Procurement Method for public sector

Public procurement:

Public Procurement Method refers to the process by which government organizations and agencies purchase goods, services, and works from third-party suppliers. Public procurement can involve a wide range of purchases, from office supplies and equipment to major construction projects.

The purpose of public procurement is to ensure that government agencies are able to acquire the goods and services they need to provide public services efficiently and effectively. Public procurement also aims to ensure that the procurement process is fair, transparent, and competitive, and that suppliers are selected on the basis of their ability to provide high-quality goods and services at a reasonable price.

Public procurement processes can vary depending on the nature and scope of the purchase, but they typically involve a series of steps, including identifying the need for the purchase, specifying the requirements for the goods or services, soliciting bids or proposals from potential suppliers, evaluating the proposals, and selecting a supplier. The procurement process may also involve negotiations, contracts, and ongoing monitoring and management of the supplier’s performance.

There are three general types of government procurement. For example:

a) Goods and related services (related services here can mean transportation costs of goods, installation costs, testing costs, labor costs, etc., or any of these.)
b) Work and physical services (Physical services here means physical services if any product is required as an accessory during the performance of any work.)
c) Intellectual and professional services

There are two types of procurement mentioned in the PPR-2008 rules: procurement of goods, works, and services. Namely: 1. Local Purchase 2. International purchase These two types of purchases are carried out following the method described below.

Goods and Related Services:

Open Tendering Method
One Stage Two Envelope Tendering Method
Two Stage Tendering Method
Limited Tendering Method
Request for Quotation Method
Direct Procurement Method

Work and physical services

Open Tendering Method
One Stage Two Envelope Tendering Method
Two Stage Tendering Method
Limited Tendering Method
Request for Quotation Method
Direct Procurement Method

Intellectual and professional services

Quality and Cost Based Selection(QCBS)
Fixed Budget Selection(FBS)
Least Cost Selection(LCS)
Single Source Selection(SSS)
Community Service Organization Selection(CSOS)
Individual Consultant Selection(ICS)
Selection Based on Consultants Qualifications(SBCQ)
Design Contest Selection(DCS)

Procurement Method for Goods and Works:

Open Tendering Method (goods and works): Open tendering is a procurement method in which the bidding process is open to all qualified and interested bidders. In this method, a procurement agency or organization publicly advertises a request for tender (RFT) or request for proposal (RFP) and invites all interested bidders to submit their proposals. The procurement agency evaluates the proposals based on predefined criteria, and the bid that meets the criteria and offers the best value for money is awarded the contract.

Open tendering is a transparent and competitive procurement method that promotes fairness and impartiality. It provides all qualified and interested bidders an equal opportunity to participate and compete for the contract. Open tendering is commonly used in public procurement and is often mandated by law or regulation to ensure a fair and open process. However, open tendering may not be the most appropriate method for every procurement situation, as it can be time-consuming and resource-intensive.

One Stage Two Envelope Tendering Method(goods and works): The One Stage Two Envelope Tendering Method is a procurement method that involves the submission of two separate envelopes by the bidders. In this method, the first envelope contains the technical proposal or technical bid, which outlines the bidder’s technical capabilities and proposed solution. The second envelope contains the financial proposal or financial bid, which outlines the bidder’s pricing and costs.

The procurement agency evaluates the technical proposals of all bidders and only opens the financial proposals of those who meet the technical requirements. This approach is used to ensure that the procurement agency evaluates the bidders’ technical proposals independently of their pricing and costs, and then compares the financial proposals of only the technically qualified bidders.

The One Stage Two Envelope Tendering Method is often used for complex procurement projects or when the technical evaluation is critical to the success of the project. It enables the procurement agency to select the best value bidder based on both technical and financial considerations.

However, this method may require additional time and resources for evaluation and can also be prone to bid manipulation, as bidders may inflate their prices to compensate for their technical weaknesses. Therefore, it is important to design the procurement process carefully and establish clear evaluation criteria and procedures to ensure fairness and transparency.

Two Stage Tendering Method(goods and works): The Two Stage Tendering Method is a procurement method that involves two separate stages of bidding. In the first stage, the procurement agency or organization invites interested bidders to submit a preliminary proposal, which generally includes a high-level description of the proposed solution, technical approach, and estimated costs.

The procurement agency evaluates the preliminary proposals and shortlists the bidders who meet the minimum requirements and are deemed capable of delivering the project. In the second stage, the shortlisted bidders are invited to submit a detailed proposal, which includes a more comprehensive description of the proposed solution, technical specifications, pricing, and contractual terms and conditions.

The procurement agency evaluates the detailed proposals and selects the bidder who offers the best value for money based on predefined evaluation criteria, such as technical excellence, cost-effectiveness, and adherence to project timelines.

The Two Stage Tendering Method is often used for complex and high-value procurement projects, where the procurement agency seeks to balance the risks and benefits of the project. This approach allows the procurement agency to evaluate the technical and financial aspects of the proposal in detail, and select the bidder who offers the best value for money.

However, the Two Stage Tendering Method can be time-consuming and resource-intensive, as it requires the procurement agency to conduct two rounds of evaluation and engage in extensive negotiations with the shortlisted bidders. It also requires a clear and well-defined evaluation criteria and procedures to ensure fairness and transparency in the selection process.

Limited Tendering Method(goods and works): The Limited Tendering Method is a procurement method in which a procurement agency or organization invites only a select group of pre-qualified bidders to submit proposals for a specific procurement project. This approach is often used when the procurement agency has a list of pre-qualified suppliers or when the project is of a specialized nature, and only a limited number of suppliers are capable of delivering the required goods or services.

The procurement agency sends an invitation to bid to the pre-qualified bidders, along with a detailed specification of the goods or services required and the evaluation criteria. The bidders then submit their proposals, which are evaluated based on the predefined evaluation criteria, and the bidder who offers the best value for money is awarded the contract.

The Limited Tendering Method is a fast and efficient procurement method that enables the procurement agency to select a supplier quickly without going through a lengthy bidding process. However, it can be subject to abuse and lack transparency if the procurement agency does not have a well-established list of pre-qualified suppliers or if the selection process is not transparent.

Therefore, it is important to establish clear and well-defined evaluation criteria and procedures, ensure transparency and fairness in the selection process, and conduct regular reviews of the pre-qualified suppliers’ list to ensure that it remains relevant and up-to-date.

Request for Quotation Method(goods and works): The Request for Quotation (RFQ) Method is a procurement method that involves the procurement agency or organization inviting suppliers to submit quotations for the goods or services required. This method is often used for simple and low-value procurements where the required goods or services are readily available in the market, and the procurement agency seeks to obtain the best possible price.

The procurement agency sends a request for quotation to a number of suppliers, outlining the specifications of the goods or services required, the quantity, and the delivery date. The suppliers then submit their quotations, which are evaluated based on the price and the delivery terms. The bidder who offers the best price and meets the required delivery terms is awarded the contract.

The Request for Quotation Method is a quick and simple procurement method that enables the procurement agency to obtain the required goods or services at a competitive price. However, it may not be suitable for complex procurements or where the technical requirements are critical to the success of the project.

Therefore, it is important to establish clear specifications and evaluation criteria to ensure that the suppliers’ quotations are comparable and the selection process is transparent and fair. It is also important to ensure that the procurement process is conducted in compliance with applicable laws and regulations, and that the supplier selection is based on objective and verifiable criteria.

Direct Procurement Method(goods and works): The Direct Procurement Method is a procurement method in which the procurement agency or organization approaches a specific supplier or contractor to provide goods or services without conducting a competitive bidding process. This method is often used in emergency situations or for highly specialized goods or services that are only available from a specific supplier.

In the Direct Procurement Method, the procurement agency negotiates directly with the selected supplier or contractor to agree on the terms and conditions of the contract. The procurement agency must ensure that the selection of the supplier is based on objective and verifiable criteria, such as the supplier’s technical expertise, quality of goods or services, delivery times, and pricing.

The Direct Procurement Method is a fast and efficient procurement method that enables the procurement agency to obtain the required goods or services quickly and without going through a competitive bidding process. However, it can be subject to abuse if the selection process is not transparent or if the procurement agency does not follow the applicable laws and regulations.

Therefore, it is important to ensure that the selection of the supplier is based on objective and verifiable criteria and that the procurement process is conducted in compliance with applicable laws and regulations. The procurement agency must also document the reasons for selecting a specific supplier and justify the selection based on the objective criteria.

Procurement method for Intellectual and professional services

Quality and Cost Based Selection(QCBS):

Quality and Cost Based Selection (QCBS) is a procurement method used in the selection of consultants for the provision of services. This method is widely used by governments and other organizations for procuring consulting services for a wide range of projects.

Under the QCBS method, consultants are selected based on a combination of their technical competence and experience (quality) and the cost of their services. The technical proposal is evaluated first, and the consultant is given a score based on their understanding of the project requirements, proposed methodology, team composition, and relevant experience. The cost proposal is then evaluated, and the consultant is given a score based on the reasonableness and competitiveness of their fees.

The final evaluation score is a combination of the technical score and the cost score, weighted in a predetermined ratio. The consultant with the highest final score is selected for the assignment.

QCBS is considered a relatively efficient and effective method for selecting consultants since it emphasizes both quality and cost. This approach ensures that the selected consultant has the necessary expertise and experience to deliver high-quality services while also providing good value for money.

Fixed Budget Selection(FBS):

Fixed Budget Selection (FBS) is a procurement method used for selecting contractors for the implementation of projects. It is often used when the budget for a project has already been fixed, and the client wants to ensure that the project is completed within that budget.

Under FBS, the client invites bids from contractors, specifying the project’s scope of work and the fixed budget available for the project. Contractors are then required to submit their proposals based on the fixed budget, detailing how they intend to carry out the project within the specified budget.

The client evaluates the proposals and selects the contractor that offers the best value for money within the fixed budget. This may involve a trade-off between the proposed scope of work, quality, and cost, with the client selecting the contractor that offers the best balance of these factors.

