Update on International Procurement

EC/47/SC/CRP.33

UPDATE ON INTERNATIONAL PROCUREMENT

I. INTRODUCTION

1. The objective of UNHCR's procurement activities is the timely acquisition of goods and services required by the organization. As a complement to its protection functions, UNHCR assists refugees by coordinating the provision of shelter, food, water, logistics support, sanitation and medical care as well as equipping its own staff and offices in Geneva and in the field. A significant part of these material inputs are procured either locally by the UNHCR field offices or internationally through the central Supply and Transport Section at UNHCR Headquarters in Geneva. This paper primarily addresses the operating environment and trends affecting the central procurement function although it is recognized that the supply function begins and ends with the beneficiaries, that is, with the refugees.

2. The Supply and Transport Section (STS) of the Division of Operational Support, is responsible for the bulk of international procurement by UNHCR. The procurement process begins with the receipt of the purchasing plans from the field offices. It continues through the tendering and contract award stages that strive for fairness, transparency and maximum cost effectiveness and ends with confirmation that the goods have been received by the end users at the contracted point of delivery. The increasingly decentralized nature of UNHCR's operations has imposed new priorities on the Section. In recent years, therefore, STS has assumed a higher profile for providing procurement and logistics training and support to field based UNHCR and implementing partner staff.

3. Since 1991, when procurement expenditures peaked at $ 191 million, international procurement has steadily decreased. In 1996, the value of goods procured amounted to $ 75.4 million. Annex I gives the values of annual purchases by UNHCR Headquarters since 1990. A comparison of the distribution of purchase orders and suppliers by vendor country/region for 1995 and 1996 is shown in Annex II. While most of the decrease can be attributed to the reduced scale of UNHCR's operations, increased regional procurement, particularly in 1996, has also contributed significantly to this trend.

II. PROCUREMENT PRINCIPLES

4. Whether carried out locally or internationally, every purchase is subject to the financial rules and procurement procedures established by UNHCR in line with the Financial Regulations and Rules of the United Nations on competitive bidding and the Financial Rules for Voluntary Funds administered by the High Commissioner. This ensures that there is a public accountability and control of financial transactions through checks and audits by internal and external bodies. Authority delegated to purchasing staff is clearly defined to enable them to act speedily in obtaining what is needed at the right time and to obtain the best value for money in a fair and transparent manner.

5. Each autumn, field offices are required to submit, as part of the annual budget exercise, a plan of purchases anticipated for the following calendar year. While the scope of the annual purchasing plans is narrowly circumscribed by the funding and operational climate in which UNHCR operates, they nonetheless provide STS with a valuable strategic planning tool. The input received from some 70 countries at the end of 1996 provided strong indicators of the commodity areas where STS needed to develop appropriate responses, for example frame agreements, during the coming year. The formal procurement process, however, is only initiated upon receipt of a duly authorized purchase authorization in STS confirming the need for the requested goods or services and the availability of funds under the appropriate heading of expenditure. The budget review process, as well as the evolution of programmes at the regional and local levels, can impact significantly on the purchases anticipated at the start of the programme cycle. Likewise, the sudden onset of an emergency can create needs not originally foreseen.

6. Purchases of goods or services budgeted at $ 20,000 or more at Headquarters and $ 5,000 in the field are subject to formal competitive bidding. Below these amounts, the purchasing staff are required to compare at least three offers in writing. Three tendering methods, described below, are commonly used by UNHCR:

(a) Open international competition (OIC) is initiated by advertisements requesting interested suppliers to express their interest in offering for specified commodities. Notices of such opportunities are published in the United Nations' Development Business and the UNDP/Inter-Agency Procurement Services Organization's (IAPSO) Procurement Update. The Permanent Missions to the United Nations in Geneva are also notified to enable them to inform their national suppliers. Suppliers who are already registered with UNHCR for the commodity receive direct notification from STS. Qualification documents are sent to all suppliers expressing interest. The documents provide the complete specifications, including, where applicable, any laboratory tests required to qualify the products. Only suppliers meeting UNHCR's criteria are invited to participate in the subsequent tender. The OIC process is extremely time consuming. UNHCR has consequently limited its application to the establishment of long term frame agreements, described in paragraphs 17-22 below.

