m1 - reading module

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ETHIOPIAN CIVIL SERVICE UNIVERSITY

INSTITUTE OF TAX AND CUSTOMS ADMINISTRATION

DEPARTMENT OF PUBLIC PROCUREMENT AND ASSET MANAGEMENT

MA in Public procurement and Asset Management

NAME OF MODULE: ADVANCED PUBLIC

PROCUREMENT MANAGEMENT

Academic Year: 2013, 2nd

Semester


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CHAPTER ONE

E-Procurement

Objectives of the chapter

It is expected that the participants will learn international best practices with regard to the growing

use and acceptance of e-procurement but, at the same time, focus their attention on the state of

e-procurement practice, and potential, in their home countries. Through the lecture and case

studies, participants will come to distinguish the use of electronic means to expedite and

disseminate public procurement laws, regulations, and policies and, on the other hand, the use of

e-procurement to advertise individual procurement opportunities, conduct competitive proceedings

and conclude procurement contracts. It is also important that participants understand that e-

procurement can be implemented in each country in a way and at a pace that makes practical sensein the applicable conditions.

1.1. Introduction

Electronic communications and technologies are used by government procurement entity

(i)for dealing with suppliers, (ii) in communicating with public and other public bodies, and

(iii) in the governments internal`s internal administrative process. They can be employed at

all stages of the procurement cycle: in planning, in the procurement process itself

(advertizing, transmitting documents and information (such as specifications and invitations

to the tender); and in the administering the correct (ordering, invoicing, payment etc).

The notion of using electronic means in the procurement process is sometimes referred to

broadly as electronic procurement or the shorter version, e-procurement. It is important

to conceptualize e-procurement in broad terms, as referring collectively to the range of

possible uses of electronic means at various stages, and for various purposes, in the

procurement process and in the procurement system as a whole. Such a broad understanding

of e-procurement also helps to accommodate an understanding that it can be introduced in

each country to the extent and in steps that respond to the opportunities and limitations that

are present. At the same time, such an understanding also helps countries avoid being

unnecessarily timid in beginning to embrace the use of electronic means in the procurement

process.

In its broadest sense, e-procurement involves electronic data transfers to support operational,


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the term itself which first came into usage after the establishment of the internet in the 1990s. From

the 1960s until the mid 1990s, e-procurement primarily took the form of electronic data

interchange (EDI). Nowadays, e-procurement is often supported by internet technologies and is

becoming more prevalent. The historic context is demonstrated in the chart below:

Those involved in the procurement function need to understand the e-procurement concepts and

tools to provide input into their development, use, evaluation and refinement as a means ofimproving procurement efficiency and effectiveness Procurement officers and managers can make


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a contribution to decisions about investments in, and configuration and use of e-procurement tools

by:

having a general understanding of the various e-procurement applications identifying the procurement processes that are effectively supported by e-procurement

understanding the sources of benefit of e-procurement identifying the risks associated with the adoption of e-procurement contributing to the development of e-procurement tools through identifying scope for

ecommerce supported process improvement

world wide web (www) internet tools and platforms that replace traditional procurement

1.2.E-procurement tools and applicationsSome e-procurement tools and applications include:

electronic systems to support traditional procurement EDI (electronic data interchange) ERP(Enterprise Resource Planning) systems internet as a support or complement to traditional procurement Electronic mail (e-mail) web enabled EDI extensible markup language (XML)

EDI (Electronic Data Interchange)

EDI is an application whereby electronic messages can be exchanged between computers

programs of two separate organizations. Some features of EDI include:

Messages are exchanged in groups, known as batches.

Messages can automatically be sent, transmitted and stored between computers withoutretyping or keying data.

EDI has to be implemented by each pair of organizations (sender and receiver) who wishto use it. This means that the implementation costs of EDI are relatively high.

EDI is mostly used where the messages exchanged concern such matters as orders,confirmations, transport information and invoicing.

EDI traditionally runs on so-called Value Added Networks, which are closed networks(unlike open networks like the Internet).

ERP System


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ERP systems are management information systems that integrate and automate many of the

business practices associated with the operations of a company or organization. ERP systems

typically handle the manufacturing, logistics, and distribution, inventory, shipping, invoicing, and

accounting for a company or organization. ERPs aid in the control of many business activities, like

sales, delivery, billing, production, procurement, inventory management, and human resourcesmanagement.

Internet as a support or complement to traditional procurement

There are various types of internet based applications that serve different purposes. Some

Known applications that use the internet are described below:

Electronic mail (e-mail)

Email is an Internet based application through which electronic messages are exchanged between

People.

Web enabled EDI

Web enabled Edi is like traditional EDI (see above), but run on the Internet; also known as EDI-

INT.

Extensible Markup Language (XML)

XML is used to allow for the easy interchange of documents on the World Wide Web.

World Wide Web (WWW)

The WWW is a major service on the Internet. The World Wide Web is made up of web servers

that store and disseminate the Web pages, which are rich documents that contain text, graphics,

animations and videos to anyone with an Internet connection.

Internet tools and platforms that replace traditional procurement

Some internet tools and platforms that replace the traditional procurement include:

E-sourcing E-tendering E-auctioning E-ordering and web-based ERP E-information

E-sourcingE-sourcing supports the specification phase; it can be used to pre-qualify suppliers and also

For suppliers the benefit is: marketing and for the buying organizations the benefit is facilitatingthe sourcing of suppliers.


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E-tendering supports the selection stage and acts as a communication platform between the

procuring organization and suppliers. It covers the complete tendering process from REOI via

ITB/RFP to contracting, usually including support for the analysis and assessment activities; it does

not include closing the deal with a supplier but facilitates a large part of the tactical procurement

process. It results in equal treatment of suppliers; transparent selection process; reduction in (legal)errors; clear audit trial; more efficiency in the tactical procurement process and improved time

management of tendering procedures.

E-auctioning

The main issues dealt with in this topic are summarized below:

A.The potential benefits that may accrue from e-procurement in terms of

the public procurement principles and objectives are:

Value for moneyby attracting wider participation of bidders, procuring entities can optimize

both price and quality of what they buy;

Economic development by taking up e-commerce itself, the public sector can drive the

uptake by the private sector, especially small and medium enterprises (SMEs), of e-commerce,

thus helping to propel the economy into areas of growth and modernization;

Transparencyone of the main advantages of e-procurement is that it boosts transparency in

a procurement system, since the inherent nature of e-procurement is openness and

maximization of publicity and access to information;

Accountability by promoting transparency and record keeping, e-procurement helps to

promote accountability of participants for the action that they take;

Economy and efficiencyby lowering transaction costs, e-procurement can lower the costs of

conducting procurement transactions in terms of money spent to run the proceedings (e.g.,

avoidance of expensive print-media advertisements, replaced by web publication), as well as

time and human resources required (better cost-to-spend ratios enabled); and

Integration and mainstreaming of the procurement system with other key systems a

prime example of this is the potential for linking procurement processes with integrated

financial management information systems (IFMIS) (e.g., financial management).

