Procurement policy: Guide that cuts your business legal risk

Good procurement practices are part of good governance for businesses. Procurement is simply sourcing and purchasing goods and services for the use of the business.

Every business engages in some form of procurement. It could be as simple as buying stationery, hiring external consultants or buying office equipment.

Some principles guide good procurement and it would be helpful for businesses to follow these principles to reap the benefits.

Does your business have a procurement plan and policy? What are your guiding principles in procuring? What are your objectives in procurement?

There are several online resources that one can refer to in drafting a procurement policy. It is advisable to draft a procurement policy that is a perfect fit for your business.

For example, a business can decide to procure goods and services from suppliers whose values are aligned with their own.

Procurement is one of the ways a business can actualise its vision. Do you understand the purchasing needs of your business?

Good procurement practices involve needs assessment and selection criteria. These are the parameters that your business shall use in choosing its suppliers.

Whilst planning the process, you can set out terms of engagement such as pricing, delivery timelines, and so on.

Part of the procurement cycle involves requests for proposals, evaluation of proposals, selection of suppliers, contractual awards, and managing the supplier relationship.

There are several benefits of engaging in good procurement practices. One is that you get value for money. Your business can access the best quality goods and services at the best price.

Your business may enjoy some cost savings as a result of engaging in a procurement exercise. Good procurement practices help businesses stay within their financial budgets and minimises incidences of erratic purchases.

Good procurement gives you a wide selection list such that it is easy to replace a supplier who does not perform according to expectations.

Good procurement enables your business to manage supplier relationships effectively as the relationship is governed under the supplier contract.

Unethical business practices such as nepotism and corruption can be minimised through good procurement practices.

There are very many legal issues that arise during different stages of the procurement cycle and these need to be well managed to avoid exposure.

The first issue is at the “invitation to bid” stage. At this stage, the business is merely asking interested suppliers to submit proposals.

The legal risk here is if an applicant misinterprets a call for proposals as a contractual award. To manage this risk the request for proposal should have a disclaimer indicating that the invitation to bid does not mean that a contractual relationship has been entered into.

Fortunately, the law is on the side of the procuring entity as invitations to bid are not interpreted as contractual relationships.

This means that the business has no obligation to make an award. The relationship with the successful suppliers should be protected by a suitable supplier contract.

This contract ought to manage the supplier relationship and also have risk mitigation provisions.

The contract should be clear in so far as price, payment terms, quality, and delivery timelines are concerned. It should have clear provisions on remedies available to your business in the event of a breach.

For example, do you cancel the contract and ask for a refund in the event the supplier delays delivery or delivers sub-standard quality?

Good procurement practices help mitigate the legal risk your business is exposed to through the suppliers.

Ms Mputhia is the founder of C Mputhia Advocates | [email protected]