Introduction to public finance

Public finance is the study of the role of the government in the economy. It is the definitive
branch of Economics which assesses the Government revenue and Government expenditure of
the Public Authorities and the adjustment of one or the other to achieve desirable effects and
avoid undesirable ones. The proper role of government provides a starting point for the analysis
of public finance. In theory, under certain circumstances, private markets will allocate goods and
services among individuals efficiently (in the sense that no waste occurs and that individual
tastes are matching with the economy's productive abilities.
Collection of sufficient resources from the economy in an appropriate manner along with
allocating and use of these resources efficiently and effectively constitute good financial
management. Resource generation, resource allocation and expenditure management (resource
utilization) are the essential components of a public financial management system. Public
Finance Management (PFM) basically deals with all aspects of resource mobilization and
expenditure management in government. Just as managing finances is a critical function of
management in any organization, similarly public finance management is an essential part of the
governance process. Public finance management includes resource mobilization, prioritization of
programmes, the budgetary process, efficient management of resources and exercising controls.
Rising aspirations of people are placing more demands on financial resources. At the same time,
the emphasis of the citizenry is on value for money, thus making public finance management
increasingly vital.
The public sector
By the term public sector we mean that part of the national economy for which the government
has some direct responsibility. It includes both central and local government, public corporations
and other public enterprise activities. Economists are interested in the behaviour of the public
sector because the governments decision affects individuals and institutions in many different
ways. The most important decisions are concerned with public spending, taxation etc.
Why do we need a public sector?

In the national economy, the market mechanism cannot perform all those functions required to
attain an efficient and equitable allocation of resources. The following are the reasons why the
public sector is necessary:
1. To promote competition
The claim that the price system leads to an efficient use of resources depends on the condition
that, there should be competition in the markets for both resources and finished goods. This
means that there should not be restrictions on entry of firms to the industry and those consumers
and producers should have complete information about the market conditions.
To promote competition and eliminate monopoly, the government measures such as taxes,
subsidies and rules and regulations may be used.
2. To ensure provision of goods not provided by the private sector adequately e.g. defence.
3. To tackle externalities
Connected with market failure are problems of externalities e.g. noise and pollution which
require public action. The private sector only cares for profits and not welfare for the future
generation.
4. To enforce contracts.
To make the market mechanism work, government rules and regulations are required to enforce
contracts entered into between buyers and sellers of goods and services.
5. To redistribute income and wealth
Given that the governments objective is to maximum social welfare, public policy may be
required in the attempt to achieve a more equitable distribution of income and wealth.
6. To promote macroeconomic objectives
Public policy may be required in market economies where the price system is prone to high
unemployment, inflation, and balance of payment problems. In such economies, governments are
concerned to implement policies designed to achieve a high level of employment, a low rate of
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inflation, a satisfactory balance of payments position, a desired rate for economic growth and
balanced regional development.
Private and Public Finance
The main similarity between the two is that both need resources and that both seek to obtain
maximum result from their resources. However, there are a number of differences between them:
An individual adjusted his expenditure to his income while the government adjusts income to
expenditure.
For an individual, there is a definite period over which the accounts must be balanced but the
government tries to balance its budget in the course of the year.
Individuals do not tell their neighbours how they acquire incomes but the government does
not hide its source of income.
There is no internal borrowing for individuals and borrowing is always external but for the
government borrowing is both internal and external.
An individual earns his income but the government obtains income from other peoples
income i.e. taxes.
A prudent individual must spend less than he earns i.e. must have a surplus budget but for the
government, it need not be so.
The Fiscal Policy
Fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to
influence the economy. The two main instruments of fiscal policy are changes in the level and
composition of taxation and government spending in various sectors. A fiscal policy can also be

defined as government policies towards taxation, public spending and public sector borrowing.
Objectives of fiscal policy
To maintain fair distribution of National income
To achieve desirable consumption levels
To raise employment level
Maintenance of economic stability.
To increase the rate of economic growth.

Public finance should be used as an instrument for the achievement of certain economic and
social objectives. Before Keynes, the concern of public finance was the raising of government
revenue. Keynes however, made changes in the scope and nature of public finance by
emphasizing that public finance is meant to help in achieving certain social and economic
objectives and finance some essential economic activities. Keynes underlined the fact that
taxation and government expenditure policies are the main variables that affect the level of
income and employment. He indicated that during depression: The government can eliminate it
by:
Increasing its expenditure on public works to raise the level of income and employment in
the country.
Reducing taxes so that peoples disposable incomes increase. As it increases, they save more
and invest more, thereby increase incomes and employment. When there is inflation in the
economy then the government may reduce inflation by;
Reducing its expenditure and
Increasing taxes so that purchasing power is withdrawn from the people. This is the working
of fiscal policy, which is a government policy that uses the tools of government expenditure
and taxes to regulate the economy.
The instrument of fiscal policy can be summarized as:
a) Public expenditure
This is spending made by the government of a country on collective needs and wants such
provision of infrastructure. Government at all levels (National, regional and local) need to raise
revenue from a variety of sources to finance public sector expenditures.
b) Public revenue
This is the income realised by the government for purposes of financing government activities in
a financial year. Governments across the world earn public revenue from the following main
sources that are: tax revenue, non tax revenue and capital receipts.
c) Public borrowing
Public borrowing is when the government has to borrow some money from the public to cover its
budgetary expenses, especially when there is a difference between government receipts and spending.
Borrowing is done by selling securities or by lending from banks and this is usually considered as a good
indication of the financial well-being of a country.

Role of public finance in a developing country

In a developing country, the government must play a very active role in promoting economic
development, and public finance is the instrument, which the government must use. The reasons
why the government should take a leading role in a developing economy are:
To fully exploit the varied natural resources which may be beyond the capacity of resources
of the private sector.
To bring in the technical knowhow that is lacking in the private sector.
To promote capital formation. Low savings limits capital formation among individuals.
Budget
A budget is a financial plan or statement covering receipts and expenditure outlets.
In a situation whereby the government expenditure is greater than revenue this is known as a
deficit budget while if the government revenue is greater than government expenditure is known
as a surplus budget .When govt expenditure and revenue are equal it is known as a balanced
budget. Budget may be two kinds namely capital budget and revenue budget. Revenue budget is
related to the normal income and expenditure items while capital budget relates to budget
development projects.
In revenue budget the main source of the revenue comprise:

Custom and excise duty

Income and corporation tax
Income from state property and fines
Administration collection of taxes by KRA

The main sources of capital budget are:

Loans and grants obtained by the government. The loans are obtained from Breton wood IMF
and WB AFD.
The grant are received from friendly countries
The main expenditure of capital budget involves
Development project
Establishment of New industries and agricultural project
Budget prepared and presented by finance minister before the parliament for changes in
taxation.
Currently there are nine budget sections:
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1. Agriculture and rural development

2. education
3. physical infrastructure
4. public administration
5. public safety law and order
6. general economic service
7. National security
8. Health
9.

information and communication technology (ICT)

Budget execution
Once the budget has been read it is debated in the parliament where the appropriation bill is used
for approval purposes. The appropriate bill authorized by the government is used to establish the
current development. The treasure issues exchange to the lying monists to enable them to spend.
Budget policy
Budgetary policies are measured designed to achieve clearly the defined budgetary objectives,
given that budget are annual plans designed by the government to achieve the economic growth,
equitable distribution of wealth income in a country. There is a major means by which
government regulates the economy. The government uses both fiscal and monetary instrument
/policies to achieve budgetary and fiscal instrument in achieving the budgetary objectives.
Taxation
Taxes are compulsory transfers of money from individuals, groups or institutions to the
government, and which may be direct or indirect. Direct taxes are levied on income, wealth
or spending power. Indirect taxes on the other hand are levied on goods and services. It may be
applied ad valoven (i.e. as a % of value) at a specific rate i.e.; so much per unit sold or a flat rate
i.e.; Lump sum, which does not vary with the value or quantity of the goods and services.
Purpose of Taxation
The main purpose of taxation is to raise revenue. Taxation is also an important instrument of
economic policy as follows:
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i. The use of custom duties protects home industries from being out competed by foreign
industries.
ii. Graduated tax payments affect distribution of income.
iii. Heavy taxes on wines and spirits are meant to curb consumption of alcohol etc. However, tax
is not the sole source of government revenue. Other sources of government revenue include:
a. Borrowing in form of government stocks.
b. Sale of Treasury bills
c. National savings e.g. national savings certificates, premiums savings etc.
Types of taxes

Proportional tax
Here, the percentage of income paid as tax remains constant as incomes rises.

