Purchasing Policy and Procedures - cips.org the Purchasing... · Purchasing Policy and Procedures ... • conducive to maintaining the organisation’s ability to ... ‘petty cash’

Purchasing Policy and Procedures

Purpose 1Purchasing structure, responsibilities and authority 9The Purchasing and Supply Management Model 15Sourcing analysis 16 Demand Management 18Pre-contract activities 20Post-contract activities 34

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Purpose and applicationThis Purchasing Policy applies to and binds alldirectors, managers and employees of the organisationin any situation where they are involved in apurchasing process, whether as requisitoners orspecifiers, purchasers or negotiators, or those whovalidate or authorise payment. ‘Purchasing’ includes allprocurement activities including leasing and hiring, andmay where appropriate include other activitiesaccompanying the life cycle of goods (or servicecontracts) and the end-of-life disposal of goods whichhave been procured (whether or not they remain in ourownership). Adherence to the Purchasing Policy is bothan individual and a corporate responsibility. Wilfulbreach of this policy, or unauthorised departure fromthe Procedures derived from this Policy, may constitutea disciplinary offence.

The Policy is not a ‘box-ticking’ exercise. For itseffective implementation it requires from each personinvolved an active involvement, consideration andweighting of the factors.

This Policy Statement is a public document - it may bequoted in Annual Reports, Operating & FinancialReviews, shareholder/stakeholder information, and isfreely available to potential suppliers. It binds all actorsinvolved. It confirms to management and staff, to actualand potential suppliers and contractors, to customers,to governmental and other regulators and tostakeholders in the wider community, the principles onwhich this organisation procures and contracts.

Note that the detailed Procedures which follow are as abody to be considered Confidential, although there aremany cases where suppliers and others will need to begiven details of individual Procedures.

The Policy Statement can only be revised or alteredwith the authority of the full Board. It is permissible tomodify or over-ride individual elements of Procedure,after appropriate authorisation, but only if suchchanges do not conflict with the aims and objectives ofthe Policy Statement.

Policy objectivesThe organisation’s Purchasing Policy exists for anumber of discrete but often interconnected purposes.These objectives are expanded below, and are reflectedin the detailed Procedures that follow.

The Policy commits the organisation, and everyindividual involved in purchasing and supplymanagement processes within the organisation, to usetheir best endeavours to ensure that our purchasingand contracting activities are:

• legal• accountable and auditable• ethically, environmentally and socially responsible• economically effective• conducive to maintaining the organisation’s ability to

exploit appropriate technological, commercial andorganisational developments as they arise

• capable of identifying, minimising and managingrisks that may threaten the supply chain or thewider organisation

• open to continuous improvement and development,in particular by the training, development andsupport of staff.

In addition it is the Purchasing department’s objectivethat, as far as is within their power, it will only employsuppliers and contractors who subscribe to and operateon similar principles. Joint Venture partners, and themanagement of outsourced activities on anorganisation’s behalf, are similarly expected to abide byand promote these principles.


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Of these objectives, a), Legality, and b), Accountabilityand Auditability, are non-negotiable.

There are no circumstances in which it is permissiblefor the purchasing activity or those engaged in itconsciously to break, or knowingly to risk breaking,the laws that apply.

There are no circumstances in which it is permissibleto requisition or buy goods or services or commit theorganisation’s funds without documenting thetransaction in such a way that at a future date it ispossible to determine who requested, made, orapproved the expenditure, the purpose of theexpenditure, the process by which all key decisionswere arrived at, and by whom, and the destination ofany goods or services received and of any paymentsmade.

The remaining objectives are necessarily counsels ofperfection, and may be expected to create conflicts andrequire trade-offs. The Procedures that derive from thisPolicy Statement are designed in part to provide aframework within which such conflicts can bemanaged in a legal and accountable manner. Theoverall principle to be adopted in such conflicts may bememorised as BAPNEEC - that is, we will use the BestAvailable Procedure Not Entailing Excessive Cost.

LegalityPurchasing and contracting activity will fully respectand comply with:

• All applicable UK laws and regulations.• All applicable European Union laws, directives and

regulations (including those governing PublicProcurement, where relevant)

• The relevant laws, regulations and so on of otherterritories in which organisations operate, to whichwe supply, or from which we source

• International laws, treaties and agreements to whichthe UK government is party (including, for example,any United Nations-approved trade sanctions)

Note: this includes not only those laws directlyapplicable to the buying and selling of goods andservices - it includes amongst others the laws on:

• taxation – the purchasing department will not be aparty to the evasion of income, sales, corporate,value added or other taxes, customs duties, or othercharges, either by P&SM Professionals, theircustomers, or their suppliers

• environmental regulations• employment, health and safety• corruption

It is not acceptable to source goods or services in aforeign territory solely in order to allow an activity tooccur which would not be permissible in our hometerritory, and/or in those territories to which our goodsand services are supplied (note that this does notpreclude taking advantage of lower labour costselsewhere, provided that these, and the associatedconditions, at least meet the domestic norms of thatterritory).

Additionally, caution will be exercised, and advice atthe highest level sought, before entering into anyagreement which, whilst legal in the territories inwhich we operate, could injure the interests of ourinvestors and other stakeholders by the laws of ThirdParty states with pretensions towards the extra-territorial application of their domestic law. TheSarbanes-Oxley Act in the United States being oneexample.


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The organisation is committed to the fair and effectiveapplication of laws and regulations. There is therefore apositive duty on the organisation and its members toreport and refer any and all reasonably foundedsuspicions of illegal activity (for example, attempts atcorruption, evidence of anti-competitive or cartel-likeactivity, breaches of employment or environment law).

The purchasing policy in support of the above is tosupport, protect and where possible preserve theanonymity of ‘whistleblowers’, inside or outside of ourorganisation, who act in good faith, even if theirsuspicions should subsequently prove to be unfounded.The organisation, and individual members, will give fullco-operation to legitimate authorities investigating suchclaims. That specifically includes the duty to ensure thatany conceivably relevant documentation is preservedand made available, even if such documents could beconstrued adversely to the interests of the organisationor individual members.

Accountability and AuditabilityThe organisation will maintain systems, whethermanual or electronic, that will, for all purchases,contracts and external commitments above the level of‘petty cash’ and minor allowable personal expenses,record, identify and as appropriate provide justificationfor:

• the originator of the requirement• the purpose for which the requisition was made• the route by which the requisition was approved• the methods adopted in accordance with the

Procedures below, (or any variation from Procedure,with reasons) to procure the requirement, with allrelevant documentation (for example Requests forQuotation, Tender documents and so on) and thereasons for decisions made

• the source of supply

• the compliance or otherwise of the goods or service,and of the supplier or contractor, with therequirement as specified in the contract or otheragreement

• all actions taken to remedy any defect as recordedabove; and the results

• the route by which payment was authorised, andwhen, to whom and in what sum any payment(s)are made.

Note: The above is the minimum requirement - theremay be many procurements for which much moredetailed accountability is required

It is a fundamental of the policy that as far as ispossible (and subject to the Procedures for low-valuepurchases), the requistioner, the buyer, negotiator orcontractor, and the authoriser of payment, will bedifferent persons, all identifiable in the recordsmaintained

Ethical, environmental and social responsibilityBeyond the requirements of law and other regulationsthat P&SM professionals are bound to observe, theorganisation has responsibilities (often referred to asCorporate Social Responsibility) to the widercommunity. Guidance on the general application ofCSR in the purchasing and supply management contextmay be found on the CIPS website.



Ethical, environmental and social responsibilities veryfrequently conflict, both between themselves and withother objectives, such as that of economic efficiency.What follows is necessarily exhortatory rather thanmandatory, but where significant conflicts do arisethose involved in the procurement may be required toshow (and record as set out above) that due attentionand weight has been put on these issues under theBAPNEEC principle. A ‘balanced’ or ‘weighted’scorecard approach is recommended - necessarily, theweightings to be applied to the various economic,social and environmental factors likely to be significantin a procurement must be determined, and alignedwith corporate policy and goals, before theprocurement process commences.

CSR policies are, or should be, set at the highest levelsof the organisation. It is important that the P&SMfunction, as a major agent in the translation of suchpolicies into action, ensures that it is fully representedin the formulation of such policies.

Areas of CSR policies that are relevant to the supplychain may include some or all of the following:

Environmental responsibilityHuman rightsEqual opportunitiesDiversityCorporate governanceSustainabilityImpact on societyEthics and ethical tradingBiodiversityCommunity involvement

These are broad categories - within them may lie veryfocused issues which may be wholly or in large partthe province of the purchasing and supplymanagement function. Specific concerns may requirethis policy statement to be amplified - nonetheless, thefollowing represent the minimum acceptablecommitment:

• The sourcing of less costly labour and resources is acentral part of the P&SM role: nonetheless, theorganisation will NOT support sourcing where theminimum and (nationally or internationally) legallyrequired standards are not applied. Whereobservance of such minima is temporarily absent,we will work with the supplier to help restore thesituation, but all contracts must make it clear thatcontinued abuse will be held to justify abnegation ofthe contract without further warning or redress.That option will be used, despite any short-termdisruption it may be threaten to the supply chain

• The P&SM function will, where possible, prefer topurchase goods and services that can demonstrate alower overall (life-cycle) environmental impact. TheP&SM function will actively engage with suppliersto reduce environmental impacts (by, for example,reviewing material specifications, packagingrequirements, transport channels)

• P&SM will treat with all actual and potentialsuppliers and contractors fairly, equally andobjectively

• Notwithstanding the above, purchasing procedureswill reflect the need to encourage diversity in thesupply base, and encourage where appropriate thedevelopment of small suppliers, start-up companies,local suppliers and minority-owned suppliers

• All reasonable attempts will be made to assistsuppliers to overcome difficulties and/or to improvetheir performance for us. Terminating a supplier ora contract is, except in extreme circumstances suchas financial failure or illegal activity, to be regardedas a last resort



• P&SM activity will have due regard for the needsand sensitivities of the community in which it islocated (especially but not solely in terms ofenvironmental and amenity impact)

• All individuals concerned in the purchasing processshould consider themselves bound by the individualCode of Ethics (Appendix A) - whether or not theyare members of the CIPS, whose Code this based on.

Economic effectivenessThe organisation expends a considerable portion of itsrevenues on bought-in goods and services, (in someorganisations this figure may approach or exceed 80%)and procuring such goods and services in the mosteconomically effective manner is, subject to the legal,ethical and other restraints outlined above, the centralrole of the purchasing function. In carrying out thisrole, all those involved in purchasing will have regardto the following:• the desired outcome is that of greatest value gained

at lowest total cost.• total cost will as appropriate take into account the

full anticipated life-cycle costs of the goods orservices, including such factors as maintenance,servicing, reliability costs, and costs of ultimatedisposal where this organisation may be responsiblefor them

• value may and should, where appropriate, beassigned, however approximately, to such factors assustainability, environmental and social benefits andof improving the competitiveness of the supplierbase on which we depend

• in addition to the total cost of acquisition orownership, it is policy to reduce where possible theadministrative cost of acquiring and owning goodsand services. Selection of the most appropriateprocedure to obtain an approximation to best valuewithout incurring excessive administrative cost (orwithout unduly diverting limited resources fromother activities and priorities) is therefore vital.

