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PURCHASE PROCEDUREFor AUTONOMOUS EDUCATIONAL ORGANISATIONS

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What is Purchase?

Purchasing also known as procurement.

Means buying of all the materials, services, works needed by the organization.

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PUBLIC PROCUREMENT

What is Public Procurement / public buying?

Public buying is different from private buying in many ways.

Public buying needs to be transparent and follow applicable rules, regulations and existing policies.

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GUIDELINES FOR PUBLIC BUYING

VARIOUS WATCH-DOGS

Rule 137 OF GFR – 2005

Fundamental principles of public buying

Every authority delegated with the financial powers of procuring goods in public interest shall have the responsibility and accountability to bring efficiency, economy, transparency in matters relating to public procurement and for fair and equitable treatment of suppliers and promotion of competition in public procurement.

FIVE GOLDEN RULES Of PURCHASES

1. Contact several vendors to find the best price. 

2. A purchase discount / a trade discount can affect prices.

3. Purchaser should be able to take advantage of a quantity discount or a cash discount.

Quantity discount: a discount that a vendor gives to a buyer who places large orders.

Cash discount : an amount deducted from the selling price for payment within a specified time period

GETTING RIGHT PRICE

Factors affecting the Right Price

Early Advance Payment

without Bank Guarantee

Advance Payment against Bank Guarantee

Payment within 30 days after

receipt of Materials

Payment Against Delivery

Payment after 30 days from date of receipt of Materials

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REASONABLE PRICE

Important:

Last purchase price of same (or in its absence, similar) item.

Current Market Price of the same or similar item.

Price of raw materials which goes into the item.

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L1’s PRICE ABOVE“REASONABLE” LIMIT

• At first, we need to recheck the correctness of the estimated value.

• If estimated price is the same then :-

•Price negotiation with the lowest technically accepted tenderer.

•Re-tender with wide publicity with same terms and conditions or with suitable modifications if necessary.

• IF L1’s PRICE IS BELOW REASONABLE LIMIT, WHAT TO DO?

CHOOSING RIGHT VENDORConsiderations in Vendor Selection

RELIABILITY

DISTANCESERVICES

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TENDER - To invite bid as per requirement or to accept a formal offer. QUOTATIONS – Same but for smaller value.

BIDS – Same. Used when tenders are called in two parts - Technical bid & financial bid.

NIT – Notice Inviting Tender through Newspapers / website / .

STANDARD PURCHASE TERMS

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EVALUATION CRITERIA – Technical and financial evaluation.

TECHNICAL BID – Technical specifications of goods / services in question. Technical bid also include pre-qualification criteria, details of quality and quantity of items to be purchased. Period of supply, guarantee, warranty, etc. Should also be included.

FINANCIAL BID – Financial quotation stating amount for tender. It is also called PRICE BID.

STANDARD PURCHASE TERMS

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PENALTY CLAUSE – It is also called as Liquidated Damages Clause. If contract is not honored then penalty clause to be triggered. Penalty appx. 0.5% per week max. 5% of the contract value to be charged.

TERMINATION OF CONTRACT – One month notice from both the side.

FORCE MAJEURE – Natural Calamities.

AWARD OF CONTRACT – Issue of Purchase order / work order or Service Contract to the bidder.

STANDARD PURCHASE TERMS

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INDENTER – Name of the Purchaser.

EVALUATION OF BIDS – Technical and financial evaluation of bid for award of contract.

LAST DATE & TIME OF RECEIPT OF TENDERS – Date and time after which tenders are not accepted.

PURCHASE ORDER – Contract Agreement.

STANDARD PURCHASE TERMS

TYPES OF TENDERS

Expression of Interest

Public Tender

Limited Tender

Global Tender

Request for Proposal (RFP)

Request for Quotations(RFQ)

E-tender

Percentage Rate Tender

CONTENTS OF TENDER DOCUMENTAs per GFR-155

CONTENTS OF TENDER DOCUMENTAs per GFR-155

CONTENTS OF TENDER DOCUMENTAs per GFR-155

As per GFR-157:

It is security for not withdrawing /altering bid

once submitted.

It is charged 2% - 5% of bid value.

EMD is also known as Bid Security / Bid Bond.

EARNEST MONEY DEPOSIT

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PERFORMANCE SECURITY

As per GFR-158:

To ensure due performance of the contract, performance security is taken from bidders.

It is charged 5% to 10% of Purchase Value.

Taken in the from of DD or Performance Bank Guarantee.

Validity of PBG can very for 1 to 2 years.

PROCUREMENT PROCESS

https://www.youtube.com/watch?v=aPO3fwYnaXA

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TECHNICAL SPECIFICATIONS & STANDARDS OF ITEMS

• Technical Specification and Standards of items can be done by:

Reference sample. Drawings. Written technical specifications.

In many tenders, we may have to use combination of two or more methods to make it more specific to the bidders.

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QUALITY ASSURANCE

We have to ensure that the ordered goods meets contract specification and quality parameters as per the purchase order.

We can do following following inspections and can be written in tender document also such as: 1) Factory Inspection. 2) Pre-dispatch Inspection 3) Final Inspection after installation. 4) Commissioning & Acceptance at site.

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DUTIES & TAXES

Custom Duty: At concessional Rate – 5% of Invoice Value for RESEARCH ITEMS Only.

