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Procurement of Goods

Er. Satya Narayan ShahB.Sc. In Mechanical Engineering (India)

MS in Manufacturing Engineering & Management (UK)

Email: er.snshah@gmail.comSeptember 20, 2014

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“Goods” (public procurement context)

Goods mean:Objects of every kind.Commodities, raw materials,

manufactured products and equipment, industrial plants.

Objects in solid, liquid or gaseous form and electricity.

Services incidental to the supply of goods (less than the value of goods).

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HOW DOES GOODS PROCUREMENT DIFFER FROM

OTHERS ?Goods are produced elsewhere; Dependent on the

manufacturers Quality assurance, Manufacturer’s assurance plan,

specificationsWarrantee/ GuaranteeMostly, payment is done indirect; through bank or

third partyMore dependent on the documentary evidencesRely on third partyInstallation, Inspection, Testing and commissioning.TrainingsNeed Assessment 4

Ask challenging questions:what is the procurement aiming to achieve?

do we really need to purchase? do we need it to this specification?what happens to the product at the end-of-life?

how does this procurement impact upon our (environmental/ social) objectives and policies?

Contract types PPR Schedule-3, (Relating to Sub-rule (1) of Rule 21)

(For Goods and Other Services Procurement)

Contract for supply of specific goods.Framework Contract or unit rate contract.Multi year contract.Contract for design, supply and erect.Turn key contracts. -(design, procurement

of all inputs, erection at site, commissioning, testing and even operation for an initial period)

6Er. Satya Narayan Shah

Other Methods of ProcurementPPA 28

Two-Stage Bidding: Where the preparation of complete technical specifications in advance is undesirable or impractical. First stage unpriced technical proposal on the basis of a

conceptual design or performance specifications are invited

subject to technical as well as commercial clarifications and adjustments to be followed by amended bidding documentsSecond Stage submission of final technical proposal and priced bids

Er. Satya Narayan Shah 7

DOCUMENTS

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Bidding DocumentsPurpose:

Equal Information to ALL Bidders What is to be Procured Technical Requirements How to Prepare a RESPONSIVE

BID Evaluation Criteria Form of Contract

Standard Bid Document (Goods)

• Invitation for Bids

• PART 1 – Bidding Procedures– Section I. Instructions to Bidders– Section II. Bid Data Sheet– Section III. Evaluation and Qualification

Criteria– Section IV. Bidding Forms (Bidder's Information

Form, Joint Venture Information Form , Financial Situation Form, Average Annual Turnover Form, Financial Resources Form, Pending Litigation Form, Specific Experience Form, Bid Security, Manufacturer’s Authorization Letter, Price Schedule For Goods)

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Standard Bid Document (Goods)

• PART 2 – Supply Requirements– Section V. Schedule of Supply (List of Goods and

Delivery Schedule, List of Related Services and Completion Schedule, Technical Specifications, Drawings, Inspections and Tests)

• PART 3 – Conditions of Contract and Contract Forms– Section VI. General Conditions of Contract– Section VII. Special Conditions of Contract– Section VIII. Contract Forms (Letter of Intent,

Letter of Acceptance, Agreement Form, Performance Security, Advance Payment Security

• PART 4 – APPENDICES 11

Bidding documentsImpact of poorly drafted documents:

Complaints from Bidders Selection of Poorly Qualified Firm Delays in Project Implementation Delays in Disbursements Lack of Credibility of Institutions Mis-procurement Claims and Disputes

PROCUREMENT

The most important tool to achieve goal of Purchasing is the SPECIFICATION.

WORKING ON SPECIFICATION

SpecificationSpecifications help to avoid lengthy description

in the Bill of Quantities.They guide Bidders about the clients intended

quality requirements and to arrive them at fair price.

It is clear and concise description of materials and workmanship.

