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Public Procurement and Contract - Theory and practice in Nepal_2013

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Lecture slide on Public procurement and contracts

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Public Procurement and Contract - Theory and practice in Nepal_2013

  1. 1. Procurement and Contract Lecture Gyanendra Shakya gshakyaguita@gmail.com
  2. 2. Procurement and Contract Procurement - Basics Procurement - Methods Procurement - Contracts
  3. 3. Procurement • “to obtain sth…” >> – Goods – Works – Services (consulting and non-consulting) Actors • ‘Buyer’, ‘Employer’, ‘Owner’ • ‘Bidder’ = Contractors, consultants, service providers, seller. • Other stakeholders >> ‘User’, ‘consultant’ etc Procurement Cycle PROCUREMENT - Basics Appriasal Call Award Contract Contract administration Project completion
  4. 4. Public Procurement Therefore, this must be managed/controlled by some common (public) rules. This way of doing procurement is public procurement. “Public procurement is the buying of goods and services on behalf of a public authority, such as a government agency. Governments spend public monies to secure inputs and resources to achieve their objectives and by doing so, create significant impact on key stakeholders and wider society.“ PROCUREMEN T- Basics Money belongs to A User is B C Spending distributing agency
  5. 5. PRINCIPLES OF PUBLIC PROCUREMENT : 1. Economy – best value for money & competition - Finance Ministry’s concern 2. Efficiency – Timely action & completion Project’s concern, but against the Fairness 3. Fairness on equal footing, no biasness – but may be against the Effiiciency – Bidder’ concern 4. Transparency –well informed to all potential/ interested bidders/applicants – but may be against the Efficiency-Auditor’s concern Ideally, all of these 4 parameters should be met 100%, but in practice it is not possible. Attempt should be to be in the nearest of this, while meeting the project’s objectives. PROCUREMEN T- Basics
  6. 6. “Public procurement is one of the areas where local and central governments interact with the private sector given the fact that huge funds are relocated from public to private actors. Procurement can also serve as a mechanism to foster additional policy aims such as enhancing competition, innovation and social goals – which may lead to additional conflicts of interest regarding the original goals ”. Hence vulnerable to corruption  remedy is to enhance transparency and accountability Issues: 1. Coercion, Collusion, Cartel, Fraudulent practice, conflict of interest and corruption 2. Ethical > Probity, transparency and accountability PROCUREMEN T- Basics
  7. 7. Nature of subject to be procured Goods • Tangible, measureable and countable physical component • Order > purchase > delivery>warranty/guaranty • Quantity, Quality and cost matters Works • Measurable quantity of works constitute of labor, material, installation and overheads. • Works done in situ as per design and specification Services [Consulting and non-consulting] • service can't be quantified • lower fee doesn't guarantee lower project cost. • mutual confidence and trust between two parties helps in getting Best project results. PROCUREMENT - Basics
  8. 8. Acts, Regulation and guidelines Public Procurement Act 2063 Public Procurement Regulation 2064 Public Procurement Regulation (Revision) 2068 Procurement under assistance of EDPs Joint Financing Arrangement (JFA) – ground for national government for following Guidelines of EDPs such as World Bank Group, ADB, JICA etc. A Case study: “e-bidding for NCB and no e-bidding for ICB ??” PROCUREMEN T- Basics
  9. 9. METHODS OF PROCUREMENT General methods • Direct engagement (Shopping) • PPP arrangement • User committees • NGOs/INGOs • Force account For consultants only • Selection by ability • Design competition For Works/Goods only • Sealed Quotation • Tender (NCB/ICB) PROCUREMEN T- Methods
  10. 10. 10 Methods of Procurement Under Different Guidelines S N Descri ption WB ADB GoN - Proc Act/Reg 1 Works 1.ICB (GL 2.1-2.65) 2.NCB (GL 3.3-3.4) 3.Shopping (GL 3.5) 4.Direct Contracting (GL 3.6- 3.7) 5.Force Account (GL 3.8) 1.ICB (GL 2.01-2.50) 2.International Shopping (GL 3.02-3.03) 3.LCB (GL 3.04) 4.Direct Purchase/ Negotiation or Single Tender (GL 3.05) 5.Force Account (GL 3.07) 1.ICB 2.NCB 3.Sealed Quotation (A40/R-84) 4.Direct Contracting (A41/R-85) 5.Force Account (R-98) 6.Through Users’ Committee 2 Goods 1. ICB (GL 2.1-2.65) 2. Modified ICB (GL 2.66-2.68) for large value contracts 3. Limited International Bidding (GL 3.2) 4. NCB (GL 3.3-3.4) 5. Shopping (GL 3.5) 6. Direct Contracting (GL 3.6-3.7) 7. Procurement from UN