05102009 - nordic infrastructure forum - overcoming time and costs involved in tenders

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

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

Overcoming the costs and time involved in bidding

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Reducing costs & time of bidding

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

Contents

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Competitive Dialogue

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

Typical steps in the process

Background Options Risks Control Law Fairness Conclusions

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Competitive DialogueGraphically summarized:


335

N

1 1

Prequal FinancingContractingDialogueConsultationPlan of Approach

Financial Close

Contract Close

PreferredBidder

Bidders

Phases

PQ D

ossi

er

Plan

of A

ppro

ach

Amen

dem

entp

ropo

sals

1Am

ende

men

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ls […

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Amen

dem

entp

ropo

sals

[N] D

ialo

gue

Prod

uct 1

Dia

logu

e Pr

oduc

t 2

Dia

logu

e Pr

oduc

t 3

Dia

logu

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t […

.]

Dia

logu

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Dia

logu

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t [M

]

Fina

l Bid

Time involved in bidding

Effort Required ≡ [ Number of products] ● [Requested detail]● [ Number of amendments]● [ or ]

Cost involved in bidding ≡ [Effort required] ● [Number of bidders involved] ● [Team Size] ● [Duration] + [Client Costs]

Number of resources

Product assessed on quality [Rating]

Product to meet set requirements

Bid assessed on quality & price [MEAT]

Contract & specification amendment proposals

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What are the costs involved?Dutch DBFM infrastructure projects

Coentunnel DBFMEuro 620 mln

A15 DBFM Euro 1.200 mln


5007003.100700500[-]

8009004.8001.800900[-]

1.5001.5004.3001.800900[-]

A12 DBFMEuro 350 mln

Prequal FinancingContractingDialogueConsult.Plan of Appr.

Financial Close

Contract Close

PreferredBidder

Phases

4.300

7.500

7.000

Total @ RiskIn Euro * 1.000; Typical for each bidder

1.300

1.900

1.600

Success Fees

6.800

11.100

11.600

Total in Bid (note1)

1.100

2.000

2.750

Compen-sation

Note 1: Excl. Bid Development Return

39%

27%

26%

1,9%

0,9%

1,7%

Client costs – internal 10.390

16.374

7.378

7.261

6.122

11.285

58.810

Total CostsIn Euro * 1.000

Client costs – external advisors

Client costs – bidder compensation (2)

All bidders costs – internal

All bidders costs – external advisors

All bidders costs – design & analysis

Total cost Coentunnel tender

34 mln

25 mln

Note 2: 2 bidders drop out after Plan of Approach: 2 * 350k excl. VAT;2 bidders drop out after BAFO: 2 * 2.75 mln excl. VAT;

Coentunnel DBFM tender costs analyzed

Montaigne Secondary College30 yr DBFMO: Euro 27 mln

Compare

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What is the time involved?Dutch DBFM infrastructure projects


Coentunnel DBFMEuro 620 mln

A15 DBFM Euro 1.200 mln

316343

338343

29 (1)7554

A12 DBFMEuro 350 mln

Prequal FinancingContractingDialogueConsult.Plan of Appr.

Financial Close

Contract Close

PreferredBidder

Phases

16

18

21

Total time in competition

In [months]

20

24

32

Total time for winner

2 yrs 8 mths (2)

2 yrs

1 yr 8 mths

Note (1): Authority delayed CC due to air quality permit issue

Note (2): Coentunnel was firstDBFM Competitive DialogueProcedure 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;

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What issues result?Dutch DBFM infrastructure projects

• 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 accelerate companies walking away from DBFM.

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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;


Prequal FinancingContractingDialogueConsultationPlan of Approach

FCCCPB

Phases

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What options do we have?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;




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• What Clients can do to reduce “Effort required” [cont’d]:

• Minimize number of bidders per phase;

üE.g.: Use prequal to start with 4 bidders instead of 5;üE.g.: Use Plan of Approach to shortlist from 4 to 2 bidders;üE.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;




335N

1 1Bidders

PB

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• 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;




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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);


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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;


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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);


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• 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’stoo lightly in case the Client would relax requirements on Dialogue Products and allow more details to be worked out post-PB;


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• 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;


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How to deal with extra risks?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 genericroutine, minimizes chances that critical aspects are missed;


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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;ü Equal treatment;


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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;


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How about unfairness?

• 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;


Equal treatment between different type of bidders [1]

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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);


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Summary and conclusionsCompetitive 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;


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Overcoming the costs and time involved in bidding

For more information:Paul J.A. Peekel

+31 30 240 7896

[email protected]

Nordic Infrastructure ForumStockholm 2009

mailto:[email protected]

05102009 - nordic infrastructure forum - overcoming time and costs involved in tenders

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