If required the specification is attached with proper drawings and other related documents

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Specification Specification is a part of contract documents limiting

and describing the risks and responsibilities. Formation of contractual obligations as to what

exactly the clients want. Helps the supervisors and commissioning and testing

team. It provides basis for dialogue between the Contractor

and the Engineer to agree or disagree for quality of materials and works.

Clear specifications will result in less Claims, Disputes and Litigation problems

They should be non-discriminatory. 16

HOW SPECIFICATIONS AFFECT PROCUREMENT PROCESSEFFECT ON: POORLY WRITTEN: WELL WRITTEN:

NUMBER OF BIDDERS Overly broad or restrictive Complete, clear concisespecifications. specifications.Deter potential bidders. Attract MANY ANDIncrease costs. QUALIFIED bidders.Decrease chance of desired results.

EVALUATION Easily misinterpreted. SHARP SPECIFIC

PROCESS/PROTESTS Open to challenge and CRITERIAprotest by unsuccessful Easier to evaluate. bidders. Minimizes possibility of

protests.

BIDDER RISK Unreasonable requirements Reasonable requirementshigher risk and higher costs. lower assumption of risk

by bidders.

TYPE OF CONTRACT Uncertain amount of effort Well defined effort leadsleads to cost reimbursement to a firm fixed pricecontract. contract.

ADMINISTRATION OF Unclear inaccurate specifications Well defined specifications

CONTRACT lead to management problems. lead to more control and easier administration. 17

Specification

That’s why, the specifications are to be

written by an experienced professional.

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A GOOD SPECIFICATION SHOULD BE1. Simple, consistent and exact, but not so specific that a loophole will

allow a bidder to evade any of the provisions and thereby take advantage of his competitors or the buyer.

2. Identified, when possible, with some brand specification already on the market. (Custom goods are expensive).

3. Capable of being checked. It should describe the method of checking which will govern acceptance or rejection. A specification which cannot be checked is of little value and only confusion will result.

4. Reasonable in its tolerance. Unnecessary precision is expensive.5. As fair to the seller as possible.6. Capable of being met by several bidders for the sake of competition.7. Clear and Up-to-Date. Misunderstanding can be expensive.8. Flexible, inflexible specifications defeat progress. Invite vendors to

suggest cost saving alternatives or substitutes.

KEY WORDSThe inappropriate use of key words in your

specification could have disastrous results if the supplier is not sure what you are requiring and what you would like to have. Remember, suppliers, in order to be competitive, will almost always provide the least expensive product to you. If you say “may” rather than “will” in the text of your specification, it could mean one thing to one supplier and another to the end user.

Use “shall” or “will” where ever a specification expresses a requirement.

Use “should” or “may” to express non-mandatory provisions.

MEASUREMENTS Dimensions, gauges, capacities, size designations,

volume or temperatures should be specified in accordance with established precedent and trade practice for the particular commodity or service you are attempting to purchase. Review the document after completed and:

1. Make every effort to replace words with numbers.Whenever you go from words to numbers,

communication relating to quantity or quality is enhanced.

2. Tolerances should be specified where applicable.3. The use of “minimum” and “maximum” should be

used wherever practical.

FIGURES AND TABLES, GRADES, CLASSES, TYPES, COMPOSITIONS, ETC.

The use of figures, illustrations, tables and graphs, etc. should be maximized. It describes the item(s) more clearly and accurately than you can in text. Tables show relationships more clearly than text. Figures and tables should have titles and parts clearly identified and should be numbered consecutively throughout the specifications.

The use of grades, classes and types should be in accordance with established precedence and trade practices for the type of equipment, materials or supplies you are bidding. For the purpose of preparing specifications, type grade, class and compositions are defined as follows:

Type: This term applies differences in design, model, shape, etc. of the items.Class: This term implies differences in mechanical or other characteristics of items

which do not constitute a difference in quality or grade.Grade: This term implies differences in quality of a commodity. When practicable, the

first grade of a commodity should be the highest or best grade.Composition: This term is used to classify commodities which are differentiated

strictly by their respective chemical compositions.Other Classifications: Other classifications, such as form, weight, size, power

supply, temperature rating, condition, insulation, etc. suitable for reference for the applicable equipment or commodity item may be used.