Exploitation of developmentsThose responsible for purchasing will take care not toreduce or eliminate competitive development withinthe supply base, ensuring that the supply chain doesnot lose the ability to adapt to new or emergingtechnologies and processes

Risk managementThe expenditure of resources outside the organisation,and the dependence on an external supply chain,exposes the organisation to a wide variety of risks. Asignificant function for the purchasing structure of thisorganisation is to identify, if possible minimise, andotherwise manage the likely impact of such risks (tothe organisation itself and to other stakeholders). Forany significant expenditure, long-term commitment, oridentifiable ‘pinch-point’ (that is where even a smallsupply problem could have larger ramifications for thewell-being of the organisation) formal risk assessmentswill be made, as appropriate, addressing:• supply risk - risks resulting from the non-

performance or poor performance of a supplier orcontractor

• demand risks - arising from requistioners orderingtoo much, too little, or the wrong goods or services,relative to the actual need

• process risks - the risk that the way goods are usedor services supplied may not be optimal for thecircumstances - even if they comply with the formalrequirements of the tender or contract

• control risks - risks arising from deficiencies ininternal processes and procedures - including, butnot confined to, procedures mandated in thisdocument

• environmental - the impact of unpredictable hazardsfrom Acts of God through acts of Parliament to actsof terrorism

• social – risks arising from issues related toCorporate Social Responsibility such as HumanRights and so on.



Risk assessment in the supply chain is necessarilysubjective: it is nonetheless required that where asignificant risk is identified, the nature of the risk shallbe identified to stakeholders, and where possiblealternative solutions or fall-back positions consideredand documented.

Continuous improvementAll personnel involved in the purchasing process areexpected to attempt to improve their knowledge andskills, and the organisation will support such activities.The organisation aims to recruit, maintain and developa core of professionally qualified purchasers (andothers with the requisite cognate skills).

P&SM professionals who experience sub-optimaloutcomes in their purchasing activities are encouragedto identify these, and with assistance correlate themwith appropriate training provision. The organisation’spolicy is to encourage such self-assessment, and tomake appropriate training provision.

Performance targetsWhere performance targets, incentives, bonus schemesand so on apply to individuals or groups in thepurchasing process, conflicts may from time to timebecome apparent between the achievement of thosetargets and the requirements of this policy. At all timesthe Policy should be accorded precedence and wheresuch conflicts appear, they should be reportedappropriately.

(A list of possible performance criteria applicable to thepurchasing and supply chain functions may be foundon the CIPS web-site; see also the IDeA web-siteproduct entitled ‘local performance indicators forprocurement’. Where such reward schemes exist, it maybe appropriate here to list the elements and explainhow they are assessed against the policy objectivesgiven above)

Appendix A • Code of Ethics(This Code is based on that subscribed to by allmembers of the Chartered Institute of Purchasing &Supply. CIPS is happy to advise, without liability, onethical issues relating to procurement.)

Persons engaged in any aspect of purchasing on behalfof this organisation shall never use their authority forpersonal gain and shall seek to uphold and enhancethe standing of the organisation by:

• maintaining an unimpeachable standard of integrityin all their business relationships both inside andoutside this organisation.*

• fostering the highest possible standards ofprofessional competence amongst those for whomthey are responsible.

• optimising the use of resources for which they areresponsible to provide the maximum benefit to theiremployer.

• complying both with the letter and the spirit of thelaw of the country(ies) in which they operate andwith which they deal and complying with allcontractual obligations incurred by or on behalf oftheir employer.

• rejecting any business practice which mightreasonably be deemed improper.

* (Clearly it is not possible under current employmentlaw fully to extend this principle to the conduct ofemployees in their private lives. Nonetheless, itshould be emphasised to employees that integrity isindivisible: that their reputation for probity in theirprivate dealings almost inevitably reflects on thereputation of their employer.)

See also explanatory notes under PurchasingProcedures, section 2.



1. PreambleThe Procedures that follow derive from the P&SMModel, described more fully in section 3. This Model isprecisely that - a way of capturing the manner inwhich, given unlimited time and resources, Purchasingwould be performed to ensure that all the Policyrequirements, including that of ‘most effective economicoutcome’, are achieved, and can be demonstrated tohave been achieved.

(Note that these Procedures are also designed to beconsonant with guidance issued by the Office ofGovernment Commerce of the UK government. Suchguidance is intended to assist public sectororganisations, and such private sector organisations asmay be acting for or on behalf of the public sector, inmeeting their obligations under the various EU (andWTO where applicable) Directives and other rules onpublic procurement. Although such rules do not ingeneral apply to trades between private companies,and many procurements even within the public sectorwill be valued below the threshold at which such rulesapply, it is strongly recommended that organisationsshould adopt a single, compliant, set of procedures forprocurement. In so suggesting, we recognise that theprocedures themselves are sound and comprehensive(even if the associated bureaucracy may appearonerous); the adoption of a single set of proceduresreduces the potential for conflict and confusion; asingle set of procedures reduces the temptation to‘bend’ the rules - for example by understating the likelyvalue of a procurement; and in the case of any disputecentred on methods of procurement, evidence thatguidelines promulgated by government have beenadhered to should provide a powerful, though notinfallible, defence. OGC guidance is subject to constantupdating in the light of national and EU case-law. Seethe web-site www.ogc-gov.uk).

Inevitably there are some, even many, circumstanceswhich require aspects of the ‘standard model’ to bemodified or circumvented. Such circumstances wouldinclude time pressures, emergencies such as theunanticipated failure of a supplier, the availability orotherwise of adequate resources within the Purchasingfunction. The procedures include a variety ofapproaches that will enable an appropriate, effectiveand controllable response to such situations.Nonetheless, at all times the Procedures should beimplemented in such a way as to align as closely aspossible to the ‘standard model’, and where deviationeven from the modified procedures allowed below dooccur, those responsible must be prepared to justifytheir decisions.

In no circumstances may procedures be adopted whichconflict, or could tend to conflict, with the overallPurchasing Policy, unless previously authorised at thehighest level.

It is essential that the full body of Procedures beconsidered as a whole in advance of any procurementactivities. Effective operation of the Procedures requiresthat a number of decisions affecting both theprocurement itself and the evaluation of theperformance of the resulting contract are made inadvance, and independently of any knowledge of thecontents of any bids or offers.



2. Purchasing structure, responsibilities and authorityThe precise details of the Purchasing function’sstructure, and indeed of its nomenclature (for examplePurchasing/Supply/Procurement) are necessarilyunique to each organisation. This section, therefore,merely indicates by example the type of informationwhich should be given in the Policy & Proceduresdocument. Users should adapt this document byinserting relevant department/function names, job titles,and so on in line with their own practice

The Purchasing Department is authorised by the Boardto fulfil the following functions:• Establish the Purchasing Policy and ensure that the

Policy is adhered to• Establish, promulgate and support standard

Procedures that will enable the organisation to meetthe objectives of the Purchasing Policy, while havingregard to economic effectiveness

• Itself carry out all major, novel and significantprocurements

• Establish the rules and procedures by whichpurchasing authority may be delegated to andexercised by other individuals and/or departments;regularly review such parameters and practices; andensure that the exercise of such delegated authoritycontinues to meet the Purchasing Policyrequirements

• Maintain records and data systems in such a waythat an appropriate, auditable, trail of eachpurchasing activity is available, that supplierperformance can be monitored, that demand can beaggregated, supply requirements anticipated, andadherence to Policy demonstrated.

The Purchasing Department is itself a cost/profit centreand is required to operate in an efficient and effectivemanner with regard not only to the level of externalexpenditure under management but also to the internalcosts generated, and to be able to demonstrate itseffectiveness in this regard.

Purchasing will adopt an holistic attitude to the needsand policies of the organisation; will attempt wherepossible to operate in a cross-functional mannerinvolving and recognising the needs of all stakeholdersin the procurement (internal and external); and will asfar as is practicable take a long-term view of thebenefits and risks to the organisation (or whole supplychain, as appropriate) of any proposed procurement.

2.1 Records, systems and dataThe Purchasing Department, in collaboration withothers (such as end-users, finance/accounts, production,goods inward and so on) maintains systems that willrecord and monitor all historic and current purchasingactivity, and that are capable of generating appropriatereports to inform and improve future activity.

Such systems will wherever economically viableautomate the flow of relevant information to, from andwithin the Purchasing Department to ensure that inputerrors and administrative overheads are minimised.

Where only parts of the procurement function are thusautomated, systems will be maintained to ensure thatthe equivalent data deriving from ‘manual’ transactionsand procedures can be captured, incorporated and asrequired aggregated.

Such systems, whether manual, automated or acombination of both, will be capable of recording,analysing, correlating, cross-referencing, and reportingsuitably on:

All purchases and commitments for goods, works andservices, including procurement exercises where nocontract is ultimately awarded• at line item level• aggregated into appropriate classeswith complete records of:• the requisition• notes of any changes made to the requisition at the

behest of either the

Purchasing Policy and ProceduresPurchasing structure, responsibilitiesand authority


Purchasing or the user department• notes of the process by which the procurement

strategy was decided• notes of the process by which the contract

evaluation and award criteria were decided• all documents relating to the tender or quotation

process. This will include a register of ITTs issued(see below), originals of the ITT, specification andany advertisements, evidence of how recipients ofthe ITT were selected, all bids/quotes received inresponse (whether compliant or not). Notes of anycontacts with bidders, by the purchasing or otherdepartments, that may be germane to the process.

• results of the evaluation exercise• notes of all post-tender negotiations and their

outcome• the final contract or purchase order• records of any variations agreed after award of

contract• records of all disputes and their resolution• records of staged acceptances and payments and

final sign-off, and reconciliation of invoices and soon with final payment.

• any warranties, guarantees and so on relevant to thetransaction should be held with these records or, ifretained elsewhere, a note of their location andvalidity filed.

Such records on individual procurements will becapable of cross-reference to a Supplier databasewhich, for all current, historic or potential suppliers,will cover the following:• Ownership (including ultimate ownership if, for

example part of a group or holding company) withany relevant changes that may come to light

• Addresses and other contact details at bothcorporate and, where different, operational level

• Any relevant status checks carried out (for exampleaccounts, bank and trade references, credit checksand so on) with dates

• Capabilities, capacities and qualifications claimed(such as ISO 9000, 14000 series)

• If nominated a ‘preferred supplier’ or similar, detailsof the procedure and justification

• Details of contracts awarded, procedures used,results, (including details of any difficulties and/orproblems. [Note: care will be taken to include notonly issues that appear to have been the ‘fault’ of thesupplier or contractor, but also those which mayhave originated within this organisation - forexample, post-award changes in specifications,quantities, delivery dates. Exceptionally goodperformance by a supplier should also be noted.]

• Records of ‘close-out’ of purchases or contracts,including payments and any disputes or delaysthereto

The following must be reported to and recorded by thePurchasing Department:• any actual or potential unethical approach or

inducement, evidence of restrictive practices,possible conflicts of interest

• information on illegal or unacceptable practices by asupplier which could be to our discredit if we wereknown to be a customer

• failure by a supplier to meet our requirements, interms of quality, quantity or delivery

• all requests by a supplier to vary the terms of acontract after it has been agreed

• occasions where the prices or other terms offeredby a preferred supplier or under a call-off contractappear to be less favourable than is availableelsewhere in the marketplace

• reluctance or refusal by a preferred supplier to bidfor a contract, or to enter a realistic bid; reluctanceor refusal to supply under the terms of an existingframework or call-off contract

• warranties, guarantees, service agreements and soon must be lodged with the Purchasing Department.



Legal and ethical concernsWhether verified or not, all concerns about the legaland/or ethical conduct of suppliers should also belogged. It is worth noting that poor legal and ethicalpractices often manifest themselves initially as minorand unverifiable incidents - a pattern of behaviour may,if such incidents are logged properly, become apparentwell before any provable wrongdoing.

Wherever possible, when problems arise with asupplier's performance or behaviour, the purchasingfunction will work with the company concerned tohelp them meet the agreed requirements.

