Table of Contents
Dedication
To Mother and Grace
Preface
Who is this Book For?
This book is for anyone looking for a basic source of information on public procurement and contract administration. It is intended to be direct, easy to read, and practical in its approach.
This book assumes that:
- You have little or no experience in public procurement and contract administration
- You aspire to be a public procurement practitioner
- You want to get a general understanding of public procurement and contract administration
- You prefer a text that is to-the-point and useful
This book intentionally avoids going into more depth than is necessary for beginners.
What Does This Book Cover?
The purpose of this book is to offer you a concise introduction to public procurement and contract administration. Some of the areas covered are:
- Public procurement cycle
- Procurement planning
- Requesting and receiving offers
- Evaluating offers
- Contract negotiations and award
- Contract administration (contract commencement to close-out)
There is also a glossary briefly explaining some of the important terms used in the text.
About the Procurement ClassRoom Series
This brief introduction to public procurement and contract administration is the first book of the Procurement ClassRoom Series. Subsequent books of the series will also be concise, but will contain sufficient information to give you a general understanding of relevant theories, tools and techniques that are important to the successful management and practice of public procurement and contract administration.
Each book of the series will be published initially in eBook format and made available for your feedback. You will receive all updated versions of the book. The purpose of using this format is to allow you to give input on the content of the book and your input will be used to enhance its usefulness to you through future editions.
So if there’s anything you would like me to cover that I may have missed or if you have any suggestions for improving the book, please email me at: suggestions@ProcurementClassRoom.com.
I invite other practitioners to participate and contribute to this initiative at The Procurement ClassRoom, by contributing to the development of books of the series or by emailing any comments or suggestions to me at: suggestions@ProcurementClassRoom.com.
Introduction
Public procurement is directly associated with the acquisition of goods, services and construction works to support national and local government operations and, most importantly, to provide public goods and services.
It is estimated that procurement spending amounts to somewhere between 15% to 22% or more of a country’s gross domestic product, approximately 1.5 trillion Euros annually in the European Union and over $500 billion at the federal level in the United States (ADB Procurement Forum). With these staggeringly high amounts, small improvements in public procurement could represent significant savings of scarce resources.
A research study on active and inactive waste in Government (the former related to fraud and corruption, the latter to inefficiencies) revealed that most waste in public procurement is due primarily to inefficiencies in the public procurement system (Active and Passive Waste in Government Spending) which are directly related to training and development, inappropriate skills set, and waste and abuse unrelated to corruption.
Consequently, it’s safe to say that any effort to reduce waste in public procurement, rather than focusing primarily on the so called “eradication” of corruption, should place more emphasis on training and capacity development and similar efforts in order to drastically reduce passive waste in the public procurement system.
It is hoped that this brief contribution to the public procurement body of knowledge will help toward that end. And what better place to start than with the public procurement cycle.
Chapter 1: The Public Procurement Cycle
Introduction
The Procurement Cycle begins with the identification of a requirement and ends with the award of a contract. Contract Administration, on the other hand, begins with contract award and ends with either the completion, or termination, and the closing out of the contract.
Given the existing confusion in the public procurement body of knowledge as to what exactly comprises the procurement cycle, the intention of the above definition is to simplify the procurement cycle and put it into context by excluding any elements that does not fall within this specific function.
For the purposes of this brief introduction, without limiting the importance of public procurement or contract administration, the procurement cycle is understood to involve all actions from the identification of a requirement until the award of a contract. Contract administration, in contrast, is understood to be all actions related to the oversight and monitoring of the performance of contractors, suppliers and services providers, including all other necessary actions during this period up to either the completion and close-out of the contract or its suspension or termination prior to actual completion.
In some definitions, even elements of inventory control and logistics management are considered part of the procurement cycle. A clearer understanding is gained once the goal of public procurement and contract administration are understood.
The Goal of Public Procurement and Contract Administration
The goal of public procurement is to award timely and cost-effective contracts to qualified contractors, suppliers and service providers for the provision of goods and services to support government and public services operations, in accordance with principles and procedures established in the public procurement rules.
The goal of contract administration is to ensure proper mechanisms are in place to monitor and evaluate contractors, suppliers and service providers’ performance in the fulfillment of their contractual obligations, and to ensure appropriate actions are taken to promptly remedy any deficiencies observed in contract execution or the contract scope, terms and conditions.
On the basis of their specific goals, there is a clear distinction between public procurement and contract administration. That distinction, far from lessening the importance of one as opposed to the other, actually reinforces each by identifying and focusing on their specific purpose, which is influenced by the actors, stakeholders and beneficiaries of Public Procurement and Contract Administration.
Actors, Stakeholders and Beneficiaries
Procurement practitioners are the principal actors in the public procurement process. They are responsible for ensuring the goal of public procurement is achieved, must gain stakeholder’s trust and ensure they fully understand the procurement process.
Procurement practitioners are directly and indirectly engaged in the procurement process, from needs assessment to contract close-out. Although, they are more involved in the public procurement process, they also support contract administration.
