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01 鈥� Introduction

European regulations governing procurement of works, supplies and services are a well established part of the project management landscape. In many quarters, however, they are viewed as an obstacle to be worked around rather than as a tool to improve project delivery.

Many smaller firms in particular believe that, in the case of single appointments, the pre-qualification process eats up resources and the assessment might discriminate against them. Furthermore, many participants in tender competitions are concerned about how selection criteria, such as design quality, are dealt with objectively.

With updated regulations now in force in the UK, greater openness resulting from freedom of information legislation and a simplified appeal process, never before has public sector procurement been open to such wide scrutiny. As a result, whether clients like it or not, they must manage their selection processes proactively, rather than treating them as a bureaucratic exercise.

Most companies bidding for public sector work will encounter the formal procurement process. However, it is the more complex projects 鈥� often involving a combination of works and services and requiring a lifetime assessment of cost, value and risk 鈥� that create real challenges in the design and management of the assessment procedure. For example, ensuring it can provide the necessary rigour and public accountability.

In providing this overview of best practice, we examine the key features of European Procurement Regulation, the changes introduced in January 2006 and the principles of effective process administration. A case study based on a public-private partnership project illustrates the key principles.

02 鈥� The regulatory environment

Public-sector procurement of works, services and supplies is governed under European Directive 2004/18/EC. The directive came into effect in the UK in January 2006. The regulations apply to national and local government departments, as well as government-funded agencies. Similar forms of regulation apply to private sector utility companies and other regulated industries, such as civil aviation.

Public sector procurement policy is a key element of the EU鈥檚 drive towards an open and competitive pan-European marketplace. The objectives behind the procurement rules are:

 

• To promote an efficient, non-discriminatory selection process
• To treat applicants on a fair and equal basis
• To achieve value for money
• To achieve transparency and accountability for bidders and for the awarding authority鈥檚 stakeholders.

Given that the same rules apply to complex requirements, such as the procurement of a PFI hospital, and simple transactions, such as separate professional appointments for design services, it is inevitable that most of the process has to be defined by the client, often termed the purchasing authority. As a result, there can be variations in the way assessments are carried out, potentially providing grounds for complaint by bidders.

Directive 2004/18/EC sets out the following key aspects of a selection process:

 

• A set of principles that can be applied to a range of procurement scenarios, from an open single-stage competition for a fully designed works project to a complex competitive dialogue for a works and services project, where outcomes are not defined at the outset.
• The basis on which an award can be made, either lowest cost or most economically advantageous tender, including the requirement to publicly state the criteria on which the assessment and award will be made.
• A series of processes to meet the needs of modern procurement.
• The introduction of further rights for candidates to be notified of details of the tender assessment.

Managed well, the process should ensure that effective decision-making takes place. However, there is potential for a disproportionate degree of complexity in the assessment of simple procurement processes. Furthermore, as the selection criteria used and their weighting could affect the outcome of the procurement, it is important that they properly reflect all the requirements of the project to avoid the chance of attracting a non-compliant bid. Since the introduction of changes to a project definition to address non-compliance could trigger the rerun of the procurement process, getting this right is essential. Furthermore, selection criteria should be weighted so no single item in the assessment dominates.

03 鈥� Why effective public sector procurement matters

Public sector construction spending, excluding professional fees and VAT, totals about 拢33bn, 31% of the total spent on construction in the UK. In addition to direct public sector spending, a significant proportion of private sector expenditure, related to PFI, PPP and so on, is also derived from public sector procurement.

As a result of the Achieving Excellence programme, and other government-driven initiatives such as the National Change Agent programme for the procurement of capital works for social housing, procurement routes and tendering processes have become increasingly complex. They take into account a wide range of factors including:

 

• The potential for procurement of works, services and supplies on single projects based on arrangements such as Lift
• The consolidation of client demand through the use of consortiums
• The procurement of portfolios of projects such as English Partnerships鈥� London Wide Initiative
• The consideration, on an increasing number of projects, of multiple dimensions of performance and value, with a corresponding increase in the sophistication of the assessment process
• The appointment of consortiums as special purpose vehicles to deliver projects jointly, rather than through single appointments.

The importance of procurement in the overall project process is underlined by the fact that the completion of the tender stage triggers a project鈥檚 Office of Government Commerce Gateway Review 3 Investment Decision. This, among other factors, is concerned with ensuring that:

 

• Statutory and procedural requirements have been followed
• The contract decision delivers the expected benefits and value for money
• The agreed procurement strategy is being followed.