WRITING HINTSWriting Style: Exposition is concerned primarily with the communication

of ideas in a form that the reader can understand. It aims to: Save the readers time, eliminate confusion, and help the reader gain ideas quickly and easily.

Active Voice is Preferred: Active voice is the most simple and direct way to make statements. Action is expressed directly, more vigorously, and makes the sentence more concise. Readers prefer the active voice because it is more: Direct, interesting and descriptive.

Choosing the Right Word: You can make your meaning more clear by using shorter words. Shorter, more direct words get to the point, are clear-cut, and distinctive. For example: activate, expedite, initiate, nevertheless, prioritize and erroneous.

Write Clear Using Shorter Phrases: Do not use long phrases when it is not necessary. For example: a great number of times (many), at regular intervals(every), make contact with(call).

Preparation of Specification Before writing the specification the requirements

should be clearly worked out.

Requirements are often classified as;• 'Mandatory' - essential requirements that suppliers

must meet• 'Desirable' - requirements that whilst bringing

benefits are not essential• 'Information' - requirements that request

information from the supplier typically for evaluation purposes

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Specifications

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Use of standard specifications reduces the chances of ambiguity and also makes easier for preparation of contract documents.

Reference to standards and codes e.g. IS, BS, NS etc. reduce extra efforts in detailing the specification etc.

Standard Specification- Prepared and published by the organization.Standard Specification needs to be approved by the Cabinet level. Er. Satya Narayan Shah

Specification to be required to describe the

desired performance, and not to reduce

competition.

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Examples of Specification

• Example – Vehicle•Type – Sedan, Hatchback,•General - Seating capacity, Engine Power, C.C etc.•Transmission – 4 speed, 5 speed•Steering – Manual, power•Options – AC, Non AC, •Warranty - Period to be covered

Spec Car

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Spec BIV

Microsoft Office Word 97 - 2003 Document

Other Standard Documentation• Commercial Documents- Invoice, Packing

list

• Official Documents- License, Embassy legalization, Origin Certificate, Inspection Certificate, Phytosanitary certificate, Other Legal Documents

• Transport Documents- Bill of Lading (ocean or multi-modal or Charter party), Airway bill, Lorry/truck receipt, railway receipt, Forwarder Cargo Receipt, Deliver Challan...etc

• Insurance documents- Insurance policy 28

Price schedule :offered from abroad.

• Item description.• Country of origin.• Quantity.• Unit price FOB.• Unit price CIF, CIP ( Port of destination, Place of destination)

• Total price.• Unit price of Inland delivery to final destination

and unit price for other incidental services (if any).

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Price schedule

Price schedule: Goods offered from within Nepal.

• Item, Description.• Country of origin.• Quantity. • Unit price EXW per item.• Cost of local labor, raw materials and

component indicated as percentage of EXW price.

• Unit price per item final destination and unit price of other incidental services.

• VAT and other taxes payable30

Schedule of requirements.• This schedule should cover description of

goods and services to be supplied and delivery dates.

• Destination of delivery should be carefully specified as per used INCOTERMS (CIF, CIP etc.)

• The date prescribed herein from which the seller’s delivery obligation starts (i.e. from notice of awards or contract signature or opening or confirmation of L/C) should be stated clearly.

• There may be range of acceptable delivery periods.

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international terms of trade.

INCOTERMS

Goods Delivery

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Background - Introduction• INCOTERMS are the terms of trade in

business

• Published and developed by the International Chamber of Commerce (ICC)

• First established in 1936, updated periodically with the latest version being “INCOTERMS 2010”

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INCOTERMS What are INCOTERMS?

