Chapter Five

Selection of
Procurement Strategy
Chapter Objectives
By the end of this session, the participants should be able to:
Analyze the procurement of goods
Identify the procurement of goods INCOTERMS
Understand the procurement of works and contracts
Clarify the procurement of consultancy service
Identify the selection process;
Realize the not buy potions;
Once a fully funded and approved requisition is
accepted by the procurement unit and appropriate
sourcing has been conducted, the procurement
officer’s role is central in determining the appropriate
procurement strategy.
The purpose: to find the best way to obtain the
solution/result to satisfy the needs of the end user for
goods, works and services.
A procurement strategy includes:
Choice of the type of arrangement and/or contract
to be concluded
 Choice of the procurement method
 Type of competition to be adopted to purchase the
required goods/services/works.
To select a procurement strategy, the procurement
officer will have to consider:
Procurement procedures of the organization/the
laws to be followed
Delegation of authority
Financial thresholds
 Internal clearance/approval procedures and
corresponding administrative time frames
The type of procurement (goods, services or works),
The complexity or the specificity of a requirement,
The market conditions,
Already existing arrangements and/or contracts.
Methods of Procurement
Open procurement methods

Competitive
 National competitive bidding (NCB)

ope
n
 International competitive bidding (ICB)
Limited bidding/Restricted bidding
Request for proposal (RFP)
Request for quotation )RFQ)
Two-stage bidding
Framework procurement
Direct procurement (DP Non-competitive
 Procurement of Goods, Works and
Consulting Services
Due to the purpose of laws on public procurement to
divide procurement into three categories:
A. Goods - (supplies or products).
Goods include raw materials, products and equipment and
commodities in solid, liquid or gaseous form, marketable
software and live animals as well as installation, transport,
maintenance or similar obligations related to the supply of
the goods if their value does not exceed that of the goods
themselves.
A good in this definition includes tangible physical
outputs including the services necessary to make the
goods ready for use.
For example, to make a generator ready for operation
requires services for installation and transportation.
Unless the values of these services exceed the price of the
generator, the price paid for the installation and transportation is
taken as good.
B. Works - (construction).
C. Services -This includes manual services such as maintenance
of government buildings or cleaning of roads, as well as
professional services such as those connected with
construction (architectural and engineering services), legal
service or consultancy services.
When we refer to public procurement in this text we are
assuming a process whereby the goods, works and
services are being acquired from another party through
the market mechanisms.
Procurement of Goods (INCOTERMS)

What does INCOTERMs Mean?

 General Information of Incoterms
The Incoterms® rules have become an essential part of the daily
language of trade.
In 1936, for the first time, the International Chamber of Commerce
(ICC), located in Paris, published under the name of Incoterms
1936
(International Commercial TERMS), a series of international rules
that answers this question.
Many amendments have been added to the rules of 1936
accomplishing what today is called “Incoterms 2010” which has
replaced Incoterms 2000.
Purpose of Incoterms®
The main purposes of incoterms are to:
Ensure a universal language, so misunderstandings can be
avoided;
Obviate the need for listing all the obligations of the buyer
and seller (saves time) and risking to forgetting some; and
Shorthand way of affirming respective responsibility in regard
To handling of goods, risks, insurance, freight payment and
communication with transporter.
Legal limitations of Incoterms®
Incoterms are not meant to replace
statements in a contract of sale which outline
the transfers of ownership of or the title to
goods.
Incoterms are not be of used when looking to
resolve disputes that arise regarding the
payment or the ownership of goods.
Categories of INCOTERMS
Departure contracts (E-terms),
Main carriage unpaid (F-terms),
Main carriage paid (C-terms) and
Arrival contracts (D-terms)
In a broad sense, E-, F- and C-terms are all departure
contracts, because delivery occurs at the agreed place of
departure, and only the D-terms are arrival contracts.
Classification of Incoterms
1. Ex Works/Departure (Excluding costs incurred after
manufacture: excluding any costs incurred after an item leaves the factory)
2. Free Carrier (FCA)
3. Free Alongside Ship (FAS)
4. Free On Board (FOB)
5. Carriage Paid to (CPT)
6. Carriage and Insurance Paid to (CIP)
7. CFR (Cost and Freight)
8. CIF (Cost, Insurance and Freight)
9. Delivered at Terminal (DAT)
10. Delivered at Place (DAP)
11. Delivered Duty Paid (DDP)
 Procurement of Works and
Contracts
Works contracting is the largest, most complex, and
most visible procurement activity in the public sector of
most countries.
 It is important that government departments engaged
in works contracting organize the activity in careful
detail and apply internationally recognized best practice
in contractor selection and contract administration.
Due to the complexity of works contracting, it is
often advisable for a public entity to engage an
engineering consultant for purposes of design and/or
construction supervision.
Domestic Preference Scheme
Manufacturers Preference
15% of CIF Price or Customs Duties, Whichever is less,
added to foreign Bids
7.5% for services and works
25% for medical equipments and drugs
Only Locally Manufactured Goods with Domestic input
(Labor, Raw Material and components) of more than 35% of
the EXW Price
Factory in operation since Bid submission
See the following example for evaluation of procurement
of goods:
BIDDERS A1 B1 C1 C2 C3

