Professional Documents
Culture Documents
Assignment # 2
Cost and Management Accounting (568)
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ACKNOWLEDGEMENT
All praises to Almighty Allah, the most Gracious, the most Beneficent and the most Merciful, who enabled me to complete this assignment. I feel great pleasure in expressing my since gratitude to my teacher, for his guidance and support for providing me an opportunity to complete a productive research study of my topic
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EXECUTIVE SUMMARY
This assignment is a research-oriented activity, which represents both the theoretical and practical implication of the topic. In the first section of this assignment, I explain the theoretical aspect of the topic and all major parts has been explained which are involved in the procedure of material procurement and us in business in cost and management. For empirical study, I select PTCL Pakistan. And compare their ways of the procedure of material procurement and use in business instruments.
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Topic- procedure of material procurement and use. Procurement is the acquisition of goods and/or services at the best possible
total cost of ownership, in the right quantity and quality, at the right time, in the right place and from the right source for the direct benefit or use of corporations or individuals, generally via a contract. Material procurement is a very effective and important tool of material management which is designed to provide the best services to customers, produce at maximum efficiency and to manage inventories at predetermined levels to stabilize investments in inventories. Material management and specially the procurement procedure is always required a integrated and coordinated system having keen observation of the following:i. ii. iii. iv. v. vi. vii. Sales Forecasting. Purchasing Receiving Storage Production Shipping Actual Sales
Procedure used in converting requirements or requisitions into purchase orders or contracts. Three common MOPs are (1) Competitive bidding, (2) Direct negotiations, (3) Single-source acquisition.
is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer. Sending a PO to a supplier constitutes a legal offer to buy products or services. Acceptance of a PO by a seller usually forms a once-off contract between the buyer and seller, so no contract exists until the PO is accepted.
Structure
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POs usually specify terms of payment, in co-terms for liability and freight responsibility required delivery date, and specifications and reference or part numbers of the items to be purchased, with quantities and prices. When accepted by the seller, it forms an agreement between the buyer and seller. From an internal control perspective, Purchase Orders are the end result of an authorization process that is traditionally triggered by the creation of a Purchase requisition. An internally authorized Purchase requisition is normally converted into a PO.
Contract:
Voluntary, deliberate, and legally enforceable (binding) agreement between two or more competent parties. A contractual relationship is evidenced by (1) an offer, (2) acceptance of the offer, and a (3) valid (legal and valuable) consideration. Each party to a contract acquires rights and duties relative to the rights and duties of the other parties. However, while all parties may expect a fair benefit from the contract (otherwise courts may set it aside as inequitable) it does not follow that each party will benefit to an equal extent. Existence of contractual-relationship does not necessarily mean the contract is enforceable, or that it is not void (see void contract) or voidable (see voidable Contract). Contracts are normally enforceable whether or not in a written form, although a written contract protects all parties to it. Some contracts, (such as for sale of real property, hire purchase agreements, insurance policies) must be in writing to be legally binding and enforceable. Other contracts (see implied in fact contract and implied in law contract) are assumed in, and enforced by, law whether or not the involved parties desired to enter into a contract.
Competitive Bidding:
Transparent' procurement method in which bids from competing contractors, suppliers, or vendors are invited by openly advertising the scope, specifications, and terms and conditions of the proposed contract as well as the criteria by which the bids will be evaluated. Competitive bidding aims at obtaining goods and services at the lowest prices by stimulating competition, and by preventing favoritism. In (1) open competitive bidding (also called open bidding), the sealed bids are opened in full view of all who may wish to witness the bid opening; in (2) closed competitive bidding (also called closed bidding), the sealed bids are opened in presence only of authorized personnel. See also competitive negotiation
Negotiation: Definition 1
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General: Bargaining (give and take) process between two or more parties (each with its own aims, needs, and viewpoints) seeking to discover a common ground and reach an agreement to settle a matter of mutual concern or resolve a conflict.
Definition 2
Banking: Accepting or trading a negotiable instrument.
Definition 3
Contracting: Use of any method to award a contract other than sealed bidding.
