Quality - Guidance Note On Procurement - Asian Development Bank

I. IntroductionA.Purpose1.1The purpose of this guidance note is to explain the importance of qualitythroughout the procurement cycle of the Asian Development Bank (ADB).This note will guide borrowers (including grant recipients) on how to incorporatequality at key stages of the procurement process, including addressing the trade-offsbetween quality and cost, and the ways to manage and mitigate the risk of impactsto quality. Quality is one part of the value for money (VFM) equation, which seeksto compare the benefits gained from improved quality against the costs incurred, toachieve fit-for-purpose development project outcomes. As such, this guidance noteshould be read in conjunction with the Guidance Note on Value for Money.1.2This guidance note applies to quality in the procurement of goods, works,plant, and nonconsulting services under projects financed in whole or in part by anADB loan or grant, or by ADB-administered funds, for which the ADB ProcurementPolicy: Goods, Works, Nonconsulting and Consulting Services (2017, as amendedfrom time to time) and the Procurement Regulations for ADB Borrowers: Goods,Works, Nonconsulting and Consulting Services (2017, as amended from time totime) apply. Quality with respect to the procurement of consulting services is dealtwith in the Guidance Note on Consulting Services Administered by ADB Borrowers.1.3This guidance note discusses quality within the (i) procurementplanning, (ii) design (specification and engineering design) and bidding documentpreparation, (iii) bid evaluation and contract award, and (iv) implementation andcontract management stages of the ADB procurement cycle (Figure 1).B.Accountabilities for Quality1.4Quality is an important factor at all stages of the contract and project lifecycles, from conceptualization and business case development; through planningand design; to procurement, implementation, and completion. The procurementprocess is one important phase in the contract and project life cycle which, likeother phases, presents an opportunity to assure that quality requirements aremet or exceeded and that procurement processes are fit for purpose, taking thoserequirements into account.

2QualityFigure 1: The ADB Procurement CycleCountry PartnershipStrategyCountry and Sector/AgencyProcurement Risk AssessmentFeedback or EvaluationProject ConceptualizationProject Completion ReportContract CloseLessons LearnedEfficiencyPROCUREMENTCYCLEM alu eo n fo reyneProcurement PlanningProcurement PlanProject Procurement RiskAssessmentProject Administration ManualssVContract AwardsparencyTranContract Management PlanEconomyImplementation andContract ManagementlityuaQTransaction Technical AssistanceProcurement Risk CategorizationFa i rBiddingBidding DocumentsBid EvaluationEvaluation ReportsSource: Asian Development Bank.1.5All parties to the project and its contracts contribute to quality: ADB;the borrower; and the contractors, suppliers, or service providers.1 Project owners,project managers, stakeholders, contract managers, and contractors need tobe actively engaged at appropriate points in the process to ensure that theprocurement process contributes to quality outcomes.C.The Role of Quality in Procurement1.6Quality is one of the core procurement principles under the 2017 ADBprocurement policy. The others are economy, efficiency, fairness, transparency,and VFM. This is a move away from the traditional perspective of quality inprocurement. Historically, quality in procurement has often been limited toincorporating a specification of minimum requirements into bidding documentsand then awarding the contract to the lowest priced bidder that substantially meetsthese minimum requirements.1Hereafter in this guidance note, contractors, suppliers, and service providers are collectivelyreferred to as “contractors.”

Introduction31.7While this approach is appropriate for low-risk procurement of highlystandardized products and simple services, it is less suitable for more complexgoods, works, and services, where there may be trade-offs between quality andcosts. For these types of procurement, awarding the contract to the lowest pricedbidder that meets the minimum requirements may end up adversely affectingcontract or project outcomes or benefits, total life cycle costs, and implementationschedules.1.8The elevation of quality to a core procurement principle reflects ADB’sview that considering quality during the procurement process is essential, albeit notsufficient, to achieve VFM and to improve the likelihood of achieving contract andproject outcomes and development objectives.D.Subjectivity in the Assessment of Quality1.9The specification and evaluation of quality may introduce subjectivity,which may be difficult to justify if challenged and be prone to abuse. This potentialsubjectivity requires careful examination during the procurement risk assessmentprocess.1.10Assessment of qualitative factors can be open to risks of abuse ofdiscretion and conscious or unconscious bias influencing decision-making. Theserisks need to be addressed and this guidance note provides some suggestions onmethodologies that can be used to increase objectivity and auditability of theevaluation of qualitative criteria.

