by the European Union and 18 public authorities

PQQ (Pre-qualification questionnaire): Is intended to help public purchasers/buyers

to shortlist the number of suppliers and form part of the restricted tendering
procedure. PQQ includes questions regarding level of experience, capacity and
financial standing.

Procurement: The process of obtaining good and/or services from an external

source, usually through a tendering or bidding process. This includes determining
requirements of the acquisition, selecting suppliers, award selection and other
related functions.

Procurement software: Also known as e-procurement software, simplify the

procurement process through a cloud-based software solution.

PPP (public private partnership): See PFI.

PSL (preferred supplier list): Contains a list of suppliers that the business has
specified to be of interest, and might be used in a specific acquisition.

Proposal:  See bid

Purchaser (also called a buyer): A government department, entity or agency that is

intending to purchase goods or services from a supplier.

Quotation: Is the bid submitted in response to a request for quotation from a

contracting authority.

RFT (request for tender): A formal, structured invitation to suppliers to submit or bid
to supply products or services.

RFP (Request for proposal): Is submitted in an early stage in the procurement

process and is commonly used when it is required technical expertise, specialized
capability, or in some cases where the product or service requested do not already
exist and must be developed.

RFQ (request for quotation): Suppliers are invited to provide a quote for the
provision of specific goods or services.
RFI (request for information): Differs from an ITT (invitation to tender) and PQQ
(pre-qualification) as these are pre-determined, while RFI is requesting information
necessary to decide the procurement process. Hence, RFI typically occurs during a
planning phase.

Restricted procedure: Usually limits the request of tenders to a selected number of

suppliers.

SLA (service level agreement):  An agreement between two or more parties.

Where one party is the customer and the other party is a supplier delivering a
service.

SMEs (small and medium sized enterprises): Firms with less than 250 employed
people, with a turnover of less than €50m.

SOPO: Society of procurement officers in local government. More about SOPO here

Supplier: A person or organization responsible for delivering goods or services, that

meets the clients requirements and within a specified time and period.

Tender / tendering: The process of bidding for work or contracts. Buyers seek the
best price or value for money from a selection of prospective suppliers. The whole
process is done by competitive tendering.

TED (Tenders Electronic Daily): Is the official journal of the European Union and
tenders information online, dedicated to European public procurement. TED provides
access to business opportunities from EU, the European Economic Area and
beyond. More information on TED tenders can be found here.

Variant bid: Characterized as a more flexible style than regular bids. Complies only
with the basic requirements selected for the awarding contract. Two bids can be
submitted in the competition, one with exact match of the criteria and one “variation”.
This opens the chances of winning and innovation. 

Vendor: Same as supplier (see above).

Tendering Process

The Stages of the Tender Procurement Process

The chart below shows the various steps that form a typical tendering process for a large
contract – smaller value contracts may well be simpler. Organisations within the public
sector often run slightly different processes too.
Form Procurement Team

The procurement team will typically involve procurement; the budget holder and others
involved in managing the contract; possibly representatives from health and safety,
human resources, quality management etc.

 The higher the value of the contract, the bigger the procurement team – often involving
senior management. Also the tendering process becomes more drawn out. The same
applies to high-profile purchases.

Develop Tender & Evaluation Criteria

The procurement team then agree what the tender will involve eg:

 Specification or general requirement

 Supplier requirements and mandatory requirements (eg ISO standards)
 Questions
 Tender rules or instructions
 Evaluation criteria (how it will be scored e.g. 60% quality / 40% price)
 Contract (e.g. one-off, term or framework)
 The tender procurement process (e.g. PQQ or not)
Pre Qualification Questionnaire (PQQ)

This is an initial selection process to help sift potential suppliers for suitability. It is used
to create a long-list of companies to be invited to tender. This stage of the tender
process might be by invitation or open to everyone (eg OJEU tenders).

The qualification stage might take the form of an approved supplier list, an initial

screening interview or a formal PQQ (questionnaire to assess against minimum
requirements). Some tenders incorporate aspects of the PQQ within the tender therefore
eliminating this stage.

Issue Tender

The invitation to tender (ITT) will be issued to the long-list of selected potential suppliers.
This might involve a set of questions to be answered along with a pricing matrix.
Alternatively it could be less formal – simply asking the bidder to submit a formal
proposal and a price.

Public sector and corporates tend to use formal ITTs – especially for higher-value
tenders. NB e-tenders are becoming increasingly popular.

Tender Briefing Meeting

It is not uncommon for the tender procurement panel to hold supplier briefing meetings
(pre-tender meetings). Their intention is to help clarify the tender and answer any
questions.

Initial Evaluation

The tender panel mark each bid against their agreed evaluation matrix. This results in a
league table of the highest and lowest bidders’ scores.