Definition 4
Trading: Process by which a negotiable instrument is transferred from one party (transferor) to another (transferee) by endorsement or delivery. The transferee takes the instrument in good faith, for value, and without notice of any defect in the title of the transferor, and obtains an indefeasible title.
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The materials ledger cards record the receipt and the issuance of each class of materials and provide a perpetual inventory record. Accounting procedures for materials procurement and use involve forms and records necessary for general ledger financial accounting as well as those necessary for costing a job, process or department, and for maintaining perpetual inventories and other statistical summaries. The purchase requisition, purchase order, receiving report, materials requisition, bill of materials, scrap report, returned materials report, materials ledger cards, and summary of materials used are some of the forms used for materials control under a cost system. The purchases journal, the cash payments journal, the general journal, and the general ledger control accounts are also used.
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Receiving Materials:
The function of the receiving department is to: unload and unpack incoming materials; check quantities received against the shippers packing list; identify goods received with descriptions on the purchase order; prepare a receiving report; notify the purchasing department of descriptions discovered; arrange for inspection when necessary; notify the traffic department and the purchasing department of any damage in transit; and rout accepted materials to the appropriate factory location. The receiving report shows the purchase order number, the account number to be charged, the name of the vendor, details relating to transportation, and the quantity and type of the goods receive. The form also provides a space for the inspection department to note either the complete approval of the shipment or the quantity rejected and the reason for the rejection, in inspection does not take place
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immediately after receipt of the materials, the receiving report is distributed as follows: 1. 2. The receiving department keeps one copy and sends another copy to the purchasing department as notice of the arrival of the materials All other copies go to the inspection department, and are distributed when inspection is completed. After inspection, one copy of the receiving report, with the inspection result noted thereon, is sent to the accounting department, where it is matched with the purchase order and the venders invoice and the paid. Other copies go to various departments such as materials and production planning. One copy accompanies the materials, so that the storekeeper knows the quantity and the kind of materials received.
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purchases journal affect the control accounts and the subsidiary records as shown in the chart below:
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General Ledger Control Transaction Subsidiary Records Debit Credit Account Materials purchased for Entry in the received section in Materials s stock the materials ledger card Payable Materials purchased for Work a particular job or process department in Account Entry in the direct materials s section of the production or the Payable job order
Materials and supplies purchased for factory Materials overhead purposes Materials Marketing Supplies purchased for expenses marketing and control administrative office Administrativ e expenses control Factory Overhead Marketing expenses Purchases of services control or repairs Administrativ e expenses control
Account Entry in the received section of s the materials ledger card Payable
Entry in the received section of Account the materials ledger card or in s the proper columns of the Payable marketing or administrative expenses analysis sheets
Account Entry in the proper account s columns of the expenses Payable analysis sheet
Purchase of equipment
Equipment
Correcting Invoices:
When the purchases order, receiving report, and invoice are compared, various adjustments may be needed as a result of the circumstances described below:
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2.
3.
4.
5.
Some of the materials ordered are not received and are not entered on the invoice. In this case no adjustment is necessary, and the invoice may be approved for immediate payment. On the purchase order the invoice clerk will make a notation of the quantity received in place of the quantity ordered. If the vendor is out of stock or otherwise unable to deliver specified merchandise, and immediate ordering from other sources may be necessary. Items ordered are not received by are entered on the invoice. In this situation the shortage is noted on the invoice and is deducted from the total before payment is approved. A letter to the vendor explaining the shortage is usually in order. The seller ships a quantity larger than called for on the purchase order. The purchaser may keep the entire shipment and add the excess to the invoice, if not already invoiced; or the excess may be returned or held, pending instructions from the seller. Some companies issue a supplementary purchase order that authorizes the invoice clerk to pay the over shipment. Materials of a wrong size are quality, defective parts, and damaged items are received. If the items are returned, a correction on the invoice should be made before payment is approved. It may be advantageous to keep damaged or defective shipments if the seller makes adequate price concessions, or the items may be held subject to the seller's instructions. It may be expedient for a purchaser to pay transportation charges, even though delivered prices are quoted and purchases are not made on this basis. The amount paid by the purchaser is deducted on the invoice, and the paid freight bill is attached to the invoice as evidence of payment.
