Transcript Toolkit: Approaches to Private Participation in Water Services

Toolkit: Approaches to Private
Participation in Water Services
Module 9
Selecting an Operator.
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Elements of the Toolkit
1
Considering
Private
Participation
2
Planning the
Process
9
Selecting an
Operator
8
Designing
Legal
Instruments
3
Involving
Stakeholders
TOOLKIT
Appendix A
Examples of PP
Arrangements
Appendix B
Policy Simulation
Model
4
Setting
Upstream
Policy
7
Developing
Institutions
6
Responsibilities
& Risks
5
Standards,
Tariffs, Subsidy,
Financials
Additional Material
CD-ROM
Module 9Outline of Toolkit
General
Module 9
Selecting
an
9
Selecting an
OperatorOperator
8
Designing
Legal
Instruments
1
Considering
Private
Participation
2
Planning the
Process
3
Involving
Stakeholders
TOOLKIT
Appendix A
Examples of PP
Arrangements
Appendix B
Policy Simulation
Model
4
Setting
Upstream
Policy
7
Developing
Institutions
6
Responsibilities
& Risks
5
Setting Service
Standards, Tariffs,
Subsidies &
Financial
Arrangements
Additional Material
CD-ROM
Module 9 - What will we learn?
Module 9
Selecting an Operator
SELECTION
METHOD
SELECTION
CRITERIA
MANAGING
BIDS
OTHER
ISSUES
Module
9
1. Selection Method
Operator Selection
“ Choice of method for selecting an Operator who will provide the required services
at best value for money”
SELECTION
METHOD
SELECTION
CRITERIA
In this section we look at the PROCUREMENT
process, and also review the three basic
SELECTION methods :
• Competitive Bidding
• Competitive Negotiation
• Direct Negotiation
MANAGING
BIDS
OTHER
ISSUES
1. Method:
Procurement Issues
“ Choice of method for selecting an Operator who will provide the required services
at best value for money”
Four characteristics of a good Procurement Process:
Clear and transparent.
Transaction:
- objectives should be explicit
- selection criteria well-defined.
- tender and decision making processes understandable by all
Robust.
Process:
- resilient to procurement problems
- not open to challenge by losing bidders
Fair.
Procurement:
- undertaken on a level playing field
- all bidders competing on equal terms.
Cost-effective and timely.
Cost and bid time:
- appropriate for potential rewards of winning.
1. Method:
Procurement Issues
“ Choice of method for selecting an Operator who will provide the required services
at best value for money”
Four characteristics of a good Procurement Process:
Clear and transparent.
Transaction:
- objectives should be explicit
Manila
- selection criteria well-defined.
- tender and decision making processes understandable by all
Robust.
Process:
- resilient to procurement problems
- not open to challenge by losing bidders
Fair.
Procurement:
- undertaken on a level playing field
- all bidders competing on equal terms.
Cost-effective and timely.
Cost and bid time:
- appropriate for potential rewards of winning.
1. Method:
Selection Methods
“ There are three basic methods of Operator selection…..”
Competitive
Bidding
Or..
Competitive
Negotiations
Or..
Direct
Negotiation
1. Method:
Selection Methods
“ We look in more detail at three basic methods of Operator selection…..”
Competitive Bidding (“Widely believed to be best method”):
Government notifies public that it seeks Operator and seeks expressions of
interest
Formal screening process results in list of qualified bidders
Bid documents are distributed
Formal ,public process used to present and evaluate bids, and select winner
Competitive Negotiations (“ Simultaneous negotiations with various bidders”) :
Service objectives specified; request for proposals from private operators
Proposals reviewed and technically responsive bids selected
Government negotiates contract terms and conditions with selected bidders
Direct Negotiation (“ Most often for project ideas from private sponsors”) :
Can be appropriate, for innovative solutions proposed by contractors
Possible cost advantages for small schemes, where conventional bidding cost
high
Disadvantages: Difficult to assess competitiveness & maintain transparency
1. Method:
Selection Methods
“ We look in more detail at three basic methods of Operator selection…..”
