Effective procurement evaluation processes and negotiations
1. Evaluation process
Effective evaluation of offers and solutions is key to the fair and transparent procurement process and compliance with legal frameworks. Achieving such effective evaluation requires contracting authorities to address the matter adequately upfront when producing the Request for Quotation (RFQ). This can be done by delivering clear and comprehensive requirements, award criteria, and weighting and scoring information.
In defining award criteria, contracting authorities should balance being sufficiently precise to inform the market and the participants to the best of their ability, and being sufficiently high-level to allow a minimum of flexibility in the evaluation process. Interested parties should be informed of what the contracting authority is expecting. Still, the evaluation criteria thus communicated should not be detailed to the point of detailing each and every element that may or may not be taken into consideration within a given evaluation criterium, as in doing that, the contracting authority would deny itself all flexibility in identifying positive or negative elements in the offers as submitted.
Scoring the technical elements of the offers might require the involvement of experts as well as users. A good practice involves using a panel to confront, reconcile and calibrate the various views in the evaluation process. This will solidify the resulting score and contribute towards a fair evaluation. In this process, a contracting authority might use a scoring model that reflects the criteria, the weights given to these criteria and a scoring methodology to achieve a fair and transparent score. In all aspects, such a scoring model must be fully aligned with the evaluation criteria identified in the RFQ.
Contracting authorities should not shy away from requiring demos, prototyping or proof-of-concept presentations to assess the functionality and fitness of the proposed solution.
As for the financial evaluation, a total cost of ownership approach might be preferable, mainly where the offers reflect a variety of custom-built versus platform-based solutions.
2. Pre-award actions
2.1 Use of the contract template modules - assumptions
This Guideline builds on and is best used in a context where, prior to this phase, the following assumptions apply: The community utilises the procurement templates made available through the Online Helpdesk and has made sure that the chosen template is aligned with the requirements of the project, allowing for adaptations and customisations as deemed required and validated.
The community has followed the Guideline on the selection of objects of procurement and templates, and has defined the Call for Tenders’ Terms and conditions in a way that is appropriate for the procurement of the envisaged procurement object(s).
The procedure by which the procurement is being pursued allows the development of negotiation practices: a negotiated procedure for “traditional” procurement procedure and for what concerns Public Procurement of Innovative solutions (PPI), the competitive procedure with negotiation or a competitive dialogue 1 .
2.2 Framing ahead of negotiation
Up-front tender restriction of negotiable items
Contract terms can be restricted upfront, meaning the contracting authority may specify specific non-negotiable terms.
Note that negotiation of minimum requirements and award criteria is not permitted (infra 3.3) 2 .
In addition, a contracting authority may indicate that no negotiation will be entertained on any of the clauses provided in the tender documents.
The advantages are apparent. By restricting discussions on specific topics, one can effectively reduce the length of negotiations while fully preserving an advantageous contractual setting. It can, moreover, create clarity and singularity in the negotiation. If, for instance, the principles regarding intellectual property rights (IPR) are excluded from negotiation, there can be no contingency of pricing on IPR principles to be agreed upon.
However, restricting negotiations has drawbacks, the most significant being the potential loss of opportunities to reach a negotiated position that could benefit the contracting authority or customers. A not-so-well-thought-through restriction might even bar vendors from making an offer or lead to inherently inferior solutions being offered.
In upfront identifying conditions as “non-negotiable”, contracting authorities should, therefore, have a clear view of why they seek to restrict discussion on that matter and on the merits of the actual position taken in the clauses thus “frozen” in the context of the proceedings.
With the above caveats in mind, the contracting authority might consider restricting negotiations on the following matters:
Liabilities & hold harmless clauses
A contracting authority might wish to avoid the hassle of negotiating through liability and/or hold harmless by excluding them from negotiations.
To the extent that the position taken in the tender documents on the matter:
- Provides for a liability of the parties that is limited to what can be insured and is commensurate to the value of the deliverables
- Requires proof of adequate assurance
- Excludes damages caused by gross negligence or wilful misconduct from any limitation
- Reflects a separate hold harmless clause that requires the vendor to stand by his products and/or services, intervening in claims against the contracting authority resulting from the use of these products and/or services and fully indemnifying (without application of limits expressed in the liability clause) if and as needed. Such limitation should not be detrimental to the overall outcome of the tendering process and negotiations.
Compliance sheet – driven negotiation
In asking candidates whether they can comply with these terms and requiring them to explain any non-compliance, a contracting authority can include the level of adherence to its proposed contract terms in the award criteria and gain valuable information on the negotiation position of the candidates.
