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Procurement Best Practices – Part 1
Add value to your purchasing process by shedding the status quo.
This article is the first in a series that will explore several topics related to the procurement process and offers some “Best Practices” geared towards maximizing the value of your time and resources. The intent is to demonstrate how authorities and other public agencies and their consultants can adopt a renewed view on how they bid projects. Making changes that promote efficiencies and incorporate risk management will help minimize total project time and expenses.
First, let’s look at some basic elements of solicitations that are sometimes over- looked, yet have significant impact on overall project participation and costs.
What’s In a Name?
Making sure that the project title and description is easy to understand may seem obvious, but all too often project owners use technical jargon that is not necessary, embellish a title to make a project sound more complex or use a project name that is way to generic.
Good, highly desired vendors and con- tractors are often very busy. If these individuals can’t figure out what you are seeking by quickly looking at the project name, they might not bid on your project or RFP.
Okay, Best Practices on project titles include:
- No more than 5-6 words, each 3 syllables or less.
- The construction action or type needs to be clearly identified and is ide- ally listed first. (Example: DEMOLI- TION, ELECTRICAL CONSTRUC- TION).
- If a multi-year contract, say so first in the title. (Example: Multi-Year Contract for WWTP Chemicals).
Providing Clarity and Sharing of Information
Although seemingly apparent, the more detailed and clear the project scope, the more accurately bidders can understand and price their submissions. Not only does this minimize opportunities for bidders to seek change orders, but a well-defined project scope and budget also provides critical performance measurement tools to track progress during the project.
Along these same lines, while some authorities don’t like to provide the estimated project budget for fear that it will sway bidder pricing, some highly qualified contractors may have limited bonding capacity at the time of your project.
Early on, these potential bidders will try to determine if they have the resources to pursue the project. A Best Practice is to provide an expected contract value range that extends 5% above and 30% below your estimate.
Secured and Defined Funding
Releasing a project for bid, without having the project funding completely secured, can create unique difficulties.
While certainly the minority, some authorities use this method to deter- mine project costs for budgeting purposes. In general, this approach has risks and is not recommended. If bidders become aware that funding is not in place, they might not take the project seriously and decide not to bid or inflate their submitted prices.
Furthermore, if funding comes from a grant or similar source, there could be specific requirements that must be included in the design, bidding, or execution of the project. The last thing an authority wants during the bidding phase of a project is to realize that additional requirements must be retroactively applied to the contract or scope. If this happens, bidders could be sitting in the driver’s seat when it comes to negotiating and creating change orders.
Being Difficult can be Costly
Some authorities choose to be somewhat aggressive with their terms and conditions regarding requests for pricing with the assumption that vendors will be agreeable to gain or maintain their business.
While this perspective may have worked during the economic recession, now most bidders will not pursue projects that are unclear, and they avoid entering into contracts with clients who are perceived as “difficult.”
For example, taking a firm approach by requiring liquidated damages on a project that has a critical timeline is not uncommon and is generally acceptable. Contractors understand these requirements and will adjust their pricing accordingly. However, placing unrealistic requirements on the bidders, such as “acts of God,” unforeseen weather conditions, and other variables will inevitably deter them from bidding or could cause inflated pricing. Once the inflated prices are in place, it’s difficult or impossible to remove these costs if conditions are in fact favorable.
Here are a few suggestions related to liquidated damages:
- Truly evaluate the need and level for aggressive liquidated damages.
- Try to avoid the “one size fits all” approach.
- If appropriate, consider critical path clock resets at key project milestones.
- Consider “earn back” and other performance-based incentive options.
Creating Advances through Creativity
There are times when an authority is seeking a creative solution on a project and does not wish to be bound by a predetermined, highly detailed scope. In such cases, authority owners seek proposals while providing minimal project details/structure to vendors.
While this concept can open the door to many wonderful opportunities and innovations, if expectations are not clearly outlined and potential bidders do not understand how their submission will be objectively compared, problems can emerge. When taking this approach, authorities should clearly establish baseline performance standards, identify regulatory compliance requirements, and describe additional metrics to which proposers must comply.
A Best Practice when evaluating proposal responses is to employ a multi-step selection process which allows project alternatives and approaches to be reviewed, weighted, and scored prior to requesting or reviewing pricing. In doing so, emphasis is placed more on long-term project value rather than short-term project costs.