Electronic Data Processing System (EDP System) for Materials Received and Issued:
The preceding description of invoice approval and payment was for a manual operation performed by an accounts payable clerk or an invoice clerk. In an electronic data processing system (EDP system), the computer--to a great extent-replaces the clerk. Upon receipt of the invoice (the source document), the accounts payable clerk enters the account distribution on the invoice. The data are then directly inputted from the invoice to the computer data bank via a terminal device. The data are edited, audited, and merged with the purchase order and the receiving order data, both of which have been stored in the computer data bank. The common matching criterion on all documents in the purchase order number. Quantities, monetary values, due dates, terms, and unit prices are matched. When in agreement, the cost data are entered in the accounts payable computer file with a date for later payment. The above procedure deals with the accounts payable phase of a purchase transaction. Of equal importance is the need for posting the data in quantities and dollar values to the materials inventory file in the electronic data processing system
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(EDP system). The information enters the EDP system from either the invoice or the invoice approval form, which would have to include all computer-necessary data. The internal computer program updates the materials inventory file. The withdrawal of materials could also be programmed, so that manual posting to the materials inventory file would be eliminated.
Purchase Discount:
The handling of discounts on purchases is one major problem in accounting for materials costs. Trade discounts and quantity discounts normally are not on the accounting records but are treated as price reductions. Cash discounts should be treated as price adjustments but often are accounted for as other income, although income is not produced by buying. A low purchase cost may well widen the margin between sales price and cost, but it takes the sale to produce income. When the vendor quotes term such as 2/10, n/30 on a $100 invoice, is the sale price $100 or $98? The purchaser has two dates to make payments: on the tenth day, which allows time to receive, unpack, inspect, verify, voucher, and pay for the goods; or twenty days later. For the additional twenty days an additional charge or penalty of two percent is assessed. If regarded as interest, the extra charge is 36 percent per year[(360 days / 20 days) 2%]. On these terms the seller is pricing on essentially a cash basis, and the purchaser has no reasonable choice except to buy on cash basis. Although the nature of a purchase discount is readily understood, for practical reasons the gross materials unit cost of the invoice is commonly recorded in the
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materials account; the cash discount is recorded as a credit account item. Otherwise it would be necessary to compute the discount on each item, with unit costs having four or more decimal places.
Freight in:
Freight or other transportation charges on incoming shipments are obviously costs of materials, but differences occur in the allocation of these charges. A vendor's invoice for $600 may show 25 items weighing 1,700 ponds shipped in five crates, with the attached freight bill showing a payment of $48. The delivered cost is $648. But how much of the freight belongs to each of the invoice items, and what unit price should go on the materials ledger card? When the purchased units are not numerous and are large in size and unit cost, computation of actual amounts of freight may be feasible; otherwise, some logical, systematic, and expedient procedure is necessary. If freight charges are debited to materials, the total amount should be added proportionately to each materials card affected. This might be done by assuming that each dollar of materials cost carries an equal portion of the freight. For example, freight of $48 on materials costing $600 would add $0.08 ($48/$600) to each dollar on the invoice. The relative weight of each item on the invoice might be determined and used as a basis for calculating the applicable freight. If an invoice item is estimated to weigh 300 ponds, then $8.47 [(300 / 1,700) $48] would be added for freight. This procedure is also likely to result in unit costs having four or more decimal places on the materials ledger cards. To simplify procedures, all freight costs on incoming materials and supplies may be charged to freight in. As materials are issued for production, an applied rate for freight in might be added to the unit price on the ledger cards. The same amount is included in the debit to work in process (WIP) or factory overhead (indirect materials), and freight in is credited. Any balance in freight in at the end of a period is closed to cost of goods sold or prorated to cost of goods sold and inventories. Another often advocated method of accounting for incoming freight costs on materials is to estimate the total for an accounting period and include this amount in computing the factory overhead rate. Freight in then would become one of the accounts controlled by factory overhead. For materials or supplies used in marketing and administrative departments, freight, transportation, or delivery costs should be charged to the appropriate nonmanufacturing account.