B.Illustrations of various types of application of electronic means in the

procurement process, including

1. Main possible features and functionalities of a public procurement website such a website


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location of information about procurement opportunities, and other information about the

procurement system and its procurement entities and activities;

2. Electronic functional equivalents of submission of bids - the technology exists and is alreadyincreasingly in use around the world to provide secure means of submitting bids electronically

(into a secure electronic bid box), over the internet, and keeping them from being openedprematurely;

3. Electronic public bid opening similarly, technologies and procedures may be applied tostage electronic public bid opening (e.g., bidders attending the bid opening at their computer

screens, over the internet);

4. Purchase cards - including possible security measures, which allows credit-card type of cardsto be used by designated purchasing officials, as well as by officials during their business

travel;

5. E-purchasing - including the concept of Purchase-to-Pay integrated e-procurementsystems (P2P), and the related use of e-catalogues and e-market places. These are more

sophisticated e-procurement mechanisms that provide a high degree of automation, from

requisition all the way through payment;

6. Electronic reverse auctionsthis is an internet based procedure in which, during the reverseauction period, bidders may submit multiple bids so as to improve the ranking of their bids.

Typically, the criteria at stake is price, but other aspects of a bid, which can be quantified in

mathematical terms and evaluated by computer(such as delivery time, or quality grade) may

also be subject to the auction; the method is used primarily for commodities or other standard

goods; and

7. Electronic means in contract administration - a good example of how electronic means canfacilitate improved contract implementation and administration is the use of electronic means

of payment.

C.Role of third-party service providers

Service providers often play a key role in implementing e-procurement. For example, a third

party service provider may host and conduct e-reverse auctions (for example, under a

framework service agreement); adoption by the government of e-procurement presents an

opportunity to help develop the software and third-party information technology (IT) service

provision industry in a country.

D.Cost structures of e-procurement applications

Various options exist as to how to finance introduction and implementation of


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1.3.E-procurement in the procurement cycle

The figure below shows the six forms of e-procurement plotted in the procurement process

Each of these forms can be explained as follows: -

E-sourcing supports the specification phase; it identifies suppliers that can be used in theselection phase.

E-tendering supports the selection phase; it facilitates the REOI and ITB/RFP activities,usually including support for the analysis and assessment activities.

E-reverse auctioning supports the contract phase; it enables closing a deal with a supplier; E-ordering and web-based ERP is the process of creating and approving procurement

requisitions, placing purchase orders, as well as receiving goods and services ordered, by using

a software system based on the Internet.

E-informing is not directly associated with a phase in the procurement process; it is theprocess of gathering and distributing procurement information both from and to internal and

Requirement

DefinitionSourcing Solicitation

EvaluationContracting

Contract

Managem

E-sourcing

E-Tendering

Web-based ERP

E-ordering

E-reverse

Auction

E-informing


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1.4.E-procurement strategycosts, benefits and risks

Business cases aimed at adopting or enhancing e-procurement tools are often prepared by

information technology and/or finance specialists. However, some of the most successful

procurement implementations have been driven by those who best understand the procurement

processes and outcomes to be achieved. Because of their understanding and proximity to

procurement processes, those involved in the procurement function have a key role to play

indentifying and assessing the costs and benefits of e-procurement tools and in providing input into

how existing tools may be enhanced.

The following costs and benefits as identified by de Boer, Harink et al. (2002), can be influenced

by e-procurement

The cost of expenditure on goods/services related directly to the production/servicedelivery.

The cost of non-production of goods and services. The cost of operational procurement activitiese.g., requisitioning, ordering, expediting

and administrative support

The cost of tactical procurement activitiese.g., formulating specifications, selectingsuppliers, negotiating with suppliers, contracting, disposals etc.

The costs of strategic procurement activitiese.g., spend analysis, transaction analysis,analysis, planning, developing procurement policies etc.

Internal benefits arising from investments in particular inter-organizational relationships. The contribution of investments in particular inter-organizational relationships to revenues These costs and benefits should be assessed in relation to each e-procurement tool. While it

is usually assumed that e-procurement will automatically deliver benefits, the actualbenefits will depend on many factors including: cost of required investment, ability to

convert associated

Savings to cash, nature of the procurement process being automated, particular supplymarket and the extent to which the organization supports its implementation.

Benefits

Particular benefits of e-procurement in the public sector are thought to include greater transparency

in procurement through electronic publishing of tender notices and contract onwards.


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When developing a business case for adopting or enhancing an e-procurement tool, it is important

to assess the baseline benefits and costs associated with the process or processes to be automated in

order to understand the probable outcomes of e-procurement adoption or enhancement. In essence,

it is important to understand what will change and how it will change when an e-procurement tool

is implemented.

Risks

The implementation of e-procurement tools carries certain risks. One of the primary risks is

missing opportunities to implement strategies that improve procurement management without the

need for investment in e-procurement. This is because many of the benefits ascribed to

e-procurement may be achieved simply by improving procurement practice. For example, it is

often said that e-procurement reduces maverick buying. However, other measures, including the

implementation of corporate buying strategies that offer value for money, do not need electronic

tools.

Another risk is over-investment in e-procurement tools that do not deliver the expected benefits.

This risk arises when there has been inadequate evaluation of the implications of the adoption or

enhancement of e-procurement tools. The risk that users will not accept an e-procurement tool is

another common risk. This risk often arises where users have not been adequately consulted about

the adoption or enhancement of particular tools.

On the supply side, there is a risk that suppliers will not cooperate with the use of e-procurement

tools. For example, some suppliers are sufficiently powerful to insist on the use of paper-based

systems. Others may not have access to affordable internet based technology that would give them

access to the e-procurement tools of purchasers. In markets that are already competitive with low

profit margins, suppliers may choose not to participate in e-reverse auctions.

Normal methods of risk assessment and management (Risk Management) should be applied during

the development of business cases for e-procurement development or enhancement.

1.5.Legal aspects of e-procurement

The accepted legal framework guiding e-procurement is the UNCITRAL Model Law on Electronic


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In the context of contract formation, unless otherwise agreed by the parties, an offer and the

acceptance of an offer may be expressed by means of data messages.

Where a data message is used in the formation of a contract, that contract should not be denied

validity or enforceability on the sole ground that a data message was used for that purpose.

In adopting or adapting any e-procurement systems, the practical issues around these legal aspects

need to be taken into consideration during the planning and implementation stages.


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Chapter Two

Public Procurement and Framework Agreements

Objectives

After completing this chapter the students are able to:

Understand the concept of framework agreement? Differentiate framework agreements from other contracts Associate framework agreement contracts with that of other contracts Understand the benefits of framework contracts Discuss on the challenges of framework agreement contracts

2.1 Introduction

The Framework agreement, often known as an umbrella agreement, is an agreement which is

reached between two parties to cover a long-term collaborative arrangement. Framework

agreements are used typically where an employer has a long term program of work in mind and

is looking to set up a process to govern the individual construction or supply packages that may

be necessary during that framework term. Framework agreements allow an employer to instruct

another party to carry out works or provide services, by reference to pre-agreed terms, over a

(usually) pre-agreed period of time.

The concept of a framework agreement is that it is, essentially, an arrangement which establishes

the contractual terms which will apply to subsequent orders made for the goods, services or

works covered by the framework over the period of time during which it is in force. The

inclusion of specific provisions in the Public Sector Directive covering framework agreements

clarified the position in terms of the availability of framework agreements but also introduced

restrictions and controls over their use and ambiguities about the legal rules.


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Framework agreements, sometimes called Indefinite Quantity Contracts, are two-phase

procurement instruments, in which the first competitive round generates sometimes one but more

often multiple awards to contractors generally able and available to perform specific tasks yet to

be ordered by the procuring entity. The second round of competition, between one or more of the

contractors now in the qualified pool, yields a specific contract with one of them to supply the

particular goods or services required.