(b) Limited international bidding is the most common method of tendering used by UNHCR. This method is the best suited to respond to the short lead times imposed by the emergency nature of much of UNHCR's procurement. Only suppliers registered by UNHCR are short-listed, based on the criteria listed below, from a roster proposed by a computerized database. STS has established criteria for use of the vendor roster to ensure fairness, transparency and equitable geographical distribution in the selection of vendors. Suppliers responding to the following criteria are included in each bidders' list:

• the successful supplier of the previous order (if any);

• the next most competitive suppliers of the last order (if any);

• newly registered suppliers;

• suppliers from developing countries;

• suppliers from donor countries

• suppliers from the area of operation.

(c) Local Competition is similar to (b) above except that solicitation of offers is restricted to suppliers located in the country or region where the goods or services will be used. This technique is commonly employed by the Regional Purchasing Officers or Branch Offices for their purchases.

7. The salient points of each offer, including price, delivery and quality, are compared. Contracts are awarded on the basis of the lowest evaluated offer best meeting the objective criteria of price, delivery and specifications. While the commitment to quality remains uncompromised, the relative weight given to price and delivery during adjudication of the tender will vary according to the urgency of the need. In emergencies, rapid delivery is essential. The rules of the Committee on Contracts also provide that the Committee may, on a case-by-case basis, give preferential treatment to supplies originating from developing countries and under-utilized markets of major donors to UNHCR where this is found to benefit refugees or other UNHCR activities.

8. If the proposed contract is valued at $ 100,000 or more, the award must be approved by the UNHCR Committee on Contracts. The Committee shall ensure that the procurement procedures have been strictly followed and that the interests of the organization are protected. The body is chaired by the Controller. The United Nations Audit and Management Consulting Division is also represented in an observer capacity.

III. THE PURCHASING SYSTEM AND VENDOR REGISTRATION

9. The requisitioning and procurement processes at UNHCR Headquarters are largely computerized. Since December 1995, Headquarters' units are able to raise requisitions on line. The purchase request (PURREQ) system, as the on-line requisition module is known, gives the user access to the STS item database and is linked to the financial records of each project. To assist the requisitioner in the selection of the correct product, the system provides the specifications of any previously purchased item. PURREQ enables all the users to exercise a much tighter control over all aspects of the requisition process. The system provides the latest price paid, enhancing budget control. A purchase may only be initiated on the basis of an approved budget for a given operation. Funds are reserved for the amount of the authorization ensuring their availability when the purchase order invoices eventually fall due. PURREQ also makes it possible for the users to track the progress of a request through the various stages of the procurement process.

10. Quotation Requests and Purchase Orders are issued through the purchasing module, (PURUND). The heart of PURUND is the supplier and item databases. The supplier database contains basic information such as contact and banking details and the vendors' catalogue of items. The supplier database is linked to an item database that contains detailed specifications of all goods previously purchased by UNHCR. Access from a product code leads to all suppliers who can provide the item; access from a supplier code leads to all products that a given supplier can provide. The purchasing system is reviewed and upgraded regularly to take account of the operating experiences and evolving needs of the Office. Most recently, a new version of the Quotation Request and Purchase Order was implemented that rationalized a number of functions contained in the preparation of the documents and updated standard clauses to reflect current working practices.

11. The register of suppliers is constantly updated. Manufacturers, brokers or general traders dealing in commodities of current interest are encouraged to apply. Suppliers meeting UNHCR's requirements are registered for an initial period of three years. STS automatically renews the registration of any company that wins a contract in this period for an additional three years. Those that fail to win a contract during this period are generally deleted from the database. Registration by UNHCR only means that the company has been added to the list of potential suppliers; there is no other commitment by UNHCR.

12. Potential suppliers are encouraged to register through a number of avenues. Many companies approach UNHCR directly to request registration. UNHCR also maintains contact with the trade missions and embassies of many Member States who facilitate contact with national suppliers. Frequently, STS staff will attend business contact seminars organized by these same bodies or UNDP/IAPSO that provide suppliers an opportunity to understand UNHCR's requirements and meet directly with purchasing staff. The government body organizing a business contact seminar would normally be expected to underwrite the cost of UNHCR's participation.