FBS is suitable for projects where the scope of work is well-defined, and the budget is fixed. It can provide a straightforward and transparent procurement process and ensure that the project is completed within the available budget. However, it may not be suitable for more complex projects where the scope of work is not well-defined, and where there is a greater degree of uncertainty about the final cost.

Least Cost Selection (LCS): Least Cost Selection (LCS) is a procurement method used to select a supplier or contractor based primarily on the lowest price offered. This method is commonly used in the procurement of goods and services where the specifications are well-defined, and there is a large number of suppliers or contractors available.

Under LCS, the client sets out the specifications and requirements for the goods or services to be procured and invites bids from a large number of potential suppliers or contractors. The bids are evaluated based on the price offered, and the contract is awarded to the bidder with the lowest price.

However, in some cases, the client may also consider other factors such as the supplier’s experience, track record, and ability to meet the specified requirements. This can help to ensure that the selected supplier or contractor is capable of delivering the required goods or services at the required quality level.

LCS is often criticized for leading to the selection of suppliers or contractors based solely on price, which can result in poor quality goods or services being procured. However, it can be an effective method for procuring standardized goods and services where there is a competitive market and where quality standards are well-defined.

Single Source Selection (SSS): Single Source Selection (SSS) is a procurement method used in the bidding process to select a single supplier or contractor to provide goods or services to an organization. It is a method of procurement where the organization directly negotiates and selects a single supplier or contractor for a particular project or requirement.

SSS is used in cases where there is only one qualified supplier or contractor available, or where the organization has a long-standing relationship with a specific supplier or contractor that has a proven track record of delivering quality goods or services.

In SSS, the organization does not invite bids from multiple suppliers or contractors, but instead directly approaches the preferred supplier or contractor to negotiate a contract. This approach saves time and resources that would otherwise be spent on the bidding process.

However, SSS can be criticized for limiting competition and potentially leading to higher prices or lower quality. Therefore, it is important for organizations to carefully consider the risks and benefits of using SSS before selecting this procurement method.

Community Service Organization Selection (CSOS): Community Service Organization Selection (CSOS) is a method used by companies or organizations to select a non-profit organization for their corporate social responsibility (CSR) initiatives. CSOS involves identifying and evaluating various non-profit organizations that are aligned with the company’s values and goals, and selecting the most suitable one to partner with.

CSOS is an important part of a company’s CSR program, as it allows them to give back to the community by supporting non-profit organizations that work towards social and environmental causes. The selection process typically involves the following steps:

Identifying the company’s values and goals: The first step in CSOS is to identify the company’s values and goals for their CSR initiatives. This can include identifying the social and environmental issues that the company wants to address.

Identifying potential non-profit organizations: Once the company’s values and goals are identified, the next step is to identify potential non-profit organizations that align with these values and goals. This can involve researching various non-profit organizations and evaluating their mission, goals, and impact.

Evaluating non-profit organizations: After identifying potential non-profit organizations, the company will evaluate them based on various criteria such as their mission, impact, financial stability, and governance.

Selecting the non-profit organization: Finally, the company will select the non-profit organization that best aligns with their values and goals, and partner with them for their CSR initiatives.

CSOS is an important process for companies to ensure that their CSR initiatives are impactful and aligned with their values and goals. By partnering with non-profit organizations that are making a positive impact in the community, companies can contribute to a better and more sustainable future.

Individual Consultant Selection(ICS):

Individual Consultant Selection (ICS) is a procurement method used to select an individual consultant for a specific project or task. ICS is commonly used by organizations, including government agencies and non-profit organizations, to hire consultants with specific skills and expertise to work on a project or provide specialized advice.

ICS involves a competitive selection process, in which potential consultants submit their resumes or proposals to the organization. The selection process typically involves the following steps:

Preparation of Terms of Reference (TOR): The organization prepares a detailed document outlining the scope of work, deliverables, and qualifications required for the consultant. The TOR should be clear, concise, and specific, to attract qualified candidates.

Advertising the opportunity: The organization advertises the opportunity through various channels, such as job boards, social media, or specialized consultant networks, to attract potential candidates.

Evaluation of proposals: The organization evaluates the proposals submitted by potential consultants based on their qualifications, experience, and proposed methodology for completing the work.

Selection of the consultant: The organization selects the consultant who best meets the qualifications and experience required for the project or task. The selected consultant is then engaged for the project, typically through a contract outlining the terms of engagement.

ICS is a flexible and efficient procurement method that allows organizations to hire consultants with specialized expertise, without the overhead costs associated with a full-time employee. However, it is important to ensure that the selection process is fair, transparent, and competitive, to attract the best candidates and ensure the best outcome for the project or task.

Selection Based on Consultants Qualifications(SBCQ): Selection Based on Consultants Qualifications (SBCQ) is a procurement method used to select a consultant or consulting firm for a specific project or task, based on their qualifications and experience. SBCQ is commonly used by government agencies and non-profit organizations for projects that require specialized expertise, such as engineering, architecture, or management consulting.

SBCQ involves a competitive selection process, in which potential consultants submit their qualifications and experience for evaluation. The selection process typically involves the following steps:

Evaluation of qualifications: The organization evaluates the qualifications and experience submitted by potential consultants based on the criteria outlined in the TOR. The evaluation typically includes a review of the consultant’s experience, skills, technical capacity, and financial stability.

Shortlisting of consultants: The organization shortlists the most qualified candidates based on the evaluation of qualifications.

Request for Proposals (RFP): The shortlisted consultants are then invited to submit proposals outlining their methodology, work plan, and pricing.

SBCQ is a fair and transparent procurement method that allows organizations to hire consultants with specialized expertise, based on their qualifications and experience. However, it is important to ensure that the selection process is competitive and transparent, to attract the best candidates and ensure the best outcome for the project or task.

Design Contest Selection(DCS): Design Contest Selection (DCS) is a procurement method used to select a winning design from a pool of designs submitted by multiple designers or design firms. DCS is commonly used by organizations, including government agencies and private companies, to obtain high-quality and innovative designs for various products, services, or infrastructure projects.

DCS involves a competitive selection process, in which designers or design firms submit their designs for evaluation. The selection process typically involves the following steps:

Preparation of Terms of Reference (TOR): The organization prepares a detailed document outlining the scope of work, deliverables, and evaluation criteria for the design contest. The TOR should be clear, concise, and specific, to attract high-quality and innovative designs.

Advertising the contest: The organization advertises the contest through various channels, such as design blogs, social media, or specialized design networks, to attract potential participants.

Submission of designs: Participants submit their designs based on the requirements outlined in the TOR. The designs may be submitted anonymously or with attribution, depending on the requirements of the contest.

Evaluation of designs: The organization evaluates the designs based on the evaluation criteria outlined in the TOR. The evaluation typically includes a review of the design quality, creativity, feasibility, and compliance with the requirements.

Selection of the winning design: The organization selects the winning design based on the evaluation results. The winner may receive a prize or be engaged by the organization for further development of the design.

DCS is a flexible and cost-effective procurement method that allows organizations to obtain high-quality and innovative designs from multiple sources. However, it is important to ensure that the selection process is fair, transparent, and competitive, to attract the best designs and ensure the best outcome for the project or task.

Learn more about procurement?

Security Money for Contract Management

Security Money for Contract Management refers to a form of security deposit that may be required from a contracting party as a means of ensuring that they fulfill their obligations under the contract. This deposit is typically held by the other party to the contract and may be forfeited if the contracting party fails to perform as required under the terms of the contract.

Security money can be used in a variety of different contexts within contract management. For example, a service provider may be required to provide security money to a customer in order to guarantee the quality of their work or to ensure that they meet specific performance targets. Similarly, a contractor may be required to provide security money to a project owner as a means of ensuring that they complete the project within the agreed timeframe and budget.

The amount of security money required will typically be specified in the contract and may be a fixed amount or a percentage of the total value of the contract. The security money may be held in an escrow account, or it may be held by the other party as a cash deposit or other form of security

Overall, security money is a common tool used in contract management to provide assurance to both parties that the contractual obligations will be fulfilled. However, it is important to ensure that any security money requirements are reasonable and compliant with applicable regulations and that the terms of the contract are clear and unambiguous.

Content overview

What is Security money?
Types of security under the contract.
As per public procurement rules 2008, how to fix Tender Security, Performance Security, and Retention Money.
Amount of tender security.
Amount of tender security ( item-by-item tenders).
Amount of Performance Security/Guarantee.
Amount of Performance Security in the Case of Front Loading.
In respect of intellectual and professional services
Amount of retention money deemed to be retention money in case of contract for purchase of works and physical services
Time of repayment of retention money or bank guarantee

Types of security under the contract

Separate bank account.
Insurance bonds (or surety bonds)
Related party guarantee.
Personal Property Securities
Letter of comfort.
Longer payment terms and offsetting provisions.
Mortgage over land
Performance security
Retentions money.
Tender Security

Separate bank account: As an alternative to cash retentions, the security amount may occasionally be deposited into a different bank account, which may be one that is managed jointly by the parties or a solicitor’s trust account.

Under this arrangement, the contractor will feel more confident that once its duties have been met, it will finally collect the security amount.

Similar to cash retentions, this arrangement’s key drawback for the contractor is how it will affect its cash flow.

Insurance Bond: Insurance bonds, also known as investment bonds, are a type of investment product that combines elements of life insurance and investment. They are issued by life insurance companies and can be used as a tax-effective investment vehicle for individuals.

Insurance bonds work by investing the funds contributed by the investor in a range of investment options, such as shares, property, fixed interest, and cash. The earnings generated by the investment are taxed within the bond at a maximum rate of 30%, which can be beneficial for investors who are in a higher tax bracket.

One of the key benefits of insurance bonds is that they can be used to provide a tax-effective way of passing wealth to future generations. When the bond is held for at least 10 years, the investor can withdraw the funds tax-free, provided that they withdraw no more than 5% of the original investment per year. This means that the investor can pass on the investment to their beneficiaries without incurring any capital gains tax liability.

Another benefit of insurance bonds is that they offer protection to the investor’s estate in the event of their death. The bond can be set up to pay out a lump sum to the beneficiary on the investor’s death, which can help cover any outstanding debts or expenses.