II. Defining QualityA.Definition of Quality2.1ADB defined quality as a core procurement principle for the first timein its 2017 procurement policy. The procurement policy defines quality as theprinciple that “requires that the procurement arrangements are structured toprocure inputs and deliver outputs of appropriate standard in a timely and effectivemanner to achieve the project outcomes and development objectives, taking intoaccount the context, risk, value, and complexity of procurement.”2.2This definition of quality can be more easily understood by analyzing eachpart of the definition in the following subsections.1. the procurement arrangements are structured (i) The borrower’s procurement practitioners have a responsibility duringthe procurement planning stage to analyze and select procurementarrangements that are fit for purpose, considering the nature, value,risk, and complexity of the procurement.(ii) The 2017 procurement regulations (in Appendix 2, para. 4[e]) define“procurement arrangements” as “comprising procurement methods,qualifications and evaluation criteria, and contracting strategy(contract packaging, types of contracts, key contractual provisions,and key delivery and payment milestones), including the justificationfor each decision; and outline of the key specifications and qualityrequirements.”(iii) The Guidance Note on Strategic Procurement Planning provides furtherinformation on the activities in procurement planning, includinganalysis and development of procurement strategies.2. to procure inputs and deliver outputs of appropriate standard ina timely and effective manner.(i) The procurement arrangements should be designed to ensure thatthey result in the selection of a bidder (or bidders) that has therequired capability to supply the goods, or provide the services orworks, to the appropriate standard.

Defining Quality5(ii) Bidders must be aware of the requirements and measures of thequality of outcomes so they would be able to meet the appropriatestandard. An accurate and sufficiently comprehensive specification ofrequirements (or design) is, therefore, a critical contributor to qualityoutcomes.(iii) An essential aspect of quality is the assessment of the bidder’scapability to meet the requirements. Therefore, prequalification maybe required, especially for more complex goods, works, and services,where it is usually not sufficient to specify requirements and to thenaward on the basis of price alone. The borrower should assess thelikelihood that bidders will be capable of meeting contract objectives(including quality, schedule, and cost).3. to achieve the project outcomes and development objectives, takinginto account the context, risk, value, and complexity of procurement.(i) The aim of procurement planning and strategy development,and bidding, evaluation, and contractor selection, is to increasethe probability that the work of contractors contributes to theachievement of project outcomes in line with ADB’s principles andstandards of integrity.(ii) This process should be informed by procurement risk assessments atthe country, sector or agency, and project level, to plan and implementrisk mitigation strategies by understanding the risks to quality at eachstage of the procurement cycle. The Guidance Note on ProcurementRisk Framework and the Guidance Note on Strategic ProcurementPlanning provide further information on these risk assessments.(iii) The procurement process plays a critical part in achieving qualityproject outcomes. ADB encourages an active role with regard toquality in the procurement process, to ensure project outcomes areachieved.B.Defining Quality for Individual Procurements2.3Quality can be defined in various ways depending on the nature of thegoods, works, or services being procured. Table 1 provides examples of some waysquality can be defined for various procurement types.2.4The procurement regulations (Appendix 3, paras. 36–41) require designsand specifications to have a defined level of quality. This does not mean the highestquality available (which could result in “gold plating,” i.e., a quality higher than isneeded given the project objectives), but the appropriate quality which satisfies theobjectives and delivers VFM within the available budget.

6QualityTable 1: Definitions of Quality for Individual ProcurementsType of ProcurementWays to Define QualityStandard goods Technical specifications and standards Product characteristics and tolerancesRoutine construction services Technical specifications of the definedinputs Industry standards applying to constructionmethodsLarge infrastructure projects, or where the useof high-level technology is proposed Functional objectives achieved Serviceability, durability, and functionality Social, economic, and environmentalimpactSource: Asian Development Bank.C.Contribution to Quality of the Procurement Cycle2.5To improve the likelihood that the result of a procurement is fit forpurpose and that it meets the requirements of the borrower and/or end users,the contribution to quality of each stage of the procurement cycle needs tobe understood. Figure 2 summarizes these contributions for key stages of theprocurement cycle.2.6The contribution to quality, the potential issues that affect quality, andthe actions that can be taken to avoid or mitigate the impact are described for eachkey stage of the procurement cycle in the following sections of this guidance note.Appendix 1 provides a checklist to support this process.

Defining QualityFigure 2: Contribution to Quality of Key Stages in the Procurement CyclePlanning Accuracyof projectobjectives Borrowercapability Market capability Power ofcontractors Correct supplypositioning Identification ofkey risks Allocation ofcontract risk AppropriateprocurementstrategyDesign andBidding DocumentPreparation Accuracy ofspecification Performancemeasuressupportingobjectives Compensationmodelsupportingdesiredbehaviors Translation ofrequirementsinto engineeringdesign DescopingwithoutcompromisingqualityBid Evaluation andContract Award Evaluationcriteria alignedwith desiredcontractorcharacteristics Bid documentselicit informationsupportingcriteria Evidencesupportingbidder claims Separateevaluation ofnonprice andprice information Sufficientweighting givento quality inbidder ranking Risk regardingabuse ofdiscretionaddressedSMART specific, measurable, achievable, relevant, time-bound.Source: Asian Development Bank.Implementationand ContractManagement Performancemeasures alignedwith contractobjectives Performancemeasures areSMART Sufficientresourcingprovidedfor effectivecontractmanagement Clearrelationshipstructurebetween theborrower andcontractor Adequatemanagement ofchange Management ofcontract closure7

