1. Public Procurement Principles and Applications Basic Level: Trainer’s Manual Inter – American Development Bank Chapter 2: Procurement of Goods and Works (General) December 2006

2. 2 IDB Training in Procurement: BASIC LEVEL Key topics of the Chapter are: Introduction Importance of Public Procurement Prequalification of Bidders Procurement Principles Key Elements of Bidding Documents BANK/IFI Guidelines Procedures in Opening of Bids International Competitive Bidding (ICB) Clarification or Alteration of Bids Procedures Other than ICB Process to be Confidential Procurement Planning Examination of Bids Eligibility Evaluation and Comparison of Bids Misprocurement Postqualification Bidding Documents Bid Evaluation Report Role of the Borrower/BANK/Procurement Agent Award of Contract Two-stage Bidding and Two-Envelope Bidding Rejection of Bids Advertising

3. 3 IDB Training in Procurement: BASIC LEVEL Importance of Public Procurement Critical to project implementation Large amounts involved Perception of fairness

4. 4 IDB Training in Procurement: BASIC LEVEL Procurement Principles PUBLIC PROCUREMENT ECONOMY TRANSPARENCY EFFICIENCY FAIRNESS

5. 5 IDB Training in Procurement: BASIC LEVEL Bank/IFI Guidelines Policies for the Procurement of Goods and Works Financed by the Inter-American Development Bank (July 2006) Policies for the Selection and Contracting of Consultants Financed by the Inter-American Development Bank (July 2006) Prequalification for Procurement of Works and User’s Guide (Aug 2006) Procurement of Works and User’s Guide (Aug 2006) IDB References Procurement of Works – Smaller Contracts (Aug 2006) Procurement of Goods (Aug 2006) and User’s Guide (Jan 2000) Standard Request for Proposals – Selection of Consultants (Aug 2006)

6. 6 IDB Training in Procurement: BASIC LEVEL International Competitive Bidding (ICB)

7. 7 IDB Training in Procurement: BASIC LEVEL Procedures other than ICB To be adopted when borrower wishes to: - Maintain reasonable standardization - Maintain continuity of services To be adopted in cases when: - Qualified contractors, manufacturers, suppliers are limited - Amount involved is small - ICB procedures deemed inappropriate by the Bank

8. 8 IDB Training in Procurement: BASIC LEVEL Procedures other than ICB LIMITED INTERNATIONAL BIDDING (LIB) Applicability: - Amounts are small - Only few suppliers - Other exceptional reasons Procedure: - No public/open advertisement - Solicit tenders from a limited number - Procedures otherwise identical to ICB

9. 9 IDB Training in Procurement: BASIC LEVEL Procedures other than ICB INTERNATIONAL SHOPPING Applicability: - Values are small - Off the shelf goods - Standard specification commodities Procedure: - No formal bidding document - Requests for quotation to provide description, quantity of goods, delivery, time and place - Written quotations: telex or facsimile quotations acceptable - Usually at least three quotations foreign and local

10. 10 IDB Training in Procurement: BASIC LEVEL Procedures other than ICB DIRECT CONTRACTING Applicability: - Extension of an existing contract - Standardization of goods and services - Proprietary items - Process design critical items from specific suppliers to provide performance guarantee - In exceptional cases such as response to natural disaster Procedure: - Only one contractor is invited - No competition

11. 11 IDB Training in Procurement: BASIC LEVEL Procedures other than ICB LOCAL COMPETITIVE BIDDING (LCB) Applicability: - Goods and works to be procured financed by the local currency portion of the loan Procedure - Bidding is restricted to local firms

12. 12 IDB Training in Procurement: BASIC LEVEL Separate Classifications Procurement Planning (i) Services (Consultancy, et al) (ii) Works (iii) Goods

13. 13 IDB Training in Procurement: BASIC LEVEL Contract Packages: Factors Procurement Planning WHAT – nature of items, contract amount, slice and package HOW – ICB, LIB, shopping or direct method of procurement WHEN – each procurement step, each package WHO – agencies or person to decide

14. 14 IDB Training in Procurement: BASIC LEVEL Lead Time: Factors Procurement Planning Administration Manufacture Delivery Construction Period

15. 15 IDB Training in Procurement: BASIC LEVEL Planning: Factors Procurement Planning Critical dates for each package Tabulation/Preparation of Statistics Periodic Update Use of Monitoring

