PUBLIC PROCUREMENT MANUAL FOR INSURANCE SERVICES FIRST EDITION May 2009 TABLE OF CONTENTS.............................................................................................................PAGE FOREWORD 3 ACRONYMS 4 KEY DEFINITIONS................................................................................................................................5 1.0 INTRODUCTION............................................................................................................................7 2.0 THE SCOPE OF THE MANUAL....................................................................................................8 3.0 PROCUREMENT STRATEGIES....................................................................................................9 4.0 PROCUREMENT OBJECTIVES..................................................................................................10 5.0 INSTITUTIONAL ARRANGEMENTS FOR OVERSIGHT AND REGULATORY..................11 FUNCTIONS 11 6.0 CATEGORIES OF INSURANCE POLICIES...............................................................................13 7.0 PROCUREMENT PLANNING.....................................................................................................16 8.0 SPECIFICATION AND SCHEDULE OF REQUIREMENTS OF INSURANCE SERVICES...19 9.0 CHOICE OF PROCUREMENT METHODS................................................................................26 10.0 SELECTION OF INSURANCE SERVICE PROVIDERS............................................................27 11.0 BID EVALUATION PROCEDURES............................................................................................32 12.0 CONTRACT ADMINISTRATION...............................................................................................37 13.0 INSPECTION AND ACCEPTANCE OF SERVICES...............................................................43 14.0 REVISION OF THIS MANUAL....................................................................................................44 15.0 APPENDICES................................................................................................................................45 APPENDIX A: PROCUREMENT PLANNING TEMPLATE.......................................................46 APPENDIX B: SAMPLE Insurance SUPPLIERS APPRAISAL QUESTIONNAIRE.........................46 APPENDIX C: TECHNICAL EVALUATION FORMS................................................................50 APPENDIX D: FINANCIAL BID EVALUATION........................................................................52 APPENDIX E: THRESHOLDS GOVERNING PROCUREMENT METHODS...........................54 2 FOREWORD The public procurement reforms in Kenya have culminated in promulgation of the Public Procurement and Disposal Act 2005 and the Public Procurement and Disposal Regulations 2006 that provide a legal framework for regulating public procurement, with oversight functions carried out by the Public Procurement Oversight Authority (PPOA). The Public Procurement and Disposal General Manual provides detailed guidance on general issues in procurement that are not adequately covered by the Act and Regulations. Other manuals have been prepared to address sector specific procurement requirements. This Manual is prepared to address the specific procurement requirements for insurance services. The procurement processes set out in this Manual have reference to the salient provisions of the Act, Regulations and the Public Procurement and Disposal General Manual which should be read together with this Manual. Some of the important general steps leading to effective procurements for insurance services have been captured through interviews and consultations with the Insurance Regulatory Authority (IRA), the Association of Kenya Insurers (AKI), Association of Insurance Brokers of Kenya (AIBK) and some of the major insurance companies here in Kenya. Persons responsible for procurement in all entities should familiarize themselves with the guidelines provided in this Manual and adhere to them. This Manual has been prepared by e-sokoni Consulting on behalf of PPOA as part of the Millennium Challenge Corporation Project for Strengthening the Public Procurement System in Kenya, which is administered by USAID. Oversight of the project was undertaken by ARD Inc. The Manual has been approved by PPOA as a guide to the systems and procedures that should govern the procurement of insurance services. M. J. Juma Acting Interim Director General Public Procurement Oversight Authority May 2009 3 ACRONYMS AKI Association of Kenya Insurers AIBK Association of Insurance Brokers of Kenya C&F Cost and Freight CID Criminal Investigation Department CIF Cost Insurance and Freight CIP Carriage Insurance Paid (To destination) INCOTERM International Commercial Terms IRA Insurance Regulatory Authority NHIF National Hospital Insurance Fund PE Procuring Entity PPDA Public Procurement and Disposal Act PPDR Public Procurement and Disposal Regulations PPOA Public Procurement Oversight Authority 4 KEY DEFINITIONS In this manual, unless the context holds otherwise, the following key terms mean the definitions given hereunder: Insurance Company: This is the insurance underwriter who is responsible for proper execution of the contract and undertakes to settle claims of the insured. Insurance companies may also issue Insurance Bid Bonds for securing the validity of a bid covering the period from the time of submission to award of contract. They may also issue Insurance Performance Bond to secure performance of a contract that has been awarded to a successful bidder. Insurance Broker: A Broker is an independent qualified specialist who is registered under the Insurance Act to advise customers (buyers) on insurance matters. The Broker operates as the buyer’s agent and not for any insurance company. The Broker is paid a commission by the insurance company that offers the required insurance policy to the Broker’s client. Insurance Agent: An Agent is a person or group of people selling insurance policies on behalf of an insurance company. Auxiliary Service Provider: These are Assessors for damage after an accident or incident against an insured policy to determine loss on behalf of underwriters who pay them for such services. An Annuity: This is a form of life insurance that provides for a sum of money to be paid to policyholder at regular intervals after a certain date. Third Party Cover: This cover protects the interest of any other person who may be affected by the insured’s (PE) actions, for example injury arising from a car accident. It may also relate to damage to their car in a collision with the PE’s car. In this context, it is well to recognize that the first party in the insurance policy is the PE and the second party is the PE’s insurance company. Comprehensive Cover: This is a policy cover that offers a blanket insurance against an identified comprehensive list of risks which could normally be associated with each other e.g. a comprehensive motor vehicle insurance covers the vehicle against many damage and loss risks, covers the driver and passengers against accidents and also covers third parties in any accident involving the insured vehicle. Premium: This is the amount of money paid by the insured (the PE) to an insurance company for the insurance policy. This money may sometimes be paid in regular installments. 