Outright corruption is fortunately rare in commerciallife in this country, but it does occur, and may becommon or even endemic in other cultures andterritories. Nepotism, for example, - the favouring ofrelatives or clan members, is in many cultures regardedas a virtue or even as a duty, but may therefore lead towhat we would regard as corruption. Any improperapproaches, whether in the form of inducements orthreats, must be reported, even if they are sufficientlyambiguous to allow of an innocent construction. AllP&SM professionals when undertaking any purchasingactivity should consider themselves bound by the Codeof Ethics of the Chartered Institute of Purchasing &Supply (given as Appendix A to the Purchasing Policy)

The following points should be particularly noted:

Gifts, hospitality and other inducementsOnly gifts of small intrinsic value - pens, desk diariesand the like - may be accepted from actual or potentialsuppliers. Gifts of real worth should be reported, andreturned to the supplier with a polite explanation ofwhy the offer is unacceptable. Suppliers who persist inmaking such offers should be made aware that thisorganisation will cease to deal with them.

On occasion it is necessary both to give and receivehospitality. However, any hospitality offered oraccepted must be modest and proportional to theoccasion, and of the type and scale that you wouldoffer if the situations were reversed.

Invitations to visit user sites, attend specialistconferences, association annual dinners and the like asthe guest of a supplier should be treated with cautionand approved in advance by your line manager.Invitations extended to a spouse or other guest will bedeclined except in exceptional circumstances whichshould be approved by your line manager. Allinvitations to sporting occasions and other functionswith little or no business content should be reportedand declined. This applies at all times, not just inworking hours. Invitations should be declined politelybut firmly.

Some inducements are unavoidable, as they comepackaged with the product. The obvious example is 'airmiles' earned on business travel. All benefits gainedthrough spending the organisation's funds are theproperty of the organisation and should be reportedand surrendered (although if they are of no value tothe organisation the Head of Purchasing may authorisethe recipient to retain them).

Conflicts of interestWhen dealing with suppliers, potential conflicts ofinterest can sometimes arise. Spouses or other relativesmay be employed by the supplier company or possessshareholdings or other stakes; personal friendships maygrow up over time. Such potential conflicts should bereported to your manager as soon as they areidentified. They will not normally prevent our tradingwith the company concerned, but it may be ineverybody's interests to arrange for the expenditure tobe handled by someone else.



Sometimes, former employees may be potentialsuppliers - indeed their knowledge of our operationsmay make them particularly suitable. It is importantthat they do not receive or expect to receive specialconsideration. If their 'inside knowledge', for instanceof our cost structures, appears to give them an unfaircompetitive advantage, it may be desirable to take stepsto ensure fair competition among all suppliers.

Employees should avoid as far as possible dealing withour suppliers in their private affairs, particularly if thisis likely to put them under some obligation to thesupplier. Where such arrangements are unavoidable, itis essential that they ensure that they are not offeredany sort of deal which is not commonly available, andwhich could be construed as a reward for actions takenin the course of their employment.

Anti-competitive behaviourFrom time to time, buyers may become aware ofsupplier organisations apparently acting in concert tofix prices or divide up markets. More rarely, there maybe arrangements between buyers from differentorganisations designed to put pressure on suppliers.Any such arrangement is illegal unless reported to theOffice of Fair Trading and if necessary specificallycleared by the Restrictive Practices Court. Any suchsuspicions should be reported (with any supportingevidence) to the Purchasing Department which willinvestigate and, if necessary, pass the information tothe Office of Fair Trading.

'Whistleblowers'It is our policy to support, protect and, where possible,preserve the anonymity, of any of our employees thatreport apparently questionable activity, even if theirfears subsequently prove to be unfounded. Earlyreporting is essential, so that, where necessary, legaladvice can be taken and both the individual and theorganisation protected.

Other areas which create, at least potentially, ethicalconflicts, for the organisation perhaps more than theindividual, include:• ‘Product familiarisation’ visits and associated

hospitality• Acceptance of samples, demonstration models and

so on outside of a contract• Payments to become or be retained on a list of

approved suppliers or similar (or in retail buying,payments by suppliers to secure favourable shelfpositions); similarly, payments towards jointprojects/ventures. (Such payment demands must berelated to tangible benefits accruing or expected toaccrue to the supplier, and should not have theeffect of excluding other businesses, especially smallbusinesses, from consideration, and must not be, orappear to be, the ‘price paid’ for winning business.)

• Reciprocal or countertrade, where being a customerof the organisation is a condition for becoming asupplier

• Imposition - of a nominated supplier by an internalor external customer.

The situations outlined above are not necessarily illegalor unethical, but will require individual justificationagainst the tenets of the Purchasing Policy.



It is the responsibility of all those involved in aprocurement to report relevant information to maintaina relevant database. Note, however, that personalobservations on supplier representatives or executivesshould not be routinely logged onto the database, asbeing a likely breach of the Data Protection Acts. TheAct gives individuals rights to see and have correcteddata of a personal nature held about them. This wouldinclude, for example, comments about the personalqualities of a supplier's salesman or service engineer, orabout the integrity of a consultant or sole trader. Suchinformation may of course be highly germane to thepurchasing process, but anyone creating or retainingsuch information must keep personal detail to theminimum (such as do not identify the individual ifidentifying the company will do) and be scrupulous inensuring that any such information is fair andverifiable. Particular sensitivity needs to be shown ifgender, religious or ethnic details are kept in pursuanceof a policy of encouraging minority-owned businesses(there can be no other valid reason for keeping suchinformation).

Note also that the ‘supplier database’ mayappropriately include details on organisations withwhich we do not have a direct contractual relationship(for example agents and other ‘middlemen’, logisticscontractors, freight forwarders and the like retained bythe supplier company, sub-contractors to the suppliercompany) where the operations of such organisationshave the potential to have significant impact on thesuccess of the purchase or contract.

2.2 Category ManagementThe Purchasing Department may be organised aroundthe principles of category management, with identifiedindividuals or teams taking lead responsibility for allprocurement in particular classes of goods and/orservices. In some cases such organisations mayalternatively or additionally be based around keystrategic suppliers. All requirements within suchcategories should be channelled through theappropriate specialist in the first instance. (Note: thismay not apply in smaller Purchasing Departments.)Category teams should be shown on a structure chartappended to these Procedures.

2.3 Delegated purchasing authorityFor major procurements [Note: different organisationsmay have their own definitions of what constitutes‘major’: factors will include monetary value of theprocurement, the timescale of the commitment, thecriticality of the procurement to the business] thePurchasing Department will normally form the lead inan appropriate cross-functional team.

For some specialist procurements it may be moreappropriate for another department to take the lead,but Purchasing will be continuously involved in anadvisory capacity and to verify that the Policy andprocedures are adhered to. (Examples might be:appointment of marketing agencies - led by MarketingDepartment; contracts for provision of contract labour -led by HR; contracts for supply of IT - led by IT orFinance; appointment of auditors - led by Finance.)

For small, sporadic and non-critical purchases,individuals or user departments may be granteddelegated purchasing authority. The scope of suchauthority will be negotiated with the PurchasingDepartment and will be constrained by financial limits,category of goods or services, or both.



Staff exercising delegated purchasing authority arerequired to use appropriate centrally negotiatedframeworks or call-off contracts where such exist:likewise where e-procurement systems are in place,approved (and only approved) e-catalogues and so on.Where such contracts exist but are found inappropriateto the requirement, a report must be made toPurchasing so that consideration can be given torenegotiating a more suitable contract. Where, as mayhappen, a non-contracted supplier appears to beoffering a more attractive price or commercial offer fora product than that obtainable under the relevantnegotiated arrangement, this should be reported toPurchasing BEFORE any purchase is made. (There may,indeed should, be overall benefits to the organisation inusing the contract even if certain offers in the range areindividually less than totally competitive; additionally,although this is to be discouraged, it may be that aframework or similar contract guarantees the suppliersome degree of exclusivity. Delegated purchasersshould be made aware of these factors.)

Those with delegated powers must never useunauthorised e-commerce channels. Apart from theinherent risks (fraud, theft and so on), the negotiationof e-commerce facilities forms itself a major andstrategic commercial contract, subject to the samepolicies and procedures as any other major purchase.

Purchasing will ensure that appropriate reports ofdelegated activity are received, and consolidated withthe overall data and reporting system. (In the case ofprocurement cards, approved e-sourcing systems andso on, this may well be entirely automated, butprocedures are still required to capture, for example,T&E expenditure).

As far as is possible the principle of ‘separation ofduties’ will be followed by those exercising delegatedpurchasing authority: that is, that the three keyfunctions of budget-holder, negotiator/committer, andacceptor/payer should be performed by at least twoseparate persons. (Clearly this is not always possible -Travel & Expense purchasing at the individual level, forexample.)

Where issued, corporate purchasing cards should beemployed for all suitable delegated procurements, asthese automatically provide much of the requiredreporting detail. Users of procurement cards will notehowever:• limits set on a particular type of expenditure over-

ride any overall limits on the size of transactionpermitted by the card

• cards should not be used for high-value transactionseven when they lie within the scope of delegatedauthority. (Cards cost suppliers in terms ofsignificant merchant fees which, for big-tickettransactions, are likely to be reflected in the price)

• corporate cards are never to be used for personalpurposes, regardless of any intention to reimbursethe organisation.



3 The Purchasing and Supply Management ModelThe Purchasing & Supply Management model(available on CIPS website) illustrates the sequence ofpurchasing and related activities in a genericprocurement situation. The procedures which follow inthis section reflect, with some simplification, thismodel.

Necessarily, there will be many instances whereprocedures following the full model are inappropriate,irrelevant, or impracticable, and other, simplerprocedures apply. Nonetheless, all procedures usedshould comply with the model as far as is possible, andany deviation should be checked against the model toensure that no excessive risks are being incurred byadopting a simpler or less rigorous procedure.

The model process divides into four sections:• Sourcing analysis• Requisition/demand management• Pre-contract activities• Post-contract activities

Although the precise nature of these activities will varyaccording to the nature of the procurement, and someelements may not apply in all cases, the principles areconstant. They should be adhered to, and carried out inthe appropriate sequence.

Purchasing Policy and ProceduresThe Purchasing and SupplyManagement Model


4. Sourcing analysisSourcing analysis is a continuous process. It draws onhistoric and current purchasing data; wider marketintelligence, and the forward-looking plans, forecastsand expectations of the organisation and the widersupply chain to ensure that appropriate purchasingstrategies are available for all classes of externalexpenditure, and that they are aligned with thePurchasing Policy and the overall organisational policyobjectives. At the same time the analysis will attempt,as far as practicable, to predict the likely futurerequirements on the Purchasing Department and matchthese to available resources and appropriate timescales.

At any given moment some classes of purchase will, forreasons of business criticality, market volatility and soon, command more constant attention: nonetheless thePurchasing Department will ensure that ALL classes ofexternal spend are regularly reviewed over anappropriate timescale.

The elements of Sourcing analysis include the following:

4.1 Process/Competence AnalysisThis will:• identify budget holders, end-use customers and

other ‘constituents’ - the current and likely futuresources of demands and requisitions, internal orexternal

• evaluate the purchasing and supply competencies ofthose people involved in the P&SM process, within,and, where appropriate, outside the PurchasingDepartment itself (which in turn may raiserequirements for additional training and support).Particular attention will be paid to those exercisingdelegated purchasing authority

• Activity-based costing - that is, analysing the internalcosts of purchasing processes (and where relevant,external costs, for example the costs to suppliers ofentering a tendering process) and seek to identifysavings and efficiencies that will not compromisethe overall goals. This will also feed into

• evaluating purchasing systems, procedures(including this document), controls andmanagement information to ensure their continuingfitness for purpose. It is worth noting that theProcedures document itself will tend to ‘grow’ overtime as novel situations and experiences give rise tonew and revised procedures. It is essential that thedocument be regularly revisited to ensure thatprocedures do not conflict, that they have not‘drifted’ from the Purchasing Policy and the P&SMModel, and that they have not become socumbersome or opaque as to risk confusing thosewho have to operate them.