It’s important to note that insurance bonds are a long-term investment and are generally not suitable for short-term investing. They also come with fees and charges, and it’s important to understand these costs before investing in an insurance bond.

Related party guarantee: A related party guarantee for tender is a type of guarantee that is provided by a related party, such as a parent company, in support of a tender submitted by a subsidiary or an affiliate. The guarantee serves as a commitment by the related party to provide financial backing to the subsidiary or affiliate if they are awarded the contract and are unable to fulfill their obligations.

This type of guarantee can be particularly useful for smaller subsidiaries or affiliates that may not have the financial resources to support a large tender or contract. By providing a related-party guarantee, the parent company can help mitigate the risks associated with the tender and increase the chances of the subsidiary or affiliate being awarded the contract.

However, it is important to note that related party guarantees for tenders may be subject to regulatory requirements, particularly if the tender is being awarded by a government or public sector entity. These requirements may include restrictions on the size or nature of the guarantee as well as requirements for transparency and disclosure. It is important to consult with legal and financial advisors to ensure compliance with any applicable regulations.

Personal Property Security: Personal Property Securities (PPS) can be used in the context of a tender process to provide security over assets that are being used to secure the tender, such as equipment or inventory. The PPS regime allows for the creation of a security interest in personal property, which can then be used to secure a debt or other obligation, such as the performance of a tender.

When a company is participating in a tender process, it may need to provide security over certain assets as a condition of the tender. By creating a security interest under the PPS regime, the company can use those assets to secure the tender without having to transfer ownership of the assets.

The PPS regime also provides a mechanism for registering security interests and conducting searches to determine whether a particular asset is subject to a security interest. This can be useful for both the company providing the security and the third party relying on the security, as it can help ensure that the security is valid and enforceable.

Overall, the use of PPS in the context of a tender process can provide a flexible and efficient way to provide security over assets, which can be particularly useful for companies that are participating in tenders that require significant financial commitments. However, it is important to seek legal advice to ensure compliance with the relevant PPS legislation and any other applicable regulations.

Letter of comfort: A letter of comfort is a document that is sometimes used in the context of a tender process to provide assurance to a third party, such as a customer or a lender, that a particular company has the financial resources or other capabilities necessary to fulfill the requirements of the tender. A letter of comfort is typically provided by a related party, such as a parent company, to support the tender of a subsidiary or affiliate.

The letter of comfort is not a binding commitment but rather a statement of intent or assurance. It may provide information on the financial position of the company, its track record of performance, or other relevant factors that are likely to be important to the third party evaluating the tender.

While a letter of comfort is not a binding commitment, it can be a useful tool for companies that are participating in a tender process and need to provide assurance to third parties about their capabilities. However, it is important to note that the use of letters of comfort can be subject to regulatory scrutiny, particularly in situations where there may be a potential conflict of interest or where the letter of comfort is being used to provide undue financial support to related parties. It is therefore important to seek legal advice to ensure that any letters of comfort provided are appropriate and compliant with applicable regulations.

Longer payment terms and offsetting provisions: Longer payment terms and offsetting provisions are two contract management tools that can be used to manage the financial risks associated with business contracts.

Longer payment terms refer to the practice of extending the period of time between when a product or service is delivered and when payment is due. This can be a useful tool for companies that are looking to manage cash flow or reduce the risk of default by their customers. However, longer payment terms can also create cash flow challenges for suppliers, who may need to finance their operations during the extended payment period.

Offsetting provisions refer to the practice of offsetting amounts owed by one party against amounts owed to that party by the other party. For example, if a company owes money to a supplier for goods or services, and that supplier also owes money to the company for other goods or services, the offsetting provisions in the contract may allow the amounts owed to be offset against each other, reducing the overall amount owed by one or both parties.

Both longer payment terms and offsetting provisions can be useful tools for managing the financial risks associated with business contracts, but it is important to use them carefully and in accordance with applicable regulations. For example, in some jurisdictions, there may be limits on the length of payment terms that can be agreed upon, or restrictions on the types of amounts that can be offset against each other. It is therefore important to seek legal advice and to ensure that any contract management practices are compliant with applicable laws and regulations.

Mortgage over land: A mortgage over land can be used as collateral to secure financing for a company participating in a tender process. If a company needs to raise capital to support its tender bid, it may be able to obtain financing from a lender by offering a mortgage over its land as security for the loan.

The mortgage over land would typically be registered with the relevant land registry, providing notice to other parties that the land is subject to a mortgage. The lender would have a security interest in the land, which would give them the right to sell the land in the event of a default by the borrower.

However, it is important to note that obtaining a mortgage over land can be a complex and time-consuming process. The lender will typically require a valuation of the land, as well as various legal and financial due diligence checks. In addition, the borrower may need to obtain consent from any other parties with an interest in the land, such as other lenders or joint owners.

Overall, a mortgage over land can be a useful tool for companies that need to raise capital to support their tender participation. However, it is important to seek legal and financial advice to ensure that any mortgage arrangements are appropriate and compliant with applicable regulations.

Performance Security: In the context of a tender, “performance security” refers to a form of financial guarantee provided by a bidder to ensure that they will meet the terms of the contract if they are awarded the tender. It is also known as a bid bond or a tender bond.

Performance security serves as a guarantee to the organization issuing the tender that the bidder will carry out the work as specified in the contract and that they will complete the project on time and within budget. In the event that the bidder fails to meet their obligations under the contract, the organization issuing the tender can call on the performance security to cover the costs of any damages or losses that may arise.

Typically, the performance security is provided in the form of a bank guarantee or a surety bond, and the amount of the performance security is a percentage of the total value of the contract. The specific requirements for performance security are usually outlined in the tender documents, and bidders are required to provide the performance security along with their bid in order to be considered for the contract.

Retention money: Retention money, is a form of financial security held by the organization issuing the tender to ensure that the contractor completes the work to the required standard and addresses any defects or issues that may arise after the work has been completed.

Retention money is typically a percentage of the total value of the contract, and it is withheld by the organization issuing the tender from each progress payment made to the contractor. The retained amount is usually held in a separate account and is released to the contractor after the work has been completed to the required standard and any defects or issues have been rectified.

Retention money serves as an incentive for the contractor to complete the work to the required standard and to ensure that they address any defects or issues that may arise after the work has been completed. It also provides the organization issuing the tender with a form of financial security in the event that the contractor fails to meet their obligations under the contract or if defects or other issues arise after the work has been completed.

The specific requirements for retention money are usually outlined in the tender documents, and contractors are required to provide the retention money along with their bid in order to be considered for the contract.

Tender Security: Please go to the Determining tender security according to principles post. There, I’ve explained tender security and included a Tender Security calculator.

As per public procurement rules 2008, how to fix Tender Security, Performance Security, and Retention Money:

Amount of tender security: Except in the case of item-by-item tenders, in all cases, a fixed amount within 3% (three percent) of the official estimated value is required.

Amount of tender security ( item-by-item tenders): A minimum of 2% (two percent) of the total price quoted by way of tender security in the case of item-based tenders.

Amount of Performance Security/Guarantee

– 5% (five percent) of the contract price in case of performance security;

-10% (ten percent) of the contract price in the case of goods and related services;

– 10% (ten percent) of the contract price in case of work, if there is an advance payment arrangement;

– 5% (five percent) to 10% (ten percent) of the contract price in case of work, if there is no advance payment arrangement.

– 5% (five percent) to 10% (ten percent) of the contract price in the case of physical services.

– 5% (five percent) of the contract price and 5% (five percent) of the value of transportable goods in the case of transportation of goods, which will also be used for further transportation.

– 3% (three percent) to 5% (five percent) of the contract price in the case of limited tender; And

– Deduction of 10% (tenth percentile) from bills payable as security deposit;

Amount of Performance Security in the Case of Front Loading: A maximum of 25% (twenty-five percent) of the contract price.

In respect of intellectual and professional services: A maximum of 3%-5% (three to five percent) of the contract price is allowed.

Amount of retention money deemed to be retention money in case of contract for purchase of works and physical services

– If advance is not paid and 10% (ten percent) performance bond is filed, no deduction of the deemed maintainable amount is required;

– If the advance is not paid, except in the case mentioned in Rule 27(2), the sum of the deemed maintainable money and the performance security shall not exceed 10% (ten percent) of the aggregate.

– In the case of contracts up to Tk 2 (two) crores in open tender system, the estimated retainable amount shall be 10% (ten percent), which shall also include the amount of tender security.

Time of repayment of retention money or bank guarantee

Within 28 (twenty-eight) days of the issuance of the certificate of amendment.

Official cost estimate

Define Official cost estimate

The official cost estimate for a tender can vary depending on the specific tender and its requirements. Typically, the cost estimate will be provided by the procuring entity issuing the tender, and it will be based on their assessment of the resources, materials, and labor required to complete the project.

If you have a specific tender in mind, you should consult the tender documents and guidelines for information on the official cost estimate. This information should be included in the tender documents along with any other relevant information such as the deadline for submission, the evaluation criteria, and the terms and conditions of the tender.

It’s important to note that the official cost estimate is just an estimate and may not be the final cost of the project. Contractors and suppliers may need to make adjustments to the estimate based on their own assessments of the requirements and any unforeseen costs that may arise during the course of the project.

Topic Overview

What should be taken into account while preparing official cost estimates?
What does PPR-2008 tell about preparing official cost estimates?
Official Cost Estimate Preparation.
How to pay the bill to the contractor by using back-calculation.
Importance of Back Calculation:
Official cost estimate calculator.

What should be taken into account while preparing official cost estimates?

When providing an official cost estimate for a tender, it’s important to take into account a range of factors that can impact the final cost of the project. These factors may include:

Scope of work: The complexity of the work required and the level of detail involved can significantly impact the cost estimate. The more detailed and complex the work, the more resources and time it will likely require.

Materials: The type and quantity of materials required for the project can also affect the cost estimate. It’s important to consider the quality of the materials, the cost of sourcing them, and any delivery or storage costs that may be involved.

Labor costs: The cost of labor will depend on the type and skill level of the workers required for the project, as well as the duration of the project. It’s important to take into account any overtime, travel, or other expenses that may be associated with the labor required.

