1. Chapter Two
Procurement process Management
By Belachew Y.(Ast. Prof.)
Date: 21/10/2014

2.  Presentation outlines
 Procurement process
 Procurement planning
 Content of bidding documents preparation
 Overview of contract
 Record management
 Risk management
 Ethics in procurement

3.  Procurement process is a formal way by which products (goods,
services, or works) are acquired by an organization from external
suppliers.
 Procurement process begins with planning and ends with review
of the performance of contract which results into contract close
out or contract termination.
 Every public enterprise shall prepare procurement plan with
detailed time schedule
 Procurement plan is a process of determining the procurement
needs of an entity and the timing of their acquisition and their
funding that the entities’ operations are met as required in an
efficient way
Definitions of Procurement Process
Management

4. Con’d
 The procurement plan shall enable to accomplish the
following objectives;
a) achieve public procurement principles
b) achieve organizational work plan
c) discourage redundant non economic procurement
and enhance organizational efficiency
d) to enhance readiness so that potential threats can
be proactively tackled
o The ultimate goal of procurement planning is coordinated
and integrated actions to fulfill a need for goods, services or
works in a timely manner and at a reasonable cost.

5.  Procurement planning clarifies
 what is needed and
 when it is needed to both user and buyer.
 Effective procurement planning enables the organization and its
staff to work smoothly to achieve the organization’s goals with
 the right quality and
 quantity of inputs in place;
 ineffective procurement planning may result in failure to achieve
those goals, putting in jeopardy the financial regulations and rules
(FRR) and procurement principles and causing damage to the
credibility of the organization.
Con’d

6.  Generally, a procurement plan describes which product will be
acquired from vendor as well as when and how they will be acquired.
It answers the following questions:
 Why do you want to procure ?
 What do you want to procure ?
 When do you want to procure it?
 Where do you want to procure ?
 How do you want to procure ?
 Who does the procurement?
 Are the resources available and from where?
 When will resources be available?
Con’d

7.  Early and accurate planning is essential to avoid
 last minute, emergency or ill-planned procurement which is contrary to
open, efficient and effective and consequently transparent procurement.
 most potential savings in the procurement process are achieved by
improvements in the planning stages.
 Even in situations where planning is difficult such as emergencies,
proactive measures can be taken to ensure contingency planning and
be better prepared to address upcoming / future procurement requests.
 Help to prepare good procurement planning which is essential to
optimize the contribution of the procurement function towards achieving
the overall goals of the organization.
Con’d

8.  Help in the development of Key Performance Indicators (KPIs)
according to milestones and accountabilities set in the procurement plan,
and use of the same to monitor performance.
 Help to have effective and timely solicitation of offers, award of
contracts and delivery of the goods, services and works required.
 Assist to have early requisition to reduce any delays in procurement and
timely delivery to project sites.
 Assist to have early identification of right commodities and quantities to
meet programme needs.
 Enable the firm to have sourcing the right suppliers on time to avoid
cutting corners under rush procurement to meet deadlines or budget
expenditure.
Con’d

9.  Enable to have effective supply strategy and timely programme and project
implementation.
 To avoid unnecessary urgencies, enabling full competition and full
compliance with standard rules and procedures.
 Lead to have sufficient time to fully explore alternative procurement
approaches, such as joint bidding with other organizations and use of long term
agreement of others.
 To strengthened procurement power vis-à-vis suppliers.
 To enable obtaining best prices for aggregate requirements.
 Help to establish criteria to measure effectiveness of the procurement
function.
 help to solve systematic and procedurally correct procurements problems
 Make easy in the development of long term agreements.
Con’d

12. Content of public procurement plan
 Procurement category
 Procurement size
 Financial value
 Procurement procedures
 Major procurement activities and time frame
 Budget requirement and source
 Contract type
 Major players who participate in the procurement process and
their role
 And other specific issues related with the particular
organization

13. Public organizations procurement plan
approval procedure
 The procurement plan prepared by the procurement unit
shall be reviewed by procurement approval committee and
the decision proposal produced by the committee shall be
approved by the top level manager/director
 Top level manager of public organizations shall establish a
system which enable to realize the procurement plan and
follow up its implementation

