Procurement of Goods : Basic Concepts and Inco terms - Mani Ram Gelal

1. Procurement of Goods : Basic Concepts and Inco terms-Mani Ram Gelal

2. BASICS OF PROCUREMENT PLANNING FOR GOODS

3. PROPER PLANNING IS NECESSARY FOR ARRANGING PROCUREMENT AT APPROPRIATE TIME DURING THE PROJECT PERIOD • RELEVANT DETAILS ARE TO BE INCORPORATED IN THE PROCUREMENT PLAN WHICH IS TO BE APPROVED BY THE COMPETENT AUTHORITY • THE REQUIREMENTS AS PER APPROVED PROCUREMENT PLAN ARE TO BE PACKAGED FOR SUBSEQUENT PROCUREMENT ACTIVITY

4. PACKAGING OF ITEMS • HOMOGENIOUS ITEMS ARE TO BE CLUBBED TOGETHER AND FURTHER SEGREGATED FOR TIMELY PROCUREMENT OF REQUIRED QUANTITIES • SUCH TABLES & CHARTS ARE TO BE UPDATED AS NEEDED

5. THIS WILL PROMOTE TIMELY & ECONOMIC PROCUREMENT • THIS WILL HELP EFFECTIVE DATA MANAGEMENT • THIS WILL ALSO CONTRIBUTE TO PROJECT’S OVERALL TQM

6. Various items to be purchased for the project Items Segregated G G G G GROUPING/PACKAGING/LINE ITEM Further Segregation P P P P P P P P P P P P Final Segregation L L L L L L L L L L L L L L L L L L L L L L L L G - GROUP P - PACKAGE L - LINE ITEM

7. QUALITY ASSURANCE –INSPECTION & TESTS

8. BUYER IS TO ENSURE THAT THE ORDERED GOODS MEET CONTRACT SPECIFICATIONS AND QUALITY CONTROL PARAMETERS • PARAMETERS FOR ASSESSING QUALITY AND TECHNICAL STANDARDS OF GOODS WILL DEPEND ON THE NATURE OF THE ORDERED GOODS • SAME ARE TO BE FRAMED ACCORDINGLY • INSPECTION MAY BE :– STAGE INSPECTION, PRE-DESPATCH INSPECTION, FINAL INSPECTION AFTER INSTALLATION, COMMISSIONING AND ACCEPTANCE AT SITE

9. USUALLY SUPPLIER IS TO PROVIDE ALL REASONABLE FACILITIES AND ASSISTANCE INCLUDING DRAWINGS AND DATA TO BUYER’S INSPECTORS FREE OF COST DURING STAGE INSPECTION AND PRE-DESPATCH INSPECTION • BUYER HAS THE RIGHT TO REJECT THE GOODS DURING FINAL INSPECTION AT SITE THOUGH THE SAME WAS CLEARED DURING PRE-DESPATCH INSPECTION (PROVIDED FINAL INSPECTION IS DONE AS PER CONTRACTUAL TERMS/CONDITIONS • SIMILARLY, CLEARANCE AND ACCEPTANCE OF GOODS BY THE BUYER THROUGH SUCH INSPECTIONS SHALL NOT RELEASE THE SUPPLIER FROM ANY WARRANTY OR OTHER CONTRACTUAL OBLIGATIONS

10. ACCEPTABLE BIDDER • A BIDDER IS TO FULFILL TWO BROAD CRITERIA TO BECOME PRIMA FACIE ACCEPTABLE : • ELIGIBILITY CRITERIA • QUALIFICATION CRITERIA

11. ELIGIBILITY CRITERIA • TO GENERATE COMPETITION, BIDDERS FROM ALL COUNTRIES ARE PERMITTED TO BID SUBJECT TO CERTAIN CONDITIONS • SUPPLIER FROM A COUNTRY OR GOODS & SERVICES OF A COUNTRY MAY BE EXCLUDED IF THE BORROWER COUNTRY OFFICIALLY PROHIBITS COMMERCIAL TRANSACTION WITH THAT COUNTRY. • A BIDDER IS NOT PERMITTED TO SUBMIT MORE THAN ONE BID IN A PARTICULAR CASE (EXCEPT FOR ALTERNATIVE OFFERS, IF SPECIALLY PERMITTED)

