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

Bidding - RFP and bid evaluation

Evaluation criteria

The criteria for evaluating conforming bids will have been stated in the RFP. The criteria would usually focus on:

  • Technical: The feasibility and standard of the proposed technical solution, covering the way in which the specified service outputs would be financed, produced, managed and delivered
  • Financial: The proposed whole-of-life cost or payment in the financial proposal
  • Acceptance by the bidder of the risk allocation in the Draft Concession Agreement

The financial component will often be the main criteria for assessing RFP responses. In these cases the technical component of the bid is used as a compliance test, to ensure the minimum requirements of the technical specification have been met.

In some cases, in particular highly complex or first-of-kind projects, a detailed technical proposal would be required and would form a part of the final evaluation.

In other cases, a technical component will not be required at the RFP stage and the financial bid will be the sole selection criterion. This is often the case in the roads sector.

Technical evaluation

The technical evaluation would usually be carried out first as a form of pass/fail test. Only the bids that meet specified minimum technical criteria or beat a cut-off score would continue to the financial evaluation.

It is best if the criteria or cut-off score are pre-determined, so as to avoid the appearance of any bias for or against particular bids at the evaluation stage.

The minimum cut-off criteria would specify certain standards that must be met. Bids failing to meet these standards would be rejected. If a minimum score approach is used bids would typically have scores placed on individual technical aspects and these would be combined to arrive at an overall technical score that can be compared against the cut-off. The relative weightings on different aspects of the bid would vary depending on their importance to the particular project.

The minimum technical requirements would be based on the output requirements and the technical evaluation from the feasibility study and would be specific to the particular project.

The evaluation criteria and weightings for scoring technical bids should be determined when the RFP is written. The formula should be stated in the RFP to show the bidders a broad idea of how they will be evaluated and to indicate that the evaluation will be based on a systematic approach.

However, the detailed weightings need not be stated in the RFP as this can distract bidders from a focus on the overall solution to providing the infrastructure need.

The technical evaluation should take account of the degree of flexibility built into the proposed technical solution. The extent to which the solution can be made flexible will depend on the particular project. However, since the life of a PPP is typically long and changes can occur over this time period, inbuilt flexibility is a distinct advantage and should be noted at the evaluation stage.

The technical evaluation criteria should also consider the proposed approach to managing the PPP, such as the structure of the proposed operating company.

Financial criteria

Typically the financial bid criteria would focus on one or a combination of the following, depending on the nature of the project:

  • Price to be charged to users of the service
  • Price or payment to be charged to the public sponsor or to the users for provision of the service. This may be:
    • On a per-unit basis (eg, a shadow toll in a roads project)
    • As an ongoing lump sum payment (eg, an annuity)
    • As an ongoing fee based on performance (performance fee)
    • Upfront in the form of a grant
  • Price or payment to be paid to the public sponsor for the right to provide the service. For example, a negative grant, revenue share (as is common in ports projects), license fee etc.

It is common to take the net present values of the financial offers so that they can be compared like-for-like. Whatever the financial criteria, it should be specified in the RFP and must be common to all bids so that bids can be compared.

Final evaluation

The final evaluation may then be based on:

  • The financial bid alone using a pre-specified criterion. This would commonly be the case in India.
  • A weighted combination of the technical and financial bids using a pre-determined formula – for example for highly complex or first-of-kind projects.
  • Value for money

The final evaluation will often focus solely on the financial terms of the bids that made it past the technical cut-off. This is best suited to projects where the technical side is fairly standard and the Sponsor’s primary concern is price.

In other cases a weighted approach may be used, which has the advantage of explicitly taking account of differences in the quality of the technical bids. This may be preferred if the technical aspects of the project are non-standard. If a weighted formula is to be used the weights on the technical and financial parts and the approach to scoring the financial component should be specified in the RFP.

Ideally the technical and financial aspects of the bids will be used to test the value for money to the public sector. Value for money (VFM) is the critical test of a PPP: it combines a ranked assessment of the bids with a final test of whether the PPP is a better deal for the public sector than traditional public provision. The VFM test is discussed further in the next section on Bid Evaluation.

 

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