HOW TO ENHANCE VFM IN PROCUREMENT PROCESS

ENG. DR. LAURENT M. SHIRIMA SCE – DEPT.

COLLEGE OF ENGINEERING AND TECHNOLOGY UNIVERSITY OF DAR ES SALAAM, TANZANIA

lmshirima@gmail.com; +255 754 466014

CONTENT

• Public Procurement Principles

• Value for money concepts & principles

• Fit-for-purpose procurement process & VFM opportunities in procurement stages

• Concluding remarks

PUBLIC PROCUREMENT PRINCIPLES

• Other Principles:

– Promotion of objectives of the Government/PE

• Sustainable procurement

• Socio economic policies

• Protecting classified information

Source: World Bank – New Procurement Framework

VFM CONCEPTS & PRINCIPLES

• When the best results or returns possible are obtained from the money spent

• Obtaining maximum benefit from the resources available

• A measure of economy, efficiency and effectiveness with which the financial resources are converted (3Es or 4Es)

• The optimum combination of the WLC/TCO/LCC and quality

VFM CONCEPTS & PRINCIPLES

• Total Cost of Ownership 𝑇𝐶𝑂 = 𝐴 + 𝑂 + 𝑇 +𝑀 +𝑊 + 𝐸 − 𝑆

Where: A = Acquisition cost [25-40%]

O = Operating cost

T = Training cost

M = Maintenance cost 60-75%

W = Warehousing cost

E = Environmental cost

S = Salvage value

FIT-FOR-PURPOSE PROCUREMENT PROCESS (1)

Defining Requirements

• Clear statement of needs and objectives

• Procurement objectives

• Statement of requirements drawn from procurement objectives

• Specifications/TOR/SOW - Specification banks

Procurement Planning

• Budget and funding (Cost estimation)

• Aggregating requirements

• Procurement approaches – that is appropriate to the value and complexity of the requirement

• Scheduling (e.g. APP)

PQ or IS

• To test the capability of applicants

• Evaluation criteria are drawn from the requirements

• PQ (All substantially qualified applications); IS (Only the best/highest score qualified applications)

FIT-FOR-PURPOSE PROCUREMENT PROCESS (2)

RFB or RFP

• The complexity and risk of the procurement and time to undertake the procurement

• Ease of defining outcome(s) and structuring financing & commercial deal

• Evaluation criteria drawn from the requirements (testing the ability to perform the requirements)

Evaluation

• Evaluation criteria may consider factors such as cost, quality, risk, sustainability and innovation in order to achieve VFM

• Lowest responsive/compliant/acceptable tender or Lowest total cost of ownership/life cycle costing

• RFB approach uses monetarily quantifiable criteria if the factors to be considered can be monetized.

• RFP approach uses points-based criteria (Weighted scoring system )

FIT-FOR-PURPOSE PROCUREMENT PROCESS (3)

Contract Award

• Award is the formal decision and approval to establish a contract

• To ensure that the procurement process was fairly conducted and followed the appropriate policies and procedures

• To confirm the necessary budget for the contractual commitment is available

• To confirm that the recommendation for award and terms of contract represent best VFM

Contract Management

• Relationship Mgt; Delivery Mgt; & Contract Administration

• Requires systematic and efficient planning, execution, monitoring, and evaluation

• CMP with KPIs & Milestone events (budget & payments)

PRE-QUALIFICATION VS. INITIAL SELECTION

Source: World Bank – New Procurement Framework: SPDs

Fit-for-purpose by design

Getting the best fit-for-purpose procurement process can sometimes be a combination of the:

right selection method e.g. RFB or RFP and

right market approach options e.g. single-stage or two envelope, or negotiation

EASY DIFFICULT

CO

MP

LEX

ITY

AN

D R

ISK

LO

W

HIG

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RFB

RFP CD

RFP

1 envelope

prequalification

2 envelope

closed opening

BAFO or Negotiation

EASE IN DEFINING OUTCOME/S + COMMERCIAL DEAL

FIT-FOR-PURPOSE PROCUREMENT PROCESS SUMMARY

Source: World Bank (2016) Procurement Framework Selection Methods and Approaches (GWNcS)

CONCLUDING REMARKS • Consider the complexity, risks, market capability and

capacity of those involved in the process • Procurement approach = F(nature & value of

requirement, market knowledge) • Consider establishing specification banks • Develop & properly apply the appropriate evaluation

criteria (fit-for-purpose) • Effective contract management:

– A constructive and non-adversarial relationship with the supply market

– Robust contract administration – Monitor delivery, quality and cost – Enable savings opportunity & further benefits – Reduce contractual risks (e.g. delivery)

THANK YOU FOR YOUR ATTENTION