Software Procurement Approaches And Recommendation For Kasapreko

Published Date: 02 Nov 2017

The procurement of information systems poses a challenge to most medium to large scale organizations. This paper evaluates various procurement options that have been proposed for the deployment of new information systems in KASAPREKO Distilleries, a company that produces drinks and beverages and has branches in various cities of Ghana. The paper recommends the best option for conducting procurement considering KASAPREKO Distilleries’ size and the sensitivity of the information system to its operations. With reference to the Public Procurement Act (2003) Act 663 section 53-65, the paper further evaluates the benefit of having standard tendering process and how it could be used in the procurement of information systems.

Introduction / Background

The deployment of Information Systems (IS) presents many interesting challenges to organisations. Over the years, KASAPREKO Distilleries has used varied information systems to assist its personnel in the production of drinks and beverages. Due to the dynamic nature of the Information and Communication industry as well as the advances and changes in technological trends over the years, the information systems being used by the company have become obsolete and require upgrades and/or replacements. The exercise of deploying systems is a task that must be carefully planned and undertaken to avoid major mistakes or failures which may translate in the organisation losing its competitive advantage in the industry as well as loss of funds. To ensure that the right decision is made, certain considerations have been proposed with regard to the procurement options that should be considered for the purchase of the new information systems. These procurement options are as follows:

Direct purchase following an informal evaluation of limited options

Evaluation followed by a public bid and award to qualified low bidder

Evaluation followed by ranking and negotiation with preferred vendor

This report is intended to discuss each of these procurement options and their implications, and suggest the best option that KASAPREKO Distilleries should embrace.

Software Procurement Options

Three software procurement options have been proposed, each of them has its own implications.

Option 1: Direct purchase following an informal evaluation of limited options

Direct purchase is a purchase that is carried out without going through the tendering process or quotation. Direct purchases are made mainly in manufacturing companies that rely on particular materials that relate to the production of finished goods. In such a situation, it is easy for management to predict, based on experience and reliable forecast techniques and tools, the volume of materials needed to complete a production process. Even though such an approach can be used in the procurement of some software’s, it is not appropriate for information systems of large organizations such as KASAPREKO Distilleries, which deals with systems that have to be integrated and sometimes customized to suit the purpose of the organization. In most large organizations, support of the information system must be considered when purchasing any information system. Making direct purchase following an informal evaluation of limited option implies that there may be high chance of purchasing software that will not be appropriate for the company. Also such an informal process gives room for corruption and favouritism in the selection of the vendor to purchase from.

Option 2: Evaluation followed by a public bid and award to qualified low bidder

Public bidding or competitive tendering as it may be called is a transparent procurement method where a request for proposal (RFP) is publicly advertised for competing contractors, suppliers, or vendors of IS services to tender, based on openly adverts on the scope, specifications and terms and conditions stipulated by the customer. The process is aimed at obtaining goods and services at the lowest prices by stimulating competition and by preventing favoritism. Competitive tendering can be broken into two main types: i. open competitive tendering where the invitation to tender is publicly available for all interested suppliers to respond. This method is most commonly used in government organizations. ii. closed competitive tendering where the invitation to tender is issued to a predetermined or restricted number of suppliers.

During these processes, each supplier submits a sealed bid. If the bid is an open competitive bid, the sealed bids are opened in the presence of all who may wish to witness the bid opening. On the other hand if it’s a closed competitive bid, the sealed bids are opened only in the presence of authorized personnel. The criteria for selecting the winning bid are based on the lowest cost.

There are a number of implications in the competitive tendering with regard to the purchase of softwares in large companies such as KASAPREKO Distilleries. Some of these implications have a positive effect on the company as they relate to cost savings, transparency and impartiality. A sensitive purchase however, such as the procurement of an Information System (software) that KASAPREKO Distilleries wants to make must be looked at from the perspective of functionality and long them usability rather than cost. As a result of this, when procuring software, care must be taken not to use cost as the determining factor for awarding contracts.

There are several negative implications of competitive bidding these implications can be derived from the limitations of using competitive bidding as the method for software procurement. Some of these implications are:

The process of selecting the right supplier is time consuming; additionally, there is also no guarantee that after the process the right software will be identified.

Due to the fact that cost is the main factor for awarding the contract there is a tendency of procuring inferior quality software if the winning bid is lower than that of the best software supplier or the best software supplier is not part of the bidding process.

