procurement code training april 16, 2013 separating cost in rfp & cost–benefit analysis

Procurement Code TrainingApril 16, 2013

Separating Cost In RFP&

Cost–Benefit Analysis

Definitions

“Public Entity” meansAny state government entity or a political subdivision of the state including:(a) A procurement unit;

(b) A municipality or county, regardless of whether the municipality or county has adopted this chapter or any part of this chapter; and

(c) Any other government entity located in Utah that expends public funds.

Definitions"Procurement Unit" means: (i) a legislative procurement unit; (ii) an executive branch procurement unit; (iii) a judicial procurement unit; (iv) an educational procurement unit; (v) a local government procurement unit; (vi) a local district; (vii) a special service district; (viii) a local building authority; (ix) a conservation district; (x) a public corporation; or (xi) a public transit district.

Definitions

Procurement UnitEducational Procurement Unit

Executive Branch Procurement Unit

Judicial Procurement Unit

Local Government Procurement Unit

Definitions

“Educational Procurement Unit" means:(a) a school district;

(b) a public school, including a local school board or a charter school;

(c) Utah Schools for the Deaf and Blind; (d) the Utah Education Network; or

(e) an institution of higher education of the state.

Definitions

“Executive Branch Procurement Unit” means: Each department, division, office, bureau, agency, or other organization within the state executive branch, including the division [of Purchasing] and the attorney general's office.

Definitions

“Judicial Procurement Unit" means:(a) the Utah Supreme Court;

(b) the Utah Court of Appeals;

(c) the Judicial Council;

(d) a state judicial district; or

(e) each office, committee, subcommittee, or other organization within the state judicial branch.

Definitions"Local Government Procurement Unit" means:(a) a county or municipality, and each office or agency of the county or municipality, unless the county or municipality adopts its own procurement code by ordinance;

(b) a county or municipality, and each office or agency of the county or municipality, that has adopted this entire chapter by ordinance; or

(c) a county or municipality, and each office or agency of the county or municipality, that has adopted a portion of this chapter by ordinance, to the extent that the term is used in theadopted portion of this chapter.

63G–6a–707(5)

Separating Cost In RFP Evaluations

63G–6a–707(5) Separating Cost

(5)Except as provided in Subsection (6) or (7), each member of the evaluation committee is prohibited from knowing, or having access to, any information relating to the cost, or the scoring of the cost, of a proposal until after the evaluation committee submits its final recommended scores on all other criteria to the issuing procurement unit.

Separating Cost

1. Helps Prevent Procurement Fraud

2. Helps Defend Against Protests

3. Helps Ensures Fairness In The RFP Process

Procurement Fraud

Purchasing Agent Abused Position of TrustThe AG announced that a purchasing agent for Corrections has been indicted for using his position to steer state money for his own financial gain. The purchasing agent faces charges of conflict of interest, accepting gratuities and fraud.

The purchasing agent developed a personal financial relationship with a vendor that won a multi-million dollar statewide contract for firearms/ammunition. The purchasing agent was a member of the five-person team that solicited, reviewed, and awarded the contract. He used the statewide contract to order approximately $250,000 per year in supplies from the vendor.

The vendor wrote checks payable to the purchasing agent totaling over $80,000 for the purchasing agent’s personal benefit.

Procurement Fraud

County employee pleads guilty in bid-rigging scandalA former County employee pled guilty to charges of bid-rigging and embezzlement. He and three other employees were rigging the county’s contracting system in order to funnel more than $8 million in work to shell companies they created. They would create fake bids from other contractors so that the companies they formed could win the contracts.

The division chief oversaw the majority of the contracting process, which is why his scheme went undetected for so long. Prosecutors said, “This individual was given a lot of liberty and was in charge of supervising himself.”

The other three men involved in the scam face similar charges and are set to appear in court later this year. All four are also facing a civil lawsuit brought by the County.

Procurement Fraud – Favoritism

What is A Favored Vendor?