Framework agreements, sometimes called Indefinite Quantity Contracts, are two-phase

procurement instruments, in which the first competitive round generates sometimes one but more

often multiple awards to contractors generally able and available to perform specific tasks yet to

be ordered by the procuring entity. The second round of competition, between one or more of the

contractors now in the qualified pool, yields a specific contract with one of them to supply the

particular goods or services required. Second brief round of competition is used to choose one of

the contractors to handle each specific visit.

The first round will generally include most of the features of the request for proposals method of

procurement. The second round will generally resemble request for quotations from the qualified

group of contractors. Variations on this approach are possible, depending on the number of

contractors awarded a framework agreement.

2.2. The meaning and definition of framework agreement

There is some confusion as to the precise coverage of the rules on framework agreements. This

confusion results primarily from lack of clarity as to the use of the terms framework

agreements and framework contracts and also whether or not framework contracts are a type

of public contract.

A mere framework agreement sets out the terms which will apply if the parties conclude a

contract, but does not itself constitute a public contract obliging either of them to do anything.

The suggestion that a framework contract is the same as any other public contract seems to

confuse the establishment of terms for the delivery of works, services or supplies with an

obligation to provide, receive and pay for those works, services or supplies.


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The term binding framework is used in the (very rare) instance where the contracting authority

must use the framework agreement for any purchases it wishes to make of the works, services or

supplies which form its subject-matter.

The large number of non-binding buying club framework agreements provides contracting

authorities with a wide choice of potential suppliers. This means that contracting authorities are

in a position to shop around for the supplier that offers the best deal.

From the providers perspective, a key concern is that they may incur potentially considerable

costs in tendering for appointment to a framework agreement with no guarantee of work once

appointed.

Framework agreements are sometimes criticized as anti-competitive, because the first round of

competition, which yields no specific contract, resembles a pre-qualification and not a full and

open round of competitive proposals. The second round involves price competition but it is only

limited to the pre-qualified suppliers and contractors. Sometimes, in fact, procuring entities will

only involve one or two or three contractors in the second round on the premise that full

competition has already taken place in the first round.

On the other hand, there are significant gains in cost and efficiency in the use of framework

agreements from the perspective of the government. Much of the preliminary work of the

procurement process is accomplished during the first round, at little cost to the government. The

second round, focused on specific tasks or orders, is likely to generate substantially competitive

prices.

Record keeping in this method of procurement is particularly important, but complicated because

of the two rounds of competitive action.

Is this an arrangement which falls within the coverage of the framework provisions? Should it beadvertised as a framework and, for example, be subject to the general limitation on the life of a

framework of 4 years?

Alternatively, is it a public contract not covered by the rules on framework agreements which

can be awarded for a longer period without a general limitation?


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Generally, a framework agreement can be defined by the Public Sector as:

an agreement between one or more contracting authorities and one or more economic

operators, the purpose of which is to establish the terms governing contracts to be awarded

during a given period, in particular with regard to price and, where appropriate, the quantity

envisaged. Or

an agreement or arrangement which establishes the terms (in particular the terms as to

price) under which an economic operator will enter into one or more contracts with the

contracting authority in the period during which the framework agreement applies".

The concept of binding and non-binding framework agreements: (ii) Binding framework

agreements. The term binding framework is used in the (very rare) instance where the

contracting authority must use the framework agreement for any purchases it wishes to make of

the works, services or supplies which form its subject matter. In other words, these arrangements

are exclusive.

A framework can be set up by:

An individual contracting authority; A contracting authority acting on behalf of a number of contracting authorities; Central purchasing body acting on behalf of itself or a number of contracting authorities.

2.3. Can frameworks be used for all procurements?Frameworks may not be suitable for all types of purchasing, and contracting authorities need to

be certain that a framework will provide an economic and efficient means of purchasing. The

most appropriate use of frameworks is where a contracting authority has a repeated requirement

for works, services or supplies, but the exact quantities are unknown.

Contracting authorities must be in a position to manage a framework agreement, as the needs ofboth the contracting authority or authorities and the provider(s) must be met, and the operation of

the framework agreement must be closely monitored.

Care must also be taken to ensure that framework agreements are not set up in such a way as to

distort competition and that they are not improperly used.


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2.4. What procedure is used for procuring a framework agreement?

Any one of the four main competitive procedures may be used for procuring a frame-work

agreement although it is most common to use the open or restricted procedures. It is only whencontracts are awarded under the framework agreement that different; framework agreement-

specific provisions apply. It should be noted that a framework agreement is not a list of selectedeconomic operators that are qualified to provide the works, services or supplies covered by the

agreement. To be appointed to the frame-work agreement, economic operators will have to have

both qualified and submitted tenders, who are evaluated by the contracting authorities, and it is

those tenders that will provide the basis for future awards under the framework agreement.

2.5. Framework Agreements in the Context of Consulting Services

(Indefinite Delivery Contracts, Price Agreements or Standing Offers)

Indefinite delivery contracts refer to contracts in which an individual consulting firm or an

association of firms is hired for a specified time period (usually three to five years) to undertake

tasks as and when the need arises. The specific workload is unknown at the outset; all that is

known is that advice is likely to be needed in a particular area.

Indefinite delivery contracts are usually agreed upon because it is anticipated that the serviceswill have two particular characteristics:

Clients will need access to immediately available or on-call services for urgentassignments, and a lengthy competitive bidding process is impossible because of

external circumstances. These services could include experts for urgent remedial

actions in emergency situations caused by natural calamities, wars, epidemic or

outbreaks.

Each individual consultancy will be quite small, making an expensive competitiveselection process inefficient, although, when added together, the amount of advice is

substantial.

These combined factors make it worthwhile to appoint suitable consultants who can be on

standby and are called upon when needed. However, locking in one set of advisers over a

considerable period of time raises a number of issues related to the selection of the consultants;


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therefore, the quality and price of the services proposed must be addressed. Since it is not known

how often or for what specific tasks the consultants will be called upon, they may not be able to

submit a plan of work or a fixed total price. At the same time the long contract period and the

unknown activation dates mean that consultants may always credibly claim that the requested

expert is not available.

Administering an indefinite delivery contract requires considerable time and energy from Clients

staff, which must negotiate and administer each delivery order.

2.6. Setting up a framework agreement - Early considerations

A framework agreement can be set up by one or more contracting authorities for their own use or

a central purchasing body for the use of other contracting authorities.

In either case, an agent may be employed to carry out the processes of advertisement, selection

and award. In that event, liability for legal compliance remains with the contracting authority or

authorities.

Where a framework agreement is set up by contracting authority acting as a central purchasing

body, that framework agreement can safely be used by other contracting authorities who are

adequately identified at the time the central purchasing body places the contract notice and have

consented to the central purchasing body doing so on their behalf.

Where a group of contracting authorities has collectively decided to set up a framework

agreement, the allocation of liability is the most important matter for them to address as between

themselves. It seems that the most effective way for them to do so would be to set up a

framework users agreement or access agreement in order to apportion liability between

themselves in an appropriate way.

The Public Sector Directives definition of a framework agreement is an agreement between

one or more contracting authorities and one or more economic operators.. Therefore, any

entity which is not a contracting authority cannot validly establish a framework agreement

intended for use by contracting authorities.


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If it were to do so, then economic operators would be deprived of a remedy where the

procurement (by the non-contracting authority) was carried out unlawfully.

2.6.1.Setting up framework agreements: the starting premise

As a matter of law, a framework agreement can be set up by:

One or more contracting authorities for their own use; or A central purchasing body for the use of other contracting authorities

In either case, an agent may be employed to carry out the processes of advertisement, selection

and award. In that event, liability for legal compliance remains with the contracting authority or

authorities

.

