Procurement Principles in the Humanitarian Context

There are certain principles that govern the way in which a procurement activity is carried out. These principles are not random or chosen by chance; they are the result experience. Humanitarian actors can have a large financial impact on the contexts in which they work, and procurement plays a major role in that it has to do with the exchange of money, selection of providers, distributions in insecure contexts, and constant exposure to various risks.

A general series of principles have been developed that govern procurement actions, to which the procuring entities are strongly advised to adhere. The ultimate goal of these principles enacting an economic and efficient intervention with the best quality-price ratio.

Best Value for Money

Best Value for Money (BVM) refers to the best combination available of monetary and non-monetary requirements that an organisation 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 organisation needs (ULS Handbook).

The combination BVM speaks of are cost, quality and sustainability that best meets the organisation´s requirements.

• Cost is understood as costs of the entire life cycle of the product or service. Total Cost of Ownership (TCO) takes into consideration not only the price but all the cost involved in buying and using a product over time.
• Quality understood as sufficient specifications to meet the organisation requirements.
• Sustainability, taking into account the economic, social and environmental impacts.

Those responsible for procurement should look for the lowest overall cost to get the best return of investment.

Competition

Supplier selection - and therefore the procurement of products and services - is based on a competitive process. That means that solicitation documents should be issued to several and different suppliers, enabling effective competition.  Competition entails:

• Promoting a culture of neutral specifications (avoiding over/under-specification).
• Providing suppliers with adequate notification to ensure that there is sufficient time to participate in the procurement processes.
• Ensuring the comprehensive, impartial and timely evaluation of offers.

It is a good practice to give feedback to the non-successful bidders, explaining them the reasons for not being selected to allow them to improve their processes.

Transparency 

Purchases are part of the joint action of many actors - headquarters, project managers, technical services, field staff, suppliers and communities. It is key that each party know the processes associated with achieving procurement objectives. Procedures should be shared both inside and outside the organisation to ensure that each person or group can understand and question. Transparency does not mean that a humanitarian organisation loses independence, but rather that it can reason the actions and clarify guiding principles used in the purchase of goods or services.

Transparency is also an important part of security management, since a perception of partiality or lack of transparency could lead to threats or increase risk for teams in the ground.

Proportionality

It is strongly advised that control measures and procedures should increase proportional to the value the contract or procurement. The higher that value, the more measures, resources, and stricter procedures will be required. Inversely, if the value is reduced procedures should be more lax. This principle forms the base of different procurement procedures.

Fairness

Humanitarian aid organisations are generally important economic actors in the places in which they operate, due to the high volume of products and services involved in humanitarian operations. Normally aid organisations operate in very small or disrupted markets, so it is advisable to pay attention to the market assessments and keep it in mind in each context analysis.

Humanitarian organisations need to be aware of the local market composition and the different involved actors. When designing and implementing interventions, organisations should assess and analyse local markets and supporting supply chains in order to facilitate their recovery. All potential suppliers have the same tools and information to compete fairly; agencies must be clear in their requirements and criteria applied to all awarded contracts.

Segregation of Duties 

Segregation of duties is a core principle of internal control and must be preserved in all procurement actions. According to the principle of segregation of duties, no single individual or team shall control all the stages of procurement process (WFP Goods and Services Procurement Manual, 2020).

For the sake of quality and control, segregating responsibilities during the purchase process helps not only to identify errors by adding review and oversight steps, but also limits the possibility of fraud. Having more than one person involved in the process also helps to protect those with procurement responsibilities from accusations.

A best practice might be the segregation of duties among persons with different points of view, knowledge and ideas. Decisions are more likely to be successful when everyone is informed and in agreement. The table below shows different examples on how to ensure the Segregation of duties:

Source: Save the Children International. Procurement Manual 2.0 01.01.2020.

Humanitarian aid has evolved its own defacto code of conduct. This set of principles has led to the development of multiple norms, or even rules, that agencies observe while implementing programs. There are - for example - codes of conduct, which are understood and signed by all employees which may include rules that humanitarian staff:

• Do not use their authority or status for personal gain.
• Maintain a high level of integrity and ethics in business relationships.
• Use the resources and assets of the organisation responsibly.
• Do not accept personal gifts from suppliers or engage in any other anti-competitive conduct.
• Act and behave in a professional manner as representative of the organisation and donors, and avoids anything that could bring discredit to the organisation or donors.

When possible it is best practice to include ethical requirements in published tenders, and use ethical requirement compliance as part of the selection criteria. Frequently suppliers do not have standard certifications, nor are they used to complying with ethics standards, which is why it is important to conduct a good market analysis. It is also important to conduct regular visits to suppliers' premises to evaluate their ways of working.

Standards, Protocols and Controls

Each organisation should establish controls to manage and react to misconduct. Applying standards and protocols in relevant ways and in specific operational contexts is an ongoing challenge for humanitarian organisations. These principles of action are usually understood as a guide, and may include the following:

• Humanitarian responsibility - "Do not harm" (prevention of negative impacts, we are guests, respect local cultures).
• Protection of victims - Presence with the victims as protection.
• Collaboration with stakeholders (local, international) - Exchange know-how, optimisation of resources, empowerment, sustainability.
• Commitment to improve the education and training of teams (national staff) and beneficiaries.
• Prioritisation of the most vulnerable groups. 
• Maximum beneficiary participation. 
• Respect for the environment - Environmentally friendly technical solutions, research and development, impact analysis, community awareness.
• Integrated approach to interventions/Coordination with other organisations.

To guide and enforce these principles, specific policies should be drafted, addressing each issue in depth, explaining the why and how, and establishing corrective measures. Among the most common internal policies are:

• “Whistle-blower” Protection Policy: Protection against retaliation for reporting misconduct and for cooperating with duly authorised audits and investigations.
• Policy on Harassment, Sexual Harassment and Abuse of Authority: ensuring that all its workplaces are free from abuse, offensive behaviour, harassment, abuse of authority and discrimination. This also includes promoting a work culture in which every employee understands, and is able to carry out, his/her personal responsibilities for maintaining the dignity of work colleagues.

It is not necessarily enough to ensure that these principles are respected internally; they have to be enforced in the relation with third parties. To facilitate this, it is common for contracts to include specific policies third parties should adhere to. Examples of these policies are: 

• Anti-Fraud and anti-corruption policy.
• Prevention against child-labour.
• Prevention against modern slavery.
• Waste management best practices.
• Anti-terrorism.

These policies and feedback mechanisms may also be included or referenced in the Terms and Conditions (TC) attach to any PO, allowing the suppliers to understand their obligations and inform agencies  about any potential problems. 

