Overview on Procurement, Contracts, Fixed Assets & Inventory Management for NGOs

Procurement

Kinds of Procurement

• Procurement

  Purchaseis of:the Capitalprocess Goods,to Programacquire Goods,goods, Services,services Works

  and works to fulfil the organization's operations (projects) and achieve desired objectives
• Procurement is an end-to-end function from initial identification of a need to final payment and record-keeping.
• As PC member, signatory to contracts, users and verifiers, it is mandatory that Non Finance staff have thorough knowledge of procurement process for efficient and effective procurement

EssentialsKey aspects of Good Procurementprocurement

1. Need

   Mustassessment bestas fitper theprogram requirement

   and budget in grant contract
2. Cost

   Competitive prices / (value for money

   through price discovery/competition) & Operational Efficiency (desired outcome/impact)
3. Accountability

   Follow& Transparency (ethical considerations/at arm’s length)

4. Adherence to Procurement Policy & procedures-Tool of Risk Management
5. Supplier diversity-strategic sourcing
6. Team effort-appropriate segregation of duty and authorisation hierarchy
7. Contract Management
8. Record keeping of procurement process
9. Continuous improvement in procurement policy and dueprocedures processas organisation evolves

Procurement Categories

Purchase of:

• Capital Goods
• Program

  Transparency, accountability,goods and integrityOffice (arm's length transaction)

  supplies
• Services
• Works
  

5 Rights of strategic Procurement


1. “Right Quality”
2. “Right Quantity”
3. “Right Place”
4. “Right Time”
5. “Right Price”

Procurement Policy

SystematicA documentationprocurement policy is a set of guidelines and rules that govern how an organization acquires goods and services. It outlines the procedures, standards, and principles that guide the procurement process, ensuring it's fair, transparent, and compliant with legal requirements. it's a roadmap for transparencyprocurement activities within an organization.

Benefits of a Policy

• Cost control
• Transparency and efficiency
  fairness
• Risk

  Delegation,mitigation

segregation
• Compliance
of
duties,

Procurement Policy elements

• Purpose
• Authorization & Delegation-Roles & Responsibilities
• Procurement Process
• Procurement Methods
• Documentation and teamwork
  formats for the procurement method and process
• Vendor management
• Ethics

Procurement ProcessCycle & Steps(Process)

1. SpecifyPrecise technical specs
2. Budget for Purchaseitem
3. AppointConstitute Purchase teamcommittee
4. Research potential suppliers
5. Solicit Bids
6. Bid evaluation and vendor selection
7. Issue Purchase OrderOrder/ Contract Signing
8. Receipt & Inspection of purchase
9. Invoice approvalApproval & payment

ExceptionsProcurement process

S.No	Step	Who	Remarks
1.	Purchase Requisition	Program coordinators/concerned staff members	Document to capture all details eg. Explanation of the purpose, quantity, quality of goods/services , timeframe, project, budget availability etc.
2.	Forwarding and approval of requisition	By Requisitioner Approval by Program Manager.
3.	Calling bids/Request for Proposal (RFP)	Admin Department	Either from approved list or eligible vendors. Bids must be written. Oral bids with justification allowed upto a certain threshold or through web-search. Understand the concepts- Open bid, Sealed bid/Closed bidding, Public bidding, Two stage bidding
4.	Comparative Analysis, Negotiation with vendor and final offer, final vendor selection and terms of purchase finalized. L1 is the vendor generally selected	Procurement Committee (PC)	All deliberations and justifications for vendor selection are captured in the MoM of PC/ Justification note for vendor selection.
5.	Issue of Purchase order or contract	Approved by appropriate authority as per authorization matrix	PO contains relevant details and terms and conditions of procurement. Delivered to and acknowledged by vendor. In case of services, work order or contract issued. For small value contracts, email order confirmation sent and acknowledged by vendor. Advance payment.
6.	Receiving the goods or services	Physical delivery received, by the admin in-charge. User will certify the qualitative aspects whether the goods / services are as per terms and conditions of the PO/ Work order.	Receipt documented and entry in Stock Register/Fixed Asset Register. In case of works contracts, the running bills checked with MBs and material consumed etc. and certified by Technical Specialists.
7.	Payment & Issue	Accountant Admin	Payment and correctly record in the books of accounts Issue goods and obtain receipt
For consultancy assignment, a formal contract is entered into with the consultant, documenting all the terms and conditions including deliverables and deadlines, payments, deduction of tax at source.
For general use items like stationary, office supplies etc., the procurement committee may consider obtaining quotations for annual rate contract.

