EPC tender evaluation, one stage or two

stage bidding?
A tender for a desalination plant was called for on EPC contract
basis on basis of single stage- two envelope system but offers
received are on the basis of different make and technologies. It is
employer’s thinking now that they should have called this tender on
the basis of two stage- two envelope system as systems offered in
each bid is substantially based on different technologies. Can they
convert single stage to two stage bidding on the basis of selected
technology even now or they call proposals afresh?
EPC philosophy
This subject shows how Employers often struggle with the EPC philosophy during
an EPC tender evaluation. They want to apply the EPC philosophy for its risk
allocation: They are looking to transfer the maximum amount of risks to the
Contractor. However, they are hesitant when evaluating offers received on EPC
tenders. They prefer to compare “apples with apples” rather than doing a more
complex evaluation with several variables: price + performance + construction
period + O&M costs + etc.

Applying the EPC philosophy halfheartedly is a recipe for failure. EPC

projects are always complex projects. The art to get them to work properly is to not
only let the EPC Contractor bear a larger part of the risks. But also allow him to
optimize the project as per his ideas and competences.

On a tender for an EPC Contract, the Contractor should be free to

choose the technology as long as it respects the Employer’s
Requirements. These Employer’s Requirements should be
functional instead of prescriptive, because different bidders have
submitted compliant bids with different technologies.
The important part of these Employer’s Requirements are
the performance guarantees. For a desalination plant, this concerns
the quantity of water produced per time period (cum/h) to a certain
water quality.
 The Employer should evaluate offers that fulfill or exceed the
Employer’s Minimum Requirements based on their price, the actual
performance guarantees and any other established evaluation
criteria (like operation and maintenance costs). During EPC tender
evaluation, often, the personnel of the Employer are afraid to do so
with different technical solutions. They would like to make
the offers technically uniform and just evaluate on price. That’s
very much against the spirit of an EPC Contract.

Single stage, two-envelop evaluation process

So, how to properly evaluate EPC tenders?

The single stage, two-envelope solution. Steps:

1. Check the fulfillment of the minimum performance criteria;

2. For those bids that pass step 1, quantify the technical
solution based on the performance criteria, e.g. quantity of water
produced per time period, energy consumed in the process,
effluents, construction time etc. The bidder’s performance on each
of these criteria should be given a monetary value (e.g. how much is
worth one month of shorter construction period);
3. Only after concluding step 2 proceed to open the price envelop so
that the technical performance evaluation is not biased by the
prices (i.e. avoiding biased evaluation of the technical criteria due
to knowledge of the price gaps);
4. The preferred bidder is the one who has the optimal solution of
price + performance criteria that have been evaluated on monetary
basis.

What not to do ? i.e. what should the Employer certainly not do:
It would be unfair to the bidders to transform this process now in a
two-stage process. Especially when allowing bidders to adjust their
technical solution to the one preferred by the Employer; preferred
after seeing the all Contractors’ proposals. Furthermore, it is likely
to lead to contract award to a Contractor that did not intend to
implement the chosen technical solution. This was probably because
they are less familiar with it. And that leads very often to under-
pricing a technical solution and “success” in the second stage. As
we all know, that is looking for trouble on complex projects (like
desalination plants).
Contractors, specialized in EPC Contracts, invest substantial amounts in preparing
an optimized EPC bid. They can’t accept that their good ideas would be thrown on
the table for all the competitors to use. These competent EPC Contractors will
simply decline to participate to such a tender.

5 thoughts on “EPC tender evaluation, one stage or two

stage bidding”
1. You have raised valid shortcoming in two stage tendering but I feel that it is not
simpler to evaluate tenders for a functional plant like this and is followed by
lengthy follow up meetings in the evaluation stage. The public sector tendering
should result in best system at least cost or else you face audit observations
leading to another type of problem. Unless you are completely sure that you can
overcome this, I feel two stage tendering is better solution than single stage.

2. Thank you for your very valuable comment.

Indeed, it is more difficult for the public sector to evaluate EPC bids because the
fear to take decisions and face audit is always present.
– Often EPC is not the best solution for the public sector and it should rather turn
to Design & Build with a more detailed specification that has to be followed. This
corresponds to choosing upfront the best system, as you say.
– Or otherwise the public sector should rely on external consulting engineers that
will do the evaluation. Of course, these consulting engineers should be properly
screened to avoid any bias.
3. Your solution to EPC bids using different technologies is correct. However it
would be very difficult to convert each technical parameter into a monetary value.
Most public sectors first prepare a DPR to ascertain a benchmark value of the
project and its individual components. This per force has to be based on a specific
technology. The EPC tender then gives leverage to the contractor to optimize costs
based on methodology and certain amount of value engineering within the
technology chosen by the employer.

4. Thanks for your comment.

Indeed, the objective is not to convert each technical parameter into a monetary
value.
Only those elements that actually impact the revenue for the Employer/Owner
should be given a monetary value.
This applies, for example, to the operation and maintenance costs, the fuel
efficiency (if applicable), the time for completion of the project etc.
Still a job that requires some analysis and concentration to establish the cost/value
of the relevant parameters but not unfeasible because corresponding to the
major/actual impacts for the Employer/Owner.
The alternative of making a relevant detailed specification and doing a detailed bid
evaluation (without the EPC approach) is also complicated.