The Procurement ClassRoom

Procurement Methods

Deciding on a Procurement Method

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During the requirement identification stage, the entity with the need determines when they want the goods delivered, services rendered or construction works completed. It is important to consult with the procuring entity at this early stage in order to determine the most appropriate procurement method for their specific need.

The procurement method should be determined at this early stage because of the impact it has on the procurement lead-time, and also to ensure that the responsible entity is able to set realistic timeframes and expectations for contract award in the initial stages of development and definition of their procurement requirement.

This simple exercise of obtaining the assistance of the procuring entity early on helps to avoid disappointments, unrealistic expectations and frustrations when, due to poor planning, it is impossible to meet expectations set during the requirement definition phase.

At this stage of the process, it is also important to decide if a competitive or non-competitive procurement method will be used osterreichische-apotheke.com. The complexity of a requirement, procurement category, and monetary value are all important factors to consider when deciding on the procurement method.

A decision to use a particular procurement method must be based on the stipulations of the procurement rules.

 

 

Procuring from a Single Source

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Acquiring goods, services and construction works from only one source is referred to as: sole-source procurement, single-source procurement, sole-source selection, direct procurement, among others. This is clearly a non-competitive procurement method, and it should be used only under exceptional circumstances, namely:

  • for emergency situations;
  • when only one firm or individual is qualified to fulfill the requirement;
  • for the continuation of previous work, or additional work, that cannot be acquired from another firm or individual due to patent, compatibility issues, or exclusive rights;
  • the use of this method represents a clear advantage over the use of a competitive method; cz-lekarna.com
  • the total cost is within the threshold set for this method of procurement;
  • for the procurement of related items that are available only from one source;
  • for other situations contemplated in the procurement legal and regulatory framework.

The use of this method should be preceded by a rigorous approval process.

A checklist should preferably be developed for requesting entities to complete in sufficient detail to justify the need for fulfilling a procurement requirement from a single source. Such justification should identify the requesting entity, describe the requirement, address why the requirement can only be fulfilled from the identified source, including action taken to identify additional sources, in addition to the total cost and planned future actions to preclude the need for using this method.

Request for Quotations

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The request for quotations is a procurement method that is used for small value procurements of readily available off-the-shelf goods, small value construction works, or small value services procurements. 
 
This procurement method is also known as invitation to quote and shopping, and it does not require the preparation of tender documents to the same extent as open tendering, request for proposals or two-stage tendering. 
 
The invitations are not complex, and this method is considered non-competitive because the procuring entity determines which contractors, suppliers or service providers to request quotations from as long as a minimum of three are invited.
 
This procurement method is used under conditions stipulated in the procurement legal and regulatory framework and, accordingly, can be requested in writing: email, fax, courier, but not telephonically. Sometimes there are limitations set on the period of time and frequency within which this method can be used for the procurement of similar goods, work or services. This is to prevent the procuring entity from splitting requirements in order for them to fall within the threshold level where the request for quotation method can be applied.
 
Quotations received in response to a request for quotation should be first evaluated to determine compliance with the technical specifications or scope of work of the requirement and also for compliance with administrative requirements of the request for quotations. Only after the administrative and technical compliance determination, a price comparison is made between firms found to be compliant, and then a purchase order is signed with the bidder submitting the lowest price quotation within the stipulated delivery or completion date. 
 
What are the advantages and disadvantages of using request for quotations?

Advantages

•  Procurement lead-time is significantly reduced given that there’s no need to prepare solicitation documents, or to advertise requirements. And the period for quotations submission is also equally reduced.
 
•  The number of quotations received is limited to the number of bidders quotations were requested from, so the selection process time is also reduced.
 
•  The procuring and/or requesting entities would usually have a pretty good idea of where and from whom the goods, services or works can be procured, so there’s a higher probability of response to the request for quotations.
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Disadvantages

•  Lends itself to irregularities because the procuring entity decides which suppliers, contractors or service providers to send request for quotations to, and competition is very limited cheska-lekarna.com.
 
•  Could be abused as a result of the breaking of requirements into smaller sizes in order to apply this method of procurement.
 
•  Could easily lead to requesting quotes from a limited number of firms even if the goods, services or works are available from a greater number.

Two-Stage Tendering

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Two-stage tendering is similar to the request for proposals because the technical and financial proposals are submitted separately, but one before the other, rather than simultaneously. A key feature of this procurement method is that the submission of proposals takes place in two stages. Another, that bidders can assist in defining the technical requirement and the scope of work libido-portugal.com/.

Two-stage tendering is used for the procurement of goods, services and construction works, and there are several ways in which the process may be carried out. Two of the most common are illustrated below:

1.The first procedure is as follows:

(i) The first stage is used for determining responsiveness to the request for offers and for clarifying and reaching agreement on the technical specifications. In this first stage, bidders are requested to submit a technical proposal with their best solution for fulfilling the requirement. The proposal is evaluated and scored, and the firm with the highest ranked technical proposal invited for discussions with the purpose of reaching agreement on the proposed technical solution.

(ii)Stage two is for receiving the final offer of the technically highest ranked firm. This process is very similar to the quality-based selection (QBS) procedures used to request proposals from consulting firms when the Terms of Reference are difficult to define under highly specialized and complex requirements. In this second stage, if an agreement is reached, the technical specifications or terms of reference are finalized and the highest ranked firm is invited to first submit a financial proposal based on the agreed technical solution, and then to contract negotiations.

