Module 10 Organizing Procurement Session 10.5 Procurement of Services: Evaluation Criteria and Selection Procedures for Procuring Consultant Services 1

Instructional Objectives At the end of this lesson, the learners will be able to Design a transparent process for selecting consultants using either (a) quality or (b) quality and cost criteria. Describe the process of preparing to negotiate with a service provider. 2

Method 1: Selection Based on Quality Based on nonquantifiable attributes Opposite of procurement of civil works that have quantifiable attributes Selection process should be criteria based Quality of principle staff proposed Approach and methodology proposed Experience and breadth of firm 3

Qualifications of Staff General qualifications and education Experience directly relevant to the proposed assignment Language fluency Local knowledge Training experience 4

Work Plan Considerations Understanding of objectives The methodology proposed The breadth of the head office support The degree of innovation proposed The specific work program The extent to which technology would be transferred during the assignment 5

Criteria for Evaluating the Firm’s Experience The capacity to carry out the assignment Recent experience with similar projects Experience in similar areas and under similar conditions Criteria and weights should be agreed upon by staff before RFP is issued. Include criteria and weights in letter of invitation 6

Method 2: Selection Based on Quality and Cost Quality criteria plus cost factored in Only use cost judiciously Principle emphasis should be on quality Weights for complex assignments 90/10 ratio of quality to cost recommended Never have ratio lower than 70/30 quality to cost Weights for routine assignments Recommended: 85/15 7

The Request for Proposals (RFP) Letter of Invitation Information to Consultants Terms of Reference for the assignment A blank proposed contract Criteria for evaluation of proposals 8

Letter of Invitation States intention Source of funding Date and time for submission Address for delivery of proposal 9

Letter of Invitation (continued) Selection process and evaluation criteria Estimate of consultant inputs (cost estimates) Financial information for negotiations Conflict of interest clause Names of invited consultants Transfer of skills program Attachments Site visits Bidders’ meetings 10

Information to Consultants Necessary information for preparing proposals Make process of selection transparent Clarify evaluation criteria for selection Factors Weights Minimum passing score Level of effort envisioned (man months) Validity period of proposal (60-90 days) 11

Terms of Reference Include in proposal Include blank proposed contract Consider using standard and comprehensive forms published by international development institutions 12

Evaluating Proposals with Quality Criteria (Method 1) Use a small, in-house team. Use pre-established criteria and weights. Criteria should be developed within the client organization. Criteria should be understood and accepted by the team. 13

Evaluating Proposals with Quality Criteria Sample Criteria Qualifications and experience of firm Type of assignment/ weight Methodology and work plan Individual staff qualifications Total points Technical assistance and training Preinvestment and feasibility studies Engineering design Implementation and supervision 10-15 10-20 75-80 100 15-20 30-35 50-55 100 25-30 25-30 40-50 100 10-15 20-25 60-70 100 14

Evaluating Proposals with Quality Criteria—The Evaluation Process 1. Determine if substantially responsive to RFP. 2. Identify any reservations. 3. Identify statements that need special attention. 4. Start individual evaluations. 5. Everyone should use the same worksheet. 15

Evaluating Individuals with Quality Criteria Sample Worksheet Assignment: Country: Project: Date of Evaluation: Name of Firm: Evaluated by: .80 24 .90 36 1.0 30 90 17

Evaluating Proposals with Quality Criteria Summary Worksheet Assignment: Country: Project: Date of Evaluation: Evaluated by: ABC Consultants Wgt. .10 80 8 .20 90 18 .70 70 49 75 1.00 16

Evaluating Proposals with Different Technical/Price Ratios FIRM A FIRM B FIRM C FIRM D FIRM E 17

Consultant Comments on TOR Consider on their merit Review carefully (do not automatically reject) Provide benefit of consultant’s expertise Level of consultant understanding is potential measure of competency 18

Evaluating Proposals with Quality Criteria—Committee Review Process Committee convenes after individual reviews Individual evaluations and scores are compared. Determine the best proposal. Rank order the other proposals. Prepare an evaluation report on the proposals. Preserve all records for transparency. Notify consultants of results. 19