13. The supplier database, following an exercise completed in April to update the roster, included 1,281 suppliers from 70 countries and territories. Approximately 77 per cent of UNHCR's active suppliers are from the developed world. While the statistics indicate a modest representation of developing country vendors it should be noted that this group comprises the sole suppliers of many major relief items, such as tents, plastic sheeting and cooking sets. Frequently, these goods are supplied under long term agreements concluded after open international competition. Identifying suppliers from developing countries remains a high priority for STS. Therefore, STS is planning several sourcing missions to developing countries in 1997.

IV. PROCUREMENT IN EMERGENCIES

14. Although UNHCR operates on an annual budget, programmes are frequently not fully funded at the start of the year. Funds are commonly made available only near the time the material inputs are required in the field. Thus, the advantages of long procurement lead times, desirable under optimal conditions, are not enjoyed by STS. Emergencies, which by definition cannot be planned in advance and yet require an immediate response, exacerbate this problem. One of the important goals of STS is therefore to assure, regardless of current market conditions, that UNHCR has the capacity to respond in a timely and appropriate manner to the majority of its material requirements. To achieve this, UNHCR has established two working tools - emergency stockpiles and frame agreements.

A. Emergency stockpiles

15. UNHCR is currently operating a centrally controlled emergency stockpile in Amsterdam with the capacity to meet the initial requirements of an emergency operation. The stockpile contains inventories of blankets, plastic tarpaulins and rolls, tents, cooking sets, generators, jerry cans and four-wheel drive vehicles. Two fully functional camps to provide staff and office accommodation in hardship duty stations are also maintained in Amsterdam. These camps can each accommodate up to 25 staff members in residence and provide office space for up to 50. While the Amsterdam stockpile is primarily intended to serve emergency operations, other operations, when stock levels permit, may also order their requirements for direct delivery to mitigate the time constraints described in previous paragraphs. In Geneva, UNHCR administers stocks of computer and telecommunications equipment and office start-up kits for emergency operations.

16. Over the years, these arrangements have reduced the response time to emergencies from weeks to days; literally the time that it takes to organize a charter flight. Earlier, warehouses were also maintained in Turkey and Dubai, but these operations were closed as the needs in the regions declined. Negotiations are ongoing with the UNICEF Supply Division about the possibility of moving the stockpile to Copenhagen. These discussions are taking place in the context of furthering interagency cooperation. A joint effort in this area will harness the complementary commodity specializations of the two agencies, as well as reduce overall operating costs by taking advantage of the over-capacity experienced by UNICEF in their government supplied warehouse.

B. Frame agreements

17. Frame agreements are long term contracts entered into with specific suppliers that permit STS to issue orders for frequently required items on pre-negotiated terms and prices. These arrangements ensure UNHCR's rapid access to agreed stocks of relief goods. While estimated quantities, based on historical trends and purchasing plans, are stated in the tender documents, these arrangements are concluded with no obligation by UNHCR to make any purchases. In 1996, STS concluded the first of the frame agreements based on open international competition. In that year, agreements were implemented with manufacturers for the supply of all requirements for blankets, plastic tarpaulins, cooking sets, generators and refugee registration materials. The agreements were renewed with the same suppliers for 1997. These arrangements have been very successful. Price stability for these items has been ensured, as has a guarantee of consistent quality. In the long run, STS intends to permit field offices to place direct orders with the suppliers for goods for which frame agreements have been concluded.

18. Most significantly, the frame agreements have considerably reduced the time and staff resources previously devoted to spot purchasing. This is one important factor that has permitted STS to embark on new initiatives to enhance the effectiveness of the supply chain (described below in paragraphs 23 to 28) and to respond positively to the High Commissioner's directive to reduce staff at Headquarters.

19. In 1997, STS will continue to rationalize the purchase of high value and high volume commodities. The first frame agreement concluded this year will be the Global Freight Agreement (GFA) for the transport of its purchases from the supplier or UNHCR stockpile to the final destination. Transport costs historically account for 8 to 9 per cent of the total value of UNHCR's purchases. It is expected that the GFA will reduce UNHCR's transport costs, although it is difficult to judge accurately at this stage. The primary goal of the GFA, however, will be to provide UNHCR with greater control over it purchases during transportation. Tracking the status of shipments, ensuring timely delivery of the correct documents to the consignee and, above all, ensuring confirmation of delivery at final destination are all extremely problematic under the current arrangement whereby the supplier is generally responsible for the transport.