• Occurs when the procurement process is structured such that a favored vendor is unfairly awarded a contract (Anticompetitive)

• Procurement agent or management receives bribe/kickback

• Procurement agent or management steers contract award to a firm of a family member, friend, or favorite vendor

• Cost of the bribe/kickback is usually included in cost of service

• Bid rigging is usually involved (Manipulate procurement process)

• Involves collusion between the vendor and the purchasing agent or other person in authority – (“This job/contract is yours”)

Procurement Fraud – Undue Influence

What Is Undue Influence?– Advance communication of bidding/RFP Process

– Bid rigging/collusion with someone in authority inside the public procurement unit

– Management overrides the normal procurement process

– Management insists on rushed purchases, shortened public notice, “emergency” procurements, etc.

– Efforts are made to reduce # of legitimate competitors

Procurement Fraud – Undue InfluenceThe Procurement Process Can Be Unduly influenced By Unethical:– Procurement Officers– Management (politicians)– Vendors

Undue Influence – Overt: direct actions taken to manipulate the process– Covert: leaking information to favored vendors giving them

an unfair advantage over competitors

Indirect Undue Influence – Management uses their position to influence others involved in the

procurement process. (“I want you to score firm X high”)

Procurement Fraud – Steering

What is Steering?• Person in authority inside the public procurement unit

structures the process to ensure that favored vendor is awarded the contract

• Normal procurement process is bypassed and manipulated to steer contract to favored vendor

• Steering can occur at various stages of the process:Pre-solicitation stage Submission stage Solicitation stage Evaluation stage

Procurement Fraud – Favored Vendor

Mayor of Detroit: Indicted on Racketeering, Extortion & Accepting Bribes

• Held up a $12-million sewer contract until a contractor agreed to pay favored vendor $350,000 for work though favored vendor did no work on the project.

• Schemed to steer contracts and emergency orders to favored vendor in connection with a $19.8-million water main replacement contract.

• Rigged a water main contract so favored vendor’s team would win.

• Rigged award of $21-million security contract to make sure favored vendor's company would win.

• Tried to force an official overseeing the demolition of Tiger Stadium to give the contract to favored vendor, even though he wasn't low bidder. When that failed, retaliated against the official by having him fired.

Procurement Fraud – Pre-solicitation• Promise to favored vendor that they will get the contract

• Specification fraud– Specifications unique to favored vendor’s product/service

• RFP is overly specific– Only the favored vendor can possibly meet requirements

• RFP is unclear (intentionally vague and fuzzy)– Specific details are leaked only to favored vendor

• Bid splitting– Splitting large purchases into small purchases in order to avoid

bidding requirements = direct award to favored vendor

Procurement Fraud – Solicitation

Goal = Eliminate Competition– Receiving bids from fictitious vendors

– Solicit bids from unqualified vendors

– Shortened standard bid notification time

– Advance notice and other information to favored vendor

– Vendors take turns winning

– Lose bids of other qualified companies

Procurement Fraud – Submission

Bid and RFP Fraud

• Acceptance of late bids/proposals

• Falsifying date bids/proposals received

• Opening competitors bids/proposals and leaking price and other information to favored vendor

Procurement Fraud – Evaluation

Evaluation Stage Fraud

1. Blackball legitimate competitors– Scoring competitors artificially low– Make false statements about competitors

2. Inflate scores of favored vendor

3. Collaboration between evaluation committee members– Block voting for favored vendor

4. Management overrides evaluation committee– Management nullifies committee’s recommendation without justification

5. Bribery/kickbacks to evaluation committee members

Separating Cost Prevents Procurement Fraud

Favored VendorUndue Influence

Steering

Pre-Solicitation FraudSolicitation FraudSubmission FraudEvaluation Fraud

63G-6a-2302 Duty to Report Factual Information to Attorney General

If a procurement unit has reason to believe that a person has engaged in a violation of Section 63G-6a-2304.5, collusion, or other anticompetitive practices relating to a procurement or a potential procurement, the procurement unit shall transmit a notice of the relevant facts to the attorney general.

