CHAPTER ONE: INTRODUCTION
* Background Of The Study
Tendering is a procurement Procedure whereby potential suppliers are invited to make a firm and unequivocal offer on the price and terms on which they will supply specified goods and/or services, which on acceptance shall be the basis of a subsequent contract. (Lysons and Farrington, 2006). Tendering is based on the principles of competition, fairness and accessibility, transparency, openness and probity. Generally, Public entities the world over are subjected to open tendering by law so as to prevent fraud, waste corruption or local protectionism. (Global trade negotiations, 18th December 2006). The law guiding Kenyan public entities choice of procurement procedures is the Public Procurement and Disposal Act, 2005. It requires public entities to use open tendering as the choice of procurement procedure and only use an alternative procurement procedure only in times of urgent need. This act of parliament came into operation on the 1st of January 2007 after years of misuse of public funds by procuring entities. It aims to maximize economy and efficiency; to promote the integrity and fairness of procurement procedures; to increase transparency and accountability; and to increase public confidence in procurement procedures. (The Public Procurement and Disposal Act, 2005. Sec 2). During the evaluation of tenders in public entities, the successful tender is said to be the tender with the lowest evaluated price although the procuring entity is not bound to accept the lowest priced or any tender.
1.1 Problem statement
Public entities are required by law to use open tendering as the choice of procurement procedure. During the evaluation of tenders, the Public Procurement and Disposal Act, 2005 (Sec 66: 4) States that; ‘……the Successful tender shall be the tender with the lowest evaluated price.’ Although this clause was included with the public interest in mind – So as to ensure transparency and accountability in the use of taxpayers’ funds – It has some drawbacks. Contractors in competing for award of contracts may quote a price that is too low so as to win the tender leading to subsequent disputes if goods or services supplied, or their conditions, are unsatisfactory. A case in point is the row between china Jianxi international and Ongata Works over the 800 million shillings Kenyatta university library tender, (The Standard 10th February 2009). Ongata works quoted Kshs 658 million and stated the completion period to be eighty- four weeks. China Jianxi quoted Kshs 639 million but did not quote the completion period. China Jianxi’s Tender Was Accepted due to its low price but there is an ensuing dispute over the time frame clause. In Strategic procurement management, Supplier-Buyer relationship is one of the most important tools in procurement management. (Wobler and Burt, 1996). Where tenders are accepted on the principle of the lowest evaluated price, credit may not be given to suppliers for past performance which implies that a meaningful buyer-supplier relationship, an important strategic tool, cannot be maintained. According to past studies, it is essential for the principal party in a contract agreement to formulate ways to motivate the other party to perform better. (Cordery et al, 1996). The implication of tenders being successful based on low price does not provide contractors with incentives’ to improve performance. Better performance in the provision of public services and construction of public facilities and infrastructures is a necessity due to these projects being funded by scarce public funds. There have been cases of Public procurement Officials who advise contractors on what price to quote in their tenders so as to ensure that they are awarded the contract when price is the basis for tender evaluation as the process to be followed during evaluation is so predictable. In many cases, only multinationals can be able to quote low prices in their...
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