Unit 3: Choosing your procurement path
How can you use public procurement to increase the effectiveness of urban service delivery and infrastructure? Projects may require working with solutions at different stages of development, or testing a solution locally before awarding a contract. Choosing the right procurement path is a critical decision point that can determine whether you will solve the problem and obtain value for your citizens. A market discovery phase is fundamental to avoid reinventing the wheel and allow working with solutions that are at an early stage of development.
In this unit, we will explore different types of legal procedures, suitable service areas and examples. Knowledge of procurement gives you the power to lead and to question. We encourage you to explore the legal text governing procurement, as you are likely to discover that the actual law is often less restrictive than you have been led to believe by common practice or perception.
Why it is important to choose the right procurement path
Choosing the right path is a critical decision point that can determine whether you will solve the problem, at what cost, and how quickly you may obtain value for your citizens.
Example — Demonstration Partnership Agreements
In 2008, San Jose adopted a new framework to allow for Demonstration Partnership Agreements. These agreements are unique in that they opened up a path for the City to engage in partnerships temporarily utilizing City-owned land, facilities, equipment, rights-of-way, and data. The City may also provide financial assistance and/or absorb some costs of project implementation, as well as requesting the City Council to exempt the project from certain City policies. This flexibility helps the city test, evaluate and demonstrate innovative solutions.
Different procurement paths applied to the same problem will result in different outcomes, and will determine the types of ownership models that will be able to apply. Your choice of path will also have an impact on the overall cost of meeting the objectives of your procurement.
It is important to take into account the lifecycle cost of your procurement, which comprises the following three dimensions:
- The direct cost of obtaining the solution, or, the acquisition costs including all costs of the procurement process and change management (if applicable).
- The operating costs, including annual fees, insurance, wages and salaries, and so on.
- The costs of disposal, which might include removal of the installation, clean-up costs or legal fees.
Choosing a procurement path
Not all paths start by jumping directly into a commercial procurement. Start by asking yourself how much you really know about the market. How confident are you that you will be able to decide between developing your own solution and building on a solution available elsewhere?
Data collected by Citymart shows that, on average, public buyers know less than 3% of the solutions available in the market.
In 2012 the City of Coventry was looking for efficient ways to maintain urban surfaces. The City invited providers with cost-effective solutions to run a pilot. During the discovery phase, they found alternative approaches to the same problem such as: chemical coatings, street cleaning robots, gum bins and urban gamification.
To determine the most suitable procurement path it is always advisable to engage with the market early on to discover what is already available, the maturity of available solutions, providers and different approaches to tackling the identified problem.
Such market engagement should be planned, adequately resourced and carried out openly to deliver reliable results and avoid later challenges to your decisions.
Your checklist to select a procurement path should always include:
- Problem statement and desired outcomes
- Market maturity
- Commercial readiness
- Number and size of potential providers, as well as business models and approaches
Opening up about your needs will help you understand what the market has to offer. A discovery phase will help you choose the most suitable legal framework and ownership model by getting a better understanding of the market. While the discovery phase is usually separate from procurement, it can also be incorporated into a single procurement action.
BCN | Open Challenge, an international tender to solve 6 urban problems in the city of Barcelona, was structured in two phases: an ideas competition, followed by a negotiated procedure. Entrepreneurs were required to have a legal entity and at least a prototype before bidding for a contract.
The following table describes different options that can help you discover solutions already available on the market:
Your market engagement might reveal one of the following:
- Solutions are available in the market but at an early development stage.
- Some approaches exist that have not yet been tested in your city;
- There is a mature market where solutions have been developed and tested successfully;
- No solutions are readily available on the market.
Depending on the outcomes of your market engagement, you may need to validate that the solutions found have the potential to meet your city’s needs.
Table notes:  DG Enterprise and Industry;  Supporting the development of a new solution under a PCP scheme should be considered as the very last option, given that the mechanism is likely to be time consuming and resource intensive. It is therefore only suited for R&D of services/products of high-risk, innovation-driven sectors such as high-performance tech, nanotech, biotech and alternative energy, and used mainly for central governments and not for local authorities.
If your market engagement indicates that solutions are readily available and mature enough to meet your objectives, then commercial procurement is a viable next step.