Equipment costs: If specialized equipment or machinery is required for the project, this will also need to be factored into the cost estimate. The cost of renting or purchasing equipment, as well as any maintenance or repair costs, should be considered.

Contingency costs: It’s important to include a contingency in the cost estimate to account for any unexpected costs or changes in the scope of work. A contingency of 5–10% is typically recommended.

When providing an official cost estimate for a tender, it’s important to be as accurate and detailed as possible to avoid any misunderstandings or disputes down the line. It’s also important to ensure that the estimate is realistic and competitive with other bids, while still providing a reasonable profit margin for the contractor or supplier.

In preparing official cost estimates, other applicable factors, including transportation costs, overhead, profit, risk, geographical location, complexity, backwardness, and distance from district headquarters or the place of purchase, as applicable, will also be taken into consideration.

One thing to keep in mind is that the official cost estimate of any specific purchase is prepared by a committee consisting of three members (ref: PPR-2008), including representatives of other purchasers, by the purchaser, regardless of the development or revenue budget, before the finalization of the document containing the request for submission of a tender or proposal by the purchaser or before the invitation for a tender or proposal.

What does PPR-2008 say about preparing official cost estimates?

According to PPR-2008, the following factors should be considered when preparing official cost estimates:

Transportation costs
overhead
profit
the risk
Geographical location
Complexity
retardation
distance from district headquarters or procurement office, where applicable; Will necessarily consider other applicable factors, including value-added tax (VAT) and advance income tax (AIT).

Official Cost Estimate Preparation:

Sl	Item Desc	Rate	Unit	Total Price
1	Air Condition	50000	4	200000. 00
2	Installation Charge	750	4	3000. 00
3	Transportation and Others			3000. 00
Subtotal-A				206,000. 00
Subtotal-B		Lab Test Fees, Incidental Charges & Overhead (Add 2% on A + A )		210120. 00
SubTotal -C		10% Profit(Add 10% on B + B)		231132. 00
	Vat 6% of total	Vat+AIT = 10%
	IT/AIT 4 % of total	Vat+AIT = 10%
Grand Total (C+VAT+AIT)		(Official Cost Estimate)		254245.20

How to pay the bill to the contractor by using back-calculation:

Back calculation formula : CP = 1/1-T * Payable Price

Sl	Item Desc		Total Price
A	Contract Price		254245.20
B	Deducting Vat 6% of total Amount	Apply Back Calculation	13867.92
B	Deducting AIT 4 % of total Amount	Apply Back Calculation	9245.28
Total Payable Bill		( A-B)	231132.00

Importance of Back Calculation:

For most purchases under any project, value-added tax (VAT) and advance income tax (AIT) are added to the final contract price. Basically, VAT and AIT are payable by the procuring entity. But when the final bill is paid to the contractor, the amount owed to the contractor is deducted by deducting VAT and AIT from the contract price. But due to mathematical errors, the contractor often suffers financial losses. Because the government fixed VAT and AIT is a direct deduction of the final contract price, more money is being deducted from the contractor. To determine the actual contract price excluding VAT and AIT, a back calculation formula must be used.

Let’s see the following example:

If VAT/AIT is deducted directly from the contract price, how much will the contractor suffer financially?

Assume the contractor’s bill is worth 110 BDT. 10% of 110 BDT = 11 BDT. The contractor is then paid 110-11 = 99 BDT. The contractor should get 100 BDT. If VAT/AIT is deducted directly from the contract price, then the loss to the contractor will be 100 – 99 = 1 BDT.

Now I am showing how to calculate:

But I am not agreeing with this calculation. Because the value return is not actual, sometimes it also seems complex to calculate. So I think the formula should be below, like this:

Contract price formula: Contract Price = payable price X (1+10%)
2. Payable price formula: Contract Price/(1+10%).

Let’s check the calculator

Official Cost Estimate

Product Price(including all):

others & overhead cost (%) :

profit margin(%):

VatAit(%):

Calculate

Back Calculation

Contract Price :

VatAit:

Calculate

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Determining tender security according to principles

Determining tender security is important for ensuring fair and transparent tender processes, mitigating risks, protecting the interests of the buyer, and enhancing competition. Based on Bangladeshi public procurement acts and rules, I will discuss below how tender security determination and calculation are conducted.

Tender security Definition:

Tender security refers to a form of financial guarantee provided by tenderers/bidders in response to a request for proposals (RFP) or invitation to tender (ITT) from a buyer or government agency. The purpose of tender security is to ensure that bidders are serious and committed to fulfilling the terms and conditions of the contract if they are awarded the project.

Tender security is usually in the form of a bank guarantee, pay order or a bond, which is submitted along with the tender documents. The amount of tender security required varies depending on the size and complexity of the project but typically ranges from 1% to 5% of the total bid amount. As per the standard document of the Bangladesh government maximum 3% of the total bid amount.

If the winning bidder fails to sign the contract or provide the required performance bond or advance payment guarantee the tender security is forfeited to the buyer or government agency as compensation for any damages incurred as a result of the breach.

Tender security is a common practice in procurement processes around the world and is used to protect both the buyer and the bidders from potential financial losses.

Determining tender security as per PPR-2008 Rule 22:

Except in the case of item-by-item tenders, in all cases, the fixed amount must be within 3% (three percent) of the official estimated value.
Amount of tender security in case of item-by-item tenders: minimum 2% (two percent) of the total price quoted by way of tender security in case of item-wise tenders.

The amount should always be fixed so that the tenderer does not mistake the amount of security for the official estimated price.

NB: Generally, the amount of tender security is considered low for large works and the amount of tender security is considered high for small works.

According to PPR-2008 Rule 22(3), where the tenderer cannot get any reliable idea about the amount of the estimated contract price, the amount of the tender security should be set slightly less than the amount arrived at on the basis of the mentioned rate.

Example:

If the estimated contract value of a tender is 5 lakh BDT, then the tender security shall be 15 thousand BDT at the rate of 3% of the said contract price, 10 thousand BDT at the rate of 2%, and 5 thousand BDT at the rate of 1%. Money aside, where the tenderer cannot get a reliable idea about the amount of the estimated contract price, the tender security should be set at a slightly lower amount than the amount arrived at on the basis of the mentioned rate. In this case, 14 (fourteen) thousand taka at a 3% rate, 9 (nine) thousand taka at a 2% rate, and 6 (six) thousand taka at a 1% rate can be determined.

Determining tender security( TS Calculation):

Assume the official estimated cost has been fixed by verifying the market rate as per PPR = 2,50,000 (two lacks, fifty thousand) BDT.

Tender security = (250000 * 0.03) = 7500.

Therefore, the tender security may be fixed at BDT 7,000.

Example: Suppose the official estimated cost has been fixed at 20 million BDT. Then determining tender security should be: how much?

Official estimated cost = 20000000 BDT

We know tender security can take a maximum of 3% of the total bid amount. And we also know that the amount of tender security is considered low for large works and high for small works.

So the tentative tender security (ts) = (20000000 * 1.75/100) = 3,50,000 BDT.

Therefore, the tender security may be fixed at BDT 300,000.

When should the tender security be returned?

As per Rule 26 of PPR-2008, instructions regarding the return of tender security are given:

* Tender security for unacceptable tenders shall be returned after approval of the evaluation report.
* After approval of the evaluation report, the bid security of other evaluated acceptable bidders, except the security of the 1st, 2nd, and 3rd lowest evaluated acceptable tenderers, may be refunded on their application.
* Tender security for remaining tenders shall be refunded only after the signature of a contract with the tenderer on the lowest evaluated acceptable tender.

However, no tender security shall be returned to the tenderer by the Tender Opening Committee after the opening of the tender, and in all cases, the tender security shall be returned before the expiry of the validity period. This refund will be handled by the respective buyer.

When to forfeit the tender security.

As per Rule 25(1) of PPR-2008, the tender security shall be forfeited for the following reasons:
If the tenderer
1. withdraw the tender within the validity period of the tender security after opening the tender;
2. Refused to accept notice of execution of contract
3. Failure to pay the performance bond, as applicable
4. refuses to perform the contract, or
5. Refuses to accept the correction of the tender price on account of the correction of any mathematical error under Rule 98(11).

Tender Security Calculator

Official Cost Estimate:
Percent of Amount (not more than 3%):

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Calculating liquid assets

Calculating liquid assets is not so simple. Before calculating liquid assets, we must first define liquid assets. In the description below, I go into detail about liquid assets.

Topic Overview

Define liquid asset:
Why do procuring entities require bidders to have liquid assets?
liquid asset Formula
Assets that can be considered liquid assets
Calculating liquid assets with example
Liquid assets calculator

Define liquid asset:

A liquid asset is an asset that can be easily converted into cash or sold on the open market with minimal impact on its value. In other words, a liquid asset is an asset that can be quickly and easily exchanged for cash without a significant loss in value.

Examples of liquid assets include cash, government bonds, stocks, and money market instruments. These assets are generally considered to be more stable and less risky than illiquid assets, such as real estate or certain types of collectibles, which may take a long time to sell and may lose value in the process.

Having a portfolio that includes a mix of liquid assets and illiquid assets is important for diversification and risk management. Liquidity is an important consideration for investors who may need access to their funds quickly in the event of an emergency or unexpected expense.

Why do procuring entities require bidders to have liquid assets?

Procuring entities may require bidders to have liquid assets for a variety of reasons, including:

Financial Stability: Procuring entities want to ensure that the bidder has the financial stability to complete the project or provide the goods or services they are bidding on. Liquid assets provide an indication of the bidder’s ability to meet their financial obligations and complete the project without defaulting on their contract.

Performance Security: Liquid assets can be used as performance security to ensure that the bidder is able to complete the project or provide the goods or services as promised. If the bidder fails to perform, the procuring entity can use the liquid assets to cover the costs of finding a replacement bidder.

Cash Flow Management: Liquid assets are an indication that the bidder has the adequate cash flow to manage their operations and meet their financial obligations, including paying their suppliers and subcontractors.

Project Financing: Liquid assets may be required by lenders as collateral to secure project financing. The procuring entity may require bidders to have a certain amount of liquid assets to ensure that they can obtain the necessary financing to complete the project.

