05102009 - Nordic Infrastructure Forum - Overcoming time and costs involved in tenders

Nordic Infrastructure Forum 2009
Stockholm, 19th - 20th October 2009

Overcoming the costs and time involved in bidding

Presentation by:
Ir. Paul J.A. Peekel
Director PPP Projects
Strukton Integrale Projecten

Reducing costs & time of bidding
Contents

1. Background – Setting the scene;

2. Options – What methods exist to reduce costs & time?
3. Risks – What risks are created?
4. Control – Can these risks be managed?
5. Law – Are the changes proposed legally acceptable?
6. Fairness – Are we still being fair to bidders?

7. Summary and conclusions

2

Background Options Risks Control Law Fairness Conclusions

Competitive Dialogue
Typical steps in the process

1. Prequalification Phase (economic/financial standing, technical
and/or professional ability);
2. Plan of Approach Phase (short-listing to 3 bidders);
3. Consultation Phase (discuss contract, requirements, etc);
4. Dialogue Phase (develop solutions; prepare Dialogue Products
e.g. Management Plan, Document Management System,
Performance Monitoring System, project planning, risk
allocation, etc; Resolve commercial and prizing issues;
5. Freeze documents and call for Final Tenders; Receive bids;
6. Clarifications, followed by appointing Preferred Bidder;
7. Finalizing the contracts; Contract Close;
8. Finalizing finance documentation; Financial Close
3


Competitive Dialogue
Graphically summarized:
Cost involved in bidding ≡ [Effort required] ● [Number of bidders involved] ● [Team Size] ● [Duration] + [Client Costs]

Final Bid
Effort Required ≡ [ Number of products] ● [Requested detail]
Number of resources

Dialogue Product 1
● [ Number of amendments]

Dialogue Product [….]
●[ or ] Product assessed on quality [Rating]

Dialogue Product [….]
Product to meet set requirements

Bid assessed on quality & price [MEAT]

Dialogue Product [M]
Plan of Approach

Dialogue Product 2
Contract & specification amendment proposals

Amendement proposals […]

Amendement proposals [N]
Amendement proposals 1

Dialogue Product 3
PQ Dossier

Time involved
in bidding

Phases Prequal Plan of Approach Consultation Dialogue Contracting Financing

Preferred Contract Financial
Bidder Close Close

N
5
3 3
Bidders 1 1

4


What are the costs involved?
Dutch DBFM infrastructure projects
Total Compen- Success Total in
@ Risk sation Fees Bid (note1)
In Euro * 1.000; Typical for each bidder

Coentunnel DBFM [-] 900 1.800 4.300 1.500 1.500 7.000 2.750 39% 1.600 11.600 1,9%
Euro 620 mln

A15 DBFM
Euro 1.200 mln [-] 900 1.800 4.800 900 800 7.500 2.000 27% 1.900 11.100 0,9%

A12 DBFM
Euro 350 mln [-] 500 700 3.100 700 500 4.300 1.100 26% 1.300 6.800 1,7%

Note 1:
Phases Prequal Plan of Appr. Consult. Dialogue Contracting Financing Excl. Bid Development Return

Preferred Contract Financial
Bidder Close Close

Coentunnel DBFM tender costs analyzed
In Euro * 1.000 Total Costs

Client costs – internal 10.390
Client costs – external advisors 16.374 34 mln

Client costs – bidder compensation (2) 7.378
All bidders costs – internal 7.261
All bidders costs – external advisors 6.122 25 mln
All bidders costs – design & analysis 11.285
Total cost Coentunnel tender Compare Montaigne Secondary College
58.810
Note 2: 2 bidders drop out after Plan of Approach: 2 * 350k excl. VAT; 30 yr DBFMO: Euro 27 mln
2 bidders drop out after BAFO: 2 * 2.75 mln excl. VAT;
5


What is the time involved?

Total time in Total time
competition for winner
In [months]

Coentunnel DBFM 4 5 5 7 9 (1) 2 21 32 2 yrs 8 mths (2)
Euro 620 mln

A15 DBFM
3 4 3 8 3 3 18 24 2 yrs
Euro 1.200 mln

A12 DBFM 1 yr 8 mths
Euro 350 mln 3 4 3 6 1 3 16 20

Phases Prequal Plan of Appr. Consult. Dialogue Contracting Financing Note (1): Authority delayed CC
due to air quality permit issue
Preferred Contract Financial Note (2): Coentunnel was first
Bidder Close Close DBFM Competitive Dialogue
Procedure in The Netherlands

• Consortia not shortlisted (i.e. typically 2 out of 5) waste 7-9 months on
Prequal & Plan of Approach. Or 10-12 months incl. consortium forming;

• Consortia loosing at BAFO (i.e. also typ. 2 out of 5) waste typically 1,5 yr;
6


What issues result?

