Goods mean: Objects of every kind. Commodities, raw materials, manufactured products and equipment, industrial plants. Objects in solid, liquid or gaseous form and electricity. Services incidental to the supply of goods (less than the value of goods).

1. 1
Procurement of Goods
Er. Satya Narayan Shah
1
Er. Satya Narayan Shah
B.Sc. In Mechanical Engineering (India)
MS in Manufacturing Engineering & Management (UK)
Email: er.snshah@gmail.comJanuary, 2015
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“Goods”
(public procurement context)
Goods mean:
 Objects of every kind.
 Commodities, raw materials,
manufactured products and equipment, p q p ,
industrial plants.
 Objects in solid, liquid or gaseous form
and electricity.
 Services incidental to the supply of goods
(less than the value of goods).
3
HOW DOES GOODS
PROCUREMENT DIFFER FROM
OTHERS ?
 Goods are produced elsewhere; Dependent on the
manufacturers
 Quality assurance, Manufacturer’s assurance plan,
specifications
 Warrantee/ Guarantee
 Mostly, payment is done indirect; through bank or
third party
 More dependent on the documentary evidences
 Rely on third party
 Installation, Inspection, Testing and commissioning.
 Trainings
 Need Assessment 4
Defining the need
Ask challenging questions:
what is the procurement aiming to
achieve?
do we really need to purchase?
do we need it to this specification?
what happens to the product at the end-
of-life?
how does this procurement impact upon
our (environmental/ social) objectives
and policies?
Contract types
PPR Schedule‐3, (Relating to Sub‐rule (1) of Rule 21)
(For Goods and Other Services Procurement)
 Contract for supply of specific goods.
 Framework Contract or unit rate contract.
 Multi year contract.
C f d i l d  Contract for design, supply and erect.
 Turn key contracts. ‐(design, procurement of
all inputs, erection at site, commissioning,
testing and even operation for an initial
period)
6Er. Satya Narayan Shah

2. 2
Other Methods of Procurement
PPA 28
 Two‐Stage Bidding: Where the preparation of
complete technical specifications in advance is
undesirable or impractical.
First stage
 unpriced technical proposal on the basis of a
conceptual design or performance specifications are conceptual design or performance specifications are
invited
 subject to technical as well as commercial
clarifications and adjustments to be followed by
amended bidding documents
Second Stage
submission of final technical proposal and priced bids
Er. Satya Narayan Shah 7
DOCUMENTS
8
Bidding Documents
Purpose:
 Equal Information to ALL Bidders
 What is to be Procured
 Technical Requirements Technical Requirements
 How to Prepare a RESPONSIVE
BID
 Evaluation Criteria
 Form of Contract
Bidding documents
Impact of poorly drafted documents:
 Complaints from Bidders
 Selection of Poorly Qualified Firm
D l i P j t Im l m t ti Delays in Project Implementation
 Delays in Disbursements
 Lack of Credibility of Institutions
 Mis-procurement
 Claims and Disputes
PROCUREMENT
The most important
tool to achieve goal
f P h i i thof Purchasing is the
SPECIFICATION.
WORKING ON SPECIFICATION

3. 3
Specification
Specifications help to avoid lengthy description
in the Bill of Quantities.
They guide Bidders about the clients intended
quality requirements and to arrive them at fair
priceprice.
It is clear and concise description of materials
and workmanship.
If required the specification is attached with
proper drawings and other related documents
13
Specification
 Specification is a part of contract documents limiting
and describing the risks and responsibilities.
 Formation of contractual obligations as to what
exactly the clients want.
 Helps the supervisors and commissioning and testing
teamteam.
 It provides basis for dialogue between the Contractor
and the Engineer to agree or disagree for quality of
materials and works.
 Clear specifications will result in less Claims,
Disputes and Litigation problems
 They should be non-discriminatory.
14
HOW SPECIFICATIONS AFFECT PROCUREMENT PROCESS
EFFECT ON: POORLY WRITTEN: WELL WRITTEN:
NUMBER OF BIDDERS Overly broad or restrictive Complete, clear concise
specifications. specifications.