Overall, requiring bidders to have liquid assets provides a level of assurance to the procuring entity that the bidder is financially stable, has the resources to complete the project or provide the goods or services as promised, and can manage their cash flow effectively.

Assets that can be considered liquid assets:

Certificates of Deposit, cash, government bonds, promissory notes, accounts receivable, bills receivable, and stocks can be considered liquid assets.

Calculating liquid assets with an example:

A tenderer should have liquid assets that have the capacity to operate for a minimum of 2–6 months.

We know,

Liquid Asset = (Contract Price / Contract Time) X T

[ T = (Assuming work time + Invoice Period + Certification Time + Contingency Time]

Example:

Suppose a contract’s value is 240 million and the contract period is 18 months. And required time for assuming work time: 1 month, invoice period: 0.5 month, certification time: 0.5 month, and contingency time: 1 month. Then find out the liquid asset of this contract.

First, we have to calculate T

We know T= (Assuming work time + Invoice Period + Certification Time + Contingency Time)

Assuming work time: 1 month
Invoice period: 0.5 month
Certification Time: 0.5 month
Contingency Time: 1 month

—————————————————–
T = 3 months

We know,

Liquid Asset = (Contract Price / Contract Time) X T

Minimum required liquid asset = (240 million÷18 month) * 3 month

= (240÷18) * 3 = 40 million

i.e. BDT 40 Million based on 3-months cash flow

Liquid Asset Calculator

Enter your total assets and liabilities below to calculate your liquid assets:

Contract Price:

Contract Time:

Assuming work time :

Invoice time :

Certification Time :

Contingency Time :

Calculate

liquid assets is determine :

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Turnover Calculation

Before doing a turnover calculation, we must first understand what turnover is and where it is required.

Turnover Definition:

Turnover can have different meanings depending on the context, but in general, it refers to the rate at which something changes or is replaced over a period of time. Here are some common definitions of turnover:

Employee turnover: The rate at which employees leave a company and are replaced by new ones. This is usually expressed as a percentage of the total number of employees.

Sales turnover: The total value of goods or services sold by a company during a specific period of time, usually a year.

Inventory turnover: The number of times a company sells and replaces its inventory within a certain period of time, such as a month or a year.

Asset turnover: The efficiency with which a company uses its assets to generate revenue. This is usually calculated by dividing the company’s revenue by its total assets.

Tenant turnover: The rate at which tenants move in and out of a rental property. This is usually expressed as a percentage of the total number of units in the property.

Customer turnover: The rate at which customers stop doing business with a company and are replaced by new ones. This is often used in subscription-based businesses, where customer retention is a key metric.

Website turnover: The rate at which visitors to a website leave without taking any action, such as clicking a link or making a purchase. This is also known as bounce rate and is often used to measure the effectiveness of a website’s design and content.

Time turnover: The rate at which time is used up or passes. This can be used in manufacturing or service industries to measure the amount of time it takes to complete a task or serve a customer.

Capital turnover: The rate at which a company uses its invested capital to generate revenue. This is often used to measure the efficiency of a company’s investment strategy.

Cash turnover: The rate at which cash flows in and out of a company. This is often used to measure the liquidity and financial health of a company.

Debt turnover: The rate at which a company pays off its debts or borrows new funds. This is often used to measure the financial risk of a company.

Investment turnover: The rate at which a company buys and sells investments, such as stocks, bonds, or real estate. This is often used to measure the effectiveness of a company’s investment strategy.

Patient turnover: The rate at which patients are admitted and discharged from a hospital or healthcare facility. This is often used to measure the efficiency of the facility’s operations and the quality of care provided.

Subscriber turnover: The rate at which subscribers cancel their subscription to a service or product. This is often used in the subscription-based business model to measure the effectiveness of the company’s product or service and its customer retention strategy.

Asset turnover ratio: The ratio of a company’s revenue to its average total assets. This is often used to measure how efficiently a company is using its assets to generate revenue.

Vendor turnover: The rate at which a company replaces its vendors or suppliers. This is often used to measure the quality of the vendor relationship and the effectiveness of a company’s procurement process.

Inventory turnover ratio: The ratio of a company’s cost of goods sold to its average inventory. This is often used to measure how efficiently a company is managing its inventory and how quickly it is selling its products.

Student turnover: The rate at which students leave a school or educational institution and are replaced by new ones. This is often used to measure the quality of the school’s education and the effectiveness of its student retention strategies.

Call turnover: The rate at which calls are answered or transferred in a call center or customer service department. This is often used to measure the efficiency of the call center’s operations and the quality of customer service provided.

Now we will discuss the financial turnover of a company. Based on the financial capacity of a company, the amount of money a person or a company receives from the supply of goods or services at a particular time is its turnover for that period.

Why turnover needs to know:

Turnover can be important for several reasons:

Performance evaluation: Turnover can be used to evaluate the performance of a company or organization. By comparing turnover data over time, businesses can identify areas of weakness and implement strategies to improve performance.

Financial analysis: Turnover can provide insights into a company’s financial health and efficiency. By tracking different types of turnover, such as revenue turnover and asset turnover, businesses can identify opportunities to improve profitability and reduce costs.

Strategic decision-making: Turnover data can inform strategic decision-making, such as expanding into new markets, launching new products, or changing pricing strategies. By understanding turnover trends and patterns, businesses can make informed decisions that are more likely to lead to success.

Human resources management: Turnover can be used to evaluate the effectiveness of a company’s human resources management practices. By tracking employee turnover rates, businesses can identify issues such as high turnover in certain departments or a lack of employee engagement, and take steps to address them.

Industry benchmarking: Turnover data can be used to compare a company’s performance to that of its competitors or industry standards. By benchmarking turnover against similar companies or industry averages, businesses can identify areas where they are lagging behind and take steps to improve.

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How to calculate turnover:

Turnover = Estimated Annual Cash Flow * 1.5

[Estimated Annual Cash Flow = Estimated Contract Value/ Contract period]

Turnover Calculation:

Example-1:

Suppose Estimated Contract Value: 240 M(BDT)

and Contract period: 18 months (1.5 years)

We know, Estimated Annual Cash Flow = Estimated Contract Value/ Contract period

So, Estimated Annual Cash Flow: 240÷1.5= 160M (BDT)

Turnover = Estimated Annual Cash Flow * 1.5

= 160 ×1.5 = 240 M (BDT)

Example-2:

Suppose Estimated Contract Value: 400 M(BDT)

and Contract period: 48 months (4 years)

We know, Estimated Annual Cash Flow = Estimated Contract Value/ Contract period

So, Estimated Annual Cash Flow: 400 ÷ 4= 100M (BDT)

Turnover = Estimated Annual Cash Flow * 1.5

= 100 ×1.5 = 150 M (BDT)

Turnover Sample Certificate formate:

Turnover Calculator

Estimated Contract Value:

Contract Period(month):

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Definition and formulation of the procurement plan

In project management, procurement is a crucial issue. We shall therefore go over the definition and formulation of the procurement plan for knowledge sharing below.

Topic Overview

* Define the procurement plan
* Does the procurement plan relate to project management? If yes, how?
* We need a procurement plan, but Why?
* What do I need to consider when creating a procurement plan?
* Define the annual procurement plan and total procurement plan
* Difference between the total procurement plan and the annual procurement plan
* Standard template for a procurement plan?
* Based on PPR-2008, explain the procurement plan
-Procurement plan and procurement method selection
-Formulation of the procurement plan
-Splitting a single work into multiple packages
-How to upload the annual procurement plan in e-GP
-Preparation of APP in e-GP

Define the procurement plan:

A procurement plan is a comprehensive document that outlines the process and strategies an organization will use to acquire goods, services, or works from external suppliers. It is typically created by the procurement department or team and serves as a roadmap for the procurement process, guiding it from start to finish. The procurement plan includes information such as the procurement objectives, timeline, estimated budget, procurement methods, risk management strategies, and the criteria used for supplier selection.

The procurement plan helps an organization to ensure that procurement is conducted efficiently and effectively, with appropriate consideration of factors such as quality, cost, delivery, and supplier relationship management. It also helps to ensure compliance with legal, regulatory, and ethical requirements, such as those related to competitive bidding and anti-corruption policies.

A well-designed procurement plan is an essential tool for ensuring that the organization obtains the goods, services, or works it needs to achieve its goals while minimizing risks and maximizing value for money.

Does the procurement plan relate to project management? If yes, how?

the procurement plan is closely related to project management. In fact, the procurement plan is an integral part of the project management plan, which is the document that guides the overall management of a project.

The procurement plan is essential for project managers because it helps to ensure that the project team has the resources they need to complete the project successfully. This includes materials, equipment, and services that are required for the project.

The procurement plan includes information such as the procurement objectives, timeline, estimated budget, and procurement methods, which are all critical components of project planning. The procurement plan provides a framework for project managers to ensure that procurement activities are aligned with the overall project objectives and timeline.

In addition, the procurement plan helps project managers to identify and manage risks associated with procurement activities. By having a clear understanding of the procurement process, project managers can identify potential risks and develop strategies to mitigate them.

Overall, the procurement plan is an essential tool for project managers to ensure that procurement activities are effectively managed and that the project team has the resources they need to complete the project successfully.

We need a procurement plan, but Why?

There are several reasons why a procurement plan is essential for organizations. The common reason why we need a procurement plan:

Improved Resource Management: The procurement plan helps an organization to identify the resources they need to acquire to achieve their goals. By having a clear understanding of the procurement requirements, the organization can ensure that they have the necessary resources at the right time and at the best possible cost.

Risk Management: Procurement activities carry inherent risks, such as supplier default, quality issues, and project delays. The procurement plan helps an organization to identify these risks and develop strategies to mitigate them. By having a clear plan for procurement, an organization can reduce the likelihood of risks materializing and mitigate their impact if they do occur.

Cost Savings: Procurement can be a significant cost driver for an organization. By having a clear procurement plan, an organization can identify cost savings opportunities and develop strategies to achieve them. For example, by bundling purchases, negotiating volume discounts, or exploring alternative suppliers.

