Competitive bidding and follow-on purchases

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Competitive bidding and follow-on purchases

Post by adroth on Wed Aug 04, 2010 4:56 am

A government office has a requirement for 24 pieces of equipment called, for our purposes, a "Transmogifier" (fictitious guys, fictitious, just makes explanations easier -- substitute whatever you wish there). However, annual appropriations could only fund the acquisition of 6 Transmogifiers at a time. So the plan was to buy 6 now, and the rest later.

Through properly conducted public bidding, ACME Corp wins the bid to supply the government with Transmogifiers -- its Model XT-01. Payments are made, and deliveries are made without a hitch. The Integrated Logistics Package specified in the bid specifications meant that ACME Corp provided the government with 5 years woth of spares, and was responsible for training equipment operators for what was a pretty sophisticated piece of equipment.

Fast forward a year later. The GAA grants the office additional funding for another 6 Transmogifiers.

To leverage the training and experience his people have already gained from operating the Model XT-01, the office manager wants to buy more of the same. They also want to take advantage of economies of scale for spare parts.

There are other Transmogifiers in the market, the Model YL-15 from Kamaganak Inc., and Model AB-1 from Oligarchy & Sons. But these use completely different technologies requiring re-training of operators, and are completely incompatible with the unused spares already in-stock.

When starting the acquisition of the next 6 Transmogifiers, can the government office simply enter into a direct contract with ACME Inc, citing commonality and training expenses?

What would have the smart, legal, way to ensure that all 24 pieces of equipment came from a single source . . . and avoiding logistical and support headaches altogether?

Are there any circulars that cover this situation?
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Re: Competitive bidding and follow-on purchases

Post by RDV @ GP3i on Wed Aug 04, 2010 12:14 pm

adroth wrote:A government office has a requirement for 24 pieces of equipment called, for our purposes, a "Transmogifier" (fictitious guys, fictitious, just makes explanations easier -- substitute whatever you wish there). However, annual appropriations could only fund the acquisition of 6 Transmogifiers at a time. So the plan was to buy 6 now, and the rest later.

Through properly conducted public bidding, ACME Corp wins the bid to supply the government with Transmogifiers -- its Model XT-01. Payments are made, and deliveries are made without a hitch. The Integrated Logistics Package specified in the bid specifications meant that ACME Corp provided the government with 5 years woth of spares, and was responsible for training equipment operators for what was a pretty sophisticated piece of equipment.

Fast forward a year later. The GAA grants the office additional funding for another 6 Transmogifiers.

To leverage the training and experience his people have already gained from operating the Model XT-01, the office manager wants to buy more of the same. They also want to take advantage of economies of scale for spare parts.

There are other Transmogifiers in the market, the Model YL-15 from Kamaganak Inc., and Model AB-1 from Oligarchy & Sons. But these use completely different technologies requiring re-training of operators, and are completely incompatible with the unused spares already in-stock.
Parang test sa isang examination for professionalization of procurement practitioners. For whatever purpose this is, may I give my own answers to the following questions based on the information given.

adroth wrote:When starting the acquisition of the next 6 Transmogifiers, can the government office simply enter into a direct contract with ACME Inc, citing commonality and training expenses?
Direct Contracting cannot be done, simply because the reason of "commonality and training expenses" is not one of the three (3) situations cited in Sec. 50 of the IRR, by which the alternative method of Direct Contracting can be resorted to.

adroth wrote:What would have the smart, legal, way to ensure that all 24 pieces of equipment came from a single source . . . and avoiding logistical and support headaches altogether?
The smart and legal way is to ensure that your ABC is sufficient to procure all the 24 pieces of equipment needed. The logistical and support requirements should be included as part of the technical specifications (after-sales service/parts).

Of course, procuring spare parts requirements for the next five (5) years in advance may not be a smart thing to do. If those spare parts are "critical components", the contract should contain a provision that to guarantee performance of the "Transmogifier", said critical components should be sourced from the supplier. In that case, the procuring entity can simply resort to Direct Contracting under Sec. 50(b) of the IRR for its spare parts requirements and would have no problem with maintaining 5 years worth of spare parts. Of course, another option that could be explored by the procuring entity is entering into Ordering Agreement with the Supplier.

However, if the annual appropriations could not really fund all of the requirement (even if realignment/augmentation of funds is resorted to) but only fund 1/4 of the requirements, the procuring entity could resort to multi-year contract, subject to the issuance of a Multi-Year Obligational Authority *(MYOA) by the DBM. Sec. 26 of the General Provisions of R.A. 9970 (2010 General Appropriations Act) provides that "In the implementation of multi-year projects where the total cost is not provided in this Act, agencies shall request the DBM for the issuance of a Multi-Year Obligational Authority following the guidelines under DBM Circular Letter No. 2004-12 dated October 27, 2004..."

adroth wrote:Are there any circulars that cover this situation?

On the issuance of MYOA, DBM Circular Letter 2004-12. On the Ordering Agreement, GPPB Resolution No. 06-2005.
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Re: Competitive bidding and follow-on purchases

Post by adroth on Wed Aug 04, 2010 12:22 pm

Thanks RDV. cheers

On another forum, we scrutinze AFP acquisitions. The scenario discussed here can apply to quite a number of projects -- both ongoing and planned.

As much as possible, we encourage rational discussions on these matters. That is only possible if the relevant regulations and circulars are known. Without it, discussions just devolve into intelligible rant-fests.

Would it be ok to share your thoughts on this thread's sister thread on the above-mentioned forum?

http://www.timawa.net/forum/index.php?topic=23930.0

MYOA, DBM Circular Letter 2004-12. On the Ordering Agreement, GPPB Resolution No. 06-2005.