Deter potential bidders. Attract MANY AND
Increase costs. QUALIFIED bidders.
Decrease chance of
desired results.
EVALUATION Easily misinterpreted. SHARP SPECIFIC
PROCESS/PROTESTS Open to challenge and CRITERIA
protest by unsuccessful Easier to evaluate.
bidders. Minimizes possibility ofp y
protests.
BIDDER RISK Unreasonable requirements Reasonable requirements
higher risk and higher costs. lower assumption of risk
by bidders.
TYPE OF CONTRACT Uncertain amount of effort Well defined effort leads
leads to cost reimbursement to a firm fixed price
contract. contract.
ADMINISTRATION OF Unclear inaccurate specifications Well defined specifications
CONTRACT lead to management problems. lead to more control and
easier administration. 15
Specification
That’s why, the
specifications are to be
written by anwritten by an
experienced
professional.
16
A GOOD SPECIFICATION SHOULD BE
1. Simple, consistent and exact, but not so specific that a loophole will
allow a bidder to evade any of the provisions and thereby take
advantage of his competitors or the buyer.
2. Identified, when possible, with some brand specification already on
the market. (Custom goods are expensive).
3. Capable of being checked. It should describe the method of
checking which will govern acceptance or rejection. A specification
which cannot be checked is of little value and only confusion will
result.
4. Reasonable in its tolerance. Unnecessary precision is expensive.
5. As fair to the seller as possible.
6. Capable of being met by several bidders for the sake of competition.
7. Clear and Up-to-Date. Misunderstanding can be expensive.
8. Flexible, inflexible specifications defeat progress. Invite vendors to
suggest cost saving alternatives or substitutes.
KEY WORDS
The inappropriate use of key words in your
specification could have disastrous results if the
supplier is not sure what you are requiring and what
you would like to have. Remember, suppliers, in
order to be competitive, will almost always provide
the least expensive product to you If you say “may”the least expensive product to you. If you say may
rather than “will” in the text of your specification, it
could mean one thing to one supplier and another to
the end user.
Use “shall” or “will” where ever a
specification expresses a requirement.
Use “should” or “may” to express non-
mandatory provisions.

4. 4
MEASUREMENTS
Dimensions, gauges, capacities, size designations,
volume or temperatures should be specified in
accordance with established precedent and trade
practice for the particular commodity or service you
are attempting to purchase. Review the document
after completed and:after completed and:
1. Make every effort to replace words with numbers.
Whenever you go from words to numbers,
communication relating to quantity or quality is
enhanced.
2. Tolerances should be specified where applicable.
3. The use of “minimum” and “maximum” should be
used wherever practical.
FIGURES AND TABLES, GRADES, CLASSES,
TYPES, COMPOSITIONS, ETC.
The use of figures, illustrations, tables and graphs, etc. should be maximized. It
describes the item(s) more clearly and accurately than you can in text. Tables show
relationships more clearly than text. Figures and tables should have titles and parts
clearly identified and should be numbered consecutively throughout the
specifications.
The use of grades, classes and types should be in accordance with established
precedence and trade practices for the type of equipment, materials or supplies you
are bidding. For the purpose of preparing specifications, type grade, class and
iti d fi d f llcompositions are defined as follows:
Type: This term applies differences in design, model, shape, etc. of the items.
Class: This term implies differences in mechanical or other characteristics of items
which do not constitute a difference in quality or grade.
Grade: This term implies differences in quality of a commodity. When practicable, the
first grade of a commodity should be the highest or best grade.
Composition: This term is used to classify commodities which are differentiated
strictly by their respective chemical compositions.
Other Classifications: Other classifications, such as form, weight, size, power
supply, temperature rating, condition, insulation, etc. suitable for reference for the
applicable equipment or commodity item may be used.
WRITING HINTS
Writing Style: Exposition is concerned primarily with the communication
of ideas in a form that the reader can understand. It aims to: Save the
readers time, eliminate confusion, and help the reader gain ideas quickly
and easily.
Active Voice is Preferred: Active voice is the most simple and direct way
to make statements. Action is expressed directly, more vigorously, and
makes the sentence more concise. Readers prefer the active voice becausep
it is more: Direct, interesting and descriptive.
