Module 10 Organizing Procurement

Module 10 Session 10.5 Visual 1

Module 10

Organizing Procurement

Session 10.5 Procurement of Services: Evaluation Criteria and Selection Procedures forProcuring Consultant Services


Instructional Objectives

At the end of this lesson, the learners will be able to

Design a transparent process for selecting consultants using either (a) quality or (b) quality and cost criteria.

Describe the process of preparing to negotiate with a service provider.


Method 1: Selection Based on Quality

Based on nonquantifiable attributes Opposite of procurement of civil works that

have quantifiable attributes Selection process should be criteria based

Quality of principle staff proposed Approach and methodology proposed Experience and breadth of firm


Qualifications of Staff

General qualifications and education Experience directly relevant to the proposed

assignment Language fluency Local knowledge Training experience


Work Plan Considerations

Understanding of objectives

The methodology proposed

The breadth of the head office support

The degree of innovation proposed

The specific work program

The extent to which technology would be transferred during the assignment


Criteria for Evaluating the Firm’s Experience

The capacity to carry out the assignment Recent experience with similar projects Experience in similar areas and under similar

conditions Criteria and weights should be agreed upon by

staff before RFP is issued. Include criteria and weights in letter of

invitation


Method 2: Selection Based on Quality and Cost

Quality criteria plus cost factored in

Only use cost judiciously

Principle emphasis should be on quality

Weights for complex assignments 90/10 ratio of quality to cost recommended Never have ratio lower than 70/30 quality to cost

Weights for routine assignments Recommended: 85/15


The Request for Proposals (RFP)

Letter of Invitation

Information to Consultants

Terms of Reference for the assignment

A blank proposed contract

Criteria for evaluation of proposals


Letter of Invitation

States intention

Source of funding

Date and time for submission

Address for delivery of proposal


Letter of Invitation (continued)

Selection process and evaluation criteria Estimate of consultant inputs (cost estimates) Financial information for negotiations Conflict of interest clause Names of invited consultants Transfer of skills program Attachments Site visits Bidders’ meetings


Information to Consultants

Necessary information for preparing proposals

Make process of selection transparent

Clarify evaluation criteria for selection Factors Weights Minimum passing score

Level of effort envisioned (man months)

Validity period of proposal (60-90 days)


Terms of Reference

Include in proposal

Include blank proposed contract

Consider using standard and comprehensive forms published by international development institutions


Evaluating Proposals with Quality Criteria (Method 1)

Use a small, in-house team.

Use pre-established criteria and weights.

Criteria should be developed within the client organization.

Criteria should be understood and accepted by the team.


Evaluating Proposals with Quality Criteria

Sample Criteria

Qualifications

and experience

of firm

Methodology

and work plan

Individual staff

qualifications

Total

points

Type of assignment/weight

Technical assistance

and training

Preinvestment and

feasibility studies

Engineering design

Implementation

and supervision

10-15

15-20

25-30

10-15

10-20

30-35

25-30

20-25

75-80

50-55

40-50

60-70

100

100

100

100


Evaluating Proposals with Quality Criteria—The Evaluation Process

1. Determine if substantially responsive to RFP.

2. Identify any reservations.

3. Identify statements that need special attention.

4. Start individual evaluations.

5. Everyone should use the same worksheet.


Evaluating Individuals with Quality Criteria

Sample Worksheet Assignment:Country:Project:

Date of Evaluation:Name of Firm:Evaluated by:

.80 24 .90 36 1.0 30 90

Consulting firm Project Sheet No. Country: Date:

General Qualification

Total Points: 30

Adequacy for Project

Total Points: 40

Language and Experiencein Region

Total Points: 30

Personal Rating Group Rating

Group(A)

Position(B)

Name(C)

Age(D)

Rating*(E)

(E) x (Points)= (F)

Rating*(G)

(G) x(Points)= (H)

Rating* (I)

(I) x (Points)= (J)

(F) + (H) + (J)= K

(K)

1.

2.

3.

4.

* Rating is expressed as percentage or fraction of 1.


Evaluating Proposals with Quality Criteria

Summary Worksheet

Firm1. 2. 3. 4. 5. 6.

Item Points* Scoring Rating Scoring Rating Scoring Rating Scoring Rating Scoring Rating Scoring Rating

References

Adequacy of proposedMethodology

Qualifications ofProposed Staff

Total Score

Staff Months Local

Staff Months in Field

* Expressed as percentage or fraction of 1.

Assignment:Country:Project:

Date of Evaluation:Evaluated by:

ABC Consultants

.10

.20

.70

80

90

70

8

18

49

75

Wgt.