Progressive tax
In this type of tax, the percentage of income paid as tax increases as income rises i.e. the average
rate of tax increases with an increase in income.

Regressive tax
In this type of tax, the percentage of income paid as tax decreases as income rises.
Principles of Taxation
In his book, The Wealth of Nations, Adam Smith stated four principles of taxation which
he called the canons of taxation. These were:
1. Canon of equality
Modern economists have subjected this principle to two interpretations i.e. the benefit principle
and the ability-to-pay principle. The benefit principle states that the amount of tax paid by an
individual should be directly related to the benefits that the individual derives from government
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expenditure. The ability-to-pay principle states that taxes should be imposed on people according
to what they can afford to pay.
2. Canon of certainty
This principle states that the tax which each individual is bound to pay should be certain and not
arbitrary. The time of payment, the mode of payment, the amount to be paid ought all to be clear
and plain to the contributor and any other person.
3. Canon of Convenience
This principle states that the methods, manner and time of tax payment should be convenient to
the taxpayer.
4. Canon of Economy
This states that the cost of tax collection in relation to the tax-yield should be minimal i.e. the tax
yield should be far and above the tax collection expenses.
Other principles of Taxation
Modern economists have added more principles of taxation. These are;
a. Simplicity i.e. a system of taxation should be simple, plain and intelligible. Otherwise there
will be confusion and even corruption.
b. Elasticity
A system of tax ought to respond automatically to changes in the communitys wealth,
population and needs.
c. Equity
A system of taxation ought to distribute the tax burden on the community as equitably as
possible. Horizontal equity is achieved when taxpayers with similar circumstances and incomes
pay the same taxes, while vertical equity is achieved when taxpayers with dissimilar
circumstances and incomes pay taxes according to their different abilities to pay.

d. Productivity
A tax system should produce a high net yield of revenue but not so high as to discourage the
source of that revenue i.e. tax should not act as a deterrent to effort.
e. Variety
The tax system ought to be diversified. This is because reliance on just a few taxes is risky.
Direct and indirect taxes
When the payment of a tax brings the taxpayer directly into contact with the tax collector, the tax
is said to be direct. An indirect tax is one whose payment does not involve the taxpayer coming
directly into contact with the tax collector. Instead the tax is paid indirectly through an
intermediary who acts as a tax gatherer for the government.
Advantages of direct taxes
1. Attaining vertical equity
Direct taxes can be applied in such a way as to redistribute wealth and income equally. This can
be done by applying successively higher tax rates to higher income groups to achieve a degree of
progressivity in the tax system.
2. Low tax avoidance
Since people generally have to earn a living, then they normally incur an unavoidable tax
liability when income is earned. Therefore, tax avoidance is low in the case of direct taxes.
3. Revenue
The yield from personal taxation is fairly certain and can be calculated reasonably accurately in
advance. Taxpayers make annual returns of income to revenue authorities so that statistics can be
compiled. From these statistics, the yield from personal taxation can be worked out.
4. Equality of sacrifice.

Direct taxes are usually assessed in accordance with a graded scale so that the rate of taxation
rises in relation to income. These taxes therefore make for equality of sacrifice on the part of
taxpayers.
5. Economical
The cost of collection is low since they are collected at source in most cases.
Disadvantages of Direct taxes
1. Deterrent to work
A high rate of personal taxation may cause people to work less. A progressive rate of tax means
that over a certain income, people prefer to have leisure then extra earnings because the
government takes a high proportion of the income.
2. Deterrent to savings
A high rate of personal taxation may reduce consumers ability to save since it leaves them with
less money to spend. This might lead to a reduction in savings by people who are determined to
maintain their present level of expenditure.
3. Deterrent to enterprise
Corporation tax for example is tax on the profits of companies and such a tax may affect the
enterprise. If a business fails, the government offers no form of compensation. In other words
therefore, the government gains from the success of a business and loses nothing from its failure.
As a result, enterprise may be controlled and economic progress hindered.
4. Evasion possible
The assesses can submit a false return of income and thus evade the tax. Many people do not pay
the tax by concealing their incomes.
Advantages of Indirect Taxes
1. Freedom of choice

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Whereas direct taxes reduces the earners disposable income, an increase in indirect tax leaves the
earnings unaltered and therefore the individual can choose whether to buy the taxed goods or not.
2. Voluntary payment
Payment of indirect taxes is voluntary in the sense that consumers can choose to avoid
expenditures on taxed goods and services. For instance, if a person does not smoke or drink
alcohol, then he does not pay tax on these items.
3. Means of reaching the poor
It is a sound principle that every person should pay something to the government, however little.
The poor do not pay direct taxes and therefore they can only be reached through indirect taxes.
4. Administration
Indirect taxes offer certain administrative advantages e.g. they are easy to administer and collect
than direct taxes. They are also more difficult to evade them direct taxes.
5. Selectivity
Indirect taxes may be applied selectively to achieve particular objectives. For instance, they can
be used as an instrument of checking the consumption of harmful goods e.g. tobacco, wine, beer
etc by heavily taxing them.
Disadvantages
1. Regressive
Indirect taxes are regressive in the sense that, they fall more heavily on people with low incomes
than those with high incomes. This is because the poor spend a large proportion of their income
on buying goods and services than the rich.
2. Uncertain in yield
The yield from indirect tax is uncertain unless necessities are taxed. This is because if a good is
not purchased then the question of tax payment does not arise.

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3. Cost of living
An increase in indirect taxes raises the retail prices of goods and hence the cost of living.
4. Uneconomical
Indirect taxes are not economical from the taxpayers point of view since he may pay more than
the amount actually received by the state.
NB; Considering the respective advantages and disadvantages of the two systems, it is usually
considered that it would not be advisable to raise all the revenue required by one method alone,
but that the revenue should be raised by a combination of both forms of taxation.
Essentials of a good tax system
A good tax system should be composed of taxes that conform to the main canons of taxation.
The system as a whole should be equitable i.e. its burden should fall on the broadest
shoulders.
It should be economical so that the work of collection is done as cheaply as possible.
It should not hamper the development of trade and industry. It should assist the economic
development of the country.
The government should be certain of its revenue. This means that the tax should be based on
comprehensive and up-to-date statistical information so that accurate forecasting is made
possible.
It should be simple, financially adequate and elastic so that it can correspond to the new
needs of the state i.e. it should not be rigid.
It should be as much broad-based as possible i.e. there should be diversity in the tax system.
It should be efficient from the administrative point of view i.e. it should be simple to
administer.
There should be little scope for tax evasion and chances of corruption should be minimized.
It should be a harmonious whole i.e. it should be truly a system and not a mere collection of
isolated taxes. Every tax should fit in properly in the system as a whole so that it is part of a
system.
Public procurement

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Procurement is the acquisition of goods, services or works from an external source. It is favourable that
the goods, services or works are appropriate and that they are procured at the best possible cost to meet
the needs of the purchaser in terms of quality, quantity, time, and location. Corporations and public bodies
often define processes intended to promote fair and open competition for their business while minimizing
exposure to fraud and collusion.
Public procurement is the process by which public entities contract for acquisition or supply of goods,
services or works. Public procurement provides a comprehensive analysis of legal and policy frameworks
that underpin the regulation of public and utilities purchasing practices. The importance of such
frameworks is paramount not only for the successful functioning of the common market, but mostly for
the conceptual direction of the public sector of the country in its attempts to deliver services to the public
in a more effective and efficient way.
Public entities include a company owned by government, company carrying out functions which would
have been performed by government, institution which the government has the controlling interest. Public
procurement occurs when a public organization uses public resources to buy goods and services such as
hiring or obtaining for any other contractual means of goods, construction works or service. Public funds
are drawn from state or government budgets or local authority budgets, foreign loans, grants and money
raised by the government for various undertakings.
Objectives of public procurement

Ensure public organisations get value for money

Enhance transparency and accountability
Ensure efficiency and effectiveness
Promote competition and ensures that competitors are treated fairly by use of competitive
procurement methods
Promotes integrity and fairness of procurement procedures
Restore public confidence in procurement process
Build public trust to stakeholders
Facilitate promotion of local industry and economic development
To ensure that goods and service are obtained at the right price, right quality, right quantity, from right
source and delivered at the right place.

