PUBLIC PROCUREMENT LAW

What is procurement?

Procurement is the act of finding, acquiring, buying goods, services or works from
an external source, often through a tendering or competitive bidding process.
The process is used to ensure the buyer receives goods, services or works at the
best possible price, when aspects such as quality, quantity, time, and location are
compared.
State Corporations and public bodies often define processes intended to promote
fair and open competition [open tendering] for their business while minimizing
risk, such as exposure to fraud and collusion.
Principles of procurement

1. Transparency

This means that information on the public procurement process must be available
to everyone: contractors, suppliers, service providers and the public at large, unless
there are valid and legal reasons to keep certain information confidential.
[restricted, direct tendering]
Examples of confidential information are proprietary information of companies or
individuals participating in the solicitation [purchasing] process, and certain
military/defense procurements.
When a public procurement requirement is published [made available to the
public] by any means (electronically, press, internet portal, etc.), the announcement
must contain sufficient details for interested contractors, suppliers and service
providers to understand it in order to determine if they are qualified to compete;
most especially, the solicitation document must be made widely available at a
reasonable cost or even free of charge.
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 2. Integrity

Integrity translates to reliability. Bidders and all other stakeholders need to have
assurance that they can rely on any information given by the procurement entity,
formally or informally. Integrity breeds confidence in the public procurement
process. When solicitation [purchasing] documents are issued by the procurement
entity, the information provided should be reliable and free of uncertainty or bias
[accurate and honest].
Public procurement practitioners should be perceived, at all times, as honest,
trustworthy, responsible and reliable.
3. Economy

This principle means providing efficiency, value for money, commercially

reasonable pricing, etc., economy emphasizes the need to manage public funds
responsibly such that prices paid for goods and services are reasonable and are a
positive return on investment (in terms of quality and quantity).
Everyone involved in the public procurement process or directly responsible for
facilitating the acquisition of goods and services with public funds, should be
economical i.e. avoid fraud, waste and abuse of public resources, whether it be
through inflated specifications, paying unreasonably high prices for substandard
goods, bid rigging, or other irregular and unethical practices.
4. Openness

This means that public procurement opportunities should be open to all qualified
firms and individuals, because the process runs of public fund. The public should
also have access to information pertaining to public procurement.
5. Fairness

Being fair means the quality of making judgments or decisions that are free from
discrimination.
For there to be fairness in the public procurement process:
a. Decision–making and actions should be unbiased and there should be no
preferential treatment (to individuals or firms) given that public procurement
activities are undertaken with public funds.

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 b. All bids should be considered on the basis of their compliance with the
terms of the solicitation [purchasing] documents, and a bid should not be
rejected save for reasons specifically stipulated in the solicitation document.
c. A contract should only be signed with the bidder whose bid is compliant and
responds best to the objectives of the requirement in terms of technical
capability and price.
d. Bidders should have the right to challenge the bidding process [request
board review] whenever they feel that they were unjustly treated. Such
challenges must be based on the solicitation document and/or the
procurement legal framework.
6. Competition

The basic idea behind this principle is that competition leads to reasonable price,
quality and is good for the economy; consequently, the public procurement process
should not be manipulated to give preference to any particular firm(s) or
individual(s).
Given that public procurement is funded with tax payers’ money, all qualified
firms and individuals should be allowed to compete by submitting bids and/or
proposals on requirements for which they are qualified. Additionally, public
procurement requirements should be widely disseminated [on a bill-board inside
the entity’s premises or for at least 2 weeks in a national newspaper that has been
in circulation for no less than 2 years] to increase the chances of a good market
response leading to the award of competitively-priced contracts.
7. Accountability

This guideline of public procurement refers to taking responsibility for one’s

actions and decisions, and having the obligation to report and/or answer to a
designated oversight entity [PPOA and the general public] on the consequences of
those actions and decisions. As public servants, procurement practitioners and
other parties involved in the public procurement process are liable and fully
exposed to sanctions as a remedy for any behavior that contravenes the public
procurement legal framework and principles.

Processes of Public Procurement.