12. A FIRM OR ANY OF ITS AFFILIATES, WHICH HAS ALREADY BEEN ENGAGED BY THE BORROWER AS A CONSULTANT FOR PREPARATION OR IMPLEMENTATION OF THE PROJECT IS NOT ELIGIBLE TO BID • ANY DEPENDENT AGENCY OF THE BORROWER OR SUB-BORROWER SHALL BE INELIGIBLE TO BID.

13. QUALIFICATION CRITERIA • QUALIFICATION CRITERIA ARE AIMED AT OBTAINING RELEVANT DATA & DETAILS FROM PROSPECTIVE/ INTERESTED BIDDERS TO ASSESS THEIR CAPABILITIES AND RESOURCES TO PERFORM THE CONTRACT SATISFACTORILY.

14. QUALIFICATION CRITERIA TAKE INTO ACCOUNT BIDDERS- • SIZE OF OPERATION • CONTRACTUAL EXPERIENCE • TECHNICAL EXPERIENCE • PRODUCTION CAPACITY • FINANCIAL POSITION • CASH FLOW CAPACITY • LITIGATION HISTORY

15. TECHNIQUES OF DETERMINING SUPPLIERS’ QUALIFICATION • PRE-QUALIFICATION SYSTEM • POST-QUALIFICATION SYSTEM

16. PRE-QUALIFICATION • NECESSARY FOR SOPHISTICATED CUSTOM-DESIGNED EQUIPMENT, INDUSTRIAL PLANT ETC. WHERE HIGH COST OF PREPARATION OF BIDS USUALLY DISCOURAGES COMPETITION. • THE INVITATION TO PRE-QUALIFY FOR BIDDING ON SPECIFIC CONTRACT OR GROUP OF CONTRACTS SHALL BE ADVERTISED AND NOTIFIED AS PER THE APPLICABLE PROCEDURE. • DOCUMENT FOR PRE-QUALIFICATION SHALL CONTAIN THE SCOPE OF THE CONTRACT(S) IN VIEW AND THE REQUIREMENTS FOR MEETING QUALIFICATION CRITERIA.

17. RESPONSE OF THE PARTIES ARE TO BE ANALYSED AND PRIMA FACIE QUALIFIED PROSPECTIVE BIDDERS DETERMINED. • RESULT OF ABOVE ANALYSIS ARE TO BE MADE KNOWN TO ALL APPLICANTS. • THEREAFTER, THE COMPLETE BIDDING DOCUMENT SHALL BE GIVEN TO THE PRIMA FACIE QUALIFIED PROSPECTIVE BIDDERS TO ENABLE THEM SEND THEIR BIDS.

18. IF NECESSARY, SPECIALLY IN CASE OF LONGER TIME-GAP, INFORMATION RELATING TO PRE-QUALIFICATION, AS PROVIDED BY THE SELECTED BIDDER MAY BE VERIFIED/RE-VERIFIED BEFORE PLACING THE CONTRACT ON IT.

19. POST QUALIFICATION • THIS SYSTEM IS ADOPTED FOR GOODS, WHICH ARE OF COMMON USE, WHICH HAVE STANDARD SPECIFICATIONS, WHICH ARE NOT VERY COMPLICATED ETC. • THE CRITERIA FOR JUDGING QUALIFICATIONS OF BIDDERS ARE INCORPORATED IN THE BIDDING DOCUMENT ITSELF • A BIDDER IS TO FURNISH THE REQUIRED DETAILS IN ITS BID.