Competitive Bidding
Competitive Bidding (“Widely believed to be best method”):
Government notifies public that it seeks Operator and seeks expressions of
interest
Formal screening process results in list of qualified bidders
Bid documents are distributed
Formal ,public process used to present and evaluate bids, and select winner
Competitive Negotiation
Competitive Negotiations (“ Simultaneous negotiations with various bidders”) :
Service objectives specified; request for proposals from private operators
Proposals reviewed and technically responsive bids selected
Government negotiates contract terms and conditions with selected bidders
Direct Negotiation
Direct Negotiation (“ Most often for project ideas from private sponsors”) :
Can be appropriate, for innovative solutions proposed by contractors
Possible cost advantages for small schemes, where conventional bidding cost
high
Disadvantages: Difficult to assess competitiveness & maintain transparency
Module 9
2. Selection Criteria
Operator Selection
“ The Contracting Authority needs to determine early on the objective methods it will
use to select the best bidder”
SELECTION
METHOD
In this following section we look at the ways to
choose between different bidders, reviewing the
specific Criteria for bid evaluation:
SELECTION
SELECTION
CRITERIA
CRITERIA
• Technical evaluation
• Financial Evaluation
• Relationship between Technical and Financial
Finally we review possible Bidding processes:
• Prequalification, 2 Envelope
• 2 Stage Bid Process
MANAGING
BIDS
OTHER
ISSUES
Module 9
2. Selection Criteria
Operator Selection
“ This is one of the most commonly used selection systems……. ”
PreQualification
Technical
Evaluation
Financial
Evaluation
Interested firms submitBidders submit Technical
Financial Proposals,
proposals only assessed for those
operating expertise andshowing how they
bidders
wouldwho
run the
have been evaluated against
financial capacity
contract
technical criteria and have passed the
‘technical threshold’
Contracting Authority assesses
Bidders provide information
on
these details
Financial and technical
Financial
ability
Criteria can be very simple, as
following
Short list with three to six
Proposals
firms assessed
usingexamples:
‘technical
evaluation criteria’ Bidder asking for lowest tariff (Concession or
Only short-listed firms can
Lease-affermage [See Module 1 for more info.] )
submit a proposal
Bidders have to pass a ‘technical
Bidder
for Lowest Fee (Management
threshold’ to be eligible
for asking
selection
Bidders submit proposals
Contract [See Module 1 for more info.])
(e.g. scoring at least 80 percent on
Bidder
with best financial proposal awarded
technical evaluation
criteria)
the contract
Module 9
2. Selection Criteria
Operator Selection
“ This is one of the most commonly used selection systems……. ”
PreQualification
Technical
Evaluation
Financial
Evaluation
The Contracting Authority decides whether to follow this or some other approach. The right selection
procedure is crucial to get the right Operating partner.
It sets the technical and financial mechanisms and scoring procedures.
It decides the relationship between technical and financial evaluation and the weight given to results of
technical and financial bids.
Evaluation processes and scoring principles and weightings have to be developed before the bidding
process starts
The broad principles of the evaluation framework have to be communicated to the bidders
Training should be provided to staff reviewing the bids, to ensure consistency
Module 9
2. Selection Criteria
Operator Selection
“ This is one of the most commonly used selection systems……. ”
PreQualification
Technical
Evaluation
Technical
Evaluation
Financial
Evaluation
Financial
Evaluation
The Contracting Authority decides whether to follow this or some other approach. The right selection
procedure is crucial to get the right Operating partner.
It sets the technical and financial mechanisms and scoring procedures.
It decides the relationship between technical and financial evaluation and the weight given to results of
technical and financial bids.
Relationship between Technical
and Financial Evaluation
Evaluation processes and scoring principles and weightings have to be developed before the bidding
process starts
The broad principles of the evaluation framework have to be communicated to the bidders
Training should be provided to staff reviewing the bids, to ensure consistency
Module 9
3. Managing Bids
Operator Selection
“ We need to manage the operator selection process effectively”
In thisSELECTION
following section we look at the BID
MANAGEMENT process, and review the five
METHOD
basic process steps :
•
•
•
•
•
•
Market Sounding
Public Notification and Prequalification
Evaluation of Prequalification
Responses
SELECTION
Bidding
CRITERIA
Evaluation of Bids
Negotiation when necessary
MANAGING
BIDS
OTHER
ISSUES
Module 9
3. Managing Bids
Operator Selection
“ We need to manage the operator selection process effectively”
In thisSELECTION
following section we look at the BID
MANAGEMENT process, and review the five
METHOD
basic process steps :
•
•
•
•
•
•
Market Sounding
Public Notification and Prequalification
Evaluation of Prequalification
Responses
SELECTION
Bidding
CRITERIA
Evaluation of Bids
Negotiation when necessary
MANAGING
BIDS
A note on Bid terminology:
OTHER
ISSUES
3. Managing Bids –
Process Steps
“ The Operator Selection Process involves 5 key steps, and a clear Bid Management
Structure needs to be established to implement these”
Market
Sounding
Notify +
Prequals.