Conflicts of Interest

Conflict of Interest can be defined as any actual, perceived or potential incompatibility between an employee’s private interests and either his/her official duties or the interests of the organisation. A conflict of interest may include, but it is not limited to:

• An employee, directly or indirectly, appears to benefit improperly from a procurement activity.
• A third-party benefits improperly from his/her association with an employee.
• Any person within an organisation holds a financial interest in an enterprise that engages in any business or transaction with the organisation.

Examples of Conflicts of Interest:

• Accepting gifts from individuals or external entities with which the organisation has a relationship, including vendors, consultants and governments.
• Accepting entertainment from individuals and organisations which seek to do business with the organisation or influence it.
• Supporting an external organisation through your work, major financial donations, or by lending your name or reputation to an effort.
• Using the reputation of the organisation for personal benefit.
• A direct financial or family relationship with individual or external entities with which the organisation has a relationship.

Best Practices 

Aid agencies are encouraged to introduce and follow best practices throughout the procurement process. A general table of accepted best practices can be seen below:

 

Procurement Planning

Market Categories

The concept of "market categories" allows a more structured way of compiling and combining purchases due to their nature and specifics, and to ensure that the procurement principles are followed while facilitating the procurement process by establishing standards and tools.  In addition, it is possible that the different market categories could have different thresholds. In general, there are four main categories or “markets” humanitarian organisations work with, however variations and additional categories can and do exist.

Procurement Strategy

Any procurement strategy must observe the core procurement principles established by an organisation and should incorporate different procurement plans for programs or projects where needs are pre-identified. Agencies should know what, where and when supplies are needed and choose a supporting supply strategy,  paying attention to the total cost of ownership (e.g., initial purchase, shipping, operation, maintenance and disposal costs), the special field conditions and the actual ability to acquire and deliver materials and services needed. If agencies do not approach procurement strategically, they run the risk of not being able to accommodate all needs, fail to comply with budgetary restrictions, and run financial, reputational or even security risks.

A strategy has to be flexible and ready to be revised with changing conditions, changing requirements, or changes in the context surround the organisation. Each intervention must to have a separate procurement plan that reflects the minimum information on the anticipated needs, allowing:

• Improve sourcing and thereby increase competition.
• Mitigate the risk of redundancy, reducing transaction costs and prices through the consolidation of procurement actions.
• Increase the efficient use of resources by avoiding last minute actions.
• Prevent non-compliance with regulations, rules and procedures due to oversight or time constraints.

Procurement plans are the basis of any procurement process - they must be prepared before the start of any action, program or project, and must be based on analysis of budget, beneficiary numbers and activities. The exercise is a common effort among all the participants, including project and programme staff, logistics personnel involved in procurement, and finance staff who control budgets. The plan should formalise the following details:

• Description of goods/services to be procured.
• Estimated costs and quantities of the needed goods and services.
• Categories of goods and services.
• Solicitation methods.
• Target delivery dates (timeline/schedule).

It is possible that aid organisations cannot not foresee all needs throughout the project duration, and that any given plan may undergo major or minor modifications due the changing conditions. There are usually recurring requirements that can be anticipated, however, and there are some reasonable estimates that can be based on past experiences from where planners can extract information.

It is key to clearly define the requirements for every needed good or service at the planning phase. This enables persons enacting procurement to better understand the function, performance and technical specifications that will be required to cover the requester needs, how to determine the best solution to fit them, and how to establish the evaluation criteria to assure the quality standards.

Common Documents in Procurement

The following documents can have different names in each organisation.

Documentation Management

Each specific purchase will need to be in compliance with each organisation's own procurement procedures and donor requirements. Every procurement process must be justified and thoroughly documented, having its own dossier containing all the documents related to a procedure. A procurement dossier can be thought of as a set of documents that justifies the steps taken in a particular procedure. Not all dossiers will be the same in volume and complexity, but all dossiers should be preserved for later use.

A proper filing system ensures that records are properly maintained during a fixed period of time for internal and external use. 

• Internally - An adequate filing system increases efficiency and reduces wasted time during the preparation of reports and audits. The appropriate file reflects the principles of the Organisation and provides Professionalism and Transparency.
• Externally - The organisation is responsible for justifying the acquisition, use and disposal of materials, services, equipment, etc. to donors.

A filing system has no value if the documents are not duly completed and signed. Only employees to whom such responsibility has been formally assigned should be authorised to sign documents. Those employees must understand the meaning of their signature in terms of their responsibilities and consequences for the organisation. Files must be kept for months or years, depending on donor requirements or internal audit guidelines. 

Standardisation Tools

Codes

Most of the forms handled by logistics personnel have or should have specific codes (references) that allow them to be connected and subsequently tracked. Typically, a form includes its own reference for easy identification, as well as one or more references to link it to the other documents. Forms are filed according to their references, and the proper use of references has a direct impact on the archive. When someone (internal or external) needs information about the history of our operations, the correct use references (encoding) facilitate access.

These codes might include information about the country, the office and the department requesting the purchase plus a running number.

As an example, a purchase requisition for the logistics team in Rome, might follow the below convention.

When written, the code might look like:

This short hand code will allow any person to quickly identify documents and know at least some level of information about the document. The order types of information are specific to the agency managing the files, however. Some agencies may wish to use the date as a unique code, while others may choose to use a running number sequence. Also - some agencies prefer to have unique number sequences for each document type (PR/PO) while others may want to have singular numbers that do not change throughout the different documents within the dossier. The need for each will be specific to individual agency's needs. 

Labelling

Large volumes and types of documentation are common in emergency response. Labelling each folder and/or box in the most harmonised way possible with the thought process of who will coming after the initial response phase is important. The common archiving approach allows documents to be tracked more easily, while also allowing sensitive files to be identified faster in an emergency. All related folders must be clearly labelled and separated using a colour, number, or other identifiable pattern, and stored in a safe, dry and secure location. Electronic filing systems should match paper files.

In volatile context, with all the external and internal challenges and taking in consideration the capacity to impact the local market that the humanitarian aid has, is critical to have and implement standards over the whole process that could guide and ensure procurement principles are followed. Every coherent procurement process will have six basic steps.

1. Sourcing and Identifying Vendors
2. Product/Service Requisition 
3. Solicitation 
4. Evaluating and Awarding
5. Ordering and Contracting
6. Reception and Payment 

Sourcing and Identifying Vendors  

Procurement actions are based in a fair and transparent competition among different suppliers. Some form of market research should be done in order to collect information about the desired product and the potential suppliers that could potentially provide it.