20. Different Methods of Procurement of Goods

21. INTRODUCTION TO INTERNATIONAL COMPETITIVE BIDDING (ICB)

22. ICB IS THE MOST TRANSPARENT SYSTEM OF PROCUREMENT. • IT PROVIDES EQUAL BIDDING OPPORTUNITIES TO ALL ELIGIBLE BIDDERS. • ICB DOCUMENT IS THE MOTHER DOCUMENT. IT INFLUENCES THE TERMS & CONDITIONS APPLICABLE FOR OTHER METHODS OF PROCUREMENT.

23. ICB IS ADOPTED : • No bids received in NCB • Donors Conditions • Special and Complex goods

24. NOTIFICATION AND ADVERTISEMENTFOR ICB • TIMELY NOTIFICATION AND WIDE PUBLICITY OF BIDDING OPPORTUNITIES HAVE TO BE ENSURED. • IN CASE OF WB CONTRACTS, AT THE OUTSET, RELEVANT DETAILS OF ALL THE ICB CASES OF A PROJECT INCLUDING DETAILS OF THE LOAN AND THE BORROWER ARE TO BE PROVIDED TO THE WORLD BANK BY THE BORROWER WELL AHEAD OF TIME. • THE COMMUNICATION CONTAINING SUCH DETAILS IS CALLED GENERAL PROCUREMENT NOTICE (GPN).

25. THE WORLD BANK IS TO PUBLISH IT IN UNITED NATION’S DEVELOPMENT BUSINESS (UNDB) ONLINE AND IN DEVELOPMENT GATEWAYS “dg Market” (AN ELECTRONIC PORTAL). • CORRESPONDING BIDDING DOCUMENTS ARE NOT TO BE RELEASED TO THE PUBLIC BEFORE PUBLICATION OF THE GPN AND AS PER ADDITIONAL CONDITIONS AS BELOW. • THE GPN IS TO BE FOLLOWED BY SPECIFIC PROCUREMENT NOTICE(SPN) I.E. SEPARATE INVITATION FOR BID (IFB) FOR EACH ICB CASE.

26. SPN SHALL BE ADVERTISED AT LEAST IN ONE NEWSPAPER OF WIDE NATIONAL CIRCULATION IN THE BORROWER’S COUNTRY OR IN OFFICIAL GAZETTE OR IN AN ELECTRONIC PORTAL HAVING FREE ACCESS. • SPN SHALL ALSO BE PUBLISHED IN UNDB ONLINE AND IN “dg Market”. • COPIES OF SPN SHOULD ALSO BE SIMULTANEOUSLY TRANSMITTED TO THOSE WHO SHOWED INTEREST IN RESPONSE TO THE GPN.

27. NOTIFICATION SHALL BE PUBLISHED WELL AHEAD OF TIME TO ENABLE INTERESTED BIDDERS OBTAIN THE BIDDING DOCUMENT, PREPARE THEIR BIDS AND SUBMIT THE SAME WITHIN THE DEADLINE • TIME TO BE ALLOWED TO THE BIDDERS WILL DEPEND ON THE NATURE AND COST OF THE PROCUREMENT. • GENERALLY, THE TIME ALLOWED SHOULD NOT BE LESS THAN SIX WEEKS FROM THE DATE OF PUBLICATION OF IFB OR DATE OF AVAILABILITY OF BIDDING DOCUMENTS FOR SALE, WHICHEVER IS LATER.

28. FOR COMPLEX EQUIPMENT, LARGE WORKS, ETC. THIS PERIOD SHOULD GENERALLY BE NOT LESS THAN TWELVE WEEKS AND ALSO, WITH A PROVISION OF PRE-BID CONFERENCE. • THE COST OF BIDDING DOCUMENT SHALL BE REASONABLE. IT SHOULD ONLY COVER ITS PREPARATION COST AND MAILING COST TO THE BIDDERS.

29. BORROWER SHOULD NOT AIM FOR MAKING PROFIT BY SELLING BIDDING DOCUMENTS. • PRICE OF BIDDING DOCUMENTS MUST NOT BE TOO HIGH TO DISCOURAGE GENUINE BIDDERS.

