A purchasing & Supply Chain Professional

Dec 29 - Jan 04, 2009

Purchasing and supply chain (P&SC) affects the strategic capabilities of the organization in many ways. Whereas in the past many viewed it as a stand alone function, it is now seen as a set of value adding processes that link directly to the market and the organization's ability to innovate and deliver value in the market place.

Public sector procurement is a prime candidate for corrupt activity, cronyism, and favoritism as well as outright bribery as compared to private sector, because public sector procurement is the area where public and private sector interact financially. In many countries procurement reformers and anti-corruption advocates are rightfully taking a holistic view in approaching procurement reform and anti-corruption initiatives. Such holistic approaches include:

Devising higher ethical standards for procurement officials;

Requiring asset disclosure for public officials of a certain rank or in a particular position; and

Vetting of freedom of information laws

While initiatives such as above are certainly positive developments and need to be seriously taken into practical considerations for both government as well as private/industrial sector of Pakistan, it is important for P&SC professionals in Pakistan (very few qualified professionals) to consider the specific operational procurement process and the steps needed to develop a new procurement system in public and private sector.

First and foremost ethical conduct in the P&SC department must be exemplary. Next, purchasing & supply chain managers should assume a leadership role in ensuring the same high standards. Suppliers, naturally, have contacts with many people in the company not directly subordinate to P& SC. These people or functional activities vary from organization to organization, depending on the organizational structure. Examples might be design engineers, other users or customers, quality control people, production and operations people, marketing people, and others who bring into play purchased materials and supplies.

Purchase or procurement should make awards to suppliers only on the basis of competitive price, quality and delivery. Sound business judgment as opposed to special favoritism or personal preference should be the basis for the company buying decisions. Suppliers need to be aware of company thinking on this important topic, and to adhere to these guidelines at all times, thus making it easier for both purchasers and suppliers to conduct themselves professionally based upon good business ethical practices.

Supplier relations should be based on sound business judgment.

P&SC professionals must show no favoritism or preference to sellers at the expense of company. Companies expect its procurement personnel to be fair, do no favour and accept no favours. Accepting kickbacks is a crime both morally and legally .The company expects its suppliers not to offer such kickbacks. Favours must be declined and gifts must be returned pleasantly, diplomatically, and firmly. Gifts, services or consideration other than an advertising novelty such as a paperweight, key chain or coffee cup should be returned to the supplier.

Ethical areas or 5 Ps,
Part of good ethical behavior is to keep confidential business information confidential
Patentable and secret processes
Production schedules
Product information

Purchasing and supply chain professionals who follow the three simple rules set forth below will not likely fall into trouble over matters of gifts or entertainment.

1. Keep job and private life totally separated.
2. Keep relationships with suppliers in balance.
3. When in doubt, ask management.

The above mentioned were the general considerations for purchasing and supply chain professionals, now I would more precisely highlight the purchasing and supply chain issues related to contracts and high standards of ethics required in order to address disputes arising out of lack of transparency and fairness in awarding contracts.

It is unusual for contracts to be drafted from scratch. There is usually a model form that can be used as the basis for negotiations. This is a cost-effective way of drafting the contract, providing the purchasing and supply chain professionals are familiar with the content and meaning of each clause. The key point is that all aspects of the contract, whether clauses or schedules, should (where possible) be written in plain English with short to the point sentences that are easy to follow and understand. In those cases involving complex legal issues and concepts it is often instructive and perfectly acceptable to provide a "worked example" to illustrate and underline the form of wording used.

The importance of the pre-contract stage is often underestimated but it is vital to invest time and effort at this point not only for the clarification of the respective roles and responsibilities but also to facilitate the drafting process and minimize the risk of future misunderstandings. Also it is important to avoid going into excessive and potentially confusing detail. While a contract has to be drafted from first principles or largely separately from the usual model, it is good practice for purchasing and supply chain professionals to negotiate Heads of Agreement as a first step. I believe that it represents good practice to put the specific (non-standard details) of the contractual relationship for example, who is responsible for doing what and by when, in the schedules to the contract, rather than in the terms and conditions of the document. Any changes to the standard terms or additional special clauses should be put in a separate section and highlighted. This means that differences between each contract are readily identifiable and those who are not directly involved in the contract negotiations can easily see what has been agreed.

It is important that the contract documentation should contain guidance as to who has the authority to make amendments, as well as the level of entitlement of the other party or parties to agree or reject such changes. It is recognized that different organizations refer to changes to contracts, once they have been let, in different ways i.e. change or variation orders, contract amendments etc. When a change is required the purchasing and supply management professional should follow the procedures and policies of his/her organization. It is far easier to make changes to contracts if such a change is in one of the schedules rather than the body of the contractual terms; this is why the salient points of each contract should be recorded in the schedules.