Even where the contracting authority chooses not to do so, the compliance sheet will reveal helpful information ahead of the negotiations, thus allowing the contracting authority to have a more efficient negotiation process. Moreover, in identifying and comparing the position of the various participants to the procedure, a contracting authority will acquire valuable knowledge, prior to negotiation, on the matters most contested by the participants.
A typical compliance sheet will list the clauses that a contracting authority wishes to include in the contractual relationship to be established in a column, with a second column where participants are asked whether they comply with that clause or not and a third column in which they can indicate with regard to the clauses to which they prefer not to comply, what issues that they have with it and – possibly – the amendments they would suggest.
Minimum requirements in tender versus negotiation leeway
This section addresses the inclusion of minimum requirements in tender documents and the impact thereof in ensuing contractualisation.
What are the minimum requirements? The considerations preceding Directive 2014/24 provide the following definition:
It should be clarified that the minimum requirements to be set by the contracting authority are those conditions and characteristics (particularly physical, functional and legal) that any tender should meet or possess in order to allow the contracting authority to award the contract in accordance with the chosen award criteria. 3
The Directive requires contracting authorities - when choosing the competitive procedure with negotiation or an Innovation partnership 4 - to indicate which elements of the description they provide of the needs and characteristics required to define the minimum requirements 5 .
Regarding both procedures, the Directive specifies that the minimum requirements shall not be subject to negotiations 6 .
The emphasis on the invariability of minimum requirements protects the transparency of the procedure and equal treatment of the participants while helping the contracting authorities lay down the baselines of their procurement exercise.
As such, designating a requirement as a minimal requirement has a similar effect to declaring it non-negotiable, with its pros and cons.
However, it is key for the contracting authority to maintain control over the qualification of requirements as “minimum” requirements. Expressions like “at least” or “must”, if loosely used in a requirements setting, may be interpreted as identifying minimum requirements, thus limiting the options for the contracting authorities should requirements not be entirely met by the participants.
A particular risk lies in using the MoSCoW method or analysis, a prioritisation technique for managing requirements in which requirements are allocated a priority level, ranging from Must have to Should have, Could have down to Won’t have. Without digging too deep into the meaning behind the acronyms, it will be apparent that identifying a requirement as a “Must have” can be seen as giving it the status of a minimum requirement. But whereas requirements may move up or down the MoSCoW ladder throughout the offering, negotiation and execution phase, the same does not apply to the minimum requirements and the assumption that every “Must have” requirement is a “Minimum requirement” therefore, puts the tender process and the ensuing execution at risk.
Therefore, It is advised to include language in every tender document that contains or reflects the outcome of a MoSCoW analysis of tender requirements, that none of the qualifications thus given amounts to identifying a minimum requirement as per the applicable legislation, irrespective of the seemingly compelling nature of the qualification.
3. Negotiation principles, requirements and possibilities in public procurement law
This chapter outlines the principles pertinent to negotiations in public procurement, which must be observed and may assist the contracting authority in structuring the negotiation process. The public procurement law offers minimal regulation regarding the negotiation phase within the context of public tenders. Therefore, most principles and best practices are derived from case law.
A fundamental rule when negotiating with bidders is adherence to the principles of equality and non-discrimination. For instance, a contracting authority must not disclose additional or preferential information that could advantage one bidder over another. Likewise, any modifications to the technical specifications of the tender must be communicated to all bidders currently engaged in negotiations.
3.1 Obligatory or non-obligatory negotiations
The use of public procurement procedures that permit negotiations is constrained by the conditions outlined in public procurement legislation. Specifically, only the competitive procedure with negotiation, the simplified negotiated procedure with prior publication, and the negotiated procedure without prior publication allow for negotiations with bidders following an initial offer.
The competitive dialogue is different, since it provides for a dialogue with the participants, leading towards solutions that address the contracting authority's needs and offers to be made upon closing the dialogue. The dialogue is a negotiation that precedes the offer.
3.2 Choice of negotiation partners
In principle, and in the absence of a specific clause in the specifications, all bidders must be invited to participate in the negotiations. However, contracting authorities have the discretion to streamline the negotiation process by inviting only a select number of bidders. Contracting authorities possess significant flexibility in structuring the negotiation phase. They can decide whether the negotiations will be conducted in stages and how many bidders will be invited to each subsequent phase.
This decision cannot be made arbitrarily, particularly not after offers have already been submitted. In each phase where the number of bidders is limited, offers must be evaluated based on all award criteria. Only those bidders with the highest scores should be invited to continue in the negotiations.
