IAEA International Atomic Energy Agency Sole source bid evaluation John H. Moore Nuclear Power Engineering Section VIE2012/9002/01 Meeting March 23-26, 2015 Hanoi, Vietnam

IAEA Topics to be covered Sole source evaluation factors Disadvantages and advantages Common mistakes How to proceed

IAEA SOLE SOURCE FACTORS

IAEA Sole Source Evaluation Factors Like procurements with open competition, a sole source evaluation needs to take place, but in a different manner because no comparison will be performed against other prospective providers. Evaluation is limited to proposal compliance to requirements set forth in the solicitation document, and comparison to alternate business opportunities.

IAEA Typically need to meet one of these criteria to allow for sole source processes: unicity, i.e. item is only available from 1 supplier (one-of-a-kind, parts maintenance, compatibility, standard compliance); immediacy, i.e. delivery date or delays resulting from competitive solicitation are not acceptable; emergency, i.e. delays resulting from other methods of solicitation are not bearable; legitimacy, i.e. specific contexts (geographic, contractual, political, legal, military, security, etc.) may allow non-competition of sources; intergovernmental agreements fall into this category inadequacy, all sources are qualified as inadequate (compatibility, compliance, price, quality, service, support, etc.); exigency, i.e. any other specific reason dictating choice of a given provider.

IAEA DISADVANTAGES & ADVANTAGES

IAEA Disadvantages Requester's margin of negotiation is thin; (less leverage); Project Total Cost of Ownership (TCO) may be more expensive than if there would have been other competitors; Opportunity for competitors to provide innovative technical or economic advantages is lost; Can violate internal purchasing policies, national laws, and/or international agreements;

IAEA Disadvantages (cont.’d) Supplier may not be a responsive to customer needs (i.e. ‘deal already done’). More susceptible to unfair/unethical dealing; Can be open to supplier protests (including lawsuits, international trade disputes etc.); Typically requires documented justification and approvals (which can take as long as open competition processes).

IAEA Advantages Reduced decision cycle, i.e. time required to award contracts; Lowered administrative costs, i.e. procurement process reduced to a minimum; If “right” supplier chosen: Prices can reflect best value; Can incorporate secondary procurement goals via negotiation more easily; Improved delivery of products and services.

IAEA COMMON MISTAKES

IAEA Common mistakes Lack of organization and lack of competitive pressure tend to make process drag on; Taking reactive approach, waiting on suppler to provide the needed process, due diligence, and deal structure; Not obtaining external market data (something to compare the proposal to); Not imposing real deadlines on the supplier; Eliminating viable competitors via too- detailed or too-specific specifications.

IAEA HOW TO PROCEED

IAEA How to proceed Get organized Control the process Know limits and key provisions

IAEA Getting organized Know your objectives (stakeholder input to bidding process, criteria for a ‘good’ deal, go/no-go and general evaluation criteria Perform due diligence (financial and operational due diligence of prospective supplier – do they have the financial, technical, and personnel to be able to do the work within the project timeline; what is their track record and trends? What are the project risks?)

IAEA Getting organized (cont.’d) Establish a cost baseline (effectively adds a competitor to the supplier; requires detailed understanding of specific scope, construction costs at your site, comparative similar projects) [documented cost evaluations are often mandatory in org. SS business processes] Review and analyze proposal in detail Review carefully and thoroughly cost section of the proposal, knowing that such reviews & understanding can increase negotiation leverage.

IAEA Getting organized (cont.’d) Consider project phasing strategy based on level of detail known (project definition), risks, and stakeholder input Do you (and the supplier) have the level of detail and cost certainty necessary to sign the entire contract? Are decision makers comfortable with cost ranges or do they want an upper bounded number? Is a phased approach more appropriate? 0 Feasibility 1 Concept 2 Detailed Scope Design and Construction 3

IAEA Control the process Ensure process is designed to ensure: Communications are between correct level/authority in companies; Agreement is obtained on basic deal terms prior to proceeding with detailed discussions; Terms and conditions protect customer (yet are fair); Subject Matter Experts are engaged in reviewing the appropriate aspects of the deal (engineering, finance, legal, insurance, etc.);

IAEA Control the process (cont.’d) Use a schedule and manage key dates (aggressive yet realistic, run it like a project) ; Place reasonable limits on negotiation sessions (limit # and length of sessions; have appropriate personnel involved); Use market terms (use standard forms of contract, ensure team understands contract terms and their implications, ensure people with previous negotiation experience involved); Negotiate big ticket items first (use a term sheet; understand where supplier and you have flexibility);

IAEA Control the process (cont.’d) Require continuous improvement in positions (carefully document open items & agreements; treat resolved issues as ‘resolved’); Maintain a sense of competition (make it clear that you might switch to a competitive process, or performing parts of the project in- house); Ensure you are prepared (come to negotiation sessions fully prepared with needed time, resources, and access to decision makers).

IAEA Know limits and key provisions Maintain flexibility (be clear about what is important and remain flexible); Know your ‘BATNA’ (best alternative to a negotiated agreement; what is your back-up plan?; are you prepared to execute it?); Know when to stop (after reasonable schedule and negotiation period, stop process & look for alternative methods to proceed {break in negotiation, customer lockdown/ reappraisal, competitive bidding});

IAEA Know limits & key provisions (cont.’d) Preserve contract flexibility Maintain rights to: Benchmark pricing and perform price adjustments (e.g. commodities, labour rates etc.); Bring some functions in-house; Use third parties for certain services; Include reasonable incentives and penalties tied to performance (e.g. cost, schedule, safety performance, secondary procurement objectives, etc.)

IAEA Conclusion Success in sole source contracting requires as much or more effort than with competitive bidding; Additional preparation in understanding market conditions is key; You must know what your bottom line is.

IAEA COMMENTS/QUESTIONS? Thank You for Your Participation 23 IAEA Nuclear Energy News available at