Agencies (GL 3.9) 1.ICB (GL 2.01-2.50) 2.International Shopping (GL 3.02-3.03) 3.LCB (GL 3.04) 4.Direct Purchase/ Negotiation (GL 3.05) 5.Limited Tendering and Repeat Order (GL 3.06) 1.ICB 2.NCB 3.Sealed Quotation ((R-84) 4.Direct Contracting (R-85) 3 Service s 1.QCBS (GL 2.1-2.31) 2.QBS (GL 3.2-3.4) 3.Selection Under a Fixed Budget (GL 3.5) 4.Least Cost Selection (LCS)(GL 3.6) 5.Selection Based on the Consultant’s Qualification (CQS) (GL 3.7-3.8) 6.Single Source Selection(SSS) (3.9-3.13) 7.Selection of Particular Types of Consultants (GL 3.15-3.21) 1.QCBS (GL 6.04-6.12) 2.QBS (GL 6.01) 3.Individual Consultants (GL 8.01-8.07) 4.Special Selection Procedure (GL 6.13) 1.QCBS (R-70) 2.QBS (R-70) 3.QCBS from Standing List (R- 72) 4.Direct Selection (R-82) 5.Design through Competition (R-87) 6. Through I/NGOs 7.Other Methods (R-83)
  11. 11. Nepal's National Practice • PPA , 2063 and PPR 2064 • direct negotiations if < = 3 lakh rupees fee; - piecemeal not allowed. • Request for Proposals (RFP) – >3 three or <=10 lakhs • allows by soliciting proposals from consultants included in standing list: – for Less than One Million Rupees – Call by writing from the consultants included in the standing list – at least three consultants must submit proposals in separate envelopes. – shall be evaluated according to the quality and cost based selection method (QCBS). • Invitation of Expression of Intent (EOI) for shortlisting : – values more than one million rupees • if more than thirty million rupees >> international letters of intent (ILOI) PROCUREMENT - Methods
  12. 12. PROCUREMEN T- Methods
  13. 13. PROCUREMENT - Methods • “ I must run the machine as I find it”. • - Abraham Lincoln (on administration)
  14. 14. PROCUREMEN T- Contract CONTRACT AGREEMENTS Form of Contract ? oral or written Why contract ? >> to spell out - service definition obligations of each party defines the steps to be followed in initiating, modifying and terminating the services. Dispute resolution staffing payment procedures definition of payment items method of calculating payment due, frequency of payments recovery of advance payment, retention etc. price adjustments liability of the two parties "it is much safer to make use of standard contract documents." AIA, RIBA, IIA, PPMO, WB, ADB, FIDIC etc.
  15. 15. PROCUREMEN - Contract
  16. 16. PROCUREMEN - Contract Contract is an agreement made between two or more than two parties, which can be enforceable by law. (Contract Act 2056)
  17. 17. Essentials of Contract Between competen t parties Essentials of Contract Free consent of Parties Definite proposal and acceptance Lawful considerat ions and object. Possibility of performa nce Meaning shall be certain. PROCUREMEN - Contract
  18. 18. Types of Construction Contract Admeasurement/ Item rate/ BoQ Turnkey or Semi- Turnkey (Design & Build) Lump-sum Cost reimbursable Contract Management Contract Performance Base repair and maintenance management Time and material rate contract contract Piecework Contract based on method of payment and scope of work PROCUREMEN - Contract
  19. 19. Types of Contract for Consulting Service based on method of payment and scope of work Man-month or time-based fees Lump-sum fees Percentage fees Cost plus fixed-fee. Retainer Fee PROCUREMEN - Contract
  20. 20. Contract Documents (for works) • SBDs – FIDIC, PPMO, WB, ADB etc. • PWD – till 2002 (advent of PPA) Classification of PPMO's SBD Medium Contracts Works up to NRs.500 million 30million- 500million – NCB Small Contracts IA NRs 6.00 million to NRs.30.00 million. (NCB) Small Contracts IIA NRs 1 million to NRs. 6.00 million. NCB – no qualificatio n criteria only eligibility criteria. Sealed Quotation NRs 0.5 million to NRs.1.00 million. Direct Purchase Works upto NRs.0.5 million. PROCUREMENT - Contract
  21. 21. Contract Documents Case Study – SBD for Small Contracts IA A. Invitation Of Bids (IFB) B. Part I - Bidding Procedures • Section 1 -Instructions to Bidders (ITB) • Section 2 -Bid Data Sheet (BDS) • Section 3 -Evaluation and Qualification Criteria (EQC) • Section 4 -Bidding Forms (BDF) C. Part II - Requirements • Section 5 -Works Requirements (WRQ) • Section 6 -Preamble to the Bill of Quantities (BOQ) D. Part III - Conditions Of Contract and Contract Forms • Section 7 -General Conditions of Contract (GCC) • Section 8 -Special Conditions of Contract (SCC) • Section 9 -Contract Forms (COF) PROCUREMENT - Contract
  22. 22. Contract Documents Case Study – SBD for Small Contracts IA Section I: Instruction to Bidders (IBT) • background information • instruction on preparation of bids [such as filling bid rates, currency of bid, bid validity, bid security; instruction on submission of bids such as mode, deadline, modification and withdrawal; instructions for bid opening and evaluation and award of contract] • performance security • corrupt and fraudulent practices - effective only when the client is strict in safeguarding his investment. PROCUREMENT - Contract
