LUSAKA BUSINESS AND TECHNICAL COLLEGE

DEPARTMENT OF BUSINESS AND EDUCATION STUDIES

PURCHASING AND SUPPLY (ZIPS) - LEVEL ONE

LECTURE NOTES  UNIT THREE (3):

COURSE: PRINCIPLES OF PROCUREMENT

SUB TOPIC: TYPES OF PROCUREMENT AND MERCHANDISE

BUYING
 
LECTURER:        Mr. Mukanda

INTRODUCTION
In the previous unit you learned the generic procurement and supply
process. It is important that you also learn the types of procurement and
merchandise buying.
Upon completion of this unit, you will be able to:
 Carry out procurement of goods, works and services
 Undertake the procurement of consultancy services
 Undertake procurement in trade enterprises

Goods procurement
Goods are physical products purchased or manufactured on request.
There is usually an element of service involved, such as when the
agreement is for the purchase of goods to be assembled and/or installed.
However, the extent of the service provided is directly related to
acceptance of the goods purchased. Typical examples of goods are:
 office supplies and equipment,
 furniture,
 IT equipment,
 Boks,
 Vehicles,
 Medical supplies and other commodities.

Characteristics of Goods
1)Tangibility – services are tangible offerings. A buyer can see it, hear, feel or
taste once bought.
2) Separate –  goods can be separated from the service provider due to its physical
nature
3) In heterogeneity/ Invariability –  goods remained in same status despite the
time and the mood of the service provider.
4) In perishability – goods can be stored, returned, or resold.
5) Result in the ownership and transferability – A physical product like a
Television can be owned and transferred to another owner.

6) Goods can be measured and determine its attributes (Features) – The

quality attributes of goods can be measured and be put in data for analysis as
compared to a service. A quality specialist can inspect a physical attributes of a
product in a laboratory

Works procurement
Works are related to civil works; this includes new construction of
structures of all kinds (buildings, highways, bridges, etc), renovations,
extensions, and repairs. This category can also include, water and
sanitation, transportation and electrical plant infrastructure.

Services are classified as consulting services and non-consulting

services. In some cases, they are simply classified as services because of
the difficulty, at times, in clearly determining the difference. The
distinguishing factor between the two, however, is the degree of
importance of the measurable physical output of the requirement.
Characteristics of services
1) Intangibility – Services are intangible offerings. A buyer cannot see, hear, feel
or taste a service unless it is bought. A person who pays for a massage will not see
the effects of massage till the time the massage is done on his/ her body. Similarly,
a person who wants to travel to a foreign country by air will have to buy a ticket
for an airline as well as board the plane to travel and experience the flight. As a
buyer cannot feel the service beforehand, they look for indications and evidence of
quality of service.

2) Inseparability – There is inseparability of the service provided and the buyer.

This doesn’t hold true for products as they are produced, stored at a different place,
and delivered when needed. A product like a sandwich can be bought and
consumed later after an hour or so but a service is generated and consumed at the
same time. For example, a barber needs to be present to provide his service of a
haircut. Similarly, a doctor provides his/ her services only on meeting the patient.
3) Heterogeneity/ Variability – This is another characteristic of services that
differs from the tangible products. The way a service is provided differs depending
on the service provider, it’s time as well as location. For example, an entertainment
program by two different performers will be different.
Also, the service provided by the same provider cannot be standardized. For
example, an air travel for the second time from the same airline will not give the
same experience that a person received during the first flight. A barber may not
provide a consistent haircut to all individuals depending on time constraints by the
clients, etc. Most of the service providers take steps to standardize the service
provided to increase sales and customer satisfaction.

4) Perishability – A service cannot be stored, returned, or resold like a tangible

product. A buyer cannot save the massage experience bought from a service
provider. To experience it again, the service will have to be bought again.
Similarly, in case of a bad experience, he/ she cannot return the service if
dissatisfied. A service if unutilized results in losses for the service provider.
Unsold airline tickets, a hotel with vacant rooms, a movie show with empty seats
are services lost forever.
5) Lack of ownership and transferability – A physical product like a Television
can be owned and transferred to another owner. But a haircut service bought from
a barber cannot be owned and transferred to another buyer.

