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Procurement in the 21st Century

So you’re new to procurement and tendering? Or maybe, you’re just keen to see the latest developments in procurement best practice.

This article gives you a snapshot of what to expect, and how to make life easier for everyone through solid preparation on your procurement process.

Put simply, procurement is the process of acquiring goods and services from suppliers, usually by businesses. Because procurement in the public sector involves spending public funds, the level of discipline and the robustness of procurement processes is hugely important. Public sector procurement professionals need to be able to demonstrate that they have spent those funds wisely, efficiently and fairly.

In New Zealand, most public sector procurement activities of reasonable scale or complexity involve some form of tendering process, whereby suitable suppliers in the market are invited to propose a solution and most often their price, to the buyer (a government agency).

Most tenders for reasonably complex projects require both price and non-price information to be provided by the supplier. Once the information is provided, those tenders or proposals are evaluated by the procurement team, and a preferred supplier is identified for the contract.

The procurement process in New Zealand has been guided by two important parties – the Ministry of Business, Innovation and Enterprise (MBIE) through the NZ Government Procurement and Property Division; and Waka Kotahi (the New Zealand Transport Agency).

Both these organisations have developed and contributed great processes and tools to help guide procurement professionals through the processes needed. Their respective tools are largely aligned, and there is increasing commonality in their approaches to procurement.

Everyone agrees – Procurement Planning is Critical

One key area that all experienced procurement professionals are very strongly agreed on, is the critical importance of robust procurement planning.

Hastily conceived projects, where the scope is unclear, the market unknown or the risks to project success are not very thoroughly analysed, very often lead to huge wastage in public money.

This can happen through selection of a poor quality supplier or product, as well as through time waste for both buyers and suppliers if the procurement process is not efficiently run.

The aim, therefore, for best practice in procurement, is that the process of selecting the right supplier is:

  • fair – so all capable suppliers have opportunities to participate; and – there is no personal bias introduced by evaluators into the decision
  • transparent – so suppliers and tender evaluators have clear direction on what will be scored highly as well as any factors that would lead to exclusion of a tender
  • fit-for-purpose – procurement processes are tailored so that the factors that will drive value for money on each project are identified and form the basis of evaluation; and
  • cost-efficient – time and money are not wasted on processes or activities that are not fully focused on finding the best supplier for the project.

What Does an Ideal Tender Look Like?

Before we get stuck in the nitty-gritty, it’s worth thinking about what a perfect tendering process would be like. We think that a superb procurement process will:

  1. Quickly uncover the factors that will differentiate good bids from average ones
  2. Give both evaluators and respondents a clear and common understanding of how the tender will be evaluated, and where they should each put most energy to ensure success
  3. Minimise paperwork
  4. Get the right balance between tightly defined questions and opportunities for bidders to expand on the benefits they bring to the contract
  5. Make it easy for evaluators to compare responses
  6. Use an evaluation method that’s fair and appropriate for the scale, risks and complexity of the job

Evaluators have two chances to achieve these ideals – in the way they plan their procurement and use that planning to put great Tender documents together, and the way they score them. We deal with what’s key to these two areas below.

Your Procurement Plan – the foundation of a great procurement process and documents

Like most things, good planning is the foundation of easy roll-out. To prepare well, you will need to:

  1. Define the scope of work (in fairly broad terms initially). Articulate what the project is aiming to achieve.
  2. Analyse the market – what will be the level of interest, how unsuitable suppliers could be excluded, and what characteristics in a supplier would drive good value for money.
  3. Establish the key supplier-controlled risks that might affect delivery of the project, work out how important they are, and think about how the ideal contractor will handle these.
  4. Identify any opportunities available to suppliers to add value to project outcomes (for example, provide social, environmental, cultural or economic benefits to the community through the project).

These factors will guide which evaluation methods you use, how important price is in your decision, what non-price factors will drive value, what weightings to apply, what aspects would be scored highly, and ultimately, what questions you should ask to get the information you need for your decision.

Choosing an Evaluation Model

There are three main evaluation models in common use – Lowest Price Conforming; Price Quality (an advanced form of Weighted Attributes Evaluation); and Quality-Based Selection (with or without a target price).

Lowest Price Conforming – in general, you only use this method for simple or small projects which are relatively straightforward to deliver; where additional quality over and above a well-defined baseline is not important. If you use this method, remember that the respondents will (justifiably) put just about all their energy into putting forward the cheapest price they can – so it’s unreasonable to ask for a large quantity or onerous attribute information with the bid. Your conformance standards need to be clear-cut, unambiguous, and easily collated in less than two hours by your tenderers.

Price Quality Method (or Weighted Attributes) is used for projects which are more complex and for which you need more information to decide which bidder has the best capabilities in relation to the project’s challenges; but where the scope can be defined and when pricing is important.

Using Price Quality Method invites you to set weights on the relative importance of the Price against the Non-Price Attributes (which may include aspects such as Relevant Experience, Track Record, Relevant Skills, Management Systems and Methodology). Volumes have been written about how to do this – the most important thing is that these are tightly aligned to reflect the risks and opportunities you identified at the outset in your Procurement Plan.

If everyone bidding will have adequate capability in any of these areas (Resources, for example) – consider leaving it out, and saving you, and the respondents, a whole heap of unnecessary work.