63G-6a-2304.5 Gratuities, Kickbacks, and Unlawful Use of Position or Influence

Separating Cost Helps Prevent Procurement Fraud

Separating Cost Stops:(1) Favored Vendor Bias (blackballing, favoritism, conflicts of interest)

(2) Bid Rigging

(3) Scoring Manipulation - Steering Contract Awards

(4) Undue Influence and Collusion

(5) Other Anticompetitive Practices

Bid Rigging is a form of fraud in which a government contract is promised to one party even though for the sake of appearance several other parties also present a bid or response to an RFP. This form of collusion is illegal.


Separating cost dramatically reduces the possibility of favored vendor bias, undue influence, steering, collusion, bid rigging and other illegal forms of procurement fraud because 20% to 40% of the total points (cost) are removed from the influence of unethical procurement officers, managers and evaluation committee members.


Separating Cost Helps KeepEthical Procurement Officers – Ethical

Honest Managers – Honest

Fair/Just Evaluation Committee Members – Fair/Just


Separation of duties is a fundamental “Best Practice” in fraud prevention

• New Utah Code requires cost to be evaluated separately by an independent person (separate) from the evaluation committee

• The evaluation committee’s scoring of technical criteria will now be untainted by the influence of cost

– Qualifications will be scored strictly on each vendor’s qualifications – not whether one has a higher or lower cost

– Scope of Work will be scored strictly on the performance of each vendor’s product or service – not whether one has a higher or lower cost

Separating Cost Helps Defend Against Protests

Why So Many Protests Involving RFPs ?Michael Asner: “Cost is a significant, critical, and sensitive issue. In RFPs, the award is made on the basis of best score; that is, best fit with all the requirements, including cost. It is never made solely on the basis of cost, so the winner is invariably not the least-cost proposal. Hence, the value of the contract is an easy target for the disgruntled. In times of budget constraint and cutbacks, it’s easy to politicize the process. In developing the RFP, always assume that your decision will be challenged and prepare to answer questions such as: “Why did you select that proposal when the second-place one was almost as good and cost $200,000 less?”

The Request For Proposal Handbook, 2nd Edition

Chapter 7: The Building Blocks of the Evaluation Process, page 401


1. Limits the evaluation committee’s influence over the total number of points awarded (Standard: 70% pts technical, 30% pts cost)

2. Because cost is not known by the evaluation committee, the committee’s scoring of technical criteria is not influenced by knowing the costs associated with each proposal

3. Technical experts on the evaluation committee need only concern themselves with conducting a side-by-side comparison of the of relative strengths and weaknesses of each technical criteria outlined in the RFP


Best PracticeMichael Asner: “Cost is almost always isolated from the technical and management parts of the proposal and submitted as a separate document. In many jurisdictions, the inclusion of any cost figures in the technical or management proposal is grounds for declaring the proposal non-compliant and eliminating it from further consideration. In this way, the evaluation team, which has been formed to deal with functionality and other issues, is not tainted by knowing the costs of various proposals.”

The Request For Proposal Handbook, 2nd Edition

Chapter 7: The Building Blocks of the Evaluation Process, page 401


Evaluation Criteria Firm “A” Firm “B”Min 5 Years Experience 5 years + 5 years +

Completed 3 Similar Projects Yes Yes

Management Plan Yes Yes

Complete Project by August 1st Yes Yes

Performance Rating 4.5 4.5

Price $1 million $900,000

Separation of Cost Helps Defend Against Protests

Evaluation Criteria Firm “A” Score Firm “B” Score5 Years Experience 5 years + 5 5 years + 4

3 Similar Projects Yes 5 Yes 4.5

Management Plan Yes 5 Yes 4

Complete by Aug 7st Yes 5 Yes 4.5

Performance Rating 4.5 5 4.5 4

Price $1 million $900,000


QuestionWhy Did You Score Firm “A” Higher In Each

Of The Technical Categories?

Answer Because Firm “A” Had The Lowest Cost


Evaluation Criteria outlined in the RFP did not indicate that “Experience”, “Completion of Similar Projects”, “Management Plan”, “Schedule” or “Performance Rating” would be evaluated based on cost. Instead, the RFP indicated that each of these criteria would be evaluated strictly on their own merit.

