World Bank Training Program on HIV/AIDS Drugs Training Module 5 Procurement based on the World Bank document Battling HIV/AIDS: A Decision Maker’s Guide to the Procurement of Medicines and Related Supplies World Bank, 2004

Session Objectives To identify ways to improve efficiency in the procurement process To discuss how we can achieve optimal economical results from expenditures of public funds To advocate for increased transparency and accountability in public financed procurement

Module Learning Objectives Upon completion of the module the learner should be able to Identify specific components involved in the procurement of the HIV/AIDS care package and their interrelationship Initiate an evaluation of the implementing capacity of a procurement system

Module Learning Objectives (Cont.) Identify appropriate procurement strategies and key elements of planning Choose an appropriate procurement method

Procurement Module ( recommended preparatory reading ) Battling HIV AIDS: Chapter 3 page 21 – 30 Managing the supply cycle for better outcomes Chapter 5 page 63 – 78 Procurement Cameroon vs Malawi as a Case Study in ARV Procurement

Outline of the Module INTRODUCTION: Procurement as part of the procurement cycle Commodities that support HIV/AIDS programmes Procurement methods How to choose the “right” procurement method for a particular situation Important procurement elements Assessing capacity of procurement agency Case study

Objective of Procurement The process of acquiring - the right quantity - of the right health products - of the right quality - for the right customer - at the right time - in the most efficient, safest and least costly way possible. Cost effective Reliable suppliers of quality assured Timely delivery

Procurement as Part of the Supply Cycle

THE PROCUREMENT CYCLE Managing Drug Supply; Second Edition Review Drug Selection Determine Quantities needed Collect Consumption Information Reconcile needs and funds Distribute Supplies Choose Procurement method Make Payments Locate and select suppliers Receive and Check Supplies Specify contract terms Monitor order status

Procurement as part of the Supply Cycle Procurement is a cyclical process; a chain is as strong as the weakest link Multiple stages: careful scheduling needed Better planning can reduce wastage, shortages, costs Simultaneous global demand affects supplier lead times Product shelf-life impacts planning Many stakeholders, many opportunities Discuss: what are the major steps of procurement: identifying need, quantity, finding suppliers, tendering, award, receive, pay, distribute, supplier monitoring Constantly need to plan & replan procurement, as health needs change, as proc office gains experience, etc Timely participation: store keepers, treasury must release funds: so scheduling is for others as well. But this means that there are several external items that could become “show stoppers”

The procurement balance Capital costs Expiry Storage costs Loss Wastage Minimize shortages Build trust in system Benefit from bulk purchases Want to buy enough that there is always enough stock, and that patients begin to trust the system… But that has to balanced against the high costs of ARVs, expiry if products aren’t used fast enough, the cost to store the medicines, damage and loss, and goods that are wasted when, eg, STGs change. This balance is seen the whole way down the supply chain… Each procurement office must find this equilibrium. More stock Less stock

The procurement balance Capital costs Expiry Storage costs Loss Wastage Minimize shortages Build trust in system Benefit from bulk purchases STOCK - OUT Want to buy enough that there is always enough stock, and that patients begin to trust the system… But that has to balanced against the high costs of ARVs, expiry if products aren’t used fast enough, the cost to store the medicines, damage and loss, and goods that are wasted when, eg, STGs change. This balance is seen the whole way down the supply chain… Each procurement office must find this equilibrium. More stock Less stock

You are going to run out of stock Your stock is going to expire WHAT ARE YOU GOING TO DO ABOUT IT ?

Specific Issues in Procurement Unit 1 Specific Issues in Procurement of HIV commodities

Elements of a Comprehensive HIV Care Programme ART ARVs Palliative Care Drugs and consumable medical supplies Battling HIV/AIDS. A Decision maker’s Guide to the Procurement of Medicines and Related Supplies. World Bank 2004 From: Treatment Drugs, consumables to treat STI, OI TB Detection Diagnostic Agents and lab supplies HIV STI TB OIs Prevention Contraceptives, condoms, lubricants, gloves, protective gear Family Planning

Procurement options differ (products) Health Products: Pharmaceuticals Laboratory Medical Devices Goods – Office Equipment, air conditioners, Vehicles, etc.