While it is not mandatory for the contracting authority, it is recommended to specify the exact number of bidders eligible to advance to the next negotiation phase. If the specifications are vague on this point, only bidders with significantly lower scores should be excluded. Conversely, bidders with high or closely aligned scores should be invited to proceed to the next phase.
In cases where a contracting authority wishes to negotiate with a single bidder, this is permissible, provided that the evaluation of all award criteria clearly indicates that the chosen bidder has scored substantially higher than the others, making it improbable that negotiations would alter the ranking of bidders.
Regardless of how the negotiations are conducted, it is essential for contracting authorities to provide sufficient and robust justifications for excluding certain bidders while allowing others to proceed.
3.3 Object of negotiations
The scope of negotiations can be very broad or very narrow. Even a request to optimise the offer price is considered a – very narrow – form of negotiation, but contract terms, i.e. the limitation of liability or the technical solution offered, can be part of the negotiation.
Contracting authorities have the discretion to restrict the extent of negotiations. This is possible even if certain bidders have not performed well on specific award criteria, and the limited scope of the negotiations does not permit improving the bidder’s offer on that particular point.
To avoid discussions following the award of the contract, it is advisable for contracting authorities to indicate that the scope of negotiations may be restricted to certain aspects without specifying which aspects will be negotiated. Suppose the scope of negotiations is unrestricted and bidders are allowed to modify every aspect of their initial or previous offers. In that case, they don't have to resubmit their entire initial or previous offer. A summary of the changes made to the initial offer will suffice.
Although the scope of negotiations may be determined at the discretion of contracting authorities, certain aspects remain non-negotiable. The minimum requirements specified in the technical specifications cannot be altered through negotiation.
Similarly, alterations to the award criteria of the tender are strictly prohibited under any circumstances.
3.4 Negotiation phases depending on the procedure being applied
All public procurement procedures where negotiations are allowed can be phased. As mentioned earlier, it is up to the contracting authority to determine how the negotiations will be structured beforehand. This decision is independent of the public procurement procedure used. The only exception to the aforementioned rule is when a contracting authority uses the competitive dialogue or the innovation partnership.
3.5 Information provision during negotiations
Contracting authorities are prohibited from sharing other candidates’ confidential information during negotiations. The question then arises as to what constitutes confidential information.
For instance, a general description of a proposal in a document from a permit-issuing authority is not considered confidential. Conversely, specific details from the offers of other bidders are always classified as confidential.
However, contracting authorities may disclose confidential information from an offer if the bidder consents to such disclosure. This consent must be explicit and pertain to the specific content and context in which the information is shared.
In practice, the restrictions on sharing certain confidential information can hinder negotiations, as contracting authorities cannot share some ideas with other bidders to refine potential solutions. There is, therefore, criticism regarding these confidentiality rules.
Nevertheless, a contracting authority can alleviate these limitations by detailing in the tender documents the aspects for which they seek input, thereby enabling the authority to refine their specific needs. The specifications should clearly state that the authority can use bidders' ideas to modify certain requirements. It is crucial that the scope of this information is transparent to all bidders, as general consent to share confidential information is not permissible.
Another approach to mitigate confidentiality limitations is to clarify the contracting authority's needs based on an analysis of initial offers without using innovative solutions from specific bidders. By elucidating expectations to other bidders, they may be encouraged to develop their own innovative solutions. This allows the bidder with the original innovative solution to maintain their competitive advantage.
3.6 End of negotiations
Negotiations will conclude when the contracting authority formally announces the cessation of negotiations and determines a unified deadline for submitting their 'best and final offers'.
No additional offers can be submitted after a 'best and final offer'. However, there is an instance in jurisprudence where a contracting authority was permitted to request an extra 'best and final offer' when the initial submissions were all substantially irregular. This case law provided a broad interpretation of the specifications, so repetition of the same outcome is not assured.
4. Price and conditionalities negotiation
This chapter discusses key aspects of price negotiations, including observations on maintaining essential economic balance, addressing price revisions and indexation terms within contracts, and the benefits of retaining some flexibility in setting requirements to facilitate bartering during price discussions. Additionally, it covers using a "best and final offer" request as an effective method for concluding pricing negotiations. Maintaining quid pro quo is crucial throughout this process.
4.1 Price revisions and indexation
In the context of public procurement contracts, establishing transparent, fair, and balanced mechanisms for price revisions and indexation is essential to maintain a sustainable economic relationship between the contracting parties over the life of the contract. Price revisions and indexation clauses help address the natural fluctuations in market conditions and inflation, ensuring the contract remains viable for both parties throughout its term.
While not always obligatory, including a sustainable and balanced price revision mechanism within the tender documents for all public contracts is highly recommended.
