International Competitive Bidding and Public Procurement Audit March 2010 Axum

1. International Competitive Bidding and Public ProcurementAudit March 2010 Axum

2. Contents • Introduction • Procurement management - Definition - Procurement Principles - Good procurement practice - procurement planning - App. Method of Procurement - Letter of credit - Parts of bidding document

3. Next… • ኣፈፃፅማ ዓለም ለኸ ዕደጋ - ትሕዝቶ ሰነድ ጨረታ - ኣድላይነት ፍቃድ ናብ ዓዲ ውሽጢ ዝኣትዉ ንብረታት - ከይዲ ኣተዓሻሽጋን ኣለኣእኻ ንብረትን - ዝተዓደገ ንብረት ካበ ጉምሩኽ ከመይ ይወፅእ - ዲክለረሲዮን ፎርም ዝምልከት - ስራሕቲ ትራንዚት - pp Audit Process

4. Introduction • Governments and state-owned enterprises procure a wide variety of goods, services and construction projects from the private sector in order to carry out their activities and deliver services. • The goods and services procured vary in price and complexity, ranging from pens, schoolbooks and medicine to hiring of consultants and construction of roads and airports.

5. Next • Public procurement is a key economic activity of governments representing a significant percentage of the gross domestic product (GDP) generating huge financial flows, estimated on average at 10 to 15% of GDP across the world. • Within the European Union the damage originating from corruption in public procurement is estimated to vary between 10 to 50% of the contract value.

6. Next… • In some African countries public procurement accounts for a high proportion of total expenditure, for example 40% in Malawi 70% in Uganda, and Ethiopia 65%. Procurement is therefore of central importance for both financial and performance auditors.

7. Definition

8. What is Procurement? The Process of obtaining supplies of Services, Works or Goods/Non-Consulting Services

9. Process ? a series of actions directed toward a specific aim Process of Procurement Need assessment Process of procurement Planning Process of procurement Implementation Process of procurement Contract Administration Process of Post procurement implementation review

10. Procurement Principles • Economy &Efficiency Equal Opportunity • Transparency Development of Local Industry

11. Good Procurement Practice • Competitive Bidding • Wide and Timely Notification (Advertising) • Evaluation Criteria and Method • Fair Conditions of Contract • Broad Specifications/Clear TOR

12. Procurement Differences

13. Procurement Planning

14. Procurement planning The process of deciding • what to buy? • Who? • Cost? • How? • Source of budget? • When (Time)? and • from what source?

15. Objective of procurement planning Best value for money Equal opportunity & treatment of Bidders To avoid expensive rush type of order To meet successfully planned target.

16. Content of a procurement plan • The Procurement number, • Description of The procurement • Quantity of the procurement • Procurement methods • Budget/Cost estimate • Time

17. SOME COMMON PROBLEMS OF PROCUREMENT PLANNING Lack of Completeness. Lack of consideration of technical, financial, managerial &implementation constraints. Lack of sufficient information. Random selection of project. Lack of procurement planning personnel.

18. Approved methods of procurement(Goods and Works) • Open (Competitive) bidding (National or International) • Restricted bidding • Request for quotations (Shopping) • Single source/ Direct procurement • Two stage bidding (Complex and large works or supply and installation contracts)

19. Approved methods (goods &works)… • Open (Competitive) bidding (National or International) • Wide availability of procurement items (locally/internationally) • Value/threshold of the item • the standard bidding documents shall be used

20. Procurement Implementation

21. Preparation of Bidding Documents In order to provide a sound basis for thepreparation of bids that are Responsive and Responsible, bidding documents should;

22. Bid doc cont … fair, Non-restrictive clear and comprehensive; consistent with the government Rules of Procurement; Seek to reduce bidders’ risks as much as possible.

23. Major Parts of Bidding Document/RFP 1. Instruction to Bidders/Consultants provides information to help Bidders/ consultants how to prepare their bids and submission, opening, and evaluation of bids and on the award of Contracts contains provisions that are to be used without modification

24. Major Parts of Bidding Document/RFP 2.Data Sheet (BDS) includes provisions that are specific to each procurement and that supplement Instructions to Bidders/consultants 2.1 Evaluation and Qualification Criteria specifies the criteria to determine the lowest evaluated bid and the qualifications of the Bidder/consultant to perform the contract

25. Major Parts of Bidding Document/RFP Bidding Forms (goods & works) includes the forms for the Bid Submission, Price Schedules (goods), Works Requirements (works) Bid Security, and the Manufacturer’s Authorization ( goods) to be submitted completed by the Bidder

26. Major Parts of Bidding Document/RFP Bidding Forms (Consultancy Service includes the forms for Technical Proposal – Standard Forms, Financial Proposal - Standard Forms

27. Major Parts of Bidding Document/RFP General Conditions of Contract (GCC) includes the general clauses to be applied in all contracts this Section shall not be modified

28. Major Parts of Bidding Document/RFP Special Conditions of Contract (SCC) Consists of Contract Data and Specific Provisions which contains clauses specific to each contract The contents of this Section modify or supplement, but not over-write, the General Conditions and shall be prepared by the Purchaser

29. Major Parts of Bidding Document/RFP Standard Forms of Contract (Consultancy Service) includes two types of standard contract forms Time-Based Contract and Lump-Sum Contract.

30. Major Parts of Bidding Document/RFP Contract Forms (goods and works) contains forms which, once completed, will form part of the Contract Performance Security and Advance Payment Security, when required, shall only be completed by the successful Bidder after contract award.

