Theme2: Tendering

The second theme of this discussion is regarding tendering process.

Our main questions are following:

1. Criteria to evaluate price and quality

In the tendering process of PPP projects, the ‘comprehensive evaluation’ that evaluates both price and quality is generally applied in Japan. For the first subtopic, we want to examine the criteria used during the tendering process:

2. Skills and expertise within the public sector

Section two examines the relationship between experts/specialists and the public sector:

• How should the public sector utilize technical, financial and legal experts during the tendering process? Should they enlist experts from outside or depend solely on in-house specialists?
• During the tendering process, should the public sector organize the committee to include some specialists?

3. Dialog between the public sector and the bidders

In many countries, various kinds of dialog or negotiation process are introduced, such as competitive dialog, interactive dialog in Australia. We would like to look over how these dialogs and negotiation processes can best be managed and made most effective:

• To receive high-quality proposals, how should the public sector conduct talks with the bidders?
• What should the public sector do for securing specialists in the process of the dialog?
• How can the costs and burdens of dialog both for the public sector and the bidders be reduced?

[1] Author: Richard Foster

Organization:

Acting Head, Partnerships Victoria Unit
Commercial & Infrastructure Risk Management Group
Department of Treasury and Finance

Hirohiko Macheda has opened discussion on three important sub-topics concerning the tender process for PPPs. I will provide some comments from a Victorian perspective on each of these separately, starting with sub-topic 2 - Skills and expertise within the public sector.

Hirohiko Macheda’s questions on this sub-topic focus on the use of external experts/specialists. We have found that the significant work required in delivering a PPP is beyond the resource capacity of public sector agencies, and therefore it is necessary to include external legal, commercial and technical advisers as part of the government team during the bidding process. The advantages of using external advisers include:

• Use of external advisers provides more flexible resourcing than would otherwise be possible.
• Time consuming tasks (e.g. contractual drafting) can be outsourced
• however the public sector agency must ensure that what is drafted meets its needs.
• External advisers will often have worked for the public sector on other projects, and hence can assist in integrating lessons learned from previous projects into new projects.
• External advisers will often have also worked for the private sector on other projects, and hence will assist in ensuring public sector is adequately informed of likely private sector views.
• External advisers may have also worked on projects in other jurisdictions
• again, this assists in knowledge transfer and integration of lessons learned.

Despite these advantages, it is important that the public sector retains control of the process and is adequately resourced and skilled to do so. The external advisers’ role should be to provide analysis, advice and recommendations in relation to matters within their expertise, but decision making (acting on that advice) must remain with the public sector. Consequently, the project director must be skilled in managing advisers.

Where appropriate, we do include external advisers on evaluation panels or sub-panels.

[2] Author: Richard Foster

Here are some comments from the Partnerships Victoria perspective on sub-topic 3 - dialogue between the public sector and bidders. Thank you to my colleagues Diana Joslin and Theo Kavouris for their input to these comments.

Partnerships Victoria projects are typically large and complex, with a significant investment required to prepare bids.

An interactive tender process has been applied to recent Partnerships Victoria projects. It provides an opportunity for an appropriate degree of active interface between the state and short-listed tenderers during the tender phase. Individual tenderers have an opportunity to discuss the development of their concepts and designs and to seek clarification and feedback in the context of the state’s output requirements. This opportunity for discussion occurs before tenders are submitted.

Generally tenderers have two ways of obtaining feedback from the state during the preparation of their bids:

1. Tenderers submit questions to the project team in writing, with the project team providing written responses to those questions (Q&A process).
2. Tenderers participate individually in structured workshops and meetings involving the project team and other project stakeholders if necessary.

An interactive tender process is particularly relevant in social infrastructure projects where there is a high level of interface risk because the infrastructure is designed, constructed and maintained by one party (private sector) and operated and managed by another party (public sector). The interactive tender process can be particularly useful in relation to technical and design issues.

Interface risk is commonly a feature of Partnerships Victoria projects in the social infrastructure sector

The primary aim of this process is to improve the quality of the tender submissions and therefore the project outcome. Furthermore, an interactive process aims to:

• expand and clarify tenderers’ understanding of the state’s requirements
• avoid tenderers incurring any significant costs because of a fundamental misunderstanding or misinterpretation
• minimise the need for any re-bid process based on design matters.

The interactive tender process typically involves a series of workshops involving the state project team representatives and the individual private sector tenderers. The workshops are held after the Project Brief is released and before tender submissions. The earlier the technical workshops begin in the design phase of the tender, the better.

As a general rule, a number of workshops (between three and ten) are held with each tenderer:

• technical workshop(s) dealing primarily with design issues: technical workshops can also be broken up into stages (i.e. master-plan, concept design and detailed design)
• service specification workshop(s); and
• commercial clarification session(s) (these are not a chance to negotiate but a chance for the private sector to clarify the state’s position in the Project Brief).

