PROCUREMENT AND CONTRACT MANAGEMENT

PROCUREMENT AND CONTRACT MANAGEMENT Training Slides for Higher Local Governments Procurement and Contract Management in HLGs

Procurement and Contract Management: Course Objectives At the end of the course, the participants should be able to: • Understand the key pillars and objectives of the new public procurement system in Uganda; • Identify the roles of various parties in LG procurement; • Explain and draw up good procurement plans; • Describe the tendering process and methods; • Learn how to write good specifications and tender documents; • Evaluate bids correctly, award contracts properly, negotiate and prepare enforceable contracts; • Explain the required documents like LPOs, contract registers and certificates of work done; • Carry out effective contract supervision and follow –up; • Describe the ethical code of conduct; • Appreciate the need for good supplier relationships. Procurement and Contract Management in HLGs

Module One: Session One:Conceptual Underpinnings What is procurement? To procure means to obtain something, especially with care and effort. Procurement is therefore the process of obtaining something. This course focuses on the procurement of goods and services. The procurement process includes outright purchasing, hiring, leasing,\or any other contractual means of engaging suppliers in the provision of services by the LG to the public. The two special problems to contend with in public procurement includes: (a) Protectionism, and (b) Accountability. Procurement and Contract Management in HLGs

Protectionism: Local Governments tend to buy locally in an effort to try and appease/benefit voters. This may remove fair competition; Accountability: accountability for the use of public resources is a necessity as LGs must account to the public (including disappointed Tenderers and potential suppliers) This requires detailed procedures, records and justifications for every procurement decision. The purpose of accountability is to prevent abuse of the procurement process Forms of Procurement Procurement for manufacturing/service delivery (e.g.drugs) Procurement for re-sale Procurement for consumption, e.g. cleaning detergents LG procurements fall under the first and third categories Types of Procurements Works: construction of bridges, roads,\ plant, the design, rehabilitation, maintenance and repair of buildings, etc Supplies: includes procurement of materials, drugs, foodstuffs, etc Services: cleaning contracts, revenue collection, studies, technical assistance, etc Module One:Session One: Problems in Public Procurements and Types of procurements Procurement and Contract Management in HLGs

Objectives of procurement: To purchase the right quality of goods and services, at the right time, in the right quantity, from the right source at the right price; To provide the LG with a constant flow of goods and services to meet its needs; To reduce costs through more effective purchasing by buying wisely, efficiently and ethically to obtain the best value for money; To ensure continuity of supply through having good relationships with existing suppliers and contractors, and developing other sources of supply; To manage stocks in the best way so as to provide the best possible service to the public at the lowest cost. Advantages of centralized procurement in Local Governments Economies of scale Economies of staffing and clerical effort Expert procurement staff can be employed Avoidance of price anomalies between departments Standardization of items for all departments. Module One:Session One: Objectives of Public Procurements Procurement and Contract Management in HLGs

Advantages of decentralized procurements: Needs of departments are best met by those who know them; The department manager is directly accountable for all procurements; Capacity to respond to emergency procurement requirements . Principles of Public Procurement (Sections 43-45, PPDPAA 2003) Non-discrimination Promotion of transparency, accountability and fairness Achieving value for money,- securing economy and efficiency in procurement Keeping of confidentiality until successful bidder is notified of award Following up the existing code of conduct Use of open competitive bidding Public accessibility Award to the best evaluated offer Module One:Session One: Principles of Public Procurements Procurement and Contract Management in HLGs

Regulation 74: LGFAR require LGTBs to demonstrate a high degree of transparency and integrity. They should apply the following principles: Preference for Ugandan manufactured goods; Awarding of contracts to local contractors; Preference to suppliers and contractors located in the local area. Qualities of Procurement Personnel Good communication and negotiation skills Understanding of the operations of a Local Government High ethical standards and integrity Technical knowledge of products being procured Knowledge of contract and commercial law Costing and value analysis skills Good Practices Emphasize transparency and accountability Avoid favouritism and corruption LGTB to make all procurement decisions Module One:Session One: Qualities of Procurement Personnel Procurement and Contract Management in HLGs

Module One:Session Two: The Procurement Legal Framework The Public Procurement and Disposal of Public Assets Act 2003 (came into force on 21 February 2003) • Governs public procurement for the whole public sector in Uganda. • The institutional framework consists of: - the Public Procurement and Disposal of Public Assets Authority. This replaced the Reformed Central Tender Board;- the Procuring and Disposing Entities. The Authority has political, regulatory, data management and capacity building functions. Procurement Entities include Ministries, Commissions, Statutory Bodies and other Government Departments. Procurement and Contract Management in HLGs