1.00


Evaluating Proposals with Different Technical/Price Ratios

TECHNICAL PRICE (HIGHEST SCORE WINS)A B C D E F G H I J K L

TECHNICALSCORE

TECHNICAL SCORE WITHTECHNICAL WEIGHT

WEIGHT: 90 80 70

PRICE ASSUBMITTED(MILLIONS

OF US$)

ADJUSTEDPRICE (A)

ADJUSTED PRICE WITHPRICE WEIGHT

WEIGHT: 10 20 30

TOTALSCORE AT

(B)

90/10 80/20 70/30

92 82.8 73.6 64.4 1.00 70.00 7.00 14.00 21.00 89.90 87.6 85

90 81.0 72.0 63.0 0.85 82.35 8.23 16.46 24.69 89.23 88.46 87

85 76.5 68.0 59.5 0.73 95.89 9.59 19.18 28.77 86.09 87.18 88

78 70.2 62.4 54.6 0.70 100.00 10.00 20.00 30.00 80.2 82.40 84

67 60.3 53.6 46.9 1.10 63.64 6.36 12.72 19.08 66.56 66.32 65

(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii)

NOTE (A) ADJUSTED = LOWEST PRICE PRICE X 100… EXAMPLE: ADJUSTED PRICE OF CONSULTANT B SUBMITTED PRICE (B) COLUMN (x) = (ii) + (vii) = 0.70 (xi) = (iii) + (viii) X 100 = 82.35 (xii) = (iv) + (ix) 0.85

FIRM A

FIRM B

FIRM C

FIRM D

FIRM E


Consultant Comments on TOR

Consider on their merit

Review carefully (do not automatically reject)

Provide benefit of consultant’s expertise

Level of consultant understanding is potential measure of competency


Evaluating Proposals with Quality Criteria—Committee Review Process

Committee convenes after individual reviews

Individual evaluations and scores are compared.

Determine the best proposal.

Rank order the other proposals.

Prepare an evaluation report on the proposals.

Preserve all records for transparency.

Notify consultants of results.


Evaluation Based on Quality and Cost (Method 2)

Use a two-stage process.

Evaluate quality first (as above).

Evaluate cost second.


Evaluation Based on Quality and Cost—The Process

Evaluate quality.

Notify consultants who failed. Either did not meet minimum qualifying mark

for quality Or were not responsive

Return their financial proposals unopened.


Evaluation Based on Quality and Cost—The Process (#2)

Notify consultants who qualified of date and time set for opening of financial proposals.

Open financial proposals in public.

Read aloud and record the following: Name of consultant Quality scores Proposed costs

Prepare minutes.



Client reviews financial proposals Correct arithmetical errors.

Convert to single currency (per RFP).

Use official exchange rates (per RFP).

Date for setting rate should be set in RFP. Not earlier than four weeks prior to deadline for

submission Not earlier than original date of expiration of

period of validity of proposal



Cost should exclude local taxes. Lowest cost proposal gets financial score of

100. Weight financial and quality scores. Firm with highest total combined score is

invited for negotiations.


Summary

Selection of consultants primarily judgmental

Two basic ways to select Quality criteria alone Quality + cost criteria

Cost alone should never be used for selection


Summary

Method 1: Quality selection process

Client issues RFP.

Firms prepare and submit proposals.

Client uses pre-established criteria and weights to evaluate.

Individual reviews followed by group review.

Single overall score given each proposal, and firm with highest scoring proposal invited for negotiations.


Summary

Method 2: Quality + cost selection process

Quality process plus

Eliminate proposals below a quality cutoff.

Return unopened financial proposals of nonqualifiers.

Open financial proposals of qualifiers in public.


Summary

Quality + cost selection process (continued)

Review financial proposals for accuracy and convert to common currency.

Give lowest bidder score of 100.

Add financial and quality scores.

Highest overall score wins.

Invite winning firm to negotiations.

Transparency is important for both methods.


Module 10

Organizing Procurement

Session 10.5 Procurement of Services: Contracts and Negotiations


Types of Contracts for Service Providers

Time inputs (may or may not include reimbursable expenses)

Lump sum (may or may not include reimbursable expenses)

Cost-plus fixed fee Retainer with or without contingency


Time Input Contracts

Rate X Time Monthly Weekly Hourly

Should have a maximum amount (ceiling) with contingency

Payment based on inputs, which encourages quality work

Client administration required Considered flexible and fair and widely used


Lump-Sum Contracts

Payment based on output Fixed payment for delivery of product or

service within a specified time period Should include contingency allowance Easier to manage than time-based

contract Appropriate for well-defined services with

clear TOR Convenient for repeat assignments


Cost-Plus Fixed Fee Contracts

Special type of contract for “know-how” Includes licensing fee (as for a patented

industrial process) Cost + Fee (for know-how) Also appropriate when inputs/outputs not

clearly defined


Retainer and/or Contingency Fee Contracts

Not commonly used except for management consultants and legal firms

Retainer fee = number of days of effort over a fixed time period

Must pay retainer even if less effort required


Best “Bets” for Most Projects

Time-based contract

Lump-sum contract


The Consultant Contract: Possible Clauses

The nature of the association (for joint ventures)

The procedure for amendments

Staff substitution

Consultant authority

Conflict of interest

Cofinancier’s contribution to cost

Price adjustment

Contingency allowance


The Consultant Contract: Possible clauses (2)

Rates for additional work Payment procedures Audits Taxation Termination Local law


The Consultant Contract:

Possible clauses (3)

Liability Insurance Settlement of disputes Penalties, performance bonds, and

guarantees


The Consultant Contract: Annexes

Terms of reference Performance schedules Cost estimates Terms of payment

Lump sum Monthly rates Reimbursables


Contract Negotiations

Procurement should focus on quality of consultant, not price.

