ZHRC/HTI Financial Management Training Session 8: Annual Procurement Plans, Procurement Contracts,...

ZHRC/HTI Financial Management Training

Session 8: Annual Procurement Plans, Procurement Contracts, and Contract Management

Learning Objectives (1)

• By the end of the session, participants will be able to:

• Describe an Annual Procurement Plan (APP)

• Describe the APP for Goods, Works and Non-consultancy Services

• Describe the APP for Consultancy Services

• Define the term “procurement contract”

Learning Objectives (2)

• Explain the importance of a procurement contract

• List key obligations of the purchaser and provider of service or goods

• Describe major issues in contract management

What is an Annual Procurement Plan?

• Procurement plan describes which products will be acquired by the procuring entity, as well as when and how they will be acquired

• Procurement planning is the process of determining what is needed, how much is needed, where and when

• Notes: • Proper planning is an essential element of good

procurement• The Ministry must plan their procurements each

year

Forecasting and Budgeting Procurement Requirements

Ministry uses two methods to forecast requirements:

• Bills of Materials Used where bills of materials are available

• Past Consumption AnalysisUsed for items that have an independent demand which are consumed on a continuous basis, for which no bills of material are possible• The approach is to analyze past consumption and

use that data to project future consumption

Formats of Annual Procurement Plan (1)

• Public Procurement Regulatory Authority (PPRA) has issued two formats for the Annual Procurement Plan (APP), these are:

1. Template for Procurement of Goods, Works and Non-Consultancy Services in accordance with GN. 97

2. Template for Procurement of Consultancy Services in accordance with GN. 98

Formats of Annual Procurement Plan (2)

• In both formats, there are three kinds of information that should be kept by a procurement entity (PE)

1. For internal use in the PEs for planning purposes

2. For external use- notifying potential bidders of procurement opportunities in the PEs

3. For submission to PPRA- for notification and monitoring purposes

Information Included in Annual Procurement Plan (APP)

• Information for internal use in the APP:

• Subject matter of each procurement including tender lots and their estimated value

• Procurement method

• Date of posting GPN

Important Notes

• Aggregate requirements of different user departments within the procuring entity to achieve economies of scale and thus lower costs• This is subject to considerations like storage

facilities, available cash flow and the like

• Procurement plan may be reviewed every six months to take into account new procurement

Group Work: Procurement Planning

Procurement Contracts and Contract Management

What is a Procurement Contract?

Definition of Procurement Contract

• A procurement contract is a legal document usually written, between two or more parties that governs the purchase of goods, works or services

• The procurement contract enters into force when it is signed by the supplier, or service provider and the procuring entity

Supplier’s Obligations

• Supplier’s obligations include but are not limited to:

• Deliver the goods, service or works in the way, at the time, and in the location specified by the parties

• Deliver the documents related to the goods or service

• Transfer title of ownership for the product

• In general, to act in good faith and deal fairly

• Civil liability for manufactured goods in case of injury to people or objects

Procuring Entity’s Obligations

• Procuring entity’s obligations include but are not limited to:

• Accept the goods or services provided that meet the contract terms

• Pay the agreed price

• In general, act in good faith and deal fairly

• Accept civil liability in the case of injury to persons or objects

Preparation of Contracts

• A contract document is prepared by Procurement Management Unit (PMU) in consultation with the chief executive officer (Legal secretary)

• Contents of a contract are determined by contents of tender documents and nature of tender

Major Issues in Preparing Contracts

• Major issues related to preparing the contract are:

• What the procuring entity wants to obtain

• What the procuring entity wants to avoid

• The options that are available, (if all goes wrong), to protect the procuring entity so the impact on business is as minimal as possible

Challenges in Contracts Management

• Numerous difficulties may arise in purchasing and supply contracts. Some of these are:• Change of ownership/management• Change of circumstances• Currency fluctuations • Delays in performance• Different business cultures• Dominance• Lack of specificity

Types of Contracts

• Lump sum contracts

• Schedule of rates contracts

• Contracts with special features

Awarding Contracts

• In case of low value and low risk items, once the supplier has been selected, the Purchasing Officer raises the Local Purchase Order

Local Purchase Orders

• Local Purchase Orders (LPO) are raised in the name of the supplier based on the tender award

• LPO should indicate the date, time and place of delivery of goods

• In all cases, the MTB minutes are quoted as reference to source of authority

• LPO may be raised for all procurements below the threshold by the Chief Executive Officer

Contract Management

• Contracts have to be supervised and monitored properly to ensure good performance

• In many procuring entities, there is a tendency to put a lot of effort into selecting the supplier and awarding of contract, but very little effort towards managing the contract

• Proper management of contracts helps ensure that suppliers will fulfill their contractual requirements

• If a contract is well managed, many potential problems can be avoided or solved before they become serious

Supervision of Contracts

• The MTB Secretary, in collaboration with Procuring Entity’s engineer, are responsible for continuous supervision and evaluation of services and works contracts

• Contract supervision starts immediately upon signing of contract, and ends with issue of a certificate of performance and final payment to contractor

• Contract supervision may require crosschecking actual progress/performance against contracted outputs in the bills of quantities

Delivery of Goods (1)

• Goods delivered to procuring entity’s stores should be accompanied with the following:• A copy of LPO that authorized the purchase• Delivery note• Receiving and inspection committee/

technical officer or storekeeper on receipt of the goods should count them and check their conformity with the contract agreement and LPO

Delivery of Goods (2)

• Goods Received Note for acknowledgement should be raised if the goods delivered are in conformity with the contract agreement/LPO (Reg. 126 and 127 of PPR, 2005, G. N 98).

Completion of Works or Service

• A certificate shall be made by the technical officer indicating the level of work completed

• Before producing certificate, procuring entity’s engineer should:• Examine the actual performance• Examine defects, if any• Confirm whether payment to the contractor should be

made, withhold, or reduced according to quality and defects of work as provided for in the contract agreement (Reg. 121 and 123 of PPR, 2005, G. N 97)

Termination of Contract (1)

• It is sometimes necessary to terminate due to breach of contract

• It is important for the contract to define the circumstances under which a party may terminate and right of each party if it occurs

• A contract may be terminated if supplier’s performance is not as stipulated in the contract and there is no indication for such performance to be improved

Termination of Contract (2)

• Termination should be last resort after exhausting other means to amicably resolve the problems

• Termination may also be necessary due to changes in the procuring entity’s needs

Use of PPRA Auditing Tool

• Your ZHRC/HTI may be audited

• The PPRA tool shows the compliance and performance indicators used for auditing

Group Discussion:Review Procurement Plan Template for GN.97

Key Points (1)

• Procurement plans describe which products will be acquired and when and how they will be acquired

• Key obligations of the supplier in a procurement contract include: • Deliver the goods or services in the way, at

the time and in the location specified• Transfer title of ownership• Act in good faith and deal fairly

Key Points (2)

• Challenges of contract management include: • Change of ownership/ management• Change of circumstances• Currency fluctuations• Delays in performance• different business cultures and lack of

specificity