Market research is used to identify suppliers, assist in the development of Technical Specifications, TORs and SOWs, ascertain freely available pricing information (e.g., company catalogues) and obtain information on available technology (WFP Goods and Services Procurement Manual, 2020).

It is convenient to have a supplier database from which quotes are requested. If no such database exists, it is advisable to create one. A supplier database needs to be updated routinely, and agencies may look to platforms or sources of information such as:

• Specialized journals
• Chambers of Commerce
• Business meetings and seminars
• Professional associations
• External supplier rosters
• Online communities
• Yellow pages
• Search engine research
• Others

In the process of identifying suppliers, agencies may wish to follow a formal process. Many agencies issue official documents, including:

• Request for Information (RFI)
• Request for Expression of Interest (EOI)

These formal requests should be based on templates that will allow users to build a more accurate view of the product or service and their availability in the context of operation.

Product and Service Requisition

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, they should be formally communicated to the organisation´s procurement team, usually through a formally defined a Purchase Request specifying:

• The requesting unit.
• The requirements, including the criteria for evaluation.
• The quantity.
• The Estimated cost or the maximum authorised amount to be spent (If possible).
• The delivery date and location.
• Confirmation that funds are available.

A key component of any purchase requisition should be the inclusion of technical specifications. There are many ways for suppliers to define technical specification. These might include:

In other words, the requester should provide all information and fill out forms as agreed during planning. If a pre-plan was not done, the request may have some delays while the feasibility is assessed.

The PR is usually the standard and official form to request a purchase. The PR is where the different members involved in the procurement process combine and validate the details, turning requests into actual procurement:

• The requesting unit undertakes that all information included in the PR is accurate and sufficient. Attaching detailed specifications if necessary.
• The procuring unit undertakes to provide the requested goods or services as established in the PR respecting quality, price and lead time.
• The financial unit undertakes to release the available funds.

One of the best ways to assure that each request is well presented, understood and agreed among all the units involved in the process  is to create a coordination space to do it. The usual coordination tool is the implementation of a recurrent meeting between requesters, heads of unit, and the procurement team 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 offers are solicited and received impacts 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. Specifications of required products or services must be clear, and the terms of the requested bid must be well defined.

Supplier selection criteria must be established and communicated clearly and in advance to suppliers, ensuring equal treatment. It is important to take time to establish and/or understand the selection criteria since the supplier selection criteria cannot be modified or changed, once communicated to the suppliers.

The documents involved in the solicitation process can be different depending on the type of competition that applies (see Procurement Procedures) and the nature and complexity of the good and services being procure. It is important that all documentation contains details on procedural, technical, financial and contractual components, which suppliers must follow when submitting their offers. These documents are based on templates, customised to fit the specificity of the procedure undertaken and completed with the details applicable to each solicitation.

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

Material Specifications 

When soliciting material goods, it's advisable to include as much technical information as possible about the material specifications, laid out in a clear and transparent format that is easy to understand but difficult to misinterpret. Material specifications might include:

• Unit measurements (weight, volume).
• Packaging measurements (weight, volume).
• Colouring/Visual appearance.
• Chemical composition.
• Conformity to specific ISO standards.
• Strength/durability.
• Packaging and handling specifications.
• Branding and marking specifications.

Following Specifications Throughout the Procurement Process

These material specifications should be included in:

Solicitations - The more detailed the specifications, the more accurate the returned bids will be. Detailed specifications will help eliminate vendors that are unable to meet the specific requirements, but will also encourage vendors to only commit to what they know is possible. 

Contracts with suppliers - Material specifications included in contracts will legally hold vendors to the standards set by their bids. The material specifications in contracts should match the specifications provided in the bid process.

Instructions to third-party inspection companies - Once a vendor is selected, and a contract agreed upon, third-party inspection companies can be used to test products against the contracted material specifications. Inspection companies may use visual inspection or laboratory testing to confirm all material specifications are met. Many agencies prefer to receive prototype samples of items prior to the final order, and conducting inspection at multiple points throughout the entire process. Purchasers may also chose to withhold payment until the final inspection is complete. 

Specification Types

Detailed specifications will vary depending on the item in question, the agency, the size of the procurement, and the market supplying the product.

 

Many large agencies that regularly procure typical relief supplies have material specifications readily available, including the ICRC/IFRC Catalog and the Oxfam Supply Center.  These material specifications are useful as a reference point for any agency that wishes to enter into contracts for emergency relief supplies. 

Example Material Specifications:

 

Source: ICRC/IFRC Standard Products Catalogue

Evaluation and Awarding

Many agencies may choose to use what is known as a bid evaluation committee/panel to properly facilitate the process of analysing 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. An 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 procedures, it is common to form evaluation teams at the very beginning of the process, formalising the process by signing a “Declaration of Objectivity and Confidentially” and /or a “Disclosure of Conflict of Interest”.

The offers should be evaluated using the criteria and specifications of previously communicated PRs/bid solicitations, or any other part of the process prior to receiving bids.  Common offer evaluation criteria might include:

• Competitive prices.
• Ability to meet specifications and standards.
• Product availability and ability to meet the requested delivery date.
• Product and service quality.
• Performance and durability of products.
• Reliable delivery methods.
• Quality control methods and practices.
• Technical and leadership skills.
• Ability to provide niche or unique products and / or to design concepts.
• Financial stability and credit.
• Payment conditions / requirements.
• Compatibility with existing products.
• Distribution / storage facilities and adequate resources.
• Availability of spare parts.
• Guarantee, insurance, and supply commitment.
• Proven ability and experience.
• Availability of service support resources.
• Previous experience and demonstrated performance in supplying the products / services to be purchased (to be verified in previous certificates of compliance. So, “bad past experiences” must be documented).
• Security.

All evaluation criteria should be:

• Objective - criteria that are verifiable and designed to measure facts rather than assumptions and promises from the supplier. Objective criteria are tangible, with little likelihood of being construed differently by different suppliers.
• Unambiguous - there should be no confusion or overlap in the criteria selection, description and evaluation.
• Reliable - clear and measurable criteria that can be evaluated consistently across multiple submissions and evaluators.
• Fair - criteria that does not unduly exclude suppliers from the procurement or give undue advantage to a specific supplier.
• Balanced - criteria with appropriate and defensible when viewed objectively in the context of the procurement action.