4.2 Spend analysisThe Department should constantly:• Monitor who is buying what, from whom, in what

quantities and how often, over what timescales andon what terms.

• Identify opportunities to consolidate spends (egacross different user departments), to rationalise thenumber of separate suppliers and the range ofdifferent goods and services being bought, toexploit potential economies of scale vis-à-vissuppliers, and similarly any internal administrativeeconomies available.

• Evaluate the progress of existing contracts and theircontinuing suitability.

The analysis will also review and if necessary re-categorise the most critical assets and supplies (havingparticular regard, for example, to supplies that have alimited availability or supplier base, and to suppliesthat are or appear to be specific to a given supplier).

The historical and current position is to be compared,as far as is possible, with known or expected trends inthe marketplace, and the likely forward expected usageof goods and services, and significant changes noted.

Purchasing Policy and ProceduresSourcing analysis


Some organisations may need to review spend againstinformation on sources of funding: for example, wherefunding is dependent on a Public Finance Initiative orPublic Private Partnership, or where goods are beingacquired on behalf of an external customer or end-user.

4.3 ‘Political’ and risk analysisThis analysis should review the several categories ofrisk that may impact on the supply chain or elementsthereof as appropriate for example, political instabilityin supplier countries, transport disruptions, regulatoryimpacts, financial stability of suppliers, markednarrowing of the supply base due to sectorconsolidation, and so on. Contingency plans should beconstantly updated to mitigate, manage or avoidunnecessary risks. The appropriate plans and actionsmay vary widely - examples would include re-specification of a component to allow a wider supplybase; re-sourcing to more stable or geographicallycloser countries; creating inventory buffers. Theorganisation’s insurance provisions (and those of keysuppliers) against supply chain disruption should alsobe reviewed.

4.4 Supply base analysisThis should evaluate the ease or tightness of suppliermarkets and the diversity or otherwise of the availablesupplier base. The historic and current performance ofindividual suppliers should be examined and anytrends noted. Information asymmetries should also benoted and steps taken to correct them. Following onfrom the Risk analysis, key suppliers’ ‘isolationmechanisms’ - that is, the actions they have in place tocope with supply chain risk - should be evaluated.

More generally, the supply base should be analysedusing techniques such as Pareto, supply positioninganalysis and supplier /customer preferencing analysis.Together with market intelligence, these analysesshould be used to suggest the type of purchasingstrategy and relationship to be used with particularsuppliers or particular marketplaces.

It is important that these analyses are looked at with‘fresh eyes’ at regular intervals - the PurchasingDepartment must not assume that the future willnecessarily look like the past, even where supplyrelationships have operated happily for many years.

4.5 Supply/value stream mappingSupply streams identified as critical or strategic shouldbe subjected to more detailed analysis, (includingwhere appropriate second and third tier suppliers) todetermine inter alia vulnerabilities, power anddependency, where in the supply or value chain profits,margins and ‘value added’ are occurring (and thus,whether we, as the buying organisation, are capturingenough of the added value relative to cost). The supplystream’s response to demand, and any tendencies todemand distortion or amplification, should also beexamined.

4.6 Options/decisionsFrom the above analyses the Purchasing Departmentshould be able to determine appropriate sourcing andprocurement strategies for different suppliers and/ordifferent classes of supply; create business cases forchange (not least in purchasing processes themselves,such as electronic commerce options) and make policyrecommendations around ‘make or buy’,insourcing/outsourcing and similar questions.Note that the strategies deriving from this analysis donot preclude the possibility that, on any particularprocurement, a different strategy may be preferred.

The strategic analyses are not, in essence, quantifiableexercises - they involve a large degree of subjectivejudgement, and it is vital that those carrying them outreceive the necessary training and support. Further, all‘decisions’ thrown up as to what, for example,constitutes a ‘strategic’ supply, will need to benormalised and prioritised in the light of thePurchasing Department’s available resources and likelyworkload.

Purchasing Policy and ProceduresSourcing analysis


5. Demand ManagementIt is common and helpful, in most organisations andcertainly in those involved, as manufacturers orretailers, with a physical product, to distinguishbetween direct and indirect spend. The distinction isbetween those products and services that can be linkedto production or service delivery (direct spend) and thecapital equipment, services and supplies required forrunning the organisation but which are not in any realsense ‘sold on’ to the end consumer (indirect spend,sometimes referred to as MRO, for Maintenance,Repairs, Operations).

In many organisations, it may be more useful to makethe distinction between those goods and serviceswhere the need derives from a reasonably well-foundedplan or forecast, and those where the need arisessporadically or in response to unpredictable events.Thus, for example, areas of Marketing spend associatedwith and planned as part of a new product launch, orthe transport and logistics requirement for a particularproduct or flow, have a planned demand that isestablished well in advance and thus have many of thecharacteristics of direct goods for incorporation in theproduct.

5.1 Direct spendIn the case of direct or recurring planned expenditure,the ‘day-to-day’ requirement will typically be generatedautomatically by some type of Planning and Schedulingsystem, generating a purchase order, again oftenautomatically, direct on the supplier against an existingcontract.

For such a contract to be negotiated in the first place,and at the required intervals renegotiated or re-offered,Purchasing will work as a team with otherstakeholders. This involvement should commence asearly as possible in the product life cycle.

Amongst other matters that such a team will need todetermine, informed in part by the sourcing analysis

described above are:• Inventory policies. This will reflect degrees of

supply chain risk (including risk of obsolescence,and volatility of demand/production); the economicimpact of holding stock (itself dependent onwhether stock is paid for when delivered, or whenconsumed); any economic and other advantages ofsuch techniques as VMI (Vendor ManagedInventory) or delivery direct to line-side; physicalconstraints on stockholding (to include, besidesspace considerations, product shelf life,environmental requirements, such as temperature orhumidity control, restrictions on the storage or co-storage of hazardous materials, and so on).

• Value analysis/value engineering.• Requisition/replenishment policies - for example JIT,

Kanban techniques, master production scheduling.The policy on make to stock as against make toorder is crucial here, especially in the case of newproducts, contingency plans for demand exceedingsupply, and indeed for the reverse: demand failingat least initially to meet forecast.

5.2 Indirect spendDemand for indirect expenditure is by definition notparticularly predictable: even where aggregate demandfor a product category over, say, a year is reliablyavailable, the precise nature of the requirement, and itstiming, may not be. Many requirements for indirectspend fall into the ‘project’ category: specialistconsultancy, minor and major works, capital equipmentacquisition (including IT), specialist consultancy,although in general there will be some degree ofadvance notice of such requirements and Purchasingcan, using its analyses, plan to some degree thepurchasing strategy. Other requirements may arisesuddenly, for example, as a result of major or minorcatastrophes (machine breakdown, fire, temporaryincapacity of supplier) and cannot be planned for indetail, although as outlined above Purchasing shouldhave robust contingency plans at the generic level atleast.

Purchasing Policy and ProceduresDemand Management


Direct and Indirect spendFor both categories of expenditure, once alerted to thelikely requirement, Purchasing will:• Identify the categories of spend involved (and using

past experience, other likely expenditures that havenot yet been raised but will probably be required inassociation: transport/logistics, for example)

• Suggest and construct the appropriate cross-functional teams to identify the needs of, and thenmanage/take ownership of, the procurement. Theseshould be as small as is commensurate withadequate representation of the significantstakeholders, and it must be insisted that teammembers are of a status/seniority commensuratewith the importance of the procurement. Ifnecessary, likely training and support requirementsfor the team should be identified and acted upon asan example, in a construction or worksprocurement, it may be that few, if any, teammembers, in or out of Purchasing, have experienceof being a construction client.

• Discuss and determine the appropriate sourcingstrategy - that may include at one extreme the makeor buy decision, at the other, the possibility of anoutsourcing of future direct management control.Appropriate procedures and processes should beagreed, bearing in mind the need to minimise riskand transaction cost, and optimise value, to achievethe desired economic and other objectives, tocomply with the Purchasing Policy, and of course, tomeet the required timescale. Methods of assuring,reporting and verifying satisfactory progress, andthe responsibilities, therefore, should also beestablished at this point. Although teamwork is ofthe essence, it will often be appropriate to identifythe team ‘leader’ or focal point.

In some procurements, and especially those with asignificant speculative, design or development aspect,or where there is likely to be an element of risk-sharing between buyer and supplier, it may beappropriate at this point to identify potential partners.However, great care should be taken to ensure that thisdoes not unduly constrain competition or distort theway in which the procedures are implemented to theadvantage or detriment of potential suppliers.

Whether direct or indirect spend, Purchasing will beassiduous in ascertaining that the projected demand isa genuine requirement, whether from the productionplan or the real needs of the end users. It isappropriate also at this stage to ascertain that funds onthe likely scale required are indeed available. If the‘requirement’ is more in the nature of a researchexercise, it should be made clear that, whilstPurchasing will do all it can to provide estimates ofcosts and benefits, the full panoply of the procedureswill not be invoked until proper authorisation for thework is received.

At every milestone in the procurement procedure,reference back should be made to ensure that• the requirement is still valid• the likely required resources are still available

Purchasing Policy and ProceduresDemand Management


6. Pre-contract activitiesOnce a definite, or near-definite, demand or requisitionhas become apparent, the Purchasing Departmentshould take the following procedure that leads(usually) to the award of a contract.

6.1 Identification of needThe Purchasing Department will establish an effectiveliaison with the user or requisitioner (note - this maynot be the same individual, or even department, whoseinitial approach originated the request. To give anexample, an internal Customer Care team may raise ademand for equipment to be used by an external forceof field engineers/salesmen). The composition of anyproject or procurement team may need to beaugmented to reflect the interests of the end-user.

The next step is to determine the requirements in detailand thus produce a specification. In drafting aspecification a number of factors need to be considered:

• Are there technical alternatives, approaches orsolutions that may achieve an acceptable result atlower cost, or perhaps using existing resources?

• Is the projected level of demand realistic, and is thetimescale for which it is required appropriate? Thismay suggest reducing projected quantities or deferringthe demand, it may on the other hand suggest thatquantities required have been underestimated, or thatthe need is sufficiently urgent that, for example, a fulltendering process is inappropriate or impossible.Requisitions giving timescales ‘as soon as possible’should be referred back

• Can the complexity of the procurement be reduced -for example by redesign to use standardcomponents, or by buying an off-the-peg, ratherthan bespoke, solution?

• What budget is available, and does this at leastapproximately correspond to the likely cost of theprocurement? Depending on the nature of theprocurement it may be necessary to query theprovision for on-costs, such as maintenance,upgrades or end-of-life disposal, as well as the initialcost of acquisition.

Specifications for services are different in that,wherever possible, services should be specified interms of desired results and outcomes, rather than byprescribing the method by which these are to beachieved. Output-Based Specifications are also highlydesirable for the supply of capital and productiongoods, works and so on, but in their nature these aremore likely to be heavily constrained by technicalconsiderations.

Note also that many contracts for goods include asubstantial service element (for example, deliverymethods, Vendor Managed Inventory systems and soon for direct goods; ongoing maintenance and serviceprovision for capital equipment). Specifications herewill need to combine functional detail and outputcriteria.