30. INTRODUCTION TO NATIONAL COMPETIVIVE BIDDING (NCB)

31. NCB IS THE COMPETITIVE BIDDING METHOD GENERALLY USED FOR PROCUREMENT IN BORROWER’S COUNTRY, WHEN THE REQUIREMENT IS UNLIKEY TO ATTRACT FOREIGN COMPETITION • NCB IS APPROPRIATE WHEN CONTRACT VALUE IS SMALL, REQUIRED GOODS OR WORKS ARE LOCALLY AVAILABLE AT PRICES BELOW INTERNATIONAL MARKET

32. NCB MAY ALSO BE APPROPRIATE WHERE THE WORKS IS GEOGRAPHICALLY SCATTERED, SPREAD OVER TIME OR LABOUR INTENSIVE • FOREIGN BIDDERS ARE FREE TO PARTICIPATE IF THEY FOLLOW NCB CONDITIONS • THE USUAL THRESHOLD FOR NCB IS US$ 200,000 (HOWEVER IT MAY VARY FROM PROJECT TO PROJECT)

33. MAJOR DIFFERENCES BETWEEN INTERNATIONAL COMPETITIVE BIDDING (ICB) AND NATIONAL COMPETITIVE BIDDING (NCB)

34. THEIR BASIC CONCEPTS, STRUCTURES AND CONDITIONS ARE SIMILAR • BUT THERE ARE SOME SIGNIFICANT DIFFERENCES BETWEEN THEM

35. ADVERTISEMENT AND PUBLICITY • FOR ICB, GPN IS A MUST, BUT NOT FOR NCB. FOR NCB, ADVERTISING IN NATIONAL PRESS OR OFFICIAL GAZETTE OR A FREE AND OPEN ACCESS WEB-SITE WILL DO.

36. BIDDING TIME • FOR ICB, GENERALLY NOT LESS THAN 6 WEEKS FROM THE DATE OF INVITATION TO BID OR AVAILABILITY OF BIDDING DOCUMENT, WHICHEVER IS LATER. FOR NCB, IT IS USUALLY MINIMUM 30 DAYS.

37. GOVERNING LANGUAGE • IN ICB, THE GOVERNING LANGUAGE SHALL EITHER BE ENGLISH OR FRENCH OR SPANISH. AN ICB SHALL SPECIFY THE LANGUAGE (OUT OF ABOVE THREE), WHICH SHALL GOVERN ALL CONTRACTUAL TRANSACTIONS. • IN ADDITION, THE DOCUMENTS MAY ALSO BE PREPARED IN BORROWER COUNTRY’S NATIONAL/WIDELY USED LANGUAGE, AFTER OBTAINING CLEARANCE FROM WORLD BANK. • WHEN DOCUMENTS ARE IN TWO LANGUAGES, CONTRACT IS TO BE WRITTEN IN THE LANGUAGE OF THE WINNING BID AND THAT LANGUAGE WILL GOVERN CONTRACTUAL RELATIONS. • IN NCB, THE BIDDING DOCUMENTS MAY BE ONLY IN THE NATIONAL LANGUAGE OR THE COMMERCIAL LANGUAGE USED NATION-WIDE IN BORROWER’S COUNTRY.

38. CURRENCY OF BID AND PAYMENT • IN ICB, THE BIDDER IS TO QUOTE IN BORROWER COUNTRY’S CURRENCY FOR THE PORTION, CORRESPONDING EXPENDITURE FOR WHICH IS TO BE INCURRED IN BORROWER’S COUNTRY, UNLESS OTHERWISE SPECIFIED IN THE BIDDING DOCUMENT • SUBJECT TO ABOVE, THE BIDDER MAY EXPRESS THE BID PRICES IN ANY ELIGIBLE COUNTRY’S CURRENCY OR, IN A COMBINATION OF AMOUNTS IN DIFFERENT ELIGIBLE COUNTRIES’ CURRENCIES LIMITED TO NO MORE THAN THREE FOREIGN CURRENCIES (IN ADDITION TO BORROWER’S CURRENCY). PAYMENT WILL BE MADE ACCORDINGLY.

