Module 16: Tendering and Procurement

16.2. What are the procedures for procurement?

An open and competitive procurement procedure begins with the promoter’s description of its requirements and an invitation to suppliers to indicate their interest in the contract and their professional capacity to fulfil it. The promoter then identifies potential suppliers and invites them to submit bids. After the bidding phase, most procurement systems require a public declaration of the competitors’ names and their bid prices and, ultimately, of the successful bidder.

There is a wide variety of procurement procedures available for use in tendering when it comes to PPP arrangements. Many of these procedures have become prescriptive in nature. Many local governments follow standard procurement procedures drawn up by the International Federation of Consulting Engineers (FIDIC).

However, most commonly PPP contracts are awarded as the result of some form of competitive bidding procedure. Designing a competitive bidding process – and getting the best possible result – is easiest when the product or service required is a fairly standard one and the technical outputs can be defined with reasonable certainty in the bidding documents. Particular attention, therefore, should be paid to providing good quality information to potential bidders and to the detailed design of the bidding process.

A competitive bidding process generally consists of:

1. public notification of the government’s intention to seek a private partner for the provision of, for example, water and sanitation services, including prequalification or a request for expressions of interest from private companies;

2. distribution of bidding documents and draft contracts to potential bidders;

3. a formal process for screening potential bidders and finalising a list of qualified bidders; and

4. a formal public process for presenting proposals, evaluating them, and selecting a winner.

Different procedures for procurement include invitation to tender; and request for proposals (one- and two-stage processes).

Invitation to tender

Generally, an invitation to tender is issued when the promoter knows exactly what it wants and how it wants to achieve its goals. Most often, the tender is issued and the lowest bidder is awarded the contract.

Although this approach reduces the cost involved in developing a PPP, it may limit the promoter’s opportunities to view other, more efficient and/or more cost-effective options for delivery of the service.

Request for proposals

A request for proposals (RFP) is usually used when the promoter knows what it wants to achieve, but would like prospective partners to use their experience, technical capabilities and creativity to identify how the project objectives can best be met.

One of the main differences between an RFP and an invitation to tender is that in an RFP the promoter is looking for value (that is, operating efficiency, cost-saving measures, innovations and so on), rather than the lowest bid.

The request for proposals can be issued through either:

◊ a one-stage; or
◊ a two-stage process.

The decision between having a single or a two-stage procedure for requesting proposals will depend on the nature of the contract, on how precisely the technical requirements can be defined and whether output results (or performance indicators) are used for selection of the contractor or concessionaire. If it is deemed both feasible and desirable for the contracting authority to formulate performance indicators or project specifications to the degree of precision or finality necessary, the selection may be structured as a single-stage process. In that case, after having concluded the pre-selection of bidders, the contracting authority would proceed directly to issuing a final request for proposals.

One-stage process

A one-stage RFP may be appropriate for a local government in the following circumstances:

◊ parties are known to the local government to have the capability to be successful partners;
◊ only a limited number of suppliers have the resources and capabilities to be a successful partner;
◊ the project must be implemented under a tight timeframe; and/or
◊ the local government is not able to spend a large amount of funds on the process.

Two-stage process

The promoter should use the two-step process in the following situations:

◊ the project is large and complex or of a special nature;
◊ the required proposal will be time-consuming and expensive for the proponent to prepare;
◊ qualified firms would not take the time and expense of preparing a response to an RFP if there were too many other firms submitting;
◊ there is an advantage to initially inviting a large number of firms and then narrowing the field to those most qualified; and/or
◊ the RFP process will involve the divulgence of information that is sensitive or even confidential (with a limited number of firms receiving the RFP, the number of people with access to this information can be limited and monitored).

The two-stage RFP process involves an initial stage that screens potential partners. Generally, this first stage involves the issuance of a Request for Expressions of Interest (RFEI) or a Request for Qualifications (RFQ). This screening allows the project team and the evaluation committee a chance to consider a wide range of proponents initially and then to narrow the field to those most qualified.

Request for Expressions of Interest (RFEI)

The RFEI is intended to provide the promoter with sufficient information to draft a clear RFP in cases when the local government has identified its objectives, but may not have fully defined the project or service to be delivered. The use of an RFEI can assist in two ways:

◊ it reduces the time and expense involved in evaluating a larger number of proposals; and
◊ it improves the quality of proposals.

In this sense, the RFEI is used to gain information to help in drafting the RFP.

