Module 16: Tendering and Procurement

16.1. What is the process of procurement & tendering?

Procurement is the process of buying goods, works or services. For instance, in terms of PPP, procurement comprises the process of buying the basic infrastructure and services. This may, for example, involve the acquisition of operation and management services for a basic service such as water supply. Procurement is often carried out by the process of tendering, rather than buying products directly from a seller.

A company or organisation (the promoter, client or employer) wishing to obtain goods or services will first specify its requirements. Subsequently, it will open the bidding in a process known as tendering. Interested companies can then submit their proposals to the client (often a local government) to meet these requirements. The government offering the tender will then evaluate the bids to decide which offer best suits its requirements. The company that has been successful in the tender process will perform the work by contract.
The underlying objectives of procurement and tendering are concerned with ensuring competition, which is viewed as a key factor in achieving the twin objectives of:

◊ accountability in the spending of public money; and
◊ transparency in the steps of the decision-making processes.

Parties to procurement

In relation to the actual contract, there is a need to focus on who is involved in a contract and what each of these actor’s various obligations are. The most commonly used engineering contracts recognise a “triangle of actors’: promoter; engineer; and contractor.

◊ The promoter/client, otherwise known as the employer, specifies, authorises and pays for the work to be undertaken.

◊ The engineer acts as an agent on behalf of the employer. The duties of the Engineer include:
– evaluation of tenders;
– supervision of the work of the contractor;
– confirmation of whether or not the work has been completed to specification; and
– mediation between the employer and the contractor in case of dispute.

◊ The contractor (the bidder) successfully bids for a contract and carries out the work required.

[see also the triangle of parties and the triangle of objectives]

Procurement objectives

A typical case involves an urban government letting a contract to a private sector company for the construction of infrastructure improvements. The municipality is the promoter; it has planned and designed the work, and is paying for it to be implemented. The urban government promoter appoints an engineer, who is usually in the full-time employment of the relevant government department. In accordance with the procedures laid down, a private sector contractor is then appointed to do the actual construction work.

The engineer has the important role of ensuring that the interests of the promoter are met, and that the contractor is duly paid for his/her efforts. The promoter wants the best value for money and the contractor wants to secure a good profit; whilst this dichotomy can involve an enormous range of complex and contentious issues, satisfying the various interests often comes down to ensuring that a “triangle of objectives” are met:

◊ Cost: has the work been completed within the costs agreed in the contract?

◊ Quality: has the work been carried out in accordance with what was specified?

◊ Time: has the work been completed satisfactorily within the time specified?

[see also the triangle of parties and the triangle of objectives]

The traditionally accepted objectives of procurement procedures and contract documents are to ensure that works are executed at the minimum cost that is consistent with the need to achieve a product of acceptable quality within an acceptable timeframe. Procurement procedures and contract documents do this by reducing uncertainty, which in turn is done by:

◊ clearly defining who is liable to take any risk that cannot be eliminated from the project; and

◊ providing information on the work to be carried out so that all concerned are clear about what has to be done and what their role is in doing it.

The role of the engineers in urban government is to ensure that objectives relating to cost, quality and time are achieved. The objective which is most difficult to assess, and causes most concern, is the quality of the finished work. The reality is that neither the engineers as supervisors nor the government as promoters are primary stakeholders with a strong motivation for ensuring that adequate work practices and standards are maintained.

© 2004 UNDP,  Manufactured by Margraf Publishers GmbH, Germany