 

Procurement Methods

• The threshold and nature of procurement play a major role in selection of procurement method
• Procurement without quotation-over the counter purchase. For very small procurement generally upto Rs.25k
• Procurement through RFQ/RFP to limited vendors called closed/limited/restricted tendering is generally from the pre selected vendors in the vendor database through limited invitation-threshold to be decided by organisation
• Public/advertised/open Tendering/bidding-announcement/advertisement for inviting vendors from public at large-large value procurement
• Quality & Cost Based Selection (QCBS)/Two stage Bidding-technical and financial evaluation and then combined score of both to arrive at the selection
• E/online procurement.
• Fixed Budget procurement-ceiling fixed for the item/service
• Least Cost procurement–minimum cost is the consideration specially for standard items

 

Single Sourcing

While competitive bidding is prescribed manner of procurement, there are occasions when procurement cannot
be done following competitive process. These are

• Only one source – when only one responsible source exists. This is true where the work involved is of specialized nature requiring unique expertise or supplier of proprietary goods and services .
• Unusual and compelling urgency– Justified and recorded
• Where there is a continuation of previous work which another vendor cannot do due to patent rights

Sole source procurement to be suitably documented by way of a “Sole Source Justification Note” and approved by
competent authority.

Exception to Policy

• An exception is a deviation from the prescribed procurement procedure as per policy due to justifiable circumstances like national security, emergency situations or a lack of competitive options.
• All exceptions mustfrom policy to be justified and approved.

Single Sourcing:

• Allowed in special cases like:

  • Only one responsible source (specialised work)

  • Urgency

  • Preferred vendors (reviewed annually)

  • Amendments/follow-on contracts

• Must be documented by a "Sole Source Justification" and approved by CEO

  appropriate authority.

Approved Vendor ListList/Vendor Database

• Contains

  Maintainedlist of vendors or suppliers vetted by Purchasethe Committee

  Admin department.
• Referred

  Vendorsby vettedAdmin Department for bid solicitation.

• Suppliers are identified and included in database for goods regularly used.
• The credentials of vendors in terms of statutory compliance,registration, credibility, business standing and feedback has been verified, so it is easy to go ahead with the procurement.
• Duly screened vendors also ensure that they are not related to organisation
  the organization hence the transactions with them are ‘at arm’s length’

 

Maintaining Audit Trail

• Audit

  MaintainTrail refers to the string of evidence mainly documentary to check the occurrence and transparency of transactions.

• The organization should maintain documentary/ electronic evidence forof allthe procurementsprocess and relatedthe decisionsbasis of decision for a procurement.

 

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Contract Management

Why contract management

• As non finance staff, you sign contracts/agreements as authorizers/ users.
• You often question the need for making contracts. Why not just get ahead with the work, just get the goods, receive goods and invoice and make payment?
• Many times, you may have signed agreements assuming that everything is in order since finance and admin have checked but later realize mistakes or overlooking terms and conditions leading to loss or litigation.

What is a contract

• A contract is a legally binding agreement between two or more parties that creates an obligation to perform/not perform a particular action.
• It involves an offer (one party proposes), acceptance of offer by the other party but with element of consideration (payment with value exchanged) and is usually in writing but can also be oral.
• Contracts ensure parties are legally capable of contracting, understand their rights and responsibilities i.e. mutuality and can be enforced by law (legality)
  
  
• Contract
  1. Agreement
     1. Promise
        1. Offer
        2. Acceptance 
     2. Consideration
  2. Legally enforceable

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Contract

UnderstandingManagement

Contract management in procurement is the process of administering contracts with vendors through their entire lifecycle, from creation to completion, renewal or termination.

It ensures that both the organization and Interpretingthe Contractssupplier fulfill their contractual obligations thereby mitigating risks and maximizing the value in the procurement.

Clauses of an agreement/contract

• Parties- name is correct and person signing are authorized
• Date-when signed/accepted by both parties is when it becomes enforceable
• Period of contract and Renewal...check correctness and agreement of the parties.
• Scope of work including deliverables...Checked by the user..
• Price and Escalation ..Same as per quote
• Other commercial terms: transport, insurance, marketing etc.

