Discussion 1

The concept of procurement

What is procurement?

Procurement is the acquisition of:

• Goods
• Works or services
• Property, plant and/or equipment

Through
• Purchase
• Hire, lease, rental or exchange

2
Procurement principles

Best Value for Money: UNOPS defines ‘best value for money’ as the trade-off between
price and performance that provides the greatest overall benefit under the specified
selection criteria.

Fairness, Integrity and Transparency: Free from favouritism, impartial, honest and
applies visibility and openness in all transactions. All information on procurement
policies, procedures, opportunities and processes are clearly defined and made widely
known and available, and rules and procedures are applied consistently to all potential
bidders.

Effective Competition: UNOPS fosters competition in all procurement processes, as a

means of ensuring fairness, integrity and transparency. Therefore, competition should be
as open as possible.

Best Interest of UNOPS and its Clients: Maintaining the highest personal and
institutional integrity, upholding the image and reputation of UNOPS, and promoting the
public good as specified in the principles of the United Nations in every aspect of
UNOPS’ procurement operations.

3
Types of procurement

Formal Amendments Emergency

• The best offer is found by
comparing several offers
from different suppliers with
UNOPS requirements,
following a formal
procurement process. This
is the standard procurement
method
• An extension or change to an
existing contract
• Used when related
goods/services/works are to be
provided by the same supplier in
furtherance of the original
contract.
• Variation orders for works
• A simplified process which
can be used in
emergencies if pre-
approved by the ECPO
(Executive chief
procurement officer).

Informal
• Awards of procurement
contracts on the basis of
exceptions to the use of formal
methods of solicitation
• The award must be properly
justified
• Shopping (< $2,500)
• RFQ (<$50,000)
Pre-selection
• Used when the funding source
wants particular suppliers.
• UNOPS must also justify that
the costs are reasonable
4
Types of competitions

Open
• Default/preferred method of competition for
≥ USD 50k
• Advertisement: UNOPS website & other media
specified as mandatory in the project
agreement and wherever suppliers can be
reached
Limited
• A valid reason for not conducting an open
competition must exist
• Can be international, regional or national
• Short-list must be pre-cleared by a
Procurement Advisor and approved by relevant
Procurement Authority

Example?

5
 Solicitation method

RFP – REQUEST FOR

SERVICES
PROPOSAL
above
50,000 USD
GOODS,
WORKS ITB – INVITATION TO BID

2,500 USD ALL RFQ – REQUEST FOR

to 50,000 TYPES QUOTATION
USD

below 2,500 ALL

USD TYPES SHOPPING

6
Overview of milestones
Definition of needs

Sourcing process

Solicitation process

Evaluation of offers

Review of award of contract

Contract signature

Delivery – completion of contract

7
Before you start a procurement process, be aware and aligned with…

Before procurement

SUSTAINABLE PROCUREMENT

POLICIES ETHICS PLANNING

Procurement process
REVIEW
PURCHASE
DEFINE FIND GET EVALUATE PROCESS ISSUE
ORDER /
NEEDS SUPPLIERS OFFERS OFFERS AND AWARD CONTRACT
CONTRACT
CONTRACT

METHOD AND SOLICITATION BID RECEIPT

TENDER PERIOD
COMPETITION DOCUMENTS AND OPENING

Dealing with suppliers

EMERGENCY
LOGISTICS CONTRACT ADMINISTRATION PROCUREMENT

8
Milestone Definition of needs
Activity Formulation of technical specifications (for goods) or terms of
reference (for services).

Approx. timeline
in weeks
2 -12 weeks

Subject to involvement of technical experts and pre -clearance and

approval process of terms of reference/scope of works etc.

What can go
wrong? Delay incurred by stakeholders involved; misunderstanding in what
the requirement really is

9
Milestone Sourcing process
Activity
Review supplier base and determine level of dissemination of
bidding document, market research (local / international)

Approx. timeline
in weeks
1-3 weeks

Subject to whether an Expression of Interest or pre-qualification

exercise will be conducted

What can go
wrong? Failed or flawed tender results caused by identification of insufficient
numbers of qualified bidders; limitation to competition through
inappropriate dissemination of tender; no understanding of local
conditions, i.e., what is available, local practices and techniques,
climate, soil etc.

