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Dariusz Koba, Poland, third regional conference on public procurement for ENP East countries, Tbilisi, 6 November 2019

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Presentation by Dariusz Koba, Poland, on contract award criteria, at the third regional conference on public procurement for ENP East countries, Tbilisi, 6-7 November 2019.

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Dariusz Koba, Poland, third regional conference on public procurement for ENP East countries, Tbilisi, 6 November 2019

  1. 1. © OECD 3rd regional conference on public procurement for ENP East countries Contract award criteria Dariusz Koba, KCG, Poland Tbilisi, 6-7 November 2019
  2. 2. Two types of requirements Procuring authority sets in tender documents many different requirements concerning:  subject matter  contractor’s credibility  contract  costs or prices All requirements may be set as:  conditions, minimum standards which must be met, fulfilled, evaluated on „yes/no” manner  criteria evaluated by a scale, „to what extend is fulfilled” Problem: Directives call minimum requirements (conditions) concerning contractor’s credibility selection criteria (better use this term to prequalification). 1
  3. 3. Conditions vs. criteria You can indicate several general relationships:  the better the contracting authority can define its needs, the more requirements can be set as conditions;  the more precisely conditions are defined, the smaller the need to use technical criteria or the less their importance;  the higher requirements, the greater the danger that they may violate the principles of fair competition, which can be resolved by formulating requirements by means of criteria. We use criteria not to hinder competiton but to support it. 2
  4. 4. Legal obligations • Disclosure of criteria To ensure compliance with the principle of equal treatment in the award of contracts, contracting authorities should be obliged to create the necessary transparency to enable all tenderers to be reasonably informed of the criteria and arrangements which will be applied in the contract award decision. (p. 90 of the preamble of the Directive 2014/24/EU). • Determining the importance of criteria The contracting authority shall specify, in the procurement documents, the relative weighting which it gives to each of the criteria chosen to determine the most economically advantageous tender, except where this is identified on the basis of price alone. Those weightings may be expressed by providing for a range with an appropriate maximum spread. Where weighting is not possible for objective reasons, the contracting authority shall indicate the criteria in decreasing order of importance. (art. 67 para. 5 of the Directive 2014/24/EU). 3
  5. 5. Legal obligations • Applying verifiable criteria The criteria shall ensure the possibility of effective competition and shall be accompanied by specifications that allow the information provided by the tenderers to be effectively verified in order to assess how well the tenders meet the award criteria. In case of doubt, contracting authorities shall verify effectively the accuracy of the information and proof provided by the tenderers. (art. 67 para. 4 of the Directive 2014/24/EU). • Criteria linked to the subject-matter Award criteria must be linked to the subject-matter of the procurement. (art. 67 para. 3 of the Directive 2014/24/EU). • Prohibition of criteria concerning contractor’s credibility The exceptions to this rule are procurements for social services and non- priority services in the field of defense and security. 4
  6. 6. Legal obligations • Objective criteria Contracts should be awarded on the basis of objective criteria that ensure compliance with the principles of transparency, non- discrimination and equal treatment, with a view to ensuring an objective comparison of the relative value of the tenders in order to determine, in conditions of effective competition, which tender is the most economically advantageous tender. (p. 90 of the preamble of the Directive 2014/24/EU). • Does that mean criteria must me measurable? • Degree of precision of criteria – freedom of choice Award criteria shall not have the effect of conferring an unrestricted freedom of choice on the contracting authority. (art. 67 para. 4 of the Directive 2014/24/EU). • measurable ---------------------- unrestricted freedom 5
  7. 7. Examples of criteria Criteria may comprise, for instance:  quality, including technical merit, aesthetic and functional characteristics, accessibility, design for all users, social, environmental and innovative characteristics and trading and its conditions;  organisation, qualification and experience of staff assigned to performing the contract, where the quality of the staff assigned can have a significant impact on the level of performance of the contract; or  after-sales service and technical assistance, delivery conditions such as delivery date, delivery process and delivery period or period of completion. (art. 67 para. 2 of the Directive 2014/24/EU). 6