Quality-Based Selection makes sense if it would be difficult or nonsensical to focus on price in your decision. For example, if a project is yet to be designed hence the physical aspects cannot be priced; or if a focus on price would introduce major risks of poor quality. In these cases, it is still possible to gain price tension once a preferred supplier has been identified using non-price attributes. Scope and price can then be negotiated to meet the requirements of both the client and the supplier for a fair deal.

Alternatively, a target price can be set, and the scope negotiated with the preferred supplier to meet that budget.

Ask the Right Questions

It’s always tempting to recycle a previous RFT, and tweak it for a new contract. This makes sense, as long as:

  • The original document was free from errors; and
  • Your attributes, weightings and questions still clearly reflect the project-specific risks and opportunities that will drive value for money, for your specific current project; and
  • You are totally conscientious about ensuring that any changes you make are carried through the full document.

Too often, recycled RFx documents include irrelevant questions or inconsistencies, which then lead to potential confusion and time wasted, while eroding the all-important focus on the important project-specific drivers for value for money. It’s always worth putting the time needed in planning and developing sound documentation, to avoid difficulties later in the procurement process.

Quality Assurance – take your time!

Hundreds of hours of evaluator time, forests of Notices to Tenderers (NTTs), and substantial goodwill can be saved if you take the time to check the RFT carefully. If at all possible, try responding to it yourself. That is by far the most powerful means to iron out any problems and minimise or eliminate the NTTs that you may have to issue later.

It makes sense to set up a Response Form, that asks the questions you want, and gets respondents to answer them directly . This gives some significant benefits:

  • It ensures you can easily find the answers to the questions, without sifting through so much waffle
  • It makes your requirements crystal-clear to bidders
  • Evaluation is fairer, more consistent and more transparent
  • It will hugely reduce the time and frustration for both you and the respondents in understanding what each other wants/ is communicating

Once you have issued your RFT documents to the market, you can relax a little and wait for the responses. If you’ve done your job right, then you won’t have a lot of queries or clarifications to deal with!

However, this is prime time to brief your evaluation team, and refine and agree your scoring system so you’re all ready with the tools you need to score quickly and efficiently as soon as the compliant tenders are distributed.

Evaluating the Responses

Evaluation is normally a two-step process. It’s undertaken a little differently, depending on which evaluation method is chosen.

In the Price Quality or Weighted Attributes Method, the first step involves each member of the Tender Evaluation Team (TET) individually scoring the Non-Price Attributes of each bidder’s response. A predetermined anchored scale, which has agreed benchmarks corresponding to the bands in the scale – is invaluable here. As long as the Evaluation Team members have had input and agreed those representative benchmarks, it reduces the amount of time needed for individual scoring, and results in more consistent scoring. This also saves time and uncertainty from the moderation process, which results in agreed scores for each tenderer in each attribute.

The price evaluation may be done independently and at the same time as the Non-Price scoring, or after the Non-Price scoring is complete. This involves a review of the price, adjustments for any tags or clarifications that are considered acceptable by the procurement team, adjustments for any future financial impacts that could be proposed in alternative tenders (if applicable), deduction of any fixed amounts (like provisional sums) and then comparison and scoring of the final adjusted price.

That’s then combined with the Non-Price scores with the relevant weightings applied, to find the winning tender.

In a Quality-Based Selection process, only the non-price attributes are individually scored. Then the scores are moderated to reach agreed scores, and the highest weighted scorer becomes the preferred tenderer. At that point, price negotiations may begin, prior to contract award (when all aspects are settled to the satisfaction of both the client and the supplier).

For a Lowest Price Conforming evaluation process, the first step simply involves opening the price envelopes to identify the lowest price bid.

For this evaluation method, the second step is also simple – it only involves ensuring that the TET agrees whether the [clear-cut, unambiguous and fact-based!] conformance requirements for the lowest priced tender meet the RFx requirements.

Completing the Tender Process

Once a preferred bidder has been chosen, the leader of the TET takes responsibility for the close-out of the procurement process. This normally involves:

  • Formal notification to the preferred bidder
  • Negotiating the final price, the programme, plus any tags or clarifications with the preferred bidder
  • Signing the contract
  • Notifying the unsuccessful bidders
  • De-briefing with all bidders (as requested)
  • Handover to the Engineer to the Contract

Six Tips To Help You Make Tender Evaluations Easier:

To summarise, here are six key ways that you can make life easier, and reduce the time and costs for evaluating tenders:

  1. Prepare a robust Procurement Plan – with key focus on the supplier-controlled Risks and Opportunities to drive your procurement design
  2. Use that information to select the most appropriate evaluation method
  3. Ask clear, relevant questions that directly address the risks and opportunities in the Procurement Plan. Don’t waste everyone’s time by including questions or scoring priorities that don’t differentiate the tenderers in relation to what will drive value for money.
  4. Minimise inconsistencies, ambiguities and mistakes: Check your RFx documents thoroughly
  5. Use an anchored scale to reduce variability in tender scoring from members of the TET
  6. De-brief with your Tenderers, so they (and you) can improve the process next time.

For more information, or to comment on this article, please contact Clever Buying at info@cleverbuying.com or 0800 225 005.

Caroline Boot

MBA(Hons). BSc. MNZIM.

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