Titolo presentazione

Project and programme management B

sottotitolo
Competitive Bidding Phase
 Milano, XX mese 20XX
Prof Mauro Mancini

© Mauro Mancini

AGENDA

• Introduction
• Buy and Sell process
• Bidding costs and resources
• Marketing Phase
• Bid no Bid Decision
• Proposal Preparation Phases
• Contract

© Mauro Mancini 2

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 Introduction
• Marketing Phase
Feasibility Study
• Competitive bidding Phase
Contract
• Project execution Phase
Provisional acceptance
• Operating Phase (warranty period)
Final acceptance
• Operating Phase
Dismission

© Mauro Mancini

Buy and Sell Process

Constitute of:
A single acquirer
with
Different contractors
that
Participate to the competition
Match against
Negotiate with the acquirer
Until
One “Contractor” wins the contract
or
The competition is cancelled

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 Buy and Sell Process

Three main figures:

• Marketing Manager

• Proposal Manager

• Project Manager

Critical transition between one and another

© Mauro Mancini

Bidding Costs and Resources

Making a proposal means to

invest:
a remunerative investment must be
carefully evaluated regarding
required costs and resources.

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Bidding Resources

Supportive Engineerin
activities g
resources resources
Economic
estimate
resources
Manageme
nt
resources

© Mauro Mancini

Bidding Resources

Proposal Manager Manageme

nt
• Represents society to the costumerresources
• Makes decisions
• Gives the right directives

• Team work whose number is proportional to the

scope extension

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 Bidding Resources

Engineerin
g resources
• Base Engineering

• Development of activities needed to formulate

an offer with its price

© Mauro Mancini

Bidding Resources

Economic
estimate
resources

Two categories of cost:

• costs taken from firm database (for standard
advices)
• costs taken from external environment (for
special advices)

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 Bidding Resources
Supportive
• Programming activities
• Insurance and Finance Study resources
• Local taxation study
• Legal agreement discipline
• Legal consultancy
• Procurement
• Customer relationships during sales activities
• Proposal writing
• Customer negotiating

© Mauro Mancini

Bidding Costs
Site External Negotiating
Costs Costs costs
Technical, The most difficult to
Society staff administrativ
(direct and quantify. Refer to
e, legal, and staff expenses to
indirect) financial satisfy costumer
consultancy negotiating
Indirect costs: requirements
reworking, Particular
travels, parts of the
Very changeable
phone, fax, offer
because is not
computers,etc developed by
possible to forecast
. third pary
customer
requirements to
Commercial negotiate nor to
costs of know how many
different people will be
nature involved
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 Marketing Phase

Three kind of uncertainty emerge:

• necessity uncertainty (technical requirements
definition)
• market uncertainty (potential supplier
individuation)
• operations uncertainty (bid management and
project management of the plant realized).
Feasibility Study: an instrument for the customer

Decision to begin the Competitive Bidding

© Mauro Mancini

Bid no Bid Decision

• STRATEGIC FACTORS

• ECONOMIC FACTORS

• CONTINGENT FACTORS

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 Bid no Bid Decision
STRATEGIC FACTORS

1. The firm operates within the same market in which the “call for
tenders” is published

2. The firm does not operate on the same market in which the
“call for tenders” is published.
 Evaluate:
• market potential and its development in mid-term
• market profitability its forecast in mid-term
• political, economic, financial and social stability
• entrance barrier existence due to legislation, to the
international alliances, to the prevalent financial flows,
to the product flowing market
• firm interest to invest and risk for entering into a new
© Mauro Mancini
market

Bid no Bid Decision

STRATEGIC FACTORS
Product has a strategic role  Firm decides to participate to the
competition due to the following:

• to maintain its product leadership

• to introduce a strategic product in a market where it is
absent
• to impede concurrence and to impose its product

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 Bid no Bid Decision

ECONOMIC FACTORS
• “Call for tenders” published in a country in which the firm is already
present. Firm decide to participate:
• to defend and consolidate that market
• to convert the investment already done and the
knowledge already acquired to enter

• “Call for tenders” published from a customer already served. Firm

decide to participate:
• to defend its position to the customer
• to convert the investment already done (for the initial
acquisition) and the knowledge already acquired to
enter