- Planning and budgeting
- Needs assessment

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- Advertisement [invitation to tender]
- Pre-qualification [optional]
- Bidding
- Bid evaluation
- Contract award
- Performance security
- Contract monitoring
- Contract completion and payment
- Dispute resolution

1. Planning and budgeting: determining what to buy, and how much

2. Needs assessment: determining qualitative standards/specifications of the
procuring entity
3. Advertisement: (The state corporation/parastatal publicly procuring)
advertising via government websites/bill-boards inside their premises/for
at least 2 weeks in a government newspaper that has been in circulation
for at least 2 years.
4. Pre-qualification [optional]: Pre-determination if interested bidders are
competent enough to undertake the contract. It may involve evaluation
according to financial capacity, technical capacity, previous performance
(if any) and legal capacity to contract [must not: be involved in fraud, be
or relate to an official in the procurement entity/ a government minister].
This is done before bidding is allowed.
5. Bidding: Submission of bids, by competent bidders
6. Bid evaluation: Checking to see that all submissions have been made in
accordance to the ITB and then comparing to find the most preferred.
7. Contract award: Giving the contract to the most advantageous bidder,
depending on the criteria for evaluation. E.g. lowest evaluated bidder
8. Contract signing: The winning bidder formally signing the contract.
9. Performance security: Winning bidder providing a bank guarantee that he
will perform in strict adherence to the aforementioned contract
10. Contract performance and monitoring: Winning bidder commences the
supply under supervision of the procuring entity (state corp./parastatal).
11. Contract completion and payment: Winning bidder finishes the agreed
upon supply and receives payment from the entity (state corp./parastatal).

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 12. Dispute resolution: Settling a breach of contract, if any. E.g. Appeals to
the review board.
Procurement distinguished from acquisition.
Procurement typically specifies a formal process of getting goods, works/services,
while acquisition is a broader term, encompassing different methods of getting
goods, works/services which may include procurement and in-house (internal
production).
Procurement distinguished from supply.
Procurement typically specifies a formal process of getting goods, works/services,
while acquisition is a broader term, encompassing different methods of getting
goods, works/services which may include procurement and in-house (internal
production).
Procurement process from a general perspective.
Step 1: Need Recognition
A business owner/procurement department must recognize a product is needed in
order to purchase it. It can either be a brand new product or one that is being re-
ordered.
Step 2: Need Specification.
This applies where an industry or institution has specific requirements for various
products. The institution needs to identify the specific need to order accordingly.
Step 3: Supplier Appraisal.
The procurement office needs to determine where to get the goods. Some
companies have an approved vendor’s list while others use various processes to
determine who the best suppliers are.
Step 4: Negotiation of price and terms & conditions of trade.
Once a supplier has been chosen, companies should stick with that relationship and
try to establish preferred pricing and specific terms (e.g. delivery terms).
Step 5: Purchase Order.

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The purchase order is the formal contract used to buy the product. The order
outlines the price, specifications and terms and conditions of the product or service
and any other additional obligations.
Step 6: Delivery.
The goods ordered and purchased by the procurement office should be brought to
the office’s premises or any other place as agreed by the parties.
Step 7: Receipt and Inspection.
once delivered, the receiving company inspects and subsequently accepts or rejects
the product. Rejection is usually based on a breach of the purchase order.
Step 8: Invoice Approval and Payment.
At this point, three documents must match before payment; the invoice, the
receiving document and the original purchase order. This is known as the three
way matching. If there is a discrepancy, it must be resolved before payment is
made.

Step 9: Record Keeping.

The receiving company must keep good records. This means saving all relevant
documents for every completed purchase.
- Planning and budgeting (1)
- Needs assessment (2)
- Advertisement
- Pre-qualification | Supplier evaluation (3)
- Bidding | Negotiation (PTC) price, terms & conditions (4)
- Contract award | Purchase order (5)
- Contract signing
- Contract performance | Delivery (6)
- and monitoring: | Receipt and Inspection (7)
- Contract completion and payment | Invoice 3-way and payment (8)
- Dispute resolution | Record keeping (9)

- Planning and budgeting

- Needs assessment

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 - Supplier appraisal
- Negotiation PTC
- Purchase order
- Delivery
- Receipt and inspection
- Invoice 3-way and payment
- Record keeping.

Objectives of public procurement and regulatory systems

a. To increase public confidence in those procedures;

b. To facilitate the promotion of local industry and economic development.
c. Derive from the principles of procurement.

Value for Money is not just about price.