Choice of procedure
Different legal procedures can be used depending on the objectives of the procurement and desired outcomes. Procedures can be open or restricted, single source, negotiated or a request for quotations, as described in the table below. However, all of them have to follow the same principles: they have to be fair and transparent.
At this point it is important to involve your Chief Procurement Officer (CPO) and work closely with his/her team to find the best suitable option. You might also want to engage external stakeholders, such as legal experts from the private sector, or get insights from other cities.
The following table summarizes a range of different procedures, mainly drawing on U.S. and European Procurement legislation. Bear in mind that the ‘what for’ column of the table offers a sample of situations in which the procedure can be used, rather than aiming to be comprehensive.
Further detail on procurement paths
The open procedure of tendering is the preferred competitive procurement method used for acquiring goods, services and infrastructure works. As open procedures have been primarily designed for the procurement of simple goods it is based on procedures and not outcomes. Consequently, it is not particularly suitable for complex procurement, where the emphasis is placed on the output and outcome of the contracting process.
While open procedures are the most frequently used in the EU (73% of contracts are awarded with this method) only 52% of the procured value in euros is spent using this method.
Restricted tendering is a procurement method that limits the request for tenders to a select number of providers. Although considered a competitive procurement method, competition is limited to shortlisted or invited organizations. This is either because only few organizations are qualified or because certain conditions require a limitation on the number of firms participating in order to reduce the time and cost of the selection process.
This procedure is mainly used for projects with high levels of risk where authorities need to ensure that bidders have the capability to deliver the project. You can also apply this process if, during the discovery phase, you find that there is a large number of potential providers and you seek to shorten the timings.
Competitive procedure with negotiation
This method is suitable when the contracting authority believes that negotiations would be beneficial, for example because there are no suitable “off the shelf” solutions. One attractive feature is that it allows the authority to reserve the right to negotiate bids, but does not require negotiations if the authority considers that it can make an award decision based on the initial bids.
Competitive dialogue (EU)
In response to a contract notice, potential providers may submit a request to participate by providing the information established for the qualitative selection. The contracting authority assesses the information provided and invites certain bidders to participate in the dialogue. The contract should be awarded solely on the basis of the award criteria, which established the best price-quality ratio.
This procedure is useful when the contracting authority is unable to define the means of satisfying its needs or of assessing what the market can offer in terms of technical, financial or legal solutions. Where relevant, contracting authorities should be encouraged to appoint a project leader to ensure good cooperation between the bidders and the contracting authority during the award procedure.
Sole / Single Source
These are both non-competitive procurement methods and should be used only under exceptional circumstances:
- In emergency situations
- When only one firm or individual is qualified to fulfill the requirement
- When only one organization can provide the solution
Single source means that, even if two or more organizations can provide the solution, the authority determines that there are specific reasons to award a contract to one provider. These reasons need to be justified in writing.
Sole source is the procurement method you need to undertake if there is only one possible provider. You should justify the uniqueness of this provider.
Given their constraints on competition, sole or single source procurement should only be used when strictly necessary. Except in emergency situations, it is highly recommendable to first undertake a full discovery phase before choosing this path.
Request for quotations (RFQ)
A request for quotations is a procurement method that is used for small value procurements. It is also known as ‘invitation to quote’ and ‘shopping’, and does not require the preparation of tender documents to the same extent as open tendering, request for proposals or two-stage tendering.
- Start by asking yourself questions. How much do you really know about the market? What has worked in other cities? Could their solutions be adapted to your local context?
- Market discovery should be planned, adequately resourced and carried out openly to deliver reliable results and avoid later claims of bias. While the market discovery phase is usually separate from procurement, it can also be incorporated into the procurement process.
- In those cases where the market discovery reveals limited availability of solutions, or if those available need to be tested, it can be particularly recommendable to include a validation phase.
- It is important to involve your procurement team to find the best suitable option given the needs of your project and your regulatory frameworks.
- All procurement methods should follow the same principles: being fair, open and transparent processes.
Now do your homework!
Get a copy of the Worksheet to understand the importance of market engagement and choose the most adequate procurement path based on previous analysis (problem that needs to be solved and ownership and financial models).