© Mauro Mancini

Bid no Bid Decision

ECONOMIC FACTORS

Level of acquisition possibility depends on:

• Level of concurrence competitiveness

• Foreseeable or foreseen profitability coming from acquisition
• Technology positioning

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 Bid no Bid Decision

CONTINGENT FACTORS:
1. Order portfolio size (reduced or satisfactory)

2. Facilitated credits

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Proposal Preparation Phase

CUSTOMER POINT OF VIEW

1. Potential supplier qualification
2. Tendering
• Tender documents emission
• Bid preparation
• Bid presentation
3. Proposals evaluation
• Preliminary report
• Potential participants selection (short list)
• Proposal fulfillment
• Technical and commercial evaluation
• Conclusive report (list of contract winner in decreasing order of
priority)
4. Negotiation
• Intent letter of the customer
• Technical and commercial final negotiation
• Financial package approval
• Authority authorizations
• Contract assignment
• Signature

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 Proposal Preparation Phase – Contractor point of
view
Pre-qualitfication
phase (tendering)

• Bid strategy
Planning phase • Strategy definition

• Resource estimation
Organizational • Program editing preparation
phase • Bid budget definition
• Collaborative agreement establishment

• Pre-project editing
Elaboration phase • Technical and Commercial proposal first draft
preparation

• Internal and external cost

estimation
Estimation phase • Collateral burden definition
• Options evaluation

• Technical and commercial documents revision

• Estimates cash flow and risk profile evaluation Revision and
• Prices and negotiating margins approval Approval phase
• Alterations agreed implementation

• Alterations agreed during approval phase are inserted Final editing

in technical and commercial proposals
© Mauro Mancini phase

Proposal Preparation Phase

CONTRACTOR POINT OF VIEW

1. Pre-qualification phase (Tendering)

2. Planning phase
• Bid planning
• Strategy definition
3. Organizational phase
• Needed resources estimation
• Preparation program editing
• Bid budget definition
• Collaborative agreement instauration
4. Elaboration Phase
• Pre-project editing
• First view of technical and commercial proposal preparation
5. Estimation phase
• Internal and external costs estimation
• Collateral burden definition
• Possible options evaluation

© Mauro Mancini

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 Proposal Preparation Phase
CONTRACTOR POINT OF VIEW
6. Revision and Approval phase
• Technical and commercial documents revision
• Estimates cash flow and risk profile evaluation
• Prices and negotiating margins approval
• Alterations agreed implementation
7. Final editing phase
• Alterations agreed during approval phase are inserted in technical
and commercial proposals

© Mauro Mancini

Pre – qualification phase - Tendering

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 Pre-qualification Phase
• With this phase the “competitive bidding” officially begins
• The customer sends a questionnaire to a group of companies
“Contractors” that could be qualified to formulate, in a following
phase, an offer to realize the project at the required conditions

Objective
Tender s
Documen
t

Pre-
Tender
Meertings

BID STRATEGY DEFINITION

© Mauro Mancini

Pre-qualification Phase
Objectives
CUSTOMER OBJECTIVES
• Pre-qualify a number of societies able to execute project/plant at the
required conditions of time and cost
• Receive data proper and real as inputs to the feasibility study and the
budget determination
• Start to establish a competitive relationship among the bidders and
verify the upper limit of request to insert in tender documents

CONTRACTOR OBJECTIVES
• Obtain a pre-qualification highlighting to the lower limit proper
streghteness to preserve them for the bidding phase

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 Pre-qualification Phase
Tender
Document
Tender Documents are emitted from the Customer and
from all the Contractors that have been pre-qualified

They indicates:
• Ways and data to present the offer
• Required validity for the offer
• Frame and content of the offer
• Type of quotation
• Summary of the scope of work
• Index of the annexes
• Guarantee required at the offer presentation (Bid Bond)
• Ways to require clarification to the Tender Documents
• Program for “Site Surveys” and “Meetings” with the Customer

