aace® internationalaace® international chinook-calgary section commercial bid evaluation the...

AACE® InternationalChinook-Calgary Section

Commercial Bid EvaluationThe Inside Track

September 25, 2019

James Smith, PMP

James Smith

2Commercial Bid Evaluation

rhi’s Operations Manager, Canada

15 years industry experience & with rhi since 2011

$10s of millions saved for clients

Education / Designations / Other

• BSc (Hons) Quantity Surveying

• PMP

• RICS Associate

• COAA Contracting Committee Member

rhi at a Glance


Estimating Benchmarking Risk analysisCost management/

quantity surveyingContracts Project controls Planning

Services

skilled

resources

years

experiencecountries regional offices

client base –

local, regional,

international

Track

record

Sectors

Active major

projects

Experience

130+ 15+50+ 6 Multiple

Oil & Gas Energy Infrastructure Mining

FPSOs & FPUs LNG & FLNG topsides downstream and

infrastructure

20+ 20+20+ 30+ 20+

Overview

Bid Evaluation from a consultant’s view

• Scene Setting

• Bid Evaluation Plan 9-box

• Recap

• Questions


Contract Strategy

Scene Setting - Key Contracting Activities

4 RFP Preparation Client determines the

contract form

Engineering input

Engineering Analysis

Compensation

5 RFP Issue Request For Proposal

Preambles

Schedule of Rates

Bill of Quantities

6 Clarification Bidder queries resolved

7 Bid Submittal Bidder submits

proposal

8 Bid Evaluation Bids compared using

the tendered SOR

Sensitivity analysis on

quantities and rates

9

Client selects

contractor based on

commercial and other

evaluation criteria

Contract Selection

Contract

Award

Identify

Need

3 Prequal Capability

Capacity

Test compensation

method

1 Market Analysis Current best practices

Service providers

License to operate

2

Determine key elements

of risk distribution

Compensation Principles

(productivity,

mob/demob, scaffolding)


Scene Setting – Compensation Models

Compensation has many gradients

Trade-off between Owner control/risk

and information available

In a mainly Unit Rate contract

• Contractor takes productivity and

pricing risk

• Owner takes scope & quantity risk

Source: Procurement Strategy (CEM, 2012)

6Commercial Bid EvaluationA

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Control effort required

client flexibility

Owner control

Owner risk

Prior to Bid Opening

Objective: Select ‘Best Value’ Service Provider

Lowest Proposal ≠ Best Value

Bid Evaluation Plan-on-a-page

Rank as-bid proposals

Review clarifications &

exceptions

Normalize & Condition proposals

Rank normalized & conditioned

proposalsNegotiate

Award recommendation

Bid Evaluation Plan

Bid Check Estimate

Communication & Clarifications


Bid Evaluation Plan 9-Box

AS-BID

PROPOSALS

NORMALIZE

CONDITION

CLARIFICATIONS

& EXCEPTIONS

BID CHECK

ESTIMATE

SENSITIVITES

RISKS &

OPPORTUNITIES

NEGOTIATE AWARD

RECOMMENDATION

Quantitative

Amounts for unpriced

items, clarifications, and

exceptions

Qualitative / “soft money”

Execution concerns

Review of Commercial &

Technical

Day 0 Risks

Bid Risk Register

Change Orders


What is a Bid Check Estimate?

• Buyer-side estimate of what the work should cost

• A negotiation & comparison tool with a known build-up

• A proxy for market pricing (under sole source)

• Resilient to challenge

Box 1: Bid Check Estimate


Why prepare a Bid Check Estimate?

