25 November 2015 #Public Procurement
Countries within the Commonwealth are subject to a diversity of legal frameworks, rules and regulations. Certain organisations (such as central and local government) based in countries within the European Union (“EU”) are subject to stringent legislation in terms of how a public contract should be procured. For organisations based outside of the EU, the legal framework may be less specific and thought therefore needs to be given as to the process adopted for procuring a public contract.
We have used our experience of procurement processes conducted in England and Wales (subject to domestic legislation, derived from European Union regulations and communications) in order to provide a best practice guide to follow when planning and running a procurement process. These best practices should be followed as an addition to any legislation which might apply in the relevant Commonwealth country.
Why formalise the procurement process?
Why is it advisable to use a transparent, non-discriminatory and well thought through procurement process? The advantages are that you can open up the market to enhance competition for your contract, which should result in competitive pricing, innovative solutions, preferable commercial terms and added value, such as, community benefits. Our clients have reaped the benefits from running truly competitive processes. For example, clients have made significant savings against budget or against the cost of an existing contract.
Running and managing a procurement process can be costly, which is why it is so important to plan the process properly and ensure that the correct individuals (project manager and advisors (internal and external)) are appointed to inform and control the process and ensure that costs incurred are minimised.
Forward planning and testing the market
Before starting any procurement process, you should know what you want to procure (a contract for goods, services and/or works) and how you intend to achieve this in terms of the process you utilise.
You also need to be clear on the timeframe – when must the contract be in place? Once you have your deadline for awarding the contract, it is then important to work backwards – setting out the timeframe for the process and allowing yourself a buffer, as it can be difficult to bring a procurement in strictly on time due to the various demands of the bidders and the procuring authority .
In some situations, a procuring authority may know what it would like to achieve but it is uncertain what solutions are available in the market. So prior to starting a procurement process, the procuring authority may decide to invite (directly or by advertising) a number of organisations (ideally no less than 3) to meet with the procuring authority. The parties may discuss any aspects of the procurement process and the contract, which may include what the procuring authority wants to achieve and the timescales for awarding the contract.
When engaging with organisations during this early stage, each organisation should be treated fairly and all organisations should receive the same information in order to demonstrate to the market the procuring authority will not favour one particular organisation.
We have used this type of early engagement with the market previously and our clients have found it to be extremely useful in terms of ensuring that:
Planning the process
You should plan the process you wish to follow prior to formally engaging the market. This includes considering the terms of the contract you wish to award and, if possible, supplying a draft at an early stage in the process to facilitate discussion. The procuring authority should consider:
1. The duration and value of the contract
(a) consider the proposed term of the contract and any extension period. This point may have been discussed during the early engagement with the market. The duration of the contract will depend on the complexity of the contract and what will be delivered under it. For example, a contract that involves the provisions of vehicles would generally be for a minimum of 7 years, as (in England and Wales) this is the period of time over which a vehicle will depreciate. For a more complex contract, such as a contract to design, build, finance and operate a waste treatment facility, a longer contract term of 25 years with an extension period of up to 5 years may be more appropriate to enable the supplier to properly and favourably finance its construction.
(b) The value of the contract is important, as it will enable the authority to decide on the complexity of the procurement process to be adopted. The procurement process adopted by a procuring authority should be proportionate to the value and/or complexity of the contract to be awarded.
2. Can the procuring authority be prescriptive in its requirements?
(c) A procuring authority, whether it has or has not entered into early stage engagement with the market, may not be able to be prescriptive in its requirements. For example, the authority may know what it wants to achieve but does not want to be prescriptive in how its requirements are delivered. By presenting a desired outcome or output, a procuring authority will allow bidders to be innovative in their submissions. In these circumstances, any process adopted should allow for some form of dialogue or negotiation between the procuring authority and the bidders, ensuring at all times that bidders are treated equally and fairly, and that the process is transparent.
(d) Where the procuring authority can be prescriptive in its requirements, it may consider dialogue and negotiation to be unnecessary and surplus to requirements. In these circumstances, any communication between the bidders and the procuring authority should be limited to clarification only. The instructions for submitting a tender should be clear and unambiguous to enable bidders to fully understand the procuring authority’s requirements. This should allow the procuring authority to properly evaluate the submissions received. This type of procurement process should take less time (than a process involving dialogue or negotiation) and will therefore be less costly.
3. Pre-qualification of organisations.
(e) When considering the contract and the procurement process, it is also important to consider whether the procuring authority has any requirements that an organisation interested in tendering for a contract must satisfy in order to be considered eligible to tender. Such requirements should be brought (in writing) to the attention of any organisation that expresses an interest to tender for a contract as soon as possible in the process, to avoid unnecessary procurement costs being incurred by either party.
4. Number of organisations.
(f) Consider the number of organisations that you should invite to tender for your contract. As mentioned earlier in this article, running a procurement process can be costly, so you should balance the need for generating interest in your contract with ensuring your procurement costs do not escalate unnecessarily.
(g) The appropriate number of bidders (minimum and maximum) will depend on the market and the contract being procured. As a general rule, ensure there is a sufficient number of bidders (generally, at least 3) so that there is sufficient competition but also to ensure this is maintained in the event a bidder withdraws or is deselected from the process by the procuring authority. Maximum numbers tend to vary depending on the contract – clients have used 3, 5, 8 and 10 as their maximum numbers so market knowledge needs to be utilised when setting the appropriate number.
(h) The evaluation methodology used to award the contract to the successful bidder should be clear and unambiguous. It should be presented so that it informs the bidders what is important to the procuring authority – bidders can then formulate their submissions so they are geared to the methodology and the relevant scoring.
(i) When structuring your evaluation methodology, evaluating like with like is the best approach. Accepting submissions from bidders that differ too widely is likely to cause difficulties when applying one evaluation methodology to all submissions. Testing the evaluation methodology prior to issuing it to the bidders should ensure the methodology is robust and fit for purpose.
(j) Applying the evaluation methodology properly and in a fair and equal manner for all bidders will give interested organisations greater confidence in your process and this should enhance competition.
Once you have decided on your process and the relevant steps (highlighted above) have been taken, you then need to consider how best to advertise the contract opportunity. Some organisations advertise on their websites and in trade journals or the local press. Within the EU, procuring authorities advertise in the Official Journal of the European Union – there may be something similar available in your country. In any event, your chosen medium for advertising should (as a minimum):
Once the process has been considered, to ensure competition is enhanced, all organisations interested in a contract opportunity should be treated equally and in a non-discriminatory manner. To give organisations comfort on this point, the contracting authority may do one or both of the following:
A practical point is to consider the need for interface between your various contractors and contracts including any internal departments/third party organisations. Arguably, an organisation with a proven track record in performing the relevant works and/or services, should know when interface is required but it is best not to leave this to chance. Ensure this obligation is part of your procurement process and the relevant obligation is included in your commercial terms.
Once a procuring authority has decided on the process it wishes to adopt, there should be consistency in that procuring authority’s approach to procurement throughout the various departments. For example, when considering procurement for a smart city, the department responsible for awarding the contract(s) for the transport systems should adopt the same or similar approach to that adopted by the department that awards the energy contracts and the technology and communication contracts. This is where interface becomes important.
The salient points highlighted in this article should assist procuring authorities in terms of best practice when structuring their procurement processes, treating bidders fairly and equally, and ensuring competition is generated and maintained throughout the process.