Proc org

CLAYTON TAWANDA MAKURA aka LACOSTE
LACOSTE BRYTI TAWAZ
1. PRINCIPLES OF PROCUREMENT
A Principle is a rule, a standard or an accepted way of action or conduct.
Purchasing Principles are the basic standards or actions expected to be observed or followed
by a purchasing practitioner when executing his duties.
Purchasing is a management function which is responsible for the provisioning of goods and
services as well as raw materials in order to facilitate production or achieve organisational
objectives.
BROAD STATEMENT OF PURCHASING OBJECTIVES:
1. -To supply the organisation with a steady flow of materials and services to meet its
needs.
- to ensure continuity of supply by developing other sources of supply by maintaining
effective relationships with existing sources and by developing other sources of supply
either as alternatives or to meet emerging or planned needs
2. To buy efficiently and wisely, obtaining by any ethical means the best value for every
dollar spend.
3. To manage inventory so as to give the best possible service to users at lowest cost
4. To maintain sound co-operative relationships with other departments, providing
information and advice as necessary to ensure the effective operation of the
organisation as a whole.
5. To develop staff, policies, procedures and organisation to ensure the achievement of
the foregoing objectives.
PURCHASING OBJECTIVES:
The role of purchasing and supply is to obtain goods and services required according to the
following five rights.
1. The right quality of material
2. The right quantity
3. The right time
4. The right place or source
5. The right price
Therefore Purchasing Principles are based on acquiring goods and services based on the
above characteristics.

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THE PURCHASING FUNCTION/PROCESS:
Comprises the essential activities associated with the acquisition of materials, services and
equipment used in the operation of the organisation.
i. Coordinating with the user departments to identify purchase needs
ii. Discussions with sales representatives
iii. Identification of potential suppliers
iv. The conduct of market studies for important materials
v. Negotiating with potential suppliers
vi. Analysis of proposals by suppliers
vii. Selection of suppliers
viii. Awarding purchase orders to suppliers
ix. Administration of contracts and resolution of related problems
x. Maintenance of a variety of purchasing records
THE PROCUREMENT FUNCTION/PROCESS:
Procurement is a strategic function which involves purchasing on a wider range of supply
activities such as planning and decision making for materials on a long term basis.
Or
The procurement function (process) or concept encompasses a wider range of supply
activities than those included in the purchasing function or process . Procurement of today
is no longer about saving but to take the organisation were it should be in terms of;
- obtaining earnings per share
- obtaining more return on investment
It includes a broadened view of the buying role with more buyer participation in related
material activities and strategic planning which includes the following;
i. Participation in the development of material and service requirements and their
ii. specifications
iii. Conduct of material studies and management of value analysis activities
iv. Conduct of more extensive material market studies
v. Conduct of all purchasing function activities
vi. Management of supplier quality
vii. Management of investment recovery activities( salvage of surplus and scrap)

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THE RELATIONSHIP OF PURCHASING WITH OTHER DEPARTMENTS
The Finance Department;
1. The relationship is based on cost determinations which affect the cash allocations or
budgets in a positive or negative way.
2. The purchasing department must properly plan for its purchasing schedules or bill of
materials to enable the finance department to provide funding for the spend.
3. Poor financial planning is the major cause of poor business failure, since planning for
working capital and cash flow are based on accurate sales forecast and accurate
purchase schedules.
4. Always coordinate and communicate with the finance department when to buy or
commit company funds on unexpected opportunities. E.g. when buying excess
materials offered by the supplier at lower prices
5. Establish a cooperative relationship with the finance department in order to impact
on the development of good supplier relations
The Engineering Department;
1. Purchasing must be involved or help in the preparation of specifications from a
commercial point of view so as to advise on costly designs and safety because most of
the engineers do not consider the cost and timing of committing company funds.
2. It must be involved in the early purchasing or early supplier involvement programmes
3. Purchasing must maintain and establish a mutual understanding as well as
compromise in order to come up with satisfactory solutions.
Purchasing and Operations;
1. This is when the user departments transmits or forwards their requirements or
manufacturing schedules (material requirements) to the purchasing department.
2. Operations or user departments must allow a good lead time for the purchasing
department to source effectively and obtain value for money.
3. Operations and Purchasing must coordinate and collaborate in many ways for the
benefit of the organisation.
- e.g. on the use of alternative materials in order to satisfy the market on time.
- on the issue of working with suppliers in order to improve their capabilities
Purchasing and Marketing:
1. The relationship is based on the sales forecast which becomes the production
schedule which in turn is the basis of the purchasing schedule.
2. There must be effective communication up-date on any changes in sales forecast so
that purchasing and production can alter or modify their plans.