EVALUATED 10,000 10,900 9,500 11,300 12,000

PRICE

STEP 1

LOWEST 10,000 10,900 9,500

BIDS

RANKING 2 3 1
See the following example…
BIDDERS A1 B1 C1 C2 C3

EVALUATED
PRICE 10,000 10,900 9,500 11,300 12,000
STEP 1
LEB EACH 10,000 10,900 9,500
GROUP
STEP 2
LEB IN GROUP 10,000 9,500
A AND GROUP C
DOMESTIC 1,425 1,695 1,800
PREFERENCE
15%
10,000 10,900 10,925 12,995 13,800
FINAL RANKING 1 2 3 4 5
See the following example…
BIDDERS A1 A2 B1 B2
BID PRICE 1140 1200 1150 1160
ADJUSTED BID PRICE* 1040 1100 1000 1050
RANKING 2 4 1 3
DOMESTIC
PREFERENCE 7.5%** -- -- 75 79
TOTAL 1040 1100 1075 1129

RANKING 1 3 2 4
* CORRECTED FOR ERRORS AND NET OF PROVISIONAL SUMS
** APPLIED TO ADJUSTED BID PRICE
 Procurement of Consultancy Service
Consulting assignments, which are of an intellectual nature,
are carried out over a wide spectrum of sectors.
“Consulting services” refer to services of a professional nature
provided by consultants using their skills:
 To study,
 To design,
 To organize, and
 To manage projects;
 To advice clients; and,
 when required, build their capacity. 34
Consulting services may vary from simple routine tasks to
highly specialized and complex assignments.
Consulting services should satisfy the following
requirements:
 Meet high standards of quality
 Be impartial (that is, delivered by a consultant acting
independently from any affiliation, economic standing or
otherwise, that may lead to conflicts of interest); and
 Be proposed, awarded, administered, and executed
according to the highest ethical standards.
Selection of Consultants
Main Considerations in the Selection of Consultants:
Policies and procedures should be guided by the following
principles:
 ECONOMY - Achieve best value through open and fair
competition
 TRANSPARENCY - Promote transparency in the
selection process
 ACCOUNTABILITY - Ensure the accountability of those
involved with the selection process
 EQUITY – through uniform policies and procedures
for procurement, create an equitable environment for
competition
 EFFECTIVENESS - facilitate optimum effectiveness
in pre-selection operations so that they deliver the
desired outcomes
 EFFICIENCY - through standardized procedures and
consistent application of best selection practices,
minimize delays to the procurement process; and
 ETHICAL STANDARDS - to provide staff involved with