• Due to extended bidding periods:
• Resources tied up for long periods, with considerable discontinuity;
• More projects are likely to have overlapping bidding periods;
ü Tender teams have to deal with several projects concurrently;
ü Parties choose not to participate as they can’t handle them all;
• Non-shortlisted and loosing consortia waste a lot of time;

• Due to high costs:
• Lots of tax payer money is wasted;
• Lost DBFM tenders have significant negative impact on already low
construction company margins;
• Companies choose not to participate any more;
Tender cost compensation at current levels (25%) will
7 accelerate companies walking away from DBFM.


What options do we have?
Reducing time

• Simplify process to cut out non-productive time between phases:
• Complex judging of Dialogue Products by external committees tends
to create stand-still time in consortia; Simplify judging process;
• Complex processes cause Authorities to move very cautiously
(=slowly); Standardize process to make it more routine;
• Shortening individual phases:
• Less and/or simpler Dialogue Products;
• Standardize tender documents; Minimize project uniqueness legally;
• Standardize across projects;

• Deleting a phase:
• Use ranked pre-qualification to shortlist, making PoA unnecessary;
Phases Prequal Plan of Approach Consultation Dialogue Contracting Financing
8
PB CC FC


Reducing costs [1]

• See options that reduce time; Time is after all cost;
• What Clients can do to reduce “Effort required”:
• Minimize number of Dialogue Products;

• Minimize requested detail per Dialogue Product;
• Don’t ask to prove the obvious; In these tenders typically all
participating consortia can handle scope and manage process;
• Maximize standard documentation, incl. risk allocation; Avoid
necessity for many contract documentation amendments;

• Reduce nr. DP’s that are rated by committees; Focus on essentials;


●[ or ]

9


Reducing costs [2]

• What Clients can do to reduce “Effort required” [cont’d]:
• Minimize number of bidders per phase;
ü E.g.: Use prequal to start with 4 bidders instead of 5;
ü E.g.: Use Plan of Approach to shortlist from 4 to 2 bidders;
ü E.g.: Prequal with ranking to arrive at 3 (or 2?) bidders (skip PoA);
• Move as much detailed activity as possible to post-PB;

• Minimize Client costs through standardization; Don’t let different
Client teams invent their own wheels all the time;
PB
N
5
3 3
Bidders 1 1


●[ or ]

10


Reducing costs [3]

• What consortia can do to reduce “Effort required”:
• Establish longer term consortium relationships;
• Make it a routine:
ü Use knowledge from the previous project; Don’t reinvent the wheel;
ü Re-use documents or parts; Not everything needs to be project specific;
ü Develop approaches that fit projects generically; Look beyond this project;
• On DP’s that need to meet set requirements, don’t do more than that;
• Minimize team size;

• Maintain team across projects if possible;
• Look for synergies between projects / teams;

●[ or ]

11


What risks do we create?
The Client perspective

• Less detailed bids:
• E.g.: Design is worked out in less detail; More uncertainty remains;
• E.g.: Project Management Plan less complete; Gaps remain post-PB;

• Less competition due to reduced bidders per phase:
• E.g.: If 2 bidders post-PoA, competition is gone if one drops out;
• E.g.: Less chance for unique distinguishing solutions; More bidders
typically mean more clever ideas;
• Less opportunity for bidders to win these type of contracts:
• E.g.: Companies decide to walk away from this market; Less projects
can be done using this approach, with associated loss of the DBFM
benefits (delivery on time, within budget, performance driven, etc);

12


What risks do we create?
The perspective of the bidders

• Less thought-thru bids:
• Reduced nr. of DP’s inevitably reduces breadth of knowledge of
the project; Knowledge gaps increase bid uncertainty;
• Less required level of DP detail, inevitably reduces depth of
knowledge of the project; Bids carry higher level of uncertainty;

• Work that needs to be done in period between PB and CC may
be more than can be handled;
• Resource overloading in this already stressful period (run-up to
start implementation) may cause errors;
• Overlooked details:
• Critical aspects emerge only after Preferred Bidder selection;

13


How to deal with extra risks?
The Client perspective [1]

• Less detailed bids:
• Ensure sufficiently high PQ requirements (and PQ ranking when
omitting PoA), to ensure that only experienced consortia participate;
Client can be reasonably confident that no surprises appear post-PB;
• Enable experienced consortia to base themselves on previous
projects with respect to the scope & detail which is left until post-PB;
• Less competition due to reduced bidders per phase:
• If process & documentation is standardized, chances that a bidder
drops out due to unforeseen developments will be very small;
• Competition in itself (regardless of having 2 or 3 bidders) will drive
distinguishing innovative solutions; Appreciate that party not
competing in this particular tender will still bring innovation in tenders
of other projects (when there is sufficient dealflow);
14



• Quality of Best And Final Offers:
• Whatever the process, the financing aspect and thus the involvement
of external financiers (and their Technical Advisors) will always
ensure that that no undue risks are taken when submitting final bids
and that bids are realistic;
• Payment mechanisms (incl. availability deductions and penalties)
remain a strong incentive to ensure that bidders do not take BAFO’s
too lightly in case the Client would relax requirements on Dialogue
Products and allow more details to be worked out post-PB;