14. Public organizations procurement plan
approval procedure
 The approved procurement plan shall provided to
concerned bodies of the organization as well as public
procurement agency (PPA)
 Once the approved procurement plan is submitted to PPA
public organizations are not allowed to manipulate its
provisions during implementation without the knowledge of
PPA
 Whenever the initial approved procurement plan is revised,
all parties who are copied with the original plan shall be
informed

15. Basic data needed to prepare procurement plan
 The initial plan will contain the basic data:
• The particular contracts for goods, works and consultancy
services for the first 18 month period
• Estimated budget for each contract in birr / $ USD
• The proposed method of procurement
• The relevant bank review procedures
• Categories (goods, works, consultancy services)
• Prior/post reviews

16. Procurement Selection methods
• Speed, price certainty, time certainty, complexity,
responsibility, quality level, risk allocation, price
competition and others are the most common standard
factors that influence the selection of procurement methods

18. Procurement Models
 Process model
• An organization operating within a process model will view
procurement as a number of actions which bring about a series of
results.
• An agency managing procurement in this way will still not have
clear policies, but will have a set of formal ‘buying’ processes.
• Procurement decisions will tend to be made in the absence of
any formal procurement structure
• The language and philosophy of procurement still remains
immature with procurement not being seen as a core competence,
but as a minor element of finance.

19. Con’d
 Policy model
• An organization operating within a policy model will view
procurement as a regulated activity.
• The agency will recognize the importance of procurement as
an activity with established procurement plans and policies.
• Although there will be clear evidence of a procurement
department managing procurement activities, there will be
limited or inconsistent co-ordination.
• The language and philosophy of procurement will be accepted
as formal procurement processes will exist. However, formal
training of procurement staff is not given priority.

20. Con’d
 Tactical model
• An organization operating within the tactical model will have
recognized the importance of procurement and it will be seen as a
distinct function.
• Reliable procurement processes will exist to ensure that procurement
activity is carried out in accordance with standard practices across
the agency.
• The language and philosophy of procurement will now be maturing
with procurement recognized as a value-adding function and
represented at senior level by a chief procurement officer

21. Con’d
 Strategic model
• An organization operating at a strategic level of maturity will have a
well-designed and established procurement function.
• The organization will see procurement as a strategic activity that is
aligned with the strategic goals and longer-term plans of the agency
• Recognized training and education in addition to relevant experience.
Continuous professional development will be encouraged throughout
the team and cross-disciplinary and cross-functional interactions
between staff and end–users will be seen as the norm.
• The language and philosophy of procurement will be mature within the
agency with procurement decisions governed by a set of procurement
policies.

22. Con’d
 Professional model
• An organization attaining a professional level of procurement maturity
recognizes both the strategic contribution and the need to have a
professionalized approach to manage and conduct procurement across
the agency
• The language and philosophy of procurement will be fully integrated
into management practices within the agency and will be consistently
applied by staff in their dealings with end users and suppliers.
• This means that procurement senior management and organization
executives act in accordance with procurement policies, philosophies
and practice.

23. Budgeting and Financing options
 Company earnings or internal cash flow
 Debt Financing
 Equity Financing
 Lease Financing
 Project or Third-Party Financing

24. Preparation of Bidding Document
 Standard bidding documents are the documents used to request
potential suppliers to offer a quotation, bid or proposal to provide
the required goods, services or works.
 Preparation of standard bidding documents covers the process of
assembling and formalizing the information and documentation
necessary for potential suppliers to prepare responsive and easily
comparable offers, consistent with the requirement and
procurement strategy.