Public procurement reforms in Kenya

Reforms means to put or change into an improved form or condition; to amend or improve by change.
Public procurement in Kenya has undergone different reforms during pre- and post independence. As at
1959 the country had a defined form of procurement and supplies set up. In the same year the central
tender board (CTB) was established through a treasury circular. The board did not have any formal
structures until 1961 when the treasury defined its composition through yet another circular. The
government provided all the funds to various ministries to perfect procurement activities. In 1960 the
treasury for the purpose of providing common user services to the government issued the ministry of
works stores and services funds regulations. The other procurement and supplies units which had been
established in the ministry of works were market research, Inspection of material unit and central tender
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unit. The board was responsible for procurement and awards and had three sections namely: Local,
overseas purchases and country wide contracts.
At pre-independence the government organisations were small and therefore the procurement and
supplies was centralised and divided into countrywide contract and overseas purchases. At independence
the supplies services was centralised under ministry of works. The services covered purchasing/storage as
distinct functions spearheaded by chief purchasing officer and chief storekeeper respectively. In 1978 the
government issued procurement supplies guide to be used alongside east Africa manual. However this
attribute achieved little in terms of stemming the rampant abuse of public procurement funds.
The importance of central tender board was reiterated in the treasury circular of 1985 which elevated
membership to level of deputy secretary. This eventually culminated to the restructuring of 1989 when the
membership was raised to the level of parliament secretary and chairmanship of private secretary being
the financial secretary. The reforms got rid of central tender board in 2001 when its duties and
responsibilities were devolved to the procurement entities. In the same year the government established
exchequer and audit (Public Procurement) functions. This in turn paved way to introduction of public
procurement directorate and the public procurement complaint review and appeals board. Due to massive
corruption and manipulation of procurement procedures the government in conjunction with the World
Bank initiated a process of reviewing procurement laws and as at 2001 regulations could still be
circumvented through acts and omissions of it being rigged by public and private sector operatives.
A task force was formed between government, developing partners and private sector to undertake the
procurement initiates and a bill was drafted an attribute that paved way to enactment of the public
procurement and disposal act of 2005 that became operational in 1 st January 2007with the gazettment of
the act. Today this is the legal framework that provides efficient system for procurement of goods,
services, works and disposal of stores and equipments in the country.
Regulation of Public Procurement
Public procurement is regulated by various bodies:
1. Public Procurement Oversight Authority (PPOA)
It was established under section 8 of the Public Procurement and Disposal Act, 2005 as a corporate body.
Its headed by the Director General (who is the Chief Executive Officer), assisted by two Directors.
Function of the Authority
To monitor the public procurement system and report on the overall functioning and present to
minister such reports and recommendations for improvement as the director general consider as
advisable.
To assist in the implementation and operation of public procurement system by;
-Preparing and distributing manuals and standard document to be used in connection with
procurement by public entities.
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-Providing advice and assistance to procuring entities

-Developing, promoting and support the training and professional development and support the
training and professional development of persons involved in procurement.
- Issuing written directions to procuring entities with respect to procurement including the conduct of
procurement proceeding and the dissemination of information on procurement.
- Ensuring that procuring entities engage procurement professional in their procurement units
To ensure that the procurement procedures established under the act are complied with
To initiate public procurement policy and propose amendments to the act and regulations.
The Authority is headed by a director general who is the Chief Executive Officer responsible for its
direction and management. He is appointed by the advisory board with the approval of parliament.
Normally his term is of 5 years and may be renewable for another five years.
To be appointed as the director general,
(a) A person must have a university degree in commerce, business administration, economics,
engineering or a related field from a recognized university.
(b) Have professional qualification in supply management from a reputable organization.
(c) Have experience in management
(d) Be of an outstanding character, honesty and of high integrity.
Reasons for the termination of the director general
-

Incompetence

Inability to perform by reason of mental or physical infirmity

Convicted of an offence under the penal code, or this act or an offence involving dishonesty

If involved in a corrupt transaction or Acts

If you are adjudged bankrupt

If you hold another public office or deployed for any other work or business (especially due to
conflict of interests)

Responsibility of the director general

The Director General is responsible for the preparations and making all the estimates of revenue and
expenditure to the advisory board for approval. These expenditures should provide for the;
Payment of salaries, allowances and other charges in respect of the staff of the authority
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 The payment of pensions gratuities and other charges in respect of former staff of the authority
The proper maintenance of building and ground of the authority and replacement of equipment of
other property.
Payment of allowances and expenses of advisory board
The funds of the authority consist of: Money appropriated by parliament for the purposes of running the authority
Loans or grants received by the authority for its activities.
Revenue or fees collected for services tendered by the authority.
Capacity building levy
2. Public procurement oversight advisory board
This was established under section 21 of the act as an incorporated body and it consists of nine members
appointed by the minister and approved by parliament. The director general is also a member acting as the
secretary.
The organizations that nominate members are:
Institute of Certified Public Accountants (ICPAK)
Institute of Engineers of Kenya
Kenya National Chambers of Commerce & Industry
Federation of Master Builders
Kenya Institute of Management
Kenya Association of Management
Kenya Association of Manufacturers
Law Society of Kenya (LSK)
Marketing Society of Kenya
Architectural Association of Kenya
Institute of Surveyors of Kenya
Federation of Kenya Employers
The Central Organization of Trade Unions
NB: The minister in this case is minister of finance.
Functions of advisory board

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a) To advice the authority, generally on the exercises of its powers and performance its functions
b) To approve the estimates of the revenue and expenditure of the authority.
c) To recommend the appointment and termination of the director general.
3. The public procurement administrative review board
The public procurement administrative review board is established under section 25 of public
procurement and disposal act of Kenya. The public procurement review, complaints and appeal board
established under the exchequer and audit (Public Procurement) regulations, 2001 is continued under this
act as the public procurement administrative review board. The composition and membership of the
review board should be in accordance with the regulations. The authority provides administrative services
to the review board. An independent person from the private sector appointed by the Minister of Finance
heads the board.
The other members of the board are the permanent secretary (Treasury), the solicitor-general, the
permanent secretary (Provincial Administration) and three members appointed from business and
professional associations. The board has legal power to arbitrate by declaring the legal rules or principles
that govern the subject matter of a complaint, restraining the procurement entities from further action,
annulling in whole or in part an unlawful procurement act and revising an unlawful decision by the
procuring entity. The board can also order procurement proceedings to be terminated. Since its inception
in 2002, the private sector-led Procurement Appeals Board has cancelled contracts it deemed illegal or
unprocedural. A number of firms whose contracts have been cancelled have moved to the courts to
challenge the tribunal decisions. These cases have given procurement in Kenya a fairly positive image.
Functions of the appeal board:
The establishment of the appeal board provides the stakeholders with a forum to present the complaints
which have been made by them to effect that the public tenders have not been awarded fairly. Candidates
should forward complaints as directed by the regulations. Section 45 of the regulations make it an offence
for a member of a procuring entity and appeals board to accept any inducement for award or refuse to
award a tender. It also makes it an offence for any candidate to offer any inducement to a member of the
said institutions. Such offence will result in severe punishment including imprisonment and dismissal
from the office as applicable.
Organization of public sector procurement
Internal organization of public entities relating to procurement
A public entity shall establish procedures to provide for the making of decisions relating to procurement.
All procurement shall be:
Within the approved budget of the procuring entity, therefore no entity should commence any
procedures until it satisfied that sufficient funds have been set aside in its budget to meet the

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obligations of the resulting contract (this helps in curbing the common practice of stalled projects)
and the pending bills owed to the government.
All procurement shall be planned by the entity concerned through the annual procurement plan.
Procurement is undertaken by procuring entity as per the threshold matrix.
Procurement should be handled by different officers in respect of procurement initiation, processing
and receipt of goods, works or services.
Responsibilities of a procurement entity
A procuring entity shall establish a procurement unit.
The roles of the accounting officer
The accounting officer for a public entity other than a local authority is a person appointed by the
Permanent secretary to treasury. If there is no such a person the chief executive officer of the public entity
is responsible for ensuring that the entity complies with the act, regulations and any other direction of the
authority with respect to each of its procurement.
He should ensure that the procurement entity establishes a procurement unit.
In addition he is also responsible and ensures that the procurement entity establishes a tender
committee and a procurement committee.
He should also ensure that procurement plans are prepared
He is also responsible for signing contracts for the procurement and disposal activities on behalf of
procuring entity and is responsible for contracts entered into.
Ensuring that procuring entity properly documents procurement proceedings and manages records.
Employees, board and committee member as well as contractors supplies and consultants are also
required to comply with the provisions of the acts.
Responsibilities of user department
The user department shall be responsible for: Initiating procurement and disposal requirements and forwarding them to the procurement unit.
Participating in the evaluation of tenders, proposals and quotations.
Reporting any departure from the terms and conditions of the contract to the procuring
unit/department.
Forwarding details of any required variation of contract to the procurement unit for consideration and
actions.
Maintaining and archiving records of contract management
Preparing any reports required for submission to the procurement unit, procurement committee,
tender committee or accounting officer.
Undertaking conformity assessment of supplied goods, works and services with the specification of
the contract document
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 Preparation technical specification and submitting the same to the procurement unit.
Ensuring the issuance of goods, works and services received notes
Assisting in the preparation of procurement and disposal plans
Making clarification on tender requirements for quotations and any other as it is required
Function of a procuring unit
Maintain and update annually standing lists of registered tenderers required by the procuring entity
and liaise with the authorities in respect with authoritys register of suppliers and procuring agents.
Prepare, publish and distribute procurement and disposal opportunities including, invitations to
tender, pre-qualifications documents and invitations for expressions of interests.
Co-ordinate the receiving and opening of tender documents.
Maintain and safeguard procurement and disposal documents and records
Submit shortlisted and lists of pre-qualified tenderers to the procurement committee or tendering

committee for approval.