Attorney General’s OfficeIn this case, cost cannot legally be used to evaluate and score other selection criteria. Doing so is an anticompetitive practice and a violation of the State’s Procurement Code that cannot be defended in event of a protest.

Separating CostHelps Ensure Fairness In The RFP Process

Complaints About The RFP Process

“Public Entities Award RFP Contracts To Their Favorite Vendor – Then Make Up Phony Scores To Justify It.”

“The RFP Process Is Unfair – Scores Are Manipulated By Management To Awarded To Favored Vendors.”


“Best Practice” = Cost Scored Separately by Formula

NASPO: “Typically, the procurement officer evaluates proposal prices separately. That official may use an objective formula to determine the points to be given each offeror based on the total points assigned to price or cost in the evaluation. The formula generally will grant the lowest-priced proposals the total points for cost.”

National Association of State Procurement OfficialsState & Local Government Procurement – A Practical Guide, p. 137


State Purchasing Standard Cost Formula

Cost Points x (2 - Proposed Cost/Lowest Proposed Cost)

Note: Other approved costs formulas may be used provided the formula is clearly specified in the RFP.


Cost Formula1. Proposal with the lowest cost receives 100% of the cost points.

2. All other proposals receive a percentage of the total cost points allocated by formula.

3. Proposals with cost more than double the Lowest proposed cost receive zero Points.


RFP Scoring Criteria

Technical Evaluation Cost FormulaExperience 20 pts 30 Pts

References 20 pts

Meet Scope 30 pts

Total 70 pts + 30 pts = 100 pts


Step #1: Evaluation Committee Scores RFP Technical Criteria and Turns In Scores

Technical Evaluation

Firm “A” 65 pts (18 pts Experience, 19 pts Reference, 28 pts Scope)

Firm “B” 60 pts (16 pts Experience, 17 pts Reference, 27 pts Scope)

Firm “C” 58 pts (16 pts Experience, 17 pts Reference, 25 pts Scope)


Step #2: Agent or Technician Computes Cost Scores Using on Formula

Firm “A” $800,000 30 points = low cost proposal

Firm “B” $900,000 26 points30(2-$900,000/$800,000) 30(2-1.13)30(.87) = 26 pts

Firm “C” $1,610,000 0 pts = twice low cost


Step #3Technical Scores and Cost Scores Are Added Together

Technical Cost Scores + Scores = Total

Firm “A” 65 pts + 30 pts = 95 pts

Firm “B” 60 pts + 26 pts = 86 pts

Firm “C” 58 pts + 0 pts = 58 pts

63G–6a–707(7) Separating Cost – When Not Required

(7)An issuing procurement unit is not required to comply with Subsection (5) if, before opening the responses to the request for proposals, the head of the issuing procurement unit or a person designated by rule made by the applicable rulemaking authority:

(a) signs a written statement:(i) indicating that, due to the nature of the proposal or other circumstances, it is in the best interest of the procurement unit to waive compliance with Subsection (5); and

(ii) describing the nature of the proposal and the other circumstances relied upon to waive compliance with Subsection (5); and

(b) makes the written statement available to the public, upon request.

63G–6a–708 Cost-Benefit Analysis

Cost – Benefit Analysis

What Happens When Highest Scored Proposal Isn’t The Low Cost?

