Procurement and Contract

Management

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 1.2 Contract and procurement management basics
Procurement and Contract Management involves three
major processes:
• Contract Planning,
• Procurement Management and,
• Contract Management which in turn consists of the
following

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 1.2.1 Contract Planning
Procurement and Contract Management
processes shall be based upon the approved
contract planning provisions; that is,
the contract delivery system,
the procurement method and
contract types decided upon.
With Provisions for alterations b/c to
meet regulatory requirements such as:
Ethical, Economical, HSE and
Transparent.
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 1.2.1 Contract Planning
The approved contract provisions can only be
changed following the change process stated in
the contract planning document and if and only
if:
the Environment and Context considered
are not correctly analyzed or changed,
their application can remarkably affect
the objective of the project, and
procurement management process
justifies change of the Contract Types.
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 1.2.2 Procurement Management
Procurement Management is a process of
selecting individuals or organizations to carry
out the intended services and / or works.
It is based on provisions made on contract
planning phase. It involves
the preparation of procurement
documents
invitation and submission of tender
proposals
Opening and Evaluation of tenders
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 1.2.3 Contract Management

Contract Management: is a process of

reaching contractual agreement for
implementation,
its administration and
finally concluding the contract.
It is based on provisions made on
contract planning phase.

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 Contract Management
The following issues are necessary for a successful
Contract Management phase:
 knowing and ensuring contract related National
and International laws, rules and regulations,
adherence to the provisions made during the
contract planning phase including their change
processes,
identifying, recognizing and involving all
potential or key stakeholders to form a contract
team,
understanding, mapping and monitoring all
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contract conditions agreed upon, and
ability to administer changes, claims and
 2. Procurement and Contract Delivery
2.1 Types, Definition & Development
Procurement and Contract Delivery system is the way
Project Owners together with Project Regulators and
Financiers determine the assignment of
responsibilities to Project Stakeholders along the
Construction Process.

A formalized contractual approach which allows an

owner to secure planning and design services and
build a project, assuring effective management
throughout.

8  Procurement and Contract Delivery system is often

 3. Procurement Management
3.1 Introduction and purpose
Procurement is a process used to select the
lowest competitive and qualified bidder for
procuring services or works or goods from
potential competitors based on reasonable
relevant criteria.
Physical infrastructures are cost extensive
and appropriate savings obtained through
competition are the main factor behind the
procurement process
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 3.1 Introduction and purpose
 it desirable to regulate procurement of goods,
construction and services so as to promote the
objectives of:
Maximizing economy and efficiency in
procurement;
Fostering and encouraging participation in
procurement proceedings by suppliers and
contractors,
Promoting competition among suppliers and
contractors for the supply of the goods,
construction or services to be procured;
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 3.1 Introduction and purpose
Providing for the fair and equitable
treatment of all suppliers and contractors;
Promoting the integrity of, and fairness
and public confidence in, the procurement
process; and
Achieving transparency in the procedures
relating to procurement,

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 3.1 Introduction and purpose
An effective and efficient procurement method
ensures the following rights called the "Five
Rights". These are
The Right Quality,(technical expectation
and economic consideration)
The Right Quantity, (Take-off-Sheet
Measurements and Resources Allocations)

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 3.1 Introduction and purpose

The Right Cost / Price /,(quality related

and the right cost is nearby cost, achieved
mainly through competition)
The Right Counterpart (to guarantee that
the parties shall be fit to the job) and
The Right Time. (scheduling with regard
to right timing is essential)

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 3.1 Introduction and purpose
The purposes of a Procurement Management
System can be summarized into two major
points:
To satisfy the need for economy and
efficiency,
To provide equal opportunity to
competitive bidders.
The successful achievement of these purposes
requires the following seven characteristics

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 3.1 Introduction and purpose
Figure : Seven Characteristics of Tendering

Notice of
Advertisement

Avoidance of Proof of
Subjectivity Competition

Characteristics
of tendering

Accessibility Impartiality

Formality Neutrality

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 Characteristics of Tendering
Notice of advertisement:
Through an official newspaper, mass media,
and notice boards etc. which can enable the
advertisement to reach wide range of
competitors.
Proof of Competition:
tenders should be unlimited competition,
unless otherwise conditions such as
complexity and specialisation of projects
require restriction to open competition.

