Both the private and public sectors acquire goods and services for use.
The procurement process when not managed properly can lead the
organization to incur a cost in the form of inflation of orders,
payment of private purchases, overpayment of invoices, acquisition of poor quality goods, theft of goods, delays in the supply of goods and services etc.
One way of mitigating these costs is to regulate the procurement process in order to achieve the objectives of the organization.
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Standardization of the procurement process and ensuring value for money in all acquisitions by organizations are pertinent benefits from regulating the procurement activity.
Objectives: By the end of this guide you should be able to:
- a) define and explain public sector procurement process
- b) outline the importance of regulating the public sector procurement process
- c) discuss the stages in the general procurement process.
Now read on…
Summary of Contents
DEFINITION AND MEANING OF PUBLIC PROCUREMENT
Procurement may be defined as the act of acquiring goods, works and services that are relevant to the achievement of the objectives of an organization.
The resources of an organization need to be acquired or constructed. The process of acquisition needs to be properly handled so that the organization can achieve value for money. This is of concern to both the private and public sectors.
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When the procurement action is undertaken by a public sector organization like a ministry, department or agency then it is termed as public procurement.
SOME RELEVANT DEFINITIONS
Goods mean objects of every kind and description including raw materials, products and equipment and objects in solid, liquid or gaseous form, and electricity, as well as services incidental to the supply of the goods if the value of those incidental services does not exceed that of the goods themselves;
An example of services incidental to the supply of goods will be the training of staff (costs) on the use of acquired technical products.
Works means work associated with the construction, reconstruction, demolition, repair or renovation of a building or structure or surface and includes site preparation, excavation, erection, assembly, installation of plant, fixing of equipment and laying out of materials, decoration and finishing, and any incidental activity under a procurement contract.
Services mean intangible products such as accounting, banking, cleaning, consultancy, education, insurance, expertise, medical treatment or transportation. Procurement entity means any entity conducting public procurement under this Act.
Tender: In procurement refers to the process whereby governmental institutions invite to bid for large projects that must be submitted within a finite deadline. These invitations are normally made public through publication in daily newspapers.
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Request for Tenders (RFT) is a formal, structured invitation to suppliers to submit a bid to supply products or services.
Tender document: A written invitation sent to potential suppliers of a good or service to inform them about the information required for the buyer to choose among them.
Bid: Is to offer a certain price for something, especially at an auction.
In response to a request for tenders, potential suppliers indicate what they have to offer and the price at which they are willing to trade those goods, contracts and services. The bid-receiving party would then decide on who to buy from based on his/her requirements and bids received.
Proposal: It is a plan that is put forward for consideration.
Quotation: It is a written statement of the cost of a good, contract or service.
Tender Security: bid security is an amount of money that may be calculated as a percentage of the budget estimate of a procurement requirement or a percentage of a bidder’s bid price.
It is used as a protection against bidders withdrawing their bids prior to the end of their bid validity period, or for refusing to sign the contract.
Validity Period: is the period in course of which the supplier is bound by the tender, in relation to its content and conditions offered (price, execution time, guarantee, etc.).
The margin of Preference: Is the extent to which one person or group is given more favourable treatment than others.
The percentage of reduction in the requirements of the goods, contracts and services to be procured by a procurement unit for domestic suppliers/ tenderers or domestically produced goods, works and services.
GENERAL PUBLIC PROCUREMENT PROCESS
The procurement process is the stages through which a procurement activity is undertaken. Each of these stages has to be managed well in order to achieve the procurement objectives which would include achieving value for money in all procurement activities.
The process ordinarily will be firm-specific but generally involve the following stages. Preparation of requisitions: The procurement process will begin with the raising of requisitions by the department or unit within the organization that realizes the need to replenish its stock of items.
The need for requisitions will be initiated when the stock levels of the goods reach the re-order level for existing items or by the commencement of a new activity that would require the good or service.
Upon the realization of the need for certain goods or services, the head of the unit in the organization or the responsible officer will request for them, normally from the procurement head by filling
a requisition form. The requisition form details out the identification of the item needed, quantity needed, when needed, and the purpose for the request.
Authorization of request:
The control activity in the procurement process requires that requisitions raised are duly authorized before they are processed. The authorization ensures that the request actually reflects the needs of the unit making it and it is in the best interest of the organization.
A designated person (superior), other than the one making the requisition will authorize the requisition.
Search for suppliers:
The authorization of the requisition empowers the procurement office to commence the search for potential suppliers.
Normally, for the acquisition of regular items, the organization will have a list of potential suppliers to choose from, based on previous dealings.
In the case of new business, depending on the nature and size of the transaction, the acquisition intention will have to be publicly advertised and a pool of suppliers constructed for selection.
Also, the nature and size of the transaction may warrant that the acquisition goes through a tender, irrespective of whether it is a new business or regular acquisition.