04 鈥� Key changes introduced in the 2004 regulations

The major change introduced in the 2004 update of the directive is the merging of procurement requirements for works, services and supplies.

While it has always been possible to procure projects that involve combinations of capital and revenue spend, the introduction of the single procedure simplifies this aspect of regulation.

Other important changes include:

鈥� The encouragement of e-procurement. Depending on the procurement option selected, use of electronic contract notices and electronic access to project information can reduce the minimum duration of the procurement process by up to 12 days. The regulations also allow for a final e-auction stage after tender appraisal, although a complex real-time scoring system might be needed when assessing a bid on the basis of most economically advantageous tender. This would enable participants to assess the effect of changes to their financial bid on their overall project standing.

鈥� Competitive dialogue. This process was used on the appointment of the Olympic programme management role. It has now been introduced to facilitate the procurement of complex requirements where, at the start of the procurement process, the client is unable to fully define the means of meeting their requirements and also can not objectively assess any proposed solutions. The key characteristics of the competitive dialogue are:

 

• Candidates are directly and individually consulted as to how the client鈥檚 needs might be met
• Candidates鈥� proposals are treated equally and confidentially during the negotiation
• The dialogue is aimed at progressively reducing the number of solutions on offer until a final stage, where formal bids are invited from the remaining candidates. The final stage is the equivalent of a conventional restrictive procedure, with a financial and technical assessment.

Other changes to the regulations that take into account modern procurement include:

鈥� Frameworks, with fixed award criteria determined at the outset

鈥� Dynamic purchasing 鈥� an electronic 鈥渄rawdown鈥� system, operated only on the basis of the 鈥渙pen鈥� tender.

Further refinements to the regulations that have an effect on assessment processes include:

 

• The publication of bid assessment weightings
• Better guidance for use with performance specifications
• Mandatory exclusion from the process for persons previously found guilty of fraud, corruption or organised crime.

Another major change in the process, originated by the Office of Government Commerce (OGC), is the mandatory standstill period. Tenderers have the right to review, challenge and potentially set aside contract awards and the OGC has introduced the standstill period to allow time for the debrief and potential challenge.

During this period, typically lasting 10 calendar days, commencing on the issue of a notice of intent to award a contract, tenderers are entitled to a debrief and have the right to issue a claim for a set-aside ruling in a UK court. Although the claim itself is insufficient to cause an award to be set aside, the OGC has advised clients to await the outcome of a challenge, irrespective of its chances of success.

05 鈥� Effective administration of the procurement process

Effective application of the regulations and the management of the procedure is an increasingly important aspect of project delivery.

Given the risks to project programmes, government clients are understandably concerned that the process should be demonstrably accountable, in case a decision is challenged.

The project management team must ensure, within the constraints of public accountability, that the best-value bid is identified and secured. In achieving this, the following are some issues that must be addressed:

鈥� Engaging the full range of project stakeholders in the assessment process. This involves getting the stakeholders to define their requirements and to assess the bid responses. The main challenges are to achieve a consistent approach between stakeholders, and to ensure that stakeholders focus specifically on their area of expertise and on the business requirements, rather than a wider set of needs and wants

鈥� Describing the business requirements at different stages in the procurement process (contract notice, invitation to tender/negotiate) in such a way that:

 

• The focus is on business requirements
• A balance between brevity and detail is achieved so that a technical assessment can be made without constraining the tenderer鈥檚 ability to introduce technical innovation
• Errors or omissions in the business requirements that could compromise the procurement are avoided.

鈥� Selection of the optimum procedure and selection process to enable the procuring authority to obtain the best value solution. On most projects, this would be concerned with the selection of an open, restricted or negotiated process, together with the decision on whether to select on the basis of lowest tender or most economically advantageous tender

鈥� Careful adherence to the official procedures, including time limits, notices, debriefing and so on

鈥� Use of established best practice for the operation of the assessment process including:

 

• Relevant information capture requirements
• Criteria weightings
• Scoring schemes.

鈥� Documentation of the process to support debriefing and management of disputes. Information on procedures, forms and outline guidance on their completion can be obtained from the EU鈥檚 official portal www.simap.eu.int. However, the design of the assessment scheme and procedure is up to the procuring authority.

Notices issued in connection with the procurement procedures are published either in the supplement to the Official Journal of the European Union (OJEU) or in the online version, Tenders Electronic Daily.

It is essential that contracting authorities ensure their notices are accurate and fully reflect the intended works, as correction could cause delay, or in the worst case, could trigger legal action.

