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4. The procurement process pdg Partnership for Democratic Governance
Procurement approach The procurement plan should also state whether the partner government intends to conduct a competitive or sole-source procurement (see above), and the pdg rationale for that decision. Partnership for Democratic Governance
Payment approach There are a few different payment approaches available: • Fixed price: In a fixed-price contract, the contractor is obliged to perform a specific service(s) or government function(s) for a fixed amount (e.g. provide water treatment and plant operation services in a town for one year for payment x). A fixed-price contract is possible when the service, performance standards and quantity of work are known. In these circumstances, a fixed-price contract is desirable because it transfers the performance risk to the contractor, who must deliver the services in order to be paid. A fixed-price contract also makes budgeting easier, since the cost is known in advance. However, if the service is not clearly defined, a fixed-price contract may not be appropriate, since the government risks paying too high a price for the services received, or too low a price, leading to poor contract performance. • Unit price: In a unit-price contract, the contractor is paid by the unit for services performed (e.g. payment x for each injection given). This is an output- or performance-based contract. A unitprice contract is appropriate when the service and performance standards are known, but when there is uncertainty about the quantity of service required. When a unit-price contract is used, the government should include in the contract a ceiling or maximum number of units to be provided, to ensure that it retains control of contract expenditures. As with a fixed-price contract, payment is based on performance, so the service delivery risk is transferred to the contractor.
• Labour contract: In a labour contract, the contractor is paid on the basis of staff-time provided (e.g. payment x for each day of staff time provided). This is an input-based contract. This can be a useful approach when the services, performance standards and quantity of work are unclear (e.g. when the contractor is sending medical teams into a remote area). In this situation, the performance risk remains with the government, since the contractor is paid for being on the job, not for accomplishing specific tasks or outcomes. Ideally, this type of contract should be used only on an interim basis while the partner government collects data which will allow it to better define the services, performance standards, and requirements for future contracts. • Performance or output-based contract: Where possible, the first two payment mechanisms can be combined with a performance or output-based approach, under which the contractor is only paid for those services or outputs which meet the performance criteria of the contract. This can provide a powerful incentive for delivery of good quality services, but also requires a rigorous and objective approach to unit costing and quality monitoring by the government. The related concept of output-based aid is discussed in Annex D.
Scope of services required The procurement plan should provide a clear picture of the partner government’s requirements, known as the “scope of services”. This will assist in preparing the request for tender (RFT), which needs to specify the government’s requirements so as to set the same expectations for all potential bidders. The RFT should include a clear description of the services needed, including the estimated workload, the associated performance standards, and when and where the services need to be delivered. The performance standards should be quantitative and measurable, where possible. Workload should be expressed in meaningful units, such as the number of households served, units of service to be provided, or frequency of service delivery.
OECD PDG HANDBOOK ON CONTRACTING OUT GOVERNMENT FUNCTIONS AND SERVICES IN POST-CONFLICT AND FRAGILE SITUATIONS © OECD 2010