25. Purpose of Preparation of Bidding Documents
 Equal information to ALL bidders
 What is to be procured
 Technical requirements
 How to prepare a RESPONSIVE BID
 Evaluation criteria
 Form of contract

26. Impact of Poorly Drafted Documents:
 Complaints from Bidders
 Selection of Poorly Qualified Firm
 Delays in Project Implementation
 Delays in disbursement / payment
 Lack of credibility of institutions
 Mis procurement
 Claims and disputes

27. The Bidding documents should be:
 clearly understandable,
 specific,
 complete,
 correct, and
 unambiguous.
 In case of ambiguities each party will try to interpret the
words in his / her favor

28. Con’d
 When to begin preparing documents:
• as early as possible
• adequate time for completing the whole procurement
process
• timely dispatch of documents to bidders

29. Con’d
 Why standard bidding documents:
 mandatory for ICB/NCB/ LIB
 provide consistency
 avoid mistakes and omissions
 only minimum changes to reflect product - and project-
specific issues
 and only through bid data sheet and special
conditions
 If no standard documents, use other internationally
recognized standard conditions of contract

30. Most Important Features of bidding documents
 Use of transparent and objective criteria
 Increase transparency in the procurement process
 Inclusion of strict and civil liabilities
 Language - Amharic for national open bidding in which
only local bidders participate or English for international
open bidding
 Bid Prices
• Goods (excludes custom/import/other levies on finished
goods)

31. Harmonized Bidding Document(s)
Procurement of Goods & User’s Guide
 Part 1 - Bidding Procedures
 I. Instructions to Bidders
 II. Bid Data Sheet
 III. Evaluation and Qualification Criteria
 IV. Bidding Forms
 Bid Submission Sheet
 Price Schedules
 Manufacturers Authorization
 V. Eligible Countries
 Part 2 - Supply Requirements
 VI. Schedule of Requirements
 Part 3 - Contract
 VII. General Conditions of Contract
 VIII. Special Conditions f Contract
 IX. Contract Forms

32. PART 1 – BIDDING PROCEDURES
Section I. Instructions to Bidders (ITB)
This section provides information to help Bidders prepare their bids.
Information is also provided on the submission, opening, and evaluation of
bids and on the award of Contracts. Section I contains provisions that are to
be used without modification.
Section II. Bidding Data Sheet (BDS)
This section includes provisions that are specific to each procurement and that
supplement Section I, Instructions to Bidders.
Section III. Evaluation and Qualification Criteria
This section specifies the criteria to be used to determine the lowest evaluated bid,
and the Bidder’s qualification requirements to perform the contract.
Section IV. Bidding Forms
This section includes the forms for the Bid Submission, Price Schedules, Bid
Security, and the Manufacturer’s Authorization to be submitted with the Bid.
Section V. Eligible Countries
This section contains information regarding eligible countries.

33. PART 2 – SUPPLY REQUIREMENTS
Section VI. Schedule of Requirements
This Section includes the list of goods and related
services, the delivery and completion schedules, the
technical specifications and the drawings that
describe the goods and related services to be
procured.

34. PART 3 – CONTRACT
Section VII. General Conditions of Contract (GCC)
This Section includes the general clauses to be applied in all contracts. The
text of the clauses in this Section shall not be modified.
Summary Description VI
Section VIII. Special Conditions of Contract (SCC)
This Section includes clauses specific to each contract that modify or
supplement Section VII, General Conditions of Contract.
Section IX: Contract Forms
This Section includes the form for the Agreement, which, once completed,
incorporates corrections or modifications to the accepted bid that are
permitted under the Instructions to Bidders, the General Conditions of
Contract, and the Special Conditions of Contract.
The forms for Performance Security and Advance Payment Security, when
required, shall only be completed by the successful Bidder after contract
award.

35. PART 1 – BIDDING PROCEDURES
Invitation for Bid
IFB call for the submission of sealed / secure bids by a publicly
announced deadline. Technical requirements are clearly and
completely specified in a qualitative and quantitative manner.
The letter of Invitation for Bids provides information that
enables potential bidders to decide whether to participate or not.
Initiates the process of competitive bidding, in which bidders
are invited to submit sealed offers for clearly defined
procurements.
The invitation may be either open to all interested bidders or
restricted.
It is not part of bidding document

36.  Information on whether alternative bids are
permitted or not, and if permitted what details are to be
given and how they will be evaluated to be clearly
mentioned,
 Information on whether the bidders are permitted to submit
the bid for part or not,
 Information on whether details of bid prices (rate analysis)
to be submitted or not ,
 Whether the prices are Fixed or Adjustable (as per price
adjustment formula),
 Currency acceptable in the bid price,
Instruction to Bidders (ITB)

