Introduction
Procurement continues to play a crucial role in organizational success. It is a means of acquiring the much needed resources to sustain organizational operations and profitability. Organizations spend large amounts of money on procurement, therefore proper procurement solicitation strategies is necessary. Evidently, procurement is a complex business function based on the many procedures involved. This research paper is an analysis of the different procurement solicitation procedures from the procurement planning phase to awarding contracts. The paper also explores recommendations for improving the procurement solicitation procedures.
According to Chang (2013), contract management process is divided into six categories: procurement planning, solicitation, source selection, contract administration, and contract closeout. Each category is characterized by distinct processes, actions and outcomes. The first category is procurement planning, it is the process of determining what the organization needs, assessing what is available to procure and documenting the process. Rimkueniene (2013) notes that conventionally procurement was seen as an operational-administrative business function, now it is viewed a strategic and competitive function. Globalization of business and other changes in the business environment such as extreme competition and changing nature of customers shows that organizations have to redefine their procurement and solicitation procedures. With the many changes in the business external environment, it is necessary to define and measure what “best value” means to the organization through expert procurement planning and proper coordination across the many internal and external parties involved (Beil, 2009).
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Effective procurement is securing the necessary goods and services at the best possible price, in the right quality and quantity from the right source at the right time. Benefits of effective and efficient procurement solicitation procedures include: reduced costs, saves time, and enables the business to focus on profit making activities. Hence, the two key stages involved in procurement solicitation procedures are: planning stage (preparation) and procurement. It is worth noting that the procurement solicitation process ends with contract award, and anything after the contract is considered contract management.
Steps in Procurement Solicitation Process
Pre-Procurement Preparation
Given the complexity of the procurement solicitation process, the first step is pre-procurement preparation. Ample preparation ensures higher efficiency and efficacy in the end (Kakwezi & Nyeko, 2010). It will enable the organization to anticipate the onset of procurement-related events, so that it can calibrate a better response to the events. The old adage that states that failing to plan is planning to fail is applicable in procurement. Effective planning enables the business to have a better appreciation of forthcoming events, and to test appropriate actions before settling on the best course of action that would maximize on benefits while incurring low costs for the organization.
Hence, the pre-procurement preparation entails the following activities: procurement planning, preparing the bidding documents and conducting a pre-procurement conference. Chang (2013) notes that procurement planning involves determining what the company needs, assessing what is available and documenting the process. Procurement planning is an internal process, and procurement officers have to clearly identify goods and services that the business needs and want to procure. Procurement planning phase is a detailed phase that involves: defining requirement, market research and starting the documentation process (Chang, 2013 p. 5). In defining the requirement, procurement officers, determine the exact service that the business is looking to purchase by answering some of the key questions such as whether the organization has purchased a similar product in the past, whether it is easy to purchase or lease or how long the service of the product will be required. The procurement personnel and functional managers should be involved in defining the requirement as functional managers have in-depth knowledge of the necessary products. Technical specifications, approved budget, maintenance for products are some of the factors to be considered in determining the requirements for the products.
After defining the requirement, procurement personnel have to conduct a detailed market research. The market research will tell whether the market can provide the required products/ services, and the costs involved. There are many suppliers in the market, and it is necessary for the organization to be aware of the suppliers that have good quality products to fulfill the requirements, and have a good reputation of delivering products on time. According to Chang (2013), market research is a requirement for any procurement above the simplified threshold of $150,000 or below when the organization lacks adequate information on the suppliers. Market research can be conducted using public industry information, previous experience with similar requirements and feedback from companies (Chang, 2013).
Another important step in procurement preparation stage is starting the documentation. Procurement process involves a lot of documentation, and once the requirement definition and market research is done, documents for solicitation can be developed. The requirements identified in the first step will be transformed into bidding documents in the future. Therefore, it is important to prepare these documents in the preparation phase so that they can capture all the necessary elements. Documents involved in the procurement process include: Invitation for Bid, Request for Proposal, and a Statement of Objective among others.