Procurement options differ (services) – sub-contracts, engagement of technical advisers, MIS developers, pharmacists, doctors, trainers, facilitators, security, assessment works, other individual/firm experts, etc. Works – Office renovations, shelves, installations, minor civil works, etc.

Make sure everybody knows Avoiding confusion STEP 1: Make sure everybody knows exactly what you need

Avoiding confusion (when procuring products) Requirements are defined as “Specifications” Can be defined based on: Quality standards / Commercial Standards Design Specifications, Labels, Packaging Performance Specifications, shelf life, expiry Brand or Trade Names Samples: Lazy person’s method

Avoiding confusion (when procuring services) Requirements are defined in the “Terms of Reference (TORs)” TOR should be clear and precise enough for the contractors/bidders to prepare a responsive offer TOR also provides the basis of evaluation after completion of Contract

Avoiding confusion (when procuring works ) Requirements are defined in the “Statement / Scope of Works (SOW)” SOW is a much more detailed and refined version of the TOR. Thorough supervision is required, and performance is bonded/secured financially

Minimum requirements for TORs/SOWs Background / Context of Procurement The aim and objective of the assignment Scope of the work: Outputs/ Deliverables required of the contractor Institutional arrangements, requirements for supervision, progress reporting and time schedule Training requirements where appropriate Additional References (Annexed) to guide the offerors Duration of the work/Implementation timetable Level of details of price breakdown Data, local services, personnel and facilities required from the buyer Recommended Presentation of Proposal Criteria for Evaluation of Proposals GET ADVICE !

Unit 2 Procurement Methods

Objective of Procurement The process of acquiring - the right quantity - of the right health products - of the right quality - for the right customer - at the right time - in the most efficient, safest and least costly way possible. Cost effective Reliable suppliers of quality assured Timely delivery

Procurement methods most flexible and least formal Request for Quotation (RFQ) most flexible and least formal Request for Proposal (RFP) used in the procurement of services and complex goods (e.g., functional specifications cannot be expressed) Single Source /Direct Contracting / Waiver of Competition there is no competitive market for the requirement, previous tender failed

Procurement Methods Invitation to Bid (ITB) normally used when entity is not required to propose technical approaches to a project activity (i.e., goods, civil works) National Competitive Bidding (NCB) with prequalification International Competitive Bidding (ICB) with prequalification Limited International Bidding (LIB) International Shopping (IS)

Procurement Methods (Cont.) Use of specialized low cost international procurement suppliers or UN Use of Pooled Procurement (PP) Group Contracting Central Contracting

Single Source or Direct Contracting Advantages Availability of product guaranteed Simplified procurement rules Expeditious process Disadvantages Usually less competitive prices Dependent on one supplier Less transparent

National Competitive Bidding with Prequalification Only applicable if there is a robust and fully qualified local industry Not recommended for procurement of medicines

Limited International Bidding (LIB) Advantages Competitive prices Supply of particular product assured Quality control procedures assured ‘Good’ relationship with supplier Disadvantages Purchaser should actively follow developments in Pharmaceutical market (e.g. should be very knowledgeable of the market)

International Competitive Bidding with Prequalification Disadvantages Expensive process Lengthy process HR intensive Requires highly technical expertise for evaluation of applicants and bids Advantages Assurance of getting the lowest price offers Transparent Multi source products Quality control procedures assured

International Shopping Advantages Speedy and simple process Negotiating room on non-price issues Useful for emergency orders Practical in case of particular products with few suppliers Disadvantages Less competitive prices Limited options Less transparent Suppliers don’t take you serious

Choosing the ‘Right’ Procurement Method Unit 3 Choosing the ‘Right’ Procurement Method

Comparing methods Open tender Restricted tender Larger set of supplier bids to evaluate Pre-qualify suppliers: Less work for the tenderer; fewer proposals, bids to review Post qualify suppliers during tender period Bid evaluation restricted to pre-qualified suppliers; more control over product quality More competition for lower prices Both tenderer and supplier know what to expect, based on experience with each other Lengthy evaluation, need expertise in new markets Faster bid evaluation, earlier procurement Possibility of new suppliers submitting bids Suppliers more likely to respond. Procurement team must seek new suppliers and prequalify What is the market for diagnostics like? Open tender not really useful for ARVs For restricted: Suppliers more likely to reply to closed tenders as their chances better. ???