© Mauro Mancini

Pre-qualification Phase Pre-

Tender
Meertings

• When required are the first meeting between the Customer and the
Contractors

• Different Contractors are invited separately, but sometimes, mainly

in public competition, Customer can invite the Contractors all
together

• Generally at this meeting the “Site Visit” is performed. It’s important

collect the highest number of information about the site

• Customer draw to the Contractors the scope of work, linkages with

the existent plants and infrastructures

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 Pre-qualification Phase Pre-
Tender
• Contractors ask clarification about the Tender DocumentsMeertings

• It’s important to conquest the trust of the Customer in these meetings

• Proposal Manager has absolutely attend to these meetings and

establish a particular feeling with the Project Manager of the
Customer, because he will be his interface during the Tendering

© Mauro Mancini

Planning Phase

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 Planning Phase
BID STRATEGY DEFINITION

• Identify the kind of Customer (i.e. investing or operating)

• Identify the “key points” to win the competition

• Prioritize the scale of Costumer needs
Parameters and Rules are established by the costumer in order to select the offers

• Identify your Positioning in respect to the other Bidders

• Map yours and other bidders’ strengths and weaknesses in respect
to the “key points” (i.e. leader or outsider positioning)

© Mauro Mancini

Planning Phase
Identify the kind of Customer

INVESTING COSTUMER
• Receptive on realization matters
• It’s convenient to make an offer aimed to explain
Executive Conditions and to show Contractor capabilities
to execute the project within the contractual terms

OPERATING COSTUMER
• Receptive on technological and operating aspects of the
project
• It’s convenient to make an offer aimed to defines technical
characteristics of the plant and to show Contractor
capabilities to execute a plant easy to operate and with a
reduced maintenance required
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 Planning Phase
Identify the “key points” to win the competition

• Price and Payment Terms: COMMERCIAL COMPETITIVENESS

• Exercise Costs: TECHNOLOGICAL COMPETITIVENESS
• Training and Technical Assistance: KNOW-HOW TRANSFER
• Financing offer: FINANCING POTENTIAL
• Share in local goods and services: NATIONALISATION LEVEL
• Work Execution Program: TIME AT COMPLETION
• Executive Capability: EXECUTIVE QUALIFICATION
• Technological Experience: EXECUTIVE RELIABILITY
• Contractor Country: COUNTRY AFFINITY
• Partners, Nominated Subcontractors/Suppliers: ASSOCIATION
EVALUATION
• Acceptance/Deviations from Tender Documents and Contract Draft:
BID CONFORMITY

© Mauro Mancini

Planning Phase
Identify your Positioning in respect to the other Bidders

LEADER
• He/She knows the project  can evaluate risks realistically
• He/She has experience on several similar projects  can evaluate
costs with the lowest possible level of uncertainty (lowest
contingency)
• He/She is part of a more competitive market area  can obtain less
costly supplies
• Has strategic alliances with Vendors and Subcontractors

OUTSIDER
• He/She does not have experience  can’t evaluate risks properly
• He/She does not have experience on other similar projects  can’t
have a low level of uncertainty in cost estimation (high contingency)
• He/She is not part of a competitive market area  on average
supplies are more expensive
• He/She will choose Vendors and Subcontractors during execution 
higher uncertainty and contingency costs
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 Planning Phase

Considerations

• The BID STRATEGY begins with the BID

FORMULATION and not during the FINAL
NEGOTIATING

• Every COMPETITION involves CRITICAL TIMES

that make PLANNING DECISIONS and BID
FORMULATION IRREVERSIBLE

© Mauro Mancini

Planning Phase
PLANNING BASE DECISION

• Bid structure and content

• Kind of pre-project information required for
estimation
• What shares the Vendors/Subcontractors need
for estimating
• Information necessary to acquire the shares
• Necessity of local surveys (i.e. technical, logistic,
economic)
• Interface activities with possible partners
• Financing research activities/assurance
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 Organizational Phase

© Mauro Mancini

Organizational Phase

HUMAN RESOURCES
DEFINITION

• It’s important a CLEAR ROLE IDENTIFICATION

and a DETAILED ROLE and
RESPONSIBILITIES ASSIGNEMENT in the bid
preparation

• During the bid preparation it is necessary to

continuously verify human resources availability

• A TASK FORCE is necessary only in case of

BIG OFFERS taking a LONG PERIOD
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 Organizational Phase
HUMAN RESOURCES ACCESS
CONFLICT
• Resources could be required from EXTERNAL
DEPARTMENTS in respect to the Commercial Direction