An appropriate change control procedure should also unambiguously state who is authorized to make these changes. This does not necessarily imply drawing up a list of authorized signatories but should be sufficient to prevent end-users making their own amendments at will. If, however, certain end-users are in fact given authority to make changes then this needs to be clearly predefined so that the supplier is made aware of who does, or can, represent the customer. It is not a perfect world so it is recommended that a clause, (or, in extensive or complex contracts, a schedule), should be devoted to Change Control, setting down the agreed process as well as the requisite escalation clauses and arbitration procedures. It is recommended that such clauses be as precise and unambiguous as possible; vague generalizations about, for example, 'reasonable prices' should be avoided as they can easily lead to misunderstandings and bad feeling between the parties and ultimately disputes.

In both, public and private procurement process the contracts generally involve the following:

1) The definition of the procurement requirement,
2) An estimated budget, and
3) The solicitation of proposals.

In many cases, government entities seek private sector providers in order to secure better quality goods and services at a lower overall cost that is to obtain better value for money. At, the same time, government entities are looking to streamline the procurement process in order to shorten delivery and performance times as well as reduce administrative costs. However, these objectives cannot generally be met unless contracts are awarded on a truly competitive basis under a system that has clear guidelines incorporating transparency, efficiency, economy, accountability and fairness into the public procurement system as a whole.

Also, civil society organizations should strengthen their role as non governmental watchdogs by actively reporting on procurement fraud, waste and abuse, and by vigorously asserting contractual rights in appropriate forum.


Although public procurement processes are fairly complex and can be implemented differently in various jurisdictions, the three main phases of the public procurement process are:

1. Procurement planning and budgeting;
2. Procurement solicitation;
3. And contract award and performance.

Corruption can arise in various forms in each of these separate phases of the procurement process.

In the procurement planning and budgeting phase, the government entity needs to determine what good or service it would like to buy (the requirement) and how much it would like to spend (the budget). In both of these cases, there are opportunities for corruption. In determining the requirement, reports could be prepared that falsely justify current or future departmental needs, falsely inflate actual needs or falsely report damaged equipment in order to create an excess supply that could be used for corrupt purposes. The procurement requirements could also be written to favor or disfavor particular suppliers. Budgets could be set artificially high so that excess allocations can be stolen or diverted. In addition, programmatic budgets could be devised in such a way that there are overlapping budgetary allocations among separate organizations or departments that could likewise be applied in a corrupt manner.

In the procurement solicitation phase, the main tasks are compiling the request for proposals or tender documents and conducting the evaluation. The evaluation criteria in the request for proposals or tender documents could be drafted to favor a particular supplier or service provider or likewise could be drafted to emphasize weaknesses of a particular competitor.

Later during the evaluation of the proposals or tenders, the evaluation criteria could be misapplied or otherwise further defined or amended after proposal or tender receipt. During this phase it is also possible that advance information could be provided to a particular favoured supplier. Other techniques such as failing to solicit proposals or tenders from the competitors of a favoured supplier, wrongfully restricting the tender pool, soliciting offeror known to be inferior to a favoured supplier, simply misaddressing tender documents, accepting late proposals or rejecting legitimate proposals are techniques that can be utilized to corrupt the procurement process.

Corruption opportunities also abound at the contract award and performance phase of them procurement process. For example, an offeror could propose an unrealistically low offer in the hopes that after the contract is awarded procurement officials will allow amendments to increase costs. Likewise, a firm could offer exceptionally high caliber products or less qualified personnel to meet a particular requirement and then upon contract award substitute inferior products or personnel. It is also possible to corruptly require sub contractual relationships with favoured suppliers. Furthermore, after the evaluation is complete, it is possible to award a contract that materially differs from the terms of the solicitation in terms of specifications, quantity, or delivery schedule. Oversight and reporting requirements may also be minimized and in some cases cost overruns can be corruptly explained away or falsely justified.

Finally, supporting documentation could be intentionally lost or destroyed making detection and prosecution of corruption offenses difficult. The ultimate goals of promoting efficiency, economy, transparency, fairness, and accountability in both public & private procurement by P&SC professionals in the procurement planning phase, budgetary and financial controls should be operationally separate and procurement requirements should be subject to scrutiny. Likewise, in the proposal solicitation phase, there should be clear guidelines so that both procurement professionals and suppliers can understand their respective roles.

Finally, in the contract award and performance phase, strict financial controls and audit needed to protect the integrity of the final phase of the procurement process.

The top purchasing people in an organization must ensure proper ethical treatment of suppliers by everyone in the organization who deals with them. A statement of policy should be developed by the purchasing and supply chain department and subsequently issued as a management proclamation. This can be very useful in establishing corporate guidelines in the ethical area. Such a policy statement will be far better if it is written in broad terminology but is concise and pointed enough to be readily understood by everyone throughout the organization.

It should stress that purchase & supply chain department is always available for consultation and guidance in coping with any particular problem.

P&SC department may further take the initiative and conduct seminars or workshops on the subject. This could be part of the normal employee training program (and should be continually updated), with all employees who deal with suppliers participating in the sessions. Seminars of this sort should be conducted at least once a year and more often if required. The example set by P&SC department in its total approach to the matter of ethics should be an obvious guide to the rest of the company. Proper ethical conduct is as much good as anything else, and certainly P&SC professionals must demonstrate skill in this area.

The Author is a Purchasing & Supply Chain Professional and can be reached at mianahmad2005@gmail.com for further information on this as well as on other related issues.