• Quickly uncover areas of negotiation

• Detect risk premiums and unbalancing

• Identify inconsistencies and gaps in RFP documents

• High ROI / high leverage activity

Box 1: Bid Check Estimate (cont’d)


Final Thoughts

• Negotiation first

• Avoid the shell game

• Finalize Bid Check Estimate before you open the proposals

Box 1: Bid Check Estimate (cont’d)

No. Description Status

1 Read RFP

2 Review Historical Data

3 Normalize Historical Data

Compensation Method

Pricing Structure

Timing

Volume / Type of Work

Market Conditions

Indirects

4 Apply pricing to RFP quantities

5 Adjudicate estimate

6 Basis of Estimate

Bid Check Estimate Checklist


Initial ranking within 30 minutes

Structured per Contract Price build-up

Box 2: As-Bid Proposal

Bidder

1

Bidder

2

Bidder

3

Check

Estimate

DIRECT COSTS

1) Civil Work

2) Piping Work

3) Electrical Work

4) Instrument Work

5) Painting Work

6) Insulation Work

TOTAL DIRECT COSTS

INDIRECT COSTS

1) Mobilisation

2) Project Site Establishment

3) Construction Management Personnel

4) Demobilisation

TOTAL INDIRECT COSTS

OVERHEAD AND PROFIT

TOTAL PROPOSAL AMOUNT

ADJUSTMENTS

1) Normalization

2) Conditioning

3) Sensitivities

TOTAL ADJUSTMENTS

TOTAL EVALUATED PRICE

Item

Evaluation Summary


Heat Maps

Extract positioning at-a-glance

Unit Rates & Time Rates

Completed initially on As-Bid data

Box 2: As-Bid Proposal (cont’d)

Sch

No.