16. 16 IDB Training in Procurement: BASIC LEVEL Preparation for Procurement Procurement Planning (i)Determination of needs and objectives (ii)Determination of constraints (iii)Identification of parties (iv)Planning, budgeting, financing (v)Identification of contract type (vi)Identification of selection procedure (vii)Preparation of requirements/specifications/Bill of Quantities/ Terms of Reference (viii) Prequalification and Specification of Evaluation Criteria (ix)Specification of Particular Conditions (x)Advertisement/Publicity (xi) Preparation of Tender Documents

17. 17 IDB Training in Procurement: BASIC LEVEL Eligibility (a) Firm/organization engaged to provide consulting services for preparation related to procurement for or implementation of project is ineligible for working in any other capacity on the same project including bidding related to goods and services (b) Applies to contractors who lend, hire temporarily second their personnel to firms or organizations which are engaged in consulting services in preparation related to procurement for or implementation of the project if the personnel would be involved in the same project

18. 18 IDB Training in Procurement: BASIC LEVEL Misprocurement (a) Bank does not finance expenditures related to goods and works not procured in accordance with agreed procedures (b) Bank will reject the proposal for award if the bidder has indulged in corrupt or fraudulent practices (c) Bank will recognize a contractor ineligible for a period determined by the bank if he has indulged in corrupt or fraudulent practices in any bank-assisted contract

19. 19 IDB Training in Procurement: BASIC LEVEL Bidding Documents Four Main Purposes of Bidding Documents 1)INSTRUCT BIDDERS ON PROCEDURE FOR SUBMISSION OF TENDERS 2) DESCRIBE GOODS OR WORKS TO BE PROCURED 3) INFORM THE BIDDERS OF CRITERIA FOR EVALUATION 4) DEFINE CONDITIONS OF CONTRACT

20. 20 IDB Training in Procurement: BASIC LEVEL Bidding Documents Clarity of Bidding Documents Allow and encourage ICB Set forth clearly and precisely the work to be carried out Describe location of work, the goods to be supplied, place of delivery or installation Specify the schedule for delivery or completion Specify the warranty and maintenance requirements State the payment terms as well as other pertinent terms and conditions Define the tests, standards, and methods that will be employed to evaluate the conformity of the equipment as delivered or of works as performed vis-à-vis the specifications Make sure that drawings are consistent with the text of specifications Specify the factors which will be taken into account for evaluation in addition to bid price and how such factors would be quantified or otherwise evaluated

21. 21 IDB Training in Procurement: BASIC LEVEL Role of the Borrower/BANK/Procurement Agent

22. 22 IDB Training in Procurement: BASIC LEVEL Two-Stage Bidding and Two-Envelope Bidding Two-Stage Bidding turnkey contracts or contracts for large and complex plants procurement of equipment subject to rapid technological advances impractical to prepare technical specifications in advance Drafting of technical offers, clarifications, adjustments, amendment Stage 1 Final technical proposals and priced tenders Stage 2

23. 23 IDB Training in Procurement: BASIC LEVEL Two-Stage Bidding and Two-Envelope Bidding Two-Envelope Bidding complete design, specifications, quantities prepared in advance technical and price proposals simultaneously in two separate envelopes First Envelope (Technical proposals) : opening, review, evaluation Second Envelope (Price proposals) : opening, review, evaluation

24. 24 IDB Training in Procurement: BASIC LEVEL Two-Stage Bidding and Two-Envelope Bidding Two-Envelope Bidding MERITS unbiased outside pressure avoided DEMERITS  diminished credibility  outdates price

25. 25 IDB Training in Procurement: BASIC LEVEL Advertising At least one newspaper of general circulation Copies of invitation to the local representatives of eligible source countries POLICY: provide wide and timely notification of ICB bidding opportunities OBJECTIVES: promote maximum competition provide fair opportunities to all bidders inform potential bidders

26. 26 IDB Training in Procurement: BASIC LEVEL Prequalification of Bidders Where Required Large or complex works Custom Designed Equipment Industrial Plant Specialized Services

27. 27 IDB Training in Procurement: BASIC LEVEL Prequalification of Bidders Objectives Only to technically and financially capable Save expense of bidding Improve interest of leading contractors Reduce potential for controversy

28. 28 IDB Training in Procurement: BASIC LEVEL Prequalification of Bidders Information Provided Description of works, size, cost of project Scope of contract Scope of finance, terms of payment Implementation schedule Eligibility, procedures Pre-qualification requirements

29. 29 IDB Training in Procurement: BASIC LEVEL Prequalification of Bidders Information Requested Minimum requirements Avoid certificates Use standard questionnaire