Compliance with Regulations: Procurement activities are subject to a wide range of regulations and guidelines, such as anti-corruption laws, ethical sourcing, and competitive bidding requirements. A procurement plan helps an organization ensure that its procurement activities are compliant with these regulations.

Improved Supplier Relationship Management: The procurement plan helps an organization develop a structured approach to managing its relationships with suppliers. By having a clear understanding of their procurement requirements and strategy, an organization can build stronger, more productive relationships with suppliers, which can lead to better quality, improved delivery times, and reduced costs.

Transparency and Accountability: The procurement plan ensures that the procurement process is transparent and accountable. By having a clear procurement plan, an organization can demonstrate to stakeholders that they are conducting procurement activities in an open and fair manner.

Alignment with Organizational Strategy: The procurement plan helps to ensure that procurement activities are aligned with the overall goals and objectives of the organization. By having a clear understanding of the organization’s strategic priorities, the procurement plan can be developed to support those priorities.

Better Decision-Making: The procurement plan provides decision-makers with the information they need to make informed decisions about procurement activities. By having a clear understanding of procurement requirements, costs, risks, and supplier options, decision-makers can make better decisions that lead to better outcomes.

Improved Communication: The procurement plan provides a framework for communication between stakeholders involved in the procurement process. By having a clear plan, stakeholders can communicate more effectively, reducing misunderstandings and ensuring that everyone is working towards the same goals.

What do I need to consider when creating a procurement plan?

Creating a procurement plan involves a detailed process that involves several steps to ensure that you obtain the best goods, works, or services at the best value. Here are some things to consider when creating a procurement plan:

Identify your procurement needs: Start by identifying what goods or services you need to procure. Create a list of all the items you require and the quantity needed.

Set a budget: Determine how much you are willing to spend on each item and set a budget for your overall procurement process. This will help you to identify any constraints that may affect your procurement plan.

Determine your procurement method: There are several procurement methods, including competitive bidding, direct contracting, and sole sourcing. Choose a procurement method that aligns with your organizational policies and procedures.

Identify potential suppliers: Research potential suppliers and their capabilities. Evaluate their reputation, experience, and track record. This will help you to select a supplier that can deliver the goods or services you require.

Develop a procurement schedule: Create a timeline that outlines the procurement process, from identifying the need to the delivery of the goods or services.

Determine evaluation criteria: Establish evaluation criteria that you will use to assess potential suppliers. These may include factors such as price, quality, delivery time, and past performance.

Develop a contract: Once you have selected a supplier, develop a contract that outlines the terms and conditions of the agreement.

Monitor and evaluate performance: After the procurement process is complete, monitor and evaluate supplier performance to ensure that they meet the terms of the contract.

Define the annual procurement plan and total procurement plan:

An annual procurement plan and a total procurement plan are both planning documents used to guide procurement activities. Here are their definitions:

Annual procurement plan: An annual procurement plan is a planning document that outlines the goods and services that an organization plans to procure during a specific fiscal year. It includes details such as the estimated quantities of goods or services, the expected delivery timelines, and the procurement methods to be used. The annual procurement plan also sets out the budget for procurement activities, ensuring that the organization allocates resources appropriately.

Total procurement plan: A total procurement plan is a planning document that outlines the goods and services that an organization intends to procure over a longer period, such as three to five years. It includes details on the expected quantities of goods or services, the expected delivery timelines, and the procurement methods to be used. The total procurement plan also sets out the budget for the procurement activities, providing an overview of the organization’s procurement needs over the specified time frame.

Difference between the total procurement plan and the annual procurement plan:

The main difference between a total procurement plan and an annual procurement plan is the time frame they cover.

A total procurement plan is a comprehensive plan that covers the procurement needs for a project or an organization for a longer period, such as 3-5 years. It outlines all the procurement needs, including goods and services, and the procurement methods to be used over the specified time frame. A total procurement plan provides a big-picture view of procurement needs, allowing the organization to plan its resources and budget accordingly.

On the other hand, an annual procurement plan covers the procurement needs for a specific year. It outlines the goods and services needed, the procurement methods to be used, and the budget allocated for procurement activities for the upcoming year. An annual procurement plan is more detailed and specific, and it allows for more flexibility to adapt to any changes that may occur during the year.

In summary, the main difference between the total procurement plan and the annual procurement plan is the duration they cover. A total procurement plan covers the procurement needs for a longer period, while an annual procurement plan covers the procurement needs for a specific year.

Standard template for a procurement plan?

Here is an example of a table format for a procurement plan:

This table format provides a quick overview of the items to be procured, including their description, quantity, delivery timeline, procurement method, and budget. It is a useful tool for tracking procurement activities and ensuring that the project stays within budget and timeline constraints. The table can be customized to suit the specific needs of your procurement plan.

Based on PPR-2008, explain the procurement plan:

Now we discuss the procurement plan based on Bangladeshi public procurement rules (2008).

Procurement plan and procurement method selection:

In the case of splitting a single work into multiple packages, the purchaser shall, prior to formulating any procurement plan, carefully review the proposed procurement and the procurement subject, take into account the characteristics and quantities of the procurement and decide on the division into packages and the procurement method to be applied.

The procuring entity shall consider the following factors in determining the procurement procedure and assembling the product package:

(a) type of goods to be purchased;

(b) the estimated cost approved by the Head of the Procuring Entity (HOPE) or any other officer authorized by HOPE;

(d) the quality, source, and brand of the respective products available in the local market;

(e) the price of the designated product;

(f) the ability of local suppliers to supply the required quantity of goods;

(g) the capacity of the national industrial establishments concerned and the quality of products produced;

(h) market conditions and expected competition;

(j) urgent need for purchase;

(j) the storage capacity of the consignee and the terms and schedule of the proposed supply; and

(k) Supply risks in local and international markets

The procuring entity may decide to use framework contracts for the supply of such goods on a recurring basis and may invite lot or item-wise tenders if it is convenient.

The procuring entity shall exercise due care in preparing the package and shall not include too many items in one package to ensure that the number of potential suppliers is not reduced.

If there is an intention to encourage the participation of manufacturers in the tendering process, item-based tenders may be invited for specific types of supplies (ex: health sector products).

The procuring entity shall, in the case of work, consider the following factors in determining the purchase procedure

(a) Estimated expenditure approved by the head of the procuring entity

(b) the existing state of the contracting sector;

(d) expected competition;

(e) geographical location;

(f) A tentative date of completion of work;

(g) Other relevant matters

Formulation of the procurement plan:

The procurement plan shall include, irrespective of price or method, all intended items or items to be procured, namely, goods and related services, works, physical services, and intellectual and professional services, in a class-wise arrangement.

Procurement plans shall be prepared separately for development projects or programs and revenue budgets.

In the case of procurement under a development project or program, the purchaser shall prepare an overall procurement plan for the entire duration of the project, which shall be attached to the development project proposal (DPP) or technical assistance project (TPP).

The procuring entity shall, at the beginning of each financial year, update the overall procurement plan and cost estimate of any development project or program on an annual basis and reasonably, taking into account, among other things, the expected flow of funds.

The official cost estimate of any specific purchase is prepared by a committee consisting of three members, including representatives of the procuring entity and other procuring entities under the government, regardless of the development or revenue budget, before finalizing the document containing the request for submission of a tender or proposal or before calling for a tender or proposal. While preparing official estimates, transport cost, overhead, profit, risk, geographical location, complexity, backwardness, distance from district headquarters or place of purchase, as applicable, value added tax (VAT) and advance income tax (AIT), etc. are incidental.

The procuring entity shall, at the beginning of each financial year, formulate an annual purchase plan for purchases under the revenue budget.

At the beginning of every financial year, the department posts the approved total procurement plan and updated annual procurement plan for the procurement, development projects or programs, and the approved annual procurement plan for the revenue budget on its notice board and, where applicable, on its website and on the websites of the concerned department or agency in a bulletin or will arrange publication in the report.

Splitting a single work into multiple packages:

The procuring entity shall not divide any part of a project or program into multiple packages of lower value when formulating its procurement plan. No package approved in the total procurement plan shall normally be divided into more than five lots.

The procuring entity shall consider the following factors while subdividing a single work into multiple packages or a package into multiple smaller lots:

(a) Capacity of local and international markets in submitting responsive tenders for recommended-size packages or lots; and

(b) In the case of prospective work contracts, the convenience of their execution having regard to the geographical location of the place designated for the said work

The head of the procuring entity or any officer duly authorized shall, subject to due cause, authorize sub-division into smaller packages or lots.

How to upload the annual procurement plan in e-GP:

This topic is only for the procuring entity under the Bangladeshi government. If the general contractor knows about the annual procurement plan, it can be beneficial for him. Because he will be one step ahead of others.

The procuring entity must have uploaded his procurement plan package by package to the e-GP system and finally consolidated all of the packages under one procuring plan. The e-GP system gives the opportunity to upload only an annual procurement plan. From the very beginning of the year, the procuring entity must upload an approved annual procurement plan to the e-GP system. Now we are discussing how to upload the annual procurement plan to the e-GP system.

At first, the procuring entity needs a user ID and password to enter the e-GP system. So, the procuring entity must collect the user ID and password from the organization’s admin before logging in to the e-GP system.
Before uploading the annual procurement plan, we have to include the project or program. Most of the procurement plan is under any project, and sometimes projects exist under programs. The project or program inclusion power belongs only to the organization’s administrator. So, if your procurement plan is under any project, you have to make sure that the project name is available inside the e-GP before inserting the annual procurement plan. But if your procurement is under the revenue budget, which is not under any project, it is not required to insert an app under any project.
Always keep in mind what information is required for the annual procurement plan to be entered into the e-GP system.

Preparation of APP in e-GP:

Total 3 steps to prepare APP (Annual Procurement Plan) in e-GP:

– Create APP: Basic data

– Add Package Details: Package information

– Add Package Dates: Date information

Step 1: Basic Data:

To prepare the APP, first, click on Create APP from the APP menu of the Dashboard. Then ‘submit’ with the following information, note that if any mistake is made on this page, it cannot be corrected –

– Type of Budget: Development Budget/Revenue Budget/Own Fund – Select any one,

– Development Budget: The development budget is the amount of money that the government plans to spend in the development sector for a financial year. Contact the project office to know the budget type for your project.

