Project Procurement Management - Week 6

Assessing Bids

• Bid evaluation responds to submissions by the closing date.
• A selection panel should pursue these protocols after submissions are registered and bids invited based on pre-selection criteria.
• Conduct a formal compliance check.
• Ensure all selection criteria are addressed.
• Proposals are ranked based on the lowest price or MCDM.
• Top three bids are shortlisted for optional interviews.
• Accept the bid and arrange contract signing by both parties.

Managing Bids as Projects

• Bids are projects with tight, immovable deadlines requiring management.
• A challenge when bids are developed is, that the delivery project often has a high degree of uncertainty, timelines and costs are hard to predict.
• Clients expect aggressive bid timelines and very competitive prices.
• Evaluating risk is difficult without understanding the impact of potential risks and uncertainties on profit or loss.
• Understanding confidence in achieving project milestones is also key.

Additional Methods for Assessing Bids

• Alternate approaches offer more finesse than using the lowest price.
• Alternate methods also include best value, auction theory, MEAT, mean value, MCDM, and balanced scorecard.
• Evaluation methods should be clear in documentation sent to bidders.
• Selection processes should be transparent but confidential.

Best Value

• Best value considers cost and quality, plus the overall benefits in relation to costs.
• Construction company A bids $1M and company B bids $1.1M to build a bridge. If company B can offer higher durability materials and faster completion time, it may be chosen, even though it is more expensive.

Auction Theory

• Refers to a bidder's ability to see the current highest bid in an auction, which is key in many auction formats.
• A government agency can use a reverse auction to procure office supplies where suppliers submit decreasing bids in real-time until the lowest price for the required quality wins the contract.
• Auction types include English, Dutch, first-price sealed bid, and second-price sealed bid (Vickery Auction).

MEAT Criterion

• Most Economically Advantageous Tender (MEAT) is transparent and ensures sustainable tendering that considers the environmental and social criteria.
• MEAT provides opportunity to accept innovative and environmentally friendly bids, or those prioritizing social criteria like retraining unemployed labor.
• Examples of environmental and social priorities in MEAT include quality, price, technical merits, aesthetics/functionality, environmental impact, cost-effectiveness, after-sale service, delivery timing, and guarantee.
• Each chosen criterion is given a relative weighting reflecting its importance.
• The purpose of MEAT is to identify the bid offering the best value for money via the optimum combination of cost and non-cost related criteria, which will vary from project to project.
• "Value for money" recognizes that goods and services are not homogenous, as they differ in quality, durability, longevity, and availability.
• Seeking value for money means organizations purchase the best balance of features that best satisfy their needs, like paying more for products with low maintenance costs.

Mean Value Method

• The method evaluates bids against the average/mean value of all submissions.
• High or low bids may be flagged for further review.
• For example, a municipality receives five road resurfacing bids: $200K, $220K, $250K, $255K, and $260K where the mean value is $237K. A bid significantly lower ($200K) or higher ($260K) might be scrutinized for potential risks.

Multi-Criteria Decision-Making (MCDM)

• MCDM uses a structured approach evaluating factors by assigning weights to criteria like cost, quality, and environmental impact, while also scoring bids accordingly.
• A railway project evaluates bids based on cost (40%), safety (30%), sustainability (20%), and timeline (10%) while selecting a bid with the highest weighted score.

Balanced Scorecard

• The method assesses bids across financial, customer satisfaction, internal process, and innovation perspectives to ensure well-rounded evaluation.
• A telecom company assessing network expansion contractors scores bids based on cost-effectiveness, service reliability, customer impact, and long-term innovation, choosing the highest-scoring bid.

Comparison of Bid Evaluation Methods

• Best Value: Balances price and quality with subjective but structured decisions.
• Auction Theory: Focuses on competitive price dynamics with market-driven decisions.
• MEAT: Comprehensively identifies economic advantages using systematic criteria.
• Mean Value: Compares bids to the average by using statistical benchmarks.
• MCDM: Weights multiple factors necessitating structured criteria, analytical hierarchy.
• Balanced Scorecard: Ensures comprehensive evaluation by incorporating financial and non-financial, includes strategic alignment, and addresses multiple factors.
• Best Value vs. MEAT vs. MCDM: All consider multiple criteria; MEAT more focused on economic advantages; MCDM uses structured decision analysis.
• Auction Theory vs. Mean Value: Auction theory relies on competitive bidding, while mean value identifies outliers using statistical averages.
• Balanced Scorecard vs. Others: Incorporates strategic factors like innovation and customer impact.

Lessons Learned About Risk-Based Bids

• The quickest route to developing a risk-based bid is by accessing risk and uncertainty information from similar previous projects.
• Discuss what risks happened and their impacts.
• Determine how effective risk-mitigation actions were, and whether risks were specific to this project.
• Scrutinize bid documents (contracts, estimates, plans, scope) for caveats, gaps, omissions, assumptions and errors.
• Interview project players to explore issues, so project members open up in ways not possible in front of peers.

Risk-Based Approach Actions

• Bids should reflect the level of uncertainty and risk.
• A strategic decision should proceed with the bid while knowing the risk exposure, and ensures contingency funds are available.
• "No-bid" is an option for high-risk projects without the probability of profit.

Stages for Bid Evaluation

• Prequalification Procedure for Contracts
• Preliminary Examination (pass/fail) to check formal qualification requirements
• Qualification Evaluation (pass/fail) that checks compliance and technical requirements
• Price Evaluation (added value) for financial evaluation
• Post Qualification to check due diligence

Performance Review Systems

• These systems measure or rate performance based on:
  • Employee behaviours
  • Employee Skills
  • Additional performance factors specific to each project
• Several types of performance review systems are in common use, each with benefits and drawbacks.
• Ranking systems place employees in order from highest to lowest performance. A drawback is quantifying differences in individual performance.
• Forced Distribution: Ratings put employees on a bell curve.
• 360-Degree Feedback: Collect information from employee's supervisor, colleagues, and subordinates about and individual's work-related behaviour and its impact.
• Management by Objectives: A process through which goals are set collaboratively for the organization, various departmental members and individual ones.
• Graphic Rating Scales: Appraisals list several factors (e.g. attendance, dependability, quality of work, relationships with people) where a supervisor rates an employee on a three- to five- unit scale from unsatisfactory to outstanding.