Contract Administrators are the principal actors in the contract administration process. They are responsible for ensuring the goal of contract administration is achieved. They must also gain stakeholder’s trust and ensure they fully understand the contract administration process.
Contract Administrators must coordinate with procurement practitioners, contractors, suppliers and service providers to ensure timely actions are executed according to contractual requirements.
Stakeholders in Public Procurement and Contract Administration
Stakeholders are all those who stand to benefit from the results of public procurement, including those interested in the process and who might be affected, directly or indirectly, by a particular procurement action.
The difference between actors and stakeholders is participation. Actors play an active role in the procurement process, while stakeholders play a more passive role. Actors are also stakeholders because of the benefits they derive from the use of public goods and services.
Beneficiaries of Public Procurement and Contract Administration
All inhabitants of a country are beneficiaries of the public procurement system through public goods and services available and provided in the form of transportation systems, public utilities, educational systems, and medical services and facilities, among others.
Similarities and Differences
Public sector and private sector procurement organizations are designed to acquire goods and services. The main difference between these two types of organizations is the purpose for acquiring those goods and services. One is focused primarily on a social benefit, the other is profit centric.
Private sector procurement activities are for supporting the principal business objective of a company, which is to make a profit. This does not rule out the fact that private entities may also seek social benefit; however, it is not their primary business objective. In the public sector, the two main reasons for acquiring goods and services are: (i) for supporting government operations, and (ii) to provide public services.
Funding source is another fundamental difference between private sector and public sector procurement. While private sector procurement is funded by owners/shareholders of the company, funds used in public procurement are primarily from taxes and/or grants and loans obtained by the government on behalf of the country.
Concerning governing rules, private sector procurement complies primarily with contract or commercial law with respect to the formation of contracts, but their methods of procurement are governed by company policy. The entire public sector procurement and contract administration process, however, is governed by the public procurement legal and institutional frameworks (procurement rules), and practitioners are obliged to adhere to them.
With respect to oversight, the private sector procurement process is mostly closed to public scrutiny; however, shareholders may require reviews of the procurement process. Public sector procurement, in contrast, is open to public scrutiny, and public procurement practitioners are accountable for their actions, and need to ensure public procurement is managed in accordance with the principles and procedures defined in the public procurement rules.
Private sector procurement is governed by company policies. Such policies are not necessarily dictated by law, but by the objectives of the company. A private company can engage in a contract with another private company or individual, and the procurement method is dictated entirely by the internal policies of the company.
Public sector procurement, on the other hand, is governed by the public procurement rules. In most countries, there is a law that governs the procurement of goods, services and works with public funds. These rules set the basis for how procurement should be managed and the various methods permitted under diverse circumstances. Public procurement must also adhere to certain principles. The process should be open to public scrutiny, depending on the procurement method used and any confidentiality agreement stemming from the particular procurement method used. Sometimes, the procurement law is comprehensive, with high level of detail; sometimes it covers only the fundamentals, leaving the details for further development in procurement regulations, guidelines and manuals (institutional frameworks), which should expand on but not contravene the law.
Public procurement management, requirement identification and budget allocation, procurement planning and strategy development, procurement method selection, solicitation documents preparation and advertisement, bid and proposal submission, evaluation and selection, and contract award to closeout, are all addressed in the procurement rules. Public procurement practitioners are not at liberty to use any procurement method not stipulated in the procurement rules or not identified for a specific type of procurement requirement. Any deviation from public procurement rules requires justification and clearance from a designated approving authority, sometimes a Tender Board, before the action is carried out.
Under private sector procurement, procurement practitioners answer only to management, and are responsible for their actions, public sector procurement practitioners are public servants and are accountable for what they do or fail to do when managing public funds.
The ultimate aim of public sector procurement is to provide public services and support government operations at all levels within a country.
Procurement Legal Framework
Public procurement is governed by the procurement legal framework, which is a law or regulation (or part of a law or regulation) that is sanctioned by the judicial system of a particular country. This sets the rules for the management of public procurement.
The procurement legal framework is usually further developed into policies and procedures, procurement and contract administration manuals and guidelines, including standard solicitation documents that are used to call for offers from contractors, suppliers and service providers.
Adherence to the public procurement law is obligatory; any infraction is punishable by law. The language of public procurement policies, procedures, guidelines, manuals and standard solicitation documents must align with what is established in the public procurement legal framework.
The procurement legal and institutional frameworks (procurement rules) govern everything from the identification of a requirement through to the closing out of a contract; sometimes including disposal, re-utilization and destruction of goods.
Tender Boards
A tender board is an entity created by law to oversee the public procurement process and to ensure that all public procurement activities are carried out in accordance with the public procurement rules.
Depending on the law, there could be several types of tender boards: departmental, ministerial and cabinet, each responsible for handling procurement actions at certain monetary value thresholds.
Some tender boards have similar functions as a procuring entity. Others only oversee and approve actions taken by the procuring entity and evaluation panels at various stages in the procurement process.