30. 30 IDB Training in Procurement: BASIC LEVEL Prequalification of Bidders Number Prequalified ALL firms who meet the criteria (NO maximum)

31. 31 IDB Training in Procurement: BASIC LEVEL Prequalification of Bidders Evaluation Factors - Minimum financial/physical resources (Average Annual Turnover or AAT) - Experience in Similar Works - Personnel Capabilities- Equipment Capabilities - Financial Position Cash flow requirement Audited balance sheets - Litigation History - Joint Venture (JV) Formation

32. 32 IDB Training in Procurement: BASIC LEVEL Prequalification of Bidders Update from the time of prequalification to the time of award of contract based entirely on the capability of prospective bidders to perform contract satisfactorily

33. 33 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents govern the procurement procedure provide all necessary information to the bidder contains the rights and obligations of the parties

34. 34 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Documents Comprising the Bidding Documents Invitation for Bids Instructions to Bidders General Conditions of Contract Conditions for Particular Applications Technical Specifications Bill of Quantities Drawings Contract Form Bid Security Form Performance Security Form

35. 35 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Fees for Bidding Documents REASONABLE FEE - to cover cost of production - not to discourage qualified bidders - not to reduce competition

36. 36 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Reference to the BANK and Corrupt and Fraudulent Practices REFERENCE TO THE BANK clause indicates the IFI financing of projects enables bidders to fully understand the need to follow existing Procurement Guidelines/Policies of the BANK MISPROCUREMENT clause informs sanctions imposed to firm which are engaged in corrupt or fraudulent practices  Ineligibility to participate in the bidding

37. 37 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Bid Securities Purpose ensure that the submissions of bids from bidders are done in good faith Amount generally around 2% of the estimated project cost Validity beyond the bid validity Release after opening of tenders (unsuccessful bidders)

38. 38 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Conditions of Contract rights and obligations of Employer and Contractor powers and authority of Consultant as the Engineer appropriate in nature and location of the project

39. 39 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Conditions of Contract General Conditions of Contract (GCC)/ Part I Usually published by FIDIC (intact) and are tested for fairness based on international practices Scope of the FIDIC Conditions of Contract: Rights And Obligations Of Both Parties Procedure For Insurance, Supervision, Documentation Procedure For Measurement Procedure For Variations (Change Orders) Price Adjustment Procedures Procedure, Terms And Currencies Of Payment Procedures For Performance Securities Force Majeure Procedure For Damages, Penalties For Delay Procedure For Termination Mode And Forum For Settling Disputes Applicable Law Conditions of Particular Applications (CPA)/Part II Complement the GCC and specify the contractual requirements linked to special circumstances Usual items modified and/or elaborated: Definitions Of Employer/ Engineer / Specific Contractor Amount Of Performance Security Specific Procedures For Supervision Specific Requirements For Insurance Specific Payment Terms/Currency Price Adjustment Mechanism Other Deletions/Additions To General Conditions

40. 40 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Clarity of Bidding Documents SPECIFICATIONS clear and precise consistent with the drawings worded to permit and encourage widest possible competition TO BE SPECIFIED: evaluation factors other than the price + method of quantification/evaluation additional information, clarification, correction of errors or alterations of specifications eligible source countries and other eligibility provisions alternative designs, materials, completion schedules, payment terms, and method of evaluation

41. 41 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Standards Internationally accepted standards >= national or other standards

42. 42 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Brand Names Only when a degree of standardization is necessary to ensure continuity for certain essential features OTHERWISE:  specifications shall be based on performance capability, permit offers of alternative goods with similar characteristics NO SPECIFIED BRAND NAMES, CATALOGUE NUMBERS OR PRODUCTS OF SPECIFIC MANUFACTURER

43. 43 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Currency of Bids Whenever necessary, other international trading currencies may also be permitted Differing requirements as specified in the bidding documents LOCAL CURRENCY bid price which bidder expects to spend in Borrower’s country

44. 44 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Currency Conversion for Bid Comparison DIFFERENT CURRENCIES CONVERSION Use exchange (selling) rates quoted by an official source on a date selected in advance and specified in the bidding documents SINGLE CURRENCY FOR BID CONVERSION

45. 45 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Currency of Payment Currency of Payment = Currency of Bid unless specified in the Bidding Document Currency of payment ≠ Currency of Bid Exchange rate to be used for payment shall be specified to ensure that value of bid used is maintained without loss or gain

