procurement process transformation project new processes
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Procurement Process Transformation
Project
New processes & procedures
Corporate MM, Delhi
The Need…
The previous MM Manual was released in the year 1998
Need was felt to benchmark the MM processes with the international best
practices, practices followed by other PSUs considering the Govt./CVC
guidelines & feedback from the work centers
To Simplify, Systematise and Standardise the Manual and Tender Documents in
order to reduce procurement lead time
Mapping on SAP system also taken into account
New Initiative – Following New Documents prepared
• Integrated MM manual for materials, services and LSTK including manual for
warehouse and inventory management
• Tender documents & BEC for ICB and Indigenous tenders
Procurement of goods (Indigenous and ICB) Procurement of spares from OEM Hiring of various types of services Charter hiring of Rigs Hiring of Consultancy Contracts Hiring of Vessels Hiring of Facility Management Services Award of various types of LSTK contracts Civil Works
The entire MM value chain has been mapped
Material forecasting
Scope of work
Cost estimation
Budgeting
Indenting and PR
Bid submission
Tender evaluation
Rate reasonability
PR to sale of tender
Storage into main warehouse
Consumption, return of material
Inventory mgmt. & stock verification
Obsolescence and Disposal
Despatch to user
Receipt of material and inspection
Negotiation, contract award
End-to-end value chain of procurement
Order fulfillment, monitoring and
payment
Major new processes conceptualised in the MM
Manual for effective Business partner relationship
Vendor Registration
Process features Rationale
• Vendors register on portal providing
basic information and indicating the
category of goods they want to supply.
• Login id and password assigned to
vendor after preliminary check
• Vendors to upload their documents on
financial statements, certifications past
experience, etc that can be used
throughout the year across tenders and
quote the unique document reference
number while submitting bids
• Provide data base to
ONGC about prospective
bidders to whom LT/
advance intimations on OT
can be sent
• Limits multiple submissions
of same documents by
vendor
• Limits multiple approvals of
same documents by MM
officers
Vendor Empanelment
Process features Rationale
• Vendors empanelment is to be done
annually for a period of 3 years.
• The empanelment window for fresh
empanelment shall be opened every
year for a 1 month period.
• Price quote will be sought from the
empanelled vendors
• Phase wise implementation starting
with selected centralized
procurement of Type-A items
• Ensures long term supplier
relationship
• Faster procurement
turnaround time
• Better vendor selection and
vendor performance
Vendor Ratings
Process features Rationale
• Vendors to be rated objectively on
their performance on delivery on
milestones (during tender process
and performance of contract)
• Vendor ratings to impact future
technical/quality scores of vendor in
subsequent tenders
• Continuous vendor feedback process
to facilitate execution / delivery without
delays and actively work with quality
vendors to further improve on project /
item / service metrics (cost, time,
quality etc.)
• Vendor ratings give an
objective view to ONGC and
the vendor of their
performance
• Inclusion of vendor ratings in
future tenders motivates
vendors to perform well in
current tenders
Category Management
Changes proposed Rationale
• Position of category manager /
category management team created
with responsibilities
• Develop procurement strategy
• Perform cost assessment
• Conduct vendor management
• Category management brings a
strategic view to procurement
• Category manager responsible
for end-to-end procurement
used in many IOCs
Quality and Cost based selection (QCBS)
Process features o Rationale
Quality and Cost based selection (QCBS) taking
into account the quality and the cost of the
proposal in the selection of the successful firm
To be considered for procurement of items and
services with high degree of technical influence,
value impact of tender
o Selection of most economically
advantageous tender instead of just
lowest cost
o Improved quality of vendors in critical
categories
o Improved effectiveness in procurement
Re-introduction of Reverse Auction
Process features Rationale
• Reverse auctions to be only used in
procurement of common goods/services –
where specifications / requirements are
unambiguously understood
• Used when competitive market of suppliers
exist for category of procurement
• Minimum bid decrement of bidders to be
0.25-1% of the starting reserve price of the
reverse auction instead of 0.01% of last
bid as in previous RA process of ONGC
• Improved cost
competitiveness through
intensified competition
• Faster procurement
• Transparent negotiation
process
Life cycle costing
Process features Rationale
• Life cycle costing method of evaluation in
procurement of long life cycle equipments with
operations and commissioning and
decommissioning costs being a significant
proportion of life cycle costs.
• Most economic offer over the
entire life cycle of procurement
will be chosen
Major changes to existing tendering processes
Tender sale period
Changes proposed Rationale
• Tender sale till bid submission due date.