  23. 23. Contract Documents Case Study – SBD for Small Contracts IA Section II: Bidding Data Sheet (BDS) – • ITB - standardized • BDS – to define variable of ITB clauses • [such as addresses, deadlines, bid security amount, date of completion etc. • as Nutshell Section III: Qualification Information • Eligibility criteria - legality, tax clearance, pending litigation, requirements of the J/V partners' minimum share and soundness of the financial situation. • Qualification requirements – firm which does not pass in qualification evaluation, can not be selected despite of his lowest bid. • Pre –qualification - Cartel may be possible. • Post –qualification - less likely PROCUREMENT - Contract
  24. 24. Contract Documents Case Study – SBD for Small Contracts IA QUALIFICATION CRITERIA • Financial Situations: • Historical financial performances - audited balance sheets of last 5 years. • Average Annual construction turnover • Financial Resources: • Cash flow requirement • Line of credits = estimate x (4 to 6)/time period in months • Experiences • General construction experiences: 3 to 5 years • Specific experiences: Similar Size and Nature • Specific key activities • Qualification of key personnel • List of Equipments available: (owned or leased) PROCUREMENT - Contract
  25. 25. Contract Documents Case Study – SBD for Small Contracts IA • Section IV: Form of Bid - standard formats • letter of bid, security guarantee, qualification and eligibility submission formats • Section V: Work requirements - Specification, the Drawings, supplementary information, scope of works. • Section VI: Preamble to the Bill of Quantities: “Bill of Quantities” / “Schedule of Activities” in case of lump sum contracts • Day work Schedule: for any unforeseen work E.g. classes of labor, materials, and equipment • Provisional Sums: - insurance premiums, lab test costs, cost for preparing as built drawings - reimbursable after producing a the original invoices. . • PROCUREMENT - Contract
  26. 26. Contract Documents Contract Management Case Study – SBD for Small Contracts IA Section 7 - General Conditions of Contract (GCC) • Clauses for conditions which apply to the contract. • Consultant/Project Engineer's role in contract administration • Consultant's representative - Project Manager/ Engineer. • Government's technical agency – Employer PROCUREMENT - Contract
  27. 27. Contract Documents Contract Management Case Study – SBD for Small Contracts IA Section 8 - Special Conditions of Contract (SCC) All the variable conditions specific to each contract are included in this section so as to avoid altering the standard conditions. The name of the contract, names and addresses of the client, his representative, the Project Manager, the intended starting date, the location of the site, the defects liability period, the percentage of liquidated damages, bonuses, insurance, language, applicable law, currency of payment, adjudicator, retention amount, performance security and any additional conditions are included in this section. Section 9 - Contract Forms: These are standard forms or formats that is used in the contract. They includes: Letter of Intent, Letter of Acceptance, Contract Agreement, Performance Security, Advance Payment Security, Form of Agreement. • PROCUREMENT - Contract
  28. 28. Contract Documents Contract Management Case Study – SBD for Small Contracts IA ADB/FIDIC provisions (which is not supported by PPR) • Compensation – [late supplying of drawings, delay in providing site, Work stoppage due to emergencies. • Reassessment of rates for variations - if 10% • interest if approved bill same are paid lately. • Arbitration to be settled in the International Chamber of Commerce. Important components of Contract Agreement • Project period – Start & end • Contract price – (Variations/Indemnity and compensation) • Price Adjustment (escalation & currency exchange) • Method of payment • Advance Payment • Penalty /liquidated damages and Bonus • Work Completion and Termination • Insurance • Quality Control • Warranty / D L P • Dispute resolution PROCUREMENT - Contract
  29. 29. CONTRACT ADMINISTRATION • After signing contract > • "The architect/project engineer needs to ensure construction is carried out as per the plans and specifications according to the terms of the contract ." • comprehensive consulting service > architect is in key role • Authorizaton of Personnel: • The client/project director informs the contractor about architect • Contractor informs the his/her representatives. • Study Documents: The architect/project engineer should thoroughly study the working drawings, specifications, estimates, contract documents etc. before commencement of the works. Any errors or omissions > notified/rectift, • Get acquainted with the contractor’s plan of operations, safety provisions and schedule of progress. PROCUREMENT - Contract