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3. Purchasing and sales or marketing must also communicate by advising each other on
their areas of business interest e.g. on issues of reciprocity
( buying from the customer)
4. The company buyers can be an excellent source of information for developing and
refining company’s own sales policies and procedures.
TUTORIAL QUESTIONS
1. Explain the importance of Purchasing to an organisation?
2. Purchasing is regarded as the hub of the organisation. Explain this statement with
regard to other departments. (1)
3. Explain the relationship between Procurement and Purchasing in this new
millennium? (1)
4. Procurement, like any other profession should adhere to the principles of the
discipline. Discuss

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2. PURCHASING IN THE ORGANISATIONAL STRUCTURE
Organisational structure refers to the established pattern of relationships between the
component parts of an organisation, outlining both communications, control and authority
patterns.
Or
Is the formal pattern of interactions and coordination designed by management to link the
tasks of individuals and groups in achieving organisational goals
However purchasing as a management function in organisations depends on the following;
1. Availability of raw materials,
 Are the major materials used by the organisation readily available in a
competitive market?
 Are some key materials bought in volatile markets subject to periodic
shortages and price instability?
2. The value of the purchases;
If the organisation spends a lot on high volume of purchases, it means that
strategic purchasing can yield significant profits. (Economies of scale)
3. Percent of product cost is represented by materials;
When material costs are 40% or more than the material costs (total operating
budget) then strategic purchasing can be very effective to reduce costs.
4. The types of materials purchased;
As a result the position of the purchasing department within the organisation depends on the
activities which it performs as well as the attitude of the management. The structure of the
purchasing department can be a department on its own or it can be a subordinated function
falling under the Finance or Production department or any other activity.
Organisational Structure of a Medium-Sized Firm:
1. Purchasing & Supply Manager: various names are used such as manager of purchasing,
director of purchasing or supplies manager. His duties are mainly management issues,
strategic issues such as planning and research.

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2. Buyers: buyers and their assistants perform the actual buying activity and work
directly with supplies. However each buyer and assistant can handle a specific group
of materials.
3. Expediter: this is someone who is responsible for making follow-up on orders which
will have been placed so that they are delivered on time in order not to prejudice the
operations of the firm.
Centralisation:
This exists when the entire purchasing function is made the responsibility of a single person.
This person is held accountable by top management for proper performance of purchasing
activities.
Advantages:
1. Economies are obtained by consolidating like requirements of all units in the group,
thereby improving purchasing strength in negotiating and facilitating supplier
relationships
2. Transportation savings can be realised by consolidation of orders and delivery
schedules
3. It develops purchasing specialists whose primary role will be purchasing. With training,
they buy more efficiently than less-skilled individuals who view purchasing as
secondary responsibility
4. Avoidance of price anomalies between group units and competition between them
for materials in short supply
5. Better overall stock management and material utilisation
6. Economies of staffing and clerical effort together with uniformity in procedures,
forms, standards and specification.
7. Responsibility for the performance of the purchasing function is fixed with a single
department head, thereby facilitating management control.
Decentralisation:
This is whereby the personnel from other functional areas i.e. production, engineering,
marketing or finance decide unilaterally on sources of supply or negotiate with suppliers
directly for major purchases.
Advantages:
1. The local buyer will have a better knowledge of the needs of his particular factory or
unit of local suppliers and of transport and storage facilities.

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2. He or she will be able to respond quicker to emergency requirements, partly because
of shorter lines of communication and partly because he or she will have a greater
awareness of local circumstances than someone sitting many miles away.
3. The local buyer’s direct responsibility to his or her immediate management will
produce better liaison and tighter control by local top management, particularly were
they operate as a profit centre.
Centralised/Decentralised (hybrid Structure):
This is a combination of both structures which is usually adopted in order to benefit from
the features of each, while avoiding their disadvantages.
In such a structure, each central office is often responsible for;
1. Determining policy, standards and procedures and group specifications
2. The negotiation of contracts for common materials which are used by the group in
any volume.
3. Major plant and equipment and capital projects contracts
4. Contracts for imported materials and for exports where relevant
5. Legal matters relating to supply
6. Co-ordination of group inventory
7. The education and development of supplies personnel within the group and the
provision of advice on staffing and related recruitment.
TUTORIAL QUESTIONS
1. Discuss the factors which determine the position of the Purchasing/Procurement
department within the organisation. (2)
2. Centralised Purchasing is the best model for organisations to obtain success. Discuss.
(2)
3. Decentralisation and Centralisation can both be an effective structure within an
organisation for the Purchasing function. Discuss.
4. Explain why Purchasing or Procurement should be a stand alone department