In addition, the state may choose to offer tenderers a presentation on the public sector comparator (PSC) as part of a broader session on the reference project, which would represent the first stage of the interactive process.

The design and the implementation of an interactive process must be led by senior personnel in the team and can be resource intensive. The design and resource intensity of the process is generally a decision for the project team, and is guided by the complexity and needs of the project.

Experience to date suggests that tenderers are deriving value from interactive tender processes. This is because the process provides opportunities for bidders to develop a better understanding of the outcome sought by the state, and to use this knowledge to improve their bids. For the state, value is derived from the higher quality of bids received, and over the longer term, could contribute to lower overall transaction costs.

The interactive process can be streamlined by up-front planning with clear protocols, procedures and ground rules established and understood by participating parties. Once a method has been determined, it should be clearly documented, internally as part of the state’s broader approach to ensuring the integrity of the procurement process, and externally to tenderers, who must also plan their participation in the process. In principle, the protocols to be used in the interactive process should be determined by the state and provided to tenderers in advance of the process commencing. The terms and conditions for an interactive process should be included in the broader set of conditions, rights and obligations to which tenderers consent. It is important for both tenderers and the state project team to acknowledge that the workshops are not negotiation sessions and do not form part of the evaluation process.

[3] Author: Edward Farquharson

As you know the use of competitive dialogue is now the recommended approach in the UK (in line with recent EU procurement directives). The approach is quite similar to that in Victoria and advisors play an important role though that does not obviate the need for good skills in the public sector (sometime a challenge) properly to manage them. For a comprehensive overview of the competitive dialogue process, you might to refer to http://www.p4s.org.uk/documents/ BSFGuidanceNoteonHowtoConductaCompetitiveDialogueProcedure.doc.

It is still fairly early days really to see the impact on procurement costs, timescales and quality of the CD processes and how these differ from the previous negotiated procedure. Under the old process a key elements was to ensure you had as comprehensive and clearly agreed preferred bidder appointment letter in order to avoid reopening of issues or protracted negotiation of new issues. A key feature of the CD process is its restrictions on post preferred bidder interaction.

[4] Author: Hirohiko Machida

I appreciate so much on the precious comments and contribution of Mr. Foster andMr. Farquharson.

There is a growing need for the dialogue between tenders and the public sector.However, some problems are still need to be tackled when we introduce dialogue process to the tendering. In this discussion we obtained comments from both of the two about the advantages and challenges of implementing the dialogue process.

Mr. Foster mentioned the reduction of transaction cost and the improvement of proposals as an advantage of dialogue process. He also pointed out that to encourage efficient dialogue process the procedures of dialogue need to be clarified inadvance bringing about a better understanding about the system among the biddersand that public sectors need to enhance the managerial skills of the procedure.

From the same viewpoint as him, Mr. Faquharson pointed out that the managerial skills of public sector would be important. As he had an experience of NegotiatedProcedures, he told us that public sectors needed to prepare for clear and comprehensive appointment letter in advance and to concentrate on designed topics during the negotiation.

As with other countries, we are also thinking of introducing competitive dialogue (CD) process in Japan. As is indicated in the 2nd Newsletter, "Directors fromPFI Liaison Conference of the Relevant Ministers and Agencies" made an announcement on the competitive dialogue last November. The announcement describes the direction of the government as listed below.
The appropriate projects for dialogue process as these-That is, projects withless period and less cost of the dialogue relative to the transaction cost, projects with heavy weight on facility management such as hospitals and prisons, andprojects which are difficult for public sectors to tell the intention to the tenders.

• Q&A on the documents, workshops and individual meetings could be ways of dialogue. In principle, the contents of the dialogue have to be open to public for transparency except the other participant’s solutions proposed or other confidential information communicated by a candidate participating in the dialogue withouthis/her agreement.
• Appropriate topics of the dialogue include "risk allocation" and "facility design."
  The framework above mentioned is almost the same as the CD introduced in the EUcountries because we believe CD is the most effective way to sort out the optimal solution for the public sector and tenders. As Mr. Farquharson mentioned properly, however, it seems to be too early to judge whether CD is really practical and truly workable for tendering procedure of the PPP/PFI or not.

As the European colleague indicated in PPPI Days 2007, CD is still on the experimental stage. So we have to wait and see.

In PPPI Days 2007 it is also pointed out that CD tends to take a longer period than the formally applied tendering procedure. Moreover, some say we have to be more careful to apply CD because it may be lacking of the transparency.

Anyhow, as Mr. Foster mentioned properly, in the case of the PPP/PFI , it is obvious that CD or other interactive tender process is to improve the quality of thetender submissions and therefore the project outcome as the contracting authority’s concept described in the output specification should be clarified only through "the dialogue" between the contracting authority and the bidder.

Therefore, I would say it is more important to exchange information and establish an effective system of dialogues as a conclusion.