10
Milestone Solicitation process
Activity
Issuance of solicitation document (ITB/RFP) – when the estimated
value of your purchase is $50,000 or above

Approx. timeline
in weeks
2 -3 weeks preparation plus:

4 weeks ITB
6 weeks RFP

What can go
wrong? Delay through non pre-clearance/approval of documentation by
Procurement Advisor etc.

11
Milestone Evaluation of offers
Activity
Evaluation of formal compliance (capacity, etc.), technical and
financial proposal, final recommendation

Approx. timeline
in weeks
1-3 weeks
Subject to complexity, stakeholders involved

What can go
wrong? Delay through clarifications with bidders; delay if technical evaluation
panel cannot reach agreement

12
Milestone Review of award of contract
Activity
Contract negotiations, Review, pre-clearance,
if applicable clearance, approval, contracts
committee/s etc.
Approx. timeline
in weeks
1-2 weeks 3--5 weeks
after approval of award Subject to value, complexity,
reviews required as per
procurement authority etc.

What can go
wrong? Failure of negotiations, Delays caused by poor
withdrawal of selected bidder submission and
resulting rejection

13
Milestone Contract signature
Activity
Physical signing of the contract

Approx. timeline
in weeks

What can go
wrong? If no negotiations, contractor may not agree with contract
format and/or general conditions of contract

14
Milestone Delivery – completion of contract
Activity
Contract administration / Mobilization time as of contract
management phase signature, if applicable

Approx. timeline
in weeks
4 weeks
In accordance with the delivery
after contract signature
schedule in the contract

What can go
wrong? Delay in delivery Delays in mobilizing resources
Inability of contractor to perform like staff and equipment; delay in
Force majeure delivery of materials

15
 Why Outsource?
 To reduce both fixed and recurrent costs.

 To allow the client organization to focus on its core

business.

 To access skills and technologies.

 To increase accountability.

Information Technology Project Management, Fourth Edition 16

 Contracts
 A contract is a mutually binding agreement that
obligates the seller to provide the specified products or
services and obligates the buyer to pay for them.
 Contracts can clarify responsibilities and sharpen focus
on key deliverables of a project.
 Because contracts are legally binding, there is more
accountability for delivering the work as stated in the
contract.
 A recent trend in outsourcing is the increasing size of
contracts.
Information Technology Project Management, Fourth Edition 17
 Types of Contracts
 Different types of contracts can be used in different
situations:
 Fixed price or lump sum contracts: Involve a fixed total price
for a well-defined product or service.
 Cost reimbursable contracts: Involve payment to the seller for
direct and indirect costs.
 Time and material contracts: Hybrid of both fixed price and
cost reimbursable contracts, often used by consultants.
 Unit price contracts: Require the buyer to pay the seller a
predetermined amount per unit of service.
 A single contract can actually include all four of these
categories, if it makes sense for that particular
procurement.
Information Technology Project Management, Fourth Edition 18
 Cost Reimbursable Contracts
 Cost plus incentive fee (CPIF): The buyer pays the
supplier for allowable performance costs plus a
predetermined fee and an incentive bonus.
 Cost plus fixed fee (CPFF): The buyer pays the
supplier for allowable performance costs plus a fixed
fee payment.
 Cost plus percentage of costs (CPPC): The buyer
pays the supplier for allowable performance costs plus a
predetermined percentage based on total costs.

Information Technology Project Management, Fourth Edition 19

 Contract Clauses
 Contracts should include specific clauses to take into
account issues unique to the project.

 Can require various educational or work experience for

different pay rights.

 A termination clause is a contract clause that allows

the buyer or supplier to end the contract.

Information Technology Project Management, Fourth Edition 20

 Procurement Management Plan
 Describes how the procurement processes will be
managed, from developing documentation for making
outside purchases or acquisitions to contract closure.

 Contents varies based on project needs.

Information Technology Project Management, Fourth Edition 21

 Contract Statement of Work (SOW)
 A statement of work is a description of the work
required for the procurement.
 If a SOW is used as part of a contract to describe only
the work required for that particular contract, it is
called a contract statement of work.
 A SOW is a type of scope statement.
 A good SOW gives bidders a better understanding of
the buyer’s expectations.

