3. Contracting out and capacity development
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procurement requirements need to be followed because the contract will be funded by a donor. The relationship between the government and its procurement agent should be set out in a detailed contract for procurement assistance. The contract should be in writing and signed by both parties. The contract should contain the terms necessary in all contracts between the government and contractors (see Chapter 5: “Drafting contracts: some guidance”). In addition, the government should consider some specific terms of contracts for procurement assistance: • Scope of work: The contract must set out in detail the work to be performed by the procurement agent. The contract should establish the extent of procurement work to be undertaken by the agent (by time, project or some other measure) and what types of services will be required. If the contract specifies milestones and deliverables that must be met, it may be easier to shift performance and cost risks to the procurement agent. The scope of work should also establish that the procurement agent shall purchase services and goods as economically as possible consistent with the requirements of the project. The government may wish to refer to external benchmarks – such as international market prices for commodities – for assessing the procurement agent’s work and ensuring that the procurement agent is achieving best value. • Price: Methods for pricing procurement services include a percentage fee based on the value of the purchases, and a fixed price. A percentage fee may be the best alternative when the volume and price of procurements are unclear; on the other hand, a percentage fee creates a moral hazard, for in effect it creates incentives for the procurement agent to spend more. Procurement fees typically range from five to ten percent of the funds handled. Alternatively, a fixed price can be used when the requirements can be stated with reasonable accuracy at the time of contracting, i.e., when the list of goods and/or services is clear. A fixed price contract gives the procurement agent an incentive for efficiency
and allows the government to know with some certainty how much must be allocated to cover the services. A change orders clause in the contract provides for adjustment of the fixed price should the work requirements change substantially.
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• Duration: The duration of the contract can Partnership beDemocratic for Governance defined in terms of time (the length of the procurement agent assignment) and/or quantity (the goods or services to be procured). • Approvals: The contract should clearly specify the necessary approvals for procurement processes and contracts between the government and contractors, as well as the procedures for obtaining for approvals. • Conflict of interest: It is important to ensure that the procurement agent does not have a conflict of interest. This includes the procurement agent firm not having any relationships with bidders and separating its activities as a procurement agent from any activities that it may carry out as a supplier of goods or services. The government may ask the procurement agent to disclose any potential conflicts of interest at the outset of the relationship, and to report any new potential conflicts that arise after contract award. The government should not abdicate its responsibility for monitoring potential conflicts of interest; it may, however, wish to require the procurement agent to facilitate the monitoring function. • Payment: The contract should specify the procedures and mechanisms to be used to obtain payments for the services or goods. It is important that the government closely monitor the procurement agent’s performance. This requires the government to have the ability to ensure that the agent is conducting proper procurement processes in compliance with the law, is getting competitive prices, and services and products are of high quality and are being delivered in compliance with the terms of contracts.
OECD PDG HANDBOOK ON CONTRACTING OUT GOVERNMENT FUNCTIONS AND SERVICES IN POST-CONFLICT AND FRAGILE SITUATIONS © OECD 2010