If it is decided that the materials cost should include incoming freight charges and other acquisition costs, and applied rate might be added to each invoice and to each item instead of charging these costs directly to factory overhead. A single rate for these costs can be used but amore accurate method is to use separate rates for each class of costs, as shown below:
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Rate per purchase or rate per dollar purchased = [Estimated purchasing department cost for budget period / Estimated number of purchases or estimated amount of purchases] Rate per item = [Estimated receiving department cost for budget period / Estimated number of items to be received during period] Rate per item, cubic foot, dollar stored, etc. = [Estimated materials department cost for budget period / Estimated number of items, feet of space, dollar value, etc.] Rate per transaction = Estimated accounting department cost for budget period / Estimated number of transaction This procedure results in the following accounting treatment:
Materials
purchasing department expensexxx receiving department expensesxxx materials department expensesxxx accounting department expenses xxx
Actual expenses incurred by each of the departments for which applied rates are used will be debited to the applied accounts. Differences between the expenses incurred by the departments during the period and the expenses applied to the materials cost would represent over or under applied expenses and would be closed to cost of goods sold or prorated to cost of goods sold and inventories.
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required in production, and that all materials taken from the storeroom are properly requisitioned. It is good policy to restrict admittance to the storeroom to employees of that department only and to have these employees work behind locked doors, issuing materials through cage windows. Since the cost of storing and handling materials may be a substantial amount, careful designs and arrangement of storerooms can result in significant cost savings. Materials can be stored according to: 1. 2. 3. 4. The The The The materials account number. frequency of use of the item. factory area where the item is used. nature, size, and shape of the item.
In practice, no single base is likely to be suitable, but the size and shape of materials usually dictate the basic storeroom arrangement variations can then be introduced, such as placing most frequently used items nearest the point of issue and locating materials used primarily in one factory area nearest that area.
are effective ready references that may be attached to storage bins, shelves, racks, or other containers. Bin cards usually show quantities of each type of materials received, issued, and on hand. They are not a part of the accounting records as such, but they show the quantities on hand in the storeroom at all times and should agree with the quantities on the materials ledger cards in the accounting department.
Materials Requisitions:
The materials requisition, illustrated below, is a written order to the storekeeper to deliver materials or supplies to the place designated or to give the materials to the person presenting a properly executed requisition. It is drawn by someone who has the authority to requisition materials for use in the department. The authorized employee may be a production control clerk, or department head, a supervisor, a group leader, an expeditor, or a materials release analyst. In a computerized system, the computer program will often prepare the requisition in the form of a tabulating card.
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The materials requisition is the basic form used to withdraw materials from the storeroom. Its preparation results in entries in the issued section of the materials ledger card and in postings to the job order cost sheets, production reports or the various expense analysis sheets for individual departments. All withdrawals result in debits to work in process or to control accounts for factory overhead, marketing expenses, or administrative expenses, and in credits to materials.
Bill of Materials:
The bill of materials, a kind of master requisition, is a printed or duplicated form that lists all the materials and parts necessary for a typical job or production run. Time is
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saved and efficiency is promoted through the use of a bill of materials. When a job or production run is started, all the materials listed on the bill of materials are sent to the factory or are issued on a prearranged time schedule. As the bill of materials is a rather cumbersome medium for posting purpose, however, data processing improves the procedure by simultaneously. Preparing tabulating cards for materials requisitions. While the storekeeper issues the materials as stated on the bill of materials, the tabulating cards can be processed in the materials ledger section and in the cost department at almost the same time as the materials are used in the factory. A computer program will provide the print outs of the bill of materials and process the information internally to update the accounting records.
Practical study
PTCL INTRODUCTION Company Profile
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Pakistan Telecommunication Company Limited is the largest telecommunications provider in Pakistan. PTCL also continues to be the largest CDMA operator in the country with 0.8 million V-fone customers. The company maintains a leading position in Pakistan as an infrastructure provider to other telecom operators and corporate customers of the country. It has the potential to be an instrumental agent in Pakistans economic growth. PTCL has laid an Optical Fibre Access Network in the major metropolitan centers of Pakistan and local loop services have started to be modernized and upgraded from copper to an optical network. On the Long Distance and International infrastructure side, the capacity of two SEAME-WE submarine cables is being expanded to meet the increasing demand of International traffic.