-Revenue Budget: The plan to spend the money of government for a fiscal year is called revenue budget.

– Financial Year: Generally here mentioning the current financial year,

– Select Project: Project must be selected from the list, there will be no project in the case of Revenue Budget. If the project is not available, contact the Organization Admin.

– APP Code: A unique code number should be used, eg Ministry/dept/PE/15-16/001

2nd Step: Package Data:

In the 2nd step of APP preparation, after filling in the following information, ‘submit’ –

– Select any one of Procurement Nature: Goods/Works/Services,

– Type of Emergency: Normal/Urgent/National Disaster Select any one, but usually it will be Normal,

– Package No.: To be collected from Project Office or concerned DPP, but in case of e-GP it should be Unique,

– Package Description: The job name must be used,

– Package Estimate Cost: Estimated cost to complete the plan if approved,

– Category: Type of work must be selected, nothing can be typed in the box, Category must be selected from the ‘select’ option, multiple options can be selected,

– Approving Authority: The approving authority i.e. who will approve the tender of the work must select the procurement role,

– PQ Requires: Select ‘yes’ if Pre-qualification is applicable,

– Procurement Type: Select NCT (National Competitive Tender) or ICT (International Competitive Tender).

– Procurement Method: Select anyone from OTM/LTM/RFQ etc., but the most preferred method is Open Tender Method (OTM – Open Tender Method).

Step 3: Date Information:

In the 3rd step of APP preparation, the number of days that each stage of the tender may take should be written, each time should be calculated from the time of the previous stage –

– Tender publication date: When the tender will be published in newspaper/e-GP,

– Closing date: How many days will be the deadline for submitting the tender

– Opening date: after how many days the submitted tenders will be opened

– Contract signing date: Last time to conclude the contract with the tenderer whose tender has been accepted,

– Contact completion date: after how many days the contracted work will be completed

App Authorization:

After preparation of APP to be forwarded to HOPE for approval as per rule 16(7) of PPR-08. For this, the following steps should be followed –

– Workflow prepared by PE

– file along HOPE

– Process file: to be submitted with comments,

– Endorsed by HOPE

To publish the APP:

Mandatory disclosure after approval by APP HOPE [Rule 16(11) of PPR-08] –

– The respective Purchaser (PE) will publish the APP,

– Tender document cannot be prepared without APP Publish,

– Publish option will be available after the app is approved. By clicking on the Publish option and adding comments and submitting, the APP will be published online.

– After the APP is published, anyone can see it by searching from the e-GP website.

# Note that before uploading the annual procurement plan to e-GP, the user should complete the following table:

The following steps should be followed during the upload of the annual procurement plan in the e-GP:

Template for package-wise procurement plan:

Ministry :
Division :	–
Organization :
PE Office and Code :
Budget Type :		Project Name :

Top of Form

Key Fields Information:

APP ID :

APP Code :

Financial Year :

Budget Type :

Project Name :

Procuring Entity :

District :

Package Details:

Procurement Nature

Type of Emergency

Package No

Package Description

Lot Details:

Lot No.	Lot Description	Qty	Unit	Estimated Cost (In BDT)
		1.00

Package Estimated Cost (In BDT)

Category

Approving Authority

PQ Requires

Procurement Method

Procurement Type

Package Type

Source of Fund

Development Partners

–

Tender Dates:

Expected Date of Advertisement of Tender on e-GP website

Expected Date of submission of Tender

Expected Date of Opening of Tender

Expected Date of Submission of Evaluation Report

Expected Date of Approval for Award of Contract

Expected Date of Issuance of the NOA

Expected Date of Signing of Contract

Expected Date of Completion of Contract

Total Time to Contract Signing

Bottom of Form

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Explain Franchise Agreements for Restaurants

Before knowing about franchise agreements for restaurants, we have to know what a franchise agreement is. Actually, a franchise agreement is a contract between two parties: the franchisor (the owner of a business model) and the franchisee (the person or entity that wants to use the franchisor’s business model).

Explain Franchise agreements for restaurants: A franchise agreements for restaurant is a legal contract that outlines the terms and conditions under which a franchisor (the owner of the brand) grants a franchisee (the owner of an individual restaurant) the right to use the franchisor’s trademark, business model, and other proprietary information in exchange for certain fees and royalties.

The franchise agreement typically covers a wide range of topics, including but not limited to Branding and intellectual property: The franchisor grants the franchisee the right to use the franchisor’s name, logo, trademarks, and other intellectual property.

Operational requirements: The franchise agreement will specify the operational requirements that the franchisee must follow in order to maintain the brand standards, such as menu items, pricing, store design, and customer service.

Training and support: The franchisor will typically provide initial and ongoing training and support to the franchisee and their employees to ensure they follow the operational requirements and maintain the quality of the brand.

Fees and royalties: The franchisee will typically pay an upfront franchise fee to the franchisor, as well as ongoing royalties based on a percentage of sales.

Territory: The franchise agreement will specify the geographic territory in which the franchisee is allowed to operate.

Term and renewal: The franchise agreement will specify the length of the initial term of the agreement and the conditions for renewal.

Termination: The franchise agreement will specify the conditions under which either party can terminate the agreement, such as breach of contract or failure to meet brand standards.

Overall, a franchise agreement for a restaurant allows the franchisee to benefit from the franchisor’s established brand and business model, while also providing the franchisor with a revenue stream from the franchisee’s sales.

Example of a franchise agreement for restaurants: Let’s say that “ABC Burgers” is a well-known fast food restaurant chain that has been in business for many years. They decide to expand their brand by offering franchise opportunities to entrepreneurs who are interested in opening their own “ABC Burgers” restaurants.

To become a franchisee of “ABC Burgers,” the entrepreneur must sign a franchise agreement that outlines the terms and conditions of the relationship between the franchisor and the franchisee. Here are some of the key terms that might be included in the agreement:

By signing the franchise agreement, the entrepreneur gains the right to use the “ABC Burgers” brand and business model in their own restaurant

Yearly Franchise Fee Amortization: You can remunerate your franchise fee on a yearly/monthly basis. It depends on how you perform your negotiation during the contract. Before you fix it, you must determine the correct amount to deduct. You calculate your yearly payment by dividing the total franchise fee by its useful life.

For example, your $60,000 franchise fee has a useful life of 10 years. Calculate the yearly amortization amount by dividing $60,000 by 10 years, or $6,000 per year. To record the amortization at the end of your accounting year, debit your Franchise Fee Amortization account for $6,000 and credit your Franchise account by $6,000.

LD imposes when the franchisee fails to meet the operational requirements:

When a franchisee fails to meet the operational requirements specified in their franchise agreement, the franchisor may impose liquidated damages as a way of compensating for the harm caused by the franchisee’s breach.

Liquidated damages are typically pre-determined in the franchise agreement and are intended to represent a reasonable estimate of the damages that the franchisor will suffer as a result of the franchisee’s breach.

To impose liquidated damages, the franchisor must first establish that the franchisee has failed to meet the operational requirements as specified in the franchise contract. This may involve a review of the franchisee’s performance records, financial statements, or other relevant documentation.

Once the franchisor has established that the franchisee has breached the agreement, they can then take steps to impose liquidated damages as specified in the agreement. This may involve notifying the franchisee of the breach and providing them with an opportunity to cure the breach within a specified timeframe. If the franchisee fails to cure the breach, the franchisor may then impose liquidated damages as specified in the agreement.

Liquidated damages (LD) calculation: The formula for calculating LD in a franchise agreement will depend on the specific terms of the agreement. However, there are a few common methods used to calculate LD in franchise agreements, including:

Percentage of Gross Revenue: This is a common method used in franchise agreements, where the franchisee will be required to pay a certain percentage of their gross revenue as LD. For example, the franchise agreement might state that if the franchisee fails to meet certain operational requirements, they will be liable to pay liquidated damages equal to 5% of their gross revenue for the previous year.

Suppose the previous year’s gross revenue was $20,000,000. Then liquidated damages should be

LD = ($20,00,000 * 5/100),

= $100000

Fixed Amount: The Franchise agreements for restaurants might specify a fixed amount that the franchisee will be required to pay as LD if they fail to meet certain operational requirements. For example, the franchise agreement might state that if the franchisee fails to maintain a certain level of cleanliness in their store, they will be required to pay $1,0000 as LD.

Flat Rate: The franchise agreement might specify a flat rate that the franchisee will be required to pay as LD for each day or week that they are in breach of the agreement. For example, the franchise agreement might state that if the franchisee fails to pay royalties on time, they will be required to pay $100 per day as LD until the payment is made. Basically, LD imposes as per the contract document.

Liquidated Damages in Contracts

Liquidated damages in contracts are very important for contract management. Because during the contract execution, liquidated damages may be imposed on the contractor several times as per the agreement. So for better knowing let’s discuss:

Liquidated Damages definition:

Liquidated and ascertained damages (LADs) are called liquidated damages. LADs are damages whose amount the parties designate during the formation of a contract for the looser party to collect as compensation upon a specific breach (e.g., late performance or delayed delivery).

In the context of Bangladesh’s procurement process, liquidated damages are sometimes known as delay damages. Liquidated damages refer to a specific type of contractual provision in which parties agree in advance to the amount of damages that will be paid if a specified breach of contract occurs.

In other words, liquidated damages are a predetermined amount of money that must be paid by one party to the other if the first party fails to perform a specific duty or obligation as outlined in the contract.

The purpose of liquidated damages is to provide a measure of predictability and certainty for both parties in the event of a breach. By agreeing to a specific amount of damages in advance, parties can avoid the time, expense, and uncertainty of litigation to determine the amount of damages caused by the breach.

It’s worth noting that liquidated damages must be a reasonable estimate of the damages that would be incurred in the event of a breach. If the amount is considered excessive or punitive, it may be considered an unenforceable penalty rather than liquidated damages.