39. FOR COMPARISION AND EVALUATION OF BIDS, A SINGLE CURRENCY (USUALLY LOCAL CURRENCY OR A FULLY CONVERTIBLE FOREIGN CURRENCY) AND THE PROCEDURE FOR CONVERTING OTHER CURRENCIES TO THAT CURRENCY ARE INDICATED IN THE ICB BIDDING DOCUMENT • IN NCB, THE BORROWING COUNTRY’S CURRENCY IS GENERALLY USED FOR THE PURPOSE OF BIDDING AND PAYMENT. THE APPLICABLE CURRENCY IS TO BE SPECIFIED IN THE BIDDING DOCUMENT. • DOMESTIC PREFERENCE APPLIES TO ICB BUT NOT IN NCB

40. TWO STAGE BIDDING

41. TWO STATE BIDDING IS DIFFERENT FROM PRE-QUALIFICATION FOR PURCHASE OF COMMONLY USED GOODS & EQUIPMENT HAVING STANDARD SPECIFICATIONS, BIDS ARE INVITED COVERING THE TECHNICAL, COMMERCIAL AND FINANCIAL ASPECTS IN ONE GO IN CASE OF PROCUREMENT OF TURNKEY CONTRACTS, LARGE COMPLEX FACILITIES ETC. IT MAY NOT BE POSSIBLE OR DESIRABLE TO EVOLVE THE COMPLETE SPECIFICATION AND OTHER TECHNICAL DETAILS IN ADVANCE. SUCH A CASE CALLS FOR TWO-STAGE BIDDING.

42. IN TWO-STAGE SYSTEM, ONLY TECHNICAL PROPOSALS (WITHOUT PRICE BIDS) ON THE BASIS OF A CONCEPTUAL DESIGN AND PERFORMANCE PARAMETERS ARE FIRST INVITED. SUCH BIDS, AS RECEIVED, ARE ANALYZED AND TECHNICAL / COMMERCIAL CLARIFICATIONS, AS & IF NECESSARY, ARE OBTAINED FROM THE BIDDERS. BASED ON THE ABOVE, NECESSARY MODIFICATIONS AND ADJUSTMENTS ARE MADE IN THE SPECIFICATION & TECHNICAL DETAILS AND FINAL BIDDING DOCUMENT PREPARED. COMPLETE BIDS (INCLUDING PRICE BIDS) ARE THEN INVITED AS PER THE FINAL BIDDING DOCUMENT.

43. TWO STAGE BIDDING IS DIFFERENT FROM TWO-ENVELOPE SYSTEM (ALSO KNOWN AS TWO-BID SYSTEM). IN TWO - ENVELOPE SYSTEM, TECHNICAL BIDS (ALONG WITH COMMERCIAL ASPECTS) AND PRICE BIDS ARE INVITED & RECEIVED SIMULTANEOUSLY IN TWO SEPARATE ENVELOPES. IN TWO - ENVELOPE SYSTEM, TECHNICAL BIDS ARE FIRST OPENED, ANALYZED AND EVALUATED. PRICE BIDS OF ONLY THE TECHNICALLY ACCEPTABLE OFFERS ARE OPENED LATER.

44. SOME MORE SIGNIFICANT AREAS OF PROCUREMENT PROCEDURE

45. BID SECURITY/BID SECURING DECLARATION • PURPOSE OF BID SECURITY IS TO PROTECT THE BUYER AGAINST BIDDER’S CONDUCT • BUYER HAS THE OPTION OF IMPOSING BID SECURITY • THE BID SECURITY SHALL BE FOR THE AMOUNT AND AS PER THE FORM SPECIFIED IN THE BIDDING DOCUMENT • BID SECURITY IS USUALLY BETWEEN 2 TO 5% OF THE ESTIMATED VALUE OF PURCHASE • IF THE BID SECURITY IS ISSUED BY THE BIDDER’S INSTITUTION OUTSIDE BORROWER’S COUNTRY, IT SHOULD HAVE A CORRESPONDING FINANCIAL INSTITUTION LOCATED IN BORROWER’S COUNTRY TO MAKE IT ENFORCABLE • BID SECURITY IS TO REMAIN VALID FOR 4 WEEKS BEYOND BID VALIDITY (OR EXTENDED VALIDITY, AS THE CASE MAY BE)

