1.8.3 Procurement costs

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It goes without saying: Like project design, procurement for a project is not free of charge either. Procurement is part of the project implementation. When establishing the project budget, provisions have to be made to cover procurement cost. These costs shall also be included in the cost-benefit analysis and in the value-for-money considerations.

 

Procurement cost factors are:

personnel (professional and support staff salaries and social cost of procurement staff),
services (professional expertise, legal advice, support services),
premises (including utilities, office equipment, and communication),
material (stationary, other consumables, postal services),
publication expenses (if any),
transport (vehicles, travel expenses in case of site visits, etc.),
logistics cost (packing, freight, insurance, taxes, duties, handling fees, dues, tolls, tariffs),
professional insurance, if any,
contingencies,
agency cost (overhead).

There are several options to plan and budget procurement costs:

as a separate budget component (as for project design),
as a percentage of the estimated project (execution, production) cost,
as a fixed amount to be negotiated.

 

Usually, implementing agencies charge a percentage of the execution cost (second option). Depending on the complexity and the volume of work the rate can vary between 5% and 15%. Higher rates apply for low-volume and complex projects.

 

Fixed amount arrangements can entail losses for complex projects, as procurement costs are not always precisely predictable.

 


© 2007 Republic of Cyprus, Treasury of the Republic, Public Procurement Directorate
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