Vision
To be the leading Information and Communication Technology Service Provider in the region by achieving customer satisfaction and maximizing shareholders' value'. The future is unfolding around us. In times to come, we will be the link that allows global communication. We are striving towards mobilizing the world for the future. By becoming partners in innovation, we are ready to shape a future that offers telecom services that bring us closer.
Mission
To achieve our vision by having: An organizational environment that fosters professionalism, motivation and quality An environment that is cost effective and quality conscious Services that are based on the most optimum technology "Quality" and "Time" conscious customer service Sustained growth in earnings and profitability
Core Values
Professional Integrity Customer Satisfaction Teamwork Company Loyalty
REVIEW OF SITUATION
THEORETICAL
&
PRACTICAL
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PROCEDURES
Procurement Department shall process the tenders submitted by the interested bidders, in response to the tender invitation of the company, in accordance with the following guidelines. Process for tender opening, evaluation and awarding of tenders has been broadly divided into the following areas:i. Tender submission and opening. ii. Tender opening committee. iii. Technical evaluation committee. iv. Commercial evaluation committee. v. Negotiation committee. vi. Contract drafting. vii. Contract signing, issuance and distribution. viii. Contract amendments and cancellations. ix. Memorandum of understanding. x. Performance bond. Procurement activities at regions shall be performed by the respective GM and EVP at the Regional Offices as per their authority limits by following the same guidelines as mentioned below for Headquarters. Procedures relating to tender opening and evaluation at regions shall be implemented by the respective GM and EVP at the Regional Offices.
The nomination of these committees shall be approved, on a case by case basis. These committees shall not have any permanent members and shall be formed each time a new tender is invited. However, the Chairman of the committee may remain the same in the Technical and Commercial Evaluation Committees for a particular tender only. The concerned committee Chairman in conjunction with the respective Procurement Manager (i.e. Manager Turnkey Contracts - Headquarters, Manager Supply Contract Headquarters, Manager Purchasing - Headquarters, Admin Manager - Headquarters or designated Manager at the Regional Offices) shall coordinate all meetings and
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related activities, including the appointment of a Committee Secretary, with replacement in case of absence. Committee Secretary shall assist in handling backup duties, preparing minutes of meetings, reports, and all other essentials to ensure that proceedings are properly documented.
B) Delivery of Offers
Procurement Department shall provide instructions to the bidders in the Invitation to Tender (ITT) to ensure that sealed offers are deposited in the relevant tender box located at procurement Division, PTCL Headquarters, Sector G-8/4, Islamabad or at Regional Offices as stipulated hereunder:-
Headquarters:
Three tender boxes shall be available for receipt of tenders in Headquarters. The opening, closing and safeguarding of these boxes shall be the responsibility of the respective Procurement Managers. i. Tender box No.1 allocated for Purchasing section (values up to Rs. 20 million)
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ii. Tender box No. 2 allocated for Supply Contracts section (values exceeding Rs. 20 million) iii. Tender box No. 3 allocated for Turnkey Contracts section (values exceeding Rs. 20 m) iv. Tender box No. 4 allocated for Admin Purchases (values up to Rs. 2 million) Regional Offices: One tender box of same design as that in Headquarters shall be available at each region. Respective Procurement Manager shall assign two staff assisted with a trolley, if necessary, to collect the offers from the relevant tender box and ensure their safe receipt by the Tender Opening Committee.
A) Purchasing Range
Purchase order shall be issued for procurement up to the value of Pak Rs.20 million against Request for Quotation (RFQ) terms and conditions. In this case, no contracts shall be entered into with the vendor
B) Contract Range
Contracts (supply and turnkey) shall be finalized for any procurement of value exceeding Pak Rs.20 million. These contracts shall be made against Request for Proposal terms and conditions. However, purchase orders shall be raised for these in the system by the respective Procurement Managers.