During the evaluation process, it is necessary to balance various tangible and intangible factors, some of which may conflict with each other. Methods for determining the extent to which a potential supplier can meet the criteria include:

• Visits to the supplier by the management and/or evaluation team (to visit the factory, warehouse, stock, production equipment and supplier equipment).
• Confirmation of the status of the quality system, either through an on-site assessment, a written report, or by requesting a quality system registration certificate as ISO certification or any other.
• Conversations with/recommendations from other NGOs served by the provider.
• Obtaining financial reports available to the public (available in some countries) and checking negative files.
• Evaluation (through laboratory tests or validation tests, for example) of samples obtained from the supplier. (see Quality Assurance)

To be able to present the evaluation results, is common practice to make a summary document, either in the form of a comparative table or a full report that has be signed by all the member of the evaluation panel. Any summary document must have a reasoned recommendation on the supplier selection and contain as many explanations as necessary about this selection.

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 complaints.

Ordering and Contracting

Each order has to be formalised through a contract, Purchase Order(PO), or other official award document. 

• POs are a financial commitment that confirms the purchase details (Units, quantity, price, delivery time and Location, etc), formalising the order. The PO is used for simpler orders, one-off purchase and smaller amounts, where there is no need to define any complex situation, and/or where the purchase represent low risks for the organisation.
• Contracts are legally binding agreements between the organisation and the suppliers. They define the Terms and Conditions for the goods and services provided, as well as the signatories related rights and obligations. Contracts are used when there is a need to specify the conditions in a complex order (partial deliveries, different timings or location, special conditions of the product, high financial volume or potential risk for the organisation, etc) and always for a work or a specialised service.

Hay una variedad de formatos y tipos de contratos utilizados para diferentes tipos de servicios y bienes, y diferentes plazos de entrega. Una lista de algunos de los tipos más comunes podría incluir:

Of the contract types, contacts can generally be broken down into two categories:

Some agencies my prefer the use of some form of a Long-Term Agreement (LTA), where by a supplier is pre-vetted using a standard solicitation process, but has an open-ended contract for delivery of goods and services. Requesting agencies holding LTAs with vendors can use simple notifications for procurement needs, such as a PO, specifying units, quantities, delivery details, and other important information. The theory behind an LTA is that a single supplier used for routine procurement can be competed and vetted once in a pre-set period of time instead of having to bid every time. 

The act of signing the PO - and the organisation´s Terms and Conditions - by the supplier makes the PO become a simplified contract. An organisation should establish a threshold beyond which the relationship can no longer be formalised through a PO and a contract becomes necessary. Irrespective of the procurement method, each organisation´s Terms and Conditions (TC) must be applied, and it is advisable to attach TCs to all contracts and POs. 

Reception and Payment

The order documents (PO or contract) must clearly indicate the delivery conditions. Delivery conditions detail who will assume responsibility for moving goods, when and where the responsibility for the products is transferred, and all the necessary details to plan transport and logistics.

Delivery planning involves the review and consideration of all logistics related aspects of the procurement process. It starts at the needs assessment phase by considering the desired result of the Requesting Unit and the end user and identifying the actions needed to ensure the successful completion of the activity. (WFP Goods and Services Procurement Manual, 2020)

The transfer of responsibility between the seller/carrier and the agency is an important moment in the procurement process. The transfer of responsibility can be done at the manufacturer/seller premises, or be undertaken fully by the supplier who will be responsible transporting the cargo to the agreed destination. An agreed destination can be either an agency's premises, warehouse, or in special cases directly to the beneficiaries. The most standard used method of defining the method and location of the transfer of responsibilities is through defining Incoterms in the procurement contract. Incoterms are only applicable for international procurement however, so the transfer of responsibility in domestic procurement may need to be spelled out explicitly. In every case, the transfer of responsibility has to be clearly recorded through the standard set of shipping documents.

For simpler deliveries, or when the supplier delivers to final destination, is common to use a Delivery Note that must contain at least:

• The name and contact details of the seller.
• Name and contact details of the purchaser.
• Date of issue.
• Date of delivery of the goods.
• A description of the goods contained in the order.
• The quantity of each type of goods.

When goods are delivered, the recipient should perform a physical inspection of the packages against all delivery documents to ensure that they fully conform to the requirements of the contract, by checking:

• The Quantity - That the number received is the same as the one written in the documents and correspond to number requested in the PO.
• The Quality - That the product received is in the conditions mentioned in both the shipping documents and matches what was defined in the procurement contract, is not damaged and corresponds to the ordered specifications.

If any discrepancy is found in the quantity or quality,  it should be recorded in writing on the delivery documents. Without written statement taken at the time of delivery it will be very difficult to claim later the products did not conform to the order.

The transfer of responsibility becomes effective when the representative of the organisation signs the Delivery Note. The signed Delivery Note, the PO and the Commercial Invoice will be the minimum mandatory documents to process payment. In the case that the supplier/carrier is not able to provide any delivery document nor even a Delivery Note, agencies may wish to create and sign a Goods Received Note (GRN), formalising the transfer of responsibility of cargo and stating any discrepancies. Agencies generating their own GRNs should still request the delivering supplier or the supplier's duly appointed transporter to countersign.

A procurement procedure is an internal process established by every organisation 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. Procurement procedures ensure objectivity during the supplier awarding process. The awarding criteria themselves will need to be adapted to the context, program needs and donor regulations.

A standard procurement procedure involves the following major steps:

• Suppliers’ survey and /or publication (tender, Expression of Interest).
• Collection of technical/financial offers.
• Internal review of survey (offers analysis and comparison).
• Approval of the supplier selection.
• Review of the documentation and financial commitment authorisation.
• Publication/Communication of results.
• Order and/or contract’s signature.
• Receipt/transport of the purchase.
• Payment to the supplier (based on previously agreed conditions).
• Final update, review of purchase dossier and its archiving.

Purchases are accompanied by significant cash flows, so agencies must take into account the impact they have on local markets, and the effect they may have on the beneficiaries. 

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 organisation’s risk tolerance. The threshold set is continuously respected throughout the normal operations and reflects donor and INGO requirements. (PARCEL Project, Procurement)

Although each organisation and/or donor use different terminology, they all share the same logic and basic principles. For the purpose of this guide the names of different procedures will be as follows:

• Direct Purchase 
• Competitive, Negotiated Procedure
• Tendering

Direct Purchase or Single Quotation Procedure

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

The unit or person responsible for procurement will buy from the most advantageous supplier identified in the supplier catalogue. If the ordered good or service is not listed in the supplier catalogue or is new, it is good practice to ask a supplier for an RFI that will help purchasers more accurately plan the procurement. The unit or person responsible for procurement should contact the supplier to confirm the price and assure the criteria of satisfactory quality, delivery times, competitive market prices and correspondence with the available budget.