Schedule DescBidder 1 Bidder 2 Bidder 3

021 EXCAVATION AND BACKFILLING $10,048,763 $4,623,217 $11,807,505

028 SUPPLY AND INSTALL CAST-IN-SITU CONCRETE AND SUNDRIES $18,660,784 $8,518,008 $8,088,716

060 FABRICATE AND ERECT FRAMING MEMBERS $5,644,182 $4,227,231 $4,832,570

150 FABRICATE AND ERECT PIPEWORK COMPLETE N.E. 1.5" DIAMETER (AG) $1,402,763 $437,369 $1,628,195

155 FABRICATE AND ERECT PIPEWORK GREATER THAN 1.5" DIAMETER (AG) $36,679,831 $7,582,299 $29,582,653

160 BUTT & BRANCH WELD JOINT OR THE LIKE $0 $5,629,683 $6,736,191

180 SOCKET WELD JOINT OR THE LIKE $0 $845,840 $1,022,386

210 INSTALL PIPEWORK SPECIAL ITEMS $0 $54,781 $86,926

216 INSTALL VALVES (ALL TYPES) $671,554 $1,135,947 $1,102,915

245 MAKE BOLTED JOINTS $0 $323,681 $120,866

290 TESTING, FLUSHING, AND CLEANING OF PIPEWORK $0 $1,524,018 $1,763,812

295 INSTALL MECHANICAL EQUIPMENT $1,289,721 $742,836 $600,873

455 INSTALL INSTRUMENT TUBING $441,452 $555,704 $820,698

350 INSTALL LADDER RACK AND CABLE TRAY $1,352,610 $668,172 $1,404,780

385 INSTALL CONTROL STATIONS $113,486 $94,598 $77,856

390 INSTALL JUNCTION BOXES $79,267 $11,267 $16,749

450 INSTALL INSTRUMENTS $171,556 $193,445 $810,368

355 INSTALL CABLING ONLY (A/G) (CORES) $1,695,313 $1,358,376 $2,159,987

360 INSTALL CABLING ONLY (A/G) (PAIRS, TRIPLES AND QUADS) $439,264 $441,762 $587,008

365 GLAND AND TERMINATE (CORES) $899,453 $475,546 $447,014

370 GLAND AND TERMINATE (PAIRS, TRIPLES AND QUADS) $178,750 $295,561 $103,864

TOTAL $79,768,751 $39,739,340 $73,801,932

Heat Map


Box 3: Clarifications & Exceptions

Batch work using FiTR method

Find: Read the proposal, identify concerns

Triage: Rank concerns by importance/urgency

Resolve: Quantify impacts, issue clarifications, discuss with bidders

No. Value No. Value No. Value

High 3 $3,000,000 1 $150,000 0 $0

Medium 8 $2,000,000 15 $1,500,000 30 $2,000,000

Low 120 $200,000 175 $500,000 100 $100,000

Total 131 $5,200,000 191 $2,150,000 130 $2,100,000

Bidder 2 Bidder 3

Exceptions Summary

ImportanceBidder 1


Box 4: Normalize

Level the playing field

Quantitative adjustments

Exclusions cannot make proposal more attractive


Cost Normalization Adjustments Bidder 1 Bidder 2 Bidder 3Bid Check

Estimate

Exceptions & Clarifications $5,200,000 $2,150,000 $2,100,000 $0

Zero Rates / Unpriced Items

Provisional Items

Other Clarification Adjustments

Normalization Total $5,200,000 $2,150,000 $2,100,000 $0

Normalization Summary

Box 5: Condition

Level the playing field

Qualitative adjustments

‘Soft money’ analysis


Cost Conditioning Adjustments Bidder 1 Bidder 2 Bidder 3Bid Check

Estimate

Schedule Impacts

Additional Owner/PMT Oversight

Other Adjustments

Conditioning Total $0 $0 $0 $0

Conditioning Summary

Box 6: Sensitivities

Discipline

• Relative position is constant

• Magnifies existing differences

Basket

• Relative position can change

• Reveals different weighting on work

activities


Box 6: Sensitivities (cont’d)

Scenario Sensitivity Adjustments%

Change

Bidder

1

Bidder

2

Bidder

3

Check

Estimate

A Large bore piping (> 6") including pipe erection, welding, valve

installation, testing, painting, and insulation5%

B Small bore piping (<= 2") including pipe erection, welding,

painting, and insulation10%

C Electrical cabling including cable tray, cable laying, glanding &

terminating, junction boxes15%

D Instrument cabling including cable tray, cable laying, glanding &

terminating, instruments, junction boxes15%

E Tertiary and miscellaneous steel fabrication and erection 10%

F Labour Rates - 5,000 hour multi-discipline Change Order n/a

G Equipment Rates - Additional equipment use of crane, trucks, and

forkliftsn/a

Sensitivity Total $0 $0 $0 $0

Sensitivity Adjustment Summary


Focus on high impact & high probability

The agreement will not be perfect

Find “Day 0 vulnerabilities”

Turnover Package to include a risk & opportunity memo

Box 7: Risks & Opportunities

Low Medium High

High

Medium

Low

Imp

act

Probability


Agree strategic objective e.g. $10 mil reduction

Support the objective

My model:

Box 8: Negotiation

No. Type Applicability Example

1 Incorrect Wide CPP amounts

2 Incorrect Narrow Scaffolding in rates instead of Lump Sum

3 Inadequate Wide E&I rates 30% above references

4 Inadequate Narrow 3C #4 cable rate is 10% above references


You need a story

Explain complexity simply

Be a salesman

Box 9: Award Recommendation

No. Description Status

1 Contracting Strategy

2 Bid Evaluation Plan (incl. deviations)

3 Term Sheet (summarize exceptions)

Terms & Conditions

Compensation

Scope of Work

Risk distribution principles

4 Key Data

Key Milestones

Contract Schedule

Interfaces

Payments Schedule

Award Recommendation Checklist


Bid Evaluation Plan 9-Box Recap

AS-BID

PROPOSALS

NORMALIZE

CONDITION

CLARIFICATIONS

& EXCEPTIONS

BID CHECK

ESTIMATE

SENSITIVITES

RISKS &

OPPORTUNITIES

NEGOTIATE AWARD

RECOMMENDATION

Quantitative

Amounts for unpriced

items, clarifications, and

exceptions

Qualitative / “soft money”

Execution concerns

Read the proposal

FiTR

Prioritize

Bid Risk Register

Fit-for-purpose

Best Value > Lowest Proposal

Be a salesman

Initial ranking quickly

Heat Maps


Contact Details

James Smith

Operations Manager, Canada

[email protected]

23

Questions?

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