Technical Cost Scores + Scores = Total

Firm “A” 65 pts + 26 pts = 91 pts

Firm “B” 60 pts + 30 pts = 90 pts

Cost Firm “A” $900,000

Cost Firm “B” $800,000

Difference: $100,000 (12.5%)

63G-6a-708Cost-Benefit Analysis

(1) If the highest score awarded by the evaluation committee, including the score for cost, is awarded to a proposal other than the lowest cost proposal, and the difference between the cost of the highest scored proposal and the lowest cost proposal exceeds the greater of $10,000 or 5% of the lowest cost proposal, the issuing procurement unit shall make an informal written cost-benefit analysis that:

63G-6a-708

Cost-Benefit Analysis

(a) explains, in general terms, the advantage to the procurement unit of awarding the contract to the higher cost offeror;

(b) includes, except as provided in Subsection (1)(c), the estimated added financial value to the procurement unit of each criteria that justifies awarding the contract to the higher cost offeror;

63G-6a-708


(c) includes, to the extent that assigning a financial value to a particular criteria is not practicable, a statement describing:

(i) why it is not practicable to assign a financial value to the criteria; and

(ii) in nonfinancial terms, the advantage to the procurement unit, based on the particular criteria, of awarding the contract to the higher cost offeror;


(d) demonstrates that the value of the advantage to the procurement unit of awarding the contract to the higher cost offeror exceeds the value of the difference between the cost of the higher cost proposal and the cost of the lower cost proposals; and

(e) includes any other information required by rule made by the applicable rulemaking authority.

Cost - Benefit Analysis

Example #1RFP to evaluate the net cost of implementing regulations to reduce nutrients to Utah’s waters

Vendor “A” = $477,000

Vendor “B” = $400,000

Vendor “A” $77,000 (19%) higher than “B”

Example #1: Justification StatementImplementation of the nutrient criteria program will ultimately cost approximately $1.3 billion. The team unanimously agreed that Firm “A’s” proposal was superior. However, Firm “A’s” proposal was $77,000 higher than Firm “B”. Many of the savings anticipated from the superior product from Firm “A” are difficult to accurately quantify.

Firm “A’s” proposal identified an approach for delivering all of the products specified in the RFP, whereas the proposal from Firm “B” did not include an approach for obtaining nutrient criteria tied to recreation users.

Cost-Benefit Analysis: The review team determined that Firm “A’s” expenses exceeded $100,000 for obtaining nutrient criteria tied to recreation users which more than explains the cost difference between the proposals.

Example #1: Justification Statement Firm “A’s” proposal was specific, clearly identifying how each work element would be addressed, whereas Firm “B’s” proposal described a general approach. The review team was more confident in the ability of Firm “A” to deliver a complete and accurate product.

Cost Benefit AnalysisIt is difficult to quantify the cost of mistakes resulting from inaccurate or incomplete information until they occur. However, given that this work will directly affect the implementation of a $1.3 billion program, it is reasonable to assume that mistakes resulting from inaccurate data could cost hundreds of thousands of dollars – if not millions.


Example #2

RFP for Health Care Related Services

Firm “A” = $12,720 per year ($38,160 @ 3 yrs) RFP Selection Criteria:30% Demonstrated ability to meet the scope of the work20% Qualifications of staff proposed for the projectI0% Demonstrated technical capability10% References30% Cost

Example #2: Justification Statement

The Selection Committee reviewed the proposals for all criteria in the RFP except cost which was withheld from the committee by State Purchasing.

Firm “A” had a high level of experience proven ability to perform the work competently, which was based on references and resumes.

Firm “A” has a larger local staff in Salt Lake City than Firm “B”. Firm “A” has outstanding qualifications and expertise and an extensive list of qualified adjusters and managers to assist with Utah claims. Conversely,

Firm “B” provided the name of only a single adjuster. Firm “A’s” proposal indicated outstanding experience in handling Utah-specific claims.

Example #2: Cost-Benefit AnalysisWe estimate that the state will incur additional time working with a company that has most of its personnel located in distant locations and who does not have an extensive working knowledge of Utah laws and practices related to Utah claims. We estimate 200 additional hours for our personnel at an average hourly rate of $34 per hour equals $6,800. In addition, the division will incur additional travel costs of approximately $3,000. Firm “A” has contracts with both IHC and University of Utah Hospitals, whereas Firm “B” only has a contract with IHC. Last year the state’s program had approximately $1.1 million in claims. If roughly half of this amount, or $500,000, was from University Hospitals, Firm “A” would save the state’s $150,000 to $200,000 per year or $450,000 to $600,000 over the three years of the contract.