Evaluation Based on Quality and Cost (Method 2) Use a two-stage process. Evaluate quality first (as above). Evaluate cost second. 20

Evaluation Based on Quality and Cost—The Process Evaluate quality. Notify consultants who failed. Either did not meet minimum qualifying mark for quality Or were not responsive Return their financial proposals unopened. 21

Evaluation Based on Quality and Cost—The Process (#2) Notify consultants who qualified of date and time set for opening of financial proposals. Open financial proposals in public. Read aloud and record the following: Name of consultant Quality scores Proposed costs Prepare minutes. 22

Evaluation Based on Quality and Cost—The Process (#3) Client reviews financial proposals Correct arithmetical errors. Convert to single currency (per RFP). Use official exchange rates (per RFP). Date for setting rate should be set in RFP. Not earlier than four weeks prior to deadline for submission Not earlier than original date of expiration of period of validity of proposal 23

Evaluation Based on Quality and Cost—The Process (#4) Cost should exclude local taxes. Lowest cost proposal gets financial score of 100. Weight financial and quality scores. Firm with highest total combined score is invited for negotiations. 24

Summary Selection of consultants primarily judgmental Two basic ways to select Quality criteria alone Quality + cost criteria Cost alone should never be used for selection 25

Summary Method 1: Quality selection process Client issues RFP. Firms prepare and submit proposals. Client uses pre-established criteria and weights to evaluate. Individual reviews followed by group review. Single overall score given each proposal, and firm with highest scoring proposal invited for negotiations. 26

Summary Method 2: Quality + cost selection process Quality process plus Eliminate proposals below a quality cutoff. Return unopened financial proposals of nonqualifiers. Open financial proposals of qualifiers in public. 27

Summary Quality + cost selection process (continued) Review financial proposals for accuracy and convert to common currency. Give lowest bidder score of 100. Add financial and quality scores. Highest overall score wins. Invite winning firm to negotiations. Transparency is important for both methods. 28

Module 10 Organizing Procurement Session 10.5 Procurement of Services: Contracts and Negotiations

Types of Contracts for Service Providers Time inputs (may or may not include reimbursable expenses) Lump sum (may or may not include reimbursable expenses) Cost-plus fixed fee Retainer with or without contingency

Time Input Contracts Rate X Time Monthly Weekly Hourly Should have a maximum amount (ceiling) with contingency Payment based on inputs, which encourages quality work Client administration required Considered flexible and fair and widely used

Lump-Sum Contracts Payment based on output Fixed payment for delivery of product or service within a specified time period Should include contingency allowance Easier to manage than time-based contract Appropriate for well-defined services with clear TOR Convenient for repeat assignments

Cost-Plus Fixed Fee Contracts Special type of contract for “know-how” Includes licensing fee (as for a patented industrial process) Cost + Fee (for know-how) Also appropriate when inputs/outputs not clearly defined

Retainer and/or Contingency Fee Contracts Not commonly used except for management consultants and legal firms Retainer fee = number of days of effort over a fixed time period Must pay retainer even if less effort required

Best “Bets” for Most Projects Time-based contract Lump-sum contract

The Consultant Contract: Possible Clauses The nature of the association (for joint ventures) The procedure for amendments Staff substitution Consultant authority Conflict of interest Cofinancier’s contribution to cost Price adjustment Contingency allowance

The Consultant Contract: Possible clauses (2) Rates for additional work Payment procedures Audits Taxation Termination Local law

The Consultant Contract: Possible clauses (3) Liability Insurance Settlement of disputes Penalties, performance bonds, and guarantees

The Consultant Contract: Annexes Terms of reference Performance schedules Cost estimates Terms of payment Lump sum Monthly rates Reimbursables

Contract Negotiations Procurement should focus on quality of consultant, not price. Notifications should be in writing: Invite in writing representative of winning proposal team to negotiations. Notify others of negotiations and request they hold their proposal valid. Consultant team leader should be present at negotiations.