6) Difficult to measure quality attributes(Features) – The quality attributes of a

service are very difficult to put in data form for analysis as compared to a product.
A quality specialist can inspect a physical attributes of a product in a laboratory
and make observations. But in case of service which is intangible in nature,
quantifying the attributes to rate its quality is difficult. Take an example of quality
assessment of a recorded phone call of a customer service agent talking to a
customer. Two different quality analysts will rate the customer representative
differently unless they are trained professionals with good experience.
Organisations strive to set standards to maintain the quality of service to ensure
business success

Consulting services are usually intellectual in nature and are

considered technical services the output of which is not equipment
intensive. Advisory and project related services are typical consulting
services; which includes: feasibility studies, project management,
engineering services, finance and accounting services, training and
development, to mention a few.

Non-consulting services
Non-consulting services, on the other hand, usually involve the use of
equipment and specific methodologies to achieve their objectives. Some
typical examples of non-consulting services are: equipment maintenance
and repair, operation and maintenance services, utility management,
installation and maintenance services, surveys and field investigations,
and similar.
Goods and works are usually provided by firms, but consulting and non-
consulting services are generally provided by firms as well as
individuals.

Procuring consulting services

Consulting services encompasses multiple activities and disciplines like

 Specialist advice and integrated solutions

 Change management and financial advisory
 Information technology
 Planning and engineering studies
 Architectural design services
 Project supervision
  Technical assistance
 Project implementation

Consulting services should satisfy the following conditions:

 Meet high standards of quality

 Be impartial (delivered by a consultant acting independently from
any affiliation, economic or otherwise, that might lead to conflicts
of interests
 Be proposed, awarded, administered, and executed according to
the highest ethical standards

Developing terms of reference (TOR)

The terms of reference (TOR) explains the following:

 Objectives (Purpose) of the assignment

 Scope of work
 Activities, tasks to be performed
 Respective responsibilities of the client and the consultant
 Expected results
 Deliverables of the assignment

The following consideration should guide preparation of the TOR:

 TOR should contain sufficient background information on both the

assignment and the project to enable invited consultants to present
responsive proposals
 The scope of work should be consistent with the available staff
month estimate, or estimated cost of the services.
The TOR normally consists of the following sections:

 Background
 Objectives of the assignment
 Scope of work
 Capacity building programme
 List of reports, schedule of deliverables, period of performance
 Local services, personnel and facilities to be provided by the client
 Institutional and organisational arrangements.

Selection methods
Consultants should be selected following competitive processes on the
basis of evaluation and comparison of technical and financial proposals.
The selection methods used must achieve the objectives of quality,
efficiency and economy, fairness and transparency.
For each selection method, the procedure set out in the RFP should be
fair, i.e., it should not:

 Provide unfair advantages to any particular consultants or

 Make onerous demands on consultants, such as denying sufficient

time to prepare proposals, requesting unduly large proposals.

Methods for selection of consultants

 Quality Based Selection (QBS)

 Quality and Cost Based Selection (QCBS)
 Selection Under Fixed Budget (FBS)
 Least Cost Selection (LCS)
 Single Source Selection (SSS)
The choice of the appropriate method will depend upon the nature, size,
and complexity, likely downstream impact of the assignment, and
technical and financial considerations.
Evaluate and recommend best proposal
Evaluation is usually done through an Evaluation Team. The team
should comprise members who:

 Have no conflicts of interest

 Understand the rating and scoring system
 Have been provided with evaluation worksheets
 Have agreed on how to evaluate proposals