Requirements of Sections 92 to 95 of the LGA dealing with LGTB: The creation of DTBs in each district to provide services to the District, Sub-counties and Administrative Units; The creation of Urban Tender Boards for each Urban Council. The Urban Council may however opt to use the District LGTB; Each Tender Board to have a Secretary at the rank of Assistant Chief Executive. Stipulations under Part IX of the Local Governments Financial and Accounting Regulations, 1998: Establishment of LGTBs; LGTBs to be transparent and apply high degree of integrity; LGTBs to award all contracts for works, services and goods and to decide on disposal of assets; Minister to set limits on awards given annually by CEO outside the TB authority; Maintenance of a list of approved suppliers; Establishment of Technical Evaluation Committees. Module One:Session Two: Procurement Legal Framework-The Local Governments Act 1997 Procurement and Contract Management in HLGs

Module One:Session Two: Qualifications of LG Tender Board Members Members of the LG Tender Board must have the following qualifications and attributes: • Be of high moral character and proven integrity; • Have work experience of more than seven years in the public service or any recognised institution; • Be reasonably literate; • Be resident within the jurisdiction of the Council; • Have a source of income independent from the Council of his/her residence. A member of Parliament, a LG Council, an Executive body of a political party or political organisation, a public officer and those dismissed from public offices are forbidden from membership of the LGTBs. Procurement and Contract Management in HLGs

Module One:Session Three: The Procurement Cycle and Planning The Procurement Cycle: (steps) • Recognition of need • Availability of Budget • Identification of detailed requirements • Development of specifications • Preparation of requisitions • Approval of requisitions • Selection of procurement method • Preparation of bidding documents • Pre-qualification of Tenderers • Invitation of Bids • Receipt and opening of bids • Evaluation by Technical Evaluation Committee • Consideration/ approval of evaluation by LGTB • Award of Tender by LGTB • Negotiation of Tender by LGTB Procurement and Contract Management in HLGs

Contract , or LPO signed by CAO Receiving and inspection of goods Certification of supplier invoices by the Head of Department Monitoring and reporting Closing of procurement file Procurement planning refers to the setting of procurement targets and activities by LGs in a manner that spreads them out in an annual calendar in accordance with resource availability and needs. Forecasting and Budgeting Procurement Requirements The two methods used by LGs to forecast requirements include: Bills of materials explosion- bills of materials (where available) are used to forecast requirements. Past consumption analysis- analysis is made of past consumption data to project the future demands. Mathematical techniques like trend analysis and correlation may be used Module One:Session Three: The Procurement Cycle (Continued) Procurement and Contract Management in HLGs

Module One:Session Four: Influences on Methods of Procurement The choice of a procurement method is determined by the estimated value of the requirements, and the circumstances connected to those requirements. Regulation 75 of LGFAR 1998 states that:- • The LGTB shall award all contracts for works, services or goods and decide on the disposal of assets in its jurisdiction; • Each financial year the Minister shall determine the maximum amount the CEO may award outside the TB authority; • Contracts below the limits set by the Minister may be entered into by the CEO and reported to the LGTB. Procurement and Contract Management in HLGs

Module One:Session Four: Procurement Procedures • Section 51 of the Public Procurement and Disposal of Public Assets Act, 2003 requires all public procuring entities to use open bidding as the preferred method of procurement and disposal. • Other procurement methods are allowed by this Act because open bidding is both time consuming and costly. Methods of procurement included in LG regulations: • Open Competitive International Tenders: used for major works if qualified national tenderers are few, or not available; • Selective Competitive International Tenders: where major works are of a highly specialized nature and qualified firms have been pre-qualified; Procurement and Contract Management in HLGs

Module One:Session Four: Methods of Procurement (continued) • Open Competitive National Tenders: Can be used for contracts for services. • Selective Competitive National Tenders: Used for minor works, major supply contracts if qualified suppliers are available, and for contracts for services • Single Tender Negotiation: Involves sole sourcing where competition is not possible. The practice is to call quotations from a few (about 3) suppliers to quote for the supply of a given item. The method can be used by LGs in minor maintenance works and repair contracts and contracts for services. Procurement and Contract Management in HLGs