Acquisition costs include: legal fees, insurance, installment, B.P., environmental sustainability
Operating costs include: Maintenance, Repair, Spare parts, Legal fees, insurance,
Running/Propulsion costs [i.e. fuel], environmental sustainability.
Disposal costs: Legal fees, environmental sustainability, un-installment, cleaning
SKIP TO BELOW

The purpose of public procurement is to obtain the best VFM (BVFM) and to do
this it is important to consider the best combination of “whole life cost” (i.e.
acquisition cost, cost of maintenance and running costs, disposal cost) of a
purchase and its fitness for purpose (i.e. quality and ability to meet the contracting
authority’s requirements).
Analysis of Costs

Ty Detail of Costs
pe
of
Co
st

Ac • Purchasers Legal costs

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qu • Cost for Writing Specification
isit
• Purchase Price/Rent/Hire Purchase Price
ion
• Software Licences
• Fees to copyright holders
• One-Off Licence Fees
• Cost of Transportation to Site
• Installation Costs
• Preliminary Inspection Costs
Sustainable Development
• Costs

Op • Insurance
er
• Accommodation of operators
ati
ng • Annual Licence Fees
• Operatives’ Wages and Salaries
• Fuel and Electricity
• Cleaning Costs
• Periodic Inspection Costs
• Spare Parts and Other Maintenance Costs
Sustainable Development
• Costs

Di • Sellers Legal Costs

sp
• Costs of Removing Installations
os
al • Cost of Transportation from Site
• Refuse Disposal Charges
• Site Clean-up Costs

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 • Environmental Sustainable Development Costs

(Disposal costs can be derived from examples of acquisition costs).

This definition enables contracting authorities to compile a procurement

specification which includes social, economic and environmental policy objectives
within the procurement process.
“Whole life cost” includes both quantifiable and non-quantifiable or intangible
costs and benefits.
Procurement processes within contracting authorities can only result in best value
for money when the following ten guiding principles governing the administration
of public procurement have been satisfied to an acceptable extent:
 Competition - Competition among suppliers should be encouraged in the
most efficient and effective way.
 Efficiency & Effectiveness- Efficiency and effectiveness should be sought
in the procurement process to secure value for money for the contracting
authority.
 Fairness/ Non Discrimination – Act fairly during the whole procurement
lifecycle without imposing unnecessary burdens or constraints on suppliers
or potential suppliers. Avoid any favorably treatment to specific supplier or
potential supplier.
 Objectivity/Integrity/ Honesty – Declare any conflict of interest that
affects or appears to affect their judgment; Reject gifts, hospitality and
benefits of any kind from supplier or a potential supplier, which might be
reasonably seen to compromise their objectivity or integrity.
 Transparency – Ensure equal conditions and accessibility to all economic
operators, by informing them in an open and transparent way.
 Accountability – Be accountable for the responsibilities assigned to them,
as well as for the decisions made by them, keep the appropriate records.
 Confidentiality/ Accuracy of Information/ Protection of Intellectual
Property – Respect the confidentially of information acquired in the course
of performing their duties and not disclose any such information without
having proper and legitimate authority to do so.
 Conformity to the Laws Serving the Public Interest/ Responsiveness –
Conform to the national legislation, as well as to other requirements and
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 commitments regarding public procurement. Serve the public interest and
act with responsiveness in using the “taxpayers” money.
 Professionalism – Work to a high standard of professionalism by complying
with the legislation in force and applying the best practices.
Other factors that may also need to be taken into account when assessing Value for
Money, include:
 Availability of suppliers - For example, if there are a large number of
suppliers in the market place it is likely that the cost of providing supplies,
services or works will be cheaper due to the higher level of competition. In
this case it is likely a contracting authority will receive better value for
money.
 Additional costs (i.e. transport, postage and packing, storage) – These will
vary according to the location of the supplier and the requirements of the
contracting authority.
 Possible discounts for bulk purchases (although these may be offset by
interest charges and storage costs). Economies of scale can reduce costs
particularly if there is an aggregation of need across different contracting
authorities.
 Objectives of the procurement. The objectives of the procurement need to
be tangible and measurable to be able to assess value for money.
 Environmental considerations and long term environmental costs – It is
important that sustaining the environment is not always thought of as an
increase in costs. For example recycling of waste material on a construction
site may reduce clearing costs.
 The cost of the procurement process itself. It is important that the cost of
the procurement process is not disproportionate to the costs of the actual
contract
 The location of the supplier. For example in an ICT service contract ,
contracting authorities may get a greater number of consultant delivery days
from a closer supplier than one who includes travel costs and fewer delivery
days.

VALUE FOR MONEY = WHOLE LIFE COST.