20. An additional anticipated benefit of the GFA will be increased supplier response to Quotation Requests. It is the belief of STS that the conditions prevailing in many of the destinations to which UNHCR makes shipments severely limit the number of offers received. Many suppliers are simply unwilling to assume the risks such shipments entail. STS expects the GFA to be operational this summer.

21. STS has already initiated an open international competition to renew the existing frame agreements. Other agreements for tents, essential drugs, jerry cans, tyres and, possibly, vehicle spare parts will be concluded by the end of the year. In view of the high interest expressed in recent years by a number of Member States in promoting their national suppliers to UNHCR, it is important to highlight one repercussion of UNHCR's increasing use of frame agreements. It is anticipated that in 1998, purchases under frame agreements may account for as much as 60 to 70 per cent of all STS procurement by value. This estimate includes light vehicles that are almost exclusively purchased under a frame agreement concluded by UNDP/IAPSO on behalf of the United Nations system. Early and active interest on the part of potential suppliers is therefore of utmost importance.

22. Other strategic purchasing arrangements entered into by STS include fixed price agreements for computers and peripherals, telecommunications equipment, photocopiers, Polaroid films and cameras, bullet proof vests and helmets and United Nations flags and pouch bags. The agreements have been concluded on the basis of limited international competition, as the suppliers for these commodities are known to STS, for a duration ranging from six months to two years, depending on the market cycle of the commodity.

V. NEW ROLES FOR THE SUPPLY AND TRANSPORT SECTION AND THE IDEAL SUPPLY CHAIN

1. Reorganization of the Supply and Transport Section

23. Following internal discussion, both within the Supply and Transport Section (STS) and with senior management, STS was reorganized in February 1996 along new functional lines. The traditional role of STS was limited to international procurement. In the increasingly complex and decentralized world in which UNHCR is operating, it was apparent that if STS was to respond fully to its lead role in relation to supply chain issues, a broader definition of its responsibilities would have to be promoted and adopted. While this initiative actually pre-dated Project Delphi, the goals of the two are in complete harmony. The new structure reflects the higher emphasis given to procurement and logistics performance at the field level (including implementing partners).

24. The procurement and transport functions were streamlined and consolidated into functional teams, permitting a reduction in the number of staff directly engaged in procurement. New units were created to reinforce the field logistics function and to develop systems and procedures, as well as to extend the STS training activities to field-based staff. In the past year, STS has organized procurement training in Moscow, a logistics workshop in Mombasa and a three day training session for its own staff done in collaboration with a national purchasing institute. Additional training courses are planned for the second half of 1997, including two that will specifically target implementing partner staff with supply responsibilities.

25. The reorganization has allowed STS to take a more proactive stance with regard to supply chain issues at Headquarters as well as in the field. Concrete examples include promulgation of procedures for procuring services from corporate bodies and for obtaining waivers of competitive bidding. Operationally, STS is working in close cooperation with the Division of Human Resources Management to identify competent field logistics staff and has made important headway in opening discussions with UNHCR offices in the field regarding strategic purchasing issues, leading to important savings for the organization.

2. Ideal Supply Chain

26. In 1995, UNHCR embarked on the Supply Information Management System (SIMS) project to define the requirements for an on-line electronic information function that would facilitate tracking of in-kind contributions and UNHCR procurement through the supply pipeline. The in-depth analysis of the UNHCR supply chain resulting from this project revealed that the basic organization of the supply function did not respond adequately to the current operational realities of UNHCR. In late 1995, a much more ambitious and comprehensive effort to improve the delivery of life-sustaining commodities to refugee operations called the Ideal Supply Chain was launched. This project aims to integrate the purchase, transportation, storage and management of materials into a single, unified function ensuring that the delivery of assistance is part of a strongly linked integrated system.

27. The new supply chain management will differ significantly from UNHCR's classic purchasing and logistics system. It views the supply chain as a single entity, as opposed to placing the responsibility for the different segments of the supply process to fragmented functional areas within the organization. The supply of goods and services to beneficiaries is a time sensitive, critical and financially significant function in emergencies and other operations. Integration, not simply interface, will be the key to the new approach. The supply chain managers will be accountable for the operation of all stages of the supply pipeline from suppliers and donors to the end user, regardless of the level where the orders were initiated.

