Public sector procurement differs from the usual procurement processes of private sectors in many ways, especially in areas of compliance and transparency. This article focuses to underline, at a beginner level, some of the key differences in the area of tendering.
When the purchasing department has to meet a demand and decides to initiate a tendering process to identify the source of supply, they create a Request for Information (RFI). This can be a public or a private RFI depending on whether it is open to all bidders or only a selected group. It may be noted that throughout this article, the term RFx is used to denote Request for Information (RFI) or Request for Quotation (RFQ).
Pre-Qualification Questionnaire (PQQ):
After the RFx is published, there is usually a pre-qualification stage where the interested bidders would have to fill and submit a questionnaire before a specified date. The intention is to shortlist bidders who are competent from technical, financial and other aspects to compete for business. After the submission deadline, the responses can be evaluated by an expert team and a selected group of bidders qualify for the next stage.
This is a small amount which the bidder has to pay in order to participate in the tendering event. Some purchasing organizations might want to collect it even before allowing the bidders to participate in the PQQ process. Another variation is that some companies would like to allow the bidders to view the RFx before paying the tender fee while others prefer to collect it before providing the access to the RFx document.
Earnest Money Deposit (EMD):
After viewing the RFx, when the bidder decides to participate and submit his/her bid, many purchasing organizations also insist on collecting some money from them called as EMD. This amount is usually about 5%-20% of the bid value. The idea here is to get a commitment from the bidder about their seriousness on their participation. The bidders may usually submit a bank guarantee to cover this amount.
Once the tendering process is over, the bidders who are not awarded are refunded the EMD amount. Many a times, this amount is set differently for different bidders by the purchasing organization. For example, if the buying company has a policy to encourage certain category of suppliers like minority, domestic, etc., they can reduce the EMD amount for them.
Two-envelope bidding and evaluation:
Usually, purchasing organizations in public sector want the bidders to submit two different bids, viz. technical and commercial which can then be evaluated individually. As the name suggests, technical bid would comprise of design document, technical specifications about the project, etc. whereas the commercial bid would contain price information. In normal bidding process, only one bid (commercial) is sought which may contain some technical information attached, however, the evaluation is done in one step only.
After the bidder has submitted both the bids, the evaluation is done in two steps. It is usually a practice to do the technical bid evaluation before the commercial bid. This would ensure that the technical soundness is not compromised in effort to reduce price. However, while some purchase organizations prefer to filter out the bidders rejected in the technical evaluation phase others prefer to conduct both evaluations before rejecting any bidder.
To start the evaluation, In the presence of all the stakeholders, the technical bid opener opens the technical bid and then hands it over to a group of evaluators who provide their comments on each bid and rank them from technical aspect. This is then used to decide whether a bidder is viable technically or not. After that, the price bid opener opens the commercial bid in presence of all stakeholders wherein the prices quoted by the bidder are compared and a separate ranking is prepared.
Once the evaluations are done, the award is given to a bidder or a set of bidders based on the evaluation ranking and the strategy followed by the purchasing department. Also, it may result in a purchase order or a contract. In some cases, if the participation from bidders is not good or the quality is not satisfactory, the purchaser may decide to scrap the tendering event and conduct a new one. For some specific tendering events, purchase organizations may also prefer to conduct an auction among selected bidders after the two-envelope bid evaluation to get further reduced prices.
All the features mentioned above and many more are available with SAP SRM Procurement for Public Sector (PPS).