Example #3 The Review Committee recommends that Offeror “1” be awarded the contract

Offeror “1” is $12,564 (8.4%) more per year than the lowest cost offeror

Example #3: Justification StatementOfferor #1 demonstrated that its software application provided the most complete and comprehensive solution to the operational characteristics desired by Department. The application supplied each of the tasks identified in the RFP in a superior manner as compared to the other offerors.

It is the review committee's opinion that the fit and completeness of Offeror #1’s solution as compared to the Department’s operational requirements more than justifies the increase of 8.4% over the lowest cost vendor. Once the Department’s staff is fully trained with this vendor's solution, it will result in an increase in the Department’s ability to provide customer service.

Example #3: Cost-Benefit AnalysisWe estimate that we will be able to save 19 to 27 hours per week using Offeror #1’s application as compared Offeror #3 (the low cost offeror).

Using an average pay plus benefits rate for the group, this translates into a reduction of $22,205 to $31,555 for this Offeror's solution over the lowest cost Offeror.


Example #4 RFP = Highway Imaging and Inventory program

It is the Department's intent is to award to the responsible Proposer whose Proposal is most advantageous to the State, taking into consideration qualifications, price, and quality factors defined in the RFP

The Selection Team recommends award to Firm “A”

Cost difference Firm “A” and low cost = $311,336

Example #4: Cost – Benefit Analysis1. Accuracy of Lane Miles: Thirty percent of $250 million of federal

funds are allocated based upon proper lane miles being reported. A miscalculation of just 25 miles would mean being off by 0.18% every year, resulting in a risk of $135,000 in funding each year simply due to inaccurate calculations of lane miles. Firm “A’s” approach to reporting lane miles mitigates this risk.

2. Accuracy of Surface Areas: Surface Area measurement assists the Department in properly allocating $260 million in funding to specific projects. If Surface Areas are off by 4%, $10.4 Million could be misallocated. 10% of $10.4 million equates to a yearly loss of over $1 million in funds that could result from an incorrect calculation of surface area measurements. Firm “A’s” approach to calculating Surface Areas mitigates this risk.

Example #4: Cost – Benefit Analysis

3. Accuracy Increasing Safety: Quantifying the benefits to safety from collecting additional and more accurate roadway data is difficult. Many of the benefits are intrinsic to the process.

If Firm “A” provides the Department with the additional information needed to eliminate one fatal crash per year, we project a benefit/cost ratio of 19:1 or $5.4 million.


(2) If the informal cost-benefit analysis described in Subsection (1) does not justify award of the contract to the offeror that received the highest score, the issuing procurement unit:

(a) may not award the contract to the offeror that received the highest score; and


(b) may award the contract to the offeror that received the next highest score, unless:

(i) an informal cost-benefit analysis is required, because the difference between the cost proposed by the offeror that received the next highest score and the lowest cost proposal exceeds the greater of $10,000 or 5% of the lowest cost proposal; and

(ii) the informal cost-benefit analysis does not justify award of the contract to the offeror that received the next highest score.


(3) If the informal cost-benefit analysis described in Subsection (1) does not justify award of the contract to the offeror, described in Subsection (2), that received the next highest score, the issuing procurement unit:

(a) may not award the contract to the offeror that received the next highest score; and

(b) shall continue with the process described in Subsection (2) for each offeror that received the next highest score, until the issuing procurement unit:

(i) awards the contract in accordance with the provisions of this section; or

(ii) cancels the request for proposals.


Example #5

RFP Canceled After Cost-Benefit Analysis

Vendor “A” = $6,700,000

Vendor “B” = $5,000,000

Vendor “A” ranked #1 by Selection Committee

Vendor “A” $1,700,000 (34%) more than “B”

Example #5: Justification Statement Unlike Vendor “B”, the overall technical qualities of Vendor “A” are vastly superior. Vendor “A” reached across all areas of evaluation including: (a) Addressing all areas of the RFP, (b) Administration materials & protocols, (c) Alignment to national standards, (d) Validity of measuring the program performance, (e) Validly reporting modality level information, (f) Growth plan for changing the instrument as research advances, (g) References, (h) Scoring & reporting systems, (i) Ancillary materials to support program needs, (j) Strength of consortium involvement to meet state needs.

