PPP - Paper 7 - review the processes during the tendering procedure

INTRODUCTION:

In this paper, we review the processes during the tendering procedure.

Communications with Bidders

Pre-bid Conference

Consideration should be given to a pre-bid conference. There is some doubt as to the benefit of pre-bid conferences since bidders may be reluctant to ask any questions which will disclose to other bidders what their approach may be. The pre-bid conference may be additional to enquiries concerning the request for proposals. A clear indication should be given as to the time before which enquiries should be made and where there is to be a bid conference there should be an enquiry deadline so as to allow questions to be addressed at the pre-bid conference.

In order to avoid any allegations as to interference, it is suggested that all enquiries and their answers should be issued to all bidders. There are mechanisms for dealing with issues, particularly on the technical and financing elements, where the bidders would not wish other bidders to learn of the techniques proffered.

Amendments to Request for Proposals

In order to allow amendments to the request for proposals, provision should be made for this, for instance to indicate that amendments will be by issuance of an addendum. Although the request for proposals may indicate that the deadline for submission of the proposals may be extended in the event of the issue of an amendment, it would be preferable to avoid this.

Consortium Approach

Where proposals are being submitted by a consortium then it is suggested that each member of the consortium should sign up to the proposals. Any change to the consortium should, after pre-qualification, be subject to the right of the Government to reject the proposal either of the revised consortium or of the proposed substitute.

Clear provision should be made as to whether or not a member of one consortium can participate in proposals submitted by other pre-qualified applicants. On balance, the agreements between the consortium members would probably exclude this; that is a matter between the consortium members and it is for the Government to decide whether it wishes to prevent this. To the extent that one party is a member of more than one consortium there is a possibility of a ring or fix (or other collusion) being achieved amongst the members.

Multiple Bids

The request for proposals must indicate how many proposals can be submitted. In order to make evaluation easier, it is suggested that at least one proposal should be a conforming proposal and then the bidders should be able to submit variants showing the price changes in relation to each variants. It is, perhaps, sensible to ensure that there are only so many variants allowed. In addition, the required number of copies of each proposal should also be stated.

Period for Offer

The request for proposals should state for how long offers must remain valid. This should be a sufficient time to carry out a proper evaluation but should not be of such a time as would indicate to the private sector that there may be vacillation in the process.

Clear wording should be used as to the time and date upon which the proposal must be delivered and where it must be delivered. It is suggested that fax, telex and e-mail should not be acceptable. On this basis, a hard copy should be delivered except where the fundamental components of the price proposals are in electronic form. One factor, in order to ensure consistent interpretation and evaluation of price proposals, is that bidders should supply fundamental components of their price by using proforma sheets and, where appropriate, that the information should also be provided in electronic form on software if supplied with the request for proposals.

Key Contracts

The request for proposals should also indicate which of the project agreements (e.g. draft implementation agreement) are attached to the request for proposals and should indicate that bidders are to mark up on the attached agreements any amendments which they propose and that those amendments should be submitted with their proposal. If the bidder does not wish to make any amendments then he must clearly so state. General wording such as "the Agreements are in basically acceptable form but certain provisions will require to be negotiated" should be indicated to be unacceptable, for the reasons mentioned earlier.

Compliance Evaluation

It is suggested that the criteria for proposal evaluation should be set out in the request for proposals. The evaluation could be done in a number of stages. The first stage could be simply procedural, and could state, for example, the following criteria as grounds for rejection of proposals:

+ the proposal is not received by the date and time required;

+ the proposal has not been signed or otherwise authorised by the various members of the consortium;

+ the proposal is not submitted in the prescribed format;

+ the proposal does not contain the minimum price and non-price information required or is otherwise a non-conforming proposal;

+ the proposal terms are not expressed to be valid for the prescribed period.

It might be appropriate to indicate what the cut off date is for notifying bidders that they have not got through the first stage. Perhaps three weeks or a month would be a suitable period.

Evaluation of Bids

First stage - procedural

This is very much a technical review of the bids. For instance checks need to be made for the bids that were received by the deadline (bids which were not should be excluded), where there is a requirement that the proposal is signed or is authorised by all consortium members then failure to comply with this would also lead to elimination of the defaulting bidder. If the form of the proposal is prescribed then failure to adhere to this should also be a ground for elimination. There are distinct advantages in having a prescribed format because it makes comparison of the bids much simpler. Whilst this may seem a minor matter, when there are four complex bids to review and to compare this is extremely difficult to do when each format is different.