A purchase dossier might contain:

• The fully signed Procurement Request that initiated the process.
• The Purchase Order signed by the relevant persons.
• Copy of the invoice.
• Proof of delivery of the items might include one of the following:
  • Supplier’s Delivery Note.
  • Internal Reception Note when delivered without supplier delivery note.
  • Internal Delivery Note when delivered to the requester without supplier delivery note.
  • Original invoice, ideally with some form of formal approval written on it.

Competitive, Negotiated Procedure

Comparative bidding is the process of soliciting cost/project proposals for products, services or works from “bidders". The selection criteria must be established and communicated in advance to potential bidders. For procurements of higher amounts, more information is usually required to objectively evaluate and justify cost effectiveness. A documented comparison of prices and purchase conditions should be carried out prior to the purchase itself.

Once the terms of the purchase request have been agreed, an official and detailed RFQ must be prepared in writing, which will be sent to multiple suppliers (most organisations use at least three different suppliers), or the sufficient number of candidates to ensure genuine competition. The RFQ should ideally set a date for the offer’s delivery, list the technical specifications, and detail the selection criteria that will apply to the process. In the event that the minimum number of quotes cannot be obtained, as a good practice the purchaser should attach copies of the quote requests sent to the different suppliers as evidence all efforts were taken properly. All quotations must be complete and must clearly indicate the name and address of the suppliers, as well as the offer validity.

Some agencies make exceptions in cases where a quotation from a supplier is exactly the same as a previous purchase and the supplier quotations are still valid.

Example: A quotation for Submersible pumps in ACF-Syria 2016.

Quotations are analysed based on the selection criteria mentioned in the RFQ and the results will be presented in a bid matrix. The supplier selection is generally the joint responsibility of person or team managing procurement and the person or team making the request for procurement. 

Before the financial commitment becomes effective, some agencies choose to add an additional layer of validation, whereby the heads of the procurement and financial departments approve the purchase, certifying that both the process followed and the financial allocation are correct. In the case of contracts with a high amount, the validation of the pre-identified relevant persons is usually mandatory.

A purchase dossier ideally should contain:

• The fully signed Procurement Request that initiated the process.
• 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, ideally referencing the solicitation number or other tracking number. 
• Proof of delivery of the products:
  • Supplier’s Delivery Note.
  • Reception Note when delivered without a supplier delivery note.
  • Internal Delivery Note when delivered to the requester without a supplier delivery note.

Public/Open Tenders

Unlike the negotiated procedure where an organization recognises at least three (3) potential suppliers from whom it requests a quote, a public or open tender is the process of opening bids to the public and inviting anyone to submit an offer. Offers are evaluated by a tender evaluation committee created at the beginning of the process. It is strongly advisable that all members of the evaluation committee and the employees involved in the bidding process are obliged to understand and sign some sort of declaration of objectivity and confidentiality or a similar document.

All documents necessary for the tender must be prepared and have been verified before the start of the tender. These documents are generally sent to headquarters for approval prior to the publication of the tender. An open national tender might consist of:

• Creation of the evaluation committee.
• Definition of the supplier selection criteria.
• Tender Notice publication in the media.
• Sending the Tender Dossier/RFP to interested suppliers who have requested it.
• Complete the List of applicants and bidders.
• Evaluation of all bids received using some sort of evaluation report.
• Awarding a contract to the chosen provider and inform those not chosen.
• Signed contract.

A Purchase Dossier might include:

• Declarations of objectivity and confidentiality.
• Any waiver (ex. nationality and provenance of the goods).
• Copy of the newspaper/ website carrying the Call for Tender.
• Participation requests.
• Tender dossier.
• Opening session minutes.
• Offers received.
• Tender evaluation report with comparative table.
• Tender report.
• The HQ’s authorisation of the award.
• Signed contract and any subsequent addenda.
• Report of acceptance of goods or completion of services and/or works.
• Commercial invoice.
• Delivery notes.
• Payment.
• Payment receipt.

The tenders could have a different geographical scope, allowing only local economic operators to see and submit and offer, or allow anyone nationally or internationally to present their offer. Things to consider when selecting geographical restrictions include local economies, the efficiency in the process, ethical standards and environmental care while assuring the availability of the product/service in the terms that are needed by the organisation.

It is also possible to make tenders:

• Open - where all interested suppliers may submit a tender
• Restricted - only suppliers within a pre-defined scope or category may take part.

Setting Thresholds

The concept of "thresholds" is key to determining appropriate procedures to apply. Thresholds ensure the principle of proportionality between the purchase market cost and the level of effort required to obtaining the best purchase conditions.

Thresholds work by defining a dollar value at which higher levels of signature or approvals are required. The higher the value of the procurement, the higher the approval authority and the more detailed the procedure to be applied.

As an example, an agency may wish to set a threshold at $500 USD:

• Below $500 USD, only a local logistic officer and requester are required to sign off, and only a PO is require.
• Above $500 USD, the head of base/mission and/or the head of finance may be required, and a competitive bid may be required.

The nature and limit of each threshold will be determined by individual agencies, based on their own financial oversight needs and guided by:

• Donor regulations
• Country/national level requirements
• Internal organisational audit procedures 

The level of thresholds and the required procedures should be included in each agencies' procurement manual or procurement policies. 

Comparative Table Different Procedures

Following the proportionality principle, it is advised to increase the complexity of bidding and evaluation if the total amount is higher that the value of the proposed procurement.

 

Bid Splitting

"Bid splitting" is the act of artificially splitting a bid among several smaller purchases instead of a single large purchase. Artificially splitting a bid within a budget is usually done to avoid a relevant procedure, and is considered a bad practice and may constitute fraud.

Bid splitting becomes fraudulent when the objective of the persons managing procurement is to apply a less restrictive procurement procedure than what best practice or agency wide procurement procedures might advise. Splitting a bid may not always be fraudulent when circumstances necessitate it for security, cost-effectiveness, and other justifiable reasons. Any 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 organisation 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.

Any person or team responsible for procurement must be familiar with donor procurement-related regulations at all stages of the project cycle and ensure that a organisation fulfils its contractual obligations to the donor. Among other actions, the procurement unit must verify if the donor has specific rules on thresholds and procurement procedures, as well any specific regulation applicable to the acquisition of medical or agricultural products, equipment, etc.

1. General regulations donors:
   • Donor thresholds.
   • Nationality and/or origin requirements of products.
   • If donor approval is required (evaluations, audits, etc.).
   • Specific regulations for specific products (medicines, medical supplies).
   • Sanctions or anti-terrorism controls
   • Denied entities to procure from.
   • Possibility of using HPCs (Humanitarian Procurement Centres).
2. Specific regulations pertaining to any agreement signed with the donor.
3. Expense eligibility or contract start and end dates – allowing time enough for the procedure to take place and the goods/service to be delivered.