Choosing the Right Word: You can make your meaning more clear by
using shorter words. Shorter, more direct words get to the point, are
clear-cut, and distinctive. For example: activate, expedite, initiate,
nevertheless, prioritize and erroneous.
Write Clear Using Shorter Phrases: Do not use long phrases when it is
not necessary. For example: a great number of times (many), at regular
intervals(every), make contact with(call).
Preparation of Specification
Before writing the specification the requirements
should be clearly worked out.
Requirements are often classified as;
• 'Mandatory' - essential requirements that suppliersy q pp
must meet
• 'Desirable' - requirements that whilst bringing
benefits are not essential
• 'Information' - requirements that request
information from the supplier typically for evaluation
purposes
Er. Satya Narayan Shah 22
Specifications
Use of standard specifications reduces the
chances of ambiguity and also makes easier for
preparation of contract documents.
Reference to standards and codes e.g. IS, BS,
23
NS etc. reduce extra efforts in detailing the
specification etc.
Standard Specification- Prepared and
published by the organization.
Standard Specification needs to be approved by the
Cabinet level. Er. Satya Narayan Shah
Specification to be
required to describe the
desired performance,
d t t dand not to reduce
competition.
24

5. 5
Examples of Specification
• Example – Vehicle
•Type – Sedan, Hatchback,
•General - Seating capacity, Engine Power,
C.C etc.
T i i 4 d d•Transmission – 4 speed, 5 speed
•Steering – Manual, power
•Options – AC, Non AC,
•Warranty - Period to be covered
Spec
Car
25
Spec
BIVMicrosoft Office
d 97 - 2003 Docum
Other Standard Documentation
• Commercial Documents- Invoice, Packing
list
• Official Documents- License, Embassy
legalization, Origin Certificate, Inspection
Certificate, Phytosanitary certificate, Other
Legal Documents
• Transport Documents- Bill of Lading (ocean
or multi-modal or Charter party), Airway bill,
Lorry/truck receipt, railway receipt, Forwarder
Cargo Receipt, Deliver Challan...etc
• Insurance documents- Insurance policy 26
Price schedule :offered from abroad.
• Item description.
• Country of origin.
• Quantity.
• Unit price FOB.
Price schedule
p
• Unit price CIF, CIP ( Port of destination, Place of destination)
• Total price.
• Unit price of Inland delivery to final destination
and unit price for other incidental services (if any).
27
Price schedule: Goods offered from within Nepal.
• Item, Description.
• Country of origin.
• Quantity.
• Unit price EXW per item.
• Cost of local labor raw materials and• Cost of local labor, raw materials and
component indicated as percentage of EXW
price.
• Unit price per item final destination and unit
price of other incidental services.
• VAT and other taxes payable
28
Schedule of requirements.
• This schedule should cover description of
goods and services to be supplied and delivery
dates.
• Destination of delivery should be carefully
specified as per used INCOTERMS (CIF, CIP
etc.)etc.)
• The date prescribed herein from which the
seller’s delivery obligation starts (i.e. from
notice of awards or contract signature or
opening or confirmation of L/C) should be
stated clearly.
• There may be range of acceptable delivery periods.
29
international terms
of trade.
INCOTERMS

6. 6
Goods Delivery
32
Background - Introduction
• INCOTERMS are the terms of trade in
business
• Published and developed by the
International Chamber of CommerceInternational Chamber of Commerce
(ICC)
• First established in 1936, updated
periodically with the latest version being
“INCOTERMS 2010”
33
INCOTERMS
What are INCOTERMS?
The official rules of International Chamber
of Commerce (ICC) for the interpretation
of trade terms accepted by governments,
legal authorities and practitioners
worldwide
Explanation of Obligations of seller and
buyer regarding delivery, division of cost,
transfer of risk, packing, Inspection of
goods, contract of carriage and Insurance,
proof of delivery etc.
34
Purpose of INCOTERMS
 To facilitate the international trade so that goods are sold in
more countries, in larger quantities, & in greater variety
 To clearly define the respective obligations of seller & buyer
 To reduce the risk of legal complication in a sales contract
 To respond to the global business needs everywhere
 Reduces or removes uncertainties arising from differing
interpretations of shipping terms in different countries.