2.The second procedure is the following:

(i) Under this modality of the procedure, in the first stage prospective bidders are requested to submit proposals on a partially developed technical specifications, and they are expected to contribute to the completion of the technical specifications and provide a methodology and work plan for carrying out the assignment. The technical proposals submitted are evaluated for responsiveness to the solicitation documents. A clarification and discussions meeting is held with all responsive bidders, and minutes of this meeting are prepared and distributed to all responsive bidders. The results of this meeting are used to finalize the technical specifications and the scope of work. First stage responsive bidders are then invited to submit technical and financial proposals based on the amended technical specifications and scope of work.

(ii)In the second stage, responsive bidders submit technical and financial proposals as requested. The technical proposals are evaluated first, and the financial proposals remain sealed and secured. Firms achieving the minimum technical qualifying mark or greater, as stated in the call for proposals, are then invited to the public opening of their financial proposals. Financial proposals are then evaluated, and the firm achieving the highest score on the combined technical and financial proposals evaluation is invited to contract negotiations. If negotiations fail, the next highest ranked firm is called for contract negotiations.

The above are only two variations of the two-stage tendering procurement method. There are others which given the degree of complexity will not be discussed in this text.

Advantages of the two-stage tendering process:

· It is a more flexible approach to awarding contracts because it allows participation of prospective bidders in the definition of the technical specifications and scope of work.

· The preferred bidder is more likely to have a good understanding of the requirement, which potentially reduces risks in the implementation of the contract.

· Prospective bidders are able to make suggestions for improvement of the technical specifications and scope of work of the assignment, through their technical proposal and clarification discussions.

· The second stage tendering time is reduced.

· The technical approach and methodology can be adjusted to suit the agreed technical specifications and scope of work.

· Risk is minimized given the early involvement of prospective bidders in the definition of the technical specifications and scope of work.

· A financial proposal is submitted only after reaching agreement on the technical specifications and scope of work.

· A contract is negotiated on the basis of the agreed technical specifications and scope of work.

· More certainty regarding the qualifications of the preferred bidder.

Disadvantages of the two-stage tendering process:

· Extended procurement lead-time due to two stage submission process.

· Second stage negotiations with the highest ranked bidder could prove difficult and protracted.

· There is risk of price escalation, and negotiations becoming adversarial in the second stage.

· Once a firm is selected for negotiations, competition is lost, and this may impact price.

Request for Proposals

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The Request for Proposal (RFP) is a two envelope procurement method that can be used for goods, services or works. It is used when suppliers, contractors or services providers are expected to propose a specific solution (methodology and workplan) to fulfilling a specific requirement.

Firms are required to submit technical and financial proposals in two separate envelopes. The technical proposal is evaluated first and ranked according to pre-established evaluation criteria, and only the financial proposals of those firms that achieved the minimum qualifying mark (score), indicated in the RFP, are opened and evaluated.

The RFP method differs from open tendering in six fundamental aspects:

(i) Proposals are submitted in two sealed envelopes,

(ii) At the opening event, the financial proposals are left unopened and are safeguarded,

(iii) Financial proposals are opened only after completion of the evaluation of technical proposals,

(iv) Only the financial proposals of the firms achieving the minimum qualifying mark or more are opened,

(v) Selection is based on a proposed solution and not on price,

(vi) The sum of the combined weighted score of the technical and financial proposals determines the winning firm with which the contract is negotiated.

There are some differences in addition to the above, on the application of the request for proposals, that introduces a bit of confusion with respect to this method. As with other methods, the use of this one must strictly adhere to the stipulations of the governing procurement legal framework.

Under the guidelines of most international development banks (World Bank, Asian Development Bank, African Development Bank, etc.) and some donor entities (Millennium Challenge Corporation, for instance) request for proposals are used primarily for hiring consulting firms. But the two-stage procurement method (technically also a request for proposal), is reserved for the procurement of goods, works and non-consultant services. The procurement manuals of many countries (Kenya and Rwanda are a typical example) also follow this system of using request for proposals primarily for the selection of consulting firms oglejte si tu.

The following are examples of the selection procedures for consulting services that use the RFP procurement method:

(i) Quality and cost-based selection (QCBS),
(ii) Quality based selection (QBS),
(iii) Fixed budget selection (FBS), and
(iv) Least-cost selection (LCS).

To add to this confusion, the UNCITRAL Model Law on Public Procurement identifies three different types of request for proposals: (i) request for proposals without negotiations (Article 47), (ii) request for proposals with dialogue (Article 48), and (iii) request for proposals with consecutive negotiations (Article 50).

In spite of all of the above, the essential characteristic of the RFP is that:

(i) sealed proposals (technical and financial) are received in response to the RFP,

(ii) the technical proposals are opened and evaluated before the financial proposals are opened,

(iii) Only the financial proposals of the firms achieving at least the stipulated minimum qualifying mark on their technical proposals, are publicly opened,

(iv) the final score is usually the sum of the weighted score of the technical and financial proposals, and

(v) the final contract is awarded based on the highest combined score rather than lowest price, except in the case of least-cost selection (the subject of a future post).

Restricted Tendering

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Restricted tendering is a procurement method that limits the request for tenders to a select number of suppliers, contractors or service providers. This method of procurement is also called: Limited Bidding and Selective Tendering.

Although considered a competitive procurement method, competition is limited to only firms shortlisted or invited by the procuring entity.

A process should be in place for arriving at the number and specific firms that will be invited; that number however is dependent on the stipulations of the public procurement legal framework.

Any decision to use the Restricted Tendering procurement method must conform to the policies and procedures governing the procurement system cz-lekarna.com

A basic characteristic of this method is that competition is confined to a certain number of firms either because only a few firms are qualified to fulfill the specific type of requirement, or certain conditions warrant the use of a limited number of firms in order to reduce the time and cost of the selection process.