Issue procurement and disposal documents to candidates,
Propose the membership of the evaluation committee to accounting officer for approval.
Coordinate the evaluation of tenders, quotations and proposals.
Prepare and publish notices of award and notices of tender acceptance.
Prepare contract documents in line with award decision
Prepare and issue rejection and debriefing letters
Prepare contract variations and modifications to documents.
To maintain, recommend a negotiating team for appointment by accounting offices where

negotiations are allowed and participate in such negotiations.

Maintain, archive document and records of the procurement and disposal activities for the required
period of time (Usually Six years).
Provide information as required for any petition or investigation under the review procedures.
Implement the decision of the procurement, tenders and disposal committee including co-ordinating
all activities of these committees.
To act as a secretariat to the tender, procurement and disposal committee.
Liaise with authority and other bodies on matters relation to procurement and disposal
Monitor contract management by the user departments to ensure implementation of contracts in
accordance to terms and conditions of the contract.
Report any significant departures from the terms and conditions of the contract to the head of the

procurement entity.
Prepare consolidated procurement and plans
Advice procuring entity on aggregation of procurement to promote economies of scale.
Coordinate internal monitoring and evaluation of the supply chain function
Carry out periodic market surveys to inform the placing of orders or adjudication by the relevant a

ward committee.
To conduct periodic and annual stock taking
To certify the invoices and payment vouchers to suppliers
Approve the extension of the tenders validity period
Verify that the available stock levels warrant initiating a procurement process.
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Procurement entities
Procurement entity should prepare a procurement plan for each financial year as part of their annual
budget preparation process. The annual procurement plan shall be integrated with the applicable budget
process and based on an indicative or approved budget. Heads of department shall submit the plan to the
accounting officer at least 30 days before closing of the financial year.
Content of the procurement plan
The consolidated annual procurement plan shall be prepared by the procurement unit and approved by the
head of the procuring entity and where applicable by the Board of Directors.
The annual procurement plan of each procurement entity must include:A detailed / breakdown of goods, work or services required.
a) A schedule of the planned delivery, implementation or completion dates for all goods, woks or
services required
b) An indication and justification for whether it shall be procured within a single year period to
under a multi-year management.
c) An indication of which items can be aggregated for procurement as a single package

or for

procurement through any applicable arrangement for common user items.

d) An indication of which item can be packaged into lots.
e) An estimate of the value of each package of goods, works or services required and a indication of
the budget available and sources of funding.
f) An indication of the appropriate procurement methods for each procurement requirement.
Employees board and committee members as well as the contracts suppliers and consultants are
also required to comply with the provisions of the PPDA and its regulations.
The annual plot plan of each procurement entity must include:Tender committee
For purposes of decision making the procuring entities shall establish tender committee
This tender committee shall have a secretary who is a procurement professional in-charge of the
procurement unit.
Functions of tender committee

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 Review, verify and ascertain that all procurement and disposal has been undertaken in accordance

with the Act and regulation and the terms set out in the in the tender documents
Approve the selection of the successful tender or the proposals
Award procurement contracts in accordance with the threshold
To ensure that funds are available for the procurement under consideration
To ensure that procuring entity does not pay in excess of prevailing market rates prices.
Review and prove the use of lots, where packaging into lots has been proposed.
Review the selection of the procurement method and where a procurement method other than open
tender has been proposed to ensure that the adoption of the other procurement method is in

accordance with the Act, regulations and any other guidelines stipulated by the authority.
Approve the list of persons qualified to submit proposals
Approve the person to be given request for quotations
Approve the list of tenderers in cases of restricted tendering
Approve negotiations
Approve the amendment of contracts previously awarded by the tender committee
To understand any other duty of function.

Employees, members of the board or committee members of a public entity as well as the contract
suppliers and consultants are required to comply with the provisions of the PPDA and its regulations.
The accounting officer may use the procurement unit or tender committee of other procuring entity
provided that the said entities carry out their procurement in accordance with the PPDA and the
regulations.
The authorities have power to transfer procuring responsibilities of a procuring entity to another
procuring entity or procuring agent in the event of delay or in such other instances as my be prescribed.
A procurement agent may be appointed by a procuring entity on competitive basis to carry out such
procurement proceedings. These agents must be pre-qualified agreed with the authority and are also
required to comply with the act and with the regulation.
Procurement committee
A procuring entity shall establish a procurement committee
The procurement committee shall be responsible for procurement below the threshold of the tender
committee set out in the first schedule
The procuring committee shall be composed of:
a) An officer delegated by the head of the procuring entity or the accounting officer who shall serve as
the chair man of the committee
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b) The finance officer or an officer carrying out related functions.

c) Three other members appointed by the head of the procuring entity or the accounting officer.
The secretary of the procurement committee is person appointed by the head of the procuring unit. This
person should be a member/staff of the procuring unit.
Evaluation committee
For each procurement within the threshold of the tender committee, the procuring entity shall establish an
evaluation committee for the purposes of carrying out the technical and financial evaluation of the tenders
or proposals.
An evaluation committee shall
a) A separate financial evaluation committee and a separate technical evaluation committee.
b) A combined financial and technical evaluation committee.
An evaluation committee shall consist of a chairman and at least two other members all appointed by the
accounting officer or the head of the procuring entity upon recommendation by the procurement unit.
The technical committee shall be responsible for
a) Technical evaluation of the tenders and proposals received. They should strictly adhere to the
compliance and evaluation criteria set out in the tender documents.
b) They should perform the technical evaluation with all due diligence and within a period of thirty days
after the opening of the tender documents.
Each member of the evaluation committee shall evaluate independently from the other members of the
committee before sharing his/her analysis, questions and evaluation including his/her rating of (how he
has rated the tenders /proposals) with the other members of the technical committee.
The financial evaluation committee shall be responsible for:
a) The financial evaluation of the tenders or proposals received .This should be in strict adherence to the
compliance and evaluation criteria set out in the tender documents or request for proposals.
b) They should perform the evaluation with all due diligence and within five days from the time of
completion of the technical evaluation.
Note that the members of the evaluation committee should not get into direct communication with any of
the tenderers participating in the tender and proposals that such evaluation committee is considering. An
evaluation committee shall prepare a report on the analysis of the tenders and the final ratings assigned to
each tender and submit the report to the tender committee.
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Inspection and acceptance committee

A procuring entity shall establish an inspection and acceptance committee.
They are responsible for
Inspecting and where necessary test the goods received.
Inspect and review the goods works or services in order to ensure compliance with the terms and
specification of the contract.
Accept or reject on behalf of the procuring entity the delivered good works and services.
Ensure that correct quantities are received
Ensure that the good, works and services have been delivered or completed on time or that any delay
has been noted.
Ensure that all the required manuals or documented have been received
Issue interim or completion certificates or good received notes as appropriate and in accordance with
the contract.
Transfer of procuring authority
A procuring entity may transfer the procuring authority to another procuring entity or agent only in the
following circumstances:
a) Where the authority is of the view that the procuring entity lacks the capability to comply with the
Act, regulations or directions given by the authority due to its size or capability.
b) Where the accounting officer or the head of the procuring entity decides that it would be more
economical or efficient to transfer the function and request the authority to do so.
The accounting officer of the procuring entity that has transferred the procurement function shall
remain accountable for all the decisions taken by the procuring entity to which the function has been
transferred.
The accounting officer of the two entities shall agree on:
a) any function that may be excluded from the transfer arrangement
b) the mechanism for implementation of the procurement and disposal requirements
c) reporting and monitoring procedures and responsibilities
d) any limitation or exceptions to the transfer
e) Any costs to be paid.
Note: that the transfer agreement shall be made in writing by the heads /accounting officers of the two
entities.

