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The words Purchase and Procurement are frequently used interchangeably, however, even if is common this is not necessarily accurate. Purchasing is just a part of the Procurement process, an important one, but only the specific function associated with the actual buying of goods and services from suppliers.  This is how procurement and purchasing will be defined throughout this guide.

Procurement Principles in the Humanitarian Context

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Objective of Procurement (6 Rights)

A successful procurement process is the one capable to accomplish with several requirements that can be summarized in the six ‘Rights’. Therefore, every purchase should be procured

  • At Right price
  • from the Right sources
  • in the Right quantity 
  • of the Right quality and condition
  • delivered to the Right location
  • at the Right time

By assuring these ´Rights´ one of the guiding rules of every intervention, the Best Value for Money in the procurement activities is accomplished. Notice that is not mentioned here the lowest price or the highest quality, but the one that can accommodate best the needs in a holistic way.

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There are certain principles that will govern the way in which a procurement activity is carried out. These principles are not random or chosen by chance; they are the result of many experiences and lessons learned, set up after several discussions and revisions. Humanitarian actors can have a great financial impact in the context they work, and procurement takes an important role on it since it has to do with the exchange of money, selection of providers, distributions in contexts that are not always safe, and constant exposure to various risks that need to be mitigated for the correct implementation of the programs.

Hence, a series of principles have been developed that should govern the procurement actions, to which the procurement entity must adhere and ensure its compliance with the ultimate goal of having an economic and efficient intervention with the best quality-price ratio.

The 6 "Rights"

A successful procurement process is the one capable to accomplish with several requirements that can be summarized in the six ‘Rights’. Therefore, every purchase should be procured

  • At Right price
  • from the Right sources
  • in the Right quantity 
  • of the Right quality and condition
  • delivered to the Right location
  • at the Right time

By assuring these ´Rights´ one of the guiding rules of every intervention, the Best Value for Money in the procurement activities is accomplished. Notice that is not mentioned here the lowest price or the highest quality, but the one that can accommodate best the needs in a holistic way.

Best Value for Money

Best Value for Money (BVM) refers to the best combination available of monetary and non-monetary requirements that an organization can get from its selection of suppliers. It does not mean to achieve the cheapest offer but to balance the attributes such as quality and availability according to the organization needs[2].

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Every procurement process must be justified and scrupulously documented, having its own dossier containing all the documents related to a procedure, whether simple or complex. In this way, we will call the Procurement Dossier to a set of documents that justifies the steps taken in a particular procedure. Not all dossiers will be the same in volume and complexity. (see Most Common Procurement Procedures). At the same time, those Dossiers have to be preserved for later use (see Documentation management, Files)

Procurement Process

The procurement is common - almost everyone does it automatically every day. However, for a procurement officer procurement is a challenge in itself. Humanitarian logisticians purchase using funds provided by external donors to buy items/services defined by other colleagues with the aim to cover beneficiary needs. In order to align all those interests becomes essential to have some norms and tools.

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Every coherent procurement process, regardless its aim or dimension, will have always six basic steps.

Sourcing and Identifying Vendors  

The procurement actions are based in a fair and transparent competition among different suppliers; what implies that a Market Research should be done in order to collect information about the desired product and the potential suppliers that could provide it.

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These formal requests should be based on templates that will allow to build a more accurate opinion about the product or service that we pretend to acquire and its availability in the context we are working.

Product/Service Requisition (building criteria)

Any procurement for goods or services should be built upon needs. Once the needs are identified measured and planned, by a team or individual within an agency, should be formally communicated to the organization´s procurement team, usually through a formally defined a Purchase Request specifying:

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One of the best ways to assure that each request is well presented, understood and agreed among all the Units involve in the process, is create a coordination space to do it. The best approach is the implementation of a recurrent meeting between requestors, heads of unit, and the procurement where the requests can be discussed and validated.

Solicitation

Once potential suppliers have been selected (or before launching an open bidding process), solicitation documents must be carefully prepared. The way in which these offers are solicited and received conditions the rest of the process; there is an inverse and direct relationship between what is solicited and what is offered. Procurement teams will only choose from the options offered by the providers, but what is offered largely depends on how and what the providers have been asked to offer. That is why the specifications of required products or services must be clear, and the terms of the requested bid must be well defined.

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The solicitation document must to be distributed simultaneously among the preselected suppliers with sufficient time to analyze and properly build offers. The solicitation document could contain a standard submission format facilitating the comparison among the offers during the evaluation phase.

Evaluation and Awarding

Many agencies may choose to use what is known as a Bid Evaluation Committee/Panel to properly facilitate the process of analyzing and scoring incoming offers in a fair and transparent way. After properly recording every step undertaken during Solicitation process, and before bids are open, the Evaluation Committee/Panel will join together to study the offers. The Evaluation Panel composition could be as simple as two people (requester and purchaser) performing and informal evaluation or be regulated formally and integrated by teams of different departments. No matter the value of the procurement or procedure followed, there should always be a set of people to respect the segregation of duties principle. In the case of the most restrictive procedure, is common to form it at the very beginning of the process, officializing it by signing a “Declaration of Objectivity and Confidentially” and /or a “Disclosure of Conflict of Interest”.

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Once the proposal to award a supplier has been validated, the selection of the suggested supplier should be validated by the requisite internal approval process of the agency. The award decision should be communicated to the winning supplier, and unsuccessful suppliers shall be notified establishing a mechanism able to debrief them and take note of any possible complaint.