Procedure for the evaluation process

 Each member reads all the proposals without scoring them. This is
to determine if the proposals are free of significant omissions or
deviations from TOR, or key requirements of the RFP.
 Next members begin their evaluation process by applying the
agreed criteria. Each proposal should be judged on its merit and
assigned an absolute and not comparative grade.
 After each member has independently rated all criteria, it is good
practice to read each proposal again to ensure that scores reliably
reflect the quality of the proposal.
 Next the evaluation team conducts a joint review and discuss the
merits of individual evaluations and scores. Any large disparities
should be reviewed and explained since they could be caused by
improper and inaccurate use of rating system.
 The reconciliation process of the differences is done by revising
some of the ratings and scores and any changes are recorded.
  During the meeting, the team should also consider the strengths
and weaknesses of all the proposals that have met the minimum
technical score indicated in the RFP. This will help identify all
elements in the winning proposal that should be clarified during
negotiations.
 Eventually, for each of the technical proposals they should
calculate the average score allocated to each criterion by all
members, identify the best and propose it for award.

Negotiate with the consultant

The objective of negotiation is to arrive at a mutually satisfying contract
between the client and the selected consultants. The parties will discuss
the technical proposals submitted, agree on detailed scope of work,
negotiate financial terms, discuss and finalise contract agreements. A
good contract should protect the interests of both parties in a balanced
way.
Preparations for negotiations
The buyers notifies in writing the consultant whose proposal has
obtained the highest combined score and invites the selected firm for
negotiations. The client indicates in the notification letter the date and
time set for negotiations and any issues or comments on the consultant’s
proposal to enable them to prepare a response and make any necessary
arrangements.
The client also informs the consultants whose proposals were not chosen
which firm was selected and that negotiations will begin with that firm.
Items subject to negotiations

 Scope of work
  Technical(procedural) approach and methodology
 Work plan and activity schedule
 Organisation and staffing(recruitment)
 Deliverables
 Counterpart staff
 Counterpart facilities
 Contract special conditions
 Staff unit rates
 Reimbursable expenses and
 Proposed contract price

ELEMENTS OF A CONTRACT
When Does a Contract Exist?
:

1. Offer - One of the parties made a promise to do or refrain from doing some
specified action in the future.

2. Consideration - Something of value was promised in exchange for the specified

action or nonaction. This can take the form of a significant expenditure of money
or effort, a promise to perform some service, an agreement not to do something, or
reliance on the promise. Consideration is the value that induces the parties to enter
into the contract.

The existence of consideration distinguishes a contract from a gift. A gift is a

voluntary and gratuitous transfer of property from one person to another, without
something of value promised in return. Failure to follow through on a promise to
make a gift is not enforceable as a breach of contract because there is no
consideration for the promise.
3. Acceptance - The offer was accepted unambiguously. Acceptance may be
expressed through words, deeds or performance as called for in the contract.
Acceptance must not be conducted under duress(force) or undue (unjustified)

4. Mutuality or Intention to create legal relation - The contracting parties had “a

meeting of the minds” regarding the agreement. This means the parties understood
and agreed to the basic substance and terms of the contract.

5. Capacity – the contracting parties must have the capacity to form a

contract, e.g
 A person must be above the age of 18 years
 Was not signing under influence of Alcohol
 Was not sick when entering into the agreement

Contract signing
Contract signing signifies the agreement of the duties and obligations of both
parties enforceable by law. It also spells out the full performance and delivery
agreements after negotiations.

Monitor performance
The buying organisation is usually responsible for supervising consulting
assignments. They must monitor the progress of work, the timely completion of
deliverables, the staff months and money expended, and determine where within a
contract, changes in the scope of work might be appropriate.

The contract usually requires that the consultants submit regular progress reports
and that the clients provide comments in a timely manner.
The client should designate a counterpart project manager with adequate technical
qualifications, managerial experience, and power of authority. In certain instances,
involving complex projects, a steering committee composed of high level
representatives of the client and the consultants may be formed be exercise arm’s
length supervision over the assignment.
Assignment
1.(a) Define the term service (4marks)
(b)Discuss FOUR (4) characteristics of a service and FOUR (4) characteristics
goods. (16marks)
2.You have been assigned the task of developing the terms of reference(TOR) for
the consultancy work in the government entity. What are the key issues to take care
of in developing the terms of reference? (20makrs)