To Bid or Not To Bid

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1 To Bid or Not To Bid That Should NOT Be a QUESTION When soliciting bids for various purchases, including asphalt and road equipment, townships have a variety of tools at their fingertips. From requests for proposals to invitations to bid, townships should know the ins and outs of the different types of solicitations they can use and leverage to get the best price, quality product, and professional service they re looking for. BY THE PENNBID TEAM 38 PA TownshipNews MAY 2018

2 Townships routinely purchase products and services from a wide variety of vendors and suppliers ranging from professional services, such as engineering and auditing, to equipment, consumables, and construction. In general, any purchase by a public agency must be done transparently in an equitable environment that demonstrates wise spending of constituents tax dollars. Most township officials understand that solicitations must be publicly advertised and/or competitively bid, which reinforces the idea of transparency to the public and promotes healthy competition between vendors. However, are you just as familiar with the differences between solicitation types: IFBs, RFPs, RFIs and RFQs, the alphabet soup of bidding? Each of these acronyms stands for various common solicitations used by townships and other municipal agencies. They differ in terms of what products, services, or outcomes are being requested; however, when used appropriately, they can reduce overall costs and increase service. Bidding thresholds Before we delve into solicitations that are required to be publicly advertised, it is worth mentioning the dollar values that trigger the bidding process in the first place. The state Department of Labor and Industry issues annual updates of Consumer Price Index Adjustment of Base Amounts on Bids. This document identifies the formulas that establish the dollar values associated with bidding thresholds, which are generally tied to a percentage change in the Consumer Price Index for All Urban Consumers. As of January 1, 2018, the thresholds for townships of the second class are as follows: Contracts less than $10,900 are not required to be bid. Contracts between $10,900 and $20,100 require written or telephone price quotations from at least three qualified and responsible vendors. Documentation of the quotes should contain, at a minimum, the date of the quotation, the name of the vendor and their representative, a clear description of the product, service, or construction requirements, and of course, the price and terms. Townships should keep this documentation for a period of three years. If fewer than three qualified contractors exist in the reasonable market area, your townships should keep a memorandum on file documenting this fact. Contracts greater than $20,100 in value are subject to public bidding. Section 3102 (Letting Contracts) of the Second Class Township Code also lists numerous contracts that may be exempt from advertising, bidding, or quotations regardless of dollar value. One example would be contracts associated with repairs and/or rental equipment needed for emergency situations. Types of solicitations Townships have a variety of solicitation approaches available to them, including all of the following: Townships must follow a prescribed bidding procedure when purchasing goods and services that exceed $10,900. Your township may issue a request for information (RFI) to collect written information about products and services available in the marketplace to meet your needs. RFIs also help identify vendors capabilities and strengths for comparative purposes. An RFI is primarily used for gathering information to help decide what steps to take next. RFIs are therefore seldom the final stage and instead, are often used before or in combination with other requests such as a request for proposal (RFP), invitation to bid (ITB), or request for quotation (RFQ). RFIs are commonly used on major procurements where a desired outcome could potentially be met through several alternative means. However, an RFI is not an invitation to bid, is not binding on either the buyer or the seller, and may or may not lead to a project or contract. A request for qualifications MAY 2018 PA TownshipNews 39

3 HOW TO BID solicitation is typically used as a screening step to establish a pool of qualified vendors eligible to submit responses to a subsequent bid. This eases the overall procurement process by pre-emptively short-listing candidates to those who meet the desired qualifications. This step is commonly used on larger-scale or highly specialized projects, where townships wish to establish a list of pre-qualified potential bidders. In this two-step process, the response to the RFQ will describe the company or individual s general qualifications to perform a service or supply a product but commonly will not include specific details or price proposals. A major benefit of this process for vendors is that they only need to invest their time and effort toward preparing a full proposal if they are pre-qualified for the solicitation. Townships may use several types of solicitations in the bidding process, including a request for proposals, or RFP. This request outlines the specifications for a project, service, or materials purchase and invites vendors to propose an affordable solution. Because most townships are generally tasked with awarding contracts to the lowest responsible and responsive bidder, using this two-step process can be helpful in obtaining prices only from firms that have demonstrated the capability and capacity for delivering on similar projects. In some municipalities, a request for qualifications is required and generally considered a best practice. Also, some funding sources, such as the Federal Highway Administration, require this qualification step depending on the project. Townships can use a request for quotations to ask outside vendors to offer a quote for the completion of a specific task or project. An RFQ is typically used when products and services are standard or off-the-shelf, which allows the soliciting township to easily compare the various bids. Requests for quotations often include detailed specifications or industry- 40 PA TownshipNews MAY 2018