 Reference to a proper INCOTERMS in a contract clearly
defines each party’s obligations, costs and risks in the
international transaction and reduces the risk of legal
complications.
 They can assist in defining what costs the purchase price
includes (e.g. prepaid international freight, prepaid duties,
insurance, etc.), and clarify the risks & liabilities.
35
INCOTERMS
• When we buy, it tells us:
•If we have to make logistics arrangements to move the goods
•If we have to make arrangements to clear goods for export and or import
•What is included in our price (freight, duties, import/export fees, etc).
•If there is a problem in transit, who holds the responsibility
• When we sell, it tells us:
•How to price our sales transaction (do we include freight, duties and taxes in
our price)
•Do we have to export clear the shipments, do we have to import clear the
shipment?
•Do we have to make the logistics arrangements
•Our responsibility if there is a problem in transit
• We need to evaluate our capabilities before we enter into international
contracts!
36

7. 7
INCOTERMS 2000
E EXW Ex Works
F FAS Free Alongside Ship
FCA Free Carrier
FOB Free On Board
C CFR Cost and Freight (was C&F)
CIF Cost, Insurance and Freightg
CIP Carriage and Insurance Paid To
CPT Carriage Paid To
D DAF Delivered At Frontier
DDP Delivered Duty Paid
DDU Delivered Duty Unpaid
DEQ Delivered Ex Quay
DES Delivered Ex Ship
37
INCOTERMS GROUPS
INCOTERMS fall into four different groups :
• Departure “E”
• Main Carriage Unpaid “F”
• Main Carriage Paid “C”
A i l “D”• Arrival “D”
The point at which liability and carriage transfer
from the seller to the buyer distinguishes the
groups and each group’s letter corresponds to
the first letter of an INCOTERM.
38
Organization of INCOTERMS 2000
Incoterms are divided into four (4) categories:
• “E” term – Seller makes the goods available to the buyer
at the seller’s premises or other place named by the seller
• “F” terms – Seller is responsible to deliver the goods to
the export shipment point and carrier designated by the
buyer
39
• “C” terms – Seller is responsible for contracting carriage
of goods to the place of destination, but does not assume
risk of loss or damage to goods, or additional costs due to
events occurring after shipment
• “D” terms – Seller is responsible for all costs and risks
associated with delivering goods to the named place in
the country of destination
EXW – Ex Works (Named Place)
• Seller:
– Informs the Buyer when and where the goods will be
available
– Provides Commercial Invoice, Packing List &
Certificate of Origin
• Buyer:
Obt i th E t Li
40
– Obtains the Export License
– Arranges all carriers
– Loads goods onto the carrier at the point of departure
– Obtains import licenses and arranges import formalities
• Risk of loss or damage passes to the buyer from the
seller's door
• Difficult to use with controlled items due to license issues
Incoterms FOB – Free On Board (Named
Shipping Port)
• Seller:
– Obtains the Export License
– Arranges delivery of goods to & loads the buyer’s
carrier
– Places goods on board the ocean vessel at the port of
export designated by the Buyer
B
41
• Buyer:
– Gives sufficient notice to the Seller of the carrier &
delivery point
– Arranges the main carriage
– Obtains import licenses and arranges import formalities
• Risk & responsibility passes to the buyer when the goods
pass the rail of the vessel
• Used for sea or inland waterway transportation only
42

8. 8
CIF (…named port of destination)
• CIF means that the seller delivers when the goods
pass the ship's rail in the port of shipment.
• The seller must pay the costs and freight necessary
to bring the goods to the named port of destination
but the risk of loss or damage to the goods as well
as any additional costs due to events occurringy g
after the time of delivery are transferred from the
seller to the buyer.
• The seller contracts for insurance and pays the
insurance premium with a minimum cover.
• This term can be used only for sea and inland
waterway transport.
43 44
CIP Carriage and Insurance paid to
(…named place of destination)
• CIP means that the seller delivers the goods to the
carrier nominated by him, but the seller must in
addition pay the cost of carriage necessary to bring
the goods to the named destination. Seller has to
procure insurance against the buyers risk of loss or
damage to the goods during the carriage.