37.  Details of the Bid/ Performance/ Advance security
(Acceptable instruments, Formats indicating principal terms
and conditions, amount, and validity)
 Provision of Bid Withdrawal or Modification prior to
deadline for Bid submission (without penalty of bid
security),
 Procedure for seeking clarification, pre-bid meeting, field
visit etc,
 Validity of Bids and Bid Security ( 1% to 5%)
Instruction to Bidders (ITB)

38.  How the bids to be submitted (Sealed, Original, Copy,
Place, Deadline, etc.);
 Bid Opening (Place, Date, Time, Procedures);
 Criteria and Methodology for Bid Examination,
Comparison, and Evaluation(including the currency and
source/ date for exchange rate);
 Criteria and methodology for assessing Qualification of
Bidders;
 Agreeing for the proposed Dispute Settlement;
Instruction to Bidders (ITB)

39.  Formalities to be fulfilled by the Bidder before entering
in to contract;
 Right to reject all bids or cancel the proceedings without
assigning any reasons;
 Title, Address, and Contact Persons of the Employer;
 Bidder’s right to lodge complaint against unlawful act/
decision and or procedures of Employer;
Instruction to Bidders (ITB)

40. Bid Data Sheet
• The Bid Data Sheet (BDS) contains information and
provisions that are specific to a particular bidding process.
•The Employer must specify in the BDS only the
information that the ITB request be specified in the BDS.
All information shall be provided; no clause shall be left
blank.
•To facilitate the preparation of the BDS, its clauses are
numbered with the same numbers as the corresponding ITB
clause.

41. General principles of evaluation
 Evaluation shall be conducted by a set of criteria
declared before bid closure
 Each criteria shall be equally applicable to all
bidders
 Every steps of evaluation shall be documented
 Clarification on minor points which do not affect
the over all evaluation process can be requested
 Evaluation process must be confidential

42. Usually evaluation is conducted in three stages
-preliminary
-technical
-financial
 objective
•secure goods/works/services at most economical cost
• price only one factor
Bid Evaluation

43. Evaluation criteria
 Completeness of bid document
 Bid bond
 Certification
 Specification
 Delivery
 After sales service
 Shelf life
 Payment term
 Price
 Cost
 etc

44. Bid Evaluation con’d
 Evaluation criteria
shall be stated in bidding documents
ideally all factors quantified in monetary terms must
include
• technical features
• commercial features

45. Bid Evaluation con’d
 technical features
• operating cost
•Fuel
•Training
•maintenance cost
•Standardization
•resale value/depreciated cost
•ownership cost
•Capacity
•productivity

46. Bid Evaluation con’d
 Commercial features
 price
 convert and adjust “basic price” to make bid prices
comparable
 price adjustment over contract period
 delivery point
 add local transportation
 time of delivery
 evaluate loss caused by late delivery
 warranty
 evaluate variation if acceptable
 payment terms
 evaluate variations at specified interest/discount rate

47. The Employer shall include in the BDS all bidding forms that the
Bidder shall fill out and include in its bid.
Bidding forms are the Bid Submission Sheet and relevant
Schedules, the Bid Security, the Bill of Quantities, the Technical
Proposal Form, and the Bidder’s Qualification Information Form for
which two options are attached.
The Employer shall fill in all the required information in each
Bidding Form.
Bidding Forms

48. Part 2: Works Requirement: Specifications
Specifications are the detailed descriptions of the materials, parts and
components used in making a product
Hence, descriptions are that tell the seller exactly what the buyer wants to
purchase
•incorporate standards set by Ethiopian Quality and Standard Authority
•Precise and clear specifications are a prerequisite for bidders to respond
realistically and competitively to the requirements of the Employer without
conditioning their bids.
•In the context of international competitive bidding, the specifications must be
drafted to permit the widest possible competition and, at the same time, present
a clear statement of the required standards of materials, plant, other supplies,
and workmanship to be provided.
•Only if this is done will the objectives of economy, efficiency, and equality in
procurement be realized, responsiveness of bids be ensured, and the subsequent
task of bid evaluation facilitated.