The official rules of International Chamber of Commerce (ICC) for the interpretation of trade terms accepted by governments, legal authorities and practitioners worldwide

Explanation of Obligations of seller and buyer regarding delivery, division of cost, transfer of risk, packing, Inspection of goods, contract of carriage and Insurance, proof of delivery etc.

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Purpose of INCOTERMS To facilitate the international trade so that goods are sold in

more countries, in larger quantities, & in greater variety To clearly define the respective obligations of seller & buyer To reduce the risk of legal complication in a sales contract To respond to the global business needs everywhere Reduces or removes uncertainties arising from differing

interpretations of shipping terms in different countries. Reference to a proper INCOTERMS in a contract clearly

defines each party’s obligations, costs and risks in the international transaction and reduces the risk of legal complications.

They can assist in defining what costs the purchase price includes (e.g. prepaid international freight, prepaid duties, insurance, etc.), and clarify the risks & liabilities.

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INCOTERMS• When we buy, it tells us:•If we have to make logistics arrangements to move the goods

•If we have to make arrangements to clear goods for export and or import

•What is included in our price (freight, duties, import/export fees, etc).

•If there is a problem in transit, who holds the responsibility

• When we sell, it tells us:•How to price our sales transaction (do we include freight, duties and taxes

in our price)

•Do we have to export clear the shipments, do we have to import clear the shipment?

•Do we have to make the logistics arrangements

•Our responsibility if there is a problem in transit

• We need to evaluate our capabilities before we enter into international contracts!

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INCOTERMSE EXW Ex Works F FAS Free Alongside Ship

FCA Free Carrier FOB Free On Board

C CFR Cost and Freight (was C&F)CIF Cost, Insurance and Freight CIP Carriage and Insurance Paid To CPT Carriage Paid To

D DAF Delivered At Frontier DDP Delivered Duty Paid DDU Delivered Duty Unpaid DEQ Delivered Ex Quay DES Delivered Ex Ship

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INCOTERMS GROUPSINCOTERMS fall into four different groups :

• Departure “E” • Main Carriage Unpaid “F” • Main Carriage Paid “C” • Arrival “D”

The point at which liability and carriage transfer from the seller to the buyer distinguishes the groups and each group’s letter corresponds to the first letter of an INCOTERM.

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Organization of INCOTERMS 2000Incoterms are divided into four (4) categories:

• “E” term – Seller makes the goods available to the buyer at the seller’s premises or other place named by the seller

• “F” terms – Seller is responsible to deliver the goods to the export shipment point and carrier designated by the buyer

• “C” terms – Seller is responsible for contracting carriage of goods to the place of destination, but does not assume risk of loss or damage to goods, or additional costs due to events occurring after shipment

• “D” terms – Seller is responsible for all costs and risks associated with delivering goods to the named place in the country of destination

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EXW – Ex Works (Named Place)

• Seller: – Informs the Buyer when and where the goods will be

available– Provides Commercial Invoice, Packing List &

Certificate of Origin• Buyer:

– Obtains the Export License– Arranges all carriers– Loads goods onto the carrier at the point of departure– Obtains import licenses and arranges import formalities

• Risk of loss or damage passes to the buyer from the seller's door

• Difficult to use with controlled items due to license issues

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Incoterms FOB – Free On Board (Named Shipping Port)

• Seller:– Obtains the Export License– Arranges delivery of goods to & loads the buyer’s

carrier – Places goods on board the ocean vessel at the port of

export designated by the Buyer• Buyer:

– Gives sufficient notice to the Seller of the carrier & delivery point

– Arranges the main carriage– Obtains import licenses and arranges import formalities

• Risk & responsibility passes to the buyer when the goods pass the rail of the vessel

• Used for sea or inland waterway transportation only

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CIF (…named port of destination)

• CIF means that the seller delivers when the goods pass the ship's rail in the port of shipment.