When drafting specifications the following pointsshould be considered:• Technical standards should only be used where

necessary to ensure satisfactory performance.International or national standards in the publicdomain should be used: specifiers must guardagainst creating in-house standards. If standards notin the public domain have to be used, copies shouldbe provided with the package.

• In order to reduce inventory and increasepurchasing leverage, a standardisation policy forcommonly used materials may be in force, and thespecification should make full use of this wherepracticable. It is for the user department to showwhy a standard part or material does not fulfil theneed.

Purchasing Policy and ProceduresPre-contract activities


• The specification should wherever possible avoidthe use of trade names, proprietary processes andother descriptions which could have the result ofreducing effective competition. Care should be takennot to misuse trade names as generics (such asPerspex, Pop-rivet). Trade names should only beused in a specification if the use of that proprietaryproduct is essential to achieve a specific technicalend.

• The specification must contain all the informationnecessary for a supplier to prepare a valid bid.

Note: for contracts for services, a draft Service LevelAgreement may be offered instead of, or in addition to,a Specification. (See below, Section 6.8).

6.2 Procurement PlanIf this has not already occurred, an appropriate cross-functional team should be brought together andbriefed. Where necessary the ‘make or buy’ decisionwill be addressed. Assuming that the decision is for anexternal procurement, a project plan, with projectedtimescales, will be developed. It is recommended thatthese timescales be referred back to theuser/requisitioner for confirmation that they areappropriate to the urgency of the need.

Note: It is important that lessons are learned andpromulgated from all instances where the timescale ofthe requirement appears to preclude a full tenderingprocess (even if that would not, in the event, be thepreferred procurement method). Emergencies do arise,but users and requisitioners must understand the timerequirements of an effective procurement process andshould be discouraged from ‘last minute’ requisitioning.

For complex procurements (such as Works andConstruction, or where there is a significantdesign/development element) the style of contract tobe awarded should be considered at this stage - forexample whether it will be on a cost-plus basis,whether staged payments are involved, whetherindustry-standard forms of contract are to be used. Thisdecision may change in the light of subsequentnegotiation, but the team should have an idea of themost desirable outcome.

The Procurement Plan will determine the forms ofmarket testing and development required. It will set outthe proposed procurement route (such as, a full, openInvitation To Tender, tendering restricted to pre-qualifiedfirms, Request for Quotation to existing suppliers, designcontest, and so on). It will establish the procedures to beused, and the criteria against which suppliers and tendersare to be evaluated (discussed later, but it is importantthat these criteria should be fixed before theprocurement gets underway). The Plan will identify theduties and responsibilities of team members, and theauthorisations and approvals that will be required atevery stage of the process.

E-procurementNote that, although the delivery mechanisms forprocurement by e-sourcing, e-auctions and similartechniques are very different, the process involved isessentially the same as for a conventional procurement,and the same procedures need to be followed - indeed,because of the compression of timescales which e-procurement techniques offer, it is even more importantthat the ‘documentation’ is ‘right first time’ as there arefewer opportunities for amendment or renegotiation. Aprocurement plan is therefore required for e-procurementin the same way as for conventional procurement.

Note that the selection of e-procurement sites andmarket places itself offers risks to the organisation, andshould therefore be approached as a majorprocurement in its own right.



6.3 Market testing and developmentIn some instances it may become rapidly apparent thatonly one supplier, or a small number of suppliers, islikely to be capable of fulfilling the requirement. Insuch cases the team may proceed directly to preparingand issuing Invitations to Tender (to the small group)or of directly negotiating with the sole supplier. It isworth noting that a ‘negotiated’ procurement is allowedunder European public procurement rules in certaincircumstances, principally where genuine time ortechnical constraints exist.

This situation must always be subjected to the mostrigorous examination. The situation can arise forlegitimate reasons, for example, a renewal of anexisting contract to which we are committed for designor production reasons, that the organisation’s ownultimate customer has specified a particular company’scomponent; that the requisition is for maintenanceand/or spare parts for a proprietary machine; orresulting from other Intellectual Propertyconsiderations. But wherever the lack of supply optionsappears to result from this organisation’s ownspecification, this should be challenged. Even if timedoes not allow for a revision of the specification, andthe consequent widening of the supplier base, on thisoccasion, steps should be taken, either by revising thespecification, or developing the supply base, or both, toprevent a similar situation occurring in future.

Ordinarily, however, the aim will be to let the contractby means of either an ‘open’ or a ‘restricted’ tenderprocess. ‘Open’ and ‘restricted’ reflect nomenclatureused in the European Union rules on publicprocurement. In principle, tenders, whose estimatedvalue is above certain limits, should be ‘open’ to allcomers, either directly or through an appropriate pre-qualification process, and therefore widely advertised,for example through the Official Journal of theEuropean Union. If a properly open pre-qualificationprocess has been carried out, subsequent tendering canbe ‘restricted’ to those pre-qualified firms.

Organisations not constrained by European rules willgenerally restrict their Invitations to Tender (ITTs) topotential suppliers that they already have reason tosuspect could meet the requirements. However, for thisapparent restriction of competition to remain aneffective procurement method, it is vital thatappropriate market research is carried out on acontinuing basis.

Where the requirement is novel to the organisation,(and there is therefore no relevant supplier history), thelikely form of the outcome is unknown orunspecifiable (for example, architectural projects,contracts for marketing services), where theorganisation is new to the territory from which supplyis sought (for example, when setting up an overseassubsidiary), or perhaps where all existing knownsuppliers have proved unsatisfactory, an ‘open’ tendercompetition may be considered, promoted byadvertising in the trade and public press and/or whereappropriate, by using a suitable public e-sourcing/e-tendering channel. However, open tenders riskattracting large numbers of speculative and poorlyqualified suppliers: they therefore generate aconsiderable, and often confusing workload, andshould be avoided unless they are mandatory orotherwise strictly necessary.

A ‘restricted’ approach to tendering is to be preferred inmost cases, but Purchasing should be pro-active increating the necessary market conditions for asuccessful tendering exercise. This may involve‘conditioning’ suppliers to bid for or tender for thework; it may involve identifying potential new suppliersand inviting them to bid; it may involve working withexisting suppliers, perhaps in a slightly different field,to encourage them to consider the new line ofbusiness.



Care must be taken, however, on several fronts.Suppliers must not be encouraged to believe that theyare a ‘shoo-in’ for the work; information relating to theproposed contract that is available to one potentialsupplier must be made available to all; great care mustbe taken not to suggest linkages to other contracts,existing or contemplated, that are not currently ‘on thetable’. It is important therefore that all dealings withpotential suppliers in contemplation of a tender exerciseare appropriately documented.

The aim is to attract at least three compliant (that is,meeting the specification and other requirements) bids,and preferably not more than ten or a dozen. Fromthese, either a successful bidder will emerge, or it maybe that one or more preferred bidders (or perhaps apreferred and a reserve bidder) are identified, who willbecome the subject of post tender negotiation (seebelow).

6.4 ITT/RFx documentationPurchasing will maintain a Register of ITTs (Invitationsto Tender) so that progress, response and outcomesmay be monitored. This will include the followinginformation:• Date of ITT• Supplier invited to tender• A serial or identifying number for the ITT• The method by which the ITT was despatched (such

as email, post, recorded delivery, hand delivery andso on)

• Supplier contact details

and as replies are received• Date and method of confirmation of receipt by the

supplier (which might, for example, be a recordeddelivery signed receipt)

• Date that a formal response to the ITT is received

ITTs and RFx (that is, Requests forInformation/Quotation/Price) should contain all theinformation, including the specification, that a potentialsupplier or contractor needs to furnish a compliant bid,but only that information.

The Invitation to Tender, and its supportingdocumentation, are critical to the success of aprocurement. As such, adequate development timemust be allowed to ensure that the ITT properlydescribes the requirements and conditions, withoutbeing so prescriptive that opportunities to achievegreater value for money are lost.

The Invitation to Tender package falls broadly into twoparts - the formal and procedural requirements, whichshould as far as possible be standardised, and thespecification which is unique to each procurement.

When drafting the ITT documentation, it is importantto keep commercial and technical requirementsseparate from each other, and from criteria relating tosupplier qualification, as these may be evaluatedseparately by different teams and by different criteria.

The ITT will include the following:• A list of contents of the ITT package• Clear identification of the procurement, by, for

instance, a reference number (especially importantwhere several procurements for similar classes ofgoods or services may be in train simultaneously)

• The date and time at which, and the place to which,completed tenders must be returned. An addresslabel, with a unique identifying code to enable thereceipt of tenders to be logged in the Registerwithout opening them, should be provided.

• The broad criteria by which bids will be judged (forinstance, Best Price, Best Economic Advantage, orother more complex factors)



• Normally, only written responses to the ITT will beaccepted. If, however, for special reasons such aspressure of time, responses by fax, e-mail or Telexare considered acceptable, appropriate instructionsshould be given.

• The address from which additional copies of thetender documentation can be obtained; also a list ofany supplementary documents that may beavailable, and any deposits or charges payable forthese.

• The number of copies of the tender to be submitted.• A list of any supporting documentation that will be

required• Details of any financial guarantees, performance

bonds, retentions or staged payment schemes thatmay apply

• The period of time for which tenders are expectedto remain valid

• Arrangements for issuing revisions to the ITT, or forrequiring extensions to the validity of tenders(including instructions on how tenderers shouldsubmit modified bids in the light of changes to theITT)

• The currency in which prices should be quoted andin which payments will be made; and whereappropriate the basis of pricing required (usingIncoterms such as ex-works, CIF, FOB and so on).

• The legal framework that will apply to anysubsequent contract (note: this will normally beEnglish Law, adjudicable in England or Scots Lawfor firms based in Scotland. Exceptionally, otherjurisdictions may be appropriate, for example whenprocuring on behalf of an overseas subsidiary)

• If bids for part only of the contract are acceptable,this should be stated

• The procedure to be followed if potential tenderersrequire clarification of any aspect of the Invitation toTender, together with a note advising potentialtenderers that such clarification will be issued to allother potential tenderers

• If variants to the specification that would achievethe same purpose are acceptable, this should bestated.

• Elements of this organisation's standard terms andconditions or form of contract, not covered by theabove, as far as appropriate. Alternatively, andespecially in contracts for construction and works,the Standard Forms of Contract (with anymodifications) that will be applied.

• Forms of dispute resolution (for exampleadjudication, arbitration) that will apply to anycontract

• Whether Best & Final Offer processes will follow thetender process (see below)

• A confidentiality clause

Additional clauses in the ITT may cover the following:• Quantities - forecasts and estimates should be

clearly indicated as such• Inspection, certification or quality assurance

requirements• Delivery dates or schedules of deliveries, point of

delivery• Special requirements for labelling, packaging or

carriage• Requirements for insurance• Point of acceptance of the goods or service

(especially if this differs from the point of delivery)• Reservation of our right to accept only part of a

tender, to reject all tenders or to cancel thetendering process

• The extent, if any, to which we will meet specifiedexpenses incurred by potential suppliers in tenderpreparation

• Where a group of suppliers may be submitting ajoint bid, any requirements for the legal form, andjoint and several liability, of such a grouping

• Any requirements for disclosing the identity andinvolvement of sub-contractors.

• If the ITT is for the establishment of a frameworkagreement, the proposed duration of the contract, orschedule of review dates, should be indicated



• Instructions to ensure a uniform presentation ofpricing information, if appropriate in the form of apricing schedule, may be given. This should includeprovision for the estimation of volume discountsand similar variables, and, especially in the case offoreign suppliers, any tariffs, duties, and so onpayable. Pricing information must, whereappropriate, be able to give an indication of the'total cost of ownership', rather than merelydelivered price.