Module Two:Session One: Supply Market Analysis • A Market is an area for potential exchange. Markets are made up of buyers demanding products and services and, suppliers offering them for sale. • Market analysis is done by the LGs to be able to maintain a list of possible sources of goods, services and works which are reliable Principles in sourcing service providers and contractors: • Suppliers of goods manufactured in Uganda should be within acceptable limits of quotations and should be able to produce/supply goods of good quality; • Contractors for services and works should be identified from the local or international service providers locally established in the country but employing local staff; • Resident providers of services/goods should be preferred on condition that they are of proven integrity and add no extra cost above competitors. Procurement and Contract Management in HLGs

Market research is a tool for conducting the search for suppliers. It helps to:- Gather information necessary in finding a product; Ensure competition; Identify the expertise and track record of supplier; Determine fair and reasonable prices; Locate performance standards; Find other invitations to tender of like items; Learn what the newest use of technology are relating to customer requirements. Steps in supplier appraisal Determine the criteria for appraisal Identify potential suppliers Screen the potential suppliers Research further information on suppliers Weigh the criteria and rate the suppliers Review the outcome with suppliers Determine supplier development strategy Record the outcome in a supplier database Module Two:Session One: Research ;and Supplier Appraisal Procurement and Contract Management in HLGs

Module Two:Session One: Weighting and Rating Suppliers The supply capability criteria should include: Supply targets- the basis for weighting criteria: how to grade or weigh the appraisal criteria will be related to the supply targets for the purchase item; Determining the weights- the first question is, of all the relevant appraisal criteria to purchase, which is their order of importance and how can this be quantified? Rating supplier’s capabilities Supplier rating is measuring the various potential suppliers one is considering against the above criteria. It involves:- Setting the range of appraisal categories and their scores; Using the appraisal criteria and scores to rate capabilities. Procurement and Contract Management in HLGs

Module Two:Session Two: Specifications • Specification refer to a statement of requirements to be satisfied by a product, material or process, indicating whenever appropriate, the procedures by which it may be determined and whether the requirements given have been satisfied. • Issues addressed by specifications:- • What exactly is required (quality, type,size,performance, etc) • How much is required? • When is it required? • Where should it be transported/delivered? • How should the quality be tested/ Consequences of wrong specifications • Interruption of service delivery • Damage of purchases arising from inadequate packing • Additional costs arising from non-performance of items bought Procurement and Contract Management in HLGs

Types of Specifications: Brand Name: means by which one producer distinguishes his/her product from those of other producers in the same industry, e.g. ‘Tororo’ Cement, ‘Hima’ Cement and ‘Bamburi’ Cement; Technical Specifications: design, physical dimensions, processes, etc; Functional Performance Specifications: what a product is supposed to do or achieve and how well this can be achieved; Composition Specifications: make- up of a product expressed in physical characteristics, e.g. weight, volume, ingredients, etc. Samples: may be used if the item is hard to describe and it is therefore more worthwhile to show it physically to suppliers. Standards are specified levels of quality. Procurements must be of acceptable and well -defined quality. Categories of standards include:- Industrial standards: usually developed by trade and industry associations; National standards: standards agreed within a country, e.g. standards for the construction of classroom blocks under the SFG; Module Two:Session Two: Types of Specifications Procurement and Contract Management in HLGs

Regional Standards:Products sold within a regional market like that of the UN must comply with, for instance, EU Directives; International Standards: Established by institutions like the ISO and enable buyers and sellers to use common parameters and to speak the same language. Quality is the term used to describe the total characteristics of an entity on its ability to meet stated and implied needs Bid Documents: Tender documents for procurement in LGs should include:- Instructions to tender; Description of the method of evaluation; Relevant set of general conditions; Special conditions; Technical specifications, drawings, ToR; General information; Applicable tax and customs arrangements; Price breakdown and BoQs; Bid Form; Bid guarantee; Contract Form; Advance payment bond form for contracts; Manufacturer’s letter of authorization; Pre-bid conference. Module Two:Session Two: Standards and Specifications Procurement and Contract Management in HLGs

Module Two:Session Three: Tendering in LGs Tendering can be defined as a formal offer to supply goods, carry out works, or provide services . This offer is carried out within agreed prescriptions that includes the price. Four (4) Main Phases of Bidding in LGs: • Analysis and decision- making; • Invitation to tender; • Evaluation and award of tender; • Implementation of contract.. Types of Tenders: • Open competitive International tenders; • Selective competitive international tenders; • Open competitive national tenders; • Single tender negotiation; • Force account. Procurement and Contract Management in HLGs