Bidding
Bid
Evaluation
Negotiation
3. Managing Bids –
Process Steps
Bid Management Structure
“ The Operator Selection Process involves 5 key steps, and a clear Bid Management
Structure needs to be established to implement these”
Market
Sounding
Notify +
Prequals.
Bidding
Bid
Evaluation
Negotiation
3. Managing Bids
Market
Sounding
Notify +
Prequals.
Bidding
Bid
Evaluation
Negotiation
“ Talks with potential bidders at an early stage about structure and scope of the
project is a good idea. Typically these are informal soundings , based on a project
briefing, a consultation paper or a pre-bid road show”
Benefits :
Gaining ideas about structure and scope of proposed project, and their
acceptability to bidders
Potential bidders welcome involvement; they voice commercial concerns,
It increases bidder interest and increases overall procurement effectiveness
Early consultation can also involve other stakeholders (Module 3)
Form of Market Sounding:
Can vary from request for comments on original briefing, to a structured
process with questions testing market response to specific ideas
Can involve ‘road show’ or meetings with selected potential bidders
Points to be aware of :
To avoid bidders seeking collectively to influence the transaction to their
advantage, make use of experienced advisers to ensure suggestions are well
founded
Early canvassing of range of opinions helps to avoid accusations of bias in the
formal procurement process
3. Managing Bids
Market
Sounding
Notify +
Prequals.
Bidding
Bid
Evaluation
Negotiation
“ Public Notification and Prequalification establish the capable bidders”
PUBLIC
NOTIFICATION
PRE- QUALIFICATION
a. Purpose &
Documentation
b. Criteria &
Submission
c. Evaluation of
Responses
3. Managing Bids
Market
Sounding
Notify +
Prequals.
Bidding
Bid
Evaluation
Negotiation
“ Public Notification and Prequalification establish the capable bidders”
PUBLIC
NOTIFICATION
Public Notification
PRE- QUALIFICATION
a. Purpose &
Documentation
Purpose &
Documentation
b. Criteria &
Submission
Criteria &
Submission
c. Evaluation of
Responses
Evaluation of
Responses
3. Managing Bids
Market
Sounding
Notify +
Prequals.
Bidding
Bid
Evaluation
Negotiation
“ Public Notification and Prequalification establish the capable bidders”
PUBLIC
NOTIFICATION
PRE- QUALIFICATION
a. Purpose &
Documentation
b. Criteria &
Submission
c. Evaluation of
Responses
Criteria: Additional issues
3. Managing Bids
Market
Sounding
Notify +
Prequals.
Bidding
Bid
Evaluation
Negotiation
“ Following prequalification, bidders will be invited to submit proposals”
PROPOSAL FORM & CONTENT
The contracting Authority will need to:
Technical Proposal:
Information requested should only relate to the
Provide
The better the available information, the better the
evaluation
criteria,
including
firms capability.
Information
bidders
will have
a common
uderstanding
and be able
Information
required
should
match
the type of
to provide a responsive, comparable bid. Also,
contract
arrangement
envisaged
increases
fairness
and transparency
Each bid should detail the bidders proposals
Thefor
more
relevant
informationand
available,
thelevels
less risk
meeting
obligations
service
Interact with
Bidders
and
theirinfinanciers
bidders will
factor
to price. generally welcome
Bidders
Financial
Proposal:
dialogue on
form of contract to be adopted
Information
on
technical,
commercialfor
aspects
Informationlegal,
requested
to and
be necessary
isfinancial
required,
and future
plans
Bidder
feedback
should
beas
incorporated
in the
evaluation,
such
fees, subsidy
or
design
process,
resulting
in better,
compliant and
investment,
to meet
evaluation
criteria
Principle
information
sources:
Financial
models
more
affordable
bids(eg spreadsheet format) may
Specify proposal
Bidding
documents,
Information
memorandum
be required for the more
complex
contract forms:
form & content
Two main approaches to Bidder Feedback:
A data
room
Other
requirements:
Bid bonds; Signed legal,
Bidder Conferences
acceptance
of the
bid process;
Copy
of contract
Meetings
with
Management
& staff
of the
utility
signed at bid stage.