31. Procurement Stages Preparation of Bid Document Notification Issue Bids Evaluation Award of Contract Implementation

32. L/C for International Bidding • For any company entering the international market, Letters of Credit are an important payment mechanism which help eliminate certain risks.

33. Letter of Credit • A Letter of Credit, simply defined, is a written instrument issued by a bank at the request of its customer, the Importer (Buyer), whereby the bank promises to pay the Exporter (Beneficiary) for goods or services, provided that the Exporter presents all documents called for, exactly as stipulated in the Letter of Credit, and meet all other terms and conditions set out in the Letter of Credit. • A Letter of Credit is also commonly referred to as a Documentary Credit

34. Types of L/C • There are two types of Letters of Credit: revocable and irrevocable. • A revocable Letter of Credit can be revoked without the consent of the Exporter, meaning that it may be cancelled or changed up to the time the documents are presented.

35. Next… • An irrevocable Letter of Credit cannot be cancelled or changed without the consent of all parties, including the Exporter. Unless otherwise stipulated, all Letters of Credit are irrevocable.

36. Letter of Credit transaction: • An Importer (Buyer) and Exporter (Seller) agree on a purchase and sale of goods where payment is made by Letter of Credit. • The Importer completes an application requesting its bank (Issuing Bank) to issue a Letter of Credit in favour of the Exporter.

37. Next… • The Issuing Bank issues the Letter of Credit and sends it to the Advising Bank by telecommunication or registered mail in accordance with the Importer’s instructions. • The Advising Bank will verify the Letter of Credit for authenticity and send a copy to the Exporter.

38. Next… • If the Exporter is unable to comply with any term or condition of the Letter of Credit or if the Letter of Credit differs from the purchase and sale agreement, the Exporter should immediately notify the Importer and request an amendment to the Letter of Credit. • It is recommended that the Exporter does not make any shipments against the Letter of Credit until the required amendments have been received

39. Issuance of a Letter of Credit Purchase and sales agreement /1/ Request for a Letter of Credit Advice of Letter of Credit 2 4 Request to Advise and possibly confirm the Letter of Credit 3

40. Payment Under a Letter of Credit Shipment of Goods -1- 3,pay Applicant/Importer Beneficiary/Exporter Documents 2 Payment 3 2,docu 2,documnt Advising/Confirming Bank Issuing Bank 3,paymnt

41. Advantages of Using A L/C to the Importer • Importer is assured that the Exporter will be paid only if all terms and conditions of the Letter of Credit have been met. • Importer is able to negotiate more favourable trade terms with the Exporter when payment by Letter of Credit is offered

42. Disadvantages of Using A L/C to the Importer • A Letter of Credit does not offer protection to the Importer against the Exporter shipping inferior quality goods and/or a lesser quantity of goods. • Consequently, it is important that the Importer performs the appropriate due diligence to assess the reputation of the Exporter. • If the Exporter acts fraudulently, the only recourse available to the Importer is through legal proceedings.

43. Advantages to the Exporter • The risk of payment relies upon the creditworthiness of the Issuing Bank and the political risk of the Issuing Bank’s domicile, • Exporter agrees in advance to all requirements for payment under the Letter of Credit. If the Letter of Credit is not issued as agreed, the Exporter is not obligated to ship against it. • Exporter can further reduce foreign political and bank credit risk by • requesting confirmation of the Letter of Credit by a bank.

44. Disadvantages to the Exporter • Documents must be prepared and presented in strict compliance with the requirements stipulated in the Letter of Credit. • Some Importers may not be able to open Letters of Credit due to the lack of credit facilities with their bank which consequently inhibits export growth.

45. documents commonly requested in a L/C • Commercial Invoice • Transport Documents • Multimodal Transport Document • On Board Marine/Ocean Bill of Lading • Insurance Documents • Certificate of Origin Form • Packing List • Inspection Certificate

46. Commercial Invoice • Does the merchandise description including weight, quantity and priceconform exactly with the L/C? • Are the name and address of the Importer and Exporter exactly as shown in the L/C? • Have the correct number of originals and copies been presented and signed • Is it made out in the same currency as the Letter of Credit? • Is the trade term listed per the Letter of Credit, e.g. C.I.F.?

47. Transport Document • Is the merchandise description consistent with the Letter of Credit? • Are the points of loading and discharge consistent with the Letter of Credit? • Is the Bill of Lading consigned to the order of the party specified in the Letter of Credit? • Is it dated on or before the latest shipment date stipulated in the L/C • Is the Bill of Lading endorsed correctly? • If the L/C states freight is to be prepaid, is this clearly indicated on the Bill of Lading?

48. Insurance Document • Does the insurance document cover all risks specified in the L/C? • Does the insured amount meet the percentage requirement of the L/C • Is the issue date of the insurance document prior to the shipment date of the goods? • Is the insurance document signed by or endorsed in blank by the insured • Is the insurance document signed by the insurance company, underwriter • Is the merchandise described as per the L/C?

49. Certificates of Origin and Inspection • Ensure the documents are dated as of or before the Bill of Lading date. • Ensure the contents meet the requirements of the Letter of Credit.

50. Packing and Weight Lists • Does the quantity of units/weight match that which is indicated in the Commercial Invoice? • Is the breakdown of merchandise/weight per carton shown if requested in the Letter of Credit?