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Nomination of TOC
The TOC shall be nominated and approved, on a case by case basis. Constitution of the committee shall be as follows:Procurement Chairman End User Member Finance Member The members of the TOC shall be of Manager/ Senior Engineer level or above.
Functions of TOC
The function of this committee shall be the opening of the bid envelopes, technical and commercial on two separate occasions / dates and would include the following responsibilities:i. In case where bid bond is a pre requisite, ensure that bid bonds have been received and if not, the tender shall be rejected. Alternatively, the bidder shall submit a letter from their bank confirming that the bid bond is under preparation and shall be submitted within one week
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ii.
iii. iv.
time, in which case the bid shall be accepted subject to receipt of the bid bond. The bid bond shall be requested to be included in the commercial bid (priced offer), with only a confirmation from the bidder, included in the technical bid (un-priced offer), stating that the bid bond has been submitted and included with the commercial bid. TOC shall prepare a tender opening report with main details of offers and bidders with any remarks pertaining to the tender conditions. Tenders shall be submitted on or prior to the closing date / time. Any tenders received after the closing date / time shall be rejected and returned to the bidder un-opened.
Technical Submissions
The technical offers shall be opened and an opening report providing details of bidders from whom submissions were received, shall be prepared and signed by the TOC members. Thereafter, technical offers shall be forwarded for technical evaluation to the Chairman of the TEC.
Commercial Submissions
i. GM The commercial offers shall remain in the safe custody of respective GM (i.e. Turnkey Contracts - Headquarters, GM Supply Contract - Headquarters, GM Purchasing - Headquarters, GM Admin - Headquarters or respective GM at the Regional Offices) and kept in specially allotted cabinets for Turn-key Contracts, Supply Contracts and Purchasing respectively with keys under the direct control of the respective GM until completion of the technical evaluation. ii. Commercial offers shall only be opened for those bidders who have been classified as technically competent by the TEC. Sealed commercial offers of bidders, who have failed the technical evaluation, shall be forwarded to the respective Procurement Manager. Respective Procurement Manager shall contact the bidders and request them to collect their sealed commercial offers from the company Headquarters / Regional Offices. A letter shall be provided to the rejected bidders stating the reasons for rejection of their technical bid.
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iii. Upon completion of the technical evaluation, the TOC shall open the commercial offers of short listed bidders who have passed the technical evaluation and forward them to the CEC for evaluation. All pages of the original bids containing prices and commercial terms shall be duly signed by all members of TOC.
Timeframe
Taking into account that constitution/ nomination of the committee members shall be planned well ahead of the tender closing date, the TOC shall open the technical offers on the closing date of the bid.
Results of the technical tests if applicable. The TEC shall request further tests to ascertain performance of the equipment/ systems. Vii Quality of technical training required training sessions, training duration and facilities. viii. Delivery schedules / completion period.
Clarification
During the technical evaluation, offers shall be considered incomplete in case of any missing information and other ambiguities. The TEC shall request the bidder through Procurement Department to provide any required details or clarify ambiguous issues. The response from the bidder shall be requested in sealed envelops which shall be opened at a pre-specified time/ date by the TEC who shall include the response into their evaluation for technical conclusion. In case of projects involving new technologies, technical clarifications can be requested more than once and in other forms of communications as the project may demand, but shall be coordinated and conducted through the Procurement Department. TEC shall not approach any bidder directly for meetings, presentations or any kind of clarifications during the evaluation period. In case presentations are required from the bidders, the same shall be arranged by formal notification through Procurement Department - Headquarters or respective GM at the Regional Offices. In this case all the bidders shall be given a chance to present their respective proposals to the TEC.
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who have been technically approved. The report shall highlight the recommendation and comments along with the evaluation statement reflecting the final ranking and conclusion. Structure of the report shall be flexible but should include all elements of evaluation reflected by the technical criteria. Decision of TEC shall be final and no complaints from the bidders regarding their technical evaluation shall be entertained by the company. The commercial bids opening date shall be fixed by the Procurement Department after clearance of technical evaluation, thereafter the TOC shall proceed with opening of commercial offers.