A supplier that is determined to win the bid may reduce the price of the software in order to win. The effect of this is that during the implementation of the software the supplier would be under pressure to make profit; as such, quality of work would be poor, which will result in high maintenance cost in the future.

Option 3: Evaluation followed by ranking and negotiation with the preferred vendor.

This option is also referred to as the negotiated procurement process. It is a procedure where the contracting authority consults the vendor of its choice and negotiates on both financial and technical requirements after submission of proposals. Award is made to the vendor whose final proposal is most advantageous to the contracting authority.

In the case of KASAPREKO Distilleries, there is a strong need to replace some of the obsolete information systems with new systems that will best fit the needs of the company; there is also a stronger need to ensure competitiveness in the industry.

The negotiated procurement process consists of four phases; each phase comprises of requisite activities. These phases are presented below:

Pre-qualify Phase: This is the first phase in the negotiated procurement process. A list of all suppliers / vendor is created; usually a number of six to eight is appropriate. The focus is to create a list of vendors / suppliers of leading information systems, who are capable of providing the required information systems needed by KASAPREKO Distilleries. Once this list is created, the process of correspondence can begin.

Evaluate Phase: This phase begins with a Request For Information (RFI) and an optional demonstrationby the contracting authority (in this case KASAPREKO Distilleries). The purpose is to collect written information about the capabilities of various vendors, their software and their implementation approach as well as a cost estimate about their system installation and training. Once this information is received, a preliminary ranking is prepared and vendors are shortlisted. The top three or four vendors are contacted to give a demonstration of their systems, based on the scenarios provided by the contracting authority. After the last demonstration, another ranking is done and a consensus is reached.

Negotiation phase: At this phase the top ranked vendor presents a detailed scope and cost proposal for negotiation. Usually, it is preferred to do a face to face negotiation. Negotiations are done based on the cost presented in the proposal. The aim is to look for price concession on the software and to further determine if the vendor’s implementation plan is in conformance with the company’s goals. The total project cost should be less than what was provided in the RFI.

Contract phase: This is the final phase of the negotiated procurement process. It is important at this phase to have a clear understanding of all financial obligations and the scope of implementation before the commencement of the contract.

The implication of using this method for purchasing software for large organisations such as KASAPREKO Distilleries is that it follows a systematic process which voids all doubts as to the vendors’ capability of delivering the service. It also gives assurance to the company that the selected vendor will be able to deliver on time, within scope and at a well negotiated cost acceptable to both parties.

Recommendation to KASAPREKO Distilleries

Based on the evaluation of the three options, the most appropriate option that should be chosen by KASAPREKO Distilleries is the ‘Evaluation followed by the ranking and negotiation with preferred vendor. This is because it follows a systematic process which voids all doubts as to the vendors capability of delivering the service. It also gives assurance to the company that the selected vendor will be able to deliver on time within scope and at a well negotiated cost acceptable to both parties.

Software procurement in general comes with certain complexities which make it different from the procurement of general goods and services. The process of procuring software must follow a defined process to ensure that the right software is procured, properly implemented and integrated with the existing software available to avoid loss of data to guarantee a proper migration from the old system to the new system if necessary, and to ensure there is adequate maintenance and support from the software vendor. For a company such as KASAPREKO Distilleries which has branches in Accra, Kumasi, Tarkoradi and Koforidua, it is expected that proper procurement processes and procedure be followed to ensure that the right software is purchased and proper implementation procedures are followed to avoid a situation financial loss to the company as a result of improper planning.

Benefits of developing a standard procurement process

Sections 53 – 65 of the Public Procurement Act, 2003 (Act 663), provide for public procurement, make administrative arrangements for the process and give guidelines to run the tender until a suitable contractor / supplier is selected and an agreement is entered into. The section has twelve major guidelines that should be followed to ensure fairness and transparency in the procurement process. This paper will use the Procurement Act as a basis for evaluating the benefits of developing a standard tendering process.

In any situation that goods and/or services must be acquired, there exist general rules, guidelines and steps to ensure a smooth procurement process whilst protecting both parties’ interests as well as market functioning. Sections 53 of the Act sets the general rules for the submission of tenders: place, time, duration (national or international procurement), deadlines and rules of modification, criteria for accepting the tender (written, sealed, receipt of tender, conditions of tender withdrawal, signing the procurement contract, tender security, etc.), provision of additional information on the tender, etc. These rules foster confidence in the procurement process; they promote a good working relationship between the suppliers and the procuring entity and most importantly, anticipate areas of weakness or challenge that could be reviewed to better organize tenders in general.