THE FACTORS TO CONSIDER WHEN ASSESSING VALUE FOR MONEY/WHOLE LIFE COST:

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 - THE SEVEN PROCUREMENT PRINCIPLES, IN ADDITION TO;
- MISCELLANOUS COSTS/ INVISIBLE COSTS

PUBLIC PROCUREMENT IN KENYA.

Background.
Accountability in the public procurement system in Kenya in the past has gone
through significant changes.
From a system with no regulations in the 1990s, to a system regulated by Treasury
Circulars in the 1970s, 1980s, and finally the introduction of the Public
Procurement and Disposal Act of 2005 and the Procurement Regulations of 2006
setting new standards for public procurement in Kenya.
The government of Kenya has been carrying out Public Financial Management
(PFM) reforms in order to enhance transparency and accountability including
prudent utilization of public recourses and thus improve service delivery to the
public. A major component of those ongoing reforms is in the area of Public
Procurement. A key milestone was achieved in this regard with the enactment of
the Public Procurement and Disposal Act, 2005.
In the year 2010, a new era dawned in Kenya when the constitution was
promulgated. Article 227 of the constitution lay down the foundation for Public
Procurement. Below is an extract of the article:
227. (1) When a State organ or any other public entity contracts for goods or
services, it shall do so in accordance with a system that is fair, equitable,
transparent, competitive and cost-effective.
(2) An Act of Parliament shall prescribe a framework within which policies
relating to procurement and asset disposal shall be implemented and may provide
for all or any of the following—
(a) categories of preference in the allocation of contracts;
(b) the protection or advancement of persons, categories of persons or groups
previously disadvantaged by unfair competition or discrimination;
(c) sanctions against contractors that have not performed according to
professionally regulated procedures, contractual agreements or legislation; and

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(d) sanctions against persons who have defaulted on their tax obligations, or have
been guilty of corrupt practices or serious violations of fair employment laws and
practices.
Consequently, the National Treasury in consultation with stakeholders embarked
on reviewing the Public Procurement and Asset Disposal Act 2005 to resonate with
the constitution. This process resulted in the enactment of the Public Procurement
and Asset Disposal Act 2015 which has repealed the Public Procurement and Asset
Disposal Act 2005.

Objectives of the procurement act 2015

i) Address the challenges that existed in the repealed law.
ii) Enhance devolution [dispersal, decentralization] of procurement decisions.
iii) Incorporate emerging issues such as E-procurement, framework contracting,
green and sustainable procurement among others.
iv) Embrace new procurement methods such as E –reverse Auctions, design
competition, force account, competitive negotiations and two stage tendering
methods among others.
v) Bring under its ambit [scope] new procurement entities [besides state corps
and parastatals] such as Independent and constitutional offices, Kenyan diplomatic
missions, county government entities, pension funds and any other entity that uses
or is maintained by public funds.
vi) Optimization/fine-tuning/clarification of the procurement process.

Definition.
By definition, public procurement is the acquisition of any type of works, assets,
services, and goods by purchase, rental, lease, license, franchise, or by any other
contractual means.
Section 2 of the Public Procurement Act 205 defines public procurement as
procurement by procuring entities using public funds.

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Procurement is a key economic activity of any government that significantly
impacts how taxpayer’s money is use.
Public procurement and in house provision.
In house provision refers to conducting an activity or operation within a company
instead of relying on outsourcing.
It involves using the company’s assets and employees to perform the necessary
tasks.
Advantages of in house provision.
1. Enables the firm to maintain flexibility in its business operations.
2. It enables the business to exert higher levels of control over the actions of
the divisions by keeping the services and personnel under direct control.
3. It poses fewer security risks depending on the kinds of data that would have
to be supplied to an outside party should the activity be outsourced. [eliminates the
risk of data leakage]
4. At times the employees may have a better understanding of how the business
functions providing them with insights into how certain activities should be
handled.
5. The process is faster and saves resources compared to outsourcing.

Disadvantages of in house provision.

1. It may be too costly for the company to handle the wages and benefits of the
employees.
2. An outsourced contractor can provide flexibility in delivering the proper
staffing level and required skill set with less cost and time investment as well as
providing expertise that may not be available to in house provision.
3. The company will have to handle and personnel issues for instance
maintenance function, personal grievances, disciplinary actions and other
incidental issues.
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4. In house provision interferers with the employee’s and management’s
concentration on their core proficiencies and critical objectives to drive the
business.
5. An outsourced contractor may provide staffing well versed in the usage of
the most current technology without the need of the to provide training to the in-
house staff. [company may not possess technological know-how]

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