procurement a set of standards and framework under which

selection is to be undertaken that represents the highest
standards of ethics and honesty.
Conflict of Interest in Consultancy
Conflicts of interest must be avoided b/c they
affect the consultants’ impartiality and spoil the
quality of their advice.
 Selection Steps
Depending on the selection method adopted, the
process carried out by the client may include the
following steps:
 Preparation of the TOR of the assignment
 Preparation of the cost estimate or budget of the assignment
 Public invitation of consultants’ Expressions of Interest (EOI)
 Short listing of consultants
 Preparation, and issuance of the RFP to short listed
consultants
 Preparation and submission of proposals by consultants
 Evaluation of technical proposals - quality evaluation
 Opening and evaluation of financial proposals - cost
evaluation
 Combined quality and cost evaluation to select the winning
proposal (under QCBS) and
 Negotiations and signing of the contract between the client
and the consultants.
 Selection Methods
There are six methods for the selection of consultants.
They include:
 Quality Based Selection (QBS)
 Quality and Cost Based Selection (QCBS)
 Selection under a Fixed Budget (FBS)
 Least Cost Selection (LCS)
 Selection based on Consultant’s Qualifications (CQS)
 Single Source Selection (SSS)
Technical Evaluation of Consultancy
Major criteria and corresponding weight
 General and Specific Experience of Firm (5 - 10%)
 Methodology and Approach (20 - 50%)
 Qualifications of Key Staff (30 - 60%)
 Transfer of Knowledge (0-10%)
 Participation by Nationals (0-10%)
Total of Points must equal 100%
GENERAL AND SPECIFIC EXPERIENCE OF
FIRM (5 - 10%)
Relevant assignments
Similar size
Complexity
Technology
Environment
METHODOLOGY AND APPROACH (20 - 50%)
Schedules
Responsiveness to TOR
Logistics
Skills transfer
Innovativeness
QUALIFICATIONS OF KEY STAFF (30 - 60 %)
Team composition
Professional qualifications
Suitability
Local knowledge
Language
Training experience
Permanent staff
TRANSFER OF KNOWLEDGE (0 - 10%)
If transfer of knowledge is the main objective of the
assignment, it should be given higher weight
If transfer of knowledge (training) is a factor in evaluation,
TOR should clearly specify the requirements (topics,
number of trainees, training methods, basis for evaluation,
etc.)
PARTICIPATION OF NATIONALS (0 -10%)
Only key staff to be evaluated
Based on number of nationals among key staff presented by
foreign and national firms
Weight to be given proportionately to ratio of local/foreign
key staff, or other sub criteria as stipulated in data sheet
FINANCIAL EVALUATION
Notify unsuccessful firms
 Public opening of financial proposals of successful firms
 Lowest price scores 100%, others inversely proportional to
their prices
Sf = 100 x Fm/F
 Combine Tech. and Fin. Evaluation normally 20% for Price
and 80% for Technical Proposal
 The Minimum technical score for qualification is 70%
 FINANCIAL EVALUATION
The proposal with the highest combined score following the
application to each evaluated proposal of the formula specified in ITC
Data Sheet, which would be typically as follows:
S = [St x T%] + [(100 x Fm/F) x P%]
Where;
S is the proposal-combined score
St is the proposal technical score a result of the technical
evaluation
T is the weight allocated to the technical score
Fm is the cost of the lowest financial proposal
F is the proposal financial cost
P is the weight allocated to the financial score, as specified
in the ITC Data Sheet
FINANCIAL EVALUATION
QCBS Evaluation
Consider the following:
 Technical score=80%
 Financial Score=20%
Step 1: Technical Evaluation (80%) –Passing mark 70%
Company: A B C D
Score: 72 70 78 62
Step 2: Financial Evaluation
Price: Br. 475,000 Br.500,000 Br. 625,000 ____
Financial Score: ______ _______ _________
Total Score: _______ ________ _________

Selected Consultant is: ___________________

 CONTRACT NEGOTIATIONS
Normal Order of Negotiations
 Discuss consultants’ proposed work plan and staffing based on
submitted technical proposal
 Clarify questions regarding TOR
 Finalize staffing to be provided by consultants
 Develop assignment implementation schedule
 Conduct financial negotiations
 Complete contract draft
The choice of the appropriate method will depend
upon:
the nature, size, and complexity, likely downstream
impact of the assignment,
as well as technical and financial considerations.
 Choice of solicitation method
The choice of procurement method is critical to the
success of the procurement action.
The differences between the methods are significant in
terms of formality, level of competition, duration,
and complexity for bidders and the procuring entity.
The choice should be made with these factors in mind,
with a view to maximizing competition to the greatest
extent possible.
1. Open advertised bidding is the most competitive
procurement method available.
 It should be considered the preferred method of
procurement for procurement of goods, works, and non-
consulting services.
 The method is most suited to obtaining value for
money in the public interest.
 It is also the most formal and complex of the methods
of procurement.
Exceptions to the use of open advertised bidding
should be carefully considered and based only on
compelling circumstances established in procurement
law or regulation.
Other procedures of procurement are applied if the
open bidding method is difficult to apply.
Open bidding method is preferred because it goes in
line with the basic procurement rule of non
discrimination and transparency.
Open bidding, though it is transparent, requires more
time in order to prepare different tender documents.
The invitation to bid contains general information on:

 The name and address of the procuring entity,

 A brief description of the goods, works or services to be

obtained ,and the desired time of completion

 The place and price for obtaining the bid document

 The place and deadline for submission of bids

 The place and time for opening bids.

Generally, the bid document must include:
Instruction for the preparation and submission of

bids.
Information on the final date for receipt of bids,

 The address to which bids must be sent, the date,

hour and place of opening.

 Bid forms, and bid security to be provided.

 The number of copies to be submitted with the original bid.

 Specification of requirements, including time limit for delivery

or completion.