28. The Supply Chain is intended to be a coordinating and implementing function in UNHCR's programmes. The policy formulation and direction of the Supply Chain will rest with the Supply Chain Centre at Headquarters which will replace STS. The key to the new structure will be direct (and eventually on-line) and functional communications links between supply staff at all operational levels to ensure that the flow of goods evolves in a coordinated, organized and well-planned manner. The overall responsibility for the implementation of all supply chain activities within a refugee/returnee operation will rest with the newly created function of Supply Chain Manager. The Supply Chain Manager, reporting directly to the Operations Manager, will be assisted, as required, by a team of procurement and logistics specialists and support staff at the different operational levels.

VI. "GREEN" PROCUREMENT

29. In April 1997, UNHCR formally established guidelines for environmentally sensitive procurement. The Guidelines highlight the environmentally desirable qualities of UNHCR's purchases. Basic to the Guidelines is the following principle:

"UNHCR's environmentally friendlier policy is to strive to purchase products and services which have less negative impact on the environment. Environmental considerations form part of the evaluation and selection criteria, which could cover, depending on goods and services to be purchased, their manufacture, transport, packaging, use and disposal".

As a first step, guidelines and specifications have been established for four groups of commodities: potentially hazardous chemicals; ozone depleting substances; office paper and computers. Environmental criteria for additional items will be established, whenever possible, in cooperation with other United Nations agencies. These guidelines will be applied not only to purchases, whether by UNHCR or implementing partners, but also to in-kind donations.

30. STS will request suppliers to provide, with their offers, pertinent information on the environmental impact of their products. Environmental considerations will not necessarily be the overriding factor in adjudication. For example, in an emergency, delivery may have to take precedence over all other factors. UNHCR also recognizes that markets in different regions do not always provide access to more environmentally friendly alternatives at acceptable prices or delivery times. Care will therefore be exercised to ensure that the application of this policy does not systematically discriminate against markets that operate under less stringent environmental regulations. All offers are considered, but where two are substantially the same, environmental factors may be decisive in awarding the contract.

VII. INTER-AGENCY COOPERATION

31. UNHCR continues to play an active role in inter-agency procurement cooperation. The major activity on this year's agenda is the elaboration of common vendor registration and appraisal mechanisms. Radically new approaches to these issues will be considered at the Inter-Agency Working Group meeting in Gothenburg in May 1997. The meeting will be requested to adopt a common vendor registration form for both goods and services to be used by all United Nations procurement entities as well as a proposal to create a single door registration process for suppliers. Suppliers wishing to register will no longer need to apply to each agency with which they wish to do business. A single application to the United Nations Supplier Information Database (UNSID), maintained by UNDP/IAPSO, will open the door to all the participating agencies. The operational requirements of this system are still under development, but it is intended to distribute the supplier information to participating agencies, to the extent possible, using internet. Funding for the database will probably be provided from supplier registration fees, assessed at regular intervals.

32. Other proposals to be considered at the Gothenburg meeting include criteria for a common vendor appraisal system. This information will be fed into the UNSID available to all agencies. A procedure for flagging vendors that represent a substantial business risk will also be proposed. This procedure will be used, for example, when one agency learns that a vendor has gone into receivership or has formally initiated arbitration or legal proceedings. A further development of the lead agency concept in the procurement context will also be considered. Currently, the application is limited to the elaboration of common specifications for major relief items and medical supplies. Each agency will be requested to contribute the specifications for those goods for which it has developed the greatest expertise into a common item database available to the entire United Nations system.

VIII. CONCLUSION

33. UNHCR has embarked on a road that will fundamentally change the nature of its procurement operations. A rational and functioning supply chain, responding fully to all operational exigencies, will have to be a prominent feature of the new landscape. The major task of the Supply and Transport Section in the years ahead will be to define and implement procedures and processes to provide the necessary complement to the new structures evolving from Project Delphi. Planning is already well advanced and implementation of the new Supply Chain is expected to commence in 1998. While the functions of the Supply and Transport Section have had to be reviewed in the light of the Supply Chain Project, one core objective of the section remains to provide the right goods at the right place and at the right price.

(Note: Tabular annexes not included in this online version. See your nearest UN Depository Library.)

1 The value of corporate contracts for services (as distinct from individual consultancies) are not reflected in these figures as they are placed outside the computerized purchasing system. Corporate contracts amounted to approximately $ 4 million in 1996. Corporate contracts are placed with corporate bodies, as opposed to individuals, for the provision of services ranging from training to software development to office cleaning.