4.5 Steps in One Complete Purchasing Cycle
4.5.2 Tender Procedure
The tender procedure varies from one nation to another in a small way. We have taken three examples to illustrate this fact.
EXAMPLE 1: The European Agency for Reconstruction uses standard EC procedures concerning tenders. Here are the basic steps:
1. For each of the Republic of Serbia, Kosovo, and the Republic of Montenegro—and for the former Yugoslav Republic of Macedonia (fYROM)—the Agency devises an annual program outlining its general strategy and work program in the different sectors (energy, agriculture etc.).
2. This program is submitted to the European Commission for approval, and then to the Agency’s Governing Board.
3. The Agency then prepares detailed Financing Proposals for each of the key sectors of operation, presenting the work to be undertaken in each sector and setting a budget.
4. These Financing Proposals are submitted to the European Commission, to the Governing Board and also to the ‘CARDS’ Committee for approval.
5. The Agency then prepares Terms of Reference for each individual project to be implemented in the framework of the Financing Proposal.
6. Once the Terms of Reference (TOR) for a project are ready, (depending on its financial value) the Agency puts it out for tender, by publishing an announcement on the Europeaid site and in the printed version of the Official Journal of the European Communities.
7. The Agency tenders for three categories of contracts: Service, Supply and Works.
8. There are several types of tender procedures: international open tender, restricted interna- tional tender, open local tender and simplified procedure. What type of tender is announced is dependent on the value of the contract. This will be stated clearly on the relevant page of the Europeaid site, along with instructions as to how to participate in the tender.
9. Throughout the project’s implementation, and after its completion, the Agency carries out regular project evaluation and monitoring.
68 A Modern Approach to Operations Management 4.5.3 EXAMPLE 2: PURCHASE PROCEDURE IN OSAKA GAS CO., JAPAN READS AS
FOLLOWS:
1. Preliminary Procedure. If you wish to supply products to Osaka Gas for the first time, please apply to the Purchasing Department. In doing so, please describe your company’s financial status, the product(s) you wish to provide us and the terms of supply. These details should be provided by using a brochure or company profile statements explaining the company’s financial position, and brochures on the product(s) and technical data. It is important that you can explain the advantage of your products to Osaka Gas in the light of our basic purchase policies, and the benefits that a business relationship with your company could bring to Osaka Gas. You may be required by Osaka Gas to submit Japanese translation of the foregoing documents if such documents are not prepared in Japanese.
Information and data on your company and your product(s) will be stored and managed in our files as
“Products and Suppliers”. The information will be used for selecting the companies to which we ask to submit estimates.
Should it be the first time you wish to supply materials or equipment for which Osaka Gas has clearly defined purchase conditions, such as delivery time and product specifications, we conduct a preliminary examination of your company and the product(s) you wish to supply, and make a compre- hensive evaluation based on the following criteria:
••••• Necessity of the product(s).
••••• Whether the product(s) can satisfy the standards set by Osaka Gas regarding quality,
performance, reliability, safety, price, delivery reliability, and compatibility with existing facilities, as well as the company’s financial condition, supply capacity, facility capacity, technological capacity, maintenance and service systems. The merit of establishing a business relationship with the new supplier will also be considered.
••••• Information for the preliminary examination can be in any format as long as it provides
sufficient data for evaluating the above criteria. However, if deemed necessary, Osaka Gas may request additional information, product samples and/or explanation. After passing the preliminary examination, the information and data on your company and products will be stored and managed in our files as ‘Companies from Which Estimates Can Be Requested’, to be used in selecting those companies to which we ask to submit estimates. The results of the preliminary examination are available upon request, although any information considered confidential by Osaka Gas will be excluded.
2. Details of purchasing procedure. The specifications and number/quantity and delivery of equipment, devices and materials are determined by the department(s) that will be using the product(s) or materials. The Purchasing Department conducts purchase activities based on purchase requests submitted by the/these department(s).