Timeframe
The TEC shall complete its technical evaluation including clarifications within a maximum time period of 14 days from the date of receiving tender documents from the TOC. In case clarifications are not required, technical evaluation shall be completed within 7 days the date of receiving tender documents from the TOC.
A) Commercial Evaluation
i. For bidders who have been declared successful after the technical evaluation, the CEC shall check and verify their compliance with the commercial terms of tender document. Any non-compliance shall be highlighted and resolved by respective bidder. ii. Price comparison shall be prepared from the offer document based on the established quantity required, by identifying the cost comparison as quoted by different bidders in a matrix. Attached specimen formats shall be followed when compiling prices.
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iii.
iv.
In the case of turnkey projects, a comprehensive evaluation shall be carried out to include all elements of costs required for the project such as materials, tools, installation cost, survey charges, system design/interface, supervision, training, man days/ hours etc. Price adjustments shall be taken into account when offers are not fully compliant/ or below specifications in order to arrive at a comparative price. Such price adjustment shall be clearly explained by additional notes. Price adjustment shall not be considered if offers are technically of higher specifications/ include additional items or features not requested in the tender. Also spare parts as well as test equipment shall not be considered for price adjustment. Local bidders shall quote their offers in Pak. Rupees delivered duty paid (DDP) whereas International bidders shall quote their offers in U.S. currency (dollars) DDU/CIF for supply and DDP local currency for services or otherwise as requested in the tender document. Thus the CEC shall convert US/ foreign currency at the appropriate exchange rate for accurate evaluation. For imported procurement, the estimate for freight and insurance shall be included in the overall cost. Further, local taxes and other levies by local authorities shall also be included in the evaluation to arrive at the overall cost. The comparison shall show the cost of individual items and total cost of the project for the company. Optional items shall not to be evaluated unless they are required and needed to be procured for the intended project, in which case they shall be evaluated technically and financially as part of the whole evaluation. Price escalation of any formula particularly copper LME rates shall be considered and compared by the financial member, for the relevant date on which such formula/rates are effective Quoted spare parts shall be compared and evaluated and the price escalation clause for future supply of spare parts shall be agreed upon to cover the life span of the equipment. In case of increase or decrease of the equipment quantity, the installation cost factor shall be clarified and obtained from the bidders. The evaluation shall highlight the percentage of installation cost to equipment cost, Delivered Duty Paid (DDP) cost to basic equipment cost, cost and comparison to expected life, training cost per week per individual, spare parts cost and repair charges as applicable. Prices offered, against tenders called in past for similar materials / services, by invited bidders shall be compared with current offers taking into account fluctuations, exchange rate and market conditions. A reconciliation statement between tender opening prices and evaluated prices / equalization after clarification shall be made, where applicable. Once accuracy is checked and evaluation is verified by the committee, financial ranking of each bidder shall be established and agreed upon by all the members. Based on the lowest price offers for the various items, CEC shall consider recommendation for award of Contracts/ Purchase Order(s) to one or more
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bidders on the basis of their offered lowest prices of such different items, as per the need/ requirement, taking into account the feasibility of such award in terms of the overall cost and urgency impact.
Clarification
In case any further clarification is required on the commercial offer, the same shall be conducted as indicated above (under technical evaluation) through Procurement Department as a central point.
Timeframe
The CEC shall complete its evaluation including clarifications with bidders within a maximum time period of one week from the date of receiving tender documents from the TOC, after the completion of technical evaluation. In case clarifications are not required, evaluation shall be completed within four working days from the date of receiving tender documents from the TOC, after the completion of technical evaluation.
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Nomination of NC
The Chairmen of TEC and CEC shall continue to be the members of the NC. SEVP Proc&Admin - Headquarters or EVP Procurement - Headquarters / EVP Admin -Headquarters / respective EVP or GM at the Regional Offices shall be the Chairman of NC to conduct the negotiation with the selected bidders. Respective Procurement Manager shall be the coordinator of related activities.