2.6.2.Duration of framework agreements

A framework agreement may not endure for more than three to four years except in exceptional

circumstances, in particular, circumstances relating to the subject of the framework agreement.

For example in Ethiopia a maximum contract period for the framework agreement is three years.

This three-year rule exists to ensure that public procurement markets are opened up periodicallyto competition.

Where any kind of justification for a longer period than four years is relied on, the grounds for

doing so would be expected to appear in the contract notice

The Public Sector Directive and the Regulations do not stipulate any maximum duration for

contracts awarded pursuant to a framework agreement, raising the question of whether the setting

up of a framework agreement of duration longer than three to four years can ever be justified.

Where the view is taken that exceptional circumstance justify a framework agreement of a longer

duration than four years, provision may be made that individual contracts called off pursuant to it

will co-determine with the end of the framework agreement. Framework agreements for a longer

duration than four years may have the potential to prevent restrict or distort competition.


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2.7. Award of a framework agreement

Agreement with one economic operator: Where the framework agreement is with one

economic operator then the contracts are awarded within the limits of the terms laid down in the

framework agreement. The contracting authority may request the economic operator to

supplement its tender if necessary but there must be no substantial amendments to the terms laid

down in the framework agreement.

Agreement with more than one economic operator: Where the agreement is with more than

one economic operator, the contracting authority has a choice. There are two ways of awarding a

contract:

By application of the terms laid down in the framework agreement without re-openingcompetition, awarding the contract directly to a particular economic operator; or

By running an additional competition, inviting all suitably qualified economic operatorson the framework to participate (a mini-competition).

Contracting authorities should make it clear when setting up the multi-provider frame-work how

contracts will be awarded, and the framework agreement should include provisions covering the

manner of awarding the contract. In both cases the parties may under no circumstances makesubstantial amendments to the terms laid down in the framework agreement and the award must

not be made improperly or in such a way as to prevent, restrict or distort competition.

Award to an economic operator without further competition: Where the contractingauthority wishes to use the first option and to award a contract directly to one of the

economic operators in the framework, then it must do so on the terms laid down in the

framework agreement.

Award following a mini-competition: The contracting authority may use the secondoption of a mini-competition, where not all terms are laid down in the framework

agreement. This process allows the terms referred to in the specification to be introduced

or existing terms to be more precisely formulated.


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All of the suitably qualified economic operators in the framework must be invited to participate

in a competition on this basis so as to ensure equal treatment, non-discrimination and

transparency. The Directive sets out the requirements for the conduct of the mini-competition.

Who can call off contracts under a framework agreement?

In order to call off a contract from a framework agreement a contracting authority must be an

original party to the framework agreement. As a minimum "original party" means that the

contracting authority must have been either: named in the contract notice; named in a document

referenced in the contract notice; or be an identifiable member of a class of contracting authority

named in the contract notice or a document referenced in the notice. There is no consensus as to

whether "original party" also means that the contracting authority must have decided prior to the

conclusion of the framework agreement that it wished to be eligible to use it.

Calling off under a framework gives rise to two principal issues: which framework supplier

should get this particular call off, and on what terms? With single supplier frameworks the

choice of supplier has by definition already been made and it is likely that most of the terms of

the subsequent call off contracts should have been settled during the competition to identify thesingle supplier and whilst the process is still competitive.

With multi-supplier frameworks contracting authorities may choose to establish at the outset of

the framework a mechanism that will identify which of the framework suppliers will be awarded

any particular call off and in this case the terms of the call off should also largely be settled at the

outset (each call off being analogous to a single supplier situation).

Alternatively, the contracting authority may identify the chosen supplier and finalize the terms of

the call off contract, to a greater or lesser extent, by mini competition.

2.8. The advantages and the disadvantage of framework agreement


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The first benefit is contractual certainty. A long, long time ago, we made a claim on behalf of a

consultant that commenced:

By a Framework Agreement between the Plaintiff and the Defendant, it was agreed that, in

consideration of the Plaintiff carrying out inception and feasibility work for the Defendant in

relation to potential projects, the Defendant would engage the Plaintiff as consultants if and

when the projects proceeded. The Defendant has obtained the benefit of that bargain, but has

been in repudiator breach of it by engaging other consultants for projects that have proceeded.

The Plaintiff claims a quantum meruit, to be assessed by reference to the benefit obtained by the

Defendant and the cost of the work to the Plaintiff, alternatively damages in respect of the fees

that it would have earned had the Framework Agreement been honored.

The Constructing Excellence website says this:

When you are procuring over a period of time, a framework can deliver many benefits, such as:

Reduced transaction costs; Continuous improvement within long-term relationships; Better value and greater community wealth; Solutions that delight customers.


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Chapter Three

Sustainable Procurement

At the end of this chapter, the students are able to:

Understand the concept of sustainable procurement in the public procurement process Understand the benefits of sustainable procurement in applying in the public procurement

process.

Apply the concept of sustainable procurement in the public procurement process. Include the concept of sustainable procurement concepts in the public procurement policy

and regulations

Advise suppliers/contractors how to include sustainable issues in the production ormanufacturing process

3.1. Introduction

What Does Sustainable Procurement is meaning?Procurement is the process by which public or private organizations buy supplies and services to

fulfill various functions, e.g. shelter, transport, infrastructure needs, etc. However, procurement

is not simply about the purchasing of goods and services.

Procurement also has to meet the obligations of timeliness; effectiveness; efficiency;

competition; transparency; equitable distribution; and, development. At the macro-level, public

procurement creates a dynamic; a chain reaction which benefits the economic life of a country

and supports development of the private sector. Thus, there is a direct link between the

performance of the procurement function and the collective fulfillment of economic objectives.

Sustainable procurement is about combining social and environmental factors with financial

considerations when making purchasing decisions. It involves looking beyond the traditional

economic parameters and making decisions based on life-cycle costs, associated environmental

and social risks and benefits as well as broader social and environmental implications.


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By adopting a sustainable procurement policy procuring agencies, Funds and Programs can

develop and adopt policies and practices that:

Secure best value for money, price, quality, availability, functionality; Support a precautionary approach to environmental challenges; Are cleaner and safer; make efficient use of resources, ensure adequate management of

chemicals;

Incorporate environmental costs, reduce pollution and risks for humans and theenvironment; and,

Influence purchasing decisions to support issues such as poverty eradication,international equity in the distribution of resources, labor conditions, and human rights.

The most important environmental and social challenges in todays consumer society are:

Reducing the emissions of greenhouse gases Reducing the emissions of hazardous chemicals Avoiding over-consumption of resources and limiting the volume of waste Stopping the use of ozone depleting substances Safeguarding biodiversity Promoting safe and equitable work environment Supporting local entrepreneurs

In procurement, it is therefore important to manage:

Consumption of raw materials and energy Chemicals in products Polluting emissions Waste generation Work conditions Diversity of supplier

3.2. Aim and challenge


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Traditional procurement has focused upon value for money considerations. The aim and

challenge of sustainable procurement is to integrate environmental and social considerations into

the procurement process, with the goal of reducing adverse impacts upon health, social

conditions and the environment, thereby saving valuable costs for public sector organizations

and the community at large. Sustainable procurement forms a key part of an overall push for

sustainable development by governments.

3.3. Potential benefits

Potential benefits of sustainable procurement include:

long-term efficiency savings more efficient and effective use of natural resources reducing the harmful impact of pollution and waste reducing the impact of hazardous substances on human health and the environment

encouraging innovation

providing strong signals to the sustainable products market Practical expression of organizations commitment to sustainable development.