The BID NECESSITY could be considered MARGINAL in

respect to department PRIMARY OBJECTIVES

• Resources could be required from INTERNAL

DEPARTMENTS in respect to the Commercial Direction

The BID NECESSITY could be considered OPPOSING

OTHER OFFERS needs

© Mauro Mancini

Organizational Phase
PROPOSAL TEAM MAIN
FUNCTIONS

• Editing Coordinator
• Financial Coordinator
• Contract Negotiator
• Estimating Coordinator
• Project Engineering
• Construction Project Engineering
• Training Coordinator

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 Organizational Phase

The Proposal Manager communicates to all the

involved functions:
• Activities to be executed
• Instructions for planning
• Functional forecasted inputs/outputs
• Program for the functional activities
• Budget allocated to each function
costs and hours
• Base information
Tender Documents
© Mauro Mancini

Organizational Phase
The Proposal Manager:

• Has to participate to every negotiation phase for

agreement stipulation with PARTNERS,
VENDORS and SUBCONTRACTORS

• Has to understand and manage parties supported

by contractual and/or legal office

• Will also manage new agreements tunings due to

technical aspects, scope limits, subdivision of
responsibilities changes
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 Organizational Phase

COLLABORATIVE
AGREEMENTS
• Great works realization requires a great deal:
high risks + planning, technical, financial and
organizational engagements make a project
complex, so a single entrepreneur can’t face it
by him/herself

• Firms used to set collaborative agreements to

obtain mutual advantages

© Mauro Mancini

Organizational Phase
COLLABORATIVE
AGREEMENTS
Typologies of collaborative agreements:

• Temporary and occasional agreements

• International field (industrial integration)

• Joint Venture and Consortium

• Subcontracts (e.g. “back to back”; “if and when”)

© Mauro Mancini

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 Organizational Phase
SUBCONTRA
CTS
• Main contract and special conditions are part of the
subcontract.
• The same dynamics between main contractor and
subcontractor have to be applied to the subcontract works
when he/she apply to the main works
• Main contractor dynamics have to be applied to the
subcontract as if the main contractor were the client and the
subcontractor were the main contractor
• Main contractor payment influence subcontractor payments

© Mauro Mancini

Organizational Phase

BUDGET COSTS OF OFFERED

ACTIVITIES

• Communication to the Direction of the Real Cost

in which the firm will incur in case he/she
participates to the competition

It has to include:
• Analytical costs to prepare the offer
• Follow-up costs (depending on following
adjustments)

© Mauro Mancini

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 Elaboration Phase

© Mauro Mancini

Elaboration Phase
PRE-PROJECT
PREPARATION
More detailed pre-project Less detailed pre-project

higher bid costs

lower bid costs

more detailed costs

estimation
less detailed and precise
costs estimation
costs estimation more
precise
Increased entrepreneur
risk
Reduced entrepreneur risk

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 Elaboration Phase
PRODUCT TO OFFER: TECHNICAL
OPTIONS
It is important to take into account the following:

• Showing technical options requires increased bid efforts (time

and resources).
It is better to also have follow-ups and a negotiating period to
finalize the provided options.

• Every technical option resulting in an higher price is not

elaborated and quoted. However it might be conceptually
showed with its finalization.

• Options resulting in a lower price are always quoted (as a

single option or as alternative)

© Mauro Mancini

Elaboration Phase
TECHNICAL
OFFER
PART 1: TECHNICAL DESCRIPTION (what are it is sold)
E.g.
• Technical description
• Offsite Utilities description
• Design Code description
• Plant Advices description
• Bulk Materials description

PART 2: PROJECT EXECUTION (how we it will be

realized)
E.g.
• Execution description (engineering, procurement, staff training,
construction, supervision, starting, plant test)
• Quality and Security Assurance description

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 Elaboration Phase

TECHNICAL OFFER
OBJECTIVES

• Communicate to the Customer the information

that the quality Contractor has a Plant/Product
supplier

• Persuade the Customer of the Product/Plant

requirements satisfaction

• Persuade the Customer of the fact that the

Contractor will be able to supply Products/Plants
as he/she requires, in respect to characteristics,
© Mauro Mancini