  8. 8. Types of criteria Taking into account the principle that all criteria must be related to the subject of the contract, it seems appropriate to distinguish the following types of criteria:  economic criteria, the most important, though not the only, price;  qualitative criteria referring to the quality of the subject of the contract;  contractual criteria referring to the manner of contract performance;  criteria for responsible development including social, environmental and innovation issues;  contractor’s credibility criteria - allowed only when ordering social services and non-priority services in the field of defense and security. 7
  9. 9. Strategies for selecting MEAT Contracting authorities shall base the award of public contracts on the most economically advantageous tender (art. 67 para.1 of the Directive 2014/24/EU). Most economically advantageous tender (MEAT) is now the sole criterion and operates as an ‘umbrella criterion’ for the award of the contract. Directives seem to suggest the application of MEAT may include three different options:  the price only  cost only (including life-cycle-costing)  the best price/quality ratio 8
  10. 10. Strategies for selecting MEAT I believe that cost only option is not a separate strategy, but a type of strategy which tends to the minimization of costs, like price only option. The difference is if you take into account only initial cost of purchase or total cost of ownership or even life-cycle-costing. From an economic point of view, the choice of an offer may follow one of three strategies:  the lowest price/cost  the best price-quality ratio  the highest quality. 9
  11. 11. Minimization of cost The choice of the offer is only based on the price or cost criterion. This strategy requires that all other requirements are precisely defined in terms of conditions:  technical specifications, functional requirements, technical standards of subject-matter  contractual clauses determining time for execution of contract, warranty requirements and so on. The ordering party does not care about exceeding the set requirements, but on their fulfillment at the lowest possible price. Good strategy for:  printing paper / other office supplies?  construction works (build)?  …………………………….. 10
  12. 12. Minimization of cost Variants or the strategy  Price only - the only cost is the price to be paid  Total cost of ownership (TCO) - when there are additional costs to be paid in future (e.g. printers or copiers, when the costs of consumables (inks, toners) are more important for printing costs than the price of the devices themselves).  Life-cycle-costing (LCC) approach demands to take into account not only TCO costs, but also costs imputed to environmental externalities linked to the product, service or works during its life cycle (art. 68 para. 2 of the Directive 2014/24/EU) 11
  13. 13. Maximization of quality In this strategy the price- or cost-related criteria are not taken into account when selecting the offer. This does not mean lack of interest in amount of expenditure, it means only lack of preferences "the cheaper, the better". The strategy demands informing contractors about planned expenses or maximum budget which may be appropriate especially in procurement of of intellectual services, when the provision of this information is desirable and even necessary. The cost element may also take the form of a fixed price or cost on the basis of which economic operators will compete on quality criteria only (art. 67 para. 2 of the Directive 2014/24/EU). Good strategy for intellectual services… 12
  14. 14. Quality – concept of fulfilment The concept of order fulfilment is an „umbrella criterion”. The contractor should be able to convince the contracting authority that he is able to properly perform the contract. The assessment may cover various aspects of the concept that affect the expected quality and timeliness of the contract, e.g.  understanding the essence of the contract and the role of the contractor;  way to achieve the established goals, methods and means of reaching the goals; 13
  15. 15. Quality – concept of fulfilment  understanding the risks associated with the implementation of the contract, the ability to neutralize them and minimize the impact of risk on the implementation of the contract;  ability to plan actions over time, implementation schedule;  quality assurance plan, way of monitoring work progress, reporting, implementation of repair plans;  composition and organization of the team performing the order, ways of coordinating the work. 14
  16. 16. Objectiveness The concept of order fulfilment is non-measurable criterion. Is it objective? One of the rules of public procurement is that criteria should be objective to ensure an objective comparison of the relative value of the tenders (p. 90 of the preamble of the Directive 2014/24/EU). How to ensure objectivity of commission members? 15
  17. 17. Objectiveness I believe, that in order to ensure maximum impartiality and objectivity, the contracting authority should not disclose (if possible) to the persons making the evaluation of offers:  identity, name of the contractor;  the name, brand of the product offered, the author of the offer;  offer price. 16
  18. 18. Fair competition The concept of order fulfillment is non-measurable criterion. Doesn’t it confer an unrestricted freedom of choice? The chosen award criteria should not confer an unrestricted freedom of choice on the contracting authority and they should ensure the possibility of effective and fair competition (p. 92 of the preamble of the Directive 2014/24/EU). How to ensure effective and fair competition? 17