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Procuring agents
For an agent to be recognized he/she shall pay a fee of 20,000 to the authority. The fee is payable once.
The procurement entity shall:
a) Meet the cost of the services offered by the procuring agent
b) Prepare the terms of reference for the procuring agent assignment in accordance with the provision of
the act and regulations.
c) Be responsible for the actions and performance of the procuring agent.
A procuring entity shall not contract out both the procurement function and the contract management
function to the same agent
The functions of the accounting officer, procurement committee or tender committee shall not be
contracted out.
Procurement planning and strategy development in public sector
Procurement planning is the process used by companies or institutions to plan purchasing activities for a
specific period of time. The process is commonly completed during the budgeting process. Each year,
departments are required to request budget for staff, expenses and purchases.

Procurement Planning is important because:

It helps to decide what to buy, when and from what sources.
It allows planners to determine if expectations are realistic; particularly the expectations of
the requesting entities, which usually expect their requirements met on short notice and over
a shorter period than the application of the corresponding procurement method allows.
It is an opportunity for all stakeholders involved in the processes to meet in order to discuss
particular procurement requirements. These stakeholders could be the requesting entity, end
users, procurement department, technical experts, and even vendors to give relevant inputs
on specific requirements.
It permits the creation of a procurement strategy for procuring each requirement that will be
included in the procurement plan. Such strategy includes a market survey and determining
the applicable procurement method given the requirement and the circumstances.

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 Planners can estimate the time required to complete the procurement process and award
contract for each requirement. This is valuable information as it serves to confirm if the
requirement can be fulfilled within the period expected, or required, by the requesting entity.
The need for technical expertise to develop technical specifications and/or scope of work for
certain requirements can be assessed, especially where in-house technical capacity is not
available or is non-existent.
Planners can assess feasibility of combining or dividing procurement requirements into
different contract packages.
The Procurement Plan is the product of the procurement planning process. It can be developed
for a particular requirement, a specific project, or for a number of requirements for one or many
entities in the public or private sectors.
Planning for significant procurement
Activity one: Identify the total expenditure on an item/category and its degree of difficulty of securing
supply is necessary to determine what category the goods and services belong. As part of the corporate
procurement planning process all of the departments/agencys purchases are identified and the total
expenditure on individual or groups of goods and services is determined. Goods and services that are
purchased in any of the high relative expenditure or difficult to secure supply categories are considered
significant purchases.
Activity two: Purchasing objectives for the significant purchase need to be established in accordance
with the corporate procurement plan. Based on the information gathered from analysing supply markets
and supplier and internal demand for goods and services, issues and problems may be identified which
can be addressed. From this list of issues and problems specific objectives can be formulated. For
example, it may be revealed that there are limited sources for a highly technical product that is critical to
a departments/agencys service delivery. The purchasing objective, therefore, is to secure a continuous
supply of that product. An example of a key strategy is to work with local suppliers that have capability in
the area to develop alternative products that will meet the agencys needs. Another example may be that
analysis of a suppliers performance records reveal that the department has been dissatisfied with the
quality of a delivered product. The purchasing objective therefore may be to improve the suppliers
performance. Objectives identified in each plan for a significant purchase need to be consistent with the
corporate procurement plan. Objectives define the desired outcomes, the budget and resources available
and the timeframe for completion.
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Activity three: Information gathering consists of collecting and analysing two types of information:
a) Demand analysis- defining or refining the departments agency agencys requirement which considers
whether the goods or service is necessary and if the specifications accurately reflect the demand. A
thorough understanding of demand involves examining; the outcome required, how internal users
have the same needs, whether the demand is fluctuating, seasonal, one-off, critical, non critical or
stable.
b) Analysing supply markets is a technique used to identify market characteristics for specific goods or
services and provides information that assists procurement planning. In order to develop strategies to
meet the objectives of the purchase it is necessary to develop an appropriate understanding of the
supply market and the departments/agencys position in that market. This activity should be
conducted in conjunction with demand analysis. By researching a supply market, purchasers are able
to find useful information to better understand the market. This information helps to develop
procurement strategies that may reduce expenditure, manage risk and advance government priorities.
To develop an understanding of a supply market, research and analysis in the following areas is

involved:
The number of suppliers and their respective market share (market structure)
Substitute or alternative goods or services
The degree and type of competition between suppliers
The nature and quality of supply chain
The departments/agencys value as customer
Environmental factors affecting the supply market

Activity four: Based on the information collected, potential buying strategies are identified and
evaluated. Information such as historical spend patterns, suppliers used, cost centre spend as a proportion
of total spend, demand and supply market analysis need to be considered in order to develop an effective
purchasing strategy (and make good purchasing decisions). Involve or obtain information from all
stakeholders in the purchase. Buying strategies need to be developed and evaluated consistent with the
objectives to be achieved. Typical strategies that could be pursued in this category include:
Automation of transaction processing through efficient interfaces with suppliers. Such electronic
ordering and transaction processing can deliver considerable savings.
Effective use of management information which can identify opportunities to improve supplier
arrangements for the benefit of the government.
Negotiating for improved service level from suppliers (example inventory management services,
extended warranties).
Regionalising supply in this category under centralised arrangements may provide better access and
service t the local level.

26

 Focussing the development of purchasing expertise on understanding the nature of demand patterns,
the strategies of suppliers and tactics for getting the best deal from the market.
Activity five: Identifying the preferred purchasing strategy involves planning approaches to the market.
This involves selecting the purchasing method(for example, public invitation to offer, selective invitation
to offer, direct negotiations, multi- stage processes) and may also include pre-purchase activities. The best
approach to the market will depend on the departments/agencys objectives, demand requirements and
the supply market characteristics. The purchasing strategy will consist of two main areas, firstly the best
approach to the market and secondly how to manage the internal demand and transaction elements of the
purchase.
Activity six: Specifying performance measures involves identifying performance indicators and
measures that determine if the purchasing objectives were met. Measuring encourages individuals and
organisations to behave in a positive way to achieve targets. It is a basis of control and a means for
determining the future allocation of resources. The department/agency may also be able to use good
results as a public relations tool to reward suppliers good performance. Performance measures need to be
set against the purchasing objectives and strategies of a particular purchase. In developing measures,
consider what outcome is being sought. A purchasing strategy may be deemed successful if key
performance indicators are met. Key performance indicators need to be measurable, achievable, relevant
and within the control of the supplier and the departments/agencys management information
capabilities. The key parameters which can be used as degree of performance in purchasing comprise:
Competitiveness of the supplier in terms of price, quality provision, order fulfilment rate, lead time,
reliability and dependability of the supplier. Performance indicators that may be considered for this
category of goods and services include the following:

Level of negotiated purchase price reductions

Cost reduction by identification of a new supplier
Cost reduction by using alternative goods or service
Cost reduction due to purchasing initiatives such as standing offer arrangements, managed supply and

distribution or post-offer negotiation

Negotiated savings/improvements in the total cost of operation, including reduced resources required

to purchase or reduced transactions costs.

Value of negotiated additional benefits
Value derived from improvements in payment systems
Value of improved warranties
Savings due to reduced stock holdings
Savings due to improved waste management, recycling or disposal (if environmental performance
measures).
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General procurement procedures/methods

i)

Open tendering

This is Bidding process that is open to all qualified bidders and where the sealed bids are opened usually
in public for scrutiny and are chosen on the basis of price and other technical attributes like quality,
quantity, source, time etc. It is also called competitive tender or public tender. The invitation to tender and
tender documents must be in English if it based on international tendering. If the procuring entity is
required to advertise the invitation to tender under section 54(2), the procuring entity shall also advertise
the invitation in one or more English-language newspapers or other publications that together have
sufficient circulation outside Kenya to allow effective competition for the procurement. The technical
requirements must, to the extent compatible with requirements under Kenyan law, be based on
international standards or standards widely used in international trade. A person submitting a tender may,
in quoting prices, or providing security use a currency that is widely used in international trade and that
the tender documents specifically allow to be used. Any general and specific conditions to which the
contract will be subject must be of a kind generally used in international tendering.
Tendering process