• Any provision for price variation clauses, anyprovision for staged payments

• Procedure for arranging site visits and so on, asappropriate

• If a Service Level Agreement is contemplated (see6.8 below) a draft of the proposed agreement maybe included. The precise form of an SLA willnormally be the subject of Post Tender Negotiation(since it will be contingent on the content of thecontract ultimately agreed) and so it should bemade explicit that this draft is for illustrativepurposes only.

In the case of an open Invitation to Tender, it will alsobe necessary to request information about the potentialsupplier that would otherwise have been acquired inthe pre-qualification process .

Model forms of documentation for the Invitation toTender process are published by CIPS and are availableon the web-site www.cips.org

RFx documentation follows similar principles but cangenerally be simplified - the specification, for example,may be a simple catalogue number and schedule ofquantities. Often, too, the RFx represents a continuationor repeat of an order for which contract terms and soon have previously been negotiated. It is vital, however,that such terms are re-stated in the new documentation,as even a follow-on order may represent a new ‘offerand acceptance’.

A Request for Information (RFI) will typically be usedto identify potential suppliers for a short-listing or pre-qualification exercise, and may therefore be simplerstill. In all cases, though, it is essential to ensure thatthe potential supplier has a proper understanding ofthe purpose of the approach, the procedure to befollowed, and is given all the information, or asked allthe questions, that are necessary for a compliantresponse to be prepared.

6.4 Evaluation and selection of suppliersOften, supplier evaluation at the high level especiallycorporate, as opposed to technical, factors such asownership, solvency/credit rating, capacity, marketreputation and so on, will be carried out prior to theissue of the ITT/RFx and thus contribute to creatingthe list of ‘pre-qualified’ suppliers who are invited totender. In an ‘open’ tender this is not possible, but it ishighly desirable that the evaluation of suppliers shouldbe carried out by an appropriate cross-functional team,in an exercise quite separate from the technical andcommercial evaluation of tenders.

The information required for a robust supplierevaluation will mostly be supplied by the potentialsupplier company, as a response to an ITT or RFI, butevery opportunity should be taken to cross-check. Thismay include inquiries through Companies House,reports from specialist credit and business informationagencies, and especially the taking up of bank, tradeand customer references. UK Embassies and Consulatesmay be of help for overseas suppliers. Press reportsmay be relevant, but like other informal sources (suchas ex-employees) should be treated with due caution.



The required information falls under the followingbroad heads:

Company profileName, trading styles, registration numbers, addressesand contact details (both operational and ‘Registered’address), company status (for example plc, privatelyowned), details of any group or holding company ofwhich it is a part, company age and history, details ofchairman, directors and, where relevant, of other keystaff, details of lines of business, whether the businessis manufacturer, retailer/distributor, agent/licensee andso on.

Financial standingAnnual accounts, where relevant, share price performanceand key ratios such as profit: earnings, debt: capitalfinancial backers. Where discoverable, any significantcharges, outstanding legal disputes. Payment record (fromcredit reference agencies), judgements and so on.

CapacityEmployees, and the make-up of the employee structure,size and capacity of factories or other facilities thatwould be deployed in the procurement.Machinery/capital investment deployed, product range,typical output per annum and so on.

Quality and compliance procedures ISO90001,ISO 140001, MoD certifications, accident record anyenvironment/legal issues etc accreditation for trainingand so on, (for example ‘Investors in People’)

Additional informationMembership of any employers/trade associations. Staffrepresentation/union recognition/participation innational or local agreements. Evidence of appropriateinsurance policies (such as employers liability, thirdparty, professional indemnity)

Where the supplier is likely to be using sub-contractors,especially ‘labour only’, evidence of compliance withappropriate taxation laws. Evidence that the supplier isprepared and able to comply with our CSR policies,and is prepared and able to apply these on our behalf,top any relevant subcontractors

Track record and referencesCustomer references should be taken up. Current orprevious suppliers should also have a recordmaintained by Purchasing (but care should be taken toascertain whether circumstances, for example,ownership, have changed since the firm was lastemployed) evaluation of risk, policies and attitudes(inevitably, a more subjective approach).

A balanced scorecard approach may be required toassess some of these issues. However, although somepotential suppliers will ‘score’ better than others in anevaluation exercise, this should normally be treated asa ‘stop-go’ decision, rather than a ranking - that is, asupplier is either apparently qualified for the proposedprocurement, or it is not.

Note that evaluation needs to be carried out onsuppliers even if they have recently been evaluated fora different procurement. Suppliers that may be deemedunqualified for a major procurement (for example,through lack of capacity or slender financial resources)may be perfectly well qualified to be considered for asmaller procurement, or one in which the perceivedrisk is lower.

Note: where externally-hosted e-sourcing and e-auctionsystems are in use, suppliers on the system may havebeen ‘pre-qualified’ by the system operator. It isimportant to verify the criteria used and the extent towhich these match criteria we would use. It may benecessary to carry out our own evaluations of suchsuppliers.



6.6 Receipt and evaluation of tenders or offersAn evaluation team or teams will have been set up asdescribed above to assess bids and tenders received.(There may, and often should, be more than one team,evaluating, for example, the commercial aspects of aproposal separately from the technical aspects).

The methodology to be used in evaluation will havebeen agreed and recorded beforehand. It is notappropriate to change or redefine the evaluationcriteria during the process.

Invitations to Tender should be issued to all potentialbidders at the same time. It may be appropriate tonotify bidders to expect the package. Any revisions oralterations must similarly be issued to all bidderssimultaneously.

Where bidders request clarification, site visits and soon, care must be taken to ensure that information thusforthcoming is made available to all bidders.

As bids are returned, they should be logged, using theidentifier on the reply label, and stored unopened, in asecure location. Any modified or supplementary bidsmust be similarly logged, and related to the original bid.

Shortly before the closing date for bids, it may beappropriate to draw the approaching deadline to theattention of those companies whose bids have not yetbeen received.

One or more potential bidders may request anextension to the timescale allowed for the return oftenders. If there appear to be good reasons to allowthis, all recipients of the Invitation to Tender must beinvited to take advantage of the new closing date. Theorganisation itself may need to extend the deadline, if,for example, postal services have been disrupted.Again, all bidders must be given an equal opportunityto take advantage of the new date, including thesubmission of a revised tender, if response has alreadybeen made.

Other than as given above, tenders received after theclosing date should not be considered, unless it is clearfrom the postmark or other evidence that they weredespatched sufficiently early to have had a reasonableexpectation of arriving on time. Otherwise, late tendersshould be returned, unopened.

On the appointed day, all bids should be opened in thepresence of witnesses. A check should be made thatthe bidders have enclosed all the requireddocumentation, and that there are no obvious grosserrors of arithmetic. If documents are missing or errorsare apparent, the bidder should immediately be invitedto remedy the situation.

Tenders should then be evaluated in accordance withthe previously agreed criteria. For simple procurements,for example of standard products, evaluation mayconsist purely of verifying that the proposals meet thetechnical specification, and then determining whichproposal offers the best price, (noting that it shouldhave been determined in advance whether ‘best price’means lowest purchase cost, or lowest total cost overthe life of the contract or of the goods, as appropriate -that is, whole-life costing).



In general, though, one would expect most of suchpurchasing to have been delegated against frameworkor call-off contracts, or against the catalogue of apreferred supplier. For most procurements theevaluation processes will be more complex.There will generally be a series of trade-offs to beweighed. Technically, proposals will differ in theirstrengths and weaknesses - it may indeed be that noproposal is fully compliant with all aspects of thespecification. Commercially too, proposals will vary(higher purchase price against lower maintenancecosts, for example).

Evaluation can be by use of a weighted scorecard, orby ranking criteria in order of importance, orattractiveness. Examples of weighted scorecards may befound on the CIPS website, www.cips.org

It may be necessary to carry out various forms of costand risk analysis. These will generally take time and itis important that such time has been built into theprocess at the planning stage. The results of suchanalyses may feed into the agenda for Post TenderNegotiation, or may suggest the need to redefine thespecification and re-open bidding.

As stated, for most procurement exercises, theeconomic advantage should be calculated on a totalcost of acquisition or whole-life cost basis. Pre-acquisition costs (such as the cost of market testing andof the tender process itself), will already have beenweighed up when selecting the appropriate procedure.Costs that should be ascertainable from the bids (if theright questions have been asked) would typicallyinclude:

• Acquisition costs such as• purchase price• delivery charges• insurance, taxes, tariffs• installation/commissioning/associated works• training and support• internal costs of changing from current supplier

(this should have been a consideration at theprocurement planning stage)

Other operating costs may well be:• labour• materials• consumables• energy• contract/supplier management• environmental costs• other costs of change

Other maintenance costs:• specialist labour, tooling• cost of spares• costs of planned maintenance/downtime• expected reliability profile (with age)• cost of service/maintenance contracts• extent of warranties and so on against the above• other downtime costs

End of life costs may contain but not be limited to:• decommissioning• disposal• reinstatement of land/buildings and so on• likely residual value, if any



Naturally Whole-life Costing must also assess relativebenefits of proposals in terms of for example greaterproduction rates. The above analysis would applytypically to capital and production goods and can oftenbe suitably adapted to evaluate services. For direct goods,acquisition costs are likely to be preponderant butestimates may also usefully be made of factors such aspredicted in-service failure rates, consequent warrantycosts and any supplier provision against these, impact onmarket shares and margins (such as in the choicebetween branded and generic goods or components) andend of life costs under producer liability.

In all cases allowance may be made for intangiblebenefits (social, environmental and so on) in line withthe Policy. A firm and reasonable methodology forattributing value here must have been worked out inadvance - such factors should not normally be used asa ‘tie-breaker’.

In some tender exercises, there may be no suitable orcompliant bid. In this instance the purchasing and userdepartments must decide whether• to commence a new tendering exercise using the

existing requirement, with different vendorcompanies

• to vary the requirement and initiate a new tenderingexercise

• to vary the requirement, and negotiate with thepresent bidders to achieve a satisfactory solution

• abandon the exercise.

Where it appears appropriate to entertain one or morenon-compliant or variant bids, it must be ascertained atthis stage that such variance still satisfies the originalpurposes of the requisition. If this is not the case, theexercise should be abandoned, a new specificationdrawn up in the light of what is now known of marketavailability, and the procurement process restarted.Note that this applies even if the variant tender appearslikely to be cheaper than the estimate for the originalrequirement.

Post-tender NegotiationPTN is a controversial subject and needs to be handledwith care. Very often, negotiation with the ‘best’, or thetwo or three ‘best’ bidders can lead to substantialimprovements in terms and conditions, warranties,payment terms, price and so on. The process must bekept under firm control however - as in anynegotiation, PTN opens the opportunity for thesupplier also to improve his position.

What is not permissible is for PTN to involve anyfundamental redefinition of the requirement: forexample, a radical change in specification, or asuggestion to lease rather than purchase. If such doesarise, all suppliers must have the opportunity to reviewtheir proposals.

There can on occasions be two or three bids thatappear to be of approximately equal merit. In this casepost-tender negotiation may be used to differentiate thebids and achieve the best result. The purchasing anduser departments together must• decide on the objectives (for example lower price,

better specification, extended warranty)• determine who is to lead the negotiation, and the

composition of the team• establish a timescale within which negotiations need

to be completed

It is essential that negotiations should be planned inadvance. The negotiator (or team of negotiators asappropriate - in this case it must be made clear who is‘leading’) must have a clear idea of their objectives, andof what outcomes are or are not acceptable; equallythey must be clear as to what areas are not open torenegotiation. Strategies for negotiation, and possiblecounter-proposals that could be available, shouldlikewise be clear in advance of any talks.