Contract Negotiations (continued) No contract before meeting between client and consultant Costs of attending negotiations are borne by consultant. Client should prepare for the negotiation. Train staff. Clarify position and objectives. Develop strategy.

Order of Negotiations The methodology or work plan The proposed staffing Financial conditions Contract

Methodology and Work Plan Client should have evaluated plan during selection process. Examine consultant’s suggestions for improving the TOR. Consultant’s suggestions are not part of contract but may be incorporated in the definitive TOR included in contract documentation

Proposed Staffing Review each key member’s role. Substitutions must be equivalent or better. Substitutes must be specifically named. Review activity schedules for staff (schedule resources). Agreed staff should not be replaced except for good reason.

Contract and Financial Conditions Review clauses and terms and conditions. Modifications must be mutually agreed upon. Financial negotiations will vary depending upon If price was a factor in the selection The type of contract used

Contract and Financial Conditions (continued) For time-based contracts Staff inputs usually paid on basis of agreed rates with ceiling Field work usually paid on staff-month basis Head office work on a staff-hour or staff-day basis

Time-based Contracts: Typical Clauses Foreign Currency Schedule 1. Staff services Schedule 2. Staff services in home office Schedule 3. Reimbursables Allowances Mobilization/demobilization Schedule 4. Foreign currency Schedule 5. Foreign currency payment schedule

Time-based Contracts: Typical Clauses (continued) Local currency Schedule 1. Local staff services Schedule 2 . Reimbursables Living allowances per diem Local transportation Office costs Other costs Schedule 3. Local taxes

Calculating Staff Rates Basic salary Monthly salary No bonus payments included Non-negotiable Social charges Benefit charges (vacation, sick leave, and retirement) Result from legislation in consultant’s country

Calculating Staff Rates (continued) Overhead Administrative and business costs Range: 65 to 200% basic salary Fee or profit Gross profit before taxes Percentage of total basic salaries (10-20%) Overseas or inducement allowance Hardship allowance Usually 20 to 60% basic salary

Calculating Staff Rates (continued) No negotiation of rates should occur during negotiations if price was considered in the evaluation and rates were established in competition.

Reimbursable Costs Out of pocket expenses incurred in carrying out duties Reimbursed at cost Documentation (receipts, invoices) required Contract should specify what costs are reimbursable and how they will be paid.

Common Reimbursable Costs Mobilization/Demobilization (airfare, visa) Subsistence costs Communications charges Office rent and supplies/equipment; printing Insurance costs Transport of project-related equipment Surveys and subcontracted services

The End-Product = Contract A “win-win” contract is the goal! Negotiations should end with a friendly atmosphere. Want to establish spirit of cooperation and confidence

Other Procedures for Selection Fixed budget Least cost Consultant’s qualifications Single source

Selection under a Fixed Budget Conditions when appropriate Simple assignment Precise and unambiguous TORs Budget fixed RFP should indicate available budget. Firms submit separate technical and financial proposals. Evaluate initially on technical merits Open price bids in public Highest technically ranked firm within budget is invited to negotiations.

Least-Cost Selection Conditions when appropriate Standard or routine assignments Well-established practices and standards exist Contract amount is small RFP sets minimum qualifying mark for quality. Firms submit separate technical and financial proposals. Evaluate initially on technical merits Open price bids in public Least-cost bidder that meets quality mark is invited to negotiations.

Selection by Consultant Qualifications Conditions when appropriate Small assignments Competitive evaluation not worth effort Client prepares TOR and requests expression of interest. Short list established Most qualified firm is selected and invited to submit a combined technical/financial proposal. Contract negotiated

Single-source Selection Does not provide benefit of competition Only use in exceptional cases Services are natural continuation of firm’s previous work. Rapid selection is essential (emergency). Small assignments Only one firm is qualified.

Summary Four types of contracts for services Contract Negotiations Time Lump-sum Cost plus Retainer Contract Negotiations Be prepared! Typical order Methodology Staffing Financial conditions and contract

Summary (continued) Typical clauses in time-based contract Currency Rates Reimbursable expenses End product of negotiations = “Win-win” Other forms of selection Fixed budget Least cost Qualifications Single source