OVERVIEW OF THE NEW ENGINEERING CONTRACT
3.3 Procurement Process for Construction and Engineering
The procurement process has, over the years, evolved from a mere buying function to a strategic support function for organisations. This evolution can be witnessed from the different phases that procurement has undergone, the specialization that has resulted in the procurement profession and the new functional titles that have evolved from Buyer to Commodity Managers and Contracts Managers (SANS 294, 2004).
The various steps of the procurement process for construction and engineering are listed and discussed below.
i. Establish what is to be procured
The procurement planning phase involves the establishing of what is to be procured. The procurement plans are normally generated from the various user departments’ budgets for the next financial year or years to come. The information from the user departments is then used by procurement to create procurement plans. For the purposes of this exercise, the researcher will only be discussing how the information relates to construction and engineering projects.
The user department will develop a detailed scope of work and specification for the project to be submitted, together with the financial estimates for budgetary purposes and negotiation to procurement. For purposes of process, this submission requires flow, that a demand document or requisition be raised with proper approvals for procurement to start the process.
ii. Establish the procurement strategy
An approved demand document will then launch the next phase of the procurement process, for example, the sourcing strategy. Procurement will now be based on the scope of work and the desired financial and social outcomes decided for the policy to follow. In SOCs, this outcome would be a Preferential Procurement Policy, as prescribed by the National Treasury. An appropriate procurement mechanism is also established and adopted in this phase. This mechanism needs to be in line with the broader procuring body’s objectives. Procurement also has, in this phase, to establish the contract and pricing strategies.
According to SANS (294:2004), the procurement strategy involves deciding on the appropriate allocation of responsibilities and risks and the methodology by which contractors are to be paid. It is also important that procurement, at this stage, studies the potential market and develops proper methods regarding how to get full participation from the desired supply market, and obtain financial information from the user department on the allocated funds for the construction project. Hereafter the completed procurement strategy for the project must be approved by the designated person or the Acquisition Council, with delegated authority for approval.
iii. Requesting tender offers
With an approved sourcing strategy, procurement would now commence the bid process.
Tender documents will be prepared in line with the chosen and approved strategy. The suppliers are invited, through an appropriate procurement mechanism, to submit tenders for the project. Where required, a site briefing is held prior to the closing date, to clarify all questions that might arise about the technical and commercial specification of the tender. Once the tenders are received, they are recorded at the tender office as per the company procurement policy and procedure. Where only one offer is received,
procurement, with approval from the designated person with delegated authority, may decide to reissue the tender in order to get greater participation from the market.
iv. Evaluation of tenders offers
The tender evaluation commences when all qualifying bids, or bids with all requested supporting documents, have been received and recorded and submitted to procurement.
The evaluation is broken down into two aspects: technical and commercial evaluation. The requesting user department members, who are professionals, will conduct the technical evaluation in the presence of procurement and minutes of the meeting will be recorded.
The technical evaluation needs to be conducted in line with the approved criteria in the sourcing strategy. Procurement will then conduct the commercial and financial evaluation, based on the appropriate approved strategy, and come up with a shortlist of the bidders.
A risk analysis on the highest ranked bidder is carried out to satisfy the company that the successful bidder has the capacity to perform when required. Once this assessment is completed, a recommendation to award is prepared for the bidder. A tender evaluation report is prepared detailing the process followed in the evaluation and the points awarded to the recommendation made. This report is then submitted to the designated person or acquisition council with appropriate delegated authority for endorsement.
v. Award of the contract
When a sanction to award the contract is received, with all questions from the person or acquisition council having been satisfied, only then can procurement notify the successful and unsuccessful bidders. A contract containing the offer and all conditions put forward in the bid will then be drafted and approved by the legal experts of the company. The signing of the contract becomes the final acceptance of the bidder’s offer. The contract is then captured onto the database and a copy is kept in a contract repository. A valid purchase order is generated and issued to the bidder before commencement of work.
vi. Administration and termination of the contract
When the contract is in place, procurement will administer the contract to ensure that all the agreed deliverables are met by both sides. This will be established during scheduled progress meetings which do not exclude urgent or emergency meetings to discuss a new
turn of events. When deviations are noticed or reported, they are dealt with in accordance with the clauses provided for in the contract and proper remedies are applied (SANS 294, 2004).
When all the contract requirements are met or the contract has been terminated for whatever reason, SANS requires that a record be kept in the database detailing the performance indicators relating to time, cost and the attainment of specific goals associated with a preferential procurement policy, or the reason for the termination.
One of the pieces of legislation that has been introduced is the Construction Industry Development Board Act (2000) CIDB, which sought to standardize procurement routes for all state entities. This was one of the laws that were met with resistance, even though it was meant to ease the problems of procurement in the country. This piece of legislation provides for only four forms of contracts to be used prior to the closing date.
These are the General Conditions Contract (GCC), the Federation Internationale des Ingenieurs-Conseils (FIDIC), the Joint Building Contracts Committee (JBCC) and the New Engineering Contract (NEC). As indicated earlier the information about the said contracts is obtained in a website that is dedicated for the development of the NEC.
Since the NEC is an international procurement tool, it also gives users tools to draw out their skills to apply to the environment in which they are working (Baird, 2006). It is necessary to present a brief background on how NEC was introduced at Transnet SOC LTD.