All stages of the negotiation should be recorded as theyoccur; and any and all agreements reached beapproved in writing by both sides. An agenda for thenegotiation should be drawn up, based on theobjectives as determined above, and agreed with thepotential supplier(s). All negotiation must take placewithin this formal context.

Clarification of tenders may need to be sought (and itmay emerge that this is because of a lack of clarity inthe original ITT documentation). It is essential that anyclarification or additional information provided to onebidder is provided to all and that all have anopportunity to revise their bids in the light thereof. Thisis especially so where one or more abnormally low, orabnormally high, bids have been received, as this mayreflect some fundamental misunderstanding of therequirement. In some circumstances this may requirean extension of the timetable.

Information provided by bidders remains confidential.It is not acceptable to pass detail of one bid to anothersupplier in order to attempt to set up a form of auctionprocess. Nor is it ethical to pass on the novel ideas orsolutions of one supplier to a competing bidder.

However, it may be appropriate to secure ‘Best andFinal Offers’ by circulating to all suppliers (or allcompliant suppliers) anonymous details of costs andprices obtained, inviting their BFO. The same result canbe achieved, again with anonymity, using an e-auction,using the reverse auction procedure where suppliersare invited to reduce their prices, until either anacceptable price is achieved, or no further reductionsare offered. If either of these procedures iscontemplated, suppliers should have been informed ofthe possibility at the ITT stage, and the process timefactored into the plan.

6.7 Creating the contract/relationshipA formal contract document is not always necessary. Ifthe documentation around the successful bid containsall the necessary information, a letter of acceptanceaccompanied by a purchase order will suffice.However, this only applies where the tenderdocumentation makes explicit that the bidder, byoffering, is accepting the Form of Contract, Terms &Conditions that we have proposed in the ITT.

Otherwise, the contract with its terms and conditionswill be drawn up in light of the ITT, the content of thesuccessful bid, and the results of any post-tendernegotiation.

Writing contracts ‘from scratch’ should be avoidedwhere possible. If it is necessary, the procedure is tocommence with a ‘Heads of Agreement’ signed by bothparties, and work from there (but see Letters of Intent,below). As far as is possible, a limited range of well-understood and appropriate standard Forms of Contractshould be employed. (Model Forms for a variety ofpurposes are published by CIPS, and by other bodies).Variations to the standard forms should be kept to theminimum, and appropriate legal advice sought. Variantclauses should be isolated within the contract (so thatin case of dispute, a court may strike that clause outwithout rendering the entire contract void). Cautionshould be exercised where use of a ‘Model Form’promulgated by a trade body (as opposed to anindependent institution) is proposed; however, it maybe preferable to accept such terms rather than toattempt to negotiate extensive variations, which caneasily create a legal nightmare.

Wherever possible, CIPS’ own Terms and Conditionsshould be utilised, although this may not be realisticallyachievable, especially in the purchase of standardgoods and commodities.



Often, a draft form of contract, with Ts and Cs, willhave formed part of the ITT, in which case, and subjectto any amendments negotiated post-tender, this shouldmerely require signature; although supplementary partsof the agreement, such as delivery schedules andService Level Agreements, may also need to benegotiated and incorporated.

Before a contract is finally signed, Purchasing mustverify that the proper financial authorisations are still inplace.

Contract checklistThe content of the contract will naturally varyaccording to the nature of the procurement - contractsfor services, and contracts in the construction/civilengineering field in particular, contain aspects that areinapplicable to the usual contracts for the supply ofgoods.

A contract for the supply of goods might cover thefollowing areas. Some may have little relevance in aparticular situation, but all should be considered. Notethat the detail of for example quantities, deliveries andso on will typically be given as a schedule to thecontract, or in a Purchase Order subordinate to thecontract. Clear distinction must be made between themerely indicative, such as schedules showing expectedorder or delivery quantities and dates, and those thatform a contractual obligation. (For further advice oncore clauses, refer to CIPS core clauses atwww.cips.org)

• Definitions• Quality and fitness for purpose• Delivery dates• Passing of property and risk to buyers• Terms of payment

• Loss or damage in transit• Acceptance• Variations• Intellectual property rights• Force majeure• Assignment and sub-letting• Copies of sub-orders• Progress and inspection• Buyer’s rights in specifications, plans and so on• Free-issue materials• Hazardous goods• Packaging (return of)• Warranty• Insolvency and bankruptcy• General conditions• Applicable law• Notices• Waiver• Severance

There are many other clauses and sections, which maybe desirable in specific instances; for example provisionfor dispute resolution or arbitration (compulsory inConstruction contracts).

A Liquidated Damages clause may be considered (note:NOT a penalty clause). The sums included here mustbe a reasonable reflection of real financial damagelikely to be caused by any supplier default, and recordsof the method of calculation should be retained.

As stated, these Forms of Contract should be changedand varied as little as possible - operational detailshould be concentrated in the relevant schedules andPurchase Orders where, although they are part of thecontract, they do not risk creating legal ambiguities.



Letters of IntentIf the process of drafting and agreeing the contract islikely to extend for any period of time, there may bepressure from the supplier for a Letter of Intent to beissued. This should be resisted where possible, as it canoften be interpreted as an offer by the buyer, which thesupplier is entitled to take as legally binding. There isalways a risk that relationships may break down, orcircumstances unexpectedly change, while the contractis being drafted; additionally, a supplier already holdinga Letter of Intent may have less motivation to negotiateconstructively on outstanding issues.

A ‘letter of comfort’, if properly drafted, does notconstitute a contract, and may be necessary if, forexample, it is necessary to ask the supplier to extendthe validity of the offer, or to encourage him to retaincapacity against the probable award of the contract.Such a letter must clearly state that it does NOTconstitute acceptance of the supplier’s offer.

In some cases it is desirable that the putative suppliershould commence operations before the contract issigned. This might be the case where tooling needs tobe manufactured, where long-lead materials have to besourced, or in the case of construction works, wheredesign work towards securing planning permission isrequired (and quite possibly signing the contract iscontingent on such permission being granted). In suchinstances, rather than a letter of intent, a separatecontract, expressly limited to those works or activities,should be created. Such a contract should be expresslylimited both by time and by value.

A full explanation of the issues surrounding Letters ofIntent may be found on the CIPS web-site.

Debriefing unsuccessful biddersUnsuccessful suppliers should be informed as soon aspossible. It may be appropriate to offer a de-briefing onthe reasons for their failure (especially if the supplierbase is tight and greater competition is sought for thefuture). But such a de-brief must be careful not todisclose confidential details of competing bids,including price - (although in public sectorprocurement winning bids and prices are required tobe published).

RecordsAll records of post-tender negotiations and negotiationson contract terms and conditions must be retained.

6.8 Service Level AgreementsIn many procurements, most obviously those for theprovision of services, but also in for example those forthe provision of goods over an extended period wheredelivery performance is of the essence, or of machineryand so on where the supplier retains contractualresponsibility for maintenance or has offeredguarantees as to ‘up-time’, a Service Level Agreement(SLA) may form part of the contract.

In some cases, the SLA may effectively be the contract;however, since service level requirements tend to varyover time, it is recommended that a simple frameworkcontract be agreed, to which the SLA may form anappendix or schedule, the main contract thenidentifying the mechanism whereby the SLA may beperiodically renegotiated as appropriate withoutvoiding the principal contract. The main contract wouldalso lay down the remedies and consequences forfailure to perform to the terms of the SLA.



1 References and foot notes

The content of an SLA will naturally vary widely,depending on the nature of the service to be provided.Almost all SLA’s will be concerned with the timelinessand the quality of service delivery. More generally, anSLA will address the following:

• It will lay down outcomes that can be expected tomeet the requirements and expectations of theservice users

• It will establish measurable, verifiable performancetargets for the supplier or contractor

• There may also be performance targets that theprocuring organisation binds itself to meet (forexample, a distribution contractor may commit itselfto producing a lorry at a given location within acertain timeslot: the purchasing party may alsorequire itself to have the load, and any necessarylabour, available at that time).

• The SLA will lay down suitable mechanisms forreporting, especially of non-compliant incidents, inboth directions, to agreed timescales and in agreedformats. These may range as appropriate fromsimple incident logs to sophisticated multi-factoralmetrics or Key Performance Indicators. Care shouldbe taken to ensure that such metrics are bothverifiable in terms of their components, andindependent (in the mathematical sense).

• The SLA will provide a framework for escalation(that is, for raising an actual or perceived problemto an appropriate level at which it can be dealtwith), for analysing root causes, and for resolvingdifficulties.

Note: In some cases, specifically in regulated activitiessuch as some financial services, it may be necessary orprudent to require reporting of incidents that are notdirectly the subject of the given contract - for exampleissues with regulators on contracts that the suppliermay hold with other customers.

Where the nature of the service lends itself to sensiblestatistical analysis, the SLA may prescribe methods forgenerating ‘early warning’ of potential service levelslippage

The SLA may also describe methods for devising andimplementing ‘continuous improvement’ of the activity.

Either in the SLA, or in the main governing contract,mechanisms will be specified for allocating thefinancial consequences both of underperformance(failure to meet the Service Level requirement) byeither or both parties, and of improved or exceededperformance.

Typically, the SLA will need to be updated periodically,within the life of the main contract, to reflect changingcircumstances, improved operating procedures and soon. A formal ‘change control’ regime will be specified,which should ensure that the relevant stakeholdersinvolved in the original procurement continue to berepresented. Note that continuous refinement of theSLA is not a proxy for reviewing and re-tendering thecontract at the end of the contract period. Note alsothat it should be made clear that, in the event of amisalignment emerging between the SLA as developed,and the core contract, the latter takes precedence.

Reporting under the terms of an SLA not infrequentlyrequires the supplier/contractor (or indeed theprocuring organisation) to comment on theperformance of relevant third parties. Suitableundertakings as to confidentiality of such informationneed to be in place.



7. Post-contract activitiesOnce the decision to award a contract has been madethe following actions become necessary:• Award the contract to the successful bidder• Notify and as necessary debrief unsuccessful bidders

(having regard, for example, to maintain as eagerand competitive market as possible against futurerequirements)

For regulated public sector contracts there is therequirement to publish a contract award notice in legalform. Even where this is not required it may bedeemed desirable, in terms of PR for both procurer andsupplier, to make an announcement.

Contingency plans should be checked - even at thisstage there is the possibility that the contract may notbe accepted, or if it is, that unforeseen circumstancesintervene to prevent successful implementation.

Check the plans and responsibilities for managing thecontract during and after implementation, and establish,if it does not already exist, the contract managementfunction.

CommunicationAward of contract needs to be communicated swiftly tothose concerned, particularly end-users, and in somecases stakeholders such as customers. Procurementcontracts let under the EU public sector rules also, ofcourse, have to be announced in the ‘Official Journal’.

On award, the Finance Department must immediatelyhave confirmed to it the amounts and timings of theliabilities that have been entered into. Care must betaken to distinguish between sums that we arecurrently committed to pay, and merely contingentbenefits that may have been used in the evaluation - forexample, proceeds from sale of replaced equipment, orrebates and discounts that depend on certain volumesbeing achieved.

The successful bidder may wish to inform the press.Any rules governing what publicity is acceptableshould be agreed before the contract is signed (andindeed may have formed a useful negotiating tool).Approval of such publicity will normally be throughthe Press Relations department (where such exists) orthe Marketing department, who will check the facts ofthe case with the Purchasing department. Publicity willnormally be permitted, but care will be taken not toappear to endorse a product, service or company,unless this is specifically intended and approved.