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3. EVOLUTION OF PROCUREMENT
About fifty years ago Purchasing was regarded as service or an operational function often
subordinated to other specialist functions such as production, finance or engineering aimed
at the achieving the service levels of the five Rs.
Purchasing has now been transformed to be a strategic tool which can be used to contribute
the competitive sustenance of the business not only through cutting costs but by being
proactive and adopting strategic contribution measures.
Reactive Buying (Purchasing)
1. Purchasing is a cost centre
2. Purchasing receives specifications
3. Purchasing rejects defective material
4. Purchasing reports to finance or production
5. Buyers respond to market conditions
6. Problems are supplier’s responsibility
7. Price is key variable
8. Emphasis on today
9. Systems independent of suppliers
10. Users or designers specify
11. Negotiations win/lose
12. Plenty of suppliers= security
13. Plenty of stock= security
14. Information is power
Proactive Buying (Procurement)
1. Purchasing can add value (short term or in the long term)
2. Purchasing and suppliers contribute to specification
3. Purchasing avoids defective supplies
4. Purchasing is a main management function
5. Purchasing contributes to making markets
6. Problems are a shared responsibility
7. Total cost and value are key variables
8. Emphasis strategic
9. Systems may be integrated with supplier’s systems

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10. Buyers and suppliers contributes to specification
11. Negotiations win- win (or better)
12. Plenty of suppliers= lost opportunities
13. Plenty of stock =waste
14. Information is valuable if shared
By being proactive (Procurement) it means that the Purchasing moves away from daily
ordering and replenishing routines and the work becomes more strategic in emphasis
concentrating more on issues which adds value in the short term, medium or in the long
term such as;
1. Negotiating longer-term relationships (value- based procurement)
2. Supplier development
3. Total cost reduction
However by performing the above activities still the Procurement function is expected to
follow the Procurement principles which are the basic standards or actions expected to be
observed or followed by a purchasing or procurement practitioner when executing his duties.
N/b Procurement and Purchasing are terms which are normally used intangibly and
procurement of today is more value-based rather than just adding value
TUTORIAL QUESTIONS:
1. Explain how Purchasing can be more pro-active in order to add value. (3)
2. Explain the characteristics of a developed Purchasing strategy
3. Explain the factors behind the development of the Purchasing function. (3)
4. Evaluate critically why Procurement should regarded as strategic than purchasing.

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4. PURCHASING DOCUMENTATION & ITS ORIGIN
See the attached documents
TUTORIAL QUESTIONS
1. Explain the most important information to be found on a purchase order and its effect
to the buying organisation and the supplier. (4)
2. A purchasing requisition is a command for the buyer to initiate purchasing activities.
Discuss
3. Explain the importance of a Goods Received Note or Voucher (GRN/GRV) within the
Procurement department. (4)
4. Explain why documentation is critical in procurement process.

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5. THE PROCUREMENT PROCESS
THE PROCUREMENT FUNCTION/PROCESS:
The procurement function (process) or concept encompasses a wider range of supply
activities than those included in the purchasing function or process .It includes a broadened
view of the buying role with more buyer participation in related material activities and
strategic planning which includes the following;
i. Participation in the development of material and service requirements and their
specifications
ii. Conduct of material studies and management of value analysis activities
iii. Conduct of more extensive material market studies
iv. Conduct of all purchasing function activities
v. Management of supplier quality
vi. Management of investment recovery activities( salvage of surplus and scrap)
THE PURCHASING CYCLE:
Refers to the standardised ways or procedures followed when making a purchase or
committing company funds;
i. Recognise or define the problem
ii. Determine the need
iii. Specification of what is needed
iv. Search for supply sources
v. Obtaining and analysing proposals
vi. Supplier selection
vii. Ordering policy selection
viii. Performance evaluation
ix. Payment of the supplier
x. Maintain the supply relationships
SPECIFYING PRODUCT SPECIFICATIONS:

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Specification is essentially a technical rather than commercial activity which is mainly done
by the design or engineering department.
However the purchasing has got an important secondary role to play in the development of
a specification which should for obvious reasons not conflict with the role of technical staff.
i. Purchasing staff should arrange contact with potential suppliers
ii. Provide information about relative price trends and availability
iii. Keep in touch with future developments
iv. Provide a clear, concise and unambiguous communication which will not be written
around a specific product so as to limit competition.
The main functions of a specification are;
 it communicates the buyer’s needs to the supplier
 it establishes the criteria by which to judge what is eventually delivered
Issues to consider when drawing up a specification;
1. what?;
 performance objective
 compatibility
 availability
 cost
 business process needs etc
2. How much?;
 Demand requirements ranging from one-off to scheduled on going
requirements.
3. What quality?;
 Best?
 Most appropriate to the use?
 Lowest pricing point?
4. When?
 Total delivery requirements
 Weekly or monthly schedule requirements
 Detailed daily delivery requirements
 Cost impact of non-delivery?
In other words a specification must enable the buyer to achieve the main purchasing
objectives i.e. achieving the 5 RIGHTS.

