W3_Muslem_Tendering Options and Cost Estimate for Utilising Extranet Service for OPWP Procurements

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Problem Statement:

Extranet is an important element in OPWP procurement for the purpose of sharing tender documents and information with suppliers. Currently, OPWP does not utilize extranet, but relies on contracted advisors to provide this service. In some cases, advisors charge a cost for it as shown in the table below.

Project
Year
Cost of Extranet Service (OMR)*
Project A
2012
4,000.00
Project B
2013
0.00
Project C
2013
0.00
Project D
2015
0.00
Project E
2016
0.00
Project F
2017
20,000.00
Project G
2017
0.00
Project H
2017
0.00

*Indicative figures for the purpose of this report.

Studying historical data and current situation show that extranet service has been provided free of charge for most of our projects. However, the high cost of extranet service for Project F commands a need to study feasible options to procure the service for OPWP future projects, and provide a good estimate of cost for budget planning.

Feasible Tendering Options:

Normally, there are three modes of tendering; Open Tenders, Limited Tenders, and Single Tender [1]. OPWP’s obligations do not allow to adopt Single Tender Mode. Therefore, the two feasible options for this procurement are Limited (restricted) Tender or Open Tender.

Outcomes and Cost Estimates of Options:

Open tender is the most common tendering process [2], allowing greater competition, hence better chance to have competitive bids. Limited tender might produce similar outputs to open tender for this service as potential tenderers are most likely to be local, and hence similar service cost. The added advantage of limited tender is the slightly shorter tendering period.

The extranet cost can be divided into two sub-costs; portal development cost and hosting cost. As per our IT Department, the cost for hosting 5GB of data is approximately 1,000 per year.  Our largest project has required 2.6 GB storage for data. The maximum number of large scale projects procured in one year in PD Department is 6 projects. Therefore, 15GB is required, meaning the annual cost of hosting is approximately OMR 3,000.

The following table shows cost of the basic portal development by a number of suppliers.

Suppliers
Cost (OMR)
Supplier A
4,000
Supplier B
1,925
Supplier C
5,000
Supplier D
2,175
Supplier E
3,000
Supplier F
2,400
Average
3,080

Three-point (PERT) estimation is most common estimation technique [3]. The PERT estimate formula is Ce = (Co+4Cm+Cp)/6, where;
Most likely Cost (Cm): Average cost of OMR 3,080 is considered in this case for Cm.
Pessimistic Cost (Cp): The worst case is OMR 5,000.
Optimistic Cost (Co): The best case is OMR 1,925.
 Therefore, the expected portal development cost is approximately OMR 3,200.
The following table shows cost estimates for both options in OMR, assuming that both would offer a similar cost.

Items
Estimated Cost (OMR)
Portal Development
3,200
Annual Hosting Cost
3,000
Contingency (10%)
620
Total
6,820*




*OMR 3,000 to be paid on an annual basis.

Selection of Criteria:

Perhaps the most important criterion is having a competitive bid due to the economic purchase obligation that OPWP has to adhere to. Another criterion is the procurement timeline due to the need to procure the service within three month timeframe which is the period from advisors appointment to the release of Request for Qualification (RfQ) of a project.

Analysis and Comparison of Options:

World Bank guidelines indicate that limited tender may be suitable where there is a limited number of suppliers, or other reasons that might justify moving away from open tender [4]. Limited tender is less competitive than open tender due to the smaller pool of competition to provide the service [5]. Although open tendering is favorable, it could face the risk that the tender advertisement might not reach to all potential tenderers. However, to deal with this risk and have better competition, it is recommended to conduct a market screening prior release of tender, and notify potential tenderers of the advertisement.

In term of tendering timeline, limited tender offers a shorter tendering process by approximately 10 days which are the usual period of tender purchase for open tender mode. However, the set three month timeframe is sufficient for both types to be conducted, even when considering the 40 day tendering period as set by Tender Law.

Recommendation and Selection of Preferred Option:

Open tender is the best option for this procurement. It is recommended that the procurement for extranet service shall not be triggered unless advisory bids of future projects indicate a need. This is because extranet service in most OPWP projects is procured by advisors at zero cost as highlighted earlier. However, RfP Documents for the service shall be prepared in advance.

Performance Monitoring:

Extranet portal requires annual maintenance post implementation. This shall be handled by IT Department, along with log-in authorization requirements. The management of extranet portal, including documents update, will be handled by project managers in PD Department.

References:
[1] Central Vigilance Commission (ND), Tendering stage, PDF. Retrieved from; http://cvc.nic.in/3%20Tender%20Stage.pdf [19 November 2017].
[2] PPP Certification (ND), Main Types of PPP Tender Processes. Retrieved from; https://ppp-certification.com/ppp-certification-guide/2-main-types-ppp-tender-processes [20 November 2017].
[3] PM Study Circle (ND), 4 Tools to Estimate Costs in the Project Management. Retrieved from; https://pmstudycircle.com/2012/06/4-tools-to-estimate-costs-in-the-project-management/ [20 November 2017].
 [4] World Bank (2011), Guidelines Procurement of Goods, Works & Non-Consulting Services; Under IBRD Loans & IDA Credits & Grants by World Bank Borrowers. PDF. Retrived from; http://documents.worldbank.org/curated/en/634571468152711050/pdf/586680BR0procu0IC0dislosed010170110.pdf [20 November 2017].
[5] Australian National Audit Office (2015), Limited Tender Procurement. Retrieved from; https://www.anao.gov.au/work/performance-audit/limited-tender-procurement [20 November 2017].


Comments

  1. Dr. PDGNovember 21, 2017 at 5:51 AM

    Sorry Muslem but I don't see any connection between PERT and how that helps you determine that "Open Tender" is the preferred option? I can see PERT being used to calculate the OWNERS ESTIMATE but I just don't see how PERT can help you make the decision as to which tendering option to use....

    Why not try using Multi-Attribute Decision Making (MADM) analysis to answer your perfectly valid question? Repost as W3.1 and then you can do another blog for W4 creating the owners estimate using PERT.

    BR,
    Dr. PDG, Jakarta

    ReplyDelete
  2. Dr. PDGNovember 21, 2017 at 5:52 AM

    PS as there is no apparent causal relationship between cost and tendering method, break them into two separate blog postings.

    ReplyDelete

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