• In physical tenders, bidders can download
tender documents from ONGC tender
website and submit bid along with tender
fee within due date.
• Physical sale of tender documents to be
discontinued
• However, in order to participate in pre-bid
conferences , the bidders will be required
to submit tender fee within 21 days.
• To enhance competition
• To comply with CVC guidelines
in this regard
Purchase of bidding documents by Agents
Changes proposed Rationale
• Agents/ consultants/ retainers/
representative/ associate of foreign
principals are not authorised to buy the
bidding documents on behalf of their foreign
principals.
• To relevant in view of
introduction of e-procurement
and allowing bidders to down
load tender documents and
submit bid along with tender fee
in case of physical tenders
Threshold limit for open & limited tenders
Changes proposed Rationale
• Open tender to be used where value is
above Rs. 10 lacs
• Limited tender to be used in procurement
cases upto Rs. 10 lacs or limited number
of suppliers are available or if vendors for
the category of procurement are
empanelled.
• To enhance transparency in
tendering.
• For better competition
Simplified Process for Procurement from OEM
Changes proposed Rationale
• Cost estimation process simplified
• User sends enquiry to specific OEM
• In case OEM is not interested, OEM
asked to provide the name of only
one dealer / distributor / supplier
• No LD/PBG clause for OEM
• Warranty capped in cases of
replacement.
• To reduce procurement lead
time
• For realistic pricing
Time Norms for bid submission
Description of Activity Tenders without Pre-
bid conference
Tenders with pre bid
conference
(i) Receipt of queries from
bidders
…. 28 days
(ii) Scrutinizing the queries and
holding pre bid conference
…. 8 days
(iii) Approval of Pre-bid
minutes and issue of the same
…. 8 days
(iv) Submission of offers and
opening of techno-commercial
offers(TBO)
31 days 21 days
TOTAL
31 days
65 days
Post bid Clarification
Changes proposed Rationale
• Only one round of clarification will be
sought , if required from bidders after
opening techno-commercial bids
• To reduce the tender processing
time.
Earnest Money Deposit / Bid security
Changes proposed Rationale
• Threshold limit of tender value for
submission of earnest money deposit / bid
security to be raised from Rs 5.00 lakh to
Rs. 10.00 lakhs
• However, the maximum limit of EMD/Bid
Security for a tender to be raised to US$
one million for foreign bidders and Rs. 5
crores for Indian bidders from US$ 0.5
million and Rs 2 crores respectively
• To benefit small suppliers
Change orders
Changes proposed Rationale
• Option of Milestone based payments for
change orders with milestones negotiated at
the time of amendment of contract
• Approval of change orders delinked from
approval of variation in quantities
• Requirement of 3 quotations in respect of all
material being purchased as part of the
change order need not be provided
considering the numerous items that are
typically required to be purchased in such
change orders
• Improve WC position of
vendors through milestone
linked payments
• Efficient approval process
by removing arduous
requirement of 3 quotations
and delinking quantity
variation from approval of
change orders
Major changes in GCC across tender
documents considering best
international practices
Force Majeure
Existing clause Changes proposed
The term " Force Majeure" as
employed herein shall mean
acts of God, War, Civil Riots,
Fire directly affecting the
performance of the Contract,
Flood and Acts and
Regulations of respective
government of the two parties,
namely ONGC and the
CONTRACTOR.
The term Force Majeure as employed herein shall mean
i. war, invasion,
ii. rebellion, terrorism, sabotage by persons other than
the Contractor’s Personnel, revolution, insurrection,
military or usurped power, or civil war,
iii. riot, strike or lockout by persons other than the
Contractor’s Personnel,
iv. munitions of war, explosive materials, ionising
radiation or contamination by radio-activity, except
as may be attributable to the Contractor’s use of
such munitions, explosives, radiation or radio-
activity, and
v. Acts of God such as such as earthquake, hurricane,
typhoon or volcanic activity
Arbitration
Salient features of Existing
clause
Salient features of proposed clause
• For claim amounts upto Rs. 50 lakh
Sole arbitrator appointed by ONGC
• For claim amounts above Rs. 50 lakhs
up to Rs 5 Crores: Sole arbitrator to
be selected by party from list
provided by ONGC
• For claim amounts above Rs 5
Crores: 3 arbitrators ,One arbitrator
by each party and the 3rd arbitrator,
who shall be the presiding arbitrator,
selected by the two arbitrators
• Fees, general Guidelines specified by
ONGC
Arbitration shall be as per rules and guidelines of
independent arbitral institutions namely,
Indian Council of Arbitration (IAC) ;
Delhi International Arbitration Center;
Nani Palkhiwala Arbitration Center, etc.