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SUPPLIER SOURCING RESEARCH:
Supplier sourcing usually requires the supply market research first and this is done in the
following ways;
i. When the buyer talks with the supplier representative on an informal basis
ii. Visit exhibitions
iii. Reading trade journals
iv. By investigating the market
v. In sourcing
vi. Out sourcing
Or
It can be done by full- time purchasing research staff at the head office and they will be
identifying real potential sources which will constitute a real supply market by;
i. investigating the capabilities of the suppliers,
ii. examining market trends and long term supply prospects
iii. Keeping abreast of the information or keeping the ear to the ground
SUPPLIER EVALUATION/VENDOR RATING:
This is done after developing a comprehensive list of potential suppliers by now evaluating
each individual supplier in order to determine their capability and traditionally the choice of
a suitable supplier is determined by its compliance to the 5RS as well as considering the
following aspects;
N/b supplier evaluation is done before dealing with a supplier and while dealing with the
supplier, while vendor rating refers to systems of accumulating data about a supplier’s
actual performance and presenting it in numerical form. It is post- purchase evaluation
i. The nature of the product
ii. Criticality of the product
iii. Complexity of the product
iv. Value of the purchase to be made
v. The buyer’s knowledge of the firm being considered
However for high-value items, critical or high- technical purchases additional evaluation
steps are necessary with the help of other cross-functional team members.
i. Financial stability; the interest is based on continuity and on time delivery since
financially strong firms are usually managerially strong.

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ii. Quality capability;
iii. Plant visits; are aimed at obtaining first hand information on issues such as technology,
manufacturing, the management’s expertise.
iv. Management; a well managed firm rarely experiences instability in terms of labour
unrest.
v. Service; that is the buyer will be ensuring that the supplier maintains a continuous
smooth flow of materials and service.
vi. Just-in-time
TUTORIAL QUESTIONS
1. Explain with an example the purchasing/ procurement cycle of organisation of your
choice.
2. In Procurement Purchasers are expected to contribute to the development of a
specification rather than to receive a specification. Discuss. (5)
3. Explain the importance of supplier evaluation and supplier rating. (5)
4. Explain the procurement documentation in relationship to the procurement cycle

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6. CONTRACT MANAGEMENT:
Contract: is an agreement between two parties with a clear understanding between each
other (consensus ad idem) and there must be a valid offer and acceptance.
ELEMENTS OF A CONTRACT:
1. Agreement (offer and acceptance)
2. Legality
3. Serious intention i.e. intention to create legal relationships
4. Capacity to contract
5. Consideration (the price of the contract)
In general a contract is made when the two parties (offeror and offeree) agree over
something, but in business some more negotiation about terms will take place before an
agreement is finally reached.
OFFER: An offer can be made to an individual person or company (bilateral offer) or it can
be made to the world at large (unilateral offer) i.e. it can be accepted by anyone who knows
of the offer and complies with the terms.
ACCEPTENCE: a contract comes into being when the offer has been validly and
unconditionally accepted by the offeree and it can only be effective when the following
rules take place.
a. Knowledge of the offeree
b. Silence is not acceptance
c. Acceptance can be by conduct
d. Method of communication
e. Communication must be received
f. Postal acceptance
TERMINATION OF OFFERS:

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An offer may come to an end in the following ways;
a. Acceptance
b. Rejection
c. Counter offer
d. Revocation or withdrawal but it can only be valid if it is received by the offeree
Dickinson v Dodds (1846)
e. Lapse of time
f. Death
CONTRACT TERMS & REPRESENTATIONS;
Contract terms are statements by the parties to the contract as to what they understand their
rights and obligations to be under the contract.
A term is a statement which is written or oral during a negotiation leading to a contract and
a representation is designed to induce or encourage someone to enter into a contract. The
only difference lies on the importance of the statement and the interval of making the
contract.
CONDITIONS;
A condition is a term of a contract preventing its taking effect unless a specified event occurs
or a specified act is performed
Factors Affecting the Validity of a Contract:
a. Legality of the subject of the contract
b. Presence of a mistake
c. Misrepresentations
d. Duress or undue influence
Types of Agreements which are invalid under law:
a. Agreement to commit a crime, tort or fraud
b. Agreement injuring the state in relation to other states.
c. Agreements to perverse the course of justice
d. Agreements that are in contrary to moral values
e. Agreements to oust the jurisdiction of the courts
f. Gambling contracts
g. Contracts in restraint of trade i.e. the right to have the liberty to operate and to
protect business from unfair competition.