  30. 30. CONTRACT ADMINISTRATION • Delays • Liquidated damage > If not able to document the cause of delay > • no Liquidated damage > if Force Majeure - owner directed changes, acts of God, strikes, war etc. • May also covered from Insurance claim. • If owner caused delays > both time extension and additional payments • Payment to Contractor: • prepare/check bills and certify [monthly basis or at every predetermined milestones.] • made for work completed, material delivered to the work site and work prefabricated • a retention money –[5%-10%] as guarantee against any defective work – usually returned of amount after issuance of 'Substantial Completion Certificate the remainder is paid after the expiry of the DLP (covers rainy season) • deductions for any advance payments in each bill PROCUREMENT - Contract
  31. 31. CONTRACT ADMINISTRATION • Record Keeping • project activities, correspondence, daily diaries of events (source of information, outcomes etc. which can serve as evidence in case of later controversies), personnel, supplies and equipment, project progress reports, final report, photographs etc. • Variations • must be within the scope of the contract. • Causes: • modification made by the owner or designer, differing site conditions, unforeseen work essential to complete the work, mistake in estimate • unforeseeable delays which increase the cost or time of construction • substitution by alternate equipment, material or process. • Modifications often require >> adjustments in the contract price and construction time • May become cause of dispute PROCUREMENT - Contract
  32. 32. CONTRACT ADMINISTRATION • Material and Equipment Control: • approval of quality of construction material • take samples and tests of materials • storage and handling • records of presence of materials and equipment >> becomes important in case of termination due to default of contractor. • Work Completion • Inspect the works < After notification from the contractor • Punch list > enlist defects or unfinished works. • Substantial completion certificate >> If minor • DLP – starts soon after Substantial Completion Certificate . • Defect Liability Certification >> if contractor corrects all previously noted defects as well as any new defects by the time the defects liability period is completed • Final payment > + retention money PROCUREMENT - Contract
  33. 33. CONTRACT ADMINISTRATION • Dispute Resolution: • Contractor's Claim > • additional payments • time extension • DISPUTE • a disagreement between the client and the contractor on some contractual matters. • The architect/project engineer as adjudicator > Or • An Adjudicator may be appointed as agreed by both parties> if could not be agreed > appointing authority will do. • properly evaluate • decide • to give his unbiased judgment • if dissatisfied >> arbitration. PROCUREMENT - Contract
  34. 34. PROCUREMENT - Contract FIDIC Red Book 1987Edition 1999Edition
  35. 35. PROCUREMENT - Contract CONTRACT AGREEMENTS (for consulting service) • SCAEF’S Model Agreement – adopted from FIDIC and ADB • CONTRACT Form of Agreement General Conditions of Contract Part 1 - standard conditions Part 2 - special conditions Appendices
  36. 36. CONTRACT AGREEMENTS (for consulting service) • PART 1: Standard Conditions • General Conditions – definitions – Relationship between parties – not master/servant or principal/agent – Language and Law – English/ law of Nepal – Headings – not part of agreement/ not to effect contract – Notices – to be given in writing – Location, Authority of member in charge, Representatives, taxes • Commencement, Completion, Alteration and Termination of Contract – Effectiveness of contract, – Expiry, Variations – Force Majeure [def., measures to be taken, EoT, Consultation, Suspension] PROCUREMENT - Contract
  37. 37. CONTRACT AGREEMENTS (for consulting service) • PART 1: Standard Conditions – Death of client – obligation passed on to successor – Sub-contract – can be done without written consent – Termination By Client • client can terminate contract through written notice giving at least 30 days notice • force majeure • Default by consultant • corrupt n' Fraudulent Practice By Consultant • if payment is not made within stipulated period • if project is postponed by more than 6 months. • Consultant to be paid in full for work performed up to effective date of termination or postponement PROCUREMENT - Contract
