procurement in project management

8/10/2019 Procurement in Project Management

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Project Management


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The procurement phase commences with thepublication of the procurement notice andends with the financial close, the point at

which project activities (beginning withdetailed design and construction) can start.

It has been broken down for convenience intotwo stages: (i) the bidding process and (ii) theperiod from the selection of the preferredbidder to financial close.


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Bidding Process

The Project bidding process involves a series

of steps.

The goal of the bidding process is to maximize

incentives through a competitive process for

the award of the long-term Project contract.


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During the bidding process, sufficient

attention should be placed on the key good

procurement principles of transparency and

,

legitimacy of the Project and its acceptance by

stakeholders.


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These good procurement principles must be

respected from the time the formal tendering

process begins.

place before the process formally begins (this

is particularly important in respect of large

projects).


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For example, while keeping in mind thatachieving a level playing field amongst potentialbidders is the eventual goal, the Authority may

organize information days, technical briefings,ear y pu c re ease o ec n ca ocumen s anso on.

As soon as the procurement notice is published,

all potential bidders must be given equaltreatment and a careful audit trail of all contactswith potential bidders must be kept.


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equal treatment principle dictates that

information provided to one potential bidder

should be made available to the other

.


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Procurement notice

Publication of the public procurement notice

marks the start of the formal procurement

process.

necessary requirements.


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Procurement notice (cont..)

It is good practice to also publish the

procurement notice in one or more

newspapers.

enable interested companies to demonstrate

their qualifications (also known as the

submission of an expression of interest).


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Prequalification

The purpose of prequalification is to includeonly those bidders that appear to be capableof carrying out the project in an adequate

manner. The wording of the brief project description

contained in the notice should be broadenough for it not to need to be subsequentlychanged (which might then require the noticeprocess to start all over again).


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Typically, interested parties that respond to an

initial notice are sent a short statement of

information about the project and instructions

.

These form the basis of a qualification

submission that such parties must make to

demonstrate their ability to implement theproject.


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The invitation to prequalify (or prequalificationquestionnaire, as it may be called) should containat least the following:

The broader context of the project ,

intended allocation of major risks and envisagedresponsibilities of each party

A list and summary of the major studies that willbe made available to bidders concerning theproject

The intended procurement process


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The qualifications that companies can putforward (e.g. parent or subsidiary companiesqualifications)

The criteria and tests that will be used toevaluate the prequalification statement (butnot necessarily the precise details to be usedin any scoring or ranking since that could leadto some manipulation by the candidates)

A timetable.


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It is standard practice for the Authoritys legal

advisers to draft both the procurement notice

and the prequalification questionnaire.


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The aim of the bidding process is to maximize

competition, not the number of bidders.

The presence of too many bidders on the

participating and cause good bidders to drop

out.


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In some cases the public sector has sought toencourage candidates to bid by agreeing inadvance to make a payment to each losing

bidder that would partially reimburse it forthe costs of bid preparation.

Such payment could be made from moneythat the Authority would receive from the

winning bidder (once again, specified inadvance).


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The size of the payment has to be calibrated

to discourage frivolous bids.

Practice varies widely between countries. T e Aut or ty s ou as t e r a v sers a out

current market practice in the relevant sector

and jurisdiction.


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In evaluating the qualification submission, the

Authority will focus on the technical capability,

business capability and financial position of

.

In line with public procurement legislation,

these capacities must be, in principle,

demonstrated jointly, rather than individually,by the members of a consortium.


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The prequalification submission will usually be required todescribe the following:

The business activities of the consortium (e.g. how many

projects of a similar nature, the consortium has implemented

over a specified number of years)

Financial information (e.g. thresholds involving turnoverand net worth);

Legal information about the consortium, including any

relevant litigation involving the companies; and

The quality of personnel to be involved in the project.


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The first step of the prequalification and

shortlisting process is often to determine

which consortia have passed the thresholds in

. . .

Most of the criteria (e.g. company revenue)

are expressed in terms of clear and objective

thresholds.


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If this results in a number of consortia that

exceed the maximum number pre-specified

for the shortlist, then a systematic and

should be used to narrow down the list to

arrive at a shortlist.


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Sometimes shortlisting is done partly on thebasis of responses that are submitted to a setof open-ended questions about how the

companies would address certain key issues ifthey were to win the contract.

For example, in the competitive dialogueprocedure, initial shortlisting can be based

partly on an assessment of the outline orindicative solutions given by the candidates.


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At the end of the process, a well-substantiated

prequalification report should be prepared to

provide a good audit trail.

.


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Invitation to the Tender

Preparation of the tender documents will

usually have begun during the last steps of the

project preparation phase but to be time-

,

the prequalification period.


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The invitation to tender documentation

should contain all the information that bidders

will need to bid.

time and effort to develop the documentation

in enough detail to ensure comparability of

the bids and reduce the need for debate andclarification before the contract is signed.


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The tender documentation, which is usuallyextensive in detail and volume, will normallyinclude (but not be limited to) information suchas:

project

a summary of the key commercial principles,including the obligations of each party and risk

allocationdetailed output specifications and the minimum

required technical design and technical features;


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a full draft contract (which, in some countries,

would be based on mandatory standard contract

terms or on required guidelines of some kind);

information they must submit and the detailed

procedures for submission;

the evaluation criteriarequirements for bid bonds or equivalent

security.


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Interaction with the bidders

the nature and level of communication

permissible with bidders will be determined

by the procurement procedure chosen.

maximum value for money, it is critical to

manage the bid process well.