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 Characteristics of Tendering
Neutrality: care shall be taken When
The specifications are prepared
To avoid preference to limited
alternatives
The bidding documents (contract conditions)
shall be balanced
 Not to cause disruption of the task to be
accomplished.
Accessibility:
The place where bid documents are purchased
shall be clearly indicated
The place, dates and time for submission shall
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be notified
 Characteristics of Tendering
Impartiality: During tendering if clarification is
requested, do so accordingly to all bidders
Often Pre-Bid Submission Meeting is used for
this purpose.
Negotiation is not allowed during tender
period.
Formality: Strict adherence to formality shall be
taken to all tenders like
the submission & opening of bids (place, date
and time)
rejection of late and non-responsive bids
the bid security condition shall also be a
18 formality to all tenders
 Characteristics of Tendering
Avoidance of subjectivity:
Criteria for evaluation shall be strictly
set out in the instruction to bidders’
part of the bidding document and all
evaluations shall be carried out
accordingly.

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 3.1.2 Procurement cycle
Let us discuss procurement from where to where.

It include the time frame between the

identification of requirement and the ultimate
award of contract.
The followings are fundamental steps, to
accomplish the ultimate goal of procurement
cycle.

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 3.1.2 Procurement cycle
A. Requirement identification
The procurement cycle begins with
identification of need which creates a
requirement.
 E.g. a need to cross a body of water
creates a requirement to build a
bridge.
Budget allocation and fund availability are
determined before submission of
requirements.
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 3.1.2 Procurement cycle
B. Procurement Planning:
once requirements are defined and approved,
procurement planning begins. At this phase
determine the following;
i. What is needed, when and what is the
relationship to other requirement?
ii. Is the requirement dependent or
independent of other requirements?
iii. if dependent, what is the relationship to
other dependent requirement

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 3.1.2 Procurement cycle
B. Procurement Planning CONT…
i. When is the dead line to fulfilling the
requirement.
ii. Is there sufficient time to fulfill the
requirement given the project schedule.

All requirements should ideally appear on the

procurement plan

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 3.1.2 Procurement cycle
C. Procurement requisition processing:
The first step here is to determine what the
requesting entity wants. This is done by reviewing
specification or description of goods or services or
works required.

D. Determine procurement method:

One must determine the appropriate procurement
method to fulfill the requesting entity's need in most
expeditious and cost-effective manner.

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 3.1.2 Procurement cycle
E. Prepare and publish bidding document:
 Bidding process to begin after procurement
method determined
F. Pre-bid / meeting and site visit:
 Pre-bid meetings are held alone or in conjunction
with a site visit.
 Pre-bid meetings are held primarily for complex
requirements.
 The purpose of pre-bid meeting is to clarify the
bid documents.
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 3.1.2 Procurement cycle
G. Bid submission and opening:
During the opening event the following needs to be
determined
Is the bid received in a sealed envelope?
Is the bid form completed and signed?
Is the bid received on or before the
submission date and time?
Is there a power of attorney mandating the
authorized representative to sign the bid?
Is the bid security ( if any) in the form and
amount stipulated in the bidding document?
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 3.1.2 Procurement cycle
H. Bid evaluation: before the bid evaluation takes place,
an evaluation panel is formed and approved.
 Initial examination is done during the bid opening:
circumstances that could lead to the rejection of bid at
this stage are
Compliance of documents received with the
submission requirements.
Late bids
 Preliminary examination of the bid
The responsiveness of the bid to the bid documents
 Detailed examination of the bid
Price comparison is done to determine the lowest
qualified and responsive bidder
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 3.1.2 Procurement cycle
I. Award recommendation:
the contract award recommendation resulting from
evaluation of bids lead to a request for clearance/
no-objection to award contract.
If no-objection, the contract award
recommendation will be published and noticed.
If there is any claim received, it will be reviewed
and investigated to determine validity.
A valid claim may result in suspension of the
intent to award, in order to undertake detail
investigation which could lead to re-evaluation
of bids or cancellation of the evaluation process.
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 3.1.2 Procurement cycle
J. Contract negotiation:
 Contract for goods or works procurement are not a
usually negotiated except under special
circumstances the details of which must be
specifically stipulated in the bidding document.
K. Contract award:
 For goods and works procurement, contract award
takes place with the notification of the responsive
bidder with lowest evaluated price.
 Such notification is done by the way of a formal
letter of acceptance.
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 3.1.2 Procurement cycle
Post contract award considerations:
After contract signing, unsuccessful
bidders have the right to request
debriefing by the procurement entity.
The debrief can be done orally or in
writing.