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Clauses in restraint of trade are allowed as long as they are fair and reasonable. To
determine if it is fair and reasonable the courts will consider;
o Length of time
o Geographical nature of restraint
o Any legitimate interest or just being afraid of competition
PREPARING THE CONTRACT
Factors Affecting the Validity of a Contract:
e. Legality of the subject of the contract
f. Presence of a mistake
g. Misrepresentations
h. Duress or undue influence
Types of Agreements which are invalid under law:
h. Agreement to commit a crime, tort or fraud
i. Agreement injuring the state in relation to other states.
j. Agreements to perverse the course of justice
k. Agreements that are in contrary to moral values
l. Agreements to oust the jurisdiction of the courts
m. Gambling contracts
n. Contracts in restraint of trade i.e. the right to have the liberty to operate and to
protect business from unfair competition.
Clauses in restraint of trade are allowed as long as they are fair and reasonable. To
determine if it is fair and reasonable the courts will consider;
o Length of time
o Geographical nature of restraint
o Any legitimate interest or just being afraid of competition
Types of restraint in Trade Agreement:
1. Vendor and the Purchaser; i.e. when one sales his business to someone, then signs a
contract not to be involved in a similar business
2. Employee and the employer; if an employee has gained skill and knowledge then he
should not be stopped from having it.

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3. The protection of trade secretes; this will be done by making someone to sign so that
he will not disclose the trade secrets and to influence customers of the business.
4. Supply of Goods;
- It could be under vertical agreement whereby the supplier tries to make himself
the sole source of a buyer’s requirements for a particular product .e.g. Olivine
could suggest to TM that it could be its only sole provider of margarine.
- Horizontal agreements, often result in cartels .i.e. manufactures decide on the fate
of dealers who will be able to supply them goods under the manufacturers
conditions
Mistakes in Contracts:
There are basically two types, thus mutual and unilateral mistakes. The general approach by
the courts is that one has to bear his own losses that are caused by his action and the courts
rarely compensate such actions.
Mutual Mistakes;
This is a mistake by both parties i.e.
a. A mistake about the subject matter
b. A mistake as to the title e.g. someone sells you something that belongs to you.
c. A mistake is considered large as to the quality of the subject matter. However if it is
large then one can avoid the contract but if it is small one can only be entitled to
damages.
Unilateral Mistakes:
1. This is a mistake as to identity; e.g. if you sell something to someone by mistake and
his cheque bounces then the contract can be avoided since it was a mistake on the
face identity but if the mistake was not of the face but being of the identity then the
contract cannot be avoided.
2. Mistake as to the terms of the contract; this is when you accept something thinking
that it correct while it is wrong .e.g. when someone buys cloth material expecting it to
be charged in metres the he is charged in kgs.
3. Where both parties have made a mistake that differs e.g. two things bearing the same
name but at different locations.
Misrepresentation:
A representation is a statement that occurs prior to a contract and which induces one of the
parties to enter into the contract.
- Should the representation prove false then a remedy will lie for misrepresentation
Types of Misrepresentations:

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a. Fraudulent misrepresentation i.e. the person making the misrepresentation knows it
fully that it is a lie
b. Negligent misrepresentation; i.e. when someone says something untrue because he
did not check the facts right.
c. Innocent misrepresentation; is neither negligent nor fraudulent and the remedies are
either rescission (cancel) or damages but not both.
Duress and Undue Influence:
Duress; this is when there is explicit threat for one to perform a task e.g. a gun pointed at
the head or other life threatening situation.
Duress of goods; this is getting hold of something only to let it go after payment has been
effected.
Economic Duress; this is where you induce someone to sign a contract by threatening to
withhold payment
Undue Influence; is entering into a contract due to fear or a threat or authority. In
organisations it is common between subordinates and management.
INVITATIONS TO TREAT:
Is a means of seeking information and inviting a prospective offeror to make a contractual
offer, so it incapable of acceptance at all. But when the offeror makes known the terms and
conditions upon which he is prepared to contract and promises to be bound by those terms
if they are accepted by the offeree then he is obliged to comply to the contract. Carllil v
Smoke Ball Co.
TENDER:
Is another form of invitation to treat since it invites prospective contracting parties to
submit documents with the required information but the tender itself also forms the
contractual offer which is capable of acceptance or rejection. If accepted the offer then
becomes a contract which is capable of enforcement.
Request for Quotation
Refers to the purchases of small values items which are done according to the rules and
regulations of the Public Procurement Act. Section 14
Characteristics;
i. There is no involvement of the PRAZ.
ii. The Procurement Act of 2017 (Chapter 22:23) governs the law of Public Procurement