“Market analysis is a key component of response analysis; it informs the design and implementation of appropriate interventions using and supporting local markets” (The Cash Learning Partnership, Minimum Standards for Market Analysis (MISMA))

In a crisis context the humanitarian sector has an enormous capacity to impact the local market. It is important to act based on humanitarian principles and values and keep in mind the concept of “Do not Harm”. Market analysis is an essential component of context analysis, collecting information that will be useful to program the intervention and how to implement it. It is also a critical element of contingency planning and preparedness.

Key factors in a market analysis:

• Nature and origin of the products offered.
• Local manufacturing capabilities.
• Main local products.
• Storage capacities of suppliers.
• Transportation routes and potential risks to stock.
• Knowledge of the relationships between the different agents.
• External, political, meteorological factors.

Video file

Source: IFRC

Tools

There are several key tools from where the information about the market can be extracted.  As an agency or individual conducts procurement, there is a large volume of information that will help to analyse the market that surrounds the organisation. Humanitarian agencies should to conduct revised market assessments as needed.

• List of suppliers - Many persons may be involved with procurement in a single agency. It is highly suggested to keep a catalogue of suppliers where basic information about the products they offer can be found, as well as past experiences or any other relevant information.
• Request for Information (RFI) and Expression of Interest (EOI) - RFI and EOI are Documents through which information will be requested from suppliers to make their offers official, but also through which can be carry out the market analysis of a specific product. 
• Purchase tracking - Any system used to track the current status of procurement, and inform other departments about the status of their requests and in general. 
• Price list - Track historical procurement costs, inform planning assumptions, and track the evolution of the costs of goods and services on the market. 

Supplier Analysis

Sometimes it is difficult to get an idea of ​​a supplier only through official bid documents. Purchases may want to visit the suppliers in their workplace, especially when agencies intend to start a lasting relationship with a given supplier. Do not underestimate the power of an in-person conversation, or the details that can be learned by knowing their facilities.

Helpful steps to follow:

• Establish a first contact with the supplier.
• Analyse supplier capacity and professionalism: number of workers, work methods, general cleaning, etc.
• Analyse the products or services available. Where does the supplier buy the product or raw material? How are products delivered? Can they import better/cheaper products?
• Understand the supplier's business model, its challenges, its sources, its problems.
• Gather information that would never otherwise be reflected on paper.
• Identify other possible selection criteria in addition to price.

Supplier Ineligibility

It is strongly advised to excluded suppliers from any procurement for any of the following reasons:

• They are bankrupt or are ceasing activities.
• They have been found guilty of serious professional errors.
• They are found to engage in child labour, sexual exploitation and abuse, slavery, bribery, gross environmental negligence, or undue worker safety. 
• They have not fulfilled obligations related to payment of taxes as per legislation of the country or in the country benefiting from the contract.
• They have been tried and finally convicted for fraud, corruption, participation in criminal organisations or any other illegal activity.
• They have been declared seriously in default for failing to observe contractual obligations in other purchase procedures made with the organisation.

As evidence proving that potential supplier does not come under one of the above-mentioned situations, the candidate supplier shall submit at least one of the following documents:

• A recent extract of judicial records.
• An equivalent document issued by a judicial authority.
• An affidavit testifying that the supplier respects basic social rights and working conditions and does not exploit child labour.
• Affidavit sworn by the company’s legal representative before an administrative or legal officer, an auditor or a qualified body in the country of origin or provenance.
• Self-certification on the above-mentioned judicial status.

Background checks are strongly advised prior to contracting with an agency:

• Where possible, agencies should conduct background checks on vendors and suppliers using the available local means.
• Some donor agencies require screening of vendors against additional international lists pertaining to criminal activity or terrorism.
• Aid agencies should always ask for references from other known sources who may have procured goods or services from the identified supplier in the past.

Contracts should not be awarded to bidders who during the procurement procedures:

• Are subject to a conflict of interests.
• Have omitted to supply the information requested by the organisation as a condition of participation in the procurement procedures or they have supplied untruthful information.
• Are guilty of corrupt practices, fraud, collusion or coercion.

Supplier management is a set of principles, processes, and tools that can help organisations maximise supplier relationships, minimise risks, and manage overheads throughout the entire relationship life-cycle. Active supplier management entails creating closer and more collaborative relationships with key suppliers to achieve greater value and reduce risks.

It is important to know specifications of the products or services required, the legal framework for their acquisition and their availability in the market. Not taking these three concepts into account increases the risk of not finding required items, procuring incorrect items, or not respecting local norms and behaviours when purchasing them.

The objectives of an effective supplier relationship management are to:

• Foster long-term relationships and joint value creation.
• Prioritise resources and interaction with suppliers that can provide the greatest value for money.
• Ensure measurement of quality and service levels.
• Develop a consistent mode of interaction with suppliers across the organisation.
• Ensure fairness, integrity and transparency.

Process

Supplier Registration

It is strongly advised to register suppliers who meet key criteria, including assuring that:

• They have legal personality and legal capacity to enter into a contract.
• They shall have sufficient financial capacity (where required, the last two years audited accounts) to successfully undertake a contract awarded by the organisation.
• The products or services offered must be of interest to the organisation and the supplier must have the necessary professional and technical competence.
• The supplier must not be on any sanctions list and has not performed fraudulent, unethical or illicit acts.
• The supplier shall have the adequate experience.

For certain categories of goods and services, or in certain country specific contexts, suppliers may be required to meet additional/different criteria in order to be registered.

Supplier Catalogue

A supplier catalogue is a tool where every supplier is registered and all the information about their relationship with the purchaser is stored. 

Supplier Management Tools

Once supplier(s) are identified, it is useful to:

• Define the exact needs and what you want to negotiate.
• Understand exactly the supplier offer/bid.
• Know your supplier and the market.
• Manage the timelines for delivery of goods and services.

The objective of any negotiation is to achieve a “win to win” situation. If one party in a negotiation does not feel benefited in some way, the relationship tends to break down. 

When entering negotiation, it is important to have at least two real possible outcomes to choose from; this will make the negotiation more efficient by having a margin of safety and not feeling/establishing a dependency relationship.

An agreement between the two entities must be formalised, the obligations of each party clearly established, and a mutual understanding of what should be expected from the relationship well understood. There should be well understood steps to take in case of non-compliance to help avoid conflict. The best way to improve working practices in a supply chain is to work hand-in-hand with suppliers to help them to implement achievable improvements.