The Purchasing Department, at its sole discretion, selects companies from which estimates will be sought. Suppliers are selected from the files of “Companies with Previously Established Business Relationships”, “Companies from Which Estimates Can Be Requested” and “Products and Suppliers”.
Selection is made by comprehensivly evaluating such factors as the quality and performance of the equipment, device(s) or materials to be purchased, compatibility with existing facilities, degree of reliability, product requirements including safety, delivery time, the scale of the order, after-sale service and the company’s previous business record. As a rule, Osaka Gas asks several companies to submit estimates. However, only one company may be specified for estimate submission in such special cases as those concerned with industrial property rights, those requiring maximum levels of safety that only one specific supplier can ensure, cases where only one specific supplier can assure compatibility with existing facilities, or in case of urgency.
Purchasing Systems and Vendor Rating 69 As a rule, when requesting an estimate from a company that it has selected, Osaka Gas will set out a specification from listing Osaka Gas’s requirements in respects of quality, performance standard, size, inspection and method of inspection. The selected companies will be asked to submit cost estimates and specifications to Osaka Gas prior to a specified date.
Specification sheets submitted by potential suppliers at their own expense are checked by the Purchasing Department and the department(s) that will be using the product(s), in order to determine whether the required standards are met by the product(s). All products must pass this examination.
During this process, Osaka Gas may request additions or changes to the specifications.
After valid cost estimates and specifications have been comprehensively evaluated in respect of price, technical requirements, etc. Osaka Gas will commence negotiation with the company with the most attractive proposal to discuss the amount of the contract and other terms and conditions. The selection of such a company shall be made by Osaka Gas at its sole discretion. Contract terms and conditions will be decided upon mutual agreement.
The business will be established upon conclusion of a contract, in the form of a written document if necessary. The obligations and liabilities of Osaka Gas arise only when such contract is concluded.
Delivery dates specified in the contract must be strictly observed. Precise details of the delivery schedule will be agreed between the supplier and the relevant department(s) of Osaka Gas. Delivered equipment, device(s) or materials must pass inspections conducted by the relevant department(s) of Osaka Gas. When deemed significant, an interim inspection may be conducted during the manufacturing process.
Payment will be made according to the payment terms specified in the contract.
3. Other information. (i) This “Guide to Business Transactions with Osaka Gas” explains the basic policies of the purchasing activities by Osaka Gas and does not have any legally binding power.
The legal obligations of Osaka Gas arise only when a valid purchasing contract is concluded between a supplier and Osaka Gas and the terms and conditions of such a contract supersede the statements made hereunder in case of conflict.
(ii) Osaka Gas and the supplier shall keep information made available through business under strict control and neither party shall reveal any confidential information to a third party, without the other party’s written consent.
(iii) If the delivery of equipment, device(s) or materials is made later than the date specified in the contract, Osaka Gas may demand indemnity for the damages or losses incurred.
(iv) The contract between a supplier and Osaka Gas shall be governed by the laws of Japan and in the event a dispute arises in respect of the contract or any other matter, it shall be determined in accordance with Japanese law.
(v) Each Supplier, who concluded a contract with Osaka Gas, shall be responsible for observing all of the governmental regulations applicable to it or the transaction with Osaka Gas and shall indem- nify and hold harmless Osaka Gas from and against any liability, damage, loss, cost, expense, suit or proceeding incurred by Osaka Gas in connection with such supplier’s breach of the foregoing govern- mental regulations.
4.5.4 EXAMPLE 3 (PURCHASE PROCEDURE IN MAHARASHTRA STATE ELECTRICITY BOARD), INDIA FOLLOWS THE FOLLOWING PROCEDURES
1. Purchases are made by inviting Public/Global Tenders.
70 A Modern Approach to Operations Management 2. Tender Advertisement:
(a) Advertisement of Tender Notices are published for wide publicity in English News paper in following areas: Mumbai/Pune/Ahmedabad, Delhi/Calcutta, Madras.