Tender is an invitation for offers/proposals from willing and able bidders. It should be sealed and
ought to be delivered before or at the specified time for it to be valid. The essence of inviting
bids from suppliers in the market is to encourage a high degree of competitiveness for the
goods/service to be purchased. Tender Process (or "Invitation to Tender" process) is a method by
which suppliers are selected for the provision of products and services to an organization. The
process involves creating a suite of Tender Documents to manage the supplier selection process.
The Tender Documents help the organization to select the best possible supplier available, and
include documents such as the "Statement of Work", "Request for Information" and "Request for
Proposal". The tendering processes should be based on the open national tender (ONT) specified
by the government of Kenya under the public procurement and disposal act, 2005. There are
three (3) exceptions to the Tendering Process these being:

Sole Source Justification

Emergency Purchases

Sole Source Justification By Reason Of Compatibility

Exception one: Sole Source Justification:

A sole source purchase is one where the specifications of the product/service, limit its purchase to the
only known source of supply. A brief statement attached to the purchase requisition form which states the
reason(s) for the specifications (s) and why an alternative (s) is not acceptable is required.
End users should be aware that although the item may not be tendered to multiple vendors, supply
management may still issue a Request for proposal or Request for Bid to the particular Vendor in order
that contract can be established.
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Exception two: Emergency Purchases:

An Emergency Purchase is classified as a procurement which is needed to "protect life and property,
prevent substantial economic loss, and/or prevent the interruption of essential services". At the discretion
of the purchasing officer, or major contracts officer, legitimate emergency requirements may be excluded
from the Tendering Process.
Exception three: Sole Source Justification By Reason Of Compatibility:
Products which can be integrated legitimacies the procurement function to source a material in question
from a sole source. A brief written request is normally forwarded to Supply Management outlining the
need for compatibility.

The following general principles are involved in calling tenders, clients must:

Conduct tendering honestly and fairly to all parties by treating all parties in the same manner

Comply with all statutory obligations, including trade practices and consumer affairs
legislation

Refrain from seeking or submitting tenders without an intention to proceed

Have regard to the cost of bidding and seek to constrain such cost

Apply the same conditions of tendering for each tenderer and avoid any practice which gives
one party an improper advantage over another

Refrain from practices such as collusion on tenders

Be prepared to attest to the probity of the process, including that related to issues concerning
collusive practices and conflict of interest, by statutory declaration

Produce tender documents that specify the principals requirements clearly to allow tenderers
to accurately price the works.

Open national tendering process

1) Preparation of tender documents: This is the most difficult and important step in the procurement
process. The tender documents are the principal means of communication to the bidders and form the
basis for the preparation of the bids and their subsequent evaluation. The preparation should be done
by experienced and competent staff. The following issues of concern in this step should be addressed
amicably:
a) The bidding documents should furnish all information necessary for a prospective bidder to prepare a
bid for the goods and works to be provided. They should generally include an invitation to bid,
instruction to bidders, form of the bid, general and special conditions of the contract, technical
specifications, list of goods, bill of material, drawings etc.
29

b) The biding documents should clearly define the scope of the work to be performed, the goods to be
supplied, the rights and obligations of the procuring agency or supplier, the function and authority of
the one engaged to supervise and administer the contract.
c) The bidding documents should set forth clearly and precisely the work to be carried out, the location
of the work, the goods to be supplied, the place of delivery or installation, the schedule for delivery or
completion and the warranty and maintenance requirements as well as any other pertinent terms and
conditions.
d) The bidding documents should also define the tests, standards and methods that will be used to judge
the conformity of the product or service provided.
2) Advertising, pre-qualification and issuance of tender document:
a) Advertisement and notification: Normally the supplier should be notified in a timely manner in order
to get the opportunity to bid. This is attribute is facilitated by transmitting copies of the invitation to
bid to the prospective suppliers. Advertisement to bid should also be advertised in at least two Daily
News papers of general circulation in a country. The tender advertisement should contain the
following essential information: basic outline of requirement/specification, closing date and time,
clause stating that late, incomplete or incorrectly submitted tenders will not be considered, details of
the location of the tender box for submission of tender, details of where tender documentation can be
obtained, the decision of the management committee on the awarding of a tender is final.
b) Pre-qualification of bidders: This is normally advisable for large or complex contract to ensure in
advance of bidding that invitations are sought from capable firms in the market. The pre qualification
should entirely be based on cross checking the capacity, experience, track record of the supplier as
well as the financial clout of the supplier.
3) Bid preparation: The bids should comprise; validity of bids and bid bonds or guarantee, conditions of
the contract, clarity of the biding documents, standards, use of brand names, expenditure under the
contracts, pricing currency of the bids, currency of payment and maintenance value, payment terms
price adjustment clauses, advance payments, guarantees, performance bonds/ retention money and
insurance.
4) Receipt and opening of the bids: Once the set time for bid submission elapses the tendering
committee can now resume the opening of the bids. The bids which are submitted after the expiry of
the set time are normally rejected. The procuring entity shall ensure that the place where tenders/bids
must be submitted is open and accessible and shall provide, in that place, a tender box that complies
with the prescribed requirements. The bids can be opened in public or through invitation of suppliers
representatives.
5) Bids evaluation, recommendation and review of award:
Ideally the bids are evaluated from the basis of technical aspect as well as the financial aspects. Technical
aspects comprise issues of quality, quantity, financial clout of the supplier, the capacity of the supplier to
perform, legality to operate as a supplier or service provider etc. Financial aspect focuses the competitive
price of the bidders. Generally evaluating of bids, reviewing the recommended award with the appropriate
authorities forms the bottom line of the procurement process. Before the expiry of the period during
which tenders must remain valid, the procuring entity shall notify the person submitting the successful
tender that his tender has been accepted as well as the ones which were not successful. After the
finalization of the contract with the winning bidder, the bidder is given a leeway to execute the contract as
per the terms and conditions put in place.
Open international tendering:

30

This entails invitation of bids across the global arena. It occurs when the local market does not have
effective competition or does not have the goods/services supposed to be purchased by the procurement
entity. The invitation to tender and tender documents must be in English. If the procuring entity is
required to advertise the invitation to tender under section 54 (2), the procuring entity shall also advertise
the invitation to tender in one or more English-Language newspapers or other publications that, together,
have sufficient circulation outside Kenya to allow effective competition for the procurement. The
technical requirements must, to the extent be compatible with requirements under Kenyan law, be based
on international standards or standards widely used in international trade. A person submitting a tender
may, in quoting prices or providing security, use a currency that is widely used in international trade and
that the tender documents specifically allow to be used and any general and specific conditions to which
the contract will be subject must be of a kind generally used in international tendering.
Evaluation and award of tenders
Basically tenders are evaluated on the basis of technical aspect as well as financial aspect. A minimum
percentage is given out as a base of either accepting the bid or rejecting the bid. The technical aspect is
the first consideration and all proposals are evaluated from this position. The chosen bids enter the second
appraisal based on the financial considerations. The competitive bidder normally gets the award. The

successful tenderer and unsuccessful tenderers are informed on the award decision on writing,
simultaneously and individually. The contracting officer shall make a contract award within the time
for acceptance specified in the bid or an extension to that responsible bidder whose bid, conforming to the
invitation, will be most advantageous to the Government, considering only price and the price-related
factors included in the invitation. Award shall not be made until all required approvals have been
obtained.
ii)
Restricted tendering
A procuring entity may use restricted tendering if the following conditions are satisfied:
Competition for contract , because of the complex or specialized nature of goods, works or services is
limited to prequalified contractors:
The time and cost required to examine and evaluate a large number of tenders would be
disproportionate to the value of the goods, works or services to be procured
There is only a few known suppliers of the goods, works or services as may be prescribed in the
regulations
iii)
Direct procurement
A procuring entity may use direct procurement as allowed under subsection (2), (3) or (3) as long as the
purpose is not to avoid competition.
A procuring entity may use direct procurement if the following are satisfied:
There is only one person who can supply the goods, works or services being procured
There is no reasonable alternative or substitute for the goods, works or services
There is an urgent need for the goods, works or services being procured
Because of the urgency the other available methods are impractical
The circumstances that gave rise to the urgency were not foreseeable and were not the result of
dilatory conduct on the part of the procuring entity
The following procedure in line with direct procurement shall apply:
The procuring entity may negotiate with a person for the supply of goods, works or services being
procured

