Procurement and Competitive Bidding

Procurement is the governed process of identifying need and acquiring goods, works, or services from external sources with due attention to value for money, fairness, competition, transparency, integrity, and accountability.

Incoterms in International Trade

Rule	Full name	Main allocation
EXW	Ex Works	Seller places goods at buyer’s disposal at the named place; buyer bears most transport and clearance responsibility
FCA	Free Carrier	Seller delivers cleared goods to the carrier or person nominated by the buyer at the named place
FOB	Free on Board	For sea/inland-waterway transport, seller loads goods on the buyer-nominated vessel; risk transfers when goods are on board
CFR	Cost and Freight	Seller pays freight to named destination port, but risk transfers when goods are on board at origin; insurance is not included
CIF	Cost, Insurance and Freight	As CFR, plus seller procures the required minimum cargo insurance; cost destination and risk-transfer points differ
DDP	Delivered Duty Paid	Seller bears maximum delivery obligation, including import clearance and duties, to the named destination

Selected Incoterms 2020 rules

Note

Key Point — Do not confuse cost and risk

Under FOB, CFR, and CIF, risk transfers when goods are on board the vessel at the port of shipment. Under CFR and CIF the seller still pays specified costs to the destination. The obsolete phrase “cross the ship’s rail” is not the Incoterms 2020 rule. Always state the rule, named place/port, and edition.

Financial Instruments and Contract Security

Instrument	Mechanism	Protection
Letter of credit (LC)	Issuing bank undertakes to honor a compliant documentary presentation	Reduces seller’s payment risk while preserving documentary conditions for buyer
Bank guarantee	Bank pays the beneficiary upon a conforming demand under the guarantee	Supports obligations such as payment or performance
Bid security / earnest money	Bidder provides security with the offer, often an amount or percentage stated in the bidding document	Discourages withdrawal, refusal to sign, or failure to provide performance security
Performance security	Successful supplier secures contractual performance, often around 5–10% where specified	Protects purchaser against default
Advance-payment guarantee	Secures recovery of mobilization or other advance	Protects funds paid before equivalent delivery
Retention money	Purchaser withholds an agreed portion until contractual conditions or defect obligations are met	Incentivizes correction and completion

Common procurement instruments

Percentages are illustrative conventions, not universal rules; the current law, standard bidding document, and signed contract govern each procurement.

Liquidated Damages

Liquidated damages (LD) are an agreed amount payable for a specified breach such as delay. They should represent a reasonable pre-estimate or contractual allocation of loss rather than an unenforceable penalty, subject to governing law.

Note

Example — Delay damages with a contractual cap

For a Rs. 10,000,000 contract with LD of 0.5% per delayed week and a 10% cap,

$$LD_{\mathrm{week}}=0.005(10{,}000{,}000)=\text{Rs.~}50{,}000,$$$$LD_{\max}=0.10(10{,}000{,}000)=\text{Rs.~}1{,}000{,}000.$$

At that rate, the cap is reached after 20 weeks. Apply any grace period, milestone rule, extension of time, and cap exactly as the contract provides.

Contract Types and Risk Allocation

Type	Payment basis	Dominant cost risk
Lump sum / fixed price	Fixed amount for a well-defined scope	Supplier, except approved changes and allocated risks
Unit rate	Agreed rate multiplied by measured quantity	Quantity risk leans to purchaser; unit productivity risk leans to supplier
Cost plus	Allowable actual cost plus fee or percentage	Purchaser unless incentives, ceilings, and audit controls shift it
Time and materials	Labor time at agreed rates plus materials	Purchaser bears much of duration and quantity risk
Turnkey / design-build	Supplier designs, builds, integrates, and commissions a defined facility or system	Supplier bears broad integration and delivery risk, subject to contract allocation

Common commercial arrangements

Procurement Methods

Method	Character	Typical use
Open competitive bidding	Public invitation to all eligible bidders under disclosed criteria	Standard large-value goods or works requiring broad competition
Limited / restricted bidding	Invitation to a justified shortlist or qualified market	Specialized need or demonstrably limited suppliers
Direct procurement	Negotiation with one source under a permitted exception	Emergency, proprietary compatibility, sole source, or low threshold as law allows
Request for quotation (RFQ)	Comparable quotations for defined standard items	Lower-value readily available goods, works, or services
Request for proposal (RFP)	Technical and financial proposals for a stated problem or terms of reference	Consultancy or complex services where method and quality matter

Procurement methods and typical use

Competitive Bidding Process

Competitive bidding process from need definition to signed contract

1. Plan the procurement: need, scope, package, estimate, market, method, and schedule.

2. Prepare specifications/terms of reference, conditions, forms, and pre-disclosed evaluation criteria.

3. Publish the invitation through required channels for the applicable period.

4. Hold a pre-bid meeting or issue clarifications/addenda without favoring a bidder.

5. Receive secure bids by the deadline; protect confidentiality before opening.

6. Open bids according to the prescribed procedure and create an opening record.

7. Evaluate responsiveness, qualification, technical compliance, and price only under disclosed rules.

8. Obtain approval and notify the award, observing any review or standstill mechanism.

9. Sign the contract after required security and conditions are satisfied.

Test	Question
Responsiveness	Does the bid materially comply with mandatory commercial and procedural requirements?
Technical compliance	Does the offered solution meet the specifications and required performance?
Evaluated price	What is the comparable evaluated price after permitted corrections and adjustments, rather than merely the read-out price?
Qualification	Does the bidder have the legal status, experience, personnel, equipment, finance, and capacity required to perform?

Core bid-evaluation tests

Aspect	Single envelope	Two envelope
Contents	Technical and financial material submitted together	Technical and financial proposals separately secured
Opening	Submitted contents handled under one opening sequence	Financial proposal opened only for technically qualified bidders
Typical use	Straightforward goods or works where compliance is readily assessed	Complex procurement or consultancy where technical quality is assessed before price

Single- and two-envelope procedures

Nepal Public Procurement Context

The Public Procurement Act, 2063 and Public Procurement Regulations establish the framework for public procurement in Nepal. The Public Procurement Monitoring Office (PPMO) develops standard documents, supports e-procurement, monitors the system, and performs its statutory functions. Key principles include competition, transparency, equal treatment, value for money, review, ethics, and documented decision-making.

Goods and works commonly use the lowest evaluated substantially responsive bid, not automatically the lowest quoted number. Consultancy may use quality-and-cost based selection (QCBS), quality-based selection (QBS), least-cost selection (LCS), fixed-budget selection (FBS), or individual-consultant selection as authorized and appropriate.

Method	Decision logic	Appropriate emphasis
QCBS	Weighted technical and financial scores; documents often allocate about 70–80% to technical and 20–30% to financial	Balance quality and cost
QBS	Select on technical quality, then negotiate price	Exceptional complexity or assignments where quality dominates
LCS	Among proposals meeting the technical threshold, select lowest cost	Standard, routine assignments
FBS	Select the best technical proposal within a disclosed fixed budget	Clearly defined scope and firm budget
ICS	Compare qualified individual experts	Assignment suited to one specialist

Consultancy-selection methods

Tip

Exam Focus — Legal figures change

Bid periods, thresholds, security amounts, approval authority, and e-bidding requirements must be quoted from the current Act, Regulations, PPMO directives, standard bidding document, and entity rules. Memorizing an old threshold can turn an otherwise sound procurement answer into a wrong one.