Excise Duty : Fully exempted for all RESEARCH ITEMS Only.

Octroi: 5.5%.

Service Tax: 12.36%. But for auxiliary services, it is exempted.

VAT/ CST: To be paid at actuals.

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TECHNICALLY ACCEPTABLE SUPPLIER

A supplier who fulfils following two criteria are technically accepted suppliers:

• Eligibility Criteria

• Qualification criteria.

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ELIGIBILITY CRITERIA

• Supplier should be registered with Government as Company, etc, having valid PAN, Service Tax number, Gumasta Licence, authorised Indian Agent, etc. as per the Government norms.

• Suitable stipulations are to be incorporated to ensure above norms in tender documents.

• Many organisations do Vendor Registration to confirm above facts before hand.

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QUALIFICATION CRITERIA

• The tenderer should be technically capable with acceptable past record and also financially sound to deliver the goods as required.

• To ensure above, suitable stipulations to be incorporated accordingly in the tender enquiry document.

LATE TENDERS

As per GFR-153:

In case of Advertised Tender Inquiry or Limited Tender Inquiry, Late Bids (i.e. Bids received after the specified date & time for receipt of bids) should NOT be considered.

Tender Opening Procedure

Quotation / Tenders must be opened in the presence of three members.

Suppliers may be allowed to attend tender opening meeting.

All tenders / quotations including cover must be signed by all members of the committee / Indentor or their representative.

All corrections, overwriting should be attested by the bidder and duly initialed by tender opining committee.

TENDER EVALUATION METHODS

1. Quality and Cost Based Selection (QCBS)

2. Quality Based Selection (QBS)

3. Fixed Budget Selection (FBS)

4. Least Cost selection (LCS)

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TENDER EVALUATION(Single Envelop Model)

T ECHNICALLYUNRESPONSIVE

COM M ERCIALLYUNRESPONSIVE

BOT HT ECHNICALLY AND

COM M ERCIALLYUNRESPONSIVE

UNRESPONSIVET ENDERS

1STLOW EST

T ENDER [L1]

2NDLOW EST

T ENDER [L2]

3RDLOW EST

T ENDER [L3]

T ENDERS RANKEDAND ENT ERED

IN T HE RANKINGST AT EM ENT

T ENDERS EVALUAT EDON

EQUIT ABLE BASIS

RESPONSIVET ENDERS

T ENDERS ANALYSED

T ENDERS OPENED

T ENDERS RECEIVED

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TENDER EVALUATION(Two Envelop Model)

Technical Evaluation

Sanction of Estimate

Procedure of Inviting Tender

Technical Credentials

Project Delivery

Validity of Tender

Eligibility of Tenderer

Experience and capability

Quality & Functionality

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Commercial EvaluationFinancial Profile

Price

Reasonableness of Rate

TENDER EVALUATION(Two Envelop Model)

PAYMENT TERMS

Variety of payment terms & conditions are: 1) 100% payment after delivery & acceptance. 2) 100% payment against delivery. 3) Part payment in instalments. 4) Advance payment to party. 5) Payment through Letter of Credit. 6) Wire Transfer. 8) RTGS / NEFT payment (e-payment).

PAYMENT TO PARTY

Difference between: 1) Invoice. 2) Proforma Invoice. 3) Tax Invoice. 4) Bill. 5) Cash Memo. 6) Credit Memo. 7) Debit Note.

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IMPORT PURCHASE TERMINOLOGIES

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INTERNATIONAL COMMERCIAL TERMS (INCOTERMS)

•Published by the Internal Chamber of Commerce, Paris.

The purpose of INCOTERMS is to provide a set of International Rules dealing with the relations between buyers and sellers in foreign trade.

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LETTER OF CREDIT

https://www.youtube.com/watch?v=cz91gPU2bms

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ADVANCE PAYMENT TO SUPPLIERS

Rule 159 of GFR:

1. It may become necessary to make advance payments in the following types of cases:

1. Advance upto 30% to 50% of the value of goods and services against Bank Guarantee may be considered as normal advance payment.

2. Advance payment above 50% with or without Bank Guarantee to considered as unsecured advance payment and to be avoided. May be approved in rare cases as a special case with approval of competent authority.

QUOTE ANALYSISTOTAL COST OF OWNERSHIP

Total cost of any material includes: 1) Actual cost of Product. 2) All duties and taxes. 3) Transportation & Loading, unloading. 4) Installation and Commissioning. 5) AMC. 6) Spare parts. 8) Insurance, etc.

https://www.youtube.com/watch?v=lmOZPUlcTWg

STANDARD PRUCHASE COMMITTEE REPORT

Purchase Committee should be approved by Competent Authority.

Purchase Committee should includes: 1) Reason for acceptance of L1 or L2 as the case may be. 2) Reason for rejection of Tenders in detail. 3) Reasons for recommending purchase from technically qualified bidders. 4) Any other important information to be documented related to said purchase.

E-PROCUREMENT

E-procurement means purchase using network through software. In includes : 1. Indent management 2. E-Tendering3. E-Auctioning4. Vendor management5. Catalogue management6. Purchase Order Integration 7. Order Status 8. Ship Notice9. E-Invoicing, 10. E-Payment11. contract management