Selection of Procurement Method IS: International Shopping NS: National Shopping DC: Direct Contract SS: Single Source ICB: International Competitive Bidding LIB: Limited International Bidding Market situation: On patent + available from originator supplier in ACCESS Initiative NOT on patent + available from originator and generic manufacturer Not on patent + available from originator ONLY, or on or more generic manufacturer ONLY Contracts: Small Medium Large

BUZZ Group Exercise 1 Per table: Divide into two procurement expert groups Sub group 1: You are international experts. Suggest the most effective procurement method for the nine options proposed Subgroup 2: You are national experts. Suggest the most effective procurement method for the nine options proposed within the local financial rules

Adherence to Procurement principles Divide key functions among different offices Procurement should be transparent with SOPs Procurement should be planned and monitored Limit medicines to EML or formulary List products by INN Quantities should be based on actual need

Adherence to Procurement principles 7. Ensure reliable financing 8. Procurement should take advantage of economies of scale 9. Use competitive procurement methods 10. Purchase only from supplier awarded tender 11. Pre-qualify suppliers 12. Procurement procedures should assure all drugs are quality assured

Procurement in context Best practices must balance between: Distribution capacity Storage capacity Procurement staff capacity Health delivery capacity Available finances Time…

Structures for Storage and Distribution Government Central Medical Store Autonomous supply agency Direct delivery system Prime vendor system Private supply system

Important Procurement Elements Unit 4 Important Procurement Elements

Procurement Flow Chart

Procurement Planning 1. Identify requirements to initiate and complete your procurement Clarify scope of the task/specifications Time required for each task Staffing levels Resources: financial, storage, logistics External dependencies HOW WILL THIS ACTIVITY GO TO SCALE ? Some of these resources – specifically the storage issues – might not be directly related to Procurement, but Procurement manager needs access to this information.

Stock arrive Place order

Procurement Planning 2. Schedule all tasks Need to establish a schedule; procurement takes time. Staff will have periods of extreme work, and other periods of less. Definition of procurement cycle will also define how many procurements can be done in a year. This relevant as some funders might have specific requirements; some products might have shorter shelf life… Which activities are external to procurement office? Answer: Available financing, shipping, quantification from stores, qc before release

Procurement Planning 3. Scheduling procurement How long will procurement take? When to start? How often to procure? What to do if shortages are possible? How to monitor the process? How often is the frequency?

Procurement Planning 4. Identify and Manage Cost Factors Interval between orders Safety stock levels Increased costs from emergency orders Bulk procurement Reliable payment Hidden costs Use this slide to summarize the activity: Interval: annual, periodic, perpetual. Longer means greater holding costs. Safety stock: greater safety stock, greater inventory holding costs, but with ARVs… Bulk: discounts for larger orders Reliable payment: or rather, penalties for unreliable payments

Procurement Planning 5. Identify critical path items Identify tasks that can disrupt schedule Develop strategies to monitor and keep: critical path items on schedule external dependencies on schedule Monitoring of contract terms, and application of penalties

Procurement Planning 6. Expedite: Product available for use

KENYA PROCUREMENT AND SUPPLY CHAIN MANAGEMENT

Is the Procurement of ARVs something special ?

BUZZ Group Exercise 2 As a group, discuss those issues that make the procurement of ARVs different from the procurement of the essential commodities we routinely procure for our programmes List the 3 most important considerations that affect procurement of ARVs Be prepared to explain to the meeting why you have listed them as priority considerations

Is the Procurement of ARVs something special ?

Technical Issues Each single treatment needs an uninterrupted life long supply of ARTS ARVs are combination medicines Need to be combined with other drugs to treat Opportunistic Infections (OIs) Need to be combined with proper lab testing facilities (supplies!!) Decentralisation to community level ARVs are scarce and valuable

Development and Research Issues Service provider, client and community education are in an early stage of development Treatment protocols and ARVs are subject to continuing research: changes can occur quickly and can be significant

Financial Issues ARVs are scarce and (still) expensive, prices change frequently: procurement planning difficult These ‘ small ’ and often ‘ vertical ’ programmes have a HUGE impact on the health budgets and probably the economy of small countries

Political & Social Issues AIDS = Politically sensitive AIDS = Stigma

Product Registration ARVs change rapidly and often need “fast track” registration Special “fast track” procedures should be encouraged