Types of Liquidated Damages:

There are several types of liquidated damages that can be included in a contract. These include:

Delayed performance: Liquidated damages can be included in a contract as a way to compensate the non-breaching party if one party fails to perform a contractual obligation within a specified timeframe. For example, if a contractor fails to complete a construction project by the agreed-upon deadline, the contract may specify a certain amount of liquidated damages that the contractor must pay to the other party for each day of delay.

Breach of contract: Liquidated damages can also be used to compensate the non-breaching party in the event of a breach of contract. For example, if one party fails to deliver goods as agreed upon in the contract, the contract may specify a certain amount of liquidated damages that the breaching party must pay to the non-breaching party as compensation for the breach.

Non-compete agreements: Liquidated damages can also be included in non-compete agreements as a way to discourage the employee from competing with the employer after leaving the company. The liquidated damages clause specifies the amount of damages that the employee will be required to pay if they breach the non-compete agreement by working for a competitor.

Confidentiality breaches: Liquidated damages can be used to compensate the non-breaching party in the event of a breach of confidentiality. For example, if an employee discloses confidential information to a third party, the contract may specify a certain amount of liquidated damages that the employee must pay to the employer as compensation for the breach.

Contract Termination: Liquidated damages can be included in a contract as a way to compensate the non-breaching party if one party terminates the contract early without a valid reason. For example, if a tenant terminates a lease agreement before the end of the lease term, the contract may specify a certain amount of liquidated damages that the tenant must pay to the landlord as compensation for the early termination.

Intellectual property infringement: Liquidated damages can be used to compensate the owner of intellectual property in the event of an infringement. For example, if a third party uses a trademark owned by another party without permission, the contract may specify a certain amount of liquidated damages that the infringing party must pay to the trademark owner as compensation for the infringement.

Loan defaults: Liquidated damages can be included in loan agreements as a way to compensate the lender if the borrower defaults on the loan. For example, if a borrower fails to make loan payments on time, the contract may specify a certain amount of liquidated damages that the borrower must pay to the lender as compensation for the default.

Product warranties: Liquidated damages can be used to compensate the buyer in the event that a product fails to meet the warranty standards specified in the contract. For example, if a product fails to meet the specified quality standards, the contract may specify a certain amount of liquidated damages that the seller must pay to the buyer as compensation for the failure to meet the warranty standards.

Environmental damages: Liquidated damages can be used to compensate the non-breaching party for environmental damages caused by the breaching party. For example, if a company causes pollution or contamination on a property owned by another party, the contract may specify a certain amount of liquidated damages that the company must pay to the property owner as compensation for the environmental damage.

Employment agreements: Liquidated damages can be included in employment agreements as a way to compensate the employer if an employee breaches a restrictive covenant or confidentiality agreement. For example, if an employee leaves the company and takes trade secrets or confidential information with them, the contract may specify a certain amount of liquidated damages that the employee must pay to the employer as compensation for the breach.

Patent infringement: Liquidated damages can be used to compensate the owner of a patent in the event of an infringement. For example, if a third party uses a patented invention without permission, the contract may specify a certain amount of liquidated damages that the infringing party must pay to the patent owner as compensation for the infringement.

Late delivery: Liquidated damages can be used to compensate the buyer if the seller fails to deliver goods or services on time. For example, if a supplier fails to deliver goods on time, the contract may specify a certain amount of liquidated damages that the supplier must pay to the buyer as compensation for the delay.

Non-compete agreements: Liquidated damages can be included in non-compete agreements as a way to compensate the employer if an employee breaches the agreement by working for a competitor. For example, if an employee violates a non-compete agreement by working for a competitor, the contract may specify a certain amount of liquidated damages that the employee must pay to the employer as compensation for the breach.

Sales contracts: Liquidated damages can be included in sales contracts as a way to compensate the buyer if the seller breaches the contract. For example, if a seller fails to deliver goods that meet the agreed-upon quality standards, the contract may specify a certain amount of liquidated damages that the seller must pay to the buyer as compensation for the breach.

Software license agreements: Liquidated damages can be used to compensate the owner of a software license in the event of a breach. For example, if a third party uses licensed software without permission, the contract may specify a certain amount of liquidated damages that the infringing party must pay to the software license owner as compensation for the infringement.

Real estate transactions: Liquidated damages can be included in real estate contracts as a way to compensate the buyer or seller if the other party breaches the contract. For example, if a buyer fails to close on a real estate transaction, the contract may specify a certain amount of liquidated damages that the buyer must pay to the seller as compensation for the breach.

Service contracts: Liquidated damages can be included in service contracts as a way to compensate the customer if the service provider breaches the contract. For example, if a service provider fails to meet the agreed-upon service levels, the contract may specify a certain amount of liquidated damages that the service provider must pay to the customer as compensation for the breach.

Supply contracts: Liquidated damages can be included in supply contracts as a way to compensate the buyer if the supplier breaches the contract. For example, if a supplier fails to deliver the agreed-upon quantity of goods, the contract may specify a certain amount of liquidated damages that the supplier must pay to the buyer as compensation for the breach.

Franchise contracts: Liquidated damages can be included in franchise agreements as a way to compensate the franchisor if the franchisee breaches the agreement. For example, if a franchisee violates the terms of the franchise agreement, the contract may specify a certain amount of liquidated damages that the franchisee must pay to the franchisor as compensation for the breach. know more?

Construction contracts: Liquidated damages can be included in construction contracts as a way to compensate the owner if the contractor fails to complete the project on time. For example, if a contractor fails to complete a construction project by the agreed-upon deadline, the contract may specify a certain amount of liquidated damages that the contractor must pay to the owner as compensation for the delay.

Employment contracts: Liquidated damages can be included in employment contracts as a way to compensate the employer if the employee breaches the contract. For example, if an employee breaches a non-solicitation agreement by soliciting clients or employees after leaving the company, the contract may specify a certain amount of liquidated damages that the employee must pay to the employer as compensation for the breach.

Non-payment: Liquidated damages can be used to compensate a party if the other party fails to make a payment as required by the contract. For example, if a customer fails to pay an invoice on time, the contract may specify a certain amount of liquidated damages that the customer must pay to the vendor as compensation for the late payment.

Liquidated damages explanation based on Standard Tender Document (STD)

The Standard Tender Document, which is used in Bangladeshi procurement, was developed by the Bangladesh government. During the development of this document, the main idea was taken from the Word Bank tender document.

Based on the STD, except as provided under GCC (General Condition of Contract) Subclause 37, If the supplier or contractor fails to complete the delivery of goods or products and related services within the time specified in the contract document, the procuring agency can impose liquidated damages or delay damages that are deducted from the contract price. The deducted amount is a sum at the percent rate per day of delay, where mentioned in the PCC, of the contract value of the undelivered good or product and related services. The total amount of liquidated damages or delay damages shall not exceed the amount specified in the PCC. The procuring agency may cut off money as liquidated damages from payments due to the supplier or contractor. Payment of liquidated damages shall not affect the suppliers’ liabilities.

When you apply LD to the contractor, you have to know about the following:

Notice of Force Majeure: As per GCC (General Condition of Contract) Sub Clause 37 of the standard tender document: The supplier shall not be liable for any delay in performance or failure to perform contractual obligations due to force majeure (like earthquake, natural disaster, or a pestilence that is declared by the government) and shall not forfeit his security, pay compensation for the delay, or cancel the contract.

Due to force majeure as per the contract, the buyer may suspend whole or partial supply or performance of the contract for such period as may be necessary by issuing a written order.

The supply work can be resumed after the suspension is lifted or the suspension period expires. However, the supply cannot be resumed if the buyer terminates the contract in accordance with Article 40 of the GCC.

Limitation of Liability: Except in cases of criminal negligence or willful misconduct,

(a) The supplier shall not be liable to the buyer for any indirect or consequential damages or loss of use, loss of production, or loss of profits or interest, in contract, tort, or otherwise. However, this shall not apply to the supplier’s obligation to pay delay compensation. and

(b) The procuring entity’s aggregate liability in contract or tort with the supplier or otherwise shall not exceed the contract price, but this limitation shall not apply to the cost of repairing or replacing defective products or to any indemnification provided by the supplier to the procuring entity for patent infringement.

Liquidated Damages calculation

DELIVERY AND PERFORMANCE If the supply is not completed within the scheduled period or within the extended period of performance, or if it is delivered after such time, it is charged at the rate of one (1%) percent [amount between 0.05 and 0.10] per day on the contract price of such goods or partial goods. There will be compensation for the delay.

Max Limit of LD imposed to the contractor: The maximum amount of Liquidated Damages for the undelivered Goods or any part thereof is ≤ ten (10) percent of the final Contract Price of the total Goods and related services.

Example: how to calculate Liquidated Damages(LD):

Suppose,

Total Contract Value = 10000000 (10 Mi).

Work completed = 90%.

Contract Value of Uncompleted (10%) Works = 1000000 (1Mi.)

LD is applicable for ( 1% of 1000000 tk)

LD imposed for every day of delay = 0.05

Number of Days. = 10 Days.

Total Amount of LD(T) =?

We know,

T = V * P * n

T = (10,00,000 * 1% )* 0.05 * 10

T= (10,00,000 * 1/100) * )* 0.05 * 10

= 10000 * 0.05 * 10 = 5000 tk [ NB: V= ( 1% of 1000000 tk); => 1000000*(1/100) = 10000]

Liquidated Damages 5000 tk.

After calculation, we find liquidated damages in contracts are 5000 taka for 10 days.

Note:

The service provider must pay LD to the Employer at the rate per day stated in PCC for each day that the completion date is later than the intended completion date.
The total amount of LD shall not exceed the amount specified in the PCC.

Liquidated Damages Calculator

Total Contract Value:

Worked Incomplete(%):

Number of days late:

Daily Penalty:

Calculate

NB: This calculation formula is taken from the standard tender document prepared by the Bangladesh government.

Some important fact of PPR-2008 and PPA-2006.

Tender security Definition:

Tender Security Calculator

Topic Overview

Define liquid asset:

Why do procuring entities require bidders to have liquid assets?

Calculating liquid assets with an example:

Liquid Asset Calculator

Turnover Definition:

Turnover Calculation:

Turnover Calculator

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