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 3.2 Procurement Methods

Procurement types can be classified based on the things

to be procured and the way how they are procured. There
are five bases for classifying procurement methods.
These are:
Bases Things Bidders Geographi Procureme Procurement
procured coverage cal nt steps
coverage awareness
Types Goods Competitiv Internationa General PN Single
e l
Services Negotiated Regional Specific PN Two stage

Works National Pre-

Qualification
Local Post-
Qualification
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 3.2.1 Things to be Procured
(Goods Vs Services Vs Works)
Depending on the delivery system chosen during the
contract planning phase, mixed types of procurement
types can be adopted
Procurement of Goods: Physical resources such as
Materials and Equipments
Procurement of Services: often termed as consultancy
services procurement. These include services like
pre-feasibility and feasibility studies,
design and contract administration of projects,
Construction management consultancy services,
research or study based consultancy services, etc.
Procurement of Works: the procurement of contractors
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to carryout the actual physical infrastructures.
 3.2.2 Bidders’ Coverage
(Competitive Vs Negotiated Tendering)
Competitive Tendering: selection of better and capable
winning bidder among the various eligible firms. it can
either be Open or Limited Competitive Bidding in the
form their invitations.
Open competitive bidding allows all eligible
bidders to participate.
Limited competitive bidding allows a number
of selected firms only.
The major difference between open and
limited competitive bidding is the addition of
qualifying criteria beyond eligibility.
Limited Competitive Bidding is often used when the
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nature and urgency of the work justifies to do so
 3.2.2 Bidders’ Coverage
(Competitive Vs Negotiated Tendering)

Some of the qualifying criteria used for Limited

Competitive Bidding are ( usually short listing is
done based on):
the firms past performance,
work load at present,
presence of a firm in the vicinity of the
projects,
knowledge of similar type of works before and
financial and technical capabilities of the firms
Usually in Limited Competitive Bidding, cost of
projects might be higher than expected
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 3.2.2 Bidders’ Coverage
(Competitive Vs Negotiated Tendering)
Negotiated Tendering: Under certain circumstances,
The nomination of this direct invitation is usually
based on
good performance,
contact with the Project Owner,
for supplementary agreements, etc.
 This kind of tendering is exceptionally exercised when
the project under consideration is very urgent or
needs special skill whereby the required skill is rarely
available.
 The main disadvantage of this type of tendering is that
the price offered can usually be higher than the
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competitive bidding.
 3.2.3 Geographical Coverage
(International Vs Regional Vs National Vs Local
Tendering)
These types of procurements are generally caused by
three major factors. These are
Local Capacity,
Financial Sources ( dictate regional or
international)
Globalization (globalization and principles of Free
Trade and Trade Liberalization also encourages
international tendering)
In practice, Preference Margins in the range of 7.5%
are applied to local, national or regional tenderers,
which imply tender offers higher than 7.5 % will be
36 given preference to encourage local participation.
 3.2.4 Procurement Awareness
(General and Specific Procurement Tendering)
Following requirement like proof of competition
and increase accessibility,

General Procurement Notice (GPN) is made

during projects planning phase and
it is only interests of the bidders are
aroused because sufficient tender
documents are not available.

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 3.2.4 Procurement Awareness
(General and Specific Procurement Tendering)
This approach is used:
The Project Owners to
identify interested bidders to issue
Invitations by letters and save time;
identify bidders relevant for the
procurement required;
protect loss of cost in preparing lots of
tender documents.

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 3.2.4 Procurement Awareness
(General and Specific Procurement Tendering)
The Bidders to:
give sufficient time to assess the cost of the
project;
protect loss of cost only to participate; and
encourage competent bidders who wary about
low-balling to participate
There are two types of General Procurement Notice
based on their purpose why and when they are notified
The first type of GPN
When?-- announced as soon as the design is
started
Why?-- to create awareness and let bidders’
39 prior information about upcoming projects
 3.2.4 Procurement Awareness
(General and Specific Procurement Tendering)
The second type of GPN
When?--announced after financial sources are
determined
Why?--to determine interested bidders who
could be invited in the form of Limited
Competitive Tendering.
GPN covers
the Employer and its financiers for its project;
Description of the project with its probable or
planed implementation time;
type of procurement method and address
where further information can be obtained.
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 3.2.4 Procurement Awareness
(General and Specific Procurement Tendering)

Specific Procurement Notice (SPN)

is an Invitation for Tender or a Request for
Proposal when the project is ready for
implementation.
can be sent to those interested bidders
identified following GPN directly.
Otherwise, it should be advertise on the
bases of enlarging opportunities

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 3.2.5 Procurement Steps:
(Single Vs Two Staged and Pre-Vs Post-
Qualification Tendering)
Single or Two Staged Tendering: are related with
whether tender packaging for submission
separately and their evaluations are staged for a
single or two steps when invitations are made.