• The risk passes when the goods have been
delivered to the first carrier.
• This term may be used for any mode of transport
including multimodal transport.
45 46
FCA – Free Carrier (Named Place)
• Seller:
– Obtains the Export License
– Arranges delivery of the goods to the buyer’s carrier
• If delivery point is at the Seller’s facility, the Seller
must load the goods onto the Buyer's collecting
carrier.
• If not delivering at the Seller’s facility, there is no
47
obligation to load.
• Buyer:
– Gives sufficient notice to the Seller of the carrier &
delivery point
– Arranges the main carriage and the on-carriage
– Obtains import licenses and arranges import formalities
• Risk of loss or damage passes to the buyer when the
seller delivers the goods to the carrier
DDU – Delivered Duty Unpaid (Named
Place)
• Seller:
– Obtains the Export License
– Arranges for and pays freight costs of carriage to the named
point of destination
• Buyer:
Accepts and unloads the goods
48
– Accepts and unloads the goods
– Obtains import licenses and pays for import clearance
• Risk and responsibility of import clearance pass to buyer when
seller delivers goods to named destination point.
• Often can be used to lower duties or taxes when foreign buyer
can receive a voucher for any cost incurred
• If the parties wish the buyer to bear all risks and costs of the import, the
DDU term should be used.

9. 9
DDP – Delivered Duty Paid (Named Place)
• The seller delivers the goods to the buyer, cleared for import,
and not unloaded from any arriving means of transport at the
named place of destination
• The seller has to bear all the costs and risks involved in
bringing the goods thereto including, where applicable, any
"duty" (which term includes the responsibility for and the
risks of the carrying out of customs formalities and the
49
payment of formalities, customs duties, taxes and other
charges) for import in the country of destination.
• DDP represents the maximum obligation to the seller.
• This term should not be used if the seller is unable directly or
indirectly to obtain the import license.
• Parties may exclude from the seller's obligations some of the
costs payable upon import of the goods (such as VAT).
Responsibilities of the Seller (Exporter) and Buyer (Importer)
Trade contract responsibilities EXW FCA FAS FOB
Inland freight in Seller's country O O O O
Customs clearance in Seller's country O O O O
Payment of customs charges and taxes in export O O O O
Loading to the main carrier O O O O
Main carriage/freight O O O O
Cargo (marine) insurance O O O O
Unloading from the main carrier O O O O
Customs clearance in Buyer's country O O O O
Payment of customs duties and taxes in import O O O O
Inland freight in Buyer's country O O O O
Other costs and risks in Buyer's country O O O O
O Seller is responsible
O Buyer is responsible 50
Responsibilities of the Seller (Exporter) and Buyer (Importer)
Trade contract responsibilities CFR CIF CPT CIP
Inland freight in Seller's country O O O O
Customs clearance in Seller's country O O O O
Payment of customs charges and taxes in export O O O O
Loading to the main carrier O O O O
Main carriage/freight O O O O
Cargo (marine) insurance O O O O
Unloading from the main carrier O O O O
Customs clearance in Buyer's country O O O O
Payment of customs duties and taxes in import O O O O
Inland freight in Buyer's country O O O O
Other costs and risks in Buyer's country O O O O
O Seller is responsible
O Buyer is responsible 51
Responsibilities of the Seller (Exporter) and Buyer (Importer)
Trade contract responsibilities DAF DES DEQ DDU DDP
Inland freight in Seller's country O O O O O
Customs clearance in Seller's country O O O O O
Payment of customs charges and taxes in export O O O O O
Loading to the main carrier O O O O O
Main carriage/freight O O O O O
C ( i ) i O O O O OCargo (marine) insurance O O O O O
Unloading from the main carrier O O O O O
Customs clearance in Buyer's country O O O O O
Payment of customs duties and taxes in import O O O O O
Inland freight in Buyer's country O O O O O
Other costs and risks in Buyer's country O O O O O
O Seller is responsible
O Buyer is responsible 52
INCOTERMS 2010
• INCOTERMS 2000 has been modified on
27th September 2010 and has been
enforced from 1st January 2011.