Notifications should be in writing:

Invite in writing representative of winning proposal team to negotiations.

Notify others of negotiations and request they hold their proposal valid.

Consultant team leader should be present at negotiations.


Contract Negotiations (continued)

No contract before meeting between client and consultant

Costs of attending negotiations are borne by consultant.

Client should prepare for the negotiation.

Train staff.

Clarify position and objectives.

Develop strategy.


Order of Negotiations

The methodology or work plan The proposed staffing Financial conditions Contract


Methodology and Work Plan

Client should have evaluated plan during selection process.

Examine consultant’s suggestions for improving the TOR.

Consultant’s suggestions are not part of contract but may be incorporated in the definitive TOR included in contract documentation


Proposed Staffing

Review each key member’s role.

Substitutions must be equivalent or better.

Substitutes must be specifically named.

Review activity schedules for staff (schedule resources).

Agreed staff should not be replaced except for good reason.


Contract and Financial Conditions

Review clauses and terms and conditions.

Modifications must be mutually agreed upon.

Financial negotiations will vary depending upon

If price was a factor in the selection

The type of contract used


Contract and Financial Conditions (continued)

For time-based contracts

Staff inputs usually paid on basis of agreed rates with ceiling

Field work usually paid on staff-month basis

Head office work on a staff-hour or staff-day basis


Time-based Contracts:Typical Clauses

Foreign Currency– Schedule 1. Staff services

– Schedule 2. Staff services in home office

– Schedule 3. Reimbursables Allowances Mobilization/demobilization

– Schedule 4. Foreign currency

– Schedule 5. Foreign currency payment schedule


Time-based Contracts:Typical Clauses (continued)

Local currency Schedule 1. Local staff services

Schedule 2 . Reimbursables Living allowances per diem Local transportation Office costs Other costs

Schedule 3. Local taxes


Calculating Staff Rates

Basic salary Monthly salary

No bonus payments included

Non-negotiable

Social charges Benefit charges (vacation, sick leave, and

retirement)

Result from legislation in consultant’s country


Calculating Staff Rates (continued)

Overhead Administrative and business costs

Range: 65 to 200% basic salary

Fee or profit Gross profit before taxes

Percentage of total basic salaries (10-20%)

Overseas or inducement allowance Hardship allowance

Usually 20 to 60% basic salary


Calculating Staff Rates (continued)

No negotiation of rates should occur during negotiations if price was considered in the evaluation and rates were established in competition.


Reimbursable Costs

Out of pocket expenses incurred in carrying out duties

Reimbursed at cost

Documentation (receipts, invoices) required

Contract should specify what costs are reimbursable and how they will be paid.


Common Reimbursable Costs

Mobilization/Demobilization (airfare, visa)

Subsistence costs

Communications charges

Office rent and supplies/equipment; printing

Insurance costs

Transport of project-related equipment

Surveys and subcontracted services


The End-Product = Contract

A “win-win” contract is the goal!

Negotiations should end with a friendly atmosphere.

Want to establish spirit of cooperation and confidence


Other Procedures for Selection

Fixed budget

Least cost

Consultant’s qualifications

Single source


Selection under a Fixed Budget Conditions when appropriate

Simple assignment Precise and unambiguous TORs Budget fixed

RFP should indicate available budget. Firms submit separate technical and

financial proposals. Evaluate initially on technical merits Open price bids in public Highest technically ranked firm within

budget is invited to negotiations.


Least-Cost Selection

Conditions when appropriate Standard or routine assignments Well-established practices and standards exist Contract amount is small

RFP sets minimum qualifying mark for quality.

Firms submit separate technical and financial proposals.

Evaluate initially on technical merits

Open price bids in public

Least-cost bidder that meets quality mark is invited to negotiations.


Selection by Consultant Qualifications

Conditions when appropriate Small assignments Competitive evaluation not worth effort

Client prepares TOR and requests expression of interest.

Short list established

Most qualified firm is selected and invited to submit a combined technical/financial proposal.

Contract negotiated


Single-source Selection

Does not provide benefit of competition

Only use in exceptional cases Services are natural continuation of firm’s

previous work.

Rapid selection is essential (emergency).

Small assignments

Only one firm is qualified.


Summary Four types of contracts for services

Time Lump-sum Cost plus Retainer

Contract Negotiations Be prepared! Typical order

• Methodology

• Staffing

• Financial conditions and contract


Summary (continued)

Typical clauses in time-based contract Currency Rates Reimbursable expenses

End product of negotiations = “Win-win”

Other forms of selection Fixed budget Least cost Qualifications Single source

Documents

Module 10 Organizing Procurement