You might have noticed this weekend's Business Times' article on Dennis Worral and his little issue with doing business (or more correctly, his ATTEMPT) at doing business with the government. The bidding department is that of Transport. The story goes along these lines
(Worral's company) put in a R6.7-million bid to run a three-day investment conference for the transport department in June, but the tender was awarded to a 100% black-owned company, which offered to do the job for R13.5-million.
And when Worral asked why they didn't win
A spokesman for the Department of Transport, Thami Ngidi, has refused to enlighten Worrall about the tender award, other than to insist that the bid committee made its decision "based on price and capacity to deliver".
My natural tendency is to assume that the transport department was wrong, a sentiment that the article seems to suggest. I then spoke to Jan Breytenbach of National Treasury about the tender rules and how to evaluate the 80 or 90 points for price. Jan was extremely helpful, this is what I learned.
-
In terms of general tender transparency and other rules the tendering department has to supply a reason as to why a bidder was not successful. They do not have to provide intimate information about why a certain bidder won, in other words "based on price and capacity to deliver" is a sufficient answer in terms of the law.
-
I thought that perhaps the 90 points (the winning bid was R13.5m so it must be 90 points) would have been made up of price and functionality. This is what brought me to Jan Breytenbach, I couldn't figure out how the functionality points worked. Jan referred me to this Treasury Note which alerted bid managers that functionality had been regarded as ultra-vires in two different high court judgments. This would explain why the new regulations have eliminated functionality.
-
The bid process removes all those bids that don't qualify for a variety of reasons. In other words the bid committee looks at the response and decides whether the bidder can actually deliver on what they are promising. If not, their bid is rejected (it's likely that Worral's bid was rejected at this point). The remainder of the bids are then evaluated out of the 90 points which is based on price.
Now onto the actual tender. I'll have to speculate here because I don't know anything about the pricing details other than the winning bid was for R13.5m.
So we'll invent a few other bidders for fun
A company – R12.7m
Winning company – R13.5
Other company – R14.9m
Let's start with the 10 preference points.
These points are allocated on a variety of criteria. I have seen bids that award points on this kind of basis (very speculative)
Criteria |
Number of points |
Ownership of people who had no vote before 1994 |
6 |
Woman ownership |
3 |
Local capacity |
1 |
In each of these cases they would allocate a formula but the maximum number of points is available for 100% compliance. Under these circumstances we might be referring to African, Coloured or Indian people. The women ownership points would include white women. Local capacity might refer to how much of the work would be performed by South African sub-contractors. Again, I haven't seen the bid so I don't know what the criteria might be.
In our fictitious world let's say the preference points were awarded this way
Company |
Preference points |
A company |
0 |
Winning company |
8 |
Other company |
6 |
What about the 90 points that are based on price
The vast majority of government tender documents allocate the full 90 points for price. The formula for these points is (this has remained unchanged in the 2011 regulations – except they've brought in the concept of "comparative price").
Ps = 90 x |
1 - |
Pt - Pmin |
Pmin |
Where
Ps = Points scored for price of tender under consideration
Pt = Rand value of tender under consideration
Pmin = Rand value of lowest acceptable tender
The points for these three companies are (you'll have to trust my calculations).
Company |
Price points |
A company |
90 |
Winning company |
84 |
Other company |
74 |
Putting it altogether
Many believe that if you don't get any of the preference points your bid is rejected altogether. This is rubbish by doing that you'd effectively be setting aside procurement for a certain type of bidder. This was outlawed by Treasury in 2006. The rule is that the bidder with the highest number of points (there is a caveat this: a bid may be awarded to a bidder with fewer points under certain circumstances).
Company |
Price points |
Preference points |
Total number of points |
A company |
90 |
0 |
90 |
Winning company |
84 |
8 |
92 |
Other company |
74 |
6 |
80 |
You'll see how important the preference points are in bids that are very similarly priced. And the pricing is one of the things that the bid committee should be aware of at the outset (as per paragraph 3.a of the new PPPFA regulations).
Our PPPFA course
We've partnered with Keyona Business Information & Management Solutions to deliver a one-day PPPFA course where I'll be covering all this information and how the new regulations work in the bid process. I'll also throw in a special section on the Madonsela report. The course is on the 5th of October, 2011 in Gauteng. You can find out more information here – or download the brochure.