31

 Section 47 shall not apply to an amendment to a pre-existing contract if the amendment is for the
purpose of carrying out a direct procurement allowed under section 74(4)
The procuring entity shall not use direct procurement in a discriminatory manner
The resulting contract must be in writing and signed by both parties
iv)
Request for proposals
Section 78 to 86 set out the procedure for a procurement using a request for proposals.
A procuring entity may use a request for proposal for a procurement if?
The procurement is of services or a combination of goods and services
The services to be procured are advisory or otherwise of a predominately intellectual nature
v)
Request for quotations
A procuring entity may use a request for quotations for procurement if:
The procurement is for goods that are readily available and for which there is an established market
The estimated value of the goods being procured is less than or equal to the prescribed maximum
value for using requests for quotations
vi)
Procedure for low-value procurements
A procurement entity may use a low value procurement procedure if
The estimated value of the goods, works or services being procured are less than or equal to the
prescribed maximum value for that low-value procurement procedure
Any other prescribed conditions for the use of the low-value procurement procedure are satisfied
vii)
Specially permitted procurement procedure:
A procurement entity may use a procurement procedure specially permitted by the authority which may
include concessioning and design competition.
Basic rules in public procurement
Choice of procurement procedure:
For each procurement, the procuring entity shall use open tendering as the mainstream method based on
acquisition of goods, services or work. A procuring entity may use restricted tendering or direct
procurement as an alternative procurement procedure only if, before using that procedure, the procuring
entity obtains the written approval of its tender committee and records in writing the reasons for using the
alternative procedure.
No procuring entity may structure procurement as two or more procurements for the purpose of
avoiding the use of a procurement procedure. Any person who contravenes the provisions of this
section shall be guilty of an offence.
Qualification to be awarded contract:
A person is qualified to be awarded a contract for procurement only if the person satisfies the following
criteria:
The person has the necessary qualifications, capability, experience, resources, equipment and
facilities to provide what is procured
The person has the legal capacity to enter into a contract for the procurement
The person is not insolvent, in receivership, bankrupt or in the process of being wound up and is not
the subject of legal proceedings relating to the foregoing
The person is not debarred from participating in procurement proceedings
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 Limitation on contracts with employees:

Except as expressly allowed under the regulations, a procuring entity shall not enter into a contract for
procurement with:
An employee of the procuring entity or a member of a board or committee of the procuring entity
A minister, public servant or a member of a board or committee of the Government or any department
of the Government or a person appointed to any position by the president or a minister
Specific requirements:
The procuring entity shall prepare specific requirements relating to the goods, works or services being
procured that are clear, that give a correct and complete description of what is to be procured and that
allow for fair and open competition among those who may wish to participate in the procurement
proceedings.
A procurement entity may, at any time terminate procurement proceedings without entering into a
contract. The procurement entity shall give prompt notice of a termination to each person who
submitted a tender, proposal or quotation or if direct procurement was being used, to each person with
whom the procuring entity was negotiating.
Form of communications:
If the procurement procedure used is open or restricted tendering or a request for proposals,
communications between the procuring entity and a person seeking a contract for the procurement shall
be in writing.
Participation in procurement:
Except in such instances as may be prescribed, a procurement entity shall permit persons to participate in
the procurement process without regard to a persons citizenship or nationality
Corrupt practice:
No person, agent or employee shall be involved in any corrupt practice in any procurement proceeding.
Fraudulent practice:
No person shall be involved in a fraudulent practice in any procurement proceeding
Collusion:
No person shall collude or attempt to collude with any other person
Conflict of interests:
An employee or agent of the procuring entity or a member of aboard or committee of the procuring entity
who has a conflict of interest with respect to procurement shall not take part in the procurement
proceedings and shall not after a procurement contract has been entered into, take part in any decision
relating to the procurement or contract.
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 Confidentiality:
During or after procurement proceedings, no procuring entity and no employee or agent of the procuring
entity or member of a board or committee of the procuring entity shall disclose the following:
Information relating to a procurement who disclosure would impede law enforcement or whose
disclosure would be in the public interest
Information relating to a procurement who disclosure would prejudice legitimate commercial
interests or inhibit fair competition
Information relating to the evaluation, comparison or clarification of tenders, proposals or quotations
Contents of tenders, proposals or quotations
Procurement records:
A procurement entity shall keep records for each procurement for at least six years after resulting contract
was entered into or if no contract resulted, after the procurement proceedings were terminated.
Administration review of procurement proceedings
Request for a review:
Subject to the provisions of this part, any person who claims to have suffered or to risk suffering, loss or
damage due to the breach of a duty imposed on a procuring entity by this act or regulations, may seek
administrative review as in such manner as may be prescribed. Upon receiving a request for a review, the
procuring entity shall suspend the procurement proceedings and the secretary of the review board shall
notify the procuring entity of the pending review and the suspension of the procurement proceedings in
such manner as may be prescribed in regulations.
Dismissal of frivolous requests
The review board may dismiss a request for a review if the review board is of the opinion that the request
is frivolous or vexatious or was made solely for the purpose of delaying the procurement proceedings or
the procurement.
Parties to the review:
The parties to the review are:
The person who requested the review
The procurement entity
If procuring entity has notified a person that the persons tender, proposal or quotation was successful
that person
Such other persons as the review board may determine
Completion of review:
The review board shall complete its review within thirty days after receiving the request for the review.
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Powers of review board:

Upon completing a review the review board may do any one or more of the following:
Annul anything the procuring entity has done in the procurement proceedings, including annulling the
procurement proceedings in their entirety.
Give directions to the procuring entity with the respect to anything to be done or redone in the
procurement proceedings
Substitute the decision of the review board for any decision of the procuring entity in the procurement
proceedings
Order the payment of costs as between parties to the review.
Right to review:
The right to request a review under this part is in addition to any other legal remedy a person may have. A
decision made by the review board shall be final and binding on the parties. Any party to the review
aggrieved by the decision of the review board may appeal to the high court and the decision of the high
court shall be final. A procuring entity which disobeys the decision of the review board or the high court
shall be in breach of this act and any action by procuring entity contrary to the decision of the review
board or the high court shall be null and void.
Authority powers to ensure compliance:
A public entity shall provide the authority with such information relating to the procurement as the
director general may require in writing. The director general may order an investigation of procurement
proceedings for the purpose of determining whether there has been a breach of this act, the regulations or
any directions of the authority. An investigator shall be conducted by an investigator appointed for the
purpose by the director general. For the purpose of carrying out an investigation of procurement
proceedings an investigator has the following powers:
The investigator shall have access to all books, records, returns and other documents of the procuring
entity or a person who participated in the procurement proceedings including electronic documents
The investigator may remove or make copies of any documents the investigator has access to under
paragraph
The investigator may require any of the following to provide explanations, information and assistance

An employee or official of the procuring entity

An employee or official of a person who participated in the procurement proceedings.

After completing his investigation an investigator shall prepare a report and give a copy of the report to
the director general and prepare a summary of the investigators findings and recommendations and give a
copy of the summary to the procuring entity and to the Kenya Anti Corrupt Commission established
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under the Anti Corruption and economic crimes Act, 2001. If after considering the report of an
investigator the director general is satisfied that there has been a breach of this Act, the regulations or any
directions of the authority, the director general may by order do any one or more of the following:
Direct the procuring entity to take such actions as necessary to rectify the contravention
Cancel the procurement contract if any
Terminate the procurement proceedings
Disposal of stores and equipment:
This part applies with respect to the disposal of stores and equipment of a public entity that are
unserviceable, obsolete or surplus. A public entity shall ensure that this act the regulations and any
directions of the authority are complied with respect to each of its disposals to which this part applies.
The accounting officer of a public entity shall be primarily responsible for ensuring that the public entity
fulfils its obligations under subsections. Each employee of a public entity and each member of a board or
committee of the public entity shall ensure within the areas of responsibility of the employee or member
that this Act, the regulations and any directions of the authority are complied with. A public entity shall
establish a disposal committee in accordance with the regulations for the purpose of recommending the
best method of disposing of unserviceable, obsolete or surplus stores or equipment. The employee in
charge of unserviceable, obsolete or surplus stores or equipment shall bring the matter to the attention of
the disposal committee. An employee shall comply with subsection (1) within a reasonable time after the
stores or equipment become unserviceable, obsolete or surplus. The disposal committee shall recommend
to the accounting officer a method of disposing of the stores and equipment which may include any of the
following:
Transfer to another public entity or part of a public entity with or without financial adjustment
Sale by public tender
Sale by public auction
Destruction or dumping
Within the prescribed time period after receiving the recommendations of the disposal committee the
accounting officer shall give the committee a written notice as to whether the accounting officer accepts
or rejects the recommendations of the committee.
Fraudulent procurements and ethical considerations in public sector setting

Procurement fraud can be defined as dishonestly obtaining an advantage, avoiding an obligation

or causing a loss to public property or various means during procurement process by public
servants, contractors or any other person involved in the procurement. An example is the
kickback, whereby a dishonest agent of the supplier pays a dishonest agent of the purchaser to
select the supplier's bid, often at an inflated price. Procurement is a function that is particularly
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vulnerable to fraud. Evans states that fraud is not necessary restricted to those with the title
procurement officer but may involve anyone in direct contact with suppliers; including
engineers, production managers, sales and computer staff.