Information Technology Project Management, Fourth Edition 22

 Statement of Work (SOW) Template
I. Scope of Work: Describe the work to be done to detail. Specify the hardware and
software involved and the exact nature of the work.
II. Location of Work: Describe where the work must be performed. Specify the
location of hardware and software and where the people must perform the work
III. Period of Performance: Specify when the work is expected to start and end,
working hours, number of hours that can be billed per week, where the work must
be performed, and related schedule information.
IV. Deliverables Schedule: List specific deliverables, describe them in detail, and
specify when they are due.
V. Applicable Standards: Specify any company or industry-specific standards that
are relevant to performing the work.
VI. Acceptance Criteria: Describe how the buyer organization will determine if the
work is acceptable.
VII. Special Requirements: Specify any special requirements such as hardware or
software certifications, minimum degree or experience level of personnel, travel
requirements, and so on.

Information Technology Project Management, Fourth Edition 23

 SOW Samples- Website
The scope of work for the Website Redesign Project includes all
planning, execution, implementation, and training for a new public-facing
internet site for SCG. The selected vendor will be responsible for the
design of the new website based on feedback to be provided by SCG.
Each stage of the project will require approval from SCG management
before moving on to the next stage. The selected vendor must ensure it
has adequate resources for designing, building, testing, and implementing
the new web site and is staffed for the training of SGC personnel as well.
Specific deliverables and milestones will be listed in the Work
Requirements and Schedules and Milestones sections of this SOW.
Not included in the scope of work for this project is any work on SCG’s
internal intranet site.

24
 Suggestions for Change Control in
Contracts
 Changes to any part of the project need to be reviewed,
approved, and documented by the same people in the
same way that the original part of the plan was approved.

 Evaluation of any change should include an impact

analysis. How will the change affect the scope, time, cost,
and quality of the goods or services being provided.

 Changes must be documented in writing. Project team

members should also document all important meetings.

Information Technology Project Management, Fourth Edition 25

 Suggestions for Change Control in
Contracts (cont’d)
 Project managers and teams should stay closely
involved to make sure the new system will meet
business needs and work in an operational
environment.

 Have backup plans.

 Use tools and techniques, such as a contract change

control system, buyer-conducted performance reviews,
inspections and audits, and so on.

Information Technology Project Management, Fourth Edition 26

Procurement Process Risk
Management

27
 Risk: Identifying Needs
 Overstatement of Needs.
 Understatement of Needs.
 Insufficient Funding.
 Impractical Timeframe for Supply.
 No Available Solution.
 Fraud.

28
 Risk: Writing Requisitions
 Narrow/ Biased Specifications
 Definition of Inappropriate Product.

29
 Risk: Solicitation Documents
 Terms and Conditions Unacceptable to Suppliers.
 Uncertainty amongst Contracts due to Conditions of
Contract.
 Provision of Inadequate Information.
 Biased Requirements.
 Inadequate Requirements.

30
 Risk: Procurement Method
 Failure to Identify Potential Sources.
 Lack of Market Research.
 Supplier Monopoly.
 Selection of Inappropriate Method.

31
 Risk: Seek, Clarify and Close
Offers
 Failure to Adequately Address Suppliers’ Inquiries.
 Actual or Perceived Favoritism in Providing
Information.
 Breach of Confidentiality.

32
 Risk: Evaluation of Offers
 Failure to Observe Effective Evaluation Procedures.
 Breach of Confidentiality.
 Failure of Offers to meet Needs.
 Failure of Evaluation to Identify a Clear Winner.

33
 Risk: Award of Contract
 Selection of Inappropriate Supplier.
 Selection of Inappropriate Product.
 Insufficient Number of Responses.
 No Response from Known High-Quality Suppliers.

34
 Risk: Negotiate the Contract
 Unmatched Expectations of Buyer and Supplier.
 Deadlock on Agreement.
 Undue Concession to Suppliers.
 Failure to Accommodate Standard Conditions.
 Grossly Unfair or Onerous Requirements.
 Failure to Reflect the Terms Offered and Agreed in the
Contract.
 Inadvertently Creating a Contract without Proper
Approvals.
35
 Risk: Evaluate the Procurement
 Failure to Assess Supplier’s Performance.
 Failure to Assess the Process.
 Loss or Damage of Goods in Transit.
 Fraud.

36
 Risk: Managing the Contract
 Variations in Price and Currency Fluctuation.
 Unwillingness of Supplier to Accept the Contract.
 Failure of Either Party to Fulfill the Contract.
 Inadequate Administration of Contract.
 Acceptance Before Completion.
 Increase in Scope of Work.
 Intellectual Property.

37
…end

38