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iii. An advert must be prepared within three days and place the request on the notice
board, phoning, emailing, faxing outlining the following details;
o The specific details of the items being requested
o The closing and opening of the request
o Terms and conditions must be stated
o A specific place where the lockable request for the bids to be submitted.
o All bids must be in sealed envelopes
iv. The request for quotation bids must be opened in the presence of official from the
audit department fir transparency sake.
Criteria for selecting the best bid;
i. Consideration of the basic 5Rs
ii. Ability to perform satisfactorily
iii. Capacity to supply
iv. Financial position
v. Availability of human resource
vi. Equipment
vii. Litigation risks
After the recommendations, the successful supplier should be informed as well as the
unsuccessful ones.
The Competitive Bidding Process:
This refers to the purchase of medium and high value items according to the rules and
regulations of the Public Procurement Act.
Characteristics;
i. The request for a tender is sent to the prospective suppliers from the suppliers list and
adverts must be put in the government gazette and other news papers.
ii. The buying company is responsible for paying for the adverts
iii. The closing time is always 10 00hrs
iv. The closing date maybe extended by the procurement officer but reasons for doing
that have to be forwarded to the Procurement management unit (PMU)
v. Evaluation is done and the best tender is selected
vi. This is done according to the prescribed thresholds according to the Act.
vii. The final decision rests with the PMU if the value is within the value limits thresholds,
if they exceed then they have to be forwarded to the Special Oversight Committee
GENERAL CONDITIONS & CLAUSES:
The following are the conditions which may be found when tendering;

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i. Rejection of tenders
ii. Tendered price
iii. Quality clause
iv. Clause that explains what the supplier should provide
v. Variations and commercial clause
vi. Terms of payment
vii. Electrical installation and operating installations
DISPUTE SETTLEMENT:
During the purchasing practice, a purchasing manager or buyer acts as an agent for his firm
or organisation and this is governed by the law of agency. When he buys goods and services
from other firms it means that he will be involved in a purchasing contract and when a
disagreement arise, the dispute would normally be settled by a court of law. Nevertheless if
the contract provides for arbitration then it means the dispute can be settled by an
arbitrator.
Arbitration:
Is the appointment of an independent person or panel who will hear the testimony and
studies the evidence from both sides, then makes a decision or judgement based on the
facts which will be binding to both parties.
For the arbitration alternative to be effective, buyers should include this as an arbitration
clause on the purchase order which they feel to be important in cases of a dispute arising.
As was said by Professor Dean Ammer ” A highly legalistic approach is both unnecessary and
unprofitable” from a business stand point, contractual disputes can normally be resolved
much more effectively and with less costs by negotiation.
Advantages of arbitration:
1. It is much faster to solve disputes
2. It is less expensive i.e. in meeting litigation costs
3. It protects the image and good will of the organisation
Litigation:
Is the process of taking a dispute or claim to a court of law and in the event of contractual
disputes arbitration is viewed as the best alternative since litigation has got the following
disadvantages.
1. Litigation is very costly
2. A lawsuit almost always alienates a good supplier

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3. Much executive time is wasted since attention is diverted towards trying to solve
a dispute
4. Litigation disrupts business operations
However in most cases litigation can only be used as the last resort in trying to solve
a dispute and this does not absolve a buyer from appreciating the legal dimensions
of the job
TUTORIAL QUESTIONS:
1. Explain why tendering is mostly used or adopted as a sourcing strategy in public
procurement.
2. Explain the relationship between the buyer and the supplier based on contract
formation. (6)
3. Discuss the most effective way of solving a dispute between the supplier and the
buyer. (6)
4. Explain at list 2 forms of economic duress and 2 forms of misrepresentation in a
contract management process