Another document to add to our collection. Thanks again.
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Re: Competitive bidding and follow-on purchases

Post by RDV @ GP3i on Wed Aug 04, 2010 12:27 pm

adroth wrote:Thanks RDV. cheers

On another forum, we scrutinze AFP acquisitions. The scenario discussed here can apply to quite a number of projects -- both ongoing and planned.

As much as possible, we encourage rational discussions on these matters. That is only possible if the relevant regulations and circulars are known. Without it, discussions just devolve into intelligible rant-fests.

Would it be ok to share your thoughts on this thread's sister thread on the above-mentioned forum?

http://www.timawa.net/forum/index.php?topic=23930.0

MYOA, DBM Circular Letter 2004-12. On the Ordering Agreement, GPPB Resolution No. 06-2005.

Another document to add to our collection. Thanks again.

My pleasure and Welcome, adroth.
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Re: Competitive bidding and follow-on purchases

Post by Ignatius1 on Wed Aug 04, 2010 12:58 pm

To RDV

IF somehow the smaller number of items was pushed for bid anyway, why would there be a need for other bids for the same item?

I agree that the smart thing to do would be to utilize the MYOA, but until that gets to be a "normal" process why not revise the code to include the caveat of being able to fill further requirements for the same item IF documented in an original requirements document?

In this case the agency published a need for 24 transmorgifiers. There should be an allowance to acquire the rest as the earlier bid already determined that the item is the most cost effective solution for the agency. Naturally, it would only work if the bid also specifies that follow on acquisitions would not be more than the original bid price.
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Re: Competitive bidding and follow-on purchases

Post by RDV @ GP3i on Wed Aug 04, 2010 2:21 pm

Ignatius1 wrote:To RDV

IF somehow the smaller number of items was pushed for bid anyway, why would there be a need for other bids for the same item?
There would be a need for another bidding for the same item, meaning a 'Repeat Order' could NOT be undertaken, since not all the conditions (Sec. 51 of IRR) for such alternative method are present in the case. The conditions are: (a) same unit price or lower; (b) availed of within 6 months from original contract effectivity; and (c) should not exceed 25% of the quantity of each item in the original contract. The last 2 conditions are definitely not complied with.

Ignatius1 wrote:I agree that the smart thing to do would be to utilize the MYOA, but until that gets to be a "normal" process why not revise the code to include the caveat of being able to fill further requirements for the same item IF documented in an original requirements document?
Which 'code' are you referring? Is it the law or the IRR? By the way, while the requirement is 24 units, the bidding documents is only for 6 units since only that many could be purchased from available funds (appropriations).

Ignatius1 wrote:In this case the agency published a need for 24 transmorgifiers. There should be an allowance to acquire the rest as the earlier bid already determined that the item is the most cost effective solution for the agency. Naturally, it would only work if the bid also specifies that follow on acquisitions would not be more than the original bid price.
The agency is not allowed to publish the need for 24 transmorgifiers if its funds (ABC or Approved Budget for the Contract) could only accommodate the purchase of 6 units. Again the conditions for Repeat Order should be complied with for follow on acquisitions (without need of another bidding process).
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Re: Competitive bidding and follow-on purchases

Post by adroth on Fri Aug 06, 2010 2:39 am

If the government office drafts the specs for the second batch of six transmogifiers to include a clause such as:

"Must ensure maximum commonality with existing skill-sets and spares"

Would this be considered acceptable?
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Re: Competitive bidding and follow-on purchases

Post by RDV @ GP3i on Fri Aug 06, 2010 7:02 pm

adroth wrote:If the government office drafts the specs for the second batch of six transmogifiers to include a clause such as:

"Must ensure maximum commonality with existing skill-sets and spares"

Would this be considered acceptable?

It is something that you could possibly explore. One possible objection to the inclusion in your technical requirements of such a clause is that it would limit competition which would be violative of one of the principles of R.A. 9184 (Competitiveness), particularly if only your original supplier will be able to comply with such requirement even if you do the procurement by public bidding.
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Re: Competitive bidding and follow-on purchases

Post by Ignatius1 on Sat Aug 07, 2010 12:23 am

RDV @ GPPPI wrote:
adroth wrote:If the government office drafts the specs for the second batch of six transmogifiers to include a clause such as:

"Must ensure maximum commonality with existing skill-sets and spares"

Would this be considered acceptable?

It is something that you could possibly explore. One possible objection to the inclusion in your technical requirements of such a clause is that it would limit competition which would be violative of one of the principles of R.A. 9184 (Competitiveness), particularly if only your original supplier will be able to comply with such requirement even if you do the procurement by public bidding.

I think most people will agree that competitiveness is an important aspect of the bidding process. However, in my view the bidding process is a tool to achieve an end, that being getting the right equipment to the user in the most cost effective manner. It is not an ends unto itself. I believe that there are a some things to consider:

1) The "competitive" aspect of the transmorgifier acquisition was demonstrated during the first bid.

2) The only reason why the earlier bid was limited was due to budget. It doesn't change the need or the specifications.

3) It isn't wise to expand the types of equipment for the same requirement as it complicates supply management and support requirements even if built into the new bid

It would be a disservice to the user to go through additional bids for something that has already been decided on. I believe the "spirit" of RA 9184 is to provide a competitive and transparent means to acquire equipment essential to the accomplishment of an agency's mission.

Just as a side note - earlier I mentioned publishing the need for 24 transmorgifiers. A distinction should be made between a requirements document and bid documents. There should be provisions to exercise options to buy more transmorgifiers as funds become available up to the extent of the need.

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