3.4. What are the Key Elements of Sustainable Procurement?

Sustainable procurement policies and processes incorporate appropriate safeguards and checks to

avoid abuses or inadvertent infringement on key issues, the most important of which are noted

below.

Adverse Environmental Impacts

Procurement can play a key role in promoting sustainable production and consumption patterns.

It is widely recognized that industrial development will only be truly sustainable if it is built on

firm ecological foundations. The growing attention to issues of sustainable consumption andproduction (SCP) is the result of decades of work on cleaner production and eco-efficient

industrial systems. SCP represents the latest step in a progressive evolution from pollution

control; an evolution which has gone from:

Pollution Control Cleaner Eco -design Product-systems Eco-innovation


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ProductionMitigating negative

Outputs

Local Entrepreneurship

Strategic procurement practices can also support the development of local entrepreneurs by

requiring that a certain percentage of goods and services be locally sourced.

Human Rights

Human rights are increasingly acknowledged as a business issue. They are inextricablylinked to corporate risk and reputation management. The expansion of supplier sourcing from

developing countries means that procurersand public organizations procurers in particular

given where the organization does businessare increasingly exposed to companies

operating in countries with repressive governments, where there is ethnic conflict and weak

rule of law, or poor labor standards. The procurement function must include processes that

identify companies that flaunt their responsibility to uphold the universal human rights both

towards their employees and the communities in which they operate.

Labor Rights

With the rise of globalizationand with it the extension of global supplies chainsprocurers

have the unique opportunity as well as responsibility to ensure that procurement supports

workers rights. Companies operating in global markets are increasingly expected to assume

some level of responsibility for labor practices along their supply chains. This responsibility

can and should also form an integral component of the procurement function, by ensuring

that the contracted companies operate within the universally accepted ILOs core

conventions on labor standards. At a minimum, procurers should be aware of a prospective

suppliers performance concerning:

Rights to freedom of association and the effective recognition of the right tocollective bargaining;

Focus on

ProductsFocus onProduction

Incorporating energy

and resources

consumption during

life-cycle, transport

logistics, end-of-life

collection andcomponent reuse or

materials recycling

new products and produ

systems and enterprises

designed for win-win

solutions for business an

the environment


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Elimination of all forms of forced or compulsory labor; Effective abolition of child labor; and, Elimination of discrimination in respect of employment and occupation.

While the above four elements do not cover the full range of labor rights issues they do

address some of the deepest and most challenging aspects of this subject area.

Gender and the Empowerment of Women

The Millennium Development Goals (MDGs) set a target to: Eliminate the gender disparity

in primary and secondary education preferably by 2005, and to all levels of education no later

than 2015.

The procurement function can promote gender equity and the empowerment of women by

adopting practices that support minority businesses, particularly those owned by women. A

straight-forward and simple approach is to use an evaluation preference that awards

additional points to minority businesses

Poverty Eradication

The MDGs call for the eradication of extreme poverty and hunger by: halving between 1990

and 2015, the proportion of people whose income is less than one dollar a day and halving

between 1990 and 2015, the proportion of people who suffer from hunger.

Public procurement can contribute to the eradication of poverty by providing capital

investment through local and regional sourcing strategies in the respective economies.

By sourcing products and services in-country or within particular region procurement can:

Support job creation; Stimulate increases in income; Improve the purchasing power of the local population; Generate economic opportunities within communities; and, Contribute to economic development.

3.4. Governance and public procurement

Sustainable procurement can play a strategic role in achieving and ensuring good governance.

Good governance encompasses a functioning regulatory system, as well as institutional set-up,

well-designed processes and proven capacity to meet identified needs. Effective public


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procurement is a good indicator of how well those processes are managed. Moreover, a well

functioning procurement system can ensure:

Better value for money; Increase in efficiency and effectiveness of delivery; Reduction in the potential for corruption; A positive, country-level investment climate; Non-discriminatory practices; Transparency; and, Accountability.

What are the Benefits of Sustainable Procurement?

Tradition procurement focuses on value for money considerations. The aim and challenge

of sustainable procurement is to integrate environmental and social considerations into the

procurement process with the goal of reducing adverse impacts on human health, social

conditions and the environment, thereby saving money for organizations and the community

at large. The benefits that can accrue to an organization practicing sustainable procurement

include:

A more open debate both internally with staff and externally with partners; Better inter-organization co-operation with different departments/services, e.g.

finance, environment, industry, etc.;

Improved relationship with employees and users of dangerous products, e.g.chemicals used by cleaning services; and,

A general improvement of transparency and ethics with and from suppliersSpecific benefits of sustainable development include:

Contributing to the modernization and international competitiveness of local industrywhich can encourage foreign investment and employment generation;

Improving the efficiency in the public sector so that more money can be invested insocial and economic development;

Improving working conditions, e.g. labour standards, health and safety; Assisting disadvantaged groups in society; Reducing harmful emissions and waste generation; Improving air and water quality; Reducing the use of nonrenewable natural resource;


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Complying with a growing international trend in requirements and/or expectations ofdonor community;

Complying with Multilateral Environmental Agreements and Labor Conventionsratified at the national level;

Alleviating global environmental problems e.g. global warming, ozone depletion; Setting an example of engagement; Demonstrating commitment and strong political will to encourage change in other

countries;

Improving the efficiency and transparency of procurement procedures and structures;and,

Generating savings through life-cycle costing and the avoidance of superfluouspurchasing.


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Procurement can also support long-term sustainability objectives if designed with these

objectives in mind. Below are a series of sustainability objectives (listed in BOLD) with

corresponding results arising from sustainable procurement activities.

The Challenge of Sustainable Procurement

The relevance and practical application of the environmental aspects of a public procurement

can be demonstrated fairly easily. Green requirements can be detailed in the technical

demands for the production technology and the selection of materials. Performance and

Results Reduce costs through

greater energyefficiency, resourcesefficiency, reducedwaste disposal, reducedrisk management;

Lower costs for someproducts and services;

and,

Increase productivityand reduced time lost

from illness because ofthe improved work

environment.

Promote long-term

Efficiency savings

Use public resources

More efficiently

Results

More efficient and effective use of naturalresources and the environmental effects ofobtaining those resources;

Reduce the harmful impact of pollution andwaste;

Eliminate or reduce toxic materials entering thenvironment thereby reducing the impact of

hazardous substances on human health and the

environment;

Encourage innovation; Reduce waste and landfill through purchasing

recycled content products and products that

create less waste;

Provide strong signals to the sustainableproducts market; Practical expression of the organizations

commitment to sustainable development savin

money through re-using materials and product

Help to 'close the loop' to make recycling viab Save water; Reduce greenhouse gas emissions; and, Preserve the natural habitat for flora and fauna

Results

Increase the availability ofgreen products at cost effective

prices;

Expand the market for greenproducts, as well as for

products with reduced

packaging; and, Improve the level of

information available to buyers

about the content and

performance of products

making it easier to buy green

Stimulate the market to

innovate and produce

more sustainable options

Results

Reduce exposure to toxicmaterials and emissions,through se of more benign

products for cleaning, pestcontrol, building and fleetmaintenance; and,

Generate a morecomfortable energyefficient working

environment.

Demonstrate to industry

and the community that

the organization is serious

about

Sustainability

Improve working

conditions

Results

Provide leadership to governments, induand community at large

Demonstrate social and environmeresponsibility;

Reduce the potential negative publassociated with the use of products, servand suppliers with poor environmental social records; and,

Compliance with international policy legal frameworks concerning sustaindevelopment and procurement.