• DAF (Delivered at Frontier) DES• DAF (Delivered at Frontier), DES
(Delivered Ex Ship), DEQ (Delivered Ex
Quay) / DDU(Delivered Duty Unpaid) have
been removed.
• DAT( Delivered at Terminal),and DAP
(Delivered at Place) have been introduced.
53
INCOTERMS 2010Group E Departure.
EXW Ex Works (…named place)
Group F Main carriage unpaid.
FCA Free Carrier (…named place)
FAS Free Alongside ship (…named port of shipment)
FOB Free on Board (…named port of shipment)
Group C Main carriage PaidGroup C Main carriage Paid
CFR Cost and Freight (…named port of destination)
CIF Cost Insurance and Freight (…named port of destination)
CPT Carriage Paid To (…named place of destination)
CIP Carriage and Insurance Paid (…named place of destination)
Group D Arrival
DAT Delivered At terminal (…named place)
DAP Delivered At Place(…named place)
DDP Delivered Duty Paid (…named place of destination)
54

10. 10
DAT - Delivered at Terminal
• Seller bears cost, risk and
responsibility until goods are
unloaded (delivered) at named quay,
warehouse, yard, or terminal atwarehouse, yard, or terminal at
destination. Demurrage or detention
charges may apply to seller. Seller
clears goods for export, not import.
DAT replaces DEQ, DES.
55
DAP - Delivered at Place
• Seller bears cost, risk and
responsibility for goods until made
available to buyer at named place of
destination Seller clears goods fordestination. Seller clears goods for
export, not import. DAP replaces DAF,
DDU.
56
MULTIMODAL
TRANSPORT
Exw(Exworks)
FCA(Freecarrier)
CPT(Carriagepaidto)
CIP(CarriageandInsurancePaidto)
INCOTERMS 2010
57
CIP(CarriageandInsurancePaidto)
DAT(DeliveredAtTerminal)
DAP(DeliveredAtPlace)
DDP(DeliveredDutyPaid)
INCOTERMS 2010
SEAORINLAND
WATERWAY
TRANSPORT
FAS(FreeAlongsideShip)
FOB(FreeOnBoard)
58
CFR(CostandFreight)
CIF(CostinsuranceandFreight)
Limitation of INCOTERMS
– Scope is limited to matters relating to the rights and
obligations of the parties to the contract with respect to
the delivery of goods.
– Two misconceptions about INCOTERMS
• 1st, they are frequently misunderstood as applying to
the contract of carriage rather than to the contract of
sale/buy.
• 2nd, they are sometimes wrongly assumed to provide
for all the duties which parties may wish to include in
a contract of sale.
– Generally, they don’t deal with the consequences of:
• Breach of contract.
• Any exemptions from liability.
• Transfer of ownership and other property right.
59
Country of Origin
• For purposes of this Clause, “origin” means the
place where the Goods were mined, grown, or
produced, or from which the Services are
supplied. Goods are produced when, through
manufacturing, processing, or substantial and
major assembly of components a commerciallymajor assembly of components, a commercially
recognized new product results that is
substantially different in basic characteristics or
in purpose or utility from its components.
• The origin of Goods and Services is distinct from
the nationality of the Supplier.
60

11. 11
Shipping Documents
• A legal document between the shipper of a
particular goods and the carrier detailing the
type, quantity and destination of the goods being
carried. The Transport Document also serves
as a receipt of shipment when the goods are
delivered to the predetermined destination. This
document must accompany the shipped goods,
tt th f f t t ti d tno matter the form of transportation, and must
be signed by an authorized representative from
the carrier, shipper and receiver.
• They are - Bill of Lading (ocean or multi-modal
or Charter party), Airway bill, Lorry/truck receipt,
railway receipt, Forwarder Cargo Receipt,
Deliver Challan...etc
61
WARRANTY/GUARANTY
• Official authorization, sanction, or warrant.
• An assurance by the seller of property that the goods or property are
as represented or will be as promised.
• The insured guarantee that the facts are as stated in reference to an
insurance risk or that specified conditions will be fulfilled to keep the
contract effective.