The last step of the procurement planning phase is holding a pre-procurement conference. A pre-procurement conference is a forum where all personnel involved in the procurement process will meet up to discuss all the aspects of the procurement. The main reason for the conference is to ensure that the procurement is in accordance to the project procurement management plan (PPMP). The conference members can also discuss the technical specifications of the products, methods of procurement, and method of evaluation of bids among other concepts that affect the process. A pre-procurement conference is necessary for expensive purchases that have big impact on organizational operations. The pre-procurement conference can also be used to determine the state of readiness of the procurement budget. The conference enables the organization to review methods of procurement, methods of evaluation of bids, rules and acceptable minimum standards. For instance, there are different available methods of procurement based on the product, cost estimate and the number of suppliers. For instance, the cost estimate can be used to determine whether it is a micro- purchase, simplified acquisition procedure (SAP) procurement, sealed bid or a negotiated procurement (Rumbaugh, 2010). A mini- purchase is a type of procurement of products that cost less than $3,000. A pre-procurement conference brings everyone on board, and clarifies any issue that can affect the proceeding procurement solicitation procedures.
Under the preparation phase, the business has to be aware of the applicable procurement laws that must be upheld (New York State Procurement, 2014). Though, procurement laws differ according to locations, knowledge of such laws is necessary. For instance, the law mandates businesses to maintain a competitive, fair and open procurement process where all qualified vendors have equal opportunities. The law guards against favoritism, corruption, regulates procurement activities and protects the interests of the government and taxpayers.
Solicitation Planning
Solicitation planning comes after the procurement planning as it uses information from the procurement planning to plan how the business will obtain the required products/ services from the suppliers (Chang, 2013). Solicitation planning involves: determining the appropriate procurement method, type of contract to use, and proposal evaluation criteria.
Determining the procurement method
This is an important step in the solicitation planning. There are various procurement methods based on the cost estimate and the availability of suppliers. A business can choose open tendering as a method of procurement when it wants to be open to all qualified suppliers. In open tendering, a business will access a lot of suppliers, and it has a higher chance of working with the least cost provider. The emphasis of open tendering is the value for money, however, it is considered unsuitable for large and complex projects. Additionally, projects with shorter timelines do not work well with open tendering.
Other procurement methods include: restricted tendering, request for proposal, request for quotation, two stage tendering, and single source procurement (Rumbaugh, 2010). Restricted tendering limits the amount of requests for tenders that can be sent by a supplier. Though it is limited to a few suppliers, restricted tendering is still considered competitive. The business will establish rules which will be used to identify the required number of suppliers that will be invited to submit their proposals.
Request for proposals (RFP) is the most common method of procurement, RFP is a compelling document which asks the suppliers to write a proposal about their services that will meet the organizational needs. Proposals are two-envelope documents that allow the procurement team to review that proposal without referring to the financial component. The second envelope, which is the financial component is often revealed once all the first-envelope proposals have been evaluated. Consequently, the proposal with the best fit qualification and the best price is often awarded the contract (Rumbaugh, 2010).
To conclude, a business will choose a type of procurement method based on the types of goods/ services, budget and conditions of procurement effort. Regardless, of the method chosen, a business should be aware of the legal framework guiding that particular method (Chang, 2013).
b. Contract Types
According to Kim & Brown (2016), there are different types of contracts to be used during procurement. A business will select a particular contract over the other based on the budget, its requirements, and a degree of control that it wants to retain. Contracts are broadly classified into two categories: fixed priced and cost reimbursement. In a fixed price contract, the business will pay the supplier the agreed set price regardless of the performance of the supplier. However, in cost-reimbursement contracts, the business will pay the supplier for all the incurred costs to an established amount. There are further classifications of cost-reimbursement contracts that should be considered.
Each type of contract carries a risk, and the business will use a contract that has fewer risks to the business. Cost-reimbursement contracts are known to shift the risks to the supplier. Though the RFP usually hints a specific type of contract, the final contract is a matter of negotiation between the business and selected supplier (Chang, 2013).
c. Evaluation Criteria
The two goals of the evaluation process are: to relay the requirements to the potential suppliers and to act as a grading criteria for the supplier selection process. If the organization uses open tendering, it is more likely to use a more rigorous evaluation criteria that will enable it to effectively reduce the number of suppliers. The level of analysis is also dependent on the requirements and the complexity of the product/ service. Price is usually a motivating factor for simple, low-risk and less complicated products. Alternatively, complex projects tend to focus on suppliers that meet all the technical requirements, however, at a considerable price. Businesses often inform the potential suppliers whether the other technical factors are considered equal to the pricing factor, or whether the price is the most crucial factor of evaluation.