• The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss or damage to the goods as well as any additional costs due to events occurring after the time of delivery are transferred from the seller to the buyer.

• The seller contracts for insurance and pays the insurance premium with a minimum cover.

• This term can be used only for sea and inland waterway transport.

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CIP Carriage and Insurance paid to (…named place of destination)

• CIP means that the seller delivers the goods to the carrier nominated by him, but the seller must in addition pay the cost of carriage necessary to bring the goods to the named destination. Seller has to procure insurance against the buyers risk of loss or damage to the goods during the carriage.

• The risk passes when the goods have been delivered to the first carrier.

• This term may be used for any mode of transport including multimodal transport.

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FCA – Free Carrier (Named Place)• Seller:

– Obtains the Export License– Arranges delivery of the goods to the buyer’s carrier

• If delivery point is at the Seller’s facility, the Seller must load the goods onto the Buyer's collecting carrier.

• If not delivering at the Seller’s facility, there is no obligation to load.

• Buyer:– Gives sufficient notice to the Seller of the carrier &

delivery point– Arranges the main carriage and the on-carriage– Obtains import licenses and arranges import formalities

• Risk of loss or damage passes to the buyer when the seller delivers the goods to the carrier

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DDU – Delivered Duty Unpaid (Named Place)

• Seller:

– Obtains the Export License

– Arranges for and pays freight costs of carriage to the named point of destination

• Buyer:

– Accepts and unloads the goods

– Obtains import licenses and pays for import clearance

• Risk and responsibility of import clearance pass to buyer when seller delivers goods to named destination point.

• Often can be used to lower duties or taxes when foreign buyer can receive a voucher for any cost incurred

• If the parties wish the buyer to bear all risks and costs of the import, the DDU term should be used.

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DDP – Delivered Duty Paid (Named Place)• The seller delivers the goods to the buyer, cleared for import,

and not unloaded from any arriving means of transport at the named place of destination

• The seller has to bear all the costs and risks involved in bringing the goods thereto including, where applicable, any "duty" (which term includes the responsibility for and the risks of the carrying out of customs formalities and the payment of formalities, customs duties, taxes and other charges) for import in the country of destination.

• DDP represents the maximum obligation to the seller.• This term should not be used if the seller is unable directly or

indirectly to obtain the import license.• Parties may exclude from the seller's obligations some of the

costs payable upon import of the goods (such as VAT).

Responsibilities of the Seller (Exporter) and Buyer (Importer)

Trade contract responsibilities EXW FCA FAS FOB

Inland freight in Seller's country O O O O

Customs clearance in Seller's country O O O O

Payment of customs charges and taxes in export O O O O

Loading to the main carrier O O O O

Main carriage/freight O O O O

Cargo (marine) insurance O O O O

Unloading from the main carrier O O O O

Customs clearance in Buyer's country O O O O

Payment of customs duties and taxes in import O O O O

Inland freight in Buyer's country O O O O

Other costs and risks in Buyer's country O O O O

O Seller is responsibleO Buyer is responsible 52

Responsibilities of the Seller (Exporter) and Buyer (Importer)

Trade contract responsibilities CFR CIF CPT CIP

Inland freight in Seller's country O O O O

Customs clearance in Seller's country O O O O

Payment of customs charges and taxes in export O O O O

Loading to the main carrier O O O O

Main carriage/freight O O O O

Cargo (marine) insurance O O O O

Unloading from the main carrier O O O O

Customs clearance in Buyer's country O O O O

Payment of customs duties and taxes in import O O O O

Inland freight in Buyer's country O O O O

Other costs and risks in Buyer's country O O O O

O Seller is responsibleO Buyer is responsible 53

Responsibilities of the Seller (Exporter) and Buyer (Importer)

Trade contract responsibilities DAF DES DEQ DDU DDP

Inland freight in Seller's country O O O O O

Customs clearance in Seller's country O O O O O

Payment of customs charges and taxes in export O O O O O

Loading to the main carrier O O O O O

Main carriage/freight O O O O O

Cargo (marine) insurance O O O O O

Unloading from the main carrier O O O O O

Customs clearance in Buyer's country O O O O O

Payment of customs duties and taxes in import O O O O O

Inland freight in Buyer's country O O O O O

Other costs and risks in Buyer's country O O O O O

O Seller is responsibleO Buyer is responsible 54

INCOTERMS 2010

• INCOTERMS 2000 has been modified on 27th September 2010 and has been enforced from 1st January 2011.