Where the proposal requires details of monetary and non-price information then this needs to be addressed. Finally, if the proposal is not expressed to be valid for the period required under the request for proposals and, therefore, there is a risk that the proposal could be withdrawn, then this may be a ground for elimination. An alternative approach however might be to ask for a clarification to ensure that the proposal is valid for the requisite period. The bidder may have thought that because it was a requirement under the request for proposals there was no need to reiterate the provision.

Hurdle versus Points Approach

The next stage, that of evaluation of the substance of the proposals, is more difficult. On one approach, proposals can be scored on a points basis, with the evaluation criteria grouped into price and non-price factors and a weighting applied between the two. The other approach is a hurdle approach, whereby if the bidders do not meet certain minimum non-price requirements in relation to their proposals, then they will fail that non-price hurdle, leaving price as the only discriminating factor between the remaining bidders. The rationale for the second approach assumes that any of the bidders which pass the non-price hurdle could develop the project satisfactorily, so it becomes simply a question of choosing the best price in that group. By way of example, in the hurdle approach, if the answer to the question: "Is the plant and equipment tried and tested?" is "No" then the bidder falls at that hurdle whereas with the points approach : if the answer to the question: "Is the plant tried and tested" is "No", then the bidder would score 2 or 3 points out of a total of say 10, whereas a bidder offering equipment from a number of known manufactures would achieve a higher score.

However, over the last few years new plant and equipment has been emerging and in relation to power plants in the US which are being financed on the bond market, manufacturers have been prepared to issue performance make-up agreements in relation to their new plant so as to ensure that new plant and equipment is bankable. This particular challenge could be overcome by requiring the bidder to bid with tried and tested equipment and then allowing a variant bid including new specification equipment which would then have to be considered in light of support from the manufacturer.

The choice between the points approach and the hurdle approach will be influenced by the relative weight which the public sector wishes to give to price and non-price factors. It can also actually change the outcome of the evaluation process.

Consultation Approach

One of the concerns which exists is that, if there can be negotiation after the financial terms have been received, then some kind of inappropriate release of information to one or more other bidders could occur. However, it is extremely difficult for the public sector to know whether it has got true value for money unless it can see some kind of trade-off by agreeing to a change to the proposed documentation with a resulting reduction in monetary issues. Although not as desirable as having competitive negotiation based upon price in terms of extracting value for money nevertheless there is a third way which is, in effect, the consultation approach. In effect, after the prequalification process, the public sector issues to the prequalified bidders indicative tender documentation on which it seeks their responses. The response would normally include technical proposals together with proposed changes (if any) to the relevant contractual documentation. There would then be a consultative process whereby the private sector would put forward their technical solutions and also their proposed amendments. Proposals should be identified in two categories, those which the private sector are content could be disclosed to other bidders and those which it believes are exclusive. It is then a matter for the public sector as to whether it is prepared to go ahead on that basis because, for instance, in terms of a change to a contractual term it may well be that such a change is acceptable to the public sector and, therefore, should be offered to all bidders rather than being restricted to just one. However, where the change results from say innovative financing scheme which one bidder had developed then one can understand why there would be a reluctance for there to be general disclosure.

A further disadvantage is that it is much more difficult to maintain competitive tendering and it may well be that tenderers put forward proposals on different basis which makes it more difficult to evaluate best value for money from the public sector's perspective. What might also happen is that there will be a number of variant bids from each bidder thereby increasing the amount of work involved. This may happen particularly where different terms and conditions would apply dependent on the variant and each bidder would, therefore, be entitled to one or more versions of the draft concession agreement. In addition, bidders will be reluctant to stay in the hunt and incur substantial expenditure in a variety of bids if the number of bidders has not been whittled down to say two. Finally, there is an issue that if the price is too high for the public sector they may well wish to get into further discussions to reduce prices further which, in effect, would go back to the concept of running a competitive bid with two bidders.

In the UK where PPP's are now well established and although there are a few standard forms of contract, nevertheless, most schemes are developed from templates which form the basis of contracts for individual projects. The concept of best and final offer (i.e. reducing the competition down to two bidders after an initial round of financial bids, having a degree of detailed negotiation and then seeking the final offer as it were from the two bidders) is a well established course of business which does appear to give value for money.