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quality standards included in the technical specification can be easily defined and introduced

at any stage of the procurement process.

The relevance and specification of social and ethical aspects of sustainable procurement on

the final product is more difficult to measure as it involves social behavior which often

cannot be quantified. This makes it hard to verify and benchmark the effects of social and

ethical behavior in tender evaluation.

Some ways to measure the effects of social and ethical behavior in the tender evaluation

include using voluntary initiatives such as the Global Compact as a way to pre-screen

potential vendors. Performing upstream activities, i.e. ahead of the procurement process,

such as factory audits of suppliers, pre-qualification of suppliers and the establishment of

more long-term agreements to ensure that those vendors solicited for bids meet minimal

social and/or ethical criteria. Checklists that outline minimal criteria against which procurers

can assess a potential vendor is another way to check that social and ethical criteria have a

good possibility of being met.

Questions and Answers

Moving from procurement based on the concept of best value for money to procurement

based on broader ethical and environmental issues naturally raises a host of questions. Below is a

selection of questions that are frequently asked as companies and organizations transition from

procurement to sustainable procurement.

The next section, How to Transition to Sustainable Procurement will address the transition

process step-by-step?

Why to link procurement and sustainable development?

In committing to sustainable procurement benefits accrue to the organization including:

Controlling costs by adapting a wider approach to the whole life costing;

Involving the local business community to help build a more sustainable supply chainfor the future;

Complying with environmental and social regulation (meeting country regulations); Managing risk and reputation;


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Building; and, Improving internal and external standards.

Procurement is a well-placed tool to facilitate the promotion of sustainable development.

Through the development of procurement criteria that support sustainability principles,

requisitioners and procurers can send strong signals to the market in favor of goods and services

that promote sustainability. Key procurement criteria such as energy efficiency or water

conservation can help engage businesses in emerging and developing economies to curb

emissions while contributing to goal of meeting the international challenge of climate change.

Simultaneously, employing such measures will increase the competitiveness of these businesses

in international markets, where issues as climate change and resource depletion are already

addressed in public procurement policies, e.g. Japan, EU, USA, Canada.

What defines as sustainable product?

A sustainable product is the result of a design process in which environmental, social, ethical and

economical questions were partly or totally integrated. National or product eco-labels are useful

to help identify products. Company policies can also be used to help the procurer understand the

sustainable characteristics of its products.

Does sustainable procurement require more work from the procurer?

Like any change, it takes time to become familiar and comfortable with the new process. Once

requisitioners and procurers understand what sustainable procurement meansand how to

incorporate new criteria into the tending documents and evaluate bidsthen the process is the

same.

Is it easy to find sustainable products in all categories?

Increasingly companies are rising to the challenge of addressing sustainability issues. In the

majority of markets it is becoming easier to define a sustainable leader. In markets that are still

evolving there is a need to ensure that sustainability principles are being followed rather than


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simply talked about in promotional literature. For this reason, sustainable procurement criteria

need to be carefully adapted and complemented with training of requisitioners and procurers to

support and encourage a gradual migration of companies towards cleaner production and more

sustainable business practices overall. This is particularly important in developing markets.

Can most companies meet sustainability criteria?

The ability of a company to meet defined criteria will depend on its size and location. In many

countries, national or inter-regional legislation, i.e., European Union, already stipulate that

products not contain hazardous materials, use resources efficiently and provide end-of-life, take-

back or recycling options. Products that are sold in these countries must therefore meet these

requirements. The difficulty arises when sourcing products from countries were regulation isweak. Here the presence of ISO 14001 can demonstrate a commitment to environmental

stewardship. However being ISO 14401 certified does not automatically mean that the company

supplies sustainable products and services. Reference to an international voluntary initiative, e.g.

the Global Compact, or certification by a particular eco-label can also be used as proxies of

commitment.

How can criticism about unfair advantage best be managed?

To avoid concerns about unfair competition, e.g., because of defined sustainability criteria or

geographical focus, it is important that a request for proposal (RFP) clearly outlines ALL the

criteria that will be used to assess a bid. These criteria must also then be weighted so that bidding

organizations can clearly see where they may bring added value. Sustainability criteria should be

defined as ideals not as absolutes, the latter which limits competition. Phrases such as: XXX is

committed to supporting local suppliers, small and medium-sized enterprises and ethnic

minority-owned-businesses, outlines the organizations priorities but does not prevent a

business not fitting that description from submitting a bid. Procurement criteria that cover a

broad set of issuestechnical, financial, environmental, social and ethicalnot only support

sustainable procurement principles but provide opportunities to a wider range of potential

suppliers.


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Is sustainable procurement more expensive than business as usual

procurement?

Efficient procurement means ensuring value for money, which is the optimum combination of

entire-life cost and product quality to meet the identified need. First, it is important to consider

whether a new product is really required at all or whether an alternative solution can be found.

Second, all too frequently the only financial factor considered is the purchase price of a product.

In reality the cost of maintaining the product over its useful life and the cost of its disposal must

also be factored into the purchasing decisionparticularly if the product contains toxic elements

as the disposal of toxic products may also involve substantial financial costs. For example, in the

case of buildings the largest costs over the life-time of the building are operational costs. High,

energy-efficiency standards in renovation and new construction make considerable financial

sense, as do the use of energy efficient products such as computers and light bulbs.


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Chapter Four

Public private Partnership (PPP)

Objectives

At the end of this session, it is expected that the participants will have learned international best

practices with regard to the appropriate consideration of public-private partnerships for

infrastructure development and the provision of public services, with special reference to the

perspective of public procurement. Participants will examine the state of PPP and its potential in

their own countries.

Participants will be expected to be able to identify the special features of PPP, including the

complex variety of contractual relationships among the public and private parties to a PPP

project. Participants will be expected to know the types of projects for which PPP is an attractive

approach to infrastructure financing, and the variations of procurement procedure (e.g.,

unsolicited proposals) which are common in PPP projects.

4.1. IntroductionA Public-Private Partnership is a long-term contractual agreement between a government agency

and a private partner for the delivery of goods or services. As partners, each party shares in the

potential risks and rewards inherent in the delivery of the goods or service, including financial

risks and responsibilities, and quality assurances for the taxpayer.

Public-Private Partnerships are not privatizations because the government entity involved in the

agreement retains control and ownership of the project. In fact, partnerships under the Oregon

Innovative Partnerships Program are no different from the way in which many other essential

services are already delivered in Oregon, like electricity and gas utilities, which are largely

developed and managed by a private partner but operated under governmental regulation.

In the context of public procurement, the notion of public -private partnerships (PPP) refers in

particular to procurement of public infrastructure and/or public services on the basis of private

investment and/or the award of concession contracts. Because the private parties are involved as

investors, lenders, insurance companies, as well as engineering and construction companies, the


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PPP model varies substantially from the conventional procurement activity involving public

funds and private suppliers or contractors.

This portion of the course describes procurement-related issues raised by the use of what is

commonly referred to as public-private partnership based contracting (PPP). As the term is

used here PPP refers to the acquisition by the public sector of public infrastructure facilities

and/or service on the basis of private investment and/or the award of concession contracts.

Terminology used in this field is quite diverse and it may or may not be used in any given case in

the same manner, with the same degree of precision, or with the same exact meaning, as it may

be used in other instances. The diversity of terminology originates no doubt in large part from

the diversity of commercial and contractual variants and analytical models that populate this

sphere of contracting.

