CSM80013 Procurement, Tendering and Contracts Session 5

CSM80013 Procurement, Tendering, and Contracts - Selected extract of Live Online Lecture Session in Week 5
(Semester 1 2022: SUT-Hawthorn)
CSM80013 Procurement, Tendering

and Contracts (Semester 1, 2022)
Ekambaram, Palaneeswaran
Office: ATC738
Tel: 92148526
Email: pekambaram@swin.edu.au
CSM80013 Module 2 (Week 5 to Week 8)

This module covers tendering, source selections, and value
reinforcement aspects of procurement in project-based settings.
This module includes topics such as prequalification, estimating &
cost planning for bid/ tender preparation, analysis of bids/ tenders/
proposals, supplier/ vendor selection, contractor/ sub-contractor
selection, consultant/ sub-consultant selection, best value,
procurement negotiations, and value reinforcement approaches/
practices
CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)
© A/Prof Palaneeswaran Ekambaram (Tel: +61 3 92148526, Email: pekambaram@swin.edu.au; Office: ATC738);
School of Engineering, Swinburne University of Technology, Hawthorn, Victoria 3122, Australia 1
Procurement competencies
Policies, Strategies, Governance and Systems
Law and Contracts
Risk Management
Negotiation
Sourcing
Analysis, Evaluation and Decisions
Relationship Management – Supply Chain, etc.
Identification of Needs, Prioritisation of Requirements, and
Request Development
Market research
Due diligence, Ethics and Integrity
…
Brief brainstorming at the beginning of this module
Supplier selection…
Contractor selection…
Consultant selection…
Some procurement terminology
Quotations: a statement of seller/ provider which indicates or sets out the

estimated cost/ price for a specific product or service
– e.g. Request for Quotations (Note: some times quotations are also
‘solicited’)
Tender or Bid
– e.g. Invitation to Tender, tender evaluation
– e.g. Invitation to Bid, low bid selection
Proposal
– e.g. Request for Proposal, best value proposal
Procurement Activities (ISO10845-1:2010)

Procurement activities commence once the need for procurement
is identified and end when the transaction is completed.
Six principal activities associated with the procurement process:

1. establish what is to be procured;
2. decide on procurement strategies in terms of
• packaging, contracting, pricing and
targeting strategy and procurement procedure;
3. solicit tender offers;
4. evaluate tender offers;
5. award contract;
6. administer contracts and confirm compliance
with requirements.
4 Standard Procurement procedures (ISO10845-1:2010)

Negotiation procedure: A tender offer is solicited from a single tenderer.
Competitive Selection procedure: Any procurement procedure in which the
contract is normally awarded to the contractor who submits the lowest financial offer or
obtains the highest number of tender-evaluation points.
Competitive Negotiation procedure: A procurement procedure which reduces the

number of tenderers competing for the contract through a series of negotiations until the
remaining tenderers are invited to submit their final offers.
Electronic Auction procedure: Tender submissions are initially evaluated using

stated methods and criteria. All tenderers who submit responsive tenders are invited
simultaneously, by electronic means, to submit new evaluation parameters and have their
evaluation scored, without having their identity made known to other tenderers. Tenderers
may amend their offers up until the time when the auction is closed.
7 Competitive Selection procedures (ISO10845-1:2010)

Nominated procedure: Tenderers that satisfy prescribed criteria are entered into an electronic
database. Tenderers are invited to submit tender offers based on search criteria and, if relevant,
their position in the database. Tenderers are repositioned in the database upon appointment or
upon submission of a tender offer..
Open procedure: Tenderers may submit tender offers in response to an advertisement by the
employer to do so..
Qualified procedure: A call for expressions of interest is advertised and thereafter only those
tenderers who have expressed interest, satisfy objective criteria and who are selected to submit
tender offers, are invited to do so..
Quotation procedure: Tender offers are solicited from not less than three tenderers in any
manner the employer chooses, subject to the procedures being fair, equitable, transparent,
competitive and cost-effective.
Proposal procedure with two-envelop system: Tenderers submit technical and financial
proposals in two envelopes. The financial proposal is only opened if the technical proposal is found
to attain the minimum threshold score
Proposal procedure with two-stage system: Non-financial proposals are called for. Tender
offers are then invited from those tenderers that submit acceptable proposals based on revised
procurement documents. Alternatively, a contract is negotiated with the tenderer scoring the highest
number of evaluation points.
Shopping procedure: Written or verbal offers are solicited in respect of readily available goods
obtained from three sources. The goods are purchased from the source providing the lowest
financial offer once it is confirmed in writing.
2 Competitive Negotiation procedures (ISO10845-1:2010)

Restricted Competitive Negotiations: A call for expressions of interest is
advertised and thereafter only those tenderers who have expressed interest, satisfy
objective criteria and who are selected to submit tender offers, are invited to do so. The
employer evaluates the offers and determines who may enter into competitive
negotiations.
Open Competitive Negotiations: Tenderers may submit tender offers in response

to an advertisement by the employer to do so. The employer evaluates the offers and
determines who may enter into competitive negotiations.
Source selections in project procurement
‘SOURCE’ selection is generic umbrella term used to refer contractor

selection, consultant selection, supplier selection, etc.
Right selection of a suitable ‘SOURCE’ is crucial to the overall project
success (e.g. in construction projects)
Right source
procurement choice
Source selections in project procurement (contd.)