46. 46 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Price Adjustment For changes in the prices of major components (labor, materials) specific formula using specified indices ceiling of price adjustment to be specified

47. 47 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Advance Payment Its arrangements should be specified in the bidding documents (including any required securities) Shall be of reasonable amount For mobilization purposes and may not be applicable for off the shelf goods where payment is expected quickly soon after delivery of goods

48. 48 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Guarantees/Warranties/Defects Liabilities Warranty Period generally 12 months from time of delivery or 18 months from time of shipment at port in source country  not longer than 2 years Obligation of the Supplier (i.e. repair of latent defects) normally end when the warranty period expires

49. 49 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Performance Bonds and Retention Monies Performance Security/ Bank Guarantee/ Performance Bond Sufficient in amount and validity to protect the borrower in case of default by the contractor Retention Money Percentage of periodic payments held as retention money until final acceptance TO BE SPECIFIED IN THE BIDDING DOCUMENTS

50. 50 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Insurance = types and terms of insurance (i.e. liabilities and duration) to be obtained by the successful bidder To be precisely stated :

51. 51 IDB Training in Procurement: BASIC LEVEL LIQUIDATED DAMAGES  For delays in completion of delivery resulting in extra cost, loss of revenues or  loss of other benefits to the borrower Key Elements of Bidding Documents Liquidated Damages and Bonus Clause BONUS CLAUSES  For completion of works in advance, earlier completion will benefit borrower

52. 52 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Force Majeure Failure to perform due to force majeure is NOT CONSIDERED As default of contract

53. 53 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Settlement of Disputes and Applicable Law SETTELEMENT OF DISPUTES - Based on the rules of conciliation and arbitration prepared by the International Chamber of Commerce APPLICABLE LAW - Govern the performance and the interpretation of the contract

54. 54 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Time Interval between Invitation and Submission of Bids Determined in consideration of the following: circumstances of the project size and complexity of the contract TIME INTERVAL: Generally not less than 45 days for ICB, 90 days for large or complex items of equipment

55. 55 IDB Training in Procurement: BASIC LEVEL Key Elements of Bidding Documents Bid Validity SHORT PERIOD OF BID VALIDITY LONG PERIOD OF BID VALIDITY Prevent price escalation Cause more speculations IDEAL

56. 56 IDB Training in Procurement: BASIC LEVEL Procedures in Opening of Bids SPECIFIED IN THE ITB Date, hour, place of latest receipt of tenders, opening OPENING OF BIDS Opened publicly at stipulated time and place read aloud and recorded (name of bidder, bid amount, any alternative, etc.) late tenders returned unopened BID OPENING RECORD Signed and promptly sent to the Bank

57. 57 IDB Training in Procurement: BASIC LEVEL Clarification or Alteration of Bids AFTER THE OPENING OF BIDS CLARIFICATION SIGNIFICANT ALTERATION

58. 58 IDB Training in Procurement: BASIC LEVEL Process to be Confidential Except as may be required by law, no information relating to the examination, clarification and evaluation of tenders and recommendations concerning awards shall be communicated after the public opening of tenders to any persons not officially concerned with this process until a contract has been awarded to a bidder.

59. 59 IDB Training in Procurement: BASIC LEVEL Examination of Bids Following the opening of bids it shall be ascertained whether:  Material errors in computation have been made  Bids are substantially responsive to the BDs  The securities have been provided  Documents have been properly signed  The tenders are otherwise generally in order Technical Analysis and Comparison of Bids Substantial non- conformities and inadmissible reservations = REJECTION OF BID

60. 60 IDB Training in Procurement: BASIC LEVEL Evaluation and Comparison of Bids Evaluation of Bids for Goods (need to specify):  CIF port of entry price for imported goods or ex- factory price of other goods.  Cost of inland freight and other expenditure incidental to the transportation and delivery to site if indicated in BDs.  Custom duties and other import taxes or sales and similar taxes not be taken into account in the evaluation of that bid. Evaluation of Bids for Works:  Contractors are responsible for duties and taxes PREDETERMINED BID VALUE IS NOT ACCEPTABLE

61. 61 IDB Training in Procurement: BASIC LEVEL Evaluation and Comparison of Bids Bid Evaluation of Goods Objective Secure Goods/Services At Most Economical Cost Price Only One Factor Other Factors Time of delivery/completion Terms of Payment Terms of Guarantee Technical Merits, Capacity, Productivity Operating Costs Maintenance Costs Efficiency Resale Value Criteria Shall be stated in the BD Ideally, all factors quantified in monetary terms