Elaboration Phase
COMMERCIAL
OFFER
It is made up of:

• Introduction
• Brief description of the Project
• Scope and Limits of the Furniture
• Program and Time at Completion
• Mechanical and Functioning Guarantee
• Prices
• Payment Conditions
• Financing Proposal
• Contractual Conditions
• Offer Effectiveness

It is separated from the Technical Offer

© Mauro Mancini

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 Elaboration Phase
COMPETITIVE
FACTORS
The BID profile gathers the following contents:

• Price and payment conditions

• Process technology
• Technology transfer
• Financial packages
• Furniture nationalization level of the Delivery time
• Previous experiences
• Bidder(s) characteristics
• Proposed contractual clauses deviations
• Possible partners

© Mauro Mancini

Elaboration Phase

CONTRACTOR
RISKS

• Risks are minimized with contractual deviations

• Risks can not be neutralized with price

increasing (still they can be mitigated)

• It’s not possible conclude contract at “Zero Risk”

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 Elaboration Phase

MAIN RISKS
EVALUATION

• Risk Profile has to be realized not only in

complex competition

• Risks are relative easy to identify but difficult to

quantify

• Risk Analysis has to be carefully performed

• Risks are evaluated in empirical ways but with

© Mauro Mancini
empirical approaches based on experience

Elaboration Phase

Example of Risk typolgies:

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 Elaboration Phase
Three kinds of conditions that allow to face contract risks:

• Conditions transferring risks to the customer, therefore

releasing the contractor
special risks; “hold harmless” treaty; hardship conditions

• Conditions transferring risks to third parties, therefore

releasing the contractor or limiting his/her responsibility
assurance held by the costumer; assurance held by the contractor;
faculty assurance; politic risks assurance – export credits

• Conditions reducing or limiting risks

grace period in fine application; fine as “precautionary payment” of
the damage; maximum limit of the fines for delay or not
achievement of contractual performances; maximum limit for
contractual responsibility; exclusion from particular burdens coming
from unforeseeable situations
© Mauro Mancini

Elaboration Phase
CONTRACTOR
EXECUTIVE RISKS
• Economic Risk

• Legal/Customer Risk

• Political Risk

• Technical Risk

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 Elaboration Phase

Acceptable Half way

risks acceptable
Risks risks
absolutely not only if there
acceptable is at least only after a
one revision of
deviations scenario in contractual text
(“walk away” favor negotiable
conditions) deviations

© Mauro Mancini

Elaboration Phase
CONTRACTUAL
DEVIATIONS
• Deviations part of the offer attachments that,
referring to a contractual clause, express comments,
proposals, reserves

• General declarations that anticipate existence of

some conditions that contractor does not want to
discussor clarify during the negotiation

• Contractual Deviations determine risks types and

levels

© Mauro Mancini

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 Estimation Phase
COSTS
Costs are defined based on: DEFINITION
• Pre-project elaboration
• Computation and Estimations of material quantities/weights and
work amounts
• Costs from Material Offers/Site Construction Activities

Costs to be evaluated are:

• Licenses Costs
• Management and Engineering Costs
• Training Services to the Customer Costs
• Plant Materials (item + bulk materials) Costs
• Transports Costs
• Local Branch Costs
• Site Indirect Costs
• Civil Works Costs
• Mechanical Assembly Costs
• Electro-instrumental Assembly Costs
• Plant Starting Costs
• Assistance during Guarantee Period Costs

© Mauro Mancini

Elaboration and Approval Phase

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 Revision and Approval Phase
PROPOSAL
REVISION
FIRST REVISION
• Clearness verification
• Content verification
• Correspondence, to strategies and to tender documents,
verification

SECOND REVISION (before the approval)

• Read the offer from the Customer point of view (EVALUATIVE
REVISION)

THIRD REVISION (before final editing)

• Modification from approved review addition

© Mauro Mancini

Revision and Approval Phase

REVISION & APPROVAL OF COSTS
ESTIMATION

• Physical data and contingency share reliability

verification

• Plant costs and relative contingency shares

verification

• Percentage of Escalation for all the costs items

controlling

• Estimation completeness final controlling

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 Revision and Approval Phase
FROM COST TO PRICE