There are two main tools to manage the relation with a supplier:

• Contract
• Long-Term Agreement (also called Framework Agreement)

Contracts

A contract is an agreement with specific conditions between two or more people or entities in which there is a commitment to do something in exchange for funds. The existence of a contract generally requires the following elements:

1. An offer.
2. The acceptance of that offer.
3. A commitment to carry out.
4. A consideration (which may be a promise to pay in some form).
5. The moment or the situation in which this commitment has to be carried out.
6. The terms and conditions of execution, including the fulfilment of the commitment.

Everything that is worth mentioning must be included in the contract, including the technical quality of the product or service, through the form and conditions of payment, to details about compliance. What is not included in a contract cannot be enforced. It is advisable to dedicate enough time to develop a good contract with mutual agreement with a supplier. 

It is advisable to build a contract template, with as fixed a structure as possible, and with simple and direct language. It is common to review the signed contracts to resolve doubts and knowing the structure of our contracts helps to save time. A good practice is to have any contract template reviewed by a local lawyer, who can ensure any contract term is in accordance with the law, and who could advise on local customs and practices.

In the event of any contract dispute, the agency must communicate with the supplier in question. If necessary, a friendly discussion is always preferable. Most conflicts with a provider are resolved with dialogue and the commitment to resolve small details, but this discussion should be formal, including a lawyer if necessary.

Going to court should be avoided whenever possible. Having good contracts that anticipate how possible breaches will be resolved is key. The use of financial penalties is useful during negotiation and a tool in case of conflict.

Long Term Agreements (LTAs)

A Long Term Agreement, known as well as Framework Agreements, establish the commercial terms and conditions that will govern between the supplier and the procuring agency in the event that there is a firm order for the goods or services established in the agreement. An LTA aims to define the commercial conditions that will apply to the purchase of specifically determined goods and for a pre-established period of time. LTAs are especially relevant for small, low-value and less complex items purchased on a regular basis, such as office supplies, most spare parts, cement, prepaid mobile phone service, etc.

An LTA is applicable when several deliveries are expected, but neither specific quantities nor delivery dates can be foreseen. It is important to understand that a LTA is not in itself considered a purchase commitment, but simply sets out the conditions that would apply if the organisation decided to place an order. There is no commitment or exclusivity!

To avoid confusion and possible conflicts, it is essential to make it very clear to suppliers from the beginning of the bidding process that the objective is to sign a LTA and not a regular purchase contract. It is important to ensure that bidders understand the difference between these mechanisms. Since there is no exclusivity, an LTA can be signed with two or three different suppliers of the same products, under identical terms. 

There are certain advantages inherent in the LTA that make it useful in any agency purchasing strategy, such as avoiding the repetition of processes and the corresponding paperwork for the same item throughout a project. Being by definition a larger purchase, organisations can get the best product/service at the best price in the shortest amount of time.

As a lasting relationship is established with the supplier, it is possible for agencies to work on the quality of the products/services that they offer to organisations, since agencies will be able to develop the relationship with suppliers to better understand needs and ways of working. In addition, sometimes LTAs are the only way to follow the correct procedures when only a short time is available. Organisations can follow all the procurement process without any requisition, being in a position to respond to requests in less time.

Quality assurance (QA) is a procedure to ensure the quality of products or services by preventing mistakes and defects in manufactured products and avoiding problems when delivering products or services to beneficiaries. It is based in two principles:

• Fit for purpose - The product should be suitable for the intended purpose.
• Right first time - Mistakes should be eliminated before they happen.

QA focuses on improving a process and making it efficient and effective as per pre-defined quality standards. QA plays a role in the ability of an organisation to self-assess and ensure that internal processes are efficient and effective. It also ensures the existence of mechanisms and tools to ensure suppliers and products meet agencies needs.

For internal and external evaluation, the QA complete process has a defined cycle called P.D.C.A. The phases of this cycle are:

• Plan - Organisation should plan and determine the processes that are required to deliver a high-quality end product.
• Do - Development and testing of processes and also "do" changes in the processes.
• Check - Monitoring of processes, modify the processes, and check whether it meets the predetermined objectives.
• Act - Implement actions that are necessary to achieve improvements in the processes.

Sometimes organisations do not have the capacity to assess in these terms for each supplier, however there are audit companies and standard certification organisations that can. Agencies should seek these third-party agencies out and/or include those certifications as criteria for vendor selection.

Standard Certifications

There is a wide range of quality certifications, from seals applicable to an entire sector or to a specific product to, those that certify the quality of a process or those that focus on compliance with ethical and environmental standards. Some have great added value, others have more to do with marketing. They can have a national value or be internationally recognised. Although each stamp can be useful, International Organisation for Standardisation (ISO) standards are the considered the recognised international best practice.

ISO is an independent, non-governmental Organisation created in 1946, and has been developing standards relating to manufacturing, managing  processes, delivering services or supplying materials.

Some of the most useful in the humanitarian sector are the following “families” standards:

• Quality management standards to help work more efficiently and reduce product failures. (ISO 9000 Family)
• Environmental management standards to help reduce environmental impacts, reduce waste and be more sustainable. (ISO 14000 Family)
• Health and safety standards to help reduce accidents in the workplace. (ISO 45001 Family)
• Energy management standards to help cut energy consumption. (ISO 50001 Family)
• Food safety standards to help prevent food from being contaminated. (ISO 22000 Family)
• IT security standards to help keep sensitive information secure. (ISO 27001 Family)

Buying a product with an ISO certification and/or to a company that has been ISO certified is a guarantee that the product or company has followed a quality process. Not all suppliers have ISO or other kind of certifications, especially in low income, disaster or conflict settings. Without these standards in place, agencies may need to look for other sources of information to assure the quality before or during establishing a relation with a supplier.

Vendor Social/Financial Audit

A social/financial compliance audit, also known as an ethical audit, is an inspection of an external organisation that verifies whether the supplier operations complies with social and ethical responsibilities, health and safety regulations, and labour laws. These audits help to judge if a supplier meets the organisation code of conduct, assuring the ethical policies.

A Financial audit can be complemented with the country fiscal year declaration and/or with bank statements that will help to evaluate their solvency.

Due to the "snapshot" nature of audits, and the fact that they are not designed to identify the causes or solutions of problems, they are limited in what they can tell about the suppliers’ working practice. For that reason, getting maximum benefit from audits involves being aware of these limitations, and adding the right questions to complement them.