 Evidence to be provided by the bidder to demonstrate its

qualification, financial position, and registration in the

suppliers’ list.
 The period during which the bid remains valid.

 The criteria and the points given to each criterion for

evaluation of bids and award of the contract.

 A reservation to the effect that the procuring entity may reject

all bids at any time prior to the acceptance of the bid;

 Condition of contract (general and specific).
The typical formats of the SBD for acquiring goods in

national open bidding include the following:

 The invitation to bid

 Instruction to bidders

 The bid data sheet

 The evaluation and qualification criteria

 The bidding forms

 The eligible countries

 The statement of requirements

 General condition of contract

 Special condition of contract

2. Two-stage tendering is a variant of the open advertised
bidding method in which an initial or pre-qualifying round
of competition is followed by a final submission of bids.
Procuring entities may engage in procurement by means of
two-stage bidding when:
 it is not feasible for the procuring entity to formulate
detailed specifications for the goods or works or
 in the case of services to identify their characteristics
and
 in order to obtain the most satisfactory solution to its
procurement need
3. Restricted tendering: is another variation of formal
bidding in which only those issued invitations from the
procuring entity’s restricted list of suppliers are permitted
to submit bids.
 With these variations in mind, the procedures to be
followed for each of these methods of procurement are
essentially the same.
4. Request for Proposals :
“Consultancy contracts” are contracts for consulting
services of intellectual and advisory nature.
The range of consultancy services may include
intellectual services such as studies, research, work
projects, technical assistance,
The TOR normally consists of:
1. Background of the project;
2. Objectives of the consulting assignment;
3. Scope of work;
4. Transfer of knowledge;
5. List of reports, schedule of deliveries, and period of
performance;
6. Data, local services, personnel and facilities to be
provided by the CA.
5. Request for quotations (RFQ)
 Request for quotations (RFQs) are used for low value
purchases and well defined products and services
 this involves requesting a price for the supply of basic
standard goods, simple services or works
6. Direct Procurement
Direct procurement is buying goods and services from one
supplier.
This method is not resorted to with a view to avoiding possible
competition or in a manner which would constitute a means of
discrimination among candidates.
 Direct procurement is appropriate when the following
conditions are met.
 when in absence of competition for technical reasons the goods,
works or services can be supplied or provided only by one
candidate;
 For additional deliveries of goods by the original supplier
which are intended either as parts replacement for existing
supplies, services or installations or
 as the extension of existing supplies, services or
installations
 when additional works which were not included in the
initial contract have through unforeseeable circumstances
 for new works consisting of the repetition of similar works
which conform to a basic project of which an initial contract
was awarded on the basis of open or restricted bidding.
 For continuation of consultant services
 For purchase of goods made under exceptionally
advantageous conditions
 The need is one of pressing emergency in which delay
would create serious problems
 Framework Agreements
Frameworks are agreements to provide goods, works or
services on pre-agreed specified terms & conditions
including price.
Framework Agreement is a general term for
agreements with suppliers that set out the general terms
& conditions under which specific purchases (call-offs)
can be made throughout the term of the agreement or
Can be used as the bases for a secondary competition for
a specific requirement to conclude a formal contract.
It is sometimes called Indefinite Quantity Contracts
Have two-phase procurement instruments, in which
the first competitive round generates sometimes one but
more often multiple awards to contractors generally able
and available to perform specific tasks yet to be ordered
by the procuring entity.
The second round of competition, between one or
more of the contractors now in the qualified pool,
yields a specific contract with one of them to supply
the particular goods or services required.
 Appropriate Use of Framework Agreements
It is appropriate when the procuring entity
intends to acquire a series of similar goods
or services, but before the particularities of
time and place have been identified.
 Competitive Aspects of Framework Agreements
Framework agreements are sometimes criticized as anti-
competitive, because the first round of competition, which
yields no specific contract, resembles a pre-qualification
and not a full and open round of competitive proposals.
The second round involves price competition but it is only
limited to the pre-qualified suppliers and contractors.

 Why framework agreement?
Framework Agreements offer a number of advantages for a
contracting authority such as:
 The VFM advantages of centralized procurement
 A single tendering exercise over the life of the arrangement
 A reduction in administrative effort and cost for the
contracting authority;
 the initial tendering process allows contracting authorities to
identify competitive suppliers, who should offer more
competitive prices on the basis of an expected value of
business;
The agreed range for the supply of items or services
can be given at short notice by the contracting
authority,
 A mutually beneficial longer-term working
relationship can be established with the supplier.
Thank You