06 鈥� The assessment process: pre-qualification

The restricted procedure is most commonly used in construction procurement, as it allows the assessors to focus their efforts on submissions by capable and compliant bidders.

It has two stages: pre-qualification and tender. Negotiated procedures also include a pre-qualification stage.

Requests for pre-qualification are made by responding to a published contract notice. The requests should not be subject to any assessment and all those who make them should receive a pre-qualification questionnaire (PQQ).

From the perspective of the client, the objectives of pre-qualification are to:

 

• Select the candidates best able to deliver the project in accordance with the procuring authority鈥檚 prioritised objectives
• Ensure that organisations on the shortlist have the capability, track record and resources to deliver the project
• Ensure that the shortlisted candidates fully understand the scope of the work, services and supplies required.

One common complaint of the pre-qualification process is it is over-bureaucratic and that it favours larger organisations that have the resources to complete large numbers of PQQs and the experience and track record needed to satisfy most clients. Where the project is low risk and of a simple nature, the pre-qualification requirements should reflect this to encourage a diverse shortlist of candidates.

The aim of pre-qualification is to arrive at a shortlist of tenderers that are all equally capable of delivering the project.

The assessment should only be undertaken using the following criteria: financial standing, technical ability, resources and legal compliance.

In order to manage the assessment workload and to ensure that the pre-qualification process is demonstrably fair, a phased assessment process should be followed. A typically hierarchy of assessment is as follows:

Stage 1: Evidence of technical capability to deliver the full extent of the contract. This is assessed on a simple yes/no basis

Stage 2: An assessment of economic and financial standing. Technical review of accounts, finance ratios and value of the project relative to others in the tenderer鈥檚 portfolio. Evidence of prohibited activity such as convictions for fraud. A pass at Stage 2 is achieved if all criteria are met

Stage 3: Technical capability. A quantitative and qualitative assessment of staff and technical resources, the proposed team, relevant experience and management systems. This assessment will apply to all aspects of a project, including design, construction, operation and management of the consortium and of the client relationship.

Analysis should be based on numerical scores set against ranked criteria. Under the system, any tenderer whose combined score exceeds a target threshold is judged to be capable of delivering the project

Stage 4: Final shortlisting. The final assessment involves the ranking of qualifying candidates on the basis of scores against value-added project criteria such as the readiness of the team, the understanding of requirements and the team鈥檚 record of problem-solving and innovation. This enables the final shortlist of candidates to be determined in an objective and accountable way.

As all participants to a pre-qualification are entitled to a debrief, it is advisable to keep the assessment process as simple and objective as possible. There may be some merit in holding briefing meetings and interviews for more complex projects, but the interviews should only occur in the later stages once the number of candidates has been substantially reduced.

07 鈥� The assessment process: tender appraisal

The second stage of tender appraisal commences with the issue of an invitation to tender (ITT). As well as being accompanied by the full range of tender and contractual documentation, the ITT also defines the basis on which the tenders will be assessed.

For tender competitions based on lowest price, the assessment is simple, involving the confirmation of technical compliance, resolution of bid qualifications and financial appraisal. However, government clients are increasingly focusing on integrated solutions (design, construction, operation and service provision). As a result, the use of multi-criteria assessment, which identifies the most economically advantageous tender, is becoming more common.

The appraisal of tenders sought on this basis will cover a range of headings including whole-life cost, financial and legal compliance, design, management, innovation and bidder-specific risk.

The objectives

Irrespective of the route adopted, the objectives of the tender submission assessment are:

 

• To identify candidates that the client can be certain are capable of delivering the full technical and contractual requirement
• To identify the most suitable bid in accordance with the stated criteria
• To carry out an objective assessment that is consistent across technical disciplines and across bids
• To be able to demonstrate fairness and transparency in the assessment process.

Success factors

Completion of an effective evaluation is dependent on the quality of the bid submissions, the relevance of the assessment criteria and the ease of marking.

