Module 10 Session 10.7 Visual 1 Module 10 Organizing Procurement Session 10.7 Procurement of Goods: Evaluation and Award

Module 10 Session 10.7 Visual 1

Module 10

Organizing Procurement

Session 10.7 Procurement of Goods:Evaluation and Award


Instructional Objectives

Describe how to prepare a list of acceptable suppliers.

Describe the bid evaluation process and characterize the major activities and issues.

Compare the advantages and disadvantages of giving preferences (for example, to local industries).


Instructional Objectives (continued)

Describe the problems that arise from(a) deficiencies in bids and (b) challenges to selection and how those problems may be addressed.

Given a case example (or vignettes), evaluate bids and propose an award.

See outline for additional objectives.


Preparation of List of Acceptable Suppliers

One-stage process (if readily available)

Two-stage process (if custom designed or complex) (Prequalification)

– Submission of technical proposals

– Submission of price proposals


Prequalification Criteria

Supplier’s production capacity

Track record (experience under operational conditions) of the product(s)

Experience and reputation of the supplier(s)

Financial position of the supplier(s)

Capability and reputation for after sale service


Bidding Documentation

Bid submission procedure

Describe goods sought

Enunciate evaluation procedures for bids

Set out conditions of contract for successful bidder

Complexity of documents will vary by situation


Way to Classify Documentation

“Mechanism” of bidding process

Conditions of contract

Procedures for clarification, modification, and withdrawal of instructions

Prices, currencies, preferences, payments, and so forth.

Securities

Evaluation criteria


Mechanism of Bidding Process

Form of bid

Number of copies

Language to be used

The addressee

Validity of bid

Date, time, and place for submission


Conditions of Contract (Format)

General Conditions

– Inspection and shipment

– Documentation

– Payment terms

– Performance securities

– Damage and delays


Conditions of Contract (Format)-2

Special conditions

– Insurance

– Procedures for testing and inspection

– Special payment terms, currency or price adjustment

– Regulations for import of equipment

– Preferences

– Other deletions/additions to general conditions

Procedures for clarification/modification


Bids/prices, Currencies, and Preferences Typically complex

Bids may be in different currencies, including local currency

Evaluation and payments in various currencies

Goal: remove currency risk from the bidders (should lead to lower level of bids).

Goal: permit bidders from countries with relatively weak currencies to bid.

Goal: ensure fairness to all bidders.


Bid/prices, Currencies and Preferences (continued)

International institutions’ requirements

– Bids be expressed in currencies of member countries

– Not more than three currencies plus local

– Local expenses expressed in local currency


INCOTERMS Rules (1990)

EXW: ex works (the place being named)

FOB: free on board (named port of shipment)

CFR: cost and freight (named port of destination)

CIF: cost, insurance, and freight (named port of destination)

CIP: carriage and insurance paid (named place of destination)


Insurance Duration

EXWORKS loaded

CIF (at Port)

FOB (on Ship)

Warehouse

Port of Entry

Final Destination

Supplier’s Obligation

CIP

Final Site

Buyer’s Obligation


Currency Conversion

Must convert bids to common currency for evaluation/comparison and determination of lowest evaluated bid

Three decisions involved:

The common currency to be used

The conversion rates to be used

The date selected for the conversion


Conditions for Granting Local Preferences The local product must contain a specified level

of local inputs as required by each IFI.

For example, the World Bank requires that the aggregate cost of domestic labor and raw materials and equipment must account for not less than 30 percent of the ex works price.

The local supplier must be engaged in production of such goods at the time of the submission of the bid.


Security

Bidding stage—to ensure bidders are serious

– Protects buyer if bidder declines to sign contract

– Should be reasonable amount (1% - 5%)

Performance stage—to ensure manufacture/ delivery

– Protects buyer

– Should be reasonable (5% - 10% of contract)


Bid Evaluation

Should be based on criteria (session 10.6)

Two-stage process– Commercial—price, freight, insurance, and so forth– Technical

Delivery may be staged over time.

Bid documents should set out delivery requirements.


Payment Terms

Should conform to generally accepted commercial practices

Technical evaluation starts with evaluated cost

– Life-cycle costing preferable

Include streams of fuel and maintenance costs

Include salvage/resale value to present value

– Merit point evaluation (alternative)


Award

Made within period of validity of bids to bidder with

– Lowest evaluated bid

– Must meet standards

Successful bidder should not be required to take on work not in the contract.

Buyer reserves right to reject any or all of bids without stating reason.


Rejecting Bids

May discourage future bids

Reasons for rejecting bids include

The lowest bid exceeds the estimate by a substantial margin.

All bids were judged to be nonresponsive.

There was an obvious lack of competition in the bidding process.


Summary

Prepare a list of acceptable suppliers. Prepare bidding documentation.

– Mechanisms– Conditions of contract (general and specific)– Determine how will handle currency conversions

and comparisons– Determine if preferences will be applied– Determine what security is required (bid and

performance) Set evaluation criteria. Evaluate and award. Reject (all) bids, but only exceptionally and

with caution.

Documents

Module 10 Session 10.7 Visual 1 Module 10 Organizing Procurement Session 10.7 Procurement of Goods: Evaluation and Award