4.3 The Bid Process
The bid process includes developing and publicizing bid documents, bidder conferences, and letting a bidder.
After the analysis is complete, the project team will be able to determine the nature of the contractual relationship needed with a vendor. It is then time to identify potential vendors. Once the potential vendors have been identified, the project team will move on to bid solicitation. Once the bids come in, they are evaluated. Once the successful vendor has been selected, a contract is awarded. Let us look at each of these steps more closely.
Qualifying Bidders
Potential bidders are people or organizations capable of providing the materials or performing the outsourced work required for the project. On smaller, less complex projects, the parent company typically has a list of suppliers and vendors that have successfully provided goods and services in the past. The project has access to the performance records of companies on that list. On unique projects where no supplier list exists, the project team develops a list of potential suppliers and then qualifies them to become eligible to bid on project work. Eligible bidders are placed on the bidder’s list and provided with a schedule of when work on the project will be put out for bid.
The eligibility of a vendor is determined by the ability to perform the work in a way that meets project requirements and demonstrates financial stability. The ability to perform the work includes the ability to meet quality specifications and the project schedule. During times when economic activity is high in a region, many suppliers become busy and stretch their resources. Before they are included on the bidder’s list, the project team investigates the potential suppliers to ensure they have the capacity and track record to meet deadlines and quality expectations.
The potential supplier must also be financially stable to be included on the bidder’s list. A credit check or a financial report from a reputable credit rating agency (e.g. Dun and Bradstreet, Equifax) will provide the project team with information about the potential bidder’s financial status.
Solicitation
A solicitation is a process of requesting a price and supporting information from bidders. The solicitation usually takes the form of either a Request for Information (RFI), a Request for Quotation (RFQ) or a Request for Proposal (RFP).
An RFI is used to gather more information from the market prior to sending out bid documents to a set of selected vendors.
An RFQ focuses on price. The product, service, and/or materials are well-defined and can be obtained from several sources. The bidder that can meet the project quality and schedule requirements usually wins the contract by quoting the lowest price.
An RFP is issued when the project team does not know the required solution. The RFP is intended to solicit ideas on how to fulfill the project’s objective with specific solutions. This approach is used in projects utilizing the predictive (waterfall) and adaptive (agile) methodology. For instance, consider a project with the objective of streamlining a service process. The project will involve the introduction of a new service request application. In addition, since the existing desktop computers are too old to run the new application, the project team must upgrade all desktop computers. Since the project team does not know which desktop computer is most appropriate, they issue an RPP to three companies. This project could be following a predictive or an adaptive methodology.
The key is that the project team needed assistance in defining an aspect of the full solution. The RFP considers price, but it focuses more on meeting the project’s objective by selecting the appropriate solution. If several vendors have submitted proposals that successfully illustrate how they would support the project’s objective, the price can become one of the deciding factors. The process of developing a proposal in response to an RFP can be very time-consuming and expensive for the bidder, and the project team should not issue an RFP to a company that is not eligible to win the bid.
Invitation for Bid (IFB) – some companies utilize an invitation for bid (IFB) process where only selected companies are allowed to bid. Either all or part of the companies on the buyer’s preferred contractor list may be allowed to bid. IFBs are used in sealed bidding procurements for government agencies. These IFBs contain all the necessary technical documents, specifications, and drawings needed for a bidder to develop a priced offer. In sealed bid procurement, there are no discussions or negotiations, and the contract is always awarded to the lowest acceptable offer using a firm fixed-priced contract.
Also, Statement of Work (SOW) which is a narrative description of the work to be accomplished and/or the resources of work to be supplied, including terms and conditions, are included in the documents. Statements of Objectives (SOOs) for projects that are designed as “performance-based” efforts describe the project end objectives. SOOs include specifications such as design, performance, and functional. Performance-based projects are now the preference in the federal government procurements.
In response to a solicitation containing a SOO, the potential contractors develop and propose their own SOW that provides detailed specifics on how they intend to perform the work. The source selection process entails comparing the various contractor-developed SOWs, each contractor applying its own unique technologies, capabilities, and expertise to the project effort.
A final consideration is logistics. Equipment and materials that are purchased for use on the project must be transported, inventoried, warehoused, and often secured. This area of expertise is called logistics. The logistics for the project can be managed in many different ways. It can be managed within the project team if they have the needed expertise and access to the required facilities. On larger, more complex projects, a member of the organization’s procurement department may assume accountability for logistics. Lastly, if the organization does not have the required skills and facilities, it will be managed externally and potentially part of the RFP or RFQ process.
Evaluating Bids
Evaluation of bids in response to RFQs for commodity items (e.g. office supplies) is heavily weighted toward price. In many cases, the lowest total price will win the contract. This is because the vendors have already confirmed they are able to meet the specifications and delivery timelines, so price becomes the determining factor. The total price will include the costs of the goods or services, any shipping or delivery costs, the value of any warranties, and any additional service that adds value to the project. Evaluation of bids for non-commodity items (e.g. services) often considers the vendors’ past performance (obtained from reference checks of existing/past clients).
The evaluation of bids based on RFPs is more complex. The evaluation of proposals includes the price and an evaluation of the technical approach chosen by the bidder. The project team evaluating the proposal must include people with the expertise to understand the technical aspects of the various proposed approaches and the value of each approach to the project. On more complex projects, the administrative part of the proposal is evaluated and scored by one team, and another team evaluates the technical aspect of the proposal. The project team combines the two scores to determine the best proposal for the project. Quite often, the two scores are not weighted equally.
Vendor selection is another great example of how the weighted scoring model is used as an effective decision-making tool in project management. Once the bid documents are distributed, the buyer generally has a bidder conference to respond to bidder questions and provide clarifying information. The bidders develop their own responses and deliver them to the buyer by the date specified in the bid document.
Awarding the Contract
After the project team has selected the bidder that provides the best value for the project, a project representative reviews the contract terms with the successful vendor. Depending on the nature of the product/service to be purchased, some negotiation may occur. Negotiation typically does not occur on less complex awards, such as contracts for standard office supplies. More complex projects require a detailed discussion of the goals, the potential barriers to accomplishing those goals, the project schedule and critical dates, the processes for resolving conflicts and improving work processes, and any penalty clauses. Contracts have a penalty clause if the work is not performed according to the contract.
For example, suppose the new software is not completed in time to support the implementation of the training. In that case, the contract might penalize the software company a daily amount of money for every day the software is late. This type of penalty is often used when the software is critical to the project, and the delay will cost the project significant money.
In awarding the contract, strategies that may be considered are:
- Price-based award strategy – used when the contract will be awarded to the lowest-priced, technically acceptable proposal
- Best-value award strategy – used when:
- the contract may be awarded to either the lowest-priced, technically acceptable offer or
- a higher-priced proposal offering a higher level of performance.
- the procuring organization conducts trade-offs among price, performance, and other nonprice factors to select the proposal that offers the overall best value to the buyer.
Once a vendor is selected, the project plans and documents are updated to incorporate vendor dates, resources, costs, quality requirements, risks etc. The vendor then becomes a project stakeholder. Information in the Stakeholder Performance Domain and Measurement Performance Domain will apply to the vendor throughout the project.
Bidder conferences are also held as part of debriefing sessions whereby the bidders are informed as to why their bids did not win the contract. Bidders who feel that their bid or proposal was not evaluated correctly can submit a “bid protest.” A bid protest is not necessarily a complaint that the wrong company won the contract but that their proposal was not evaluated correctly.