Selection of suppliers:
The construction of the pool of suppliers should facilitate the process of choosing a supplier. A supplier will generally be settled on after considering the ability of the supplier to deliver the right items on time and at reasonable prices.
Placing a purchase order:
An order is a firm request placed by a buyer with a supplier detailing the items to be supplied, quantity and quality of these items as well as the delivery dates.
The selected supplier is contacted to supply the organization with the said items to be acquired under the terms and conditions agreed upon between the supplier and the organization.
The order placed with the supplier needs to tally with the requisition raised by the requisitioning unit in terms of quantity, quality and delivery schedule.
Receipt of goods and services:
These are arrangements within the firm put in place to facilitate the receipt of the items ordered from the supplier.
This stage of the procurement process is to ensure that the organization gets to receive only items it has ordered for.
Thus, items received need to be checked with orders placed with the supplier to confirm quality and quantity levels.
The condition of the supplied items needs to be verified. The supplier has to be notified of any anomaly as early as possible.
The delivery of the Goods is accompanied by goods received note (GRN) which when signed by the organization indicates the acceptance of the items and places a payment responsibility for the organization.
GRN is generally prepared by the stores unit of the buyer. Where there are discrepancies, a debit note has to be raised by the buyer as a source document covering the goods being returned to the supplier. The debit note indicates that the buyer’s indebtedness to the supplier has been reduced by the size of the amount indicated on the debit note.
Invoice processing and payment of suppliers:
Subsequent to the receipt of the goods, the payment process is commenced. The accounts department needs to be furnished with copies of the requisition, purchase order, GRN and any other relevant documents connected with the acquisition. These documents will have to go through pre-audit before payment is affected.
PUBLIC PROCUREMENT REGULATION
The procurement process when not managed properly can lead the organization to incur a cost in the form of:
- inflation of orders,
- payment of private purchases,
- overpayment of invoices,
- acquisition of poor quality goods,
- theft of goods,
- delays in the supply of goods and services etc.
- Standardization of the procurement process and ensuring value for money in all acquisitions by organizations are pertinent benefits from regulating the procurement activity.
PUBLIC PROCUREMENT ACT 2003 (ACT 663) AND PUBLIC PROCUREMENT AMENDMENT ACT, 2016 (ACT 914)
The major regulation for public sector procurement is the Public Procurement Act 2003 (Act 663). The Act is divided into nine (9) parts dealing with the following major issues:
establishment of the public procurement board; procurement structures; methods of procurement; tendering procedures; methods and process to engage the services of consultants;
review; disposal of stores, plant and equipment; and miscellaneous topics respectively.
Effective 1st July 2016, the Public Procurement (Amendment) Act 2016 (914) was passed and became operational, amending Sections of Act 663. According to the public procurement authority, highlights of the new provisions include:
- Revised Approval Thresholds;
- Re-Constitution of Entity Tender Committees;
- Dissolution of District and Ministerial Tender Review Boards;
- Categorization of Entity Tender Committees;
- Revised Thresholds for Procurement Methods;
- Introduction of New Procurement Structures for Local Government Agencies;
Scope of Public Procurement Act 914
Section 14 states that Act 914 applies to
(a) the procurement of goods, works and services, financed in whole or in part from public funds;
- b) functions that pertain to the procurement of goods, works and services including the description of requirements and sources of supply, selection and award of contracts and the phases of contract administration;
(c) the disposal of public stores, vehicles and equipment; and
(d) procurement with public funds including loans procured by government, grants, foreign aid funds and internally generated funds except as exempted under section 96. Meanwhile, section 96 states that
(1) Despite the extent of the application of this Act to the procurement, procurement with international obligations arising from a grant or concessionary loan to the Government shall be in accordance with the terms of the grant or loan subject to the prior review and “no objection” of procurement procedures by the Authority.
(2) Procurement arising from an external loan and commercial facility, secured by Government, other than a concessionary loan and grant which specifies particular procurement procedures shall be subject to the prior review and “no objection” of those procurement procedures by the Authority.”
Thus, sections 14 and 96 define the scope of Act 914. The Act mandates all procurements with public funds, loans, grants and disposal of public stores, vehicles and equipment to follow the procedures outlined in it except where they relate to international grants, concessionary loan, external loan and commercial facility by Government with special procurement procedures.
But even in such exceptional cases, the Procurement Authority shall subject the procurement procedures to prior review and “no objection” of those procedures.
Also, in addition to following procedures enshrined in Act 914, all procurement entities are mandated to follow all other procedures specified in manuals, regulatory notices and guidelines issued by the Board.
In this session of public sector accounting guide, we have learnt about the meaning of procurement, the procurement process, the rationale for regulating the procurement activity and the scope of Act 914.
Revise these principles in procurement and make sure that you can explain each of them.