49. Works Requirement: Specifications
•The Specifications should require that all materials, plant, and
other supplies to be incorporated in the works are new, unused,
of the most recent or current models, and incorporate all recent
improvements in design and materials unless provided otherwise
in the contract.
•A clause setting out the scope of the works is often included at
the beginning of the specifications, and it is customary to give a
list of the drawings.
•Where the contractor is responsible for the design of any part of
the permanent works, the extent of his obligations must be
stated.

50. Works Requirement: Drawings
• It is customary to bind the drawings in a separate volume, which is
often larger than other volumes of the contract documents. The size
will be dictated by the scale of the drawings, which must not be
reduced to the extent that details are reduced illegible.
• A simplified map showing the location of the site in relation to the
local geography, indicating major roads, posts, airports, and railroads,
is helpful.
• The construction drawings, even if not fully developed, must show
sufficient details to enable bidders to understand the type and
complexity of the work involved and the price the bill of quantities.

51. Bill of Quantities
BOQ is a document prepared by the cost consultant that provides
project specific measured quantities of the items of work
identified by the drawings and specifications in the tender
documentation
The objectives of the bill of quantities are
(a) to provide sufficient information on the quantities of Works to
be performed to enable bids to be prepared efficiently and
accurately and
(b) when a contract has been entered into, to provide a priced bill
of quantities for use in the periodic valuation of works executed.

52. Part 3: Contract : General Condition of Contracts
The GCC in the bidding documents establish an accepted basis for similar
procurement or sale contracts. The GCC should not be changed by
(procurement entity) in any contract. Item specific changes are to be
included only in special conditions of contract.
The GCC contains
A. Operational Clauses. These establish the relationship between
the PE and the supplier/purchaser/contractor, and contain information
regarding:
i- Definitions;
ii- Rights and obligations of both parties;
iii- Procedures for shipment and documentation;
iv- Delivery and transfer of risk;
v- Terms and currencies of payment;
vi- Mode and form dispute settlement;
vii- Governing language; and applicable law.

53. b) Protective clauses. They establish protection against
various risks and allocate them between the parties. They
include instructions on:
i- Performance security;
ii- Retention of payments;
iii- Insurance;
iv- Inspection and tests;
v- Warranty;
vi- Protection against third party infringement suits; and
vii- Force Majeure.

54. c) Variations. Unforeseen or planned changes during the
life of the contract are identified and provided for under
these parts of the GCC.
They cover the following:
i- Quantity changes;
ii- Adverse physical conditions;
iii- Price adjustments; and
iv- Changes in delivery requirements.

55. d) Remedies. These provisions deal with the breach of
contract by one of the parties. They include provisions on:
i- Forfeiture / penalty of performance security;
ii- Procedure for damages, penalties for delay;
iii- Procedure for suspension and termination; and
iv- Non-payment or failure to provide required approvals and
information.

56. Contract : Special Condition of Contracts
• The SCC complement the general conditions (GC) to specify data
and contractual requirements linked to the special circumstances of
the country, the employer, the engineer, the sector, the overall project,
and the works.
• While drafting SCC, one should be thoroughly familiar with the
provisions of the GC and with any specific requirements of the
contract.
•Legal advice is recommended when amending provisions or drafting
new ones.

57.  In preparing the Special Conditions of Contract, the
procurement entities should take into consideration the
following aspects:
a) Information that complements the provisions of the General
Conditions of Contract must be incorporated; and
b) Amendments and/or supplements to the provisions of the
General Conditions of Contract, as necessitated by the
specific circumstances of the procurement/sale, must also be
incorporated.

58. Contract Forms
• This Standard Form should be filled in and sent to the
successful Bidder only after evaluation of bids has been
completed.
•It also contains forms for the contract agreement, the
Performance Security ( for goods 5-10%, for works 10%), and the
Advance Payment Security (bank guarantee for equal amount).
Retention Money (5 percent of contract value)
•Bidders shall not submit these forms with their bids. After
notification of award, the employer shall prepare the contract
agreement using the contract agreement form and send it to the
successful Bidder. The successful Bidder shall sign the contract
agreement and return it to the employer together with the performance
security and, if applicable, the advance payment security, using the
respective forms.