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shortly after issuing the invitation to tender itis usual to hold a bidders conference toexplain issues and take questions from the

bidders. Written clarifications should beprovided to all bidders

it is typical to provide for a data room opento bidders, where they can access detailed

documents concerning all aspects of theproject.


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The complexity of large Projects will normallyrequire a high degree of interaction betweenthe Authoritys project management team and

the bidders. The terms and conditions for an interactive

process, including the procedures, protocolsand rules, should be included in the broader

set of conditions, rights and obligations towhich bidders consent.


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The objective of developing this iterativeprocess is to improve the quality of theproposals by:

fosterin innovative solutions from differentbidders

clarifying any technical, financial andcommercial issues

providing timely, direct and specific feedbackto all bidders on key aspects of their bids.


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The Authoritys project management team has

to take particular care to protect each bidders

commercial in-confidence material and

.

More generally, the project management

team will have to consider probity principles

and rules as part of the implementation of theinteractive process.


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Evaluation of tenders and selection

of the preferred bidder Once the tenders are submitted, they must be

evaluated to arrive at the selection of the

preferred bidder.

number of pass/fail criteria before the single

preferred bidder is decided on.


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even if the evaluation score is not based on atechnical evaluation, a determination must be

made that the technical solution proposed by abidder is feasible, deliverable and robust, that it isbased on reliable technologies, that it meets allminimum technical requirements set and that the

costs and financial structure are consistent withe ec n ca so u on

it is important to look at the proposed projectmanagement: the bidding consortium must come

across as a cohesive entity rather than just acollection of companies put together for biddingpurposes.


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A key issue is the choice of the criteria for theevaluation and scoring of alternative bids.

Occasionally, only one bidder will submit a

tender des ite the Authorit havin issued theinvitation to tender to several shortlistedcandidates.

Should that happen, in good procurementpractice, the question of how to proceedshould be considered case by case.


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If it appears that bidder interest was low

because of deficiencies in the tender

documents (including the project

can realistically be remedied, then the best

solution might be to repeat the tender

procedure this time on a better footing.


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If it appears that the bid was made in the biddersbelief that there would be a good level ofcompetition (and this should be supported by theAuthoritys advisers carrying out benchmarking ofcosts and in some cases b insistin on actualmarket testing of the costs of the majorsubcontracts), then the best solution might be tocontinue with the procurement and consider thesole bidder to be the winner, provided that thetender is fully compliant and meets all pass/failevaluation criteria


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A minimum standstill period of 10 days is

required between the contract award decision

and the actual conclusion of the contract to

review and decide whether they want to

challenge the award.


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more importantly, an aggrieved bidder can bringan action to have the contract renderedineffective if the Authority contravenedprocurement rules in a serious manner.

,bidder could seek was to be awarded monetarycompensation, but nowadays an aggrieved biddercould seek cancellation of the contract.

How the various rights and obligations of theparties will be determined in this case is left tonational law.


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The finalization of the arrangements, leading to commercial

and financial close, involves a series of steps.

The activities involved in these steps often deal withdetailed fine-tuning matters.

Close interaction between the Authority, Company, itssponsors an its inanciers is essentia .

This stage requires thorough organization and managementfor it to proceed efficiently.

It should be planned carefully, generally making use of

experienced advisers. Many projects have experienced lasting difficulties as a

result of a lack of adequate planning or expert adviceduring this critical stage.


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Finalize the contract

The different procurement procedures imply

varying forms/ intensity of discussions once

the preferred bidder has been selected.

,

received and a preferred bidder has been

selected, the final adjustments to the contract

should be limited to clarifications andconfirmation of commitments.


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The final discussions with the preferred bidder

are often referred to as final negotiations

(even if they are not strictly negotiations

.

At the start of this phase, the Authoritys

negotiating team and the preferred bidder will

need to agree on a framework for finaldiscussions/negotiations.


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This framework will typically include issues

such as:

the discussion timetable;

t e e n t on o t e rema n ng ssues; an

the recording of agreed matters.


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Conclude the financing agreements

Projects are normally financed in whole orpart through project finance arrangements.

Insofar as possible, the Authority should

re uire bidders to secure full committedfinancing packages along with their bids.

This will ensure that the finalization of thefinancing agreements can take placesimultaneously with or shortly after thesigning of the contract.


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In difficult financial market conditions (e.g.

reduced liquidity),fully committed financing

packages may be difficult to obtain at the time

.

This may mean that the financing agreements

will not be concluded immediately once the

contract is signed.


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Prior to the credit crisis, Project financings for

major transactions were usually provided

through syndication arrangements, whereby

financing of the project and re-sold it to a

syndicate of banks after financial close.


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Most Project projects are now funded through

club deals: each bank assumes it will hold its

stake of project debt to maturity.

,

only be concluded after the appointment of

the preferred bidder (the so-called post

preferred bidder book-building ).


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The strength of the financiers commitment to

fund the PPP project at the bidding stage will

depend on the particular project and market.

bidders provide evidence of a reasonably

deliverable financing plan in their proposals


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Bidders should demonstrate that the debt, theequity and, where applicable, the grant providershave reviewed and accepted the broad design of

the Project and the major contractual provisionse.g. e propose r s a oca on .

A funding commitment from the lenders willoften be conditional since they will generally not

be in a position to complete their detailed duediligence and approval process until a few weeksbefore financial close.


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Once the lenders have carried out their detailed reviewof the project documentation and their detailed duediligence, they will sometimes require changes to theProject contract.

will be limited, as changes to the Project contract willgo against good procurement principles.

Before signing the financing agreements, the lenders

will also need to review and be satisfied with the fullset of project contracts the Company will enter into

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