Procurement Solicitation Procedures
During the actual procurement solicitation phase, the business begins its interaction with the suppliers. The organization can choose to conduct a pre-proposal conference or release a request for proposal (RFP) to invite interested vendors.
Request for Information (RFI)
A company often uses (RFI) to solicit information on available options for meeting the requirement. When a company issues an RFI to potential bidders, the bidders respond to the specifications provided by the company. RFI affects the structure of a request for proposal (RFP) has the company will be aware of what different companies can deliver. The company can also use Request for Comment (RFC) before drafting an RFP. RFC focusses on appropriate solicitation language and structure that can have an impact on the bidders’ response. For some bidders, the language and requirements can be too restrictive, therefore an RFC equips the business with the necessary skills for creating an effective RFP.
Lastly, a draft RFP allows the business to make its intentions about the procurement known to the bidders. Draft RFP is often submitted to all potential bidders, and the organization accepts remarks and comments on the draft RFP. On the cover letter of the draft RFP, the organization can request for feedback on certain sections.
Pre-Proposal Conference
At the pre-proposal conference, the organization communicates its requirements with potential suppliers. A pre-proposal conference is not a requirement for all solicitations, but it is highly recommended for complex procurements that involved highly technical products, products that warrant inspection and when there is room for ambiguity (Chang, 2013). Pre-proposal conference are held after releasing an RFP, the conference is also used to clarify issues and changes in the RFP.
Publicizing procurement solicitation is good for businesses as it will reach many vendors thus increasing competition. Contracts can be advertised in the newspapers, journals, posting notices and online avenues. Legally, businesses are required to publicize that a solicitation is forthcoming at least 15 days before posting the solicitation. The business is also required to give at least 30 days to bidders to respond to solicitation before accepting any proposal (Chang, 2013).
Source Selection
The process of selecting sources is a rigorous process that involves evaluations of various proposals. Many vendors often submit their proposals, however, the business has to narrow down the selection of proposals that fulfill most or all of its requirements. Factors affecting the supplier selection process include: cost, technical capability, quality assessment, organizational profile, service levels and supplier profile and risk factors (Mwikali & Kavele, 2012). While the cost is a primary motive during selection, other factors play an important role as organizations do not want to be aligned with suppliers that lack technical capability and the ability to deliver quality products.
Source Selection Committee
A source selection committee (tender panel) varies depending on the size of the organization and the complexity of the specific procurement. The contracting officer is usually in the charge of source selection committee, and is responsible for the success of the committee (Chang, 2013). The source selection committee is responsible for ensuring compliance to regulations during the selection process and in making the final decision to award. The committee is made up of different individuals who evaluate each aspect of the proposal based on the different evaluation factors applicable.
The source selection committee is a highly competent panel guided by the following values: equal treatment, transparency and confidentiality. The committee receives and opens tenders, before evaluating them. The first form of evaluation is a formal compliance check, which ensures that the proposals have fulfilled the requirements. Eventually, the committee is responsible for determining the rankings of each bidder after a thorough evaluation of the proposals before making recommendations for the award of the contract.
Evaluating Proposals
Pal, Gupta & Garg (2013) note that there are various supplier selection methods used to evaluate proposals. They include: categorical methods, data envelopment methods, cluster analysis, multiple attribute utility theory (MAUT), outranking methods, and technique for the order performance by similarity to ideal solution (TOPSIS).
The above methods are unique, and an organization can settle on a method that enables it to express its requirements well. For example, the categorical method is a qualitative model based on historical data and buyer’s experience with a particular supplier (Pal et al., 2013). Buyers usually give their rating on suppliers, and a positive rating is the most important factor to consider when using a categorical method to evaluate a proposal.
Alternatively, a data envelopment analysis (DEA) method of classification divided the suppliers into two categories, ‘efficient’ and ‘inefficient’ (Pal et al., 2013). Suppliers are evaluated on two sets of criterial, that is, outputs and inputs. Eventually, this model assigns relative efficiency of 100% to a supplier that produces a set of output factors that are not produced by others suppliers with a given set of input factors.