The purchasing procedure does not end with theAward of Contract - indeed responsibilities maycontinue right to the ultimate ‘end of life’ disposal ofgoods and assets, whether or not they are still in ourownership.

The nature of post-contract activities differs, however,according to whether the purchase is discrete (such as,purchase of a single quantity of goods, performance ofa single time-limited service) or ongoing - contractsextended over time, for example construction, and/orwhere an ongoing relationship is expected to exist withthe supplier or contractor.

7.1 Product receipt and payment authorisationIn the former case, arrangements must be made (andshould have been agreed in the procurement plan) forthe acceptance or otherwise of the goods and services,for verifying that they conform with specifications,service level agreements and so on, for raising andresolving any disputes as to, for example, quality,quantity, late delivery, and as these are resolved, toauthorise payment.

Where there is a problem in making payment withinthe due date (for example, because of a data mismatch)the Purchasing department should be advisedpromptly.

Purchasing Policy and ProceduresPost-contract activities


7.2 Contract/relationship/project managementProcurement responsibility does not end with theaward of contract. It is necessary to ensure thefollowing:• Controls are in place for monitoring progress in the

implementation of the contract• As appropriate, methods of carrying out acceptance

testing, on-site trials and so on, and of confirmingthat the results of such tests are likely to meet therequirements or expectations of therequisitioners/users

• As appropriate, establish ‘readiness for service’and/or timescales for roll-out across theorganisation. Systems should be in place to ensurethat end-users are prepared, for example, in termsof training but also in terms of their continuingassessment of performance against the terms of anSLA. Where new, the new procurement is areplacement for old (such as machinery orsystems) the timescale and procedure for ‘switch-over’ and for stripping out redundant items, must beconfirmed. Note that often this timing will bedependent on wider business issues, not merely onthe readiness of the new procurement. A retailer, forexample, will not normally plan a changeover forthe weeks immediately before Christmas.

For on-going contracts such as development work,construction, some marketing and consultancyactivities, a project team will oversee progress andverify that milestones or other objectives (especiallythose which may trigger payments) are achieved. Thisteam will probably not be identical to the procurementproject team but it is important to ensure that a formallink and channel of communication is maintainedbetween the project progress team and those who wereinvolved in the original procurement. (In manycomplex projects at least part of this oversight role maybe outsourced to a specialist consultant or engineer;nonetheless the link with the original procurementmust be maintained). Procedures, responsibilities andlines of authority for any change managementprocesses must be clearly established, and fullydocumented.

In most cases, though, the supplier or contractor willbe performing services or supplying goods over anumber of years, typically to a Purchase Order drawnon a framework contract, and their performanceremains the concern of the Purchasing department.Purchasing (for key strategic suppliers it isrecommended that a nominated individual should be,in effect, the Account Manager) will monitor progressof the contract by:

Obtaining feedback from users that may include qualityand delivery performance, performance in service,warranty performance in goods sold on. In contractswith a service element it may include progress towardsthe achievement, or surpassing of specified goals,innovations, and so on.

Where price variance is allowed for in the contract, theapplication of agreed formulae will be closelymonitored feedback should also be sought fromsuppliers as to difficulties encountered, mistakes orerrors caused by this organisation, payment problemsand so on.



Purchasing will feed such information into its systemsfor supplier performance rating, which will informfuture supplier valuation exercises.

Purchasing will also work with suppliers as far aspossible, not only to remove difficulties and errors, butto create a climate of continual improvement inproducts, services and processes on both sides of therelationship. Since it is scarcely practical to work withall suppliers in this manner, the selection of supplierswith whom to seek a deeper relationship will beinformed by the ongoing strategic sourcing analysis(Section 4 above), and not according to which supplierscreate the most problems or noise.

The aim should be to retain suppliers whereverpossible. Changing or dismissing a supplier, especiallypart way through a contract, is disruptive, wasteful ofprevious effort and potentially expensive. Wheresuppliers are consistently underperforming or givingcause for concern (for example, by conflicting with theethical or other policies of the organisation) they willbe notified in writing, and given adequate opportunityto explain the difficulty and/or to remedy the problemand this process must be fully documented. Should itbe necessary to terminate a contract, legal advice onthe modalities should be sought.

The early termination of a contract, or the failure of asupplier to win a contract extension, does notnecessarily imply their removal from lists of pre-qualified suppliers, even though they have ceased to bea preferred supplier in a particular category. Companiesmay be removed from the list of prequalified suppliersfor one or more of the following reasons (which arenot necessarily adequate reason for terminating anexisting contract):

• Cessation of trade, or withdrawal from the relevantmarket sector

• Misuse of the organisation's commerciallyconfidential information; or the supplier enteringinto a contract with a competitor, where it appearsthat an unacceptable risk of the leakage of ourinformation exists

• Evidence of financial instability that could give riseto unacceptable risk

• Unfair, unethical or illegal trading practices(including bribery, corruption, participation in priceor market fixing activities; violation of fiscal, healthand safety, employment or environmental laws)

• Failure to fulfil previous contracts to thisorganisation's satisfaction

• Repeated failure to respond to our invitations totender.

Note: Suppliers who are removed from pre-qualificationlists should also be informed of the reasons in writing,and given the opportunity to make representations.

Asset Management and disposal

MaintenanceProvision for maintenance, repair and provision ofspares for capital and other assets, may have beennegotiated in the original procurement, and will needmonitoring, as with other contracts. In other instances,separate or ad-hoc arrangements may apply. In eithercase Purchasing has a responsibility to determine levelsof expenditure incurred on assets, to assist indetermining the economic life of the asset. Purchasingwill also have a mind to any predictions, guarantees orwarranties, and estimates of whole life cost that mayhave featured in the original procurement (including,for example, promises as to the continuing availabilityof spares) and take appropriate action.



Before purchasing spare parts or maintenance servicesfor any products, plant or equipment the Purchasingdepartment should review the following points;

• Is the equipment, or the relevant part thereof, stillcovered by warranty from the manufacturer or aprevious service contractor?

• Were spare parts contracted for or provided underthe original contract? (In other words, do youalready possess spare part that have been forgottenabout?)

• Does the fitting of parts from, or the maintenance ofthe equipment by, a supplier other than the originalequipment manufacturer (OEM) invalidate anywarranties or otherwise adversely affect our rights.

• Does the purchase of parts from other than theOEM expose the organisation to the risk ofcounterfeit or substandard products?

• Is it possible to procure spares at parts level from thecomponent manufacturer, rather than at assemblylevel from the OEM? [Note: where replacement partsare likely to be an issue, it is advisable to establish aright to the necessary information in the originalcontract.]

Maintenance contractsThe Purchasing department should establish a policyon maintenance contracts. In particular, a judgementshould be made on whether it is preferable to contractfor maintenance and service through the OEM, or theiragent, for each piece of equipment, or whether greatereconomy and better service can be obtained from usingan independent contractor under one maintenancecontract for equipment from different manufacturers.

If an independent contractor is appointed, the contractterms should define the circumstances, if any, underwhich the fitting of non-OEM parts is acceptable.

The Purchasing Department, in conjunction with userdepartments, should also determine a policy on the useof Preventative or Planned Maintenance strategies,having regard to the extra costs, as against the reducedrisk of lost productive time.

Qualitatively similar considerations arise in, forexample, IT-based contracts, where the consequencesof third parties maintaining, servicing, modifying oradding to hardware or software systems, need to beconsidered.

Disposals and recyclingThe Purchasing Department may also be responsiblefor the disposal of wastes, scrap, obsolete or redundantequipment, where such material may retain residualvalue, or where the costs of disposal may besignificant. The normal range of procurementprocedures applies, with the addition of the auctionoption (public or trade). This latter will normally beorganised by a professional auctioneer contracted forthe purpose.

Authorisation levels for disposals are the same as foracquisitions, based on the material's residual bookvalue.

The Purchasing Department will be responsible forarranging the safe storage of all materials for disposal,having due regard to the requirements of COSHH(Control of Substances Hazardous to Health) and otherHealth and Safety regulations. In addition to the normalrequirements, all firms tendering for the disposal ofscrap and waste materials shall be required todemonstrate that they hold any necessary licences orpermits, and to furnish on demand adequate proofsthat materials have been disposed of to a site, or via aroute appropriate under law for the material type, andin the case of landfill disposal that taxes incurred havebeen duly paid.



Where machinery, equipment or materials are beingdisposed of for possible re-use, the PurchasingDepartment will take reasonable steps to ensure thatsuch goods are in a safe condition (in particular, safe totransport), but will insert appropriate clauses in anycontract of sale repudiating liability for any defect insuch goods. Procedures will ensure that all forms ofdata (whether in redundant filing cabinets or ITequipment) are effectively expunged before disposal.

The Purchasing Department will make arrangementsfor the safe aggregation and legal disposal (throughsuitably qualified or licensed contractors) of all wastes.Contracts with waste disposal contractors shouldinclude a right to see documentary proof of thedisposal route used for wastes and of the payment oflandfill and other taxes.

The Purchasing Department will work with Productionand Sales Departments, customers and suppliers toreduce the organisation's liabilities under the PackagingWaste Regulations by reducing the amount ofpackaging material involved, and increasing the efficacyof re-use and recycling routes. The PurchasingDepartment will be responsible for maintaining thelegally required records demonstrating theorganisation's compliance with the Regulations. Similarprocedures will be created for other material flows(such as electrical and electronic equipment, cells andbatteries, vehicles) as they become affected byProducer Responsibility regulations

Routines will be devised for economic but effectivestock control and reconciliation, and the identificationof redundant, damaged, or life-expired stocks.Purchasing will be responsible for the safe andeconomic disposal of such stocks.

Stocks properly received and paid for, but subsequentlyidentified as surplus to requirements, should be offeredback to the supplier for as good a price as can benegotiated, having regard to age and condition. Unlessotherwise provided for in the contract, the suppliercannot be obliged to take such stocks back. In someinstances, where demand volatility is expected to begreat, it may have been possible to negotiate a 'pay asused' arrangement.

If the supplier is unwilling to take stock back, it maybe generally offered for sale, or sold for scrap, as ismost economically efficient. (But there may becontractual conditions preventing re-sale; additionally,it may be undesirable to offer certain items, uniformswould be an example, for resale due to security or otherconsiderations). The Marketing Department may adviseon the prospects and methods for effective resale.Purchasing should liaise with the AccountingDepartment to establish the amount of the write-offinvolved in the disposal of such stocks, and where inthe organisation it should be debited.

Under Producer Responsibility rules, which apply to awidening circle of products and materials, it isnecessary for the organisation to account for volumesof particular materials received, and how they weredisposed of. Such records should be used asappropriate by Purchasing as input into processes (withsuppliers, and perhaps with customers) to reducevolumes of such materials (including packaging)purchased and to increase the level of high-grade re-use/recycling achieved.



7.4 Post contract reviewAfter the completion of all major procurements (or inthe case of the failure of a procurement exercise) aformal review should be held involving theprocurement team and other stakeholders, and lessonslearned should be fully documented, promulgated andrecorded. Authority should be sought for theintroduction of additional or revised procedures whereappropriate.

Throughout these procedures, a variety of feedbackloops should have been created. Part of the reviewshould be to ensure that such feedback has been madeto the appropriate point in timely fashion, and that theknowledge thus gained is available to be used insubsequent procurements.



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Purchasing Policy and Procedures - cips.org the Purchasing... · Purchasing Policy and Procedures ... • conducive to maintaining the organisation’s ability to ... ‘petty cash’