46. BID SECURITY MAY BE IN THE BID CURRENCY OR ANY OTHER FREELY CONVERTIBLE CURRENCY • BID SECURITIES OF UNSUCCESSFUL BIDDERS SHALL BE RELEASED ON CONCLUSION OF CONTRACT WITH SUCCESSFUL BIDDER • BID SECURITY MAY BE FORFEITED IF A BIDDER DOES NOT HONOUR ITS BID • INSTEAD OF BID SECURITY, THE BORROWER MAY REQUIRE THE BIDDER TO PROVIDE A SIGNED “BID SECURING DECLARATION” GUARANTEEING ITS BID AND AGREEING TO BE SUSPENDED IN CASE IT DEFAULTS, FOR A PRE-SPECIFIED PERIOD OF TIME FROM BIDDING AGAINST THE BORROWER’S FUTURE REQUIREMENTS

47. PERFORMANCE SECURITY • SUCCESSFUL BIDDER IS TO PROVIDE PERFORMANCE SECURITY FOR DUE PERFORMANCE OF THE CONTRACT • AMOUNT OF PERFORMANCE SECURITY VARIES ACCORDING TO BUYER’S PERCEIVED RISK AND IMPACT OF NON-PERFORMANCE BY THE SUPPLIER • IT IS USUALLY 10% OF CONTRACT VALUE • IT SHALL BE DENOMINATED IN CONTRACT CURRENCY OR FREELY CONVERTIBLE CURRENCY ACCEPTABLE TO THE BUYER • AN APPROPRIATE AMOUNT MAY BE SPECIFIED IN THE PERFORMANCE SECURITY OR, ALTERNATIVELY, A PERCENTAGE OF PAYMENT MAY BE HELD BACK TO COVER WARRANTY OBLIGATION

48. SUCCESSFUL BIDDER IS TO FURNISH PERFORMANCE SECURITY IN THE SPECIFIED FORMATS WITHIN A SPECIFIED PERIOD (28 DAYS) AFTER RECEIPT OF NOTIFICATION OF AWARD • BID SECURITY IS RETURNED TO SUCCESSFUL BIDDER ON ITS SIGNING THE CONTRACT AND FURNISHING PERFORMANCE SECURITY • PERFORMANCE SECURITY SHALL BE DISCHARGED BY THE BUYER WITHIN 28 DAYS OF COMPLETION OF SUPPLIER’S CONTRACTUAL OBLIGATIONS (UNLESS SPECIFICALLY PROVIDED OTHERWISE IN THE DOCUMENTS)

49. CLARIFICATION OF BIDDING DOCUMENTS • PROSPECTIVE BIDDERS MAY OBTAIN CLARIFICATIONS FROM BUYER IN WRITING PROVIDED SUCH REQUESTS ARE RECEIVED WITH IN THE CUT-OFF DATE (21/15 DAYS PRIOR TO DEAD LINE FOR BID SUBMISSION DATE FOR ICB/NCB) • BIDDER’S QUERY (WITHOUT IDENTIFYING THE SOURCE) AND BUYERS RESPONSE THERETO SHALL BE SENT TO OTHER BIDDERS, WHO HAVE OBTAINED THE BIDDING DOCUMENT

50. PRE-BID CONFERENCE: FOR COMPLEX SUPPLY CONTRACT OR WORKS CONTRACT, PURCHASER MAY INCORPORATE PRE-BID CONFERENCE CLAUSE IN THE BIDDING DOCUMENTS FOR MEETING POTENTIAL BIDDERS AND CLARIFING THEIR QUERIES • MINUTES OF PRE-BID CONFERENCE SHALL BE PROVIDED TO ALL PROSPECTIVE BIDDERS WITH COPY TO WORLD BANK