Payment clause
Period for completing delivery clause and liquidated damages
Warranty clause
Termination Clause: notice period etc. in case party is not interested to continue or default in deliverables.

Clauses of an agreement or contract

• Non compete
• Confidentiality
• Limitation on Liability
• Sub contracting
• Indemnification clause
• Force Majeure clause
• Amendment
• Dispute Resolution & Governing Laws : Court of law or arbitration or mediation or conciliation.etc
• Place, date, Signature and witness

Practical Aspects while signing contracts

1. Read and understand the contract and details before signing
2. Avoid vagueness
3. Seek professional advice.
4. Encaser there are no violations of law of land.
5. Know your rights and duties.
6. Should be in writing and complete in all respects.
7. Remember signing the contract makes it legally enforceable

 

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Fixed Assets Management

IntroductionWhat is Fixed Assets

• An item which fulfils the following criteria:
  • The item has a useful life of more than a year.
  • The item is not of a consumable nature.
  • Acquisition value of more than Rs.5000/-
  • Fixed Asset Categories:

    • ContractsIT may be signed as authorisers or usersequipment

    • ImportantFurniture to& understand what is being signed to avoid future losses

    What is a Contract?

    • A spoken or written agreement enforceable by lawFixtures

    • OralOffice agreements are also validEquipment

    Elements of Contract

    • Offer

    • Acceptance

    • Consideration (something of value exchanged)

  WhyPolicy Doon WeFixed Need Contracts?

  1. Make promises binding

  2. Function in a capitalist society where buying/selling is routine

  Reminder: 

  “Ignorantia legis neminem excusat” which means “Ignorance of the law excuses no one”.

  Essentials of a Valid ContractAssets

  • Follow 

    Agreement,procurement legalprocedure intent,as capacity,per legalprocurement object,policy

  free
  • Assign consent,Asset written/registeredCode ifonce required
    assets received including in kind
  • Record asset in Asset Register
  • Issue and return of assets to staff
  • Physical verification and annual inventory
  • Depreciation of assets and recording in account books
  • Disposal of Assets having completed useful life as per policy
  • Loss of Asset policy
  • Insurance of Fixed Assets
  • Role of Admin in FA Management
  • Use of readily available software to automate FA management

  Why

   Written

  Contracts?

  • ---

    Enforceable, clear terms, legal clarity

  When is a Contract Enforceable?

  • On signing by acceptor

  • If sent by post, from the date of posting

  • Email contracts are valid

  • Jurisdiction depends on place of contract unless stated otherwise

  Key Clauses in Contracts

  • Parties, scope of work, consideration, deliverables, period

  • Other terms: responsibilities, payment, delays, termination, renewal, confidentiality, liability, dispute resolution

  • Signatures and witness

  Practical Tips While Signing Contracts

  • Read carefully, delay signing if unsure

  • Seek professional advice

  • Know rights and duties

  • Ensure written agreements

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  Inventory Management

  Inventory

  and

  Maintain stock records using software like Tally or manually (registers/excel)

  Key Forms:

  procedures
  • Inventory

    Goods Received Note (GRN)

    include
  • Promotional

    Goodsmaterial Issueas Notepart (GIN)

    of a project.
  • IEC material.
  • Consumables for conducting certain tests.
  • Stationery distributed as part of a project.
  • Program goods that are distributed and consumed for a particular project
  • Gifts distributed during trainings

  Summary of Inventory Managementprocedure

  • Procured

    Fillas GRNper forprocurement all received goods

    policy
  • Receipt,

    UseRecording GRN,and invoice,Issue GINof to update stock register or tally

    Inventory
  • Storage

    Storespace, goodsstacking and security

  • Return and recording of unutilised inventory
  • Physical inventory on periodic basis
  • Disposal of inventory no longer useful
  • Role of Admin staff in ainventory neat designated store using bins and bin cards

  • Do periodic stock verification (physical vs. records)

  • File verification report for review

    management

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  Fixed Asset Management

  • Maintain a Fixed Asset Register (FAR)

  • Tracks details like purchase price, depreciation, and location

  Summary of Fixed Assets Management

  • Use unique coding for each asset; affix/paint ID visibly

  • Keep assets in secure locations; insure high-value items

  • Do periodic verification and compare with FAR

  • File verification reports and act on discrepancies

  • Fill GRN for all goods received

  • Goods useful beyond one year should be recorded in FAR, not stock register