III. Procurement PlanningA.Contribution to Quality3.1The procurement planning stage involves decisions that impact on qualitythroughout the procurement process and over the life of a contract. It is critical thatprocurement planning is done well, and that quality is considered, since the impactson quality can be high and can carry through the entire project or contract life cycle.3.2As per section II of this guidance note, the selection of procurementarrangements is an important contributor to the achievement of project objectives.It is critical that the borrower’s or end user’s needs, and minimum requirements andproject objectives, are clearly identified at the outset of the procurement process(or, preferably, beforehand during the project conceptualization stage of the ADBprocurement cycle).B.Potential Issues Affecting Quality3.3Potential issues affecting quality can occur during each of the activitiescomprising procurement planning (the Guidance Note on Strategic ProcurementPlanning has more information). Some of these are described in Table 2.Table 2: Issues Affecting Quality in the Procurement Planning StageActivityPotential Issues Affecting QualityProject concept Borrower or end user requirements incorrectly defined or there isa lack of alignment on requirements among project owners andstakeholders Project delivery methodology not definedProject andborrower overview Borrower capability and capacity insufficient to ensure qualityprocurement process and ongoing contract managementMarket analysis Suitably qualified contractors do not exist in the geographical marketor market sector The power of contractors is high, and the risk of substitutes and newentrants is low Incorrect supply positioningcontinued on next page

Procurement Planning9Table 2 continuedActivityPotential Issues Affecting QualityRisk management Risk assessment fails to identify integrity-related risks and key risks toquality, or fails to cover key stages of the contract life cycle Excessive allocation of risk to contractor reduces motivation of privatesector to participate, potentially leading to lower quality outcomesOptions analysisand procurementstrategydevelopment Procurement strategy options generated or selected are not the mostappropriate to ensure quality and do not adequately avoid or managepotential integrity-related risks.Source: Asian Development Bank.C.Mitigating Measures1.Project Concept Issues3.4Borrower or end user requirements incorrectly defined or lackalignment. The 2017 procurement regulations (para. 1.37) state that theprocurement plan describes how the procurement activities support thedevelopment objectives of the project and deliver VFM under a risk-managedapproach. It is imperative to ensure that the requirements and project objectivesstated in the procurement plan accurately and clearly reflect the needs of theborrower or end user, and that project objectives are aligned among project ownersand/or project stakeholders. This can be achieved by(i) performing the procurement planning stage comprehensively andwith care;(ii) engaging extensively with end user representatives and project owners(on a fit-for-purpose basis); and(iii) recording the borrower’s understanding of the project objectives andend user needs in writing and asking end users and project ownersto validate and confirm the stated objectives and needs, using theGuidance Note on Strategic Procurement Planning and ADB templates.3.5Project delivery methodology not defined. For some projects, it may notbe possible to define the delivery methodology clearly because their contracts canbe performed in different and innovative ways, the contracts may be subject to anundefined technology solution provided by the supply market, or the project ownermay be considered an “uninformed” buyer where knowledge and expertise on howto deliver the requirements does not exist within the project owner’s organization.3.6When the project delivery methodology is not defined, several measurescan be used to mitigate the risk to quality:(i) Develop a performance specification (the Guidance Note on StrategicProcurement Planning provides more details), in which the outcomesof the contract are defined while allowing bidders to specify how the

10Quality(ii)(iii)(iv)(v)contract is delivered. For example, a new road construction contractcould be specified in terms of capability to carry certain volumes oftraffic, or a specified number of heavy vehicles per day, rather thanspecifying the number of traffic lanes and road construction materials.Consider a multistage procurement process, using the first stage todetermine the range of solutions available in the market and using thatinformation to more accurately define the requirements in the secondstage of the procurement process. Depending on the outcomes of thefirst stage, the second stage could be a competitive tender or a directnegotiation with a contractor that offers the only viable solution.An alternative to a multistage approach is to use a “design and build”approach, whereby a competitive bid is conducted with biddersrequired to propose a solution and provide pricing for both the designand implementation phases.An initial stage of the bid could be used to identify a contractor(s)with whom a collaboration could be formed. This would allow theborrower and the contractor(s) to work closely together through thedesign and implementation stages. This is often associated with a“cost plus,” or component pricing, compensation model, to reduce therisk to the contractor of an unclear scope.If requirements are unclear or the buyer is an “uninformed” buyer,consultants may be hired to add their expertise and knowledge.3.7In complex infrastructure projects, including projects that use high-leveltechnology, feasibility studies can be used to identify the necessary quality of theinfrastructure project and select a contract implementation method, such as thepublic sector conventional model or a public–private partnership (PPP) model(where “conventional model” here means contract delivery methods other thanPPP), that will best deliver the requirements.3.8Different methods of the conventional model may carry higher or lowerlevels of quality risk. The conventional model methods that may be consideredinclude design–bid–build, design–and–build (or aintain (or engineer–procure–construct–maintain), and design–build–maintain–operate, among others.3.9The selection of the model may be limited by factors such as theavailability of

the decisions made during the procurement process. Improvement in the quality of procurement decision-making and support may Increase Efficiency and educe Procurement Timer Allow quality to be planned early in the procurement cycle, ensuring a fit-for-purpose procurement process and reducing the likelihood of project delays. reduce risk