4. The procurement process
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development. The following questions should be considered: • Does the partner government intend to contract out service delivery on a long-term basis? • Does it intend eventually to develop the necessary capacity to deliver services directly (not through contracting out)? • If so, does it plan to develop its capacity by contracting for the capacity development expertise needed, and if so, will this be under a separate contract, or under the same contract through which it engages short-term service delivery? Chapter 3 discusses the various approaches to capacity building that can be adopted in the context of contracting out, and identifies the risks associated with failing to do so.
Ensure adequate funding and links with donor-funded activities The availability of funding to pay for the contracted services or government functions should be confirmed early in the process. This will require the partner government to be able to make a rough estimate of the value of the contract, including the cost of labour, supplies, transportation and other costs that the contractor will incur in providing the service or function. Specialised technical assistance from sectoral and financial experts is frequently used for developing this estimate. The government also needs to be able to manage finances and forecast its needs for contracting out. Again, this can be done with assistance from donors but the government should develop this capacity as quickly as possible. Over time, the government will be able to reduce its procurement costs if it can forecast its procurement activity with reasonable accuracy, and can have procurement agents take on that activity on a firm fixed-price basis.
If the funding is provided to the partner government by a donor, the donor may require that certain aspects of the procurement process conform to its specific procurement standards. If adequate funding is not available, the partner government pdg may need to decrease the scope of the requested service, for example by focusing service deliveryPartnership onDemocratic for Governance the most urgent areas within a region, rather than targeting the entire region; deferring contracting out until funding can be secured; or returning to the planning process discussed in Chapter 2 to identify alternatives to contracting out.
Define the contractual approach There are two basic approaches that can be used depending on whether the service is needed urgently (as is frequently the case in post-conflict or fragile states) or whether there is time and partner government capacity for a more ordered and structured procurement process. The two types of contracting are competitive bidding and solesource contracting. Competitive bidding is when the government requests tenders from a number of sources which then compete with one another to be awarded the contract. Sole-source contracting is when the government provides a request for tender (RFT) to only one bidder. Sole sourcing should be considered when there is an urgent need for goods or services (e.g. to fill a critical service vacuum in a post-conflict situation – see Case Study 10 below), or where there is only one feasible service provider (Figure 4.2). While sole-source contracting can be effective in these situations, it should generally be used only as a short-term solution. In the longer term, competitive procurements obtain more favourable pricing, and allow the government to select from amongst several potential bidders based on technical merit and pricing. A transparent, competitive environment also reduces the potential for rent-seeking behaviour.
OECD PDG HANDBOOK ON CONTRACTING OUT GOVERNMENT FUNCTIONS AND SERVICES IN POST-CONFLICT AND FRAGILE SITUATIONS © OECD 2010