  38. 38. CONTRACT AGREEMENTS (for consulting service) • PART 1: Standard Conditions • Undertaking of the Consulting Firm – standard of performance – Records – keep accurate and systematic records and allow client to inspect records and accounts – Information – furnish all required information to client – Confidentiality – conflict of interest – Indemnification - will indemnify client and his agents against all actions, claims and liabilities arising out of consultant’s actions including violation of copyright, patent. – Clients Equipment and Materials – client’s property if furnished or purchased with client’s funds. PROCUREMENT - Contract
  39. 39. CONTRACT AGREEMENTS (for consulting service) • PART 1: Standard Conditions • Undertaking of the Consulting Firm – Proprietary rights of the client in reports and records – Insurance – Notice of delay – promptly notify of any delay and may request for time extension • Liability of the Consulting Firm – liability amount – Liability to expire on date of completion as stated in Part 2 – Liable for violation of patents or copyrights – Not liable for work not undertaken by him – Not liable for actions of client, contractor or supplier not covered by TOR or his instructions or written orders – Liable for payment of taxes, duties, fees as per law PROCUREMENT - Contract
  40. 40. CONTRACT AGREEMENTS (for consulting service) • PART 1: Standard Conditions • Obligations of the Client – provide all relevant information and give decisions timely – Provide free access to land – Where applicable assist in obtaining necessary visas, licenses, permits and customs to bring in equipment, permission to bring reasonable amounts of foreign currency for services and personnel, authorization to take out earned foreign currency and repatriation in event of emergencies. – Client to compensate for any unrecovered cost of taxes, duties etc. where exemptions apply. – Client to provide equipment as listed in Appendix. – Client to provide counterpart staff as listed in Appendix. – Pay remuneration as per agreement. PROCUREMENT - Contract
  41. 41. CONTRACT AGREEMENTS (for consulting service) • PART 1: Standard Conditions • Obligations of the Client – Consultant to cooperate with other firms engaged by client as listed in Appendix. • Settlement of Disputes – Amicable settlement (30 days) – Adjudicator (30 days) – appoint jointly. – Arbitrator (30 days) as per NEPCA -Decision of arbitrator to be final. • Personnel – Services to be carried out by personnel during period indicated in Appendix B – Designate team leader responsible for liaison between client and consultant – If necessary replace staff with person of comparable experience with client approval PROCUREMENT - Contract
  42. 42. CONTRACT AGREEMENTS (for consulting service) • PART 1: Standard Conditions • Personnel (contd…) – Client’s staff to be remunerated and removed by client • Remuneration to the Consulting Engineer – Client to pay consultant as set forth in Appendix – Additional remuneration to be paid if supplementary services required. – If additional work - appropriate remuneration to be paid • Payment to the Consulting Engineer – Payment amount - Appendix. – Payment within 30 days of invoice otherwise interest – If dispute – hold only that item. – If applicable foreign currency payement – Exchange rate of foreign currency = selling rate PROCUREMENT - Contract
  43. 43. CONTRACT AGREEMENTS (for consulting service) • PART 2: Conditions of Particular Application • Notices – addresses • Languages and Law • Authorized Signatories • Others – Commencement Date – Completion Date – Financial Liability of Consulting Engineer – limited to 100% of total remuneration – Expiry of Liability of Consulting Engineer – date – Settlement of Disputes – place – Client’s individual experts – Specification and designs – Special clauses related to particular project PROCUREMENT - Contract
  44. 44. CONTRACT AGREEMENTS (for consulting service) • APPENDICES – ToR – Reporting Requirement – Key personnel and Subconsultants – Duties of the Client – Cost Estimates – Form of Guarantee for Advance Payment. – Minutes of Negotiation meetings. PROCUREMENT - Contract
  45. 45. CONTRACT AGREEMENTS (for consulting service) PPMO model of agreements • PPMO's standard contract document is similar to ADB documents. Some important terminologies to be remembered and understand in details are: • Terminations • Force majeure • Extension of Time (EOT) • Breach of Contract • Conflict of interests • Confidentiality • Obligation of Client • Obligation of Consultants • Payments • Retention PROCUREMENT - Contract

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