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7. PUBLIC PROCUREMENT
This refers to the commitment of funds by the public sector usually in very large amounts of
expenditure through the following;
 Utility industries
 Local authorities
 Government departments
 Health authorities
 The armed forces
Strategic levers that have led to Competitive Bidding (Tendering);
1. The need for transparency in purchasing activities especially where large transactions
are involved.
2. The corruption nature of big time business
3. The need to protect each other from undue influence exerted by outsiders in the quest
to get business
4. The need to protect others from outside and internal pressure
5. It may be at corporate level or may spill into the political domain which is very
dangerous
6. The need to give some confidence to the public that there is fairness in business deals
7. A serious outcry from the business community about favouritism in the awarding of
contracts.
8. Where public institutions are concerned that there was a strong desire by
governments and citizens to give a fair access to government business to all companies
as this is financed from public funds.
9. The need to remove individual decisions in purchasing and marketing activities

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10. The need to create competition between suppliers
11. The need to maintain momentum in research and development as well as market
research.
12. The need to have ultimate competitive prices for the public and a reduction inflation
as well as price distortions
Principles Governing Competitive Bidding process (Tendering);
1. Known opening, closing and adjudication of tenders, dates can only be changed upon
newspaper’s notice.
2. Conditions are the same for all bidders
3. Declaration of interest by the tendering committee members
4. Tender papers must be kept under lock and key
5. Only companies who comply with all state regulations i.e. tax certificates etc
6. Tender documents should not be tempered with
7. No tender documents to be accepted after closing date
8. Behind the scenes manoeuvre or in side trading is not allowed
9. Consideration should only be given to those who submit according to specification
10.Officials involved in the tender process are not allowed to be given any gifts by bidders
and this includes any kind of favour.
11.Officials involved in tender management should not be taken for lunch or any form of
entertainment by prospering bidders.
In the past, it was a belief that government and public sector procurement decision making
should be based upon ‘the lowest price’. But this is no longer the case as purchasing
decisions must be made on the basis of best value for money by considering the factors
below.
i. Cost over the time of the goods or service
ii. Status and standing of suppliers
iii. Exact details of equipment, goods or service offered
iv. Financial aspects including payment terms, basis of contractual price, transport etc
v. Operating costs
vi. The extent of support through life
vii. Assistance with disposal
N/B Best value for money can refer to the following;
 The achievement of the purchasing objectives

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 The total sum of the acquisition cost and the cost of ownership
General Principles of Public Procurement:
i. Purchasing or procurement must be based on value for money
ii. Competition should be used to acquire goods and services
iii. There should be clear definition of the roles and responsibilities of personnel
involved in specifying the need, giving financial authority and making the
procurement commitments
iv. There should be separation of the financial authority and the purchasing authority
v. There should be separation of duties between personnel who make contracts, those
who receive the goods or service and those who authorise payments.
vi. Requirements which are above a certain financial threshold are normally required to
be advertised in accordance with the Public Procurement Act of no. 2017 (Chapter
22:23).
Procurement Procedures/Methods:
1. The Open Procedure;
This is generally used where the contracting authority anticipates that competition will
be limited because of few known available suppliers or the specialist nature of the goods
or service. This is also known as the competitive bidding process as it increases the level
of interest and competition.
2. The Restricted Procedure;
This procedure restricts the number of competitors that the contracting authority
permits to enter the competition e.g. by inviting only those listed on the supplier
data base (competitive bidding process)
3. Accelerated Restricted Procedure;
This is also known as the Special tendering i.e. when the normal time scale is
shortened by adopting the accelerated procedure so as to achieve certain immediate
objectives such as to avoid a disaster or catastrophe to happen.
4. Direct Method
This is whereby the procuring entity procures its requirement from one bidder or
supplier without having received bids from other bidders because of the following:

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o Where no responsive bids have been submitted in response to a competitive
bidding procedure;
o Where there are technical or artistic reasons or because of exclusive rights or
no alternative or substitute;
o In extreme emergency situations whereby the procurement requirement
cannot be obtained in time by means of competitive bidding procedures;
PROBLEMS ASSOCIATED WITH TENDERS:
1. Stakes and interests vested in tenders are very high
2. Companies and other stake holders are extremely worried about their future
3. Bidders use all unethical tricks in the world to get business
4. The desire by bidders to corrupt the adjudicators across the spectrum
5. Product quality can be tempered with as people get committed
6. The hot potato syndrome- thugs go wrong while people have been greased and there
will be spilling of beans and tender explosions.
7. There is undue influence and heavy pressure on adjudicators by high officials and
politicians
8. Failure to contain excitement by corrupt officials i.e. leading a flush life style
9. Too many mistakes on bid documents
10. Failure to implement awarded contracts as expected
11. Costs over runs especially in an inflationary environment
12. Unrealistic schedules and deadlines for implementation
13. Absence of highly qualified staff which will be purchasing illiterate
14. Lack of productive capacity by bidders
15. Unethical practices and misrepresentations of information by bidders
16. Failure to do physical inspection of bidder’s factory
17. Inadequate supplier appraisals or appraisals by under qualified personnel
18. The desire to cheat and benefit out of tenders by adjudicators
19. An entranced corruption culture
20. Political interference by top officials
21. Provision of inefficient and inadequate, information by the tenderers i.e. the
purchasing company
DANGERS AND RISKS OF TENDER:
1. Corruption and mistakes leads to stock blackouts, production bottlenecks, failure to
meet customer orders and quality.
2. Heavy jail terms and job losses coupled by being black listed and being redundant
3. Negative publicity in the media