Arms length Consultation ( & 2 stage bidding)
3. Managing Bids
Market
Sounding
Notify +
Prequals.
Bidding
Bid
Evaluation
Negotiation
“ Recap of the key elements of the bid management process..”
The contracting Authority will need to:
Provide
Information
Information: Relating to evaluation
criteria & Contracts
Provide
Information
Interact with
Bidders
Interact with
Bidders
Specify proposal
form & content
Bid Bonds
Technical Proposal
Technical Proposal
Financial Proposal
Financial Proposal
Bid Bonds, Process
Acceptance, Pre- Signed
Contracts
Other items
3. Managing Bids
Market
Sounding
Notify +
Prequals.
Bidding
Bid
Evaluation
Negotiation
“ The evaluation approach is set at the start of the selection process.”
Here we review steps in a two-envelope evaluation, to look at practical issues:
Compliance
Technical
Evaluation
Compliance:
Each bid is checked to see that it complies with procedures and
requirements set out in Instructions to Bidders
Material non-compliance may disqualify a bid, or need remedial action
Technical
(Envelope1):
May
includeEvaluation
detailed review
of proposed contract changes:
When anand
unconditional
signed draft
is required,
changes
Technical
Financial envelopes
are contract
often evaluated
separately,
may
be deemed
non-compliant,
and bid
disqualified
with
financial
proposals
only considered
after
the technical
Where
there
is
more
flexibility,
adjustments
may
be made
to the
evaluation, to avoid price issues from affecting technical
marking
financial risk allocation, to compare all financial proposals on an
equivalent basis
3. Managing Bids
Market
Sounding
Notify +
Prequals.
Bidding
Bid
Evaluation
Negotiation
“ The evaluation approach is set at the start of the selection process.”
Here we review steps in a two-envelope evaluation, to look at practical issues:
Compliance
Financial Evaluation (Envelope 2):
Technical
Evaluation
Financial
Evaluation
Select
Preferred Bid
Financial envelope may be returned unopened if the Technical
proposal is non-compliant, or fails to exceed threshold score
Financial proposal opening options:
In Private: e.g. Sofia, financial package opened and
evaluated in secret. May raise questions about
transparency
In Public : e.g. Manila and Bucharest concessions,
Selection of preferred Bidder
projected onto screen at public meeting.
completed
technical
and financial
evaluations,
a
OpeningHaving
in Public
maximizes
transparency,
and can
allow
preferred bidder
can be
rapid identification
of winning
bid.selected
Technical
approach was
used, the
OpeningIfina Private
canthreshold
allow confidentiality
if another
round of
preferred
bidder is the one with the best financial offer
bidding is
envisaged
3. Managing Bids
Market
Sounding
Notify +
Prequals.
Bidding
Bid
Evaluation
Negotiation
“ The Bid by the Operator with the highest evaluation can be accepted outright, or
negotiations or another round of bidding can take place”
Another selection stage may be needed if (a) Issues remain to be agreed or (b) a better offer
may be achieved.
There are several negotiation options:
No
Negotiation
Or..
Negotiate
Preferred Bid
Contract can be signed immediately when all technical and financial
issues are resolved
This provides greatest transparency and objectivity
Especially useful for two stage bidding, or when unmodified contracts
signed with the bid:
If issues still to be resolved, negotiations can start with the preferred bidder
Even if a reserved bidder is retained, the Contracting Authority has less
competitive tension in the negotiation
The Contracting Authority has to have resources and capacity to maintain its
position against a possibly more experienced negotiator
Bidders and Financiers may request major changes during negotiation, and
the Contracting Authority has to be able to respond effectively to this
3. Managing Bids
Market
Sounding
Notify +
Prequals.
Bidding
Bid
Evaluation
Negotiation
“ The Bid by the Operator with the highest evaluation can be accepted outright, or
negotiations or another round of bidding can take place”
Another selection stage may be needed if (a) Issues remain to be agreed or (b) a better offer
may be achieved.
There are several negotiation options:
No
Negotiation
Or..
Negotiate
Preferred Bid
Or..
Competitive
Negotiation
Or..
Final option
a second
of formalplaying
biddingoff one
Negotiations
can beiswith
two or round
more bidders,
retains transparency, but allows bidders to improve
againstThis
the other
offers,
Thisfinancial
may help
to get a better deal than offered in the competitive
bids after seeing competitors bids.