Pre-Qualification Tendering: It is a procedure in

which eligible bidders are invited to provide
evidence of their ability to perform the services
required by the employer.

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 3.2.5 Procurement Steps:
(Single Vs Two Staged and Pre-Vs Post-Qualification
Tendering)
Pre - qualification can be of two types
The first is Single stage tendering: when
companies are already considered qualified
during their licensing requirements.
(evaluation criteria become the low priced
bid)
The Second is when two staged tendering is
used to pre-qualify tenderers’ for their
technical competency. Once pre-qualify,
either the lowest priced or the lowest
evaluated bidder recommended for award.
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 3.2.5 Procurement Steps
The advantages of pre - qualification in procurement are:

To the employer To the Bidder

Protect the employer Saves bidders from the
against unqualified cost of preparing bids
bidders
Quicker Evaluation for Assure pre-qualified
only pre-qualified bidders bidders for their bid
considerations
Ensure award to least Reduce low balling
evaluated not lowest bidders from participation
bidder
Assess level of interest Make bidders to be better
shown by bidders planned
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Show competency &
 3.2.5 Procurement Steps

The following pre-qualification criteria's are often

used in determining the ability of the bidder to carry
out the works:
Experience and past performance,
Health, Safety and Environment Records, if
any,
Capability in respect of personnel and
equipment,
Organizational arrangement and facilities,
Financial Status, and
Schedule of Commitments.
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 pre-qualification flow chart
Procedure Employer / Consultant Contractors
 
Procurement and Contract Strategy Delivery
DeliverySystem
System
(Contract Planning Phase) Procurement
ProcurementMethod
Method Awareness on Future
Contract
ContractType
Type  
Business and Follow Up
Action
ActionPlan
Plan

Pre-qualification Documents Letter

Letterof
ofInvitation
Invitation
Tender Document Preparation Information
Informationabout
aboutprequalification
prequalificationprocedure
procedure Collect information about
Project Information
Project Information the project and  its location
Prequalification
PrequalificationApplication
Application

Advertisement
Advertisement
Invitation To Project
ProjectScope,
Scope,Location,
Location,Source
Sourceofoffinance
finance Check
Check Eligibility
Eligibility
Pre-qualify Issue,
Issue, Submission
Submission and
and Opening
Opening dates
dates of
of Check
Check Competitive
Competitive Advantage
Advantage
Tenders Collect
Collect Information
Information
Tendering Tenders
Instructions Decide
Decide to
 
to participate
Instructionsto
topre-qualify
pre-qualifyand
andevaluation
evaluation participate
Phase criteria
criteria

Organization,
Organization,Structure
Structure&&Experience
Experience Request and Obtain Pre –
Issuance & Submission of Pre- Resources
Resources (Financial,Managerial,
(Financial, Managerial,Technical,
Technical, Qualification docs.
qualification docs. Labor,
Labor,Plant,
Plant,Stock,
Stock,etc)
etc) Request & Obtain Clarifications
Tendering Current
CurrentCommitments
Commitments Complete and Submit  Docs and
Acknowledge
AcknowledgeReceipt
Receipt Relevant Info.
Phase
Open
OpenTender
Tenderin
inthe
thepresence
presenceof
ofrelevant
relevant
attendee
attendee Attend Tender Opening
Opening & Analysis of Pre – Evaluate
Evaluatefor
forEligibility,
Eligibility,Technical,
Technical, Ceremony
Qualification Organizational
Organizational,,Financial
FinancialCapability
Capability
Tender Evaluation Phase

Pre-qualified
Pre-qualified tenderers
tenderersare
are selected
selected Acknowledge
Acknowledge & & Confirm
Confirm Intention
Intention
Winners are Notified to
to participate in succeeding
participate in succeeding
Selection and Notification of Winners are Notified
tender
tender
46 Tenders
Tender Evaluation Phase
 3.2.5 Procurement Steps
Post – qualification:
where Financial Evaluation is carried out first and rank
bidders on the basis of their offer for tender price.
That is, Technical Evaluation will be done after
the Financial Evaluation
The advantage of this approach is
not to lose the lowest financially evaluated
bidder &
to save time during technical evaluations.
However, Post qualification approaches often cause to
fix evaluators on financial results and be locked and
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biased for successive technical evaluations.