Furthermore, bids must be assessed in relation to the client鈥檚 requirements, not in relation to one another. On this basis, success factors for a successful evaluation system include:

 

• Well defined deliverables, represented in bids in a structured format so that a confirmation of completeness and a like-for-like assessment can be made
• A fully documented appraisal system setting out the methodology used, allocating responsibility so that a consistent approach is adopted by the appraisal team
• Evaluation criteria that relate specifically to business needs, such as quality, management, delivery and innovation
• Active management of stakeholder technical assessors to ensure that assessments are carried out effectively
• Calibration of weightings so that one criteria is not over-emphasised at the expense of others
• Clear qualitative scoring systems that reduce opportunities for subjective assessment by focusing on compliance with client requirements
• Scoring systems that ensure the preferred solution meets the basic functional requirements and the budget, as well as performing well against other criteria. Innovation and over-compliance should only be rewarded if it relates to business need
• Scoring systems that provide some indication of value for money by comparing quality and lifetime benefits with whole-life costs
• A mechanism for dealing with 鈥渟howstoppers鈥� at any stage during the assessment so that problems can either be resolved quickly or a tender can be withdrawn.

The final assessment will be based on the total point scores. While technical aspects of a bid can be marked on a notional scale, incorporation of a whole-life cost dimension, even when included as part of the weighted solution, presents a number of procedural difficulties 鈥� not least achieving of a balance between the cost and technical scores in the final assessment.

Alternative approaches to assessing cost

Alternative approaches include:

 

• Weighting overall cost as one of the general project criteria and establishing 鈥渆xceed budget鈥� as a showstopper
• Calculating a value index by dividing net present cost by the total technical score.

This method allows a simple cost benefit analysis to be completed 鈥� pointing towards the optimum balance between technical excellence, lifetime cost and end-user defined value.

Adherence to the defined process should help ensure that the best-value solution is identified and furthermore can be appointed without the risk of challenge, delay and potential set aside. Upon completion of the assessment, all respondents to the original contract notice must be informed of the results.

If a contract award is made, the mandatory 10-day standstill period must take place before the execution of the contract. Should no challenge be received, the contract can be signed. The procurement process itself is concluded by the issue, within 48 days of contract execution, of a contract award notice.

08 鈥� Case study

This case study concerns the procurement of works and services for the design, construction, operation and maintenance of a built facility on behalf of a government client. The project involved the design, operation and maintenance of a facility together with 15 different service lines related to the operational requirement. The capital expenditure of the project is about 拢70m and the net present cost of the operation of the facility over a 25-year life is about 拢350m.

The bid assessment was designed to support the selection of the most economically advantageous offer. The overall objective of the evaluation process was to support a consistent process, ensure transparency and objectivity, determine the most suitable bidder to proceed to a final negotiation and, through the formal assessment system, provide feedback to all bidders.

The multidisciplinary appraisal team represented 20 disciplines, each with its own set of stakeholders and deliverables. Assessment and stakeholder management was a key part of the project management service offered.

An evaluation process guide was prepared, setting out the basis of the evaluation, the process, team, programme and the selection strategy. This document became the key control document for the appraisal process.

An invitation to tender (ITT) was sent to suppliers who had pre-qualified on the basis of an assessment of technical capability, financial stability, contractual compliance and commercial competence. The ITT package included a high degree of contact with the procuring authority to ensure that the tenderers understood the requirements, together with specific workshops designed to enable bidders to discuss their technical, legal and financial proposals. After submission of the bids, the tenderers would be given a series of opportunities to present their proposals during the evaluation period.

In evaluating the bids, the key criteria identified by the authority were whole-life costs, design (of the service delivery, as well as the physical facility), quality, delivery, management, innovation and supplier-specific risk. While cost was evaluated on the basis of hard cost, other aspects of the bid were assessed against weighted criteria of design, quality, delivery, management and innovation. Design of the overall operational solution received the highest weighting of 30%.

A further concern of the assessment team was the relationship of the construction stakeholder and the rest of the consortium, to ensure that the proposed solution was properly managed, integrated and 鈥渙perationally led鈥�, and that the capital works would not have a negative effect on whole-life value.

Scoring of each technical criterion was based on a scale of 0-5, where 0 meant no compliance and 5 was a premium representing significant and relevant over-compliance.

Guidance was given to the assessment team to encourage the consistent interpretation of each scale value. Critical success factors spelling out the requirement encouraged consistent appraisal by defining 鈥渨hat good looks like鈥�.

Tenderers were given a detailed list of deliverables with guidance as to what was required in each section of the tender submission. Sections of each tender submission were given to specific groups within the evaluation team. A management structure and programme was put in place to provide clear direction to the team. This included task descriptions for each evaluator, an assessment panel to adjudicate queries from the assessment teams, and a group of lead evaluators. Processes were also put in place to deal with tender queries, variant bids, bid-specific risks and so on.

The overall period of assessment, including the preparation of a report, took a little over three months, including the completion of a report recommending that the client should finalise terms with the preferred tenderer.