5 Liability: This refers to the insured’s responsibilities for adverse effects of the insured action or lack of actions, on others. Operative Clauses: This refers to the conditions of the contracts that include definitions, insured events, and general conditions (period of insurance, payment of premium, duty of care’ cancellation, basis of indemnity, claims insurers’ rights after occurrence that may lead to claim, fraudulent or willful acts). Exclusions: These are terms which are not covered or excluded from the policy that is offered by the Insurance Company. This is what the insurer shall not be liable to pay for in the event of loss or damage. Conditions of the Insurance Policy Contract: These constitute what the parties are expected to observe and has been agreed upon and is covered by the insurance contract. 6 1.0 INTRODUCTION 1.1 This Manual serves as a guide for implementation of the Public Procurement and Disposal Act and the Regulations with special reference to the procurement of insurance services. It is designed to promote effective and efficient procurement of insurance services in all public sector institutions. 1.2 The Manual sets out functional relationships and internal controls that promote transparency and accountability. 7 2.0 THE SCOPE OF THE MANUAL 2.1 The procedures in this Manual should be applied in acquisition of insurance services by procuring entities as defined in section 3(1) of the Public Procurement and Disposal Act 2005. 2.2 These procedures shall remain effective until announced otherwise by the Public Procurement Oversight Authority. 2.3 This Manual applies to: 2.3.1 The generic and specific steps in insurance services procurement; 2.3.2 Institutional arrangements for provision of oversight functions within the procuring entities; 2.3.3 Procurement planning and its linkage to the budgeting process; 2.3.4 Administration of the complete procurement cycle up to and after formation of an insurance contract; and 2.3.5 Insurance service provider’s performance measurement. 2.4 This Manual does not cover the medical insurance services offered by Medical Insurance Service Providers which are not regulated by the IRA. These providers are not Insurance Companies but offer insurance only to the extent of the medical cover they offer. 8 3.0 PROCUREMENT STRATEGIES 3.1 The public procuring entities shall acquire insurance services at optimum rates. 3.2 The eligible and qualified insurance service providers shall be given equal opportunity to bid. 3.3 The highest ethical and professional standards shall always be observed in establishing a mutually beneficial relationship with insurance service providers and customers (internal and external). 3.4 All procurement of insurance requirements should be done through competitive public bidding unless an alternative procurement method is justified in accordance with the relevant provisions in the Public Procurement and Disposal Act 2005, Public Procurement and Disposal Regulations 2006, the Public Procurement and Disposal General Manual or this Manual. 3.5 There should be a continuous improvement of procurement processes by procurement entities to ensure that the processes are simple, efficient and cost-effective. 3.6 Procurement shall be planned to enable prudent management of budgets and value optimization. 3.7 Procuring entities should endeavour to realize benefits form insurance services through framework contracts to enhance continuity of the services for a reasonable duration consistent with the procurement plan and the budget. 3.8 Procurement entities are to keep abreast with best practice for procurement of insurance services through benchmarking with similar entities to facilitate continuous improvement of the procedures. 9 4.0 PROCUREMENT OBJECTIVES 4.1 Realization of the lowest possible total cost while meeting requisite quality The procurement must be carried out in a manner to realize the lowest possible total cost by avoiding hidden costs due to ambiguity in specification of the scope of services to be provided. 4.2 Ensuring timely settlement of insurance claims as stipulated in the contract The procuring entities must ensure that claims are made in a timely manner and are honoured by the insurance service providers as set out in the contract. Procuring entities must pay insurance premiums at the due date so that they will have valid insurance cover for the whole period. 4.3 Separation of procurement functions and authorizations to enable checks and balances in the procurement process Procurement functions and responsibilities such as specification of the scopes of services, selection and adjudication of tenders should be divided among different offices, committees and individuals, each with appropriate expertise and resources in line with Section 26(3) (c) of the PPD Act. 4.4 Insurance service providers’ performance to be evaluated and measured and feedback given to the service providers Systematic evaluation and measurement of insurance service providers’ performance should be undertaken to ensure compliance with the terms and conditions of contract and to enhance remedial measures as set out in section 12.0 of this Manual on Supplier Performance Evaluation and Measurement. 4.5 Automation of the Procurement Process Procurement processes are to be computerized to the extent possible to integrate the operations between the Procurement Unit and the beneficiaries of the services in order to speed up routine transactions and communication within and outside the PE. 4.6 Observing ethical practices in procurement Procurement should be carried out ethically and efficiently in accordance with the provisions of this manual. 10