Supplier Short-list

The evaluation is then used to select a short-list of potential suppliers. The amount of
bidders in a short-list will depend on the nature of the contract eg a framework
agreement will require a number of suppliers to be awarded a contract whereas another
tender might only have one winner.

Presentations, Interviews & Visits

Short-listed bidders are sometimes subject to further evaluation by means of a tender

short-list presentation or a question and answer session. This might be extended to a
visit to supplier’s premises and possibly meeting some of their customers.
Again, the tender panel will assess this against their pre-determined evaluation criteria.

Selection

Whatever the tender procurement process, the tender panel will arrive at its final scores
and will use those to select the best performers and award contract(s).

Negotiations

The limit of tender negotiations depend on the nature of  each individual tender

procurement process – a formal tender may not offer any scope for negotiation whilst
others will allow small negotiations. This can include some aspects of price (eg
additional items), service). It contract wording and specification (eg items that don’t
affect the overall is unlikely that there will be opportunity for any major negotiation –
especially not on the overall price.

Contract Award

Once everything in the tender procurement process is finalised, contract(s) are awarded.

Unsuccessful bidders should have a chance to get feedback on tenders. This helps
companies to help gain a better understanding on how to improve in future.

e-Tendering
E tendering system has turned out to be extremely successful after the quick pace
of innovation in technology. This type of e tendering system associates enterprises
directly with suppliers making acquisition easiest among the other tasks. An e-
tendering system is designed to satisfy every need of an enterprise and an
impressive option to opt for. This article will highlight the main advantages and
disadvantages of utilizing it for your organization’s acquisition.

On the contrary, the cause for most of the challenges faced by an e-tendering
system arises from the vendor and not the enterprise but rather affects the whole
procurement process. Whenever technology is involved, there is always a risk of
data compromising. EProcurement will definitely have their flaws (Come on, nothing
is perfect) but that shouldn’t be an excuse to ignore an e tendering system. An
eProcurement system will replace the individual who has been physically dealing the
vendors over years.

However, thanks to the internet, an e-tendering system comes with lesser

investment on both technology and data. You will eventually understand how such
software’s can be cost-effective in buying and selling of goods. In the event that
there were any boundaries you were trying to infiltrate will be done away by this
software.
 Advantages

1. Enhanced Organization

Numerous organizations are spooky due to the disorganization. Such organizations

struggle to manage purchases and place order according to the schedule. This
unorganized procedure can be difficult to change and can lead to exceptions. Here,
E-procurement is the appropriate solution as it can streamline buying and
furthermore diminish the danger of exception in your purchasing procedure. Another
highlight is that you can centralize the purchasing.

2. Improved Control

Online procurement helps you to be adaptable in a free manner and also enables
access restriction in an agile manner. With the correct e-procurement software, you
can confine a large group of issues including acknowledged price from every
supplier, ordered things, selected vendors and sort of purchases done. By firmly
controlling these essential components you can keep up consistency all together and
limit rogue spending. Also, the online procurement software can coordinate easily
with your current frameworks to boost efficiency.

3. Reporting and Reconciliation

A key issue in procurement is crisscross amongst purchases and invoices. In any

case, this issue has a tendency to be pushed out of sight as organizations tend to
center around fundamental tasks. In addition, it is hard to create reports on
procurement and additionally assemble information on authentic approval utilizing a
manual system. E-procurement software can resolve this issue as it offers an
adjustable and customized reporting structure.

4. Cost Saving

You can conduct proper research and discover a cost-effective online procurement
software solution. Reliable sellers offer pricing packages that empower you to pay
just for what you utilize and commonly there is no client authorizing charges or
hidden expenses. Also, your workers can save time with this product and spend it
productively on other tasks.

5. Reconciliation with Existing Software

As specified before, top e-procurement software solution can incorporate

consistently with your current business process automation stages. Numerous online
procurement software additionally gives modules to streamline budgetary tasks and
handle capital ventures. You can choose one such supplier to guarantee all the tools
in the software are compatible with each other making it less complex to actualize
the e-procurement product.
 Disadvantages of E-Procurement

6. Micromanagement

E-procurement software devices provide a detailed report on data analytics and

classification. In any case, the risk is that you can get carried away with the
customization alternatives. There might be a high number of fields which could lead
to confusion and could decrease the platform’s reporting proficiency. The only
solution is to discover the customization level that will be suitable for your enterprise.

7. Not Ideal for Direct Materials

E-procurement works best to purchase catalog based indirect materials, for example,
office supplies. You are certain to get great ROI for purchases like these. However,
e-procurement is perfect when buying direct services and materials. So, it would be
advisable to utilize it for arranging purchases that are a piece of expansive and
costly deals.

8. Provider Onboarding Problems

More established vendors could find it hard to get used to the new online
procurement software frameworks. Independent ventures can experience
considerable difficulties refreshing inventories and other data with the platform.
Along these lines, it is critical to choose well-informed suppliers to completely profit
by e-procurement.