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5 HOW TO BID defined standards to make sure all vendors are bidding on the same items/ services. Generally speaking, the more detailed the specification, the more accurate the quote, thus facilitating the evaluation process. A quote received in response to such a request is typically not a binding contract; however, it may be used as the basis for developing a contract between the township and vendor. Therefore, a greater level of detail during this step often simplifies the preparation of contract documents. A request for proposals (RFP) is a type of bidding solicitation in which a township has funding available for a particular project, service, or materials purchase to which companies can submit proposals. The request outlines specifications, including the desired solution and evaluation criteria, and discloses how proposals will be assessed. Requests for proposals may include a statement of work describing tasks to be performed by the winning bidder and a timeline for providing finished work. Subjectivity during the evaluation period can be minimized by clearly communicating how the proposals will be weighted and scored. At times, a request for proposals can be used in conjunction with a request for quotations or preceded by a request for qualifications when a township desires pre-qualifying vendors. An invitation for bids (IFB), also known generically as open bidding, is The idea of best value, rather than least cost, is getting some traction in Pennsylvania as more municipalities continue to adopt this concept. a commonly used form of solicitation by many townships. In certain areas, IFBs are also known as an invitation to tender, and the two are often used interchangeably. In this type of solicitation, in-depth specifications and details of projects are made available to contractors to submit sealed bids. Because the heavily weighted focus is on the bidder s price for project completion, there is less emphasis on the bidder introducing its own ideas. This is probably the biggest difference between an invitation for bids and a request for proposals. The fundamental requirements 42 PA TownshipNews MAY 2018

6 and effectively, benefits of open bidding include: the process is open to all qualified and interested bidders; the IFB is advertised locally; the qualification criteria are objective; the technical specifications are clear and neutral; evaluation is clear and unbiased; and the bid is awarded to the least-cost qualified provider. It is generally presumed that this procurement method promotes effective competition and results in lower costs. However, some have argued that the process was primarily designed for the procurement of simple goods given that the open bidding method is heavily procedure-based. As a result, complex projects that require a significant focus on objectives and performance standards may be better served by using a two-step process, usually a combination of a request for qualifications and request for proposals. Some disadvantages of the open bidding process include: there is a strict adherence to procedures; it assumes an existing capacity for the completion of clear and precise specifications; it restricts suppliers participation in determining the technical specifications; it focuses primarily on a least-cost provider; it tends to suppress innovation; and it creates an excessive formality, which may limit vendor participation. The idea of best value, rather than least cost, is getting some traction in Pennsylvania as more municipalities continue to adopt this concept. Lesser known options might be the best solution While the above solicitation types are more commonly known, there are a few other, lesser known processes that are worth mentioning: A request for association (RFA), also known as a request for partnership or request for alliance, is a proposal from one party to another who act together and share the benefits and responsibilities of the joint action. With the increasing popularity and success of public-private partnerships, this type of solicitation can be a first step in identifying potential partnering agencies or companies that share common objectives. A request for solutions (RFS) is like an RFP but more open and general and offers the vendor or supplier the most flexibility of all the request types. Vendors can submit a response that expresses their own solution, product, or service combination intended to achieve the performance goals established by the township. This approach affords the greatest level of creativity and innovation; however, RFSs also require a more significant level of effort when comparing and evaluating contrasting approaches from different vendors. An RFS can sometimes serve as an effective planning mechanism at the initial phase of a project to identify innovative solutions that can be further vetted, and possibly used, as the basis of subsequent RFQs, RFPs or IFBs. Reverse electronic auctions (REA) are advertised in the same manner as other solicitations but with bids accepted electronically. During the auction, a bidder s prices are disclosed to other bidders. Bidders then have the opportunity to reduce their bid prices during the auction until a final low bid is determined. At the conclusion of the auction, the record of the bids received and names of bidders are made available to the public. Pennsylvania is one of many states that prohibits the use of REAs for construction projects due to their historically high default rate. Because of limited applicability and other restrictions, REAs are not that common. Rarely black and white Remember, public bidding is rarely black and white, as every township has unique needs, resources, and project objectives. Some townships also are affected by home rule charters that may mandate what process the township must use. Also, projects might be affected by funding source-driven requirements that direct a specific process. In this case, townships should consult with their solicitor to ensure that they are choosing the most advantageous and appropriate path. However, townships need to understand what options they have and how various approaches can emphasize different elements and considerations of the procurement process. Hopefully, understanding these solicitation options will lead to cost-effective and high-value decisions for township residents. F * * * About PennBid: A PSATS-endorsed program, PennBid is the pinnacle benchmark e-procurement and electronic bid management program in Pennsylvania. Provided at no cost to public agencies or design/consulting firms, PennBid has opened doors for many to take advantage of electronic procurement tools generally not available due to high cost and system complexity. For more information about PennBid or to arrange a demo of the program, please call (717) or visit our website at Townships should take a good look at their bidding procedures to make sure they are using the best method to get everything they want from a contractor. MAY 2018 PA TownshipNews 43