Example #5: Cost - Benefit Analysis

1. The product from Vendor “A” will require no use of state funded personnel hours. The other vendor’s product would require the use of state funded personnel hours related to additional development and review of product. “At this time, no dollar value to this item.”

2. Vendor “A” provides other quantifiable benefits including the use of established research-based standards for Utah saving the state the cost of developing such standards on its own. “Cost savings conservatively estimated at $126,000.”

3. Vendor “A” provides an unquantifiable benefit of membership in a 20 state consortium. Part of this benefit is involvement in state of the art research in the field. Additionally, consortium involvement benefits Utah at the federal level including meeting national evaluation standards.

“Benefit of membership = cost savings of approximately $15,000.”

RFP Canceled By Agency


Solutions That Add Measurable Value to Public EntitiesSaving Employee Time

Saving Transition Costs, Training Expense, Transportation Costs, etc.

Reduced or Eliminated Risk/Liability

Less Disruption to Services, Facilities, etc.

Additional Revenue (liquor store open 1 month early)

Delays Avoided (Classroom Bldg. on time vs late = relocating students)

Mistakes Avoided

Increased Program Efficiencies


Cost of A Security Guard – Facility ConstructionFirm “A” Proposed Full-Time security guard during construction

Firm “B” No security guard onsite

Cost Firm “A” $200,000 more than Firm “B”

Cost to public entity to hire a full-time security guard = $60,000

Value of Firm “A” security guard = $60,000 (not $200,000)


Management Plan – $30 million Construction Project at UniversityFirm “A” Plan to cover walkways so as not to disrupt student

traffic patterns on campus

Firm “B” No plan – student traffic patterns will be disrupted

Cost Firm “A” $400,000 more than Firm “B”

Cost-Benefit School administration determines that in their expert opinion, not having student traffic patterns

disrupted on campus is worth $400,000 (not being late for class, safety, etc.)

Value of Firm “A” Management Plan = $400,000

When Is A Cost-Benefit Analysis Required?

A B C D E F GGreater Greater Than 5% Than Cost

Highest Low $10,000 of Low 5% BenefitScore Cost Difference Yes/No Cost Yes/No Required

$100,000 $90,000 $10,000 No $4,500 Yes Yes

$1,500,000 $1,300,000 $200,000 Yes $65,000 Yes Yes

$9,000,000 $8,934,500 $65,000 Yes $446,725 No Yes

$358,000 $357,000 $1,000 No $17,850 No No

“C” “C” Greater Greater Than Than $10,000 “E”


(4) (a) An issuing procurement unit is not required to make the cost-benefit analysis described in this section for a contract with a construction manager/general contractor if the contract is awarded based solely on the qualifications of the construction manager/general contractor and the management fee described in Subsection 63G-6a-706(6).

(b) The applicable rulemaking authority shall make rules that establish procedures and criteria for awarding a contract described in Subsection (4)(a) to ensure that:

(i) a competitive process is maintained; and

(ii) the contract awarded is in the best interest of the procurement unit.

The End

63G–6a–707(6) Separating Cost

(6)(a) As used in this Subsection (6), "management fee" includes only the following fees of the construction manager/general contractor: (i) preconstruction phase services;

(ii) monthly supervision fees for the construction phase; and

(iii) overhead and profit for the construction phase.

(b) When selecting a construction manager/general contractor for a construction project, the evaluation committee: (i) may, at any time after the opening of the responses to the request for proposals, have access to, and consider, the management fee proposed by the offerors; and

(ii) except as provided in Subsection (7), may not know or have access to any other information relating to the cost of construction submitted by the offerors, until after the evaluation committee submits its final recommended scores on all other criteria to the issuing procurement unit.

procurement code training april 16, 2013 separating cost in rfp & cost–benefit analysis

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