Determinants of procurement procedure and type of contract: Works :– major (above shs.150m) Minor (between shs 20 and <shs 150m Maintenance, minor repairs < shs.20m Supplies: major- (above shs. 50m) Minor (below shs.50m) Services: (above shs. 50m) Minor (below shs.50m) Factors to consider in short listing: Register of suppliers/contractors; Newly developed list of pre-qualified providers; Open market; Clarifications: these should be made in writing thereby making it part and parcel of the tender document. Bid validity: Tender Board must give a minimum of 14 . and maximum of 45 days to allow responsive Tenderers prepare and submit tenders. Module Two:Session Three: Tendering in LGs Procurement and Contract Management in HLGs

Module Two:Session Four: Supplier Evaluation and Selection • Technical Evaluation Committees in LGS are responsible for evaluating bids and quotations, ranking them in order of pricing and quality tests. • The TEC submits its evaluation report and assessment scores to the DTB Stages in bid evaluation: • Preliminary examination; • Technical evaluation; • Financial evaluation- to compare costs of the eligible, responsive and technically compliant bids. Report of the Technical Evaluation Committee: • Evaluation and assessment of scores to each bidder; • Minutes of the committee; • Criteria against which the scoring was made; • Ranking of bidders in order of quality and responsiveness; • Recommended winner. Procurement and Contract Management in HLGs

Module Two:Session Five: Orders and Contracts • A contract is a written agreement that allocates the risks and rewards of a transaction between the parties involved • The contents of a contract are determined by the statements in the tender documents. Supplier/Contractor’s obligations: • To deliver the goods/services as agreed • To deliver the documents that are related to the goods • To transfer the title of ownership of a product • To ensure the conformity of goods/services • In general, to act in good faith and deal fairly • Civil liability of the manufacturer in case of injury to persons,or objects Procurement and Contract Management in HLGs

Some of the problems encountered in contracting include: Applicable law; Bidding strategy; Change of ownership/management; Changed circumstances; Currency fluctuations and FE controls; Delays; Delivery; Differences in business cultures; Dominance; Lack if specificity; Language problems. Tips on making valid contracts: Know what the LG wants to obtain; Know the supplier/contractor; A good contract is one where all parties win; Never allow the supplier to make promises that cannot be accomplished; Avoid ambiguous drafting; Keep technology in mind; Keep intellectual and industrial property rights in mind; Have a clear dispute resolution clause; Have a termination clause; Be mindful of the business culture. Module Two:Session Five: Problems in Contracting Procurement and Contract Management in HLGs

Types of Contracts: Lump sum contracts: the all-in price covers the whole of works, supplies or services Unit-price contracts: works, supplies and services are broken down on the basis of BoQ but the unit price is also indicated Cost- plus contracts: works, supplier, services are paid on the basis of actual costs plus overheads and profit Composite contracts: prices are fixed on the basis of at least two of the methods above Provisional price contracts: awarded without prices being pre-determined Local Purchase Orders (LPOs) Goods and services procured in Uganda By a LG are ordered vide a Local Purchase Order which must be prepared in triplicate and signed by the following: Head of Department or Deputy Chief Executive Chief Finance Officer LPOs are raised in the names of the supplier based on a tender award by the LGTB. The tender board minutes are always quoted as reference to the source of authority. Module Two:Session Five: Types of Contracts Procurement and Contract Management in HLGs

Module Two:Session Six: Negotiation • Negotiation is the process whereby two or more parties, initially with differing views attempt to reach an agreement on a common objective by selective use of different methods of persuasion. • Preparing for negotiation involves: • Knowing the purchasing context; • Getting and understanding the facts; • Determining the negotiation objectives and strategy. The preparation stage comprises; • Identifying the needs to be satisfied; • Determining the purchasing strategy; • Deciding on appropriate supplier relationships. Procurement and Contract Management in HLGs

Stages in Negotiation: Opening stage: be welcoming, show interest, be warm but firm and agree on the agenda Do not be demanding, do not put any conditions, do not refer to contracts to make them feel uneasy Testing stage: both sides test their perceptions and understanding of the various issues; Proposal Stage: LG asks the supplier to make his proposal first Try not to reject a proposal instantly, or to make counter proposals immediately Bargaining stage: always try to attach conditions to the concessions you make Make numerous small concessions rather than one major one Agreement stage; clearly summarise and re-state what has been agreed upon. This is not the end but the beginning of a working relationship. Post-negotiation: involves preparing and formalizing the agreement, monitoring and managing the implementation, and evaluating your negotiation performance. Module Two:Session Six: Steps in Negotiation Procurement and Contract Management in HLGs