15



• Reduced appetite of the private sector for these type of tenders:
• Ensure sufficient dealflow;
• Ensure high enough tender compensation allowances (at least 50%
of actual costs incurred by bidders);
• Reduce number of bidders to the minimum required for healthy
competition, so that bidders see time and cost are not wasted;
• Choose the right balance between rated DP products and DP
products that need to meet a set standard; Ensure rated DP products
relate to project specific challenges;
• Maximize standardization of process and documentation;
• Take all discussed measures to minimize cost and time involved in
these tenders;

16


The perspective of the bidders

• Less thought-thru bids:
• Build up experience in tender teams for maximum routine;
• Standardize consortium processes and systems;

• Maintain team consistency across tenders;
• Maintain consortium composition across similar tenders;
• Lessons Learned exchange; Maximize synergies across projects;

• The increased post-PB effort:
• Standardized processes, documentation and requirements ensure
work post-PB is predictable; Resources can be planned accordingly;

• Overlooked details:
• Pre-PB effort focused on project specific aspects in lieu of generic
routine, minimizes chances that critical aspects are missed;
17


Are there any legal implications?
EU tender regulation 2004/18/EG perspective

• Number of bidders
• Pre-amble (41): Allows Authority to reduce bidders invited as well as
gradually during procedure to avoid high costs (!);

• Art 29, (4): Allows gradual reduction of bidders;
• Art 44, (3): Minimum for Negotiation Procedure (not CD!) is three (3);
• Requirements are always:
ü Process, selection, criteria & intended nr. of bidders always described in advance;
ü In final phase, there must always still be competition;

• Number and depth of Dialogue Products:
• Authority is free to fill in process as long as the usual tender principles
are adhered to:
ü Non-discriminatory;
ü Transparent;
ü Objective;
18 ü Equal treatment;


Are there any legal implications?
EU Competition Law (anti-collusion, antitrust)

• Long term consortia relationships
• Consortia are free to decide to participate with the same partners for
different projects;
• It is not allowed to form consortia with the objective to limit
competition; Parties must prove that the consortium is the only way:
ü To manage the full diversity of scope (i.e. they are complementary);
ü To manage the scope size (work capacity of an individual party is insufficient);
ü To carry the large risks involved with the execution of the scope;
ü To save costs;
ü To combine knowledge to stimulate innovation;
ü To have a party establish itself in a new market;

• Conditions may be met in relation to a large project, but not
necessarily so in a similar but much smaller project;

19


How about unfairness?
Equal treatment between different type of bidders [1]

• New bidders versus routine bidders
• Standard processes, standard documentation, re-use of material from
one project to the next, may give new bidders initially a disadvantage
relative to the routine bidders; This “inequality” dissolves rapidly;
Process is non-discriminatory, transparent, objective and provides for
equal treatment, and hence is fair.
• Quality bidders versus prices bidders
• Less requirements for committee rated DP products may appear to
disadvantage parties that are good in scoring on high quality versus
the price bidders;
• Maintaining committee rated DP products for project specific aspects
in lieu of generic routine, and ensuring the right balance and
weighting in bid evaluation, leaves plenty of room for quality bidders;
20


How about unfairness?
Equal treatment between different type of bidders [2]

• Experienced large consortia versus smaller consortia
• Sufficiently high PQ requirements (and PQ ranking when omitting
PoA) guarantee that only consortia that fit the size/scope of the
project participate; This is also fair to the smaller ones as it avoids
them taking part in a competition (at expense of considerable cost
and time) they cannot win;
• Sufficient dealflow and sufficient spread in project size will ensure
there are tenders for large and small consortia (or large individual
companies);
• Through standardization in approach across the whole range of
projects, all participating consortia build up the same effective and
efficient routine (only scale differs);

21


Summary and conclusions
Competitive Dialogue Process

• Very significant costs and time tend to be wasted in DBFM
infrastructure tenders under Competitive Dialogue;
• Clients have several ways to modify the process in order to reduce
costs and time significantly;
• Bidders have several ways to minimize their expenditures in these
tenders;
• Additional risks that may appear to result from process
modifications and bidder reduction, can be managed;
• All changes discussed fit well within the legal framework;
• Changes discussed can be implemented without causing
unfairness to particular bidder groups;

22

Nordic Infrastructure Forum
Stockholm 2009

Overcoming the costs and time involved in bidding

For more information:
Paul J.A. Peekel
+31 30 240 7896
paul.peekel@strukton.com

23

05102009 - Nordic Infrastructure Forum - Overcoming time and costs involved in tenders

Recommended

Recommended

More Related Content

Viewers also liked

Viewers also liked (8)

05102009 - Nordic Infrastructure Forum - Overcoming time and costs involved in tenders