General and/or Commercial Directors define price making

decision and adding to the Costs Estimation:

• Amount for Technical/Executive Risks (being not covered

from assurance protections)

• Amount for Commercial Risks (being not covered from

contractual protections)

• Amount for General Expenses

• Firm Margin

• Possible Margin for Negotiation

© Mauro Mancini

Revision and Approval Phase

BID
APPROVAL
General and/or Commercial Directors make the final
approval limited to:

• Scope of Work

• Exclusions List

• Contractual Conditions and Relative Risks

• Price and Commercial Conditions

© Mauro Mancini

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 Final Editing Phase

© Mauro Mancini

Final Editing Phase

This Phase includes all the modifications coming

from the previous phases.

Tips:

• Compact Writing and Printing on both the paper

sides

• Designs, Technical Lists and similar documents

have to be add in Attachment and not in the
descriptions
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 THE CONTRACT

© Mauro Mancini

The Contract

Marketing Phase
• Feasibility Study

Competitive bidding Phase

• Contract

Project execution Phase

• Provisional acceptance

Operating Phase (warranty period)

• Final acceptance

Operating Phase
• Dismission

© Mauro Mancini

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 The Contract

Regardless of the document complexities

(complex document or simple purchase order),
a contract is a mutually binding legal agreement
that obligates
the seller to provide the specific products, services
or results requested
and obligates
the buyer to pay the seller for them.

© Mauro Mancini

The Contract

LUMP SUM

UNIT PRICE

REIMBURSABLE

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 The Contract

No Escalation
CONTRACT

Lump Sum
Fixed Price Constant
Unit Price

Escalation
Decreasing
with quantity
Reimbursable Cost Plus Fee

© Mauro Mancini

The Contract

TURN-KEY CONTRACT

PRODUCT IN HAND CONTRACT

MATKET IN HANDO CONTRACT

MANAGEMENT CONTRACT

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 The Contract

© Mauro Mancini

Contract – Risk Sharing

CONTRACT: a way of RISK SHARING between

CLIENT and CONTRACTOR

Ct = F + E + (1 – b) (C – E)
P = F - b (C – E)
Ct = total cost for the client
E = estimated cost
C = actual cost
F = estimated contractor profit
P = actual contractor profit
b = risk share allocated to the contractor

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 Contract – Risk Sharing
if b=0  Reimbursable contract:
Ct = F + C
P = Ct – C = F
If b=1  Lump Sum contract:
Ct = F + E
P = Ct – C = F + E – C
• The principle behind risk transfer is that each risk
should be allocated to whoever is better able to
manage it with the least cost possible
• A correct risk allocation should reduce the
probability of risk occurrence

© Mauro Mancini

Contract – Risk Sharing

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 Contract Management
• Invoicing and payment progress
• Specifications interpretation
• Adherence to quality
• Warranties
• Change orders
• Claims
• Penalties and bonuses
• Additional contracts
• Resolution of disputes
• Contract closure
• Etc.
© Mauro Mancini

Contract Management
OBJECTIVE: prevent possible claims fro counter-party
and project themselves damages coming from
possible claims

Claims possible sources:

• Contract ambiguity
• Incomplete specifications
• Risks not correctly allocated
• Unforeseen site conditions
• Client’s approvals
• Frequent order changes
• Claims rejection
• Strict interpretation of the contract
• Contractual exclusions
• Client’s obligations
• Etc.
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 Contract Management

FINAL APPROVAL

PROPOSAL
CONTRACT COMMISSIONING
DOWN PAYMENT WARRANTY

BID BOND

BID BOND PERFORMANCE BOND

DOWN PAYMENT BOND

PERFORMANCE BOND

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Contract Management
CONTRACTUAL RISK AREAS

• intermediate and final temporal deadlines respect

• scope of work limits
• changes and extra-work
• contractual exclusion clauses
• customer obligations
• payment deadline
• technical documentation approval deadline
• bonds
• civil responsibilities
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 Contract Management
CONTRACTUAL RISK AREAS

• taxes
• subcontracts assignment
• external events
• assurance needs
• arbitration
• bureaucracy in public offices
• penalties
• active/passive invoicing
• income/outcome
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Q&A on Competitive Bidding Phase

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