Module 10 Organizing Procurement

1. Module 10 Organizing Procurement Session 10.5 Procurement of Services: Evaluation Criteria and Selection Procedures for Procuring Consultant Services

2. Instructional Objectives At the end of this lesson, the learners will be able to • Design a transparentprocess for selecting consultants using either (a) quality or (b) quality and cost criteria. • Describe the process of preparing to negotiate with a service provider.

3. 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

4. Qualifications of Staff • General qualifications and education • Experience directly relevant to the proposed assignment • Language fluency • Local knowledge • Training experience

5. 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

6. 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

7. 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

8. 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

9. Letter of Invitation • States intention • Source of funding • Date and time for submission • Address for delivery of proposal

10. 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

11. 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)

12. Terms of Reference • Include in proposal • Include blank proposed contract • Consider using standard and comprehensive forms published by international development institutions

13. 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.

14. Evaluating Proposals with Quality CriteriaSample Criteria Qualifications and experience of firm Type of assignment/ weight Methodology and work plan Individual staff qualifications Total points Technical assistance and training Preinvestment and feasibility studies Engineering design Implementation and supervision 10-15 10-20 75-80 100 15-20 30-35 50-55 100 25-30 25-30 40-50 100 10-15 20-25 60-70 100

15. 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.

16. Evaluating Individuals with Quality CriteriaSample Worksheet Assignment: Country: Project: Date of Evaluation: Name of Firm: Evaluated by: .80 24 .90 36 1.0 30 90

17. Evaluating Proposals with Quality CriteriaSummary Worksheet Assignment: Country: Project: Date of Evaluation: Evaluated by: ABC Consultants Wgt. .10 80 8 .20 90 18 .70 70 49 75 1.00

18. FIRM A FIRM B FIRM C FIRM D FIRM E Evaluating Proposals with Different Technical/Price Ratios

19. 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

20. 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.

21. Evaluation Based on Quality and Cost (Method 2) • Use a two-stage process. • Evaluate quality first (as above). • Evaluate cost second.

22. 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.

23. 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.

24. Evaluation Based on Quality and Cost—The Process (#3) • 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

25. Evaluation Based on Quality and Cost—The Process (#4) • 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.

26. 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

27. 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.

28. 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.

29. 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.

30. Module 10 Organizing Procurement Session 10.5 Procurement of Services: Contracts and Negotiations

31. 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

32. 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

33. 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

34. 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

35. 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

36. Best “Bets” for Most Projects • Time-based contract • Lump-sum contract

37. 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

38. The Consultant Contract: Possible clauses (2) • Rates for additional work • Payment procedures • Audits • Taxation • Termination • Local law

39. The Consultant Contract:Possible clauses (3) • Liability • Insurance • Settlement of disputes • Penalties, performance bonds, and guarantees

40. The Consultant Contract: Annexes • Terms of reference • Performance schedules • Cost estimates • Terms of payment • Lump sum • Monthly rates • Reimbursables

41. Contract Negotiations • Procurement should focus onquality 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.

42. 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.

43. Order of Negotiations • The methodology or work plan • The proposed staffing • Financial conditions • Contract

44. 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

45. 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.

46. 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

47. 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

48. 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

49. 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

50. 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