Preferred Supplier Contracts-Setting Up

Contract Panels

Presented by

Phill Scott, Contracts Manager, Local Government Procurement

IPWEA International

Public Works

Conference August 2011

Key Points

1. The Legislation & guidelines

2. Preparing a Request for Tender (RFT)

3. Tender Openings

4. Evaluation

5. Negotiation

6. Contract Management

Some guidelines when tendering

Tendering Guidelines for NSW Local Government,

DLG, October 2009

NSW Government Tendering Guidelines,

November 2005

NSW Government Code of Practice for Procurement,

January 2005

NSW Government Procurement Planning Guidelines,

June 2005

Legislation

1. Local Government Act 1993, Part 3, s55

2. Local Government (General) Regulation 2005

163 Application of part

166c Selective tender-Recognised Contractors

170 Tender Documents

177 Consideration of Tenders

178 Acceptance of Tenders

3. Government Information Public Access Act 2009

(GIPA)

Begin with the end...

If you know what

you want...

...tenderers will know

what is required...

...and the results will be

advantageous for

everyone.

Preparing for a Request for Tender

He who fails to plan, plans to fail!

• Business Case

• Procurement Plan

• Probity Plan

• Evaluation Plan

• Negotiation Plan

Preparing a Request for Tender (2)

• Conditions of Participation & pre-requisites

• Intended level of accreditation

• Tender fees & advertising

• Electronic vs physical lodgement

• Probity Advisor

• Evaluation criteria (weighting, local

preference, pricing options)

• Advertising

Evaluation Criteria

Establish What is important?

Apply Make it clear in the

RFT

Formulate

questions

Elicit precise

answers

Differentiate

tenders

Split the pack

„First blush‟:

Establishing a panel of building contractors

CRITERIA

A. Experience 40%

B. Management team 20%

C. OHS Management System 15% 5%

D. Licenses & Insurances 20% 25%

E. References 10%

Paired Comparison method

Buying a new grader

Scoring Scale 2 = Slightly more important

5 = Substantially more important

8 = Most Important

Op

Weight

Engine

Power Cylinders FW Drive Drive

A

B

C

D

E

Score %

Op weight A

Engine

Power B

Cylinders C

FW Drive D

Drive E

A8 A5 D5 A2

C2 D8 B5

D5 E8

D8

15

5

2

26

8

26

27

9

4

46

14

100

Local Preference as a criteria

Buyer beware.....

• Allow competition

• Non-discrimination

• Be transparent and inform

tenderers

• Benefit to local economy??

Do you want the “lowest tender

price” or “value for money”?

Cost alone cannot tell you:

• Final price

• Guarantee expertise

• Whole of life cost

• Supplier performance

• Service

It might tell you:

• How competitive the market is

• Indication of quality

Advertising

• Interpretation of the Regulation‟s

requirements

Opening the tender box

Evaluation

• Aspects of conformance

• Conditions of Participation & other

prerequisites

• Consistency in scoring

• Clarification vs later negotiations

• Evaluating sole traders vs SMEs vs

multinationals

• Tenderer‟s financials

• Evaluating price

Negotiation

• Regulations, Standards and Guidelines

• Obligations

• Negotiating different contract terms

Contract Management

• Maintaining competition on panel

• Security bonds

• Going outside the panel

• Adding and removing panel members

• Performance monitoring

• Contract variations

In Summary

1. Have a plan

2. Understand your

obligations

5. Aim for value for money:

cheapest is not always

the best

4. Beware of some pitfalls

3. Give due attention to

evaluation criteria

www.lgp.org.au

Thus there is limited specific local government information on this topic. However the other points that I’d put forward are that contract variations can fall into different categories e.g. those required because of latent conditions (and thus potentially needing to be implemented immediately) and those proposed because they offer some advantage. These later one’s might be advantageous, but may not be necessary to complete the project. It would seem sensible that a latent condition requiring a minor cost variation should be able to be approved by the project manager or engineer. An issue might arise if the sum total of all these minor (but necessary), variations adds up to a significant $ value, but if as part of contract administration, a monthly report goes to management and the councillors advising them of these variations, then the situation is normally considered acceptable given that all parties are kept informed. On the other hand, I would think that approval of a significant cost variation that was not necessary, but which offered some advantage, should be determined by either management (if delegated to do so) or by the councillors. Also, the approval of the variation should be formally given before the contractor is instructed to commence work on the variation. Further to the above, you also need to think about who’s going to do the variation. If it’s a minor one, then it would be sensible for the current contractor to do it based presumably on a schedule of rates provided at time of tendering. (Alternatively you have to ask them for a quote, and yes, its likely to be higher in $ value that it might normally be!) If the variation is major eg $100,000, then I would suggest that the current contractor as well as other parties should be offered the opportunity to bid (assuming the contract terms do not prevent this.) Remember also, that a contractor is not obliged to carry out a variation that substantially changes a contract. Sometimes the contractor will refuse to carry out the variation for a number of reasons. If the contract results in significant variation costs, it may indicate poor project management and it could conceivably lead to an investigation e.g. Port Macquarie Hastings Glass House project. Project overruns of 5% may or may not indicate a problem. It just depends on the circumstances. Remember too that the longer the project takes, the more likelihood for variations, particularly if the contract allows for CPI adjustments of industry index material and labour price adjustments. To someone who is not familiar with the basis of the tendered price, variations may seem excessive, but be aware that an apparent total tendered price can be altered with good reason due to variation or escalation where the price was based on a schedule of rates, or is a fixed price contract based on a specific set of criteria, or is a ‘fast track’ tendered price, or is a cost-plus contract. So in conclusion, its not always easy to lookback and decide if the extra costs are reasonable or not. However if variations and escalations are approved by appropriately delegated staff or the council and if there is a regular report mechanism to track these things, then hopefully good contract control is in place.

• In considering payments on a contract duly approved by Council, how do you assess the following:

• Say contract for $4m was duly approved after appropriate tender process

• It turns out that there are variations to the contract which arise during the life of the contract.

• If the variations result in additional costs of say $100,000 what is your view regarding approval of such

variation?

• What if the variations are a series of different payments which result in additional costs of say $300,000.

What is your view about such transactions ?

• An overal variation of more than 5% of the original price surely indicates some problems with the process

somewhere?!

• Attached are two extracts of interest. The first one from the NSW Local Govt Tendering Guidelines and

the second from the Victorian LG Procurement Guideline.

• The NSW guidelines say little on the subject of contract variations other than in Section 3.21 2nd

dotpoint: “Ensure proper processes are followed for the approval of variations to the contract.”

• The Victorian guidelines make comment differentiating operational contracts, complex contracts and

partnerships & strategic contracts. It goes on to state under the section „Contract Variations‟ that:

• Thus there is limited specific local government information on this topic. However the other points that I‟d

put forward are that contract variations can fall into different categories e.g. those required because of

latent conditions (and thus potentially needing to be implemented immediately) and those proposed

because they offer some advantage. These later one‟s might be advantageous, but may not be

necessary to complete the project. It would seem sensible that a latent condition requiring a minor cost

variation should be able to be approved by the project manager or engineer. An issue might arise if the

sum total of all these minor (but necessary), variations adds up to a significant $ value, but if as part of

contract administration, a monthly report goes to management and the councillors advising them of these

variations, then the situation is normally considered acceptable given that all parties are kept informed.

• On the other hand, I would think that approval of a significant cost variation that was not necessary, but

which offered some advantage, should be determined by either management (if delegated to do so) or by

the councillors. Also, the approval of the variation should be formally given before the contractor is

instructed to commence work on the variation.