62. 62 IDB Training in Procurement: BASIC LEVEL Evaluation and Comparison of Bids Commercial FeaturesTechnical Features Price Price Adjustment Delivery point Time of delivery Warranty Payment Terms Operating Cost Fuel Training Maintenance Cost Standardization Resale Value/Depreciated Cost Life Cycle Cost Ownership Cost Capacity Productivity Bid Evaluation of Goods

63. 63 IDB Training in Procurement: BASIC LEVEL Evaluation and Comparison of Bids Bid Evaluation of Goods Unacceptable DeviationsDebatable Deviations Late Bid Submission Ineligible Bidder Unsigned Bid No Acceptable Bid Security Bidder/JV Not as Prequalified Price Adjustment vs Fixed Price Unacceptable Alternative Design Nonconforming Time Phasing Unacceptable Subcontracting Qualification of Arbitration Rules, Location, Etc. Different Payment Terms Noncompliance Local Regulations (Labour, Imports, Etc.) Completion/Maintenance Records Special Methods of Construction Questionable Subcontracting Omission of (Minor) Works/Items Limited Liabilities Modified Liquidated Damages Different Codes/Standards

64. 64 IDB Training in Procurement: BASIC LEVEL Evaluation and Comparison of Bids Bid Evaluation of Goods Factors to Consider for Debatable Deviations Full understanding of the implications Acceptance in Contract Agreement Fairness to other bidders Deviations fully justified Avoiding/Reducing Deviations Clear and unambiguous Bidding Documents Pre-bid Conference to address bidders’ concerns Investigation of common deviations experienced in the past

65. 65 IDB Training in Procurement: BASIC LEVEL Evaluation and Comparison of Bids Bid Evaluation For Equipment EVALUATION METHODS (i) Life Cycle Cost Method Cost to own and operate item during its life span Initial purchase price Operating cost Ownership cost (ii) Efficiency Cost Method Differences in efficiency in operation of items (iii) Productivity Cost Method Life cycle cost per unit of output TO TAKE INTO ACCOUNT: Spare parts quantity needed for initial operation cost and life cycle maintenance availability

66. 66 IDB Training in Procurement: BASIC LEVEL Evaluation and Comparison of Bids Bid Evaluation For Works Clarification of Tenders (if necessary) Determination of responsiveness Correction of Errors Conversion To Single Currency Compare bids in single currency, after excluding provisional sums

67. 67 IDB Training in Procurement: BASIC LEVEL Evaluation and Comparison of Bids Postqualification IF THERE HAS BEEN PREQUALIFICATION  Postqualification only for the Lowest Evaluated Responsive Bidder Update Prequalification Information: Capacity (New Work Commitments) Financial Resources Management Critical Equipment Current Litigation

68. 68 IDB Training in Procurement: BASIC LEVEL Evaluation and Comparison of Bids Postqualification IF THERE HAS BEEN NO PREQUALIFICATION  Need to determine if Lowest Evaluated Responsive Bidder has the capability and resources to carry out contract effectively YESNO = Award of Contract= Rejection of Bid and postqualification of next lowest evaluated bidder Criteria (Goods): Capacity Technical Capability Product Reputation Financial Resources Past Performance Criteria (Works): Past Experience (Size and Complexity) Personal Resources Equipment Resources Financial Capability Litigation/Arbitration History

69. 69 IDB Training in Procurement: BASIC LEVEL Bid Evaluation Report detailed report on the evaluation and comparison of tenders ; specific reasons on which determination of the lowest evaluated bid was based Identification of Contract Bidding Process (Prequalification, Advertising, Amendments) Bid Submission/Opening (Bidder Identity /Prices/Currencies) Examination and Evaluation (Responsiveness/Rejection, Corrections, Currency Conversion/Exchange Rates, Deviations/ Treatment/Calculations Proposed Contract Award

70. 70 IDB Training in Procurement: BASIC LEVEL Evaluation and Comparison of Bids Award of Contract  To the lowest evaluated bidder who meets appropriate standards of capability and financial resources NO CONDITION OF AWARD (i.e. additional responsibilities) MODIFICATION OF BID

71. 71 IDB Training in Procurement: BASIC LEVEL Evaluation and Comparison of Bids Rejection of Bids No bid is substantially responsive to the bidding documents There is lack of competition Purpose of obtaining lower prices IF ALL TENDERS ARE REJECTED: - Revision of specifications OR modifications of the project/amounts of work - Rebidding OR negotiation with the lowest evaluated bidder