8.3 The Case of Competitive Dialogue, Interaction, and Best-and-Final Offers (BAFO) Type Procurement Processes

Where and when used. Dialogue and interactive processes

Dialogue types of procurement and other negotiated and/or interactive processes are an option in some jurisdictions (for example, in the EU in general) and are the standard in some others (for example, in Australia, New Zealand, and the UK). Using dialogue or other interactive processes as a procurement route option within the PPP framework is positive because there will always be projects that clearly demand significant interaction before finalizing contract stipulations. It also guarantees commercial feasibility or even optimizes the VfM.

Dialogue/interaction is a strong driver for better outcomes as it ensures that the government is asking for something that can be delivered by the market (the EU model) or that bidders fully understand the government’s requirements (the Australia/New Zealand model). However, this approach demands significantly more time and resources from all parties and creates risks that transparency and fairness may be compromised. Hence, it works best in mature PPP markets, and may be difficult to implement in some EMDE countries.

In these type of processes, bidders are pre-qualified in advance of the bid preparation stage, and bidders will commonly not only be pre-qualified but selected, that is, a short list will be defined with the best ranked qualifying candidates.

Dialogue processes affect the RFP and contract production process. Where dialogue/interaction occurs before the finalization of the RFP, the initial RFP (named “Descriptive Document” in EU regulations[78]) should include the basics of the RFP (evaluation), basic terms of contract, and rules for the dialogue process itself (structure and timing of meetings, matters regarding handling documents, and so on). When full contract provisions are provided within the package, the contract is regarded as a draft subject to changes and even the RFP regulations may be considered provisional, subject to further development up until the end of the dialogue with the short-listed candidates (to which an “invitation to participate in the dialogue” (ITPD) was addressed). At that point (the end of the dialogue), definitive proposal requirements and evaluation criteria will be approved and the authority will issue the invitations to propose (ITP). This is also commonly named “Invitation to Submit a final tender” (ITSFT) in the EU-regulated competitive dialogue. This is usual in the EU model.

In other cases, dialogue/interaction occurs after the finalization and issue of the RFP, and the RFP will include all of the usual RFP content, together with the rules for the interaction. This is the Australia/New Zealand model. In this model, the procuring authority holds a series of individual interactive workshops with short-listed bidders during the RFP bid stage. Bidders are provided an opportunity to discuss the development of their concepts and designs, and they can seek clarification and feedback in the context of the government’s output requirements, before they lodge proposals. The workshops also minimize the risk of any misunderstanding of the government’s requirements. The objective is to improve the quality of bid submissions and ultimately deliver better outcomes for the public through clear communication of the government’s requirements to ultimately influence the overall quality of proposals received from short-listed bidders.[79]

Negotiated procedure and BAFO

In the negotiated procedure with BAFO, similar to processes with two stages and a Dialogue/Interaction Phase, the short-listed bidders (candidates) will present and discuss technical solutions during the course of the interaction. However, in a negotiated procedure, this will be in the form of a binding technical proposal with a binding price. Two candidates are selected from the bid evaluation process (usually pass/fail for the technical proposal and lowest bid for the price). After negotiations, the two selected candidates will submit new offers (Best and Final Offer – BAFO) on the basis of the risk allocation and technical terms that have been developed with the two candidates in parallel (Public-Private Infrastructure Advisory Facility [PPIAF], Toolkit for Public-Private Partnerships in Roads and Highways). The selection criteria to define the preferred bidder will normally only be the price.

The final negotiation phase with the preferred bidder (the other candidate would remain in reserve) should finalize actions, complete certain due diligence aspects by the preferred bidder in order to settle the final risk sharing, and give them time to arrange financial close. Chapter 6.10 describes issues related to final negotiations with preferred bidders.

Dialogued and interactive processes: specific drafting matters[80]

As described above, the documentary package for the dialogue process (which is the RFP in many countries, but not in others) will cover, in addition to contractual regulations and typical RFP matters, specific regulations about the dialogue or interactive process itself. Typical matters to be described and regulated in the documents are as follows.

Regulations of one-on-one meetings and potential open meetings: how many, how frequent, how to define who comes first, who may attend, how to govern the agenda, and so on. Confidentiality matters. Submission of “business solutions” (business solutions is the concept used in the EU to refer to the proposal of certain changes or suggestions of technical and commercial approaches to the authority so as to change or adapt the RFP and final contract). Process of submitting questions and producing answers. Dealing with changes in consortia composition. Generally speaking, changes in the composition of a short-listed consortia are not allowed (that is, the resignation of a member of an association or group) except in some force majeure circumstances. Stipends and dialogue bonds – see below.

Australia’s National PPP Guidance has 20 pages of principles and practical guidance on interactive processes[81]. This is focused on the Australian model, but many of the principles can be applied to other interactive processes.

Stipends and risk of abandonment

Bidding in a dialogue context is much more expensive for bidders than a conventional process, so the cost may limit the market appetite. However, this is balanced by the advantage for bidders of being closer to success, as competition will have been specifically narrowed to the number of short-listed groups.

In these processes, the initial documentary package for the dialogue must be substantially developed so the prospective bidders can assess from it the feasibility of the project and consider whether it will meet the bidders’ investment requirements. Otherwise, the risk of lack of interest in the process will be significant.

In these circumstances, the risk of only receiving one or two bids and having little competitive tension is significant. To avoid this, many processes give any responsive bidder the right to receive stipends (compensation for part of the costs incurred in bid preparation) which never represent more than a certain percentage of the justifiable costs and are always under a defined cap.

In addition, or alternatively, the authority may request a specific bond to guarantee that the short-listed candidate will participate through the whole process. The bond must be submitted at the inception of the dialogue or the interactive process. This should only be considered where the number of bidders is small (for example no more than three bidders) and the time and effort required to participate in a dialogue or interactive process is large, such that there is a significant risk of bidders abandoning the process. The use of such bonds should be considered on a case by case basis where the risk of abandonment is high and the consequence for the government would be significant. Otherwise, they should generally be considered unnecessary and inappropriate

Chapter 6, which is focused on the tender process and management needs and approaches for the tender period (that is, from tender launch to contract signature), provides further information on dialogue and negotiated processes.