Ordering and Contracting

Each order has to be formalized by modifying the standard templates for this purpose, the Contract or the simpler Purchase Order.

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The organization must establish a threshold beyond which the relationship can no longer be formalized through a PO and a contract becomes necessary. However, the Organization´s Terms and Conditions applies in any case, therefore, a simplified TandC must to be communicated (attached to the PO) and Respected by both parties. The act of signing the PO - and the organization´s TandC- by the supplier makes the PO become a simplified contract.

Reception and Payment

The order documents (PO or contract) must clearly indicate the delivery conditions, who will assume responsibility for moving goods, when and where it is intended to transfer responsibility for the products and all the necessary details to plan accordingly and put in place any necessary means in terms of transport and logistics.

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In the case that the supplier/carrier is not able to provide any delivery document nor even a Delivery Note, becomes essential to create and sign a Reception Note, officializing the transfer of responsibility over the cargo and stating any potential deviation.

Procurement Procedures

A procurement procedure is an internal process stablished by every organization to set up the minimum requirements to ensure that the purchases made are compatible with the basic principles of responsibility, accountability, transparency, equal treatment of suppliers and proportionality, while guaranteeing the Best value for money.

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Purchases are accompanied by significant cash flows, so the impact they generate in the contexts where they work, and the effect they may have on the beneficiaries, must always be taken into account, since the organization must be accountable not only to the donors but also the communities served. To do this, steps and tools are established that guide the procurement entity through the procurement process since this makes the characteristics of the product, work or service to be acquired better defined, competitive prices are achieved avoiding speculation and it is carried out a traceability of the process, giving visibility and transparency to the flow of money.

Most Common Procurement Procedures

For normal operations (not first phase of an emergency response), the procurement method is chosen based on a defined framework with value thresholds.  The framework includes, as a minimum, levels for Direct Purchase, Competitive Quotations and Tendering.  The levels of the thresholds are based on the context, taking into account monetary values; frequency of transactions; lead time to process the procurement and organization’s risk tolerance. The threshold set is continuously respected throughout the normal operations and reflects donor and INGO requirements. [6]

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  • Direct Purchase (single quotation)
  • Competitive, Negotiated procedure
  • Tender
    • Open or restricted
    • National or International

Direct Purchase or Single Quotation Procedure

The direct or single quotation procedure is the most relaxed one in terms of documentation, evaluation and requirements, as it is done for purchases with a low total value. Its main characteristic is that the goods or services are acquired without prior documented comparison of prices or purchase conditions, which makes the purchasing process relatively quick and easy.

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Images: Example of PR and PO

Competitive, Negotiated Procedure

For higher amounts, more information is required to objectively evaluate and justify the best quality-price ratio. In order to do so, a documented comparison of prices and purchase conditions must be carried out prior to the purchase itself.

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  • The originals of the different suppliers’ quotations received and the Request for those quotations (especially if no quotes were received)
  • The negotiated procedure evaluation table with all necessary validations, along with an Explanatory Note, if relevant.
  • The PO or Contract signed by the parties
  • Copy of the invoice mentioning “Purchase dossier reference[i] + paid + payment method + date”
  • Proof of delivery of the products:
    • supplier’s Delivery Note,
    • or Reception Note when delivered to the stock without a supplier delivery note,
    • or internal Delivery Note when delivered to the requester without a supplier delivery note.

Public/Open Tenders

The comparative bidding process is the system for acquiring products, services or works, by requesting proposals (RFP/Tender Dossier) from “bidders” and choosing the supplier from the offers received. As in the previous procedures, the selection criteria must be established and communicated in advance to potential bidders.

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Direct Purchase or Single Quotation

Competitive, Negotiated Procedure

Tender Value 

Threshold:

Low value

Medium

High

Level of publicity:

None

Medium (min. 3 suppliers contacted)

High (publication in media, public opening of offers, public award notice)

Evaluation:

Light, one person

Medium (Logistician + Requester)

High (Tender Evaluation Committee, min. 3 people)

Documents:

Few (PR, PO, Invoice)

Medium (PR, QR, Qs, ET, PO, Invoice, DN)

High (13 templates)

Validation:

Field level

Country Level + HQ (in some cases)

Country + HQ for Tender Dossier and supplier selection

Setting Thresholds

The concept of "Thresholds" is key to determine the procedure to apply. The “spending threshold” is the figure from which the type of process that must be followed to make a purchase change. The notion of thresholds is essential to ensure the principle of proportionality between the purchase market cost and the effort dedicated to obtaining the best purchase conditions. The higher the spending threshold, the more detailed the procedure to be applied.

Bid Splitting

Bid splitting is when several smaller purchases are done instead of a single large purchase Artificially splitting a bid within a budget in order to avoid a relevant procedure. Bid splitting is considered a serious bad practice, and may constitute fraud.

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Splitting a bid may not always be fraudulent when circumstances necessitate it for security, cost-effectiveness, and other justifiable reasons. In this case, the decision to split a bid must be clearly explained and documented.

Donors and Grant Funds

Donors are entities, institutions or individuals that finance the projects that an organization implements. Procurement procedures must guarantee that all goods, services and works are obtained in accordance with their procurement policies, as well as all the laws applicable to these expenses.

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