Goods - Warranty and Guarantee
Salient features of Existing
clause
Salient features of proposed clause
• SUPPLIER shall fully warrant that all the
stores, EQUIPMENT and components
supplied under the ORDER shall be new and
of first quality according to the specifications
and shall be free from defects (even
concealed fault, deficiency in design,
Materials and Workmanship).
• In the case of equipment, the warranty for a
period of 18 months from the date of
shipment or 12 months from the date of
commissioning of the equipment, whichever
is earlier, will be obtained.
• Equipment or spare parts thereof replaced
shall have further warranty for a period of 12
months from the date of acceptance.
• The Supplier warrants that all the Goods supplied under this contract are
new, unused, and of the most recent or current models, and that they
incorporate all recent improvements in design and materials, unless
provided otherwise in the Contract. The Supplier further warrants that the
Goods shall be free from defects arising from any act or omission of the Supplier
or arising from design, materials, and workmanship, under normal and applicable
standards as mentioned in the scope of work
• Unless otherwise specified in the SCC, the warranty shall remain valid for
twelve (12) months after the Goods, or any portion thereof as the case may
be, have been delivered to and accepted at the final destination indicated in
the SCC, or for eighteen (18) months after the date of shipment from the
port or place of loading in the country of origin, whichever period
concludes earlier.
• Equipment thereof replaced shall have further warranty for a period of 12
months from the date of replacement. Warranty will be capped at 24
months from the date of acceptance at the destination specified in the SCC
or 30 months from the date of shipment from the port or place of loading
in the country of origin, whichever period concludes earlier.
Goods - Liquidated Damages
Salient features of Existing
clause
Salient features of proposed clause
LD amount: 1%(one percent) of the
contract/supply order price of the whole unit
per week for such delay or part thereof , subject
to maximum of 5%.
LD will be imposed on the total value of the
order unless 75% of the value ordered is
supplied within the stipulated delivery
period.
Where 75% of the value ordered has been
supplied within stipulated delivery period, LD
will be imposed on the order value of
delayed supply(ies). However, where in
judgement of ONGC, the supply of partial
quantity does not fulfil the operating need,
LD will be imposed on full value of the
supply order.
LD amount: 1%(one percent) of the contract/supply order price of the
particular item ordered for the particular ultimate consignee in stipulated
delivery schedule, per week for such delay or part thereof , subject to
maximum of 10%.
Where 75% of the value of particular item ordered for the particular
ultimate consignee in stipulated delivery schedule, has been supplied
within stipulated delivery period, LD will be imposed on the order
value of delayed supply(ies) of particular item ordered for the particular
ultimate consignee in stipulated delivery schedule.
However, where in judgement of ONGC, the supply of partial quantity
does not fulfil the operating need, LD will be imposed on full value of
particular item ordered for the particular ultimate consignee in stipulated
delivery schedule
(In case the requirement of the ordered items are interdependent for
usage in operations then the LD would be levied on the group wise/total
value of the order as the case may be).
Changes proposed Rationale
• ONGC may give a notice to the Contractor
stating the nature of the default and requiring the
Contractor to remedy the same. If the
Contractor fails to remedy or to take steps to
remedy the same within fourteen (14) days of its
receipt of such notice or as per the timeframe
specified in the written notice from ONGC, then
ONGC may terminate the Contract forthwith by
giving a notice of termination to the Contractor. If
the default has been resolved but the same is
identified again by ONGC within 6 months of the
resolution, ONGC may terminate the contract
with immediate effect with no further notice.
• Ensure that the vendor does
not repeat the same default
multiple times
Termination due to unsatisfactory performance in service contracts
27
Expectations from Business partners
• Complete and clean bids
• Ensure POA ,integrity pact & digital signature from same person
• Avoid taking exceptions/ deviations
• Adhere to tender due dates- restrain from seeking extensions of due dates
for submission of bids/clarifications
• Avoid disruptive representations and accept healthy competition
• Limit IEM references to genuine issues relevant to Integrity pact.
• Adhere to contractual delivery/ completion schedule.
• Maintain quality standards
• Timely service responses on warranty issues.
• Submission of genuine/ authentic of supporting documents
• Support to new process initiatives of ONGC
Offshore Logistics Group
Logistics support for offshore operations Thank You