• DAF (Delivered at Frontier), DES (Delivered Ex Ship), DEQ (Delivered Ex Quay) / DDU(Delivered Duty Unpaid) have been removed.

• DAT( Delivered at Terminal),and DAP (Delivered at Place) have been introduced. 55

INCOTERMS 2010Group E Departure.

EXW Ex Works (…named place)

Group F Main carriage unpaid.FCA Free Carrier (…named place)FAS Free Alongside ship (…named port of shipment)

FOB Free on Board (…named port of shipment)

Group C Main carriage PaidCFR Cost and Freight (…named port of destination)CIF Cost Insurance and Freight (…named port of destination)CPT Carriage Paid To (…named place of destination)CIP Carriage and Insurance Paid (…named place of destination)

Group D ArrivalDAT Delivered At terminal (…named place)DAP Delivered At Place(…named place)DDP Delivered Duty Paid (…named place of destination)

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DAT - Delivered at Terminal• Seller bears cost, risk and

responsibility until goods are unloaded (delivered) at named quay, warehouse, yard, or terminal at destination. Demurrage or detention charges may apply to seller. Seller clears goods for export, not import. DAT replaces DEQ, DES.

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DAP - Delivered at Place

• Seller bears cost, risk and responsibility for goods until made available to buyer at named place of destination. Seller clears goods for export, not import. DAP replaces DAF, DDU.

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MULTIMODAL TRANSPORT

Exw (Ex works) FCA ( Free carrier) CPT (Carriage paid to ) CIP (Carriage and Insurance Paid to ) DAT (Delivered At Terminal) DAP ( Delivered At Place) DDP (Delivered Duty Paid )

INCOTERMS 2010

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INCOTERMS 2010

SEA OR INLAND WATERWAY TRANSPORT

FAS (Free Alongside Ship)

FOB (Free On Board)

CFR (Cost and Freight)

CIF (Cost insurance and Freight)

Limitation of INCOTERMS– Scope is limited to matters relating to the rights and

obligations of the parties to the contract with respect to the delivery of goods.

– Two misconceptions about INCOTERMS• 1st, they are frequently misunderstood as applying to

the contract of carriage rather than to the contract of sale/buy.

• 2nd, they are sometimes wrongly assumed to provide for all the duties which parties may wish to include in a contract of sale.

– Generally, they don’t deal with the consequences of:• Breach of contract.• Any exemptions from liability. • Transfer of ownership and other property right.

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Country of Origin• For purposes of this Clause, “origin” means the

place where the Goods were mined, grown, or produced, or from which the Services are supplied. Goods are produced when, through manufacturing, processing, or substantial and major assembly of components, a commercially recognized new product results that is substantially different in basic characteristics or in purpose or utility from its components.

• The origin of Goods and Services is distinct from the nationality of the Supplier.

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Shipping Documents• A legal document between the shipper of a

particular goods and the carrier detailing the type, quantity and destination of the goods being carried. The Transport Document also serves as a receipt of shipment when the goods are delivered to the predetermined destination. This document must accompany the shipped goods, no matter the form of transportation, and must be signed by an authorized representative from the carrier, shipper and receiver.

• They are - Bill of Lading (ocean or multi-modal or Charter party), Airway bill, Lorry/truck receipt, railway receipt, Forwarder Cargo Receipt, Deliver Challan...etc

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WARRANTY/GUARANTY• Official authorization, sanction, or warrant.

