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Sector: State Highway  |  Module 2: Work through the PPP process

Bidding - RFP and bid evaluation

Bid evaluation

Evaluation of submitted bids would be carried out by the Procurement & Evaluation (P&E) team using advisors where necessary. The evaluation would follow the pre-determined criteria as specified in the RFP. These criteria should not be changed - doing so would be unfair to bidders and could be seen as favouring a particular bidder. The Independent Monitor should be present for all evaluation meetings.

Smaller, specialist evaluation teams may be formed to analyse specific aspects of the bids, such as the technical and financial components. These teams should be coordinated by the P&E leader. A schedule for evaluating the bids should be set out and each member of the evaluating team should clearly understand their role.

Conforming bids

Bids should be checked to ensure they have met the submission requirements stated in the RFP. This will include that the required sections of the RFP have been correctly completed and that requested documentation and records are included. The requirements may include minimum requirements on the lead member of a bid consortium, such as the minimum equity share. Related to this, restrictions are often placed on changes to the composition of the consortium after the bid has been submitted.

Bids that don’t conform to the minimum requirements would be excluded from further evaluation.

Technical evaluation

When a proposed technical solution is required in the RFP it must be checked against the stated technical requirements, including performance standards. The purpose is to ensure the bid can realistically deliver the project’s output requirements and do so to the required standard.

The P&E technical team should note any questions they have for clarification about each bid. The bidders can be asked to respond to these in writing. In some cases bidders are asked to make a presentation of their bid to the evaluation team. If this is the case all bidders should be allowed present to ensure fairness.

Bids that satisfy the minimum technical requirements or beat the cut-off score would proceed to financial evaluation. Bids that fail to meet the cut-off would not be considered for financial evaluation.

Financial evaluation

The particular focus of the financial bid will have been clearly specified in the RFP, along with instructions for how the financial aspects should be presented in the bid.

The financial components of the bids can be entered into the financial model for the project or into the Financial Viability Indicator tool and analysed against the financial criteria. The bid presentation instructions should be chosen to make it easy for the evaluation team to enter the financial details into the model.

The evaluation should consider the whole-of-life costs or payments in the bid. Net Present Value should be calculated to enable comparison between bids with different cash flow timing. Most often the bidder making the best financial offer (lowest price, highest concession fee payment etc) would be selected as the preferred bidder.

If a formula approach is being used to assess the technical and financial components together then the financial bid would usually be converted to a standardised score so that it can be combined with the technical score.

Reality check – Speculative bids

Financial bids should be subjected to a reality check to test for speculative bids. The purpose of a competitive bidding process is to incentivise bidders to make the best offer that they can realistically deliver and seriously intend to provide. Speculative bids short circuit the competitive process and should be rejected as non-conforming.

In a speculative bid the bidder offers a price that is below what they are actually willing to honour. The purpose is to get selected and then attempt to enter direct negotiations and revise the price upward.

Unfortunately, it can be difficult to tell if a bid is speculative. The best guide for the financial evaluation team will be the financial model and the benchmark cost that was developed in the feasibility study. This should provide an indication of a reasonable range of realistic cost savings.

In some cases a bid that is notably lower than the benchmark may be representative of the private bidder’s actual efficiency advantage or willingness to accept a small margin. However, in other cases a financial bid will clearly be unrealistic and can be rejected.

If the evaluation team suspects that a bid is speculative but is unsure it should request detailed project costings and request written clarifications from the bidder on selected financial aspects of the bid. The Sponsor should also reserve the right to award the project to a reserve bidder if the preferred bidder attempts to revise the financial conditions of its bid without due justification.

Value for money

Ideally the bids should also be tested for value for money (VFM) for the public sector. If the PPP has been well prepared and well designed during Phase 1 and Phase 2 then the project should have a good chance of offering value for money. However, whenever possible it is best practice to try to quantify the VFM from the bids.

The VFM indicator tool can be used at this stage. The risk acceptances made in the technical bid and the financial offers are central inputs to the value for money test.

Quantifying VFM is challenging because it requires data on past cost experiences from similar projects to the one being tendered. Ideally there would be a database of previous project costs, both the budgeted costs and the actual costs (including overruns). Building such a database should be a goal of PPP Sponsors and related authorities (such as PPP Cells). However, currently there may be limited data available.

The VFM Indicator tool has been designed to illustrate the range of possible VFM outcomes and highlight the uncertainty in the test. Even in developed countries where data is available there is uncertainty in VFM tests. The P&E team must judge the likelihood of VFM in the particular project using a mix of qualitative and quantitative factors.

 

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