PPP projects may involve construction or refurbishment of infrastructure of a great possible

variety of types, and it may involve operation and maintenance of such facilities (with or without

a construction or rehabilitation component). PPP can also be understood to encompass traditional

public services concessions, for example, in the awarding of a concession contract to operate bus

lines for passenger transport.

Terminology encountered in practice to describe various types of these contracting variants

include, for example build-operate-transfer (BOT), and project finance. A common thread in

many if not most of these forms is that the private investment and cost of construction and/or

operation is recouped during an operation period, during which revenues generated by the use of

the facility are used to recoup financing and other costs, and to generate the profit of the

investor/service operator.

PPP is practiced widely, especially in the developed countries. It can be an important vehicle for

mobilizing private finance to achieve important public purposes. As the same time, it is of

paramount importance to ensure that the use of PPP is targeted at appropriate cases and subject

to thorough feasibility assessment, so that PPP is not used reflexively in situations where it may


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be better, from the standpoint of the public interest, to retain certain activities wholly under

public sector management and operation. That is where it is important for a country to have the

needed capacity to make such assessments and appraisals of possible projects.

From the public procurement standpoint, it is in the public interest to ensure that the award of

contracts based on PPP should be subject to the fundamental principles of public procurement,

including economy and efficiency, value for money, competition, fairness, transparency and

accountabilitywhile at the same time providing any special procedures that might be needed to

take into account the particular nature and circumstances of PPP contracting.

In addition, effective implementation of PPP projects may also depend heavily in some cases on

the existence of effective regulatory mechanisms in the operation areas of the projects.

4.2. Understanding Public- Private partnershipThe Government recognizes that there are some things which the private sector does best and

others where the public sector has more to offer. The old argument, as to whether public

ownership was always best or whether privatization was the only answer, is simply outdated. The

Government firmly believes it will only deliver the modern, high quality public services that the

public want and increasingly expect if it draws on the best of both public and private sectors.

The starting point is, therefore, recognition of the contribution that the public and private sectors

can each bring to the partnership.

This portion of the course describes procurement-related issues raised by the use of what is

commonly referred to as public-private partnership based contracting (PPP). As the term is

used here PPP refers to the acquisition by the public sector of public infrastructure facilities

and/or service on the basis of private investment and/or the award of concession contracts.

Terminology used in this field is quite diverse and it may or may not be used in any given case in

the same manner, with the same degree of precision, or with the same exact meaning, as it may

be used in other instances. The diversity of terminology originates no doubt in large part from


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the diversity of commercial and contractual variants and analytical models that populate this

sphere of contracting.

PPP projects may involve construction or refurbishment of infrastructure of a great possible

variety of types, and it may involve operation and maintenance of such facilities (with or without

a construction or rehabilitation component). PPP can also be understood to encompass traditional

public services concessions, for example, in the awarding of a concession contract to operate bus

lines for passenger transport.

Terminology encountered in practice to describe various types of these contracting variants

include, for example build-operate-transfer (BOT), and project finance. A common thread in

many if not most of these forms is that the private investment and cost of construction and/or

operation is recouped during an operation period, during which revenues generated by the use of

the facility are used to recoup financing and other costs, and to generate the profit of the

investor/service operator.

PPP is practiced widely, especially in the developed countries. It can be an important vehicle for

mobilizing private finance to achieve important public purposes. As the same time, it is of

paramount importance to ensure that the use of PPP is targeted at appropriate cases and subject

to thorough feasibility assessment, so that PPP is not used reflexively in situations where it may

be better, from the standpoint of the public interest, to retain certain activities wholly under

public sector management and operation. That is where it is important for a country to have the

needed capacity to make such assessments and appraisals of possible projects.

From the public procurement standpoint, it is in the public interest to ensure that the award of

contracts based on PPP should be subject to the fundamental principles of public procurement,

including economy and efficiency, value for money, competition, fairness, transparency and

accountabilitywhile at the same time providing any special procedures that might be needed to

take into account the particular nature and circumstances of PPP contracting.

In addition, effective implementation of PPP projects may also depend heavily in some cases on

the existence of effective regulatory mechanisms in the operation areas of the projects.


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4.3. The fundamental role for GovernmentFirst and foremost, while the best way to deliver the Governments objectives may be through

some combination of public and private sectors, Government retains the responsibility anddemocratic accountability for:

deciding between competing objectives; defining the chosen objectives, and then seeing that they are delivered to the standards

required; and

Ensuring that wider public interests are safeguarded.

In the case of PPPs introduced into public services, this means that, while responsibility for

many elements of service delivery may transfer to the private sector, the public sector remains

responsible for:

deciding, as the collective purchaser of public services, on the level of services that arerequired, and the public sector resources which are available to pay for them;

setting and monitoring safety, quality and performance standards for those services;and

Enforcing those standards, taking action if they are not delivered.

Similarly, in the case of state-owned businesses, while PPPs bring the private sector into the

ownership and management of the business, the Government remains responsible for

safeguarding public interest issues. This includes, in particular, putting in place independent

regulatory bodies, remaining in the public sector, whose role is to ensure that high safety

standards are maintained, and that any monopoly power is not abused.

4.4. PPP Main IssuesSome of the key issues raised by PPP contracting are listed below.

1. Legal and institutional framework - elements of a comprehensive legal and institutionalframework to support the whole PPP process, starting with project identification, appraisal

and design, and carrying through implementation and operation, include, for example:


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a. Necessary legislative frameworks and policies (important work has been done inthis field by the United Nations Commission on International Trade Law

(UNCITRAL), which has prepared model legislative provisions on publicly

financed infrastructure, including the procurement aspects);

b. Required levels of capacity to conduct the PPP project identification, appraisal andimplementation process;

c. Clarity in allocation of authority to enter into PPP arrangements;d. Coordinated public sector structures;e. Sound public procurement system, with the appropriate procedures for PPP

contracting;

f. Capacity for contract negotiation and drafting;g. Effective dispute settlement measures; andh. Effective regulatory structure.

2. Project selectionas already noted, it is indispensable that the process of identifying,

appraising and designing PPP projects should be effective, and that it enable the right

projects to be done on a PPP basis in the right way, and to protect the public interest in cases

where PPP is not the optimal or appropriate avenue.

3.

Procurement methods the important characteristics of procurement procedures for PPPcontracting that should be made available by the procurement system include:

a. An open procedure for seeking expressions of interest from interested contractors,followed by the establishment of a short-list from which proposals are solicited;

b. The possibility of a single-stage or a two-stage procedure for consideration ofproposals and selection of the project company/concessionaire;

c. The establishment of a short-list from which proposals are solicited;d. The possibility of a single-stage or a two-stage procedure for consideration of

proposals and selection of the project company/concessionaire;

e. Application of best practices in drawing up the request for proposals with a view toeliciting responsive proposals;

f. Sophisticated criteria for evaluation and ranking of proposals;


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g.Procedures for dealing with unsolicited proposals, while safeguarding the basic

principles and objectives of the procurement system; and

h.Requisite levels of sophistication and protection of the public interest in the formulationof the project agreement/concession contract, including coverage of all key issues.

In summary, key principles of PPP include:

a. Selection of PPP projects should be based on thorough assessment of whether such aproject is in the public interest in any given case, including whether the activity can be

given over to management by the private sector or should remain within the public sector.