  19. 19. Fair competition The criteria should be precise to the extent that ensures uniform interpretation by ‘reasonably well informed and normally diligent’ tenderer. The criterion shall be interpreted in the same way by practitioners involved in the type of activities covered by the procurement in question. The description of the criteria should communicate the preferences of the procuring entity to the contractors and be unambiguous enough to allow the contractor to adjust the offer to these preferences. 18
  20. 20. Scoring offers in non- measurable criteria Very good example is the way used by Highways England. 19 Approach offered How well do the proposals meet the contract requirements and demonstrate an understanding of the risks to the work? Mark Weak The approach has not considered fully the requirements of the contract and fails to demonstrate appropriate cost and risk control. 1-4 Acceptable The proposed resources and programme are adequate for the methodology described, and risk management procedures are acceptable. 5 Good The proposals show a well thought out balance between the resources required to carry out the work and the resources and approach proposed to mitigate the risks to the work. 6-7 Very Good The proposals include specific project initiatives which give a high degree of confidence of completing the project within the time and budget constraints and mitigating risks 8-9 Excellent The proposals include highly innovative and specific project initiatives which give a high confidence of completing the project within the time and budget constraints and minimising risks. 10
  21. 21. Scoring offers in non- measurable criteria Good criterion for intellectual services may be „Critical analysis of the assumptions” (which are developed by procuring entity and attached to ToR): 20 Approach tendered How well does the offer meet the requirements of proper implementation of the contract and maximises the probability of achieving results? No of points Weak The offer does not fully take into account the requirements of the ToR, does not identify errors in the assumptions or proposee actions that would create them. 1-4 Acceptable The offer is correct, confirms the analysis, but does not bring added value to the assumptions. 5 Good The offer shows a thorough analysis and contains some proposals that add value to the project. 6-7 Very Good The offer includes project-specific proposals based on the contractor's experience, which add a significant value to the project. 8-9 Excellent The offer includes highly innovative and project-specific proposals based on the contractor's experience, which add a significant value to the project. 10
  22. 22. Quality as measurable criterion The quality of products can be understood in a different ways, especially as technical or functional parameters. To describe the criterion consisting of many sub-criteria being technical and functional parameters, a table may be used: The description of the criterion formulated in the above manner causes that technical parameters and functionality become a measurable criterion. 21 parameter description growing / decreasing minimum value optimum value maximum number of points
  23. 23. Measurable criteria The evaluation of offers in measurable criteria is carried out by using a formula, an algorithm that allows for automatic evaluation of offers. In the case of criteria described numerically, e.g. the price of the offer is a necessary way of assessing the offers. There are many formulas that can be used to evaluate offers, especially regarding the price of the offer. The formula should reflect the ordering party's preferences as faithfully as possible. Not only the scoring of the offers depends on the adopted formula, but above all the bid strategies adopted by the contractors. 22
  24. 24. Scoring prices 23
  25. 25. How to develop weights The contracting party may use one of methods supporting of decision-making. Many methods are being developed that could be used: 1) substitution method 2) The Analytical Hierarchy Process (AHP) 3) Electre methods (ELimination Et Choix Traduisant la Realia) 4) Promethee methods (Preference Ranking Organization METHod for Enrichment Evaluations) 5) TOPSIS (Technique for Order Preference by Similarity to Ideal Solution) 6) EVAMIX The Analytic Hierarchy Process is a simple method that is perfectly suitable for determining the weightings of criteria.24
  26. 26. 10 steps to the MEAT Step 1. The criteria and their weights should be adjusted to the justified needs of the procuring authority. Step 2. The criteria based on non-verifiable contractors' declarations should be avoided. Step 3. Non-price criteria should be applied where it is needed to select the MEAT. Step 4. You should compare the Total Cost of Ownership (TCO) rather than the purchase price. Step 5. The criteria should differentiate. 25
  27. 27. 10 steps to the MEAT Step 6. To evaluate tenders in measurable criteria, appropriate formulas should be used. Step 7. Non-quantifiable criteria should be used if needed to select the MEAT. Step 8. Bids below the set minimum quality level should be rejected. Step 9. The weightings of criteria should be carefully selected, preferably using decision support methods. Step 10. Each time, the criteria and their weights should be adjusted to the market conditions. 26
  28. 28. Thank You. I wish You better procurements. In another way. Dariusz Koba 27

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