59.  Contract performance ( fulfillment of according to its terms)
 Delay in supplier’s performance
 Termination of contract
 Force Majeure - an event or situation beyond the control
of the supplier that is not foreseeable, is unavoidable, and
its origin is not due to negligence or lack of care on the
part of the supplier

60.  How secure contract performance?
 Warranties
 Performance guarantees
 Inspection
 How settle disputes?
 Negotiation
 Arbitration (UNCITRAL) - United Nation Commission
International Trade Law
 Litigation (Judicial contest)

61.  Payment Terms , usually net 30 days upon receipt of invoice as
well as receipt and acceptance of goods or services or upon
receipt of required shipping documentation
 Letter of intent a prospective supplier acknowledging
willingness and ability to enter into a contract.
 When the contract is not being performed properly, there are
certain remedies that may be applied by the procurement officer
• invoking contract remedies
• processing/holding payments, as per contract
• contract termination (for default or convenience).

62.  Liquidated damages
• are a form of redress to be paid by the supplier to the buyer in
case of non performance or delayed delivery. For example, a
fixed sum or percentage for each day the supplier is late
delivering the goods to the port.
• The sum is usually an estimate of the loss likely to be suffered
by the client as a result of non performance.

63. Definition of a Contract
 A contract is an agreement that is enforceable by a court of law
or equity
 If one party fails to perform as promised, the other party can use
the court system to enforce the contract and recover damages or
other remedy
 a: a binding agreement between two or more persons or
parties ; especially one legally enforceable
 b: a business arrangement for the supply of goods or
services at a fixed price -Merriam-Webster

64. Contracts are about:
 Bargaining
 Coming to an agreement
 Being willing to be legally bound to your side of that
agreement, as long as the other party is bound to theirs

65. Parties to a Contract
 Offeror – The party who makes an offer to enter into a contract
 Offeree – The party to whom an offer to enter into a contract is made
Offer
Acceptance
Offeror Offeree
Offeror makes an
offer to the offeree
Offeree has the power to
accept the offer and
create a contract

66. 1. Agreement 2. Consideration
3. Contractual
Capacity
4. Lawful Object
Elements of a Contract

67. Con’d
Offer - An offer is an invitation to make a contract
Acceptance - the point at which one party agrees to the other
parties offer
Consideration - something of legal value given in exchange for a
promise
What each side gives the other is called consideration.
Consideration must be given before a contract can exist
Most common types of consideration:
Tangible payment (e.g., money or property)
Performance of an act (e.g., providing legal services)
Agreement – the manifestation by two or more persons of the
substance of a contract
It requires an offer and an acceptance

68. Is this a contract?
 You order a book of Amazon.com. Your credit card is charged, but no
book ever shows up.
• Is it a legally enforceable contract or not?
• Yes, you agreed to pay Amazon.com money and they agreed to send
you a book.
 Last year, your uncle promised you an iPhone for your 18th birthday.
When you turned 18, he gave you his old broken basic cell phone.
• Is it a legally enforceable contract?
 No, while your uncle made a promise, he did not receive any
consideration in return. Consideration has to be more than good
feelings.

69. Is this a contract?
 You signed up for a week long summer basketball camp
which cost $100. You paid and went to the camp. When you
got to the camp, they just had you watch football movies all
day.
 Is it a legally enforceable contract?
 Yes. You agreed to pay money to the camp and they were
supposed to give you basketball training.

70. Maintenance of purchase record/Records Management
-at least for ten years
-important purchase documents
-sensitivity of purchase documents (early stage of
procurement /later stage of procurement)

71. Important purchase documents
 Requisition
 Budget analysis
 Approval from authorized body
 Invitation or tender notice
 Bidding/procurement document
 Supplier quotation (bid document)
 Bid evaluation document (minutes of evaluation)
 Approval from authorized body
 Purchase order

72. Con’d
 Performance bond
 Contract agreement
 Revised Proforma invoice
 Insurance document
 L/C application
 L/C or bank approved purchase order for CAD – exporters
submit this doc. to its bank
 Communication letters
 Shipping documents (certificate of origin, certificate of
analysis, packing list, freight invoice, AWB/BL, commercial
invoice)
 Goods receiving voucher

73. Risk Management
 Risks can affect the scope, timing, budget and quality of your
procurement.
 It’s important to monitor and identify risks that could affect or
stop your procurement.
 You must constantly monitor known risks and scan for new
risks.