Such an approach is necessary to protect the public interest. PPP projects should be considered

on the basis of financial and technical feasibility assessment (e.g., is the expected rate of return

on an electricity project sufficient to connect the promised number of new users to the grid?).

b. It is crucial to develop public sector capacity for identification and selection of PPPprojects, as well as for managing and monitoring their implementation from the public

side of the table.

In order to ensure that the use of PPP takes place only in appropriate cases, and that such projects

are properly planned, awarded and implemented, it is crucial to ensure that there is adequate

capacity available in and on behalf of the public sector purchasing and end-user entities.

c. Procurement of PPP projects should be conducted in accordance with the fundamentalprinciples and objectives of public procurement.

This is feasible and in fact essential. Not to do so potentially exposes the allocation of very

significant infrastructure and services contracts to non-transparent and questionable practices.

That has been shown by experience potentially to result in serious harm to the public interest,

especially when private interests exert improper and corrupt influence on public officials to gain

control and exploit essential infrastructure and services on an improper basis. A sound project

planning and procurement system can help mitigate such risks.

4.5. THE OBJECTIVES OF PPPs


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In bringing the best of the public and private sectors together, the key test of any partnership

arrangement is not whether it is classified to the public sector or to the private sector. Instead,

what matters is whether it provides the structure most likely to deliver the Governments

objectives. The Government develops public private partnerships with three broad objectives in

mind:

to deliver significantly improved public services, by contributing to increases in thequality and quantity of investment;

to release the full potential of public sector assets, including state-owned businesses,and hence provide value for the taxpayer and wider benefits for the economy;

To allow stakeholders to receive a fair share of the benefits of the PPP. This includescustomers and users of the service being provided, the taxpayer and employees at

every level of the organization.

4.6. Sharing the benefits fairly between all stakeholdersPPPs should create genuine economic benefits for all involved. This means ensuring that the

benefits of PPPs are shared fairly:

Between public and private sectors. Private sector partners and investors benefit fromthe new and profitable business that PPPs represent. But it is for Government to ensure

there is a fair deal for the public sector;

Within both public and private sectors, that all the stakeholders receive a fair share ofthe benefits. This includes the customer, the taxpayer, private sector investors and

employees at every level of the organization.


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Discussion questions:

1. Are PPP projects practiced or contemplated or being implemented in your country? If so, inwhat sector(s) and what types of projects?

2. How those types of contracts are awardedwhat type of procedures is applied?3. Are there legislative or regulatory provisions on the procurement procedures to be followed

in the award of PPP contracts?

4. What are the main advantages and disadvantages of PPP contracts that might have been seenin practiced?

5. What are the main obstacle to planning and implementation of PPP projects?6. What are your recommendations as to how best to handle procurement of PPP projects?


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Chapter Five

Green Procurement

Objectives of the Chapter

By the end of the session, it is expected that the participants will understand international best

practices with regard to green and sustainable procurement and be able to identify and explain

the principle objectives of green procurement, e.g., to curtail negative environmental impact

associated with procurement transactions, to encourage the development of environmentally-

friendly products and services, and to assure compliance with critical environmental law and

regulation. Participants will also be expected to be able to identify the main procurement

techniques available for advancing environmental protection (planning, lifecycle costing,

recycling, etc.).

5.1. IntroductionTo make an environmental policy work it is essential to look at the public procurement

procedure itself. A green procurement policy can, if it is not carefully implemented, founder on

practical issues such as when to ask for it, who to ask for it and what criteria to use.

Public procurement is in essence a question of matching supply and demand, just as with any

private procurement procedure, the only difference being that contracting authorities have to

exercise special caution when awarding contracts. This is because they are public entities, funded

by the taxpayers money.

This special caution can be translated into two main principles:

getting the best value for money Acting fairly

Best value for money Contracting authorities have the responsibility to get the best value for

taxpayers money for everything they procure. Best value for money does not necessarily mean

going only for the cheapest offer. It means you have to get the best deal within the parameters

you set. The protection of the environment can be one of these parameters and can therefore act


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as an equal factor amongst the others for the award of the contract. So value for money does not

exclude environmental considerations.

Acting fairly-Acting fairly means following the principles of the internal market, which form the

basis for the public procurement directives and the national legislation based on these directives.

The most important of these principles is the principle ofequal treatment, which means that all

competitors should have an equal opportunity to compete for the contract.

To ensure this level playing field, the principle oftransparency must also be applied.

Chapter 2

Green Procurement Defined

The notion of green procurement is an inherent part of the wider notion of sustainable

development and, within that, sustainable procurement. Sustainable procurement aims to conductpublic procurement taking into account social, economic and environmental considerations,

while respecting the principle of value for money and minimizing negative effects on the

environment.

Among the objectives of green procurement are, for example:

a. Restoration of the environment and curtailment of negative environmental impact, e.g.,by use of fewer resources for production and operation, eliminations of toxins, fuel

efficiency, durability, recycling and less waste at the disposal stage;

b. Encouraging innovation and the development of environmentally friendly industries andproducts for the purpose of moving to a green market and the economic opportunities that

it will provide; and

c. Encouraging compliance with environmental policies and rules, including those affectingpublic purchasers and their suppliers.

It is important to note that the notion of sustainable procurement, which encompasses green

procurement, includes techniques and objectives such as reduction of greenhouse gas emissions,

use of renewable energy, reduced consumption and waste of water, reduction of waste by way of

diversion from solid waste stream and recycling, prioritization of fuel efficiency in vehicle fleet

management, and fostering corporate responsibility.


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The importance of environmental consideration in the public procurement process is being

recognized in legislation of an increasing number of countries, as well as at the regional and

international levels. The proposed draft revised text of the WTO Agreement on Government

Procurement expressly authorizes the use of technical specifications related to conservation of

resources and environmental protection, as well as for bid evaluation criteria.

5.2. Green Procurement: Main Challenges

The main issues concern types of techniques and initiatives that are being applied to advance

green procurement policies and programs in public procurement systems. Some of the main steps

in such initiatives are listed below:

a. Procurement planning the importance of the planning stage in the procurement cycle isparticularly critical from the green procurement standpoint (e.g., drawing up environmentally

friendly technical specifications and requirements, market research to identify possible green

products (i.e., environmentally friendly alternatives, reviewing environmental impact

assessments to guide the procurement process));

b. Technical specifications and evaluation criteriathese can concern, for example, energyconsumption and emissions, as regards vehicles, use of recycled content in construction

materials, water usage and waste performance of faucets;

c. Eco-labeling there are advantages to the use of eco-labels (for example, to summarizeenvironmentally friendly technical requirements), but safeguards should also apply to their

use (e.g., as to the soundness of the eco-labels, appropriateness of the specifications,

accessibility to interested parties);

d. Life-cycle-costing - this approach to evaluation of bids is a pillar of green procurement; itencompasses purchase and installation costs, use and operation costs, and disposal costs at

the conclusion of the useable operational period; based on net present value calculations

(NPV);

e. Energy consumption and managementthis aspect is a fundamental dimension of greenprocurement, and includes improved energy efficiency, reduction of emissions, production of

energy from renewable sources, and reduction of water consumption. Related techniques


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include, for example, distributed generation of energy (e.g., fuel cells, cogeneration),

metering of consumption, facility audits, energy rating of appliances, environmentally

friendly energy purchasing policies (e.g., from efficient and low-carbon generating facilities,

and promotion of water-use efficiency);

f. Water efficiencysometimes not readily thought of as part of green procurement, but reallya key ingredient of a green procurement strategy; relates to indoor applications (use of

efficient plumbing facilities for toilets, showers, sinks) as well as out

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