Legal Issues International: TRIPS National: existing legislation, fast track registration of medicines, quality control, procurement etc

Conclusions The procurement of ARVs has very specific components that differ from the procurement of other drugs The strategy and planning of procurement of ARVs can only be short term and flexible due to rapidly changing treatment protocols and market situation The procurement of ARVs must be a long term commitment

Assessing the Capacity of UNIT 5 Assessing the Capacity of a Procurement Agency

Why is capacity of a procurement agency important? The Procurement of ARVs is critical to: Successful project implementation The attainment of the objectives of the project Sustainability

Objectives of Assessment To evaluate capability of the implementing agency and adequacy of the procurement systems in place Assess the risks (institutional, political, organizational, legal, procedural etc) Develop an action plan to address deficiencies and to ensure coordination Propose a suitable procurement supervision plan, now and in SCALE UP

Elements of Assessment Existing infrastructure and capacities Compliance with guidelines, local & int Organization / organizational capacity Bureaucracies: Approvals procedures, Practices Human Resources Physical Resources Record keeping, good management information

Results of Assessment Procurement capacity sufficient Ad. 1 Even if the results of the assessment showed that the implementing procurement agency (let’s say through using the services of the Central Medical Store, CMS) has the capacity to supply medicines and medical products to the health care system in an efficient an timely manner, it is still very well possible that for the procurement of ARTS additional managerial or technical support will be necessary. This support should be included in the project proposal.   Ad. 2 When deficiencies have shown up in the assessment and addressing those cannot be included in the proposed program then alternative procurement options have to be found and plans along with financial sources for strengthening the capacity of the agency must be considered. Ad. 3 In case of a totally deficient Central Medical Store, a specialized procurement agency can be hired. In that case it can be required that this specialized procurement agency includes a training/ capacity building /technology transfer component in the project aimed at strengthening of the CMS. Eventually the CMS can progressively take over the procurement responsibilities. Procurement capacity sufficient Activities to introduce new commodities / Deficiencies that can be addressed Third party required ? (procurement agent, distribution agent)

Assessing the robustness of Procurement Planning HIV-AIDS procurement needs are difficult to plan in advance for a complete program; how strong are the links ? Funding Capacity HIV testing programmes Community involvement Changing protocols and prices

Assessing the robustness of Procurement Planning (Cont.) Are there sub-projects or – components, taking policy priorities into account Plan for those components ? For a limited period ? Planning to expand capacity, how will it be updated ?

Assessing the robustness of Procurement Planning (Cont.) Procurement Scheduling When are goods and services needed ? Was a time frame prepared, working backwards from desired date of delivery ? Then determine if and how procurement can / should be arranged

Procurement Strategy for Each Product Category Multi source/ generic products Limited source products Single source products

Prequalification of Suppliers Is prequalification of suppliers part of the strategy ? What are the benefits of prequalification to the programme ? Registration Quality control

Key determinants Value of the procurement Lead times: How fast are the products needed Number of potential suppliers Donor requirements National policies Patent issues

Storage and Distribution Assessment of capacity and capability Conditions of storage and transport Is a separate storage and distribution system needed?

Push and Pull Push system: Pull system: Health authorities determine what and how much a health facility will receive Pull system: Health facility prepares requisition often based on consumption data

Advantages and Disadvantages Push and Pull Advantages and Disadvantages Continuing presence of the right quantities Rational selection Flexibility Waste, overstocking, undersupply Capacity building etc

BUZZ Group Exercise 3 As a group, briefly share how the procurement of HIV COMMODITIES is organised in your country, using the following points as guides: Current MoH Procurement agencies involved The Bidding process Pre-qualification of suppliers, quality control Bid evaluation, contract awards and management Warehousing, storage and distribution Capacity to support programme(s) going to scale Is the capacity in your procurement agency sufficient to conduct this procurement ? List the 3 most important deficiencies that need to be addressed for you to be a ‘ BEST PRACTICE EXAMPLE’ in the region. If you were to issue a bid for a third party procurement agency to conduct procurement on your behalf, what are the three most important considerations to take into account

You are going to run out of stock Your stock is going to expire WHAT ARE YOU GOING TO DO ABOUT IT ?