Disadvantage:
suitable for
of non-price
Disadvantage:
Lacks Not
transparency
asadjustment
has to be held
in secret,bid
Additional Bid andconditions
people may not be confident of an unbiased decision
Round
3. Managing Bids
Market
Sounding
Notify +
Prequals.
Bidding
Bid
Evaluation
Negotiation
“ The Bid by the Operator with the highest evaluation can be accepted outright, or
negotiations or another round of bidding can take place”
Another selection stage may be needed if (a) Issues remain to be agreed or (b) a better offer
may be achieved.
There are several negotiation options:
No
Negotiation
Or..
Negotiate
Preferred Bid
Or..
Competitive
Negotiation
Or..
Additional Bid
Round
Competitive Negotiation in the UK:
Best & Final Offers
4. Other Issues
“ There are several other issues that may have to be dealt with when deciding how
to select an Operator”
SELECTION
METHOD
SELECTION
CRITERIA
MANAGING
BIDS
OTHER
ISSUES
4. Other Issues
“ There are several other issues that may have to be dealt with when deciding how
to select an Operator, including:”
Winners Curse &
Lowball bids
Variant Bids
Complaints &
Appeals
Flexibility & Future
Rebidding
If the winning bid is too low (e.g. through bidder error) it may be
unsustainable, and the contract and services may be disrupted later.
There is a risk of underbidding as often the bid information is inaccurate or
missing
In complex bids a variant ‘service-price’ bid may offer the Authority better
Care
taken
in designing
bid selection procedures to reduce these
valuecan
for be
money
than
a base bid.
risks, through consultation and other measures.
For evaluation purposes, the Bidder has to demonstrate the differences
from a base bid.
An effective complaints and appeals procedure may reduce the risk that an
unsuccessful bidder may try to overturn the preferred bid.
The issue of re-bidding at the end of the Arrangement period needs to be
addressed, and the matter of flexibility in future bidding of any follow on
arrangement
4. Other Issues
“ These other issues can be looked at in more detail, if required…”
Winners Curse &
Lowball bids
Variant Bids
Complaints &
Appeals
Flexibility & Future
Rebidding
Winners curse &
Lowball Bids
Variant Bids
Complaints &
Appeals
Flexibility & Future
Rebidding
Reviewing Module 9
‘The Module has looked at the whole range of issues in Arrangement design,
concerning “Selection of the Operator”………….’
SELECTION
METHOD
Procurement
Issues
SELECTION
CRITERIA
MANAGING
BIDSof Bid
Choice
Process
Market
Sounding
Notify +
Prequals.
Bidding
OTHER
Bid
ISSUES
Evaluation
Negotiation
Checklist : Module 9
Selecting the Operator
Choosing the selection
method:
Setting the selection criteria for
competitive bidding
Consider relative importance of transparency, speed, cost, and innovation
Choose a selection method: competitive bidding; competitive negotiation or;
direct negotiation
Set technical evaluation criteria for prequalification
Set technical evaluation criteria for bidding
Set financial evaluation criteria
Manage the stages in bidding
Determine how the technical and financial criteria will be combined:
weighted average, technical threshold, best financial or fixed price, best
quality
Initial market sounding to determine operate interest and concerns
Public notification and prequalification to bidders on the short list
Specify the contents of bids and detailed bidding process
Evaluate
Negotiate or allow bidders to further improve their bid, if necessary
Dealing with other issues
Relationship between information required in proposals, evaluation criteria,
and contractual obligations
Avoiding underbidding
Variant bids
Appeals and complaints
Maintaining flexibility for future re-tendering
More Information:
Module 9
More information Selecting the operator
On selecting the operator generally:
Kerf and others 1998, Klein 1998a, 1998b, and 1998c, PPIAF and World Bank
2002, Saghir and others 1999, World Bank 1997 and World Bank 2004c
On two-stage bidding: a possible model is found in World Bank 1997 [Standard
Bidding Document for Supply and Installation of Plant and Equipment], and on
general procurement models World Bank [Procurement Guidelines].
Provision of information: Jacobs Babtie 2004
Unsolicited proposals: Hodges 2003a and 2003b.
Bidding for management contracts: Saghir and others 1999.
Rebidding for concessions: Klein 1998c.
Supporting Material
• The Toolkit Financial Model
• Toolkit Case Study material
• Toolkit Website:
http://rru.worldbank.org/Toolkits/WaterSanitation/
• For comments or further details contact Cledan Mandri Perrott at
[email protected]
Toolkit: Module 9
End of Module
Toolkit: Module 9
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