Regarding the price revision mechanism, the following key considerations are crucial:
- Price stability and risk management: Price revisions should aim to maintain the economic balance of the contract while managing the risks inherent in long-term procurement. Price revision clauses must be based on objective criteria, such as changes in the cost of raw materials, labour, or energy, which are beyond the control of either party. These clauses provide a mechanism for adjusting the contract price in response to significant shifts in external conditions that would otherwise lead to unanticipated financial burdens for the supplier.
- Indexation formula: Indexation is commonly used to adjust contract prices based on external indices, such as inflation rates, consumer price indices (CPI), or industry-specific price indices. Implementing objective indices in price revision mechanisms for public contracts is mandatory and must be consistently applied. The choice of an appropriate index should reflect the nature of the goods or services being procured. For example, an index that tracks those specific commodities should be preferred if the contract involves the supply of commodities subject to market fluctuations (e.g., fuel or metals). The contract should clearly define the index and frequency of price adjustments (e.g., annually, semi-annually) to avoid ambiguity and ensure predictability.
- Caps and floors on revisions: To preserve the balance between price stability and fairness, including caps (maximum price adjustments) and floors (minimum thresholds) in the contract is prudent. These ensure that price revisions do not disproportionately benefit one party or cause excessive volatility. Setting reasonable limits can prevent arbitrary or extreme price increases that might undermine the financial feasibility of the procurement project.
- Documentation and justification of revisions: Any request for a price revision should be supported by transparent documentation, including a detailed breakdown of the factors influencing cost increases or decreases. Contractors should be required to justify their claims based on objective, verifiable evidence such as supplier invoices, market reports, or official government statistics. This transparency ensures accountability and reduces the likelihood of disputes over price adjustments.
By addressing price revisions and indexation in a clear and structured manner, public procurement contracts can maintain the balance of interests between the public entity and the supplier while accounting for changing economic conditions.
If the price revision mechanism outlined in the tender documents is insufficient to maintain the equilibrium of the public contract under unforeseeable circumstances, public procurement legislation provides a means to address such imbalances through contract modification. There are three potential modifications: extending the contractual term, amending any contractual clause, or terminating the contract. The latter two modifications are only permissible when the contractor has experienced a substantial disadvantage. In goods and services contracts, a substantial disadvantage is defined as a situation where the disadvantage equals 15% of the initial tender value.
Prior to executing any modifications due to unforeseeable circumstances, the contractor is required to adhere to a stringent procedure. First, the contractor must notify the contracting authority in writing within 30 calendar days of the occurrence of the unforeseeable circumstances, detailing their impact on the contract's price and execution. Subsequently, the contractor must submit a thorough and calculated justification for the requested modification to the contracting authority. This submission must comply with the time constraints specified in the public procurement legislation.
The contracting authority and the contractor may only negotiate a contract modification once the aforementioned procedure has been duly followed.
4.2 Steering towards a best and final offer (“BAFO”)
In procurement negotiations, especially in complex or high-value contracts, the "Best and Final Offer" (BAFO) process can play a critical role in closing price negotiations and ensuring that the procurement process results in the best possible value for public funds. The BAFO process allows contracting authorities to sharpen their focus on obtaining a fair price while maintaining the quality and integrity of the contract.
The BAFO process, therefore, requires careful preparation, transparency, and a balanced approach that considers both price and quality factors. Maintaining flexibility, encouraging quid pro quo exchanges where possible, and fostering constructive negotiation can lead to better outcomes for both the procuring entity and the supplier, thus preserving the integrity and economic balance of the contract.
However, it must be noted that changing specifications during negotiations in public procurement contracts can present significant challenges. One of the primary difficulties is maintaining the fairness and transparency of the procurement process. Public procurement is governed by strict regulations to ensure that all potential suppliers have an equal opportunity to compete. When specifications are altered after the initial bids have been submitted, this can create an uneven playing field. Other vendors might argue that they would have submitted different or more competitive offers had they known about the revised specifications. This can lead to disputes and even legal challenges, undermining the integrity of the procurement process.
Another challenge is the potential impact on the procurement timeline and costs. Changes to specifications often require additional time for re-evaluation and re-negotiation, which can delay the project. This is particularly problematic in public procurement, where timelines are usually tight, and delays can have significant consequences. Moreover, altering specifications can lead to increased costs, both in terms of the administrative burden of managing the changes and in terms of the potential for higher prices from suppliers who may need to adjust their proposals to meet the new requirements.
Contracting authorities are therefore strongly advised to maintain maximum transparency in outlining the scope of negotiations and any potential amendments to these specifications.