A cluster analysis (CA) is an evaluation method that uses a classification algorithm to group a number of items which are considered by a set of numerical attribute scores into clusters. A cluster analysis of often used to reduce large supplier numbers into a reasonable number based on their cluster scores. Regardless of the method used to evaluate a proposal, a number of related factors are considered in the evaluation process. The factors include: price, quality, delivery, performance history, technical capacity, the financial position of the supplier, reputation, warranties & claims policies, and geographical location of the supplier among other factors (Pat et al., 2013). The above evaluating factors are analyzed using various models to judge how a proposal matches the criteria for solicitation (Rumbaugh, 2010). Price is often not assigned a score, but all the other factors are assigned scores. Once all the proposals are evaluated and assigned scores, the business will be ready to make the decision to award as long as the evaluation process is documented.
Clarifications, Revisions and Discussions
Through the proposal evaluation process, the business can revisit other proposals in case issues arise during the evaluation process. Though businesses are not supposed to maintain contact with the suppliers, they can contact the suppliers using their contact person to clarify some issues. Clarifications is not invasive, for instance, procurement personnel can contact a particular supplier to clarify past performance. During clarifications, the business is often limited to deficiencies in the proposals whereby the supplier fails to include pertinent information that would affect its final score. In other cases, the business is known to maintain discussions with the suppliers. By communicating with all the suppliers, the business will find it easy to pick a particular supplier at the end based on how they connect (Rumbaugh, 2010).
Recommendations to Award the Contract
The supplier that best meets the requirements of the chosen evaluation criteria is likely to be awarded the contract. Members of the tender panel are responsible for evaluating all the proposals using the same criteria, and they can seek clarifications from the contact people in case of any errors in the proposal. The panel also makes its recommendation at the end of the evaluation report, normally prepared by the chairperson of the panel with the support of other members. It is worth noting that the recommendation to award the contract is not considered the final decision in certain circumstances (Beil, 2009). Based on the complexity of the project, the business can award the tender to two suppliers if multiple contract award has a better chance of delivering better service.
The evaluation report is presented to the authorized officer who verifies that the evaluation was done as properly in accordance to the rules, and that the recommendation is correct. Once the award approval is given, the business cannot notify the successful candidate until it notifies other candidates about the contract award decision to the winning bid. The mandatory standstill period lasts between 10-15 days until the other candidates receive written communication about contract award decision, and the reason for the decision. At the end of the mandatory standstill period, the business will establish communication with the successful candidate before making a contract offer.
Recommendations
The procurement solicitation process is a lengthy process with many procedures. Many organizations often end up with the wrong supplier because they skip a few steps, particularly the procurement and solicitation planning phase. The planning phase is one of the most crucial steps, and it lays down a solid foundation for the procurement process. The planning phase defines the requirements, and steps for relaying the requirements to potential suppliers. Each procedure has an impact on the overall success of the process, hence no step should be disregarded.
Rimkuniene (2013) notes that procurement is now considered a strategic business function due to changes in the business environment. As a strategic business function, it is necessary to adopt a different perspective towards procurement. There are many procurement technologies that can help organizations optimize the procurement process. Procurement technologies make it easy to link the organization’s requirements with the prospective suppliers. Procurement soft wares are known to offer decision support, which ensures that the organization ends up with the most appropriate choice.
Lastly, businesses should equip themselves with adequate information on procurement solicitation procedures. Lack of adequate information on procurement procedures often limits businesses to simple procurement procedures that are inefficient (Kakwezi & Nyeko, 2010).
Conclusion
Procurement is a critical business function that is necessary to establish what the organization needs, and the best way to obtain it. Effective procurement solicitation procedures bring a wide array of benefits to the organization such as reduced costs, access to quality products and increased flexibility. Evidently, financial and non-financial factors are important in the evaluation process, but, the quality of the products is a key factor. Selecting a supplier with good quality products improves the organization’s competitiveness. To maximize the effectiveness of the procurement solicitation process, a business needs to equip itself with the best procurement personnel capable of implementing the right procedures and best practices in procurement in today’s business environment.
References
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