Request for Qualifications (RFQ) or Pre-qualification

A RFQ is used in situations where the promoter and the project team have amore defined project, but do not know if there are any private sector partners with the resources, experience or interest to undertake the project. It is a step within a contract awarding procedure in which the party inviting the tenders selects the companies to participate in competitive bidding for the contract. To this end, potential participants in the competition are requested to submit information on their companies.

The RFQ document is more specific than the RFEI document. In traditional government procurement it consists of the verification of certain formal requirements, such as adequate proof of technical capability or prior experience in the type of PPP, so that all bidders who meet the pre-selection criteria are admitted automatically to the tendering phase. Bidders should be required to demonstrate that they possess the professional and technical qualifications, financial and human resources, equipment and other physical facilities, managerial capacity, reliability and experience necessary to carry out the project.

Qualification requirements should cover all phases of an infrastructure project, including financing, management, engineering, construction, operation and maintenance, where appropriate.
Based on the pre-qualification results, a shortlist is drawn up of the companies eligible to compete. The bidders answer the RFQ with Expressions of Interest.

The RFQ process is used as a "shortlisting" method to pre-qualify selected potential partners who will then receive the RFP. It is not designed to gain answers as to how the project will be completed.

Depending on the pre-qualification requirements set out in the documents, different groups of companies will be selected. One recent trend is that pre-qualification requirements laid down by promoters such as local governments have started to include not only the price and quality of the service they wish to procure, but also requests to address poverty, upgrade welfare and/or create employment opportunities. Often the bidding companies need to prove their recent experience with a previous assignment similar in nature and outcomes.

Thus, the purpose of this stage is to enable the contracting authority to formulate its requirements in a manner that enables a final competition to be carried out on the basis of a single set of parameters. Put simply, this is an opportunity to ensure that in the final evaluation, the contracting authority is able to compare "apples to apples" rather than "apples to oranges."

Often local small businesses or community-based organisations are best suited to resolve a particular service delivery problem. In such cases, it is important not to leave them out of the bidding process. One of the means through which this can be achieved is to simplify the tender documents. Obviously, pre-qualification, drafted without taking these potential bidders into account, could serve as an obstacle to the effective and innovative solutions to the existing problems. Meanwhile, the pre-qualifications can still be an effective mean pre-define the bidders for the RFP, when the criteria are correctly specified and weighted according to their value to the PPP project.

Simplification of tender documentation

The system of tender submission should not require too many forms of supporting information, which could be unnecessarily complicated for small businesses to complete satisfactorily. Besides, the administrative burden for smaller businesses in dealing with tender form requirements for government bodies is disproportionately greater and more expensive than for larger companies.

Thus, the tender submission of documentation should be rationalised and simplified as far as possible to make it easier for small contractors to deal with the paperwork involved. However, this simplification of the documentation should not influence negatively the essence of the contract and the contractual obligations.

Levels of competitive bidding

Competitive bidding can take place between local/national entities, or between interested international companies.

National competitive bidding (NCB) is utilised when:

◊ domestic production or construction facilities are available at reasonable cost, are efficient and adequate in terms of prompt delivery;
◊ the government has specifically requested the adoption of local competitive bidding;
◊ the local competitive bidding does not preclude participation by foreign bidders; and/or
◊ the advantages of international competitive bidding are clearly outweighed by the administrative or financial burden involved.

NCB may also be the most efficient and economical way of procuring goods, services or works which, by their nature or scope, are unlikely to attract foreign competition. In this case, the promoter does not expect foreign bidders to be interested because:

– the contract values are small;
– works are scattered geographically or spread over time;
– works are labour-intensive; and/or
– the goods or works are available locally at prices below those of the international market.

Publication of a general procurement notice in international journals is not necessary for NCB, and advertising may be limited to the local press or official gazettes.

For international competitive bidding (ICB), the objective is to provide a wide range of choice in selecting the best bid from competing suppliers/contractors and to give to all prospective bidders adequate, fair and equal opportunity to bid on the goods, services and works which are to be procured. Whenever procurement is being done under multilateral development bank loans, certain requirements are put in place for ICB. In this case, the government must observe certain guidelines in preparing bidding and contract documents and must follow certain procedures in advertising bid invitations and in accepting, opening and evaluating bids. In addition in such cases, draft bidding documents, bid evaluation reports and proposed awards of contract are subject to prior review and approval by the lender according to its stipulated guidelines.

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