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4. Loss of customers, suppliers, investors and ethical quality employees
5. Psychological Suicides and traumas for family
6. Marriage break ups
TUTORIAL QUESTIONS:
1. Explain the principles of governing request for quotation method and the
competitive bidding process.
2. Discuss the various types of sourcing which falls under public procurement. (7)
3. Despite the problems involved in Public sector procurement tendering is still the
best sourcing strategy. Discuss (7)
4. Explain how the problems with tendering can be avoided or reduced in the
Procurement field
8. STRATEGIC PROCUREMENT
In simple terms a strategy is a means or a way of achieving something or an objective.

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Or it can be defined as a pattern or plan that integrates an organisation’s major goals,
policies, and action sequences into a cohesive whole.
1. Strategic Procurement;
This refers to proactive purchasing where it will be involved in a broader way thereby giving
a competitive advantage to an organisation through various ways such as reducing waste in
the value chain.
Developing a Procurement Strategy;
1. What are the target objectives?
2. How are target objectives to be achieved?
Strategy covers;
1. Moves and approaches that are on going
2. New actions in the process of being mapped out
3. Innovation, risk taking
4. Choosing among alternatives
5. Doing the right things at the right times
Growth in the Strategic Role of Procurement, Purchasing and Supply;
The following, are the reasons for growth in purchasing to become strategic i.e. to become
procurement in organisations.
1. Purchasing is seen as an area for adding value not simply by reducing costs
2. Rapid product innovation requires a more integrated management team involving all
functions and adopting a process rather than functional approach to management.
3. The integration of material and information flows, both internally and externally e.g.
material requirement planning(MRP), enterprise resource planning(ERP) and the
integration of information systems associated with e-commerce such as electronic
data interchange(EDI)
4. Awareness that active supplier involvement can increase efficiency and
effectiveness.
5. A developing recognition that concern with strategic costs of supply and total cost of
ownership rather than short-term price.
6. The growth and development of the Chartered Institute of Supply in supporting the
role of the activity.
7. A recognition of the growth in purchased materials and services
8. Increased recognition of the profit potential in purchasing
The Strategic Level;

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1. Purchase research;
This is paramount and because of the pace of change in the business environment like
in the supply markets. It is important to assign staff so as monitor the changing
activities so as to keep on improving the purchasing quality by collecting, classifying
and analysing relevant data so as to help in decision making.( i.e. contributing to the
success of the organisation)
2. Management of the Purchasing Function (Long –range planning);
This includes the development of policies, procedures and controls, management of
resources, building of relationships within the purchasing and supply chain and dealing
with specific problems in supplier and commodity management.
3. Policy determination on
 Single sourcing
 Reciprocal trading
 Ethics
 Post tender negotiation
a. Negotiation and buying are the core activities of the Purchasing function and this
involves, locating, assessing and selecting potential suppliers as well as settling terms
and conditions between the buyer and the seller.
b. Clerical and administrative tasks remain vital even in a more strategic environment i.e.
record keeping, origination and processing of purchase orders and other
documentation and storage and retrieval of data are essential to the smooth running
of the department.
The tactical/Managerial Level;
1. Buying methods
2. Negotiation
3. Budgeting
4. Interface development
5. Staff development
6. Contracting
7. Cost reduction techniques
Operational Level;
1. Requisition handling
2. Enquiries or sourcing of quotations
3. Price determination

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4. Expediting or progress chasing
5. Invoice clearance
6. Returns
7. Records and systems maintenance
TUTORIAL QUESTIONS:
1. Explain the roles of Purchasing which have led to strategic Procurement. (8)
2. Discuss the importance of Strategic Procurement in organisations. (8)

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