Inspection and Quality Control

Agencies should schedule time and resources to perform inspection during the product evaluation, before the order, or during reception.  Quality Control (QC) is a continuous, standard and permanent process until the distribution/delivery to the beneficiaries, therefore must to be performed periodically while a product is the warehouse or under the organisation responsibility. Sometimes, QC is confused with the QA. Quality control is used to examine the product or service itself. Quality assurance is to examine the processes and make changes to the processes which led to the end-product.

• Visual Inspection – If a vendor supplies prototype sample prior to final delivery, organisations or specialists may wish to visually inspect and test the product, either at the vendor premise or at another off-site location.
• Laboratory Testing – In addition to visual inspection, agencies may wish to employ third-party laboratory testing. Lab testing may include testing for chemical composition (for durable construction materials or for pharmaceuticals), may test against pre-defined ISO standards (such as flame retardancy of NFIs) or even the quality of food stuffs.
• Third-Party Inspection – Many agencies wish to employ third-party inspection companies to carry out quality assurance. Third-party inspection companies will generally conduct lab and visual product testing, but may also visit suppliers' warehouses and production facilities throughout the production process to ensure full compliance. Organisations that utilize third-party inspection services may want to include the obligation of suppliers to allow third-party inspection companies into production sites without advanced notice to enhance the randomness of the process.
• Provision of Certification – Simpler than conducting independent laboratory testing, suppliers may be asked to produce certificates indicating conformity or quality. Typically, this pushes the cost and complexity of laboratory testing onto the vendor, but may also lead to forgery or fraud as the inspection process is out of the hands of the procuring agency.

It is strongly advised that product inspection must also be conducted once the procuring agency takes possession. Not only should products be inspected the first time they are delivered, they should be reviewed throughout the delivery process. For large orders that may have multiple or ongoing deliveries, product substitution can be and is a real problem. Some vendors may unscrupulously swap legitimate products for false, inappropriate or incorrect products later down the line. Without ongoing vigilance, even fully tested and certified products may not actually show up.

 

Corporate fraud in any organisation runs ethical risks and leads to waste. In the case of non-profit institutions dedicated to tasks such as development or humanitarian aid, it threatens basic elements of their programming and their credibility within the community. Consequently, fraud must be dealt with swiftly and thoughtfully, anticipating events and not only reacting once they have been perpetrated.

Various forms of fraud can be referred to as:

• Fraud is defined as any intentional act or omission, designed to harm others, with the result that the victim suffers loss or damage and / or the perpetrator makes a profit.
• Corruption is the misuse of a power entrusted by delegation, for private purposes, such as personal enrichment or that of a third-party, a friend, a family member. It consists of refraining from doing, facilitating something, or taking advantage of its function in exchange for a promise, a gift, a sum of money, or advantages of various kinds.
• Misappropriation consists of the theft or misuse by any means of a resource or material owned by a third-party.

We can place these three at the same level - they are all improper conduct. This guide will refer to fraud and anti-fraud policies when referring to all three of the aforementioned categories. To deal with fraud, it is necessary to for organisations establish an anti-fraud policy document. Likewise, the entity must periodically assess the exposure to the risk of fraud.

The anti-fraud policy must contemplate three elements:

It is important to be aware that fraud prevention regulations cannot by themselves guarantee the non-existence of fraud. The effectiveness of fraud prevention guidelines relies on the organisation and the individuals that comprise it.

Procurement fraud may include, but is not limited to:

• Collusion between providers -  A group of suppliers work together to manipulate their bids in order to rotate winners.
• Division of the offer - Demand is split into multiple bids to pass through a lower threshold and therefore reduced due diligence supervision.
• Adaptation of the offer - Persons within the agency deliberately draft bid documentation to tailor it to the specific strengths of a specific supplier.
• Price manipulation - A supplier charges a price higher than the one agreed in the contract / framework agreement.
• Product substitution - The organisation obtains and pays for a certain specification, but the supplier provides a lower / different specification.

Key red flags to watch out for may include, but are not limited to:

Related to Suppliers:

• Undisclosed conflict of interest.
• Winning suppliers outsource to losing bidders.
• The last provider to submit a bid wins the contract.
• Offers that look similar on paper, font, colour, spelling errors, printing, etc.
• Inflated invoices or purchase orders.
• The winning bid is higher than the rate from the market.
• The winning bid is identical to the budget.
• Fictitious suppliers or suppliers without existence or physical address.
• Turnover pattern of winners.
• Partial delivery of goods or services.
• Quality of the delivered items differs from the supplied/proposed samples at the bidding stage.
• Qualified contractors do not submit bids.

Related to Personnel:

• Manipulation of the evaluation criteria after the opening of the tender.
• Contracts awarded by single source or non-competitive process.
• Requirements defined in a way that only a specific manufacturer or supplier can meet.
• Multiple purchase requests started in close proximity for similar requirements to avoid boundaries threshold.
• A staff member does not separate duties.
• Excessively narrow or wide specifications.
• Officials do not delegate their responsibilities or they refuse to go on vacation.
• There is no clear information on the presentation of offers.
• Inadequate documentation (no PR, PO, bid analysis and GRN).
• Overly friendly relationship between a provider and any persons conducting procurement.
• Unusually high exemption rate.
• Tender announcements scheduled to match with holidays.

Templates and Tools

TEMPLATE - Bid Matrix

TEMPLATE - Purchase Order

TEMPLATE - Purchase Request

TEMPLATE - Supplier List

TEMPLATE - Tender Report

Sites and Resources

• Sphere Project, Handbook (2018)
• International Review of the Red Cross (2016). Principles guiding humanitarian action.
• ECHO, European Commission Directorate General for Humanitarian Aid (June 2019). Guidelines grant/contribution agreement with humanitarian organisations
• ECHO, European Commission Directorate General for Humanitarian Aid (May 2020). Framework partnership agreement with humanitarian organisations
  • ANNEX III; General Conditions
  • ANNEX IV; Rules and procedures applicable to Property, Supply, Works and Service Contracts Awarded within the Framework of Humanitarian Actions Finance by the European Communities
• ICRC, International Red Cross and Red Crescent Movement (2014). Market Analysis Guidance
• ICRC, International Red Cross and Red Crescent Movement (2014). Rapid Assessment for Markets
• SC, Save The Children; Procurement guidelines
• ACF, Action Against Hunger; Supply Chain guidelines
• PARCEL Project 
• Humanitarian Logistics Association (HLA) 
• Core Humanitarian Standard 
• Universal Logistics Standards in Humanitarian Logistics (ULS) 
• ULS Procurement Handbook. Universal Logistics Standards
• Procurement Standards. PARCEL Project (Partner Capacity Enhancement in Logistics)  
• The Cash Learning Partnership (CaLP)