(b) It is also given in Regional News Papers as below:
Area Language Mumbai Gujarati Nagpur Hindi Nasik/Aurangabad Marathi
(c) Tender Document: It is a standard document and consists of:
••••• Instruction to Tenderers.
••••• General Terms & Conditions of Tender.
••••• Special Terms & Conditions
••••• Schedule of requirement, prices and break up of prices.
••••• Questionnaire to Tenderer.
••••• Technical Specification, if applicable.
••••• Price Variation Formula, if applicable.
(d) Following important information is given in Advertisement.
••••• Tender No.
••••• Description of Material.
••••• Estimated Amount.
••••• Tender Fee.
••••• Due date & Time (Hrs.) for submission of tender.
••••• Due date & Time (Hrs.) for opening of tender.
••••• The aspects like reservation of item for SSI Sector and material requirement with ISI
mark are indicated.
••••• The tender documents are supplied in triplicate.
(e) The address for issue, receipt and opening of tender is:
Office of the Technical Director (Stores) Maharashtra State Electricity Board, 1st floor, Prakashgad,
Prof. Kanekar Marg,
Bandra (E), Mumbai - 400 051 3. Opening of Tenders:
(i) The tenders are opened in presence of the representatives of the tenderers and MSEB (Maharashtra State Electricity Board) Officers. The details like prices, delivery period and terms and conditions related to the evaluation of offers such as Excise duty, Sales tax etc. are read out at the item of tender opening.
(ii) Annexure “C” regarding acceptance of matching with lowest acceptable rate submitted along with officers is read out.
4. Opening of Annexure B “C” (Regarding Matching Rate):
Confirmation for acceptance of the order at the lowest acceptable rate in Annexure “C” (forrn enclosed with the tender documents) is required to be submitted in a separate sealed cover duly
Purchasing Systems and Vendor Rating 71 Superscribing Tender No. and Due date and Time of submission on or before 3 p.m. on the same date of the next month of tender opening or earlier as prescribed in the tender document when required.
5. Evaluation of Tenders:
(i) Distribution of Material—The offer not in conformity with standardized terms and conditions of the tender in toto are not evaluated.
Compliance of qualifying requirements wherever specified is also checked. No correspondence is made with the tenderer about deviations in their offer.
(ii) EHV and Generation Material, Post Tender negotiation with tenderers for withdrawal of Technical/Commercial deviations in offer are permitted without affecting original prices and ranking of tenderers.
After receipt of technical evaluation report form indenting department the purchase Proposal is prepared and submitted to Competent authority for decision.
Factory of New Tenderers are inspected by our Inspection Wing.
After receipt of decision purchase orders are placed by respective Purchase Groups, IMPORTANT GENERAL TERMS AND CONDITIONS
A. Earnest Money Deposit (EMD):
1. The Tenderer should pay E.M.D. along with Tender.
2. The Tender without payment of E.M.D. are summarily rejected unless
••••• Tenderer is having a valid Permanent Bank Guarantee of Rs. Five Lakh (Rs. 500,000)
with Central Purchase Agency of the Board,
••••• Tenderer is exempted on account of statutory directives as below:
(a) All Government and Semi Government Institutions under Government of Maharashtra and Zilla Parishad in Maharashtra and fully owned undertaking of any State Govern- ment and Government of India (for the item manufactured by such institutions/units).
(b) SSI Unit permanently registered with the Directorate of Industries, Maharashtra only for the items mentioned in their Permanent Registration Certificate.
(c) SSI Unit registered with National Small Industries Corporation (NSIC) and Small Industries Services Institute of Government of India only for the items manufactured by them.
3. If exempted from payment of E.M.D., Documentary evidence should be produced. New firms should get the B.G. approved from Bank. Guarantee Section before due date of submission of Tender, in prescribed form of the Board.
4. E.M.D. should be 3% of the offered value upto Rs. 1,75,000/- and thereafter, 1% of the balance offered value. The maximum E.M.D. payable against the tender shall be limited to Rs. Five lakhs.
