Step Four: Evaluation and Contract Award
Value Comparison
In step four the government will follow the standards and procedures prescribed in the local government procurement law, regulations and implementation guidance.
The type of evaluation depends on the type competitive sourcing under consideration. It must contain a complete cost comparison of every firm (or government work force) submitting a proposal in response to a request for proposal. The cost comparison must be based on the same accounting standards discussed in step two. Indeed, for managed competition, the cost comparison will use the cost information developed for the government in step two.
The evaluation and contractor accountability requirements will increase based on the relationship between the organization and the contractor. The level of accountability required increases with the level of risk to the government organization (or legislative body). The risk is smallest with single services purchased occasionally, and accelerates all the way to situations where services and functions upon which the public relies are completely removed from government. This poses the highest risk because it leaves the public's interest completely in the hands of the private sector. The following examples illustrate the complexity levels.
Purchase of service: The most common arrangements in which services are purchased directly, usually without a major bid process. Generally, three different providers of the service are called and the lowest bid is secured. The only requirement for accountability is acceptance of services upon receipt. These services usually fall in the category of "onetime only" arrangements. For example, 24-hour printing request from a local copier.
- Contracted services. These are services which are needed only once, but are project-driven. These are usually secured by bids or through a request for proposal process. Contracts will generally include time-lines with specific deliverables throughout the process. Major evaluations or studies are examples of this type of contracted services.
- Competitively sourced services. Generally these are replacement services for a program or set of services that the governmental organization was previously doing itself. Here the contractor becomes an extension of the organization and must work closely with the rest of the operation. This type of service is secured through a request for proposal. An example is child support enforcement processing by a Department of Social Services.
- Privatization. Here a major portion of a governmental organization is eliminated, and some or all of its assets may be transferred. A rigorous RFP process is required. An example is the privatization of an individual prison.
- Divestiture: Here an entire organization and its functions are abolished and replaced by a private (or not-for-profit) organization. Often there is no bid process and the new organization is established through the legislative process. For example, the Virginia Department of Economic Development was closed and replaced by a public/private partnership, the Virginia Economic Development Partnership.
If public and private organizations are competing it will be necessary to compute adjustments in the cost data to ensure competitive neutrality and to determine actual costs and savings. Also, if a private firm is selected to perform a service formerly provided by government, the cost of monitoring the private firm's performance must be added to the cost of the contract, as it will be a new cost for government.
The U.S. Office of Management and Budget Circular No. A-76 Performance of Commercial Activities, Revised Supplemental Handbook provides a detailed discussion of a cost comparison process for the federal government. This discussion of the process may be useful for state and local governments preparing their own cost comparison process. The Commonwealth Competition Council "COMPETE" program is the only state level automated program to include specific information on the cost comparison process and the adjustments necessary to ensure competitive neutrality. (1)
The decision to award a contract is tentative and is subject to independent review and appeal. Contracting to create a "win-win" environment is critical. No matter how well the negotiations have gone, it is the contract that ultimately defines the relationship. This is the point where the "cultural differences" between government and business will most often become apparent. Even though viewpoints may differ, both parties' top priority should be achieving a partnership to provide the services.
The contract must be clear, and all its terms defined. Make sure both sides define everything the same way. Leave nothing in doubt, and make no assumptions. A performance-based contract is the best approach in terms of clarity. Performance in this sense means performance outcomes, not a process to achieve outcomes. Performance-based requirements are the best way to ensure accountability and to focus the contractor very clearly on the results the organization expects. These results should be very specific in terms of:
- quality of service,
- amounts of service,
- time frames involved,
- reporting requirements, and
- range of tolerance.
There may be rare instances when processes rather than outcomes or outputs are the desired objective. (2) But these are becoming the exception as the "procurement reform environment" spreads to new levels of government.
Performance incentives are an excellent tool to achieve outstanding performance, but poorly designed performance contracts allow for "skimming" and other forms of service quality problems. The answer in establishing the right incentive or sanction rather than just checking the work process. If you are concerned that the contractor will meet performance criteria by taking the "easy" cases at the expense of taking the hard ones, then structure payments to reward taking the hard cases.
Sanctions for untimely or poor-quality service should also be included. Usually these are financial sanctions. If the contract calls for specific deliverables, these are easy to design sanctions around. However, if the contract calls for services that can be affected by factors that may be beyond the contractor's control, a process should be put in place to mediate the sanctions. Again, it is critical that all parties fully understand and agree to the penalty and reward process before a contract is signed.
The use of multi-year or long-term government contracts is becoming more prevalent. However, the government organization may be reluctant to enter into a multi-year contract, even though the contractor will ordinarily prefer long term. It simply makes good business sense for the contractor, but government has reasons for hesitating.
- Most agencies receive funding on an annual basis and do not always know what their appropriation will be from year to year. This may require non-appropriation language as a part of the contract. (3) Statements of dependency on future or available funding can be included. Review points can be used to determine viability of contract extensions.
- The service need may change during the specified time period.
- Most agencies have knowledge or experience of situations where the contractor "low balled" the bid and then either left the agency with no service mechanism or held the services to ransom for increased fees in subsequent years.
All these problems can be solved with a carefully drafted contract and proper due diligence up front to assess the real cost of service and any associated risks. Contracts can include review and negotiation points to prevent a bailout by the contractor. Transition plans and succession plans can provide a means to work into the contract and to change contractors in the future if dictated by the competitive process. A ratchet effect is created by the prospect of future competition. It helps help keep everyone focused on the desired outcomes. A contractor who is truly intent on a long-term relationship will work out these issues with the organization.
In some instances, it may be necessary for a contractor to comply with certain special regulations or license requirements. These must be made part of the contract requirements and should be monitored just as any other requirement would be monitored. Occasionally time constraints (or fiscal prudence) may make it necessary to have the agency issue a provisional license to a contractor. But especially in such a case there should be time limitations and sanctions written into the contract to assure long-term compliance.
There are some "best practices" that should be observed in the evaluation
- Specify the selection criteria to be used, and rank them in the order of importance as part of the solicitation.
- Consider employing an independent audit of the cost comparison process, especially for major projects.
- Advise unsuccessful proposers in writing as soon as they are eliminated from the evaluation process, and debrief them on request.
- Provide an appeal process for affected individuals and firms.
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(1) Contact the Commonwealth Competition Council for information on obtaining a copy of the "COMPETE" program. The "COMPETE" program is copyrighted, but available for license to other government organizations.
(2) For example, a regulatory program may have specific requirements under law that must be observed.
(3) Non-appropriation language recognizes that the Legislature may not include funding for the specific contract in future years appropriations. It specifies what will happen to a contract is the funds are not made available through the legislative appropriate process. It is a legal out to cancel the contract without penalty to the government if funds are not appropriated.
Peggy.Robertson@dpb.virginia.gov
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