Main procurement tasks of clients/ owners for source selections in projects
– Identifying and selecting capable procurable entities (i.e. bidders/
proposers)
– Evaluating bids/ tenders/ proposals and selecting a suitable ‘source’ for
contract award
– Arranging and administering contracts and payments
Identifying and selecting capable procurable entities
‘Source’ identification methods

– Open Competition
– References/ Identification from Reputation (e.g. Direct Invitation, Direct
Negotiation)
– Prequalification and/ or Post-qualification
– Selective Tendering from Registered Lists and Short-Listing
– Any other…?
Prequalification
What do you mean by this?
Why do you need pre-qualification?
How this is done?
This Photo by Unknown Author is licensed under CC BY-SA-NC
Prequalification
Static prequalification approaches

– In static prequalification, contractors are ‘prequalified’ or ‘registered’ in
an array of fixed bands such as Categories 1, 2, 3 & 4; Groups A, B, &
C; or Classes 1, 2, 3, 4 & 5
Class A Class B Class C Class D
Reference: Palaneeswaran, E., and Kumaraswamy, M.M. (1999) “Dynamic contractor prequalification.” Proceedings of the
ARCOM-99 conference, edited by Hughes, W., ISBN 0 9534161 2 7, pp.615-624.
Prequalification (contd.)
Dynamic prequalification approaches
– Some public clients (such as New Jersey Department of Transportation) use various
prequalification ratings to dynamically prequalify contractors. For example,
Maximum capacity rating is the total dollar amount of uncompleted work that an applicant
may have under contract at any one time as prime contractor and/or subcontractor,
regardless of its location and with whom contracted. Some such dynamic ratings are:
• Permissible gross financial capacity
• Net available financial capacity
• Permissible gross technological capacity
• Net available technological capacity 'Available
• Permissible gross personnel capacity capacity'
ratings (in '$'
• Net available personnel capacity value)
• Permissible gross experience capacity

• Net available experience capacity
Time
Reference: Palaneeswaran, E., and Kumaraswamy, M.M. (1999) “Dynamic contractor prequalification.” Proceedings of the
ARCOM-99 conference, edited by Hughes, W., ISBN 0 9534161 2 7, pp.615-624.
Source selection criteria
Materials supplier selection criteria

Equipment supplier/ vendor selection criteria
Contractor selection criteria
Consultant selection criteria
Use of Criteria, Weights & Ranks for Procurement Decisions

Selecting appropriate criteria
The criteria should be operational (i.e. the decision maker should be
able to judge the relative performance of alternatives)
– Relevance/ appropriateness
– Significance
– Meaningfulness
– Value pertinence
– Measurability
– Unbiased and objective judgement capability
– Repeatability & justifiability
– Logical and transparency potentials
‘SMART’ Source Selection Criteria

Simple
S Specific
Structured
T M
Transaction specific
SMART Measurable
Time focused CRITERIA Meaningful
Tangible means Manageable
Repeatable
Realistic Agile
Risk balancing R A Agreeable/
Relational Acceptable
McNamara’s Fallacy & measurability of source selection criteria
Following are McNamara fallacies

x The first step is to measure whatever can be easily measured.
This is OK as far as it goes
x The second step is to disregard that which cannot be easily
measured or to give it an arbitrary quantitative value
x The third step is to presume that what cannot be measured
easily really is not important
x The fourth step is to say that what cannot be easily measured
does not exist
Therefore, measurability aspects of source selection
criteria should not be affected and choice of criteria should
be decided accordingly!
Criteria, Weights & Ranks

Assigning appropriate priority ranks (& weights) for chosen criteria
– Client-specific requirements
– Project-specific requirements
– Other influencing factors
• External
• Internal
Weight elicitation models

Different weight elicitation models are being used and the results of
each model might be different!
Equal weighting
Rank sum weighting
Ratio scale weighting
Rank order centroid weighting
Swing weighting
Indifference weighting
Pair-wise rating as in AHP
Any other?
Rank Sum method

Rank sum weight
– E.g. if the number of objectives (k) = 3, and the measure of dispersion (d) is set at 0.2,
the rank exponent weights for first, second and third objectives are: w1=0.50; w2=0.33;
w3=0.17;
Ratio Scale method

Weights are defined on a ratio scale
- e.g. on a ratio scale of 0 to 100, assigning of 70% for a specific
criterion
Weights are assigned to reflect the relative importance
- such as moving an attribute from worst to best level
Criteria Significance Ratio scale weight
Cost 30 50
Quality 20 33
Time 10 17
Rank Order Centroid method