• An assurance by the seller of property that the goods or property are as represented or will be as promised.

• The insured guarantee that the facts are as stated in reference to an insurance risk or that specified conditions will be fulfilled to keep the contract effective.

• A guarantee given to the purchaser by a company stating that a product is reliable and free from known defects and that the seller will, without charge, repair or replace defective parts within a given time limit and under certain conditions.

A guarantorTo assume responsibility for the debt, default, or miscarriage.To undertake to do, accomplish, or ensure (something) for

another.To express with conviction: I guarantee that you'll like this book.

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“Place of Destination” & “Final destination (Project Site)”…

• Sometimes both may be a single place.• For large value goods or sophisticated goods,

“Place of Destination” is chosen any easily accessible place instead of the project site where goods are to actually used.

• Transportation of goods from “Place of Destination” to the “Final destination (Project Site)” may be done in two ways: (i) Not included in the supply contract and purchaser itself does it, or (ii) included in the contract, but with separate pay item.

Inspection & Commissioning of GoodsInspection & Commissioning of GoodsInspection CommitteeInspection CommitteeCompliance with the conditions of Compliance with the conditions of contractcontractVerification of the technical specification Verification of the technical specification Physical verificationPhysical verificationVerification & validation of performancesVerification & validation of performancesInspection ReportInspection Report

– Supplier will be entitled to remove the Supplier will be entitled to remove the defective goods at its own risk/costs.defective goods at its own risk/costs.

6666

MODES OF PAYMENTMODES OF PAYMENTMeansMeans by which a by which a paymentpayment is is made, such asmade, such as

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Advance paymentAdvance payment (most secure for (most secure for seller)seller)Direct/Cash paymentDirect/Cash payment (most secure for (most secure for buyer)buyer)

Documentary CreditDocumentary Credit (more secure for (more secure for seller as well as buyer)-L/Cseller as well as buyer)-L/C

Documentary collectionDocumentary collection (more secure (more secure for buyer and to a certain extent to seller) Also for buyer and to a certain extent to seller) Also called "Cash Against Documents". called "Cash Against Documents".

Letter of Credit.Letter of Credit.

DeliveredCIF

BUYER SELLER12. Goods

5. Goods On Board

1. Contract

6.Doc.s

4. AdviceL/C

Issued

3. Letter of Credit

8. Documents

11.Money

2

Credit

10.Documents

ISSUING BANK ADVISING /CONFIRMING BANK

9. Money

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RISK SITUATIONS IN LETTER-OF-CREDIT TRANSACTIONS

Risks to the Applicant

• Non-delivery of Goods

• Short Shipment

• Inferior Quality

• Early /Late Shipment

• Damaged in transit

• Foreign exchange

• Failure of Bank viz. Issuing bank / Collecting Bank

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Documents Required for Payment.

Goods supplied from out side : Copies of supplier’s invoice. Non negotiable bill of lading marked “ freight prepaid.” Packing list identifying contents of each packages. Insurance Documents Inspection certificate Certificate of origin

Goods from within Nepal: Supplier’s invoice. Delivery note, Carrier receipt. Insurance, Warranty, and Inspection certificate.

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Common Defects in Documentation• Letter of Credit has expired prior to presentation of draft.• Bill of Lading evidences delivery prior to or after the date range stated in

the credit.• Stale dated documents.• Changes included in the invoice not authorized in the credit.• Inconsistent description of goods.• Insurance document errors.• Invoice amount not equal to draft amount.• Ports of loading and destination not as specified in the credit.• Description of merchandise is not as stated in credit.• A document required by the credit is not presented.• Documents are inconsistent as to general information such as volume,

quality, etc.• Names of documents not exact as described in the credit. Beneficiary

information must be exact.• Invoice or statement is not signed as stipulated in the letter of credit.

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