74. Con’d
 When identifying risks you need to consider:
 how likely they are to occur
 the consequences for cost, schedules or user acceptability if it does
happen
 the level of risk (a combination of likelihood and consequences)
 the priority rating of the risk
 the ability of both yourself and your organization to deal with them
 your capacity to manage them
 the level of control you have to minimize or prevent them
 the impact on your procurement objectives and outcomes

75. Con’d
 Risk is part of the procurement environment
 It involves systematic identification, analysis, treatment and where
appropriate accepting the risks
 Agreements to limit a supplier’s liability to organization and third party
(Indemnity. Guarantee, warranty)
 Typical risk factors: buyer risk factors, supplier risk factors, contractual
relationship risk factors, external risk factors

76. What are the types of risks?
 damaged or faulty goods, shortage of raw materials
 supplier non-performance, insolvency, industrial action
 health or social risks for a user, damage to reputation
 natural disaster, acts of terrorism
 Inadequate needs analysis, poor SCM.
 Poor vendor selection
 inefficient contract management
 Fraud and corruption
 Delays in procurement
 Talent shortages
 You need to manage risks during and after the procurement process.

77.  Identifying the need accurately
 Developing sound specifications
 Maintain contract documents
 Selecting a appropriate procurement methods
 Seeking, clarifying and closing offers properly
 Identifying the preferred supplier
 Evaluating offers
 Negotiating the contract
 Managing the contract
 Evaluating the procurement process
 Disposals
 Impact of each of the above on cost, timetable, user acceptability,
integrity and competence should be understood
Tools and techniques for managing risks:

78. Ethics in procurement
 What is ethics? – Ethics are moral codes of conduct, rules for how
someone should operate that can be followed as situations demand
 Two basic dimensions guide ethical issues in purchasing: fairness (any
competitor has equal opportunity to sell to the buyer and equal access
to information from the buyer) and responsibility to the buying
organization.
 Two worrisome activities: gift giving and information access & use.
 Why should any “for profit” firm be concerned with ethics? – any
trade-off of short-term profits for long-term ethics is short-sighted.
 In the end, buyers will support those that have earned their trust and
value their reputation.

79.  Conflict of interest: A conflict of interest may exist when a staff is involved
in an activity or has a personal interest that might interfere the objectivity in
performing the function. (Code to guide relationship). It can arise:
 When a staff takes outside employment or has financial interest
 When personal relationship with staff of other business entity could
influence the decision.
 Gifts and Gratuities:
 May not accept gifts or gratuities from any supplier for themselves or for
their family
 May not take advantage of their position to seek discounts on procurement
for personal use.

80.  Offering gifts to customers is a very common practice in the
private sector. It is a marketing strategy based on the universal
sense of reciprocity “if we receive something, we feel obliged to
give something in exchange”; i.e. there is no such thing like a
“free lunch”.
 Suppliers often offer different types of gifts, for example
perishable products, hospitality, free training courses or
experiences like exhibitions, fair trades, and sometimes in kind
donations, etc.

81.  Identifying covert gifts is not always easy, especially when at
times, for example, training activities may be seen as beneficial
for the organization; however, very careful review of the impact
should be taken into account: would receiving the gift benefit one
company over the others? Would acceptance be fair to the
competitors?
 In cases where the content of such training / events is deemed
appropriate and beneficial for the organization in a technical
sense, self financial support, i.e. for travel expenses should be
considered.

82.  Integrity:
 Open and effective competition
 Environmental sustainability
 Ethics vs. compliance ( Ethics encourages responsible conduct
and compliance prevent misconduct; Ethics is self imposed)
 Code of conduct
 Ethical belief is a personal choice, however ethical conduct can
be mandated by an organization.
 Ethics are moral boundary or values within we work