Rank sum weight
w3=0.17;
k
Rank order centroid weights w 1 1
i
k j 1 rj
1 1 1
– E.g. if the number of objectives (k) = 4, then w1 1 ... /4 0 . 52
2 3 4
1 1 1
w2 ... /4 0 . 27
2 3 4
– Similarly, if the number of objectives (k) = 3, the rank order centroid weights for first,
second and third objectives are: w1=0.55; w2=0.27; w3=0.18!
Rank Exponent method

(k ri 1) d
Rank exponent weight wi K
(k r j 1) d
j 1
w3=0.29;
Rank Reciprocal method

1/ ri
Rank reciprocal weights wi k
(1/ rj )
j 1
– E.g. if the number of objectives (k) = 3, the rank reciprocal weights for first, second and
third objectives are: w1=0.55; w2=0.27; w3=0.18!
An example problem for in-class exercise
In a contractor prequalification exercise six criteria are considered and

the details are given in the following table. You are required to assign
normalized weights for those criteria.
Criteria Importance Rank
Past experience in similar projects 100 1

Technical capability 70 2
Financial Strength 40 3
Past performance in other projects 35 4
Current workload 20 5
Equipment resources 15 6
Sample solution…
An in-class exercise
Assume that you are procurement officer for a large construction
contractor in Australia. You are required to identify equipment
supplier/ vendor selection criteria for one of the major equipment that
could be used in many of your prestigious projects. Also, suggest a
weighted scoring based supplier selection template and illustrate with
an example.
An example solution…
Assessment Scores (on a

Weighted Score
Criteria 6-point scale of 0 to 5)
Supplier Assessment Criteria
Weightings
Supplier Supplier Supplier Supplier Supplier
Supplier 3
1 2 3 1 2
Price 25% 3.0 3.0 3.00 0.75 0.75 0.75
Experience in this business 15% 3.0 2.0 2.00 0.45 0.30 0.30
Reputation & Track-record in the industry 15% 3.0 3.0 4.00 0.45 0.45 0.60
On-time delivery 10% 3.0 3.0 2.00 0.30 0.30 0.20
Product quality 20% 4.0 2.0 5.00 0.80 0.40 1.00
Post-sales service & support 5% 3.0 5.0 4.00 0.15 0.25 0.20
Warranty 5% 2.0 5.0 4.00 0.10 0.25 0.20
Brand value 5% 5.0 5.0 2.00 0.25 0.25 0.10
Total 100% 3.25 2.95 3.35
Competitive or Non-Competitive based?
This Photo by Unknown Author is licensed under CC

BY-SA
This Photo by Unknown Author is licensed under CC BY This Photo by Unknown Author is licensed under CC BY-SA
Single Source Selection

This approach should be used only in exceptional circumstances, such as
if a clear advantage over competitive selection could be established
For example, continuation of previous work, emergency situations, very
small assignments, exceptional qualifications or special proprietary skill
sets not available elsewhere.

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CSM80013 Procurement, Tendering, and Contracts - Selected extract of Live Online Lecture Session in Week 5

(Semester 1 2022: SUT-Hawthorn)

CSM80013 Procurement, Tendering

CSM80013 Module 2 (Week 5 to Week 8)

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Brief brainstorming at the beginning of this module

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Some procurement terminology

Quotations: a statement of seller/ provider which indicates or sets out the

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Procurement Activities (ISO10845-1:2010)

Six principal activities associated with the procurement process:

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

4 Standard Procurement procedures (ISO10845-1:2010)

Competitive Negotiation procedure: A procurement procedure which reduces the

Electronic Auction procedure: Tender submissions are initially evaluated using

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

7 Competitive Selection procedures (ISO10845-1:2010)

2 Competitive Negotiation procedures (ISO10845-1:2010)

Open Competitive Negotiations: Tenderers may submit tender offers in response

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Source selections in project procurement

‘SOURCE’ selection is generic umbrella term used to refer contractor

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Source selections in project procurement (contd.)

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Identifying and selecting capable procurable entities

‘Source’ identification methods

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Why do you need pre-qualification?

How this is done?

This Photo by Unknown Author is licensed under CC BY-SA-NC

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Static prequalification approaches

Class A Class B Class C Class D

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

• Permissible gross experience capacity

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Source selection criteria

Materials supplier selection criteria

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Use of Criteria, Weights & Ranks for Procurement Decisions

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

‘SMART’ Source Selection Criteria

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

McNamara’s Fallacy & measurability of source selection criteria

Following are McNamara fallacies

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Criteria, Weights & Ranks

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Weight elicitation models

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Rank Sum method

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Ratio Scale method

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Rank Order Centroid method

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Rank Exponent method

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

Rank Reciprocal method

CSM80013 – Session 5, Semester 1, 2022 (E. Palaneeswaran)

An example problem for in-class exercise