• A guarantee given to the purchaser by a company stating that a
product is reliable and free from known defects and that the sellerproduct is reliable and free from known defects and that the seller
will, without charge, repair or replace defective parts within a given
time limit and under certain conditions.
A guarantor
 To assume responsibility for the debt, default, or miscarriage.
 To undertake to do, accomplish, or ensure (something) for
another.
 To express with conviction: I guarantee that you'll like this book.
“Place of Destination” & “Final destination (Project
Site)”…
• Sometimes both may be a single place.
• For large value goods or sophisticated goods,
“Place of Destination” is chosen any easily
accessible place instead of the project site
where goods are to actually used
63
where goods are to actually used.
• Transportation of goods from “Place of
Destination” to the “Final destination (Project
Site)” may be done in two ways: (i) Not
included in the supply contract and purchaser
itself does it, or (ii) included in the contract, but
with separate pay item.
Inspection & Commissioning of GoodsInspection & Commissioning of Goods
Inspection CommitteeInspection Committee
Compliance with the conditions ofCompliance with the conditions of
contractcontract
Verification of the technical specificationVerification of the technical specification
Physical verificationPhysical verificationPhysical verificationPhysical verification
Verification & validation of performancesVerification & validation of performances
Inspection ReportInspection Report
Supplier will be entitled to remove theSupplier will be entitled to remove the
defective goods at its own risk/costs.defective goods at its own risk/costs.
6464
MODES OF PAYMENTMODES OF PAYMENT
MeansMeans by which aby which a paymentpayment isis
made, such asmade, such as
Advance paymentAdvance payment (most secure for(most secure for
seller)seller)
Direct/Cash paymentDirect/Cash payment (most secure for(most secure for
6565
ect/Cas pay e tect/Cas pay e t ( ost secu e o( ost secu e o
buyer)buyer)
Documentary CreditDocumentary Credit (more secure for(more secure for
seller as well as buyer)seller as well as buyer)--L/CL/C
Documentary collectionDocumentary collection (more secure(more secure
for buyer and to a certain extent to seller) Alsofor buyer and to a certain extent to seller) Also
called "Cash Against Documents".called "Cash Against Documents".
Letter of Credit.Letter of Credit.
Delivered
CIF
BUYER SELLER12. Goods
5. Goods On
Board
1. Contract
6.
Doc.s
11.
M
o
2
C
r
10.
D
o
c 7
4. Advice
L/C
Issued
3. Letter of Credit
8. Documents
o
n
e
y
e
d
i
t
u
m
e
n
t
s
ISSUING BANK ADVISING /CONFIRMING
BANK
9. Money
6666

12. 12
RISK SITUATIONS IN LETTER-OF-CREDIT
TRANSACTIONS
Risks to the Applicant
• Non-delivery of Goods
• Short Shipment
• Inferior Quality
• Early /Late Shipment
• Damaged in transit
• Foreign exchange
• Failure of Bank viz. Issuing bank / Collecting
Bank
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Documents Required for Payment.Documents Required for Payment.
Goods supplied from out side :
 Copies of supplier’s invoice.
 Non negotiable bill of lading marked “ freight prepaid.”
 Packing list identifying contents of each packages.
I D t Insurance Documents
 Inspection certificate
 Certificate of origin
Goods from within Nepal:
 Supplier’s invoice.
 Delivery note, Carrier receipt.
 Insurance, Warranty, and Inspection certificate.
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Common Defects in Documentation
• Letter of Credit has expired prior to presentation of draft.
• Bill of Lading evidences delivery prior to or after the date range stated in
the credit.
• Stale dated documents.
• Changes included in the invoice not authorized in the credit.
• Inconsistent description of goods.
• Insurance document errors.
• Invoice amount not equal to draft amountInvoice amount not equal to draft amount.
• Ports of loading and destination not as specified in the credit.
• Description of merchandise is not as stated in credit.
• A document required by the credit is not presented.
• Documents are inconsistent as to general information such as volume,
quality, etc.
• Names of documents not exact as described in the credit. Beneficiary
information must be exact.
• Invoice or statement is not signed as stipulated in the letter of credit.
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