Functions of NC
The coordinator of the committee (concerned GM from Procurement Department Headquarters / respective GM at the Regional Offices) shall within three days of receipt of the commercial evaluation report arrange a negotiation meeting with the 1st three lowest bidders during which negotiation shall address the following agenda; i. Price discount. ii. Validity of offers. iii. Improved delivery schedule. iv. Any other related issues. Price negotiation shall be held with the 1st three lowest bidders to request and receive discount and improved contract terms during negotiation meeting. Any negotiated discounts / improved terms shall be confirmed through proper communication from the authorized representative of the bidder in the form of proposal or letter on their letterhead. This can also be considered during the negotiation meeting, by requesting the bidder to state the negotiated terms on the offer in writing and sign there upon. A comparison shall be made with the discounted prices at the end of negotiations and contract shall be awarded to the lowest bidder. In case of regions, negotiations can either be conducted with the lowest bidders only, or three of the lowest bidders as seen fit by Regional GM.
Final Approval
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Final report of the NC shall be forwarded, to relevant authority in Headquarters/ Regions as per delegation of authority matrix, for final approval and awarding of tender. If the value of tender award is up to Rs.20 million, a PO shall be issued by the company to the selected bidder. Contract shall be entered with the successful bidder if the value of tender award is in excess of Rs.20 million, as per the procedures mentioned below in Section In order to execute the contract, a PO shall subsequently be issued against the contract by the respective Procurement Manager.
Emergency Procurement
In the event of unforeseen situation where emergency procurement becomes vital / essential for the companys network and operations, the specific case deliberation giving full justification for such an emergency shall be raised by the concerned SEVP to the President and CEO for approval. In the circumstances, finalization of the emergency transaction, in terms of technical evaluation, commercial evaluation and urgent negotiation shall be conducted jointly by SEVP Proc&Admin - Headquarters / or EVP Procurement Headquarters, EVP of end user department and SEVP Finance - Headquarters / or EVP Finance - Headquarters on priority basis. Technical and commercial offers received from bidders may be opened at the same time. The recommendation for award, based on the joint decision made by SEVP Proc&Admin - Headquarters / or EVP Procurement - Headquarters, EVP of end user department and SEVP Finance - Headquarters / or EVP Finance - Headquarters shall be presented to the President and CEO for approval. Emergency Procurement shall be capped at a maximum limit of Rs. 100 million beyond which normal procurement procedures shall be adopted. As procurement procedures shall not be used in an emergency situation, this should not be made a practice and should only be pursued in real emergency cases.
ISSUANCE
AND
After contract has been reviewed by the successful bidder, all issues shall be resolved and thereafter the bidder shall confirm their acceptance of the form of contract. Process of contract signing shall be coordinated by the Manager Turnkey Contracts - Headquarters or Manager Supply Contract - Headquarters. Contracts shall be approved on behalf of the company by the representatives, as per the authority limits mentioned below:
2ND ASSIGNMENT
Witness: Respective GM Signatory: EVP Procurement Witness: EVP Procurement Signatory: SEVP
All the frame contracts shall be approved by SEVP Procurement and Admin based on the recommendations of Price Negotiation Committee, approval of orders issued against the frame contract shall be done according to the authority matrix Manager Turnkey Contracts - Headquarters or Manager Supply Contract Headquarters shall be responsible for distribution of contract copies as follows:i. End user / project owner. ii. Finance. iii. Legal. iv. Audit v. Any other Regional Office / Headquarter departments, if applicable.
Descripti on
Authorized by
2ND ASSIGNMENT
CONCLUSION
After gone through the above narrated case study and procedure which is adopted by PTCL, I conclude that PTCL has uniformity and consistency in the companys procurement function with clearly defined responsibilities, authorities, and functions. All departments at Headquarters / Zones / Regions adopted and implemented the leading procurement practices, policies and procedures uniformly. This procedure provides the internal controls to safeguard the assets of the company which shall be ensured during the internal audit.
RECOMMENDATIONS
I personally visited PTCL Headquarters and met the procurement executives and other relates staff including officers. I recommended that procurement administration should be conducted throughout the company in a more controlled and orderly manner. Guidance and instructions should be provided to the employees of the company on the application of the procurement policies, procedures and financial controls.