Examples of supplies-related fraud

Buyer/supplier collusion leading to approval for payment of fictitious charges

Presentation of false invoices
Re-presentation of genuine invoices that have not been cancelled at the time the initial cheque was
signed for second payment
Abstraction of tenders or arranging for the lowest tender to come from a desired source
Omission of credit notes for goods returned to the supplier
Premature scrapping of assets in return for a kickback from a scrap dealer
Computer-based frauds which take advantages of inadequate controls or limited understanding of
information technology on the part of senior management
Pricing inflictions in order to get commission
Ghost suppliers- Goods exist on paper only
Ordering goods for personal use

Prevention of fraud
The prevention of fraud in relation to supplies depends on sound internal control, internal and external
auditing and the detection of give away signs.
Frauds in working environment can be prevented through the following ways:
a) Ensuring a separation between recording and custodian duties.
b) Only specified employees should have the power to requisition goods and then only up to an
authorised limit which increases with the level of authority. The existence of a separate purchasing
department or function considerably strengthens internal control by ensuring that user departments
are prevented from ordering items without the order first being independently vetted.
c) The requisitioning department can act as a check on the purchasing since every order placed should
be traceable to a requisition
d) Goods inward should be received in specially designated areas. Control is best established at the gate
or entrance. The receipt of all goods should be recorded. Goods received notes (GRN), where used
should be serially numbered to reduce the danger of introducing false documents and copies should
be sent to the purchasing and finance departments
e) While it may be unrealistic to check all invoices presented for payment, a sample should be examined
on a random basis.
f) Provision of internal controls in respect of computers-classified as systems development and control,
organisational controls and procedural controls
g) Provision of internal and external spot auditing
h) Use of ethical code as companys culture of honesty and leadership
i) Separation of the buyer (Purchaser) from the one who receives the goods
Give-away signs
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Give-away signs of fraud include the following:

Unfolded invoices that have not come through the post

Too many orders to one supplier other than those where single sourcing arrangement apply
Loss of supporting documentation
New suppliers continually facing entry obstacles
Excessive supplier hospitality to selected staff
Sudden unexplained affluence
Unwillingness of employees to take holidays or accept transfer or promotion to other work

Ethics in Procurement
Ethics(also known as moral philosophy) is a branch of philosophy which seeks to address questions about
morality; that is, about concepts such as good and bad, right and wrong, justice, and virtue. Ethics can
also be defined as rules or standards governing the conduct of a person or the members of a profession
e.g. procurement function.
Ethical standards
The Code of Ethics and standard of Professional Conduct are the ethical cornerstone of many companies
across the globe. They are essential to companys mission to lead the global investment profession and
critical to maintaining the public's trust in the financial markets.

The procurement ethical standards are:

All business must be conducted in the best interests of the State, avoiding any situation which
may impinge, or might be deemed to impinge, on impartiality;
Public money must be spent efficiently and effectively and in accordance with Government
policies;
Agencies must purchase without favour or prejudice and maximise value in all transactions;
Agencies must maintain confidentiality in all dealings; and
Government buyers involved in procurement must decline gifts, gratuities, or any other
benefits which may influence, or might be deemed to influence, equity or impartiality.
Importance of ethics in business and purchasing
A business that lacks ethical principles is bound to fail sooner or later. According to International ethical
business registry, there has been a dramatic increase in the ethical expectation of business and
professionals over the last decade. Increasingly, customers, clients and employees are deliberately seeking
out those who define the basic ground of ethics in day to day activities.
Ethics is important in purchasing for the following reasons
Purchasing staff are the representatives of their organisation in dealing with suppliers
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 Sound ethical conduct in dealing with suppliers is essential to the creation of long-term relationships
and the establishment of supplier goodwill
Purchasing staff are probably more exposed to the temptation to act unethically than most of other
employees
It is impossible to claim professional status for purchasing without reference to a consideration of its
ethical aspects
Ethical standards reduces excuses for fraud
Principles and guidelines in ethical behaviour
Individuals acting in a professional capacity take on an additional burden of ethical responsibility. For
example, professional associations have codes of ethics that prescribe required behaviour within the
context of a professional practice such as procurement, medicine, law, accounting, or engineering. These
written codes provide rules of conduct and standards of behaviour based on the principles of Professional
Ethics which include:

Impartiality or objectivity
Openness; objectivity
Confidentiality
Due diligence/duty of care
Fidelity to professional responsibilities
Avoiding potential or apparent conflict of interest

Developing an ethical culture in purchasing and supplies:

Ethical culture in purchasing and supplies can be sustained and enhanced through the following
distinct activities:
Develop open, transparent and direct long-term stable relationships with suppliers rather than
relying on arms length contracting and licensing agreements.
Avoid the attraction of searching for the cheapest labour and goods at the expense of social
and environmental responsibility.
Avoid frequently changing suppliers- this undermines their commitment to long term
progress on labour standards.
Develop a reasonable and agreed time frame for suppliers to meet standards as specified in
the companys ethical purchasing strategy or code.
Avoid cutting and running from high risk suppliers-engage suppliers to improve conditions
on an incremental basis.
Promote positive supplier and contractor relationships by according supplier representatives
courteous, fair and ethical treatment
Conduct business in good faith; demanding honesty and ethical practises from all participants
in the purchasing process.
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 Know and subscribe the stipulated purchasing rules and remain alert to the legal
ramifications of purchasing decisions.
Factors that influence unethical behaviour:

Poor remuneration
Peer influence
Lack of awareness in regard to ethical issues
Pressure to meet unrealistic business objectives and deadlines
Poor supervision
Job stress
Impact of fraudulent procurement and penalties
The impact of high-level fraud can affect an organisation in a number of ways:
Financial
The main impact is the loss of funds or equipment that occurs from the fraud. The share price may
also be affected adversely if the fraud is of a sufficient level or indicative of weak internal controls
Reputation management
The impact of fraud may affect the ability of the organisation to deliver future contracts. Additionally
long term perceptions of the reliability of an organisation may be negatively affected and so deter

future clients or customers

Employee morale
Internal trust of existing employees may be damaged, especially if concerns have not been
sufficiently followed up in the past. Future recruitment and retention of staff may be an issue

dependent upon the size of fraud or if action is not taken following the discovery of fraud.
Poor service delivery
Fraud affects the efficiency of public spending and donor resources, creates waste and ultimately,

affects the quality of health and education services and the opportunities in a business environment.
Minimal public trust to government procurement entities
In a situation whereby there are consistent cases of fraud, the general public loses trust to the entities in
question.
The conspicuous penalties which can be extended to people who commit fraud entail: Imprisonment,
disciplinary actions, charges in line with magnitude of the fraud and also debarment in participating in
any procurement proceedings.
Debarment from participating in procurement proceedings
The Director General with the approval of the Advisory Board may debar a person from participating in
the procurement proceedings on ground that the person:
Has commited an offence under the Act
Has commited an offence relating to procurement under any act.
Has breached a contract for a procurement by a public entity
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 Has in procurement proceedings given false information about his qualifications

Has refused to enter into a written contract as required under section 68
The Director General with the approval of the Advisory Board may also debar a person from participating
in procurement proceedings on a prescribed ground. A debarment under this section shall be for a period
of time of not less than five years, as may be specified by the Director General. Before debarring a person
under section 115, the Director General shall give that person an opportunity to make representation to the
Director General. A person who is debarred under section 115 may request the review board to review the
debarment. A request for a review may only be made within twenty one days after the person was
debarred. A request for review shall be accompanied by the prescribed fee. The Review Board may
dismiss a request for a review if the Review Board is of the opinion that the request is frivolous or
vexatious. The Review Board shall meet to conduct a review within twenty one days after receiving the
request for the review. The parties to a review are: the person who was debarred and the Director General.
The Review Board shall complete its review within thirty days after receiving the request for the review.
Upon completing a review the Review Board may do any or both of the following:
Confirm, vary or overturn the Director generals debarment of the person
Order the payment of costs as between parties to the review.
A party to the review may appeal from the decision of the Review Board to the high court within thirty
days after the decision is made. The right to request a review under section 117 is in addition to any other
legal remedy a person may have. The authority shall maintain and make available to public entities a list
of persons debarred from participating in procurement proceedings under this part.

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