B. Security Deposit. The tenderer should agree for payment of Security Deposit. The supplier shall pay Security Deposit within 15 days from the date of receipt of order at the rate for 10% of the value of the order unless having valid permanent Bank Guarantee of Rs. 5 Lakhs with MSEB.
For SSI units in Maharashtra Security Deposit applicable is 3% of the order value subject to maximum of Rs. 50000/-. For orders value upto Rs. 50000/- in case of by SSI units and Rs. 25000/- in case of Register suppliers on the list of Development Commissioner (Industry) and Stores Purchase Officer no security deposit is payable. SSI Units having industries outside of Maharashtra State are not eligible for exemption in Security deposit.
72 A Modern Approach to Operations Management C. Prices: The prices should be quoted only on FOR Destination basis for supplies at various places in Maharashtra inclusive excise duty, sales tax, Risk in transit, freight and other charges if any showing the break up.
D. Validity: The tenderer should keep the offer valid for acceptance upto and including last date of calendar month, covering the date of completion of 180 days from the date of opening of tender and shall also agree to extend the period of validity required by the Board.
E. Payment: The tenderer should accept Boards prescribed payment terms of 100% payment within 60 days from the date of receipt of entire lot by A/C payee cheque.
F. Liquidated Damages: Tenderer should accept Board’s terms for liquidated damages for late delivery. In case the materials are not delivered within the period stipulated in the order liquidated damages @1/2% per week or part of week on the price subject to a maximum of Cumulative ceiling of 10% on the contract value.
G. Delivery period: It is mandatory on the part of the tenderer to quote the delivery on the monthly basis. The offer shall be rejected if the commencement period and rate of delivery per month are not indicated by the tenderer. Delivery period is reckoned from the date if issue of Letter of Award.
H. Sample: Wherever applicable/ required as per tender details sample should be submitted with the offer failing offer is rejected.
I. Post Tender Deviations: In case of EHV and Generation material post Tender negotiation with Tenderers for withdrawal of Technical and Commercial deviations in the offer are permitted with- out affecting original prices and ranking of the tenderer.
ALERTS
••••• Postponement of due date of submission and opening
••••• Change in Technical Specification
••••• Deleted Items
••••• Added Items
••••• Short Tender Notice
••••• Change in Quantity
••••• Cancellation of Tender
••••• Prepone of due date of submission of Annexure “C”
••••• Corrigendum
••••• Validity extension desired upto__________
PRICE VARIATION
Payment to the suppliers are made as per rates accepted in the order. However, to account for changes in Market conditions, exchange rates in currencies, Basic prices of some metals etc., concept of payment on Price Variation basis has seen accepted by M.S.E.B. for this purpose price variation formula is introduced for some of the items like Oil, Salt, Conductor, Cables, Transformers, Switchgears etc.
Sample P.V. formulae are enclosed in Annexure ‘A’.
1. Weather proof Cable 2. H.T. and L.T. Stay Sets 3. G.I. Pins
4. XLPE Aluminum Cables
Purchasing Systems and Vendor Rating 73 5. PVC insulated cables
6. Power Transformers of rating above 8 MVA for voltages upto and including 245KV 7. Auto Transformers above 8 MVA and 245 KV
8. Switchgear and Control Gear 9. Transformer Oil
Technical specifications: While procuring the material detailed specifications of the items is given separately alongwith Tender Documents. However, some Guaranteed Technical Specifications in case of some important items are enclosed in Annexure “B”.
1. Transformers 2. Isolators 3. Insulators
4. A.C.S.R. Conductor 5. Item Rates
Items purchased by the C.P.A. are required to be dispatched to our Major Stores/Stores Centers spread all over Maharashtra. However in few cases some of the items (400 KV material) are directly required to be dispatched to sub station/Power Station sites. The stores section is working under Deputy Chief Engineer (Store Management), Dharavi, Mumbai.