At the time specified in the tender document as the deadline for the submission of tenders, at the place and in accordance with the procedures specified in the tender documents, tenders are opened. To ensure transparency, after opening the tenders, the names of the suppliers and tender amounts are announced publicly. Contractor and suppliers are invited to attend this tender opening exercise. This information is also made available to contractors suppliers or who are not available or do not have any representation during the opening process. This exercise is successful when the rules initially set out to conduct the procurement are strictly adhered to. Once the tenders are open, the procurement entity will proceed with the examination, evaluation and comparison of tenders. No changes are permitted on these tenders during the evaluation process, except for arithmetical errors that can be corrected by the procurement entity, for which a notification will be sent to the supplier. For any other tender document modification such as provisions of margins of preference and multiple currency tender prices, the procurement unit will seek approval from a higher authority (Board). This open exercise moreover ensures transparency, equal treatment, proper scrutiny and objective decision in selecting the winning tender. Of course, this exercise is futile if the general rules and provisions in running a tender are not adhered to.

After the tenders are examined and compared, the tender that has been ascertained to be the successful tender in accordance with tender requirements is accepted. Acceptance of this decision will be communicated to the supplier in accordance with the provisions of the procurement rules; this communication can be accompanied by a signed procurement contract if this is the rule designed by the tender.

As it is, the provisions of the Public Procurement Act have carved a general frame for running a tender from the initial step of a request for tender submission to the signature of a procurement contract, thereby guiding the procurement unit on critical steps such as planning the tender (scope, time, budget, communication, quality, etc.), executing the tender (success entirely based on a good planning!), anticipating needs for modification and closing the tender. This proactive and dynamic approach caters for discipline, objectivity, rigor in conducting procurement and makes room for a continuous process improvement; it also is an anticipated risk response plan in procurement. From the suppliers’ perspective, the frame sets high level expectations, acts as a promise for fairness and transparency in awarding government contracts; it also acts as a booster for competition in the industry.

Evaluation and selection of appropriate software vendor

Inferring from the provisions of the Section 53 – 65 of the Public Procurement Act, 2003, we considered the case of procuring a custom made information system for a private business such as KASAPREKO Distilleries. In this scenario, the request for proposal has been prepared and communicated to the business industry through a list of registered suppliers; proposals have been collected, and the procurement team has gathered and opened the bids in the presence of all suppliers’ representatives. After a pre-evaluation check, the bids that meet the basic requirements for this test and therefore are certified "qualified" for onward evaluation and selection are subjected to the test of an evaluation grid. The procurement team uses this grid built around criteria such as quality and cost to further select a winning tender. The key elements of this grid are technical and financial, some are: understanding of scope of work (requirements documentation, management and traceability matrix, scope statement, work breakdown structure, check points, prototype and testing), justification of the proposed time and cost involved (estimated cost of all resources, optimized use of resources, estimated production duration and cost), performing quality assurance (audits and checks, tools used to perform the checks), etc. Some other key elements are less objective but will guide to further probe, such as years of experience in developing software, reputation in the industry, recommendations from reputable organisations and/or previous customers, team skills, value of prior projects, etc. This evaluation grid is applied to all retained proposals until the best proposal (which scores the highest mark according to the grid) is retained. This decision is then formally communicated to the selected supplier. KASAPREKO Distilleries will sign a procurement contract with the selected software vendor.

Even though the procurement process as provided by the sections 53 – 65 of the Public Procurement Act (2003), Act 663 gives guidelines for administering public procurement (tendering procedures and purposes connected to these), it does not provide for negotiations with the software vendor. This is a limitation to this Act as the section 64 stipulates that negotiations with suppliers or contractors are prohibited. As a result the software that would be purchased might not be fit for purpose, leading to a possible financial loss.

Conclusion

There is a need to exercise caution when procuring any form of Information System whether hardware or software due to the complexity of use. Unlike general goods and services that can be procured using the lowest price as the criteria, when procuring Information Systems, price though important should not be used as the final determinant. In the case of KASAPREKO Distilleries it is necessary to do a proper selection and negotiation to ensure the right software is procured and proper long term maintenance procedure are ascertained from the vendor. With reference to the public procurement act (2003) Act 663 section 53-65 it can be observed that the benefit of having a standard tendering process is to ensure efficiency, fairness and transparency in the purchase of goods and services. However with respect to the purchase of Information Systems for large organisations there is a limitation in the act with respect to negotiation with the supplier.