Module Three:Session One: Contract Administration • Fundamental concern in contract management: parties involves understanding their roles. • Local Government (Tender) Regulations, 2003:- • Supplies, works and services performed/delivered to specifications; • Strict adherence to general and special conditions; • Appropriate and immediate action taken in the case of breach of contract. • A Contract File is opened for each contract signed; contents:- • Signed copy of contract; • Correspondences between Council and Supplier/Contractor; • Any modifications agreed; • Documents of any negotiations; • Copies of Supplier's or Contractor's invoices; • Copies of payment vouchers for any payments made. Procurement and Contract Management in HLGs

Module Three:Session One: Contract Supervision • Contract Supervision: each LG should appoint a supervisor as its agent for monitoring the progress and execution of the contract. • Contracts Register: Regulation 83; LGFAR, 1988 requires the CFO to keep details of all contracts in a Contracts Register. • Payments: every HoD must be vigilant and check that no irregular payments are made to contractors (Reg.86 LGFAR). • Contract Amendments: changes in the terms and conditions of an awarded contract, and involves the following steps by Supervisor: • Preparation of technical details of variations; • Notification of intention to vary terms and conditions; • Issuing orders for the variation (with the approval of the LG. Procurement and Contract Management in HLGs

Module Three:Session One: Certification of Work • Certification of work done: Regulation 84, LGFAR- where contract payments are made by installments, a certificate will be prepared for each installment, showing the sum being certified, the cumulative total payments and any deductions. • Supervision and follow-up: The Contract Supervisor is responsible for:- • Day- to-day technical supervision of the contract; • Keeping a works register of the progress of works; • Inspecting and testing components and materials; • Performing all roles specified in the contract; • Consulting Superiors before making major decisions; • Blacklisting Tenderers: It is the role of the LGTB to black list non- performing Tenderers. Sufficient reasons must be given for such action. Procurement and Contract Management in HLGs

Module Three:Session Two: Ethics and Integrity in Procurement • Ethics are moral principles that govern or influences a person’s behaviuor. • Integrity is the quality of being honest and having strong moral principles. Not being corrupt or biased. • The purpose of ethics in LG procurements is to ensure that the decisions made are neither tainted nor appear to be tainted by any question of conflict of interest. Procurement should be based on objective criteria. Transparency and Integrity: Regulation 74 of the LGFARs requires LGTBs to demonstrate a high degree of transparency and integrity. Regulation 79(2) requires that a copy of the minutes of the LGTB shall be fixed on the Notice Board and that the Secretary to the LGTB shall keep a file of all notices, minutes and other documents for official inspection. Procurement and Contract Management in HLGs

The 5th Schedule of the PPDPAA, 2003 gives the following ethical principles in procurement: A Council employee, or member of the LGTB should\not use his/her authority or office for personal gain; Honesty among LG staff, LGTB members and suppliers/contractors should be paramount and a pre-requisite; Employees of Council and LGTB members shall reveal any personal interest that may impinge on their dealings in the procurement process; Information gained during procurement work is confidential and shall not be used for personal gain; They should avoid business arrangement that prevents the effective operation of fair competition; Business gifts should not be accepted from\ current or potential suppliers and contractors of the LG; Employees and LGTB members should refrain from any hospitality (e.g. business dinners) that may be viewed by others as having an influence in decision- making Module Three:Session Two: Ethical Conduct Procurement and Contract Management in HLGs

Corruption is the use of public power for private gain. It can be in the form of embezzlement, nepotism, over-invoicing, claiming payments for no goods/services supplied and taking bribes, bid rigging, split purchasing,etc. Effects of corruption: Impairs economic development; Leads to economic waste, inefficiency and reduction in productivity; Generates administrative inefficiency and ineffectiveness; Promotes nepotism Frustrates competent and honest suppliers/contractors. To deter corruption in procurements: Perform internal audit to monitor the procurement process; Institute checks in the various stages of the procurement cycle; Enforce procurement regulations; Disqualify bidders who engage in any form of canvassing; Penalise all those found guilty, blacklist errant suppliers, sanction staff and LGTB members by disciplinary action. Module Three:Session Two: Corruption Procurement and Contract Management in HLGs

PROCUREMENT AND CONTRACT MANAGEMENT