Procurement of services: practice under

Ukrainian laws – how to prepare bidding

documents for procurement of services

Kyiv, November 29 - 30, 2012Oleksandr Shatkovsky

EU Funded Project “Harmonization of Competition and Public Procurement

Systems in Ukraine with the EU Standards”

1. Services as a procurement object Article1.23) services – any procurement object (except for goods and works), including transportation services, implementation of technologies, scientific research, research and development or research and construction, medical and household services, leasing, rental (lease) as well as financial and consultancy services, current repairs

NOTE: The list is not exhaustive!

Current repair is a specific service de jure, however the procurement object is defined as a de facto work

Value thresholds:

– UAH 100,000 (UAH 300,000 for construction) to apply the Law

– EUR 300,000 when an announcement is made in English (EUR 133,000 under the draft AFTA)

– UAH 200,000 for the simplified price quotation procedure

– UAH 5,000,000 for utilities

2. Services as a procurement object Certain services exempted from the operation of the Law (ст.2.3):

– services of leasing of non-dwelling premises owned by the state or community to host budget institutions;

– public healthcare services to be provided under a contract made pursuant to the Law of Ukraine “On the Procedure of Reforming the Healthcare System in Vinnytsia, Dnipropetrovsk, Donetsk regions and the city of Kyiv”;

– air transport services for persons which are guarded by the state pursuant to Article 5 and Article 6, Part One, of the Law of Ukraine “On State Guarding of State Authorities of Ukraine and Officials”;

– purchase, lease of land, buildings, other immovable property…;– services in transportation by air, by road... for national teams of Ukraine;– financial services to be provided in connection with issue, purchase, sale, transfer of securities or other financial instruments; – services in implementation of research, research and technical activities which

are financed on a competitive basis in the manner prescribed by Article 34 of the Law of Ukraine "On Research and Research and Technical Activities"

+ PPL, Article 2, Part 4 (some other laws)

3. Services as a procurement object Pursuant to the Order of the Ministry of Economy of Ukraine, No. 921 dd. July 26, 2010:

- similar to goods based on Classifier DK 016-97 (the revised classifier is expected to be in effect as from January 01, 2013) up to the fifth digit (6 and 9 digits may be applied for lots)

- for current repairs services, the procurement object shall be defined based on construction objects pursuant to the Construction Cost Determination Rules, DBN D.1.1-1-2000

- for research and technical work implementation services, the procurement object shall be defined based on the State Classifier of Types of Research and Technical Activities DK 015-97 up to the fourth digit (classification group: ‘type’) including detailing the specific research and technical work in brackets

- for procurement of research and technical work implementation services for different areas which belong to the same type of research and technical work under this Classifier, a procuring entity shall announce the procurement procedure and shall define various areas of such research and technical work as different lots

- for procurement of professional training or retraining services, advanced training for unemployed citizens to be procured with the resources of the Compulsory State Social Unemployment Insurance Fund, the procurement object shall be defined by profession (specialization, domain or area of knowledge) to be identified based on the Classifier of Professions DK 003:2010

- services as a separate procurement object shall be defined separately for any sports event, culture & art event and tourism development event, event to be held by the All-Ukrainian Public Organization for Protection of the Rights of Disabled People set forth by the UN Convention on the Rights of People with Disabilities, and any event and formal receptions attended by the President of Ukraine, the Verkhovna Rada of Ukraine and Prime Minister of Ukraine

- for procurement of property assessment services during privatization, the procurement object shall be defined separately for any privatization object

1. Services procurement procedure

There is no restriction for open bidding and pre-qualification procedure

Two-stage bidding:– a procuring entity is unable to determine the required technical,

qualitative features (specifications) … or … the type of services, and if it is necessary to hold preliminary negotiation with participants in order to make an optimal procurement decision

– the procurement object is performance of scientific research, experiments or developments, performance of research-and-development work, construction work

Price qutation: when the permanently active market exists, and the winner may be chosen based on the price without consideration of the qualification details (novel in PPL, Art. 16)

Electronic reverse auction: must be applied as a single procurement procedure for services described in the List to be approved by the Government

2. Services procurement procedure

Single-source procurement:– entry into a procurement contract with a winner of an architecture or art

competition, – procurement of services to complete research, research-and-technical,

and research-and-construction works selected through a competition in such manner as prescribed by the Cabinet of Ministers of Ukraine

– absence of competition (including for technical reasons) in respect for … services that can be … provided only by a specific … (contractor), provided that no alternative exists – especially utilities

– an urgent need in …– if a procuring entity has cancelled the procurement procedure twice due

to the lack of the sufficient number of participants (e.g. specialized training services)

– there is a need in making additional procurement from the same supplier in order to ensure alignment, standardization or compatibility with the available … services when substitution of the previous … services provider may result in incompatibility or may cause problems of technical nature associated with operation and servicing

Competitive bidding documents

Competitive bidding documents – documents developed and approved by a procuring entity, made available for open access and provided by a procuring entity at no cost to individuals/legal entities during the bidding (competitive bidding)

Competitive bidding documents shall be made available within three business days upon receipt of the respective request (PPL, Art. 22)

Competitive bidding documents may be accessible at no cost through the public procurement web portal by every individual/legal entity

PPL lists mandatory elements of such documents (PPL, Art. 22)

Contents of competitive bidding documents: key mandatory requirements an instruction for the preparation of competitive bidding

proposals qualification criteria for participants pursuant to PPL, Article

16, the requirements set forth by PPL, Article 17, and information about the method of the documentary confirmation of the participants’ compliance with the applicable criteria and requirements

information about the nature, technical and qualitative features of the procurement object, quantity, place of delivery of goods (provision of services or completion of work), timeframe

list of criteria and evaluation methods for competitive bidding proposals including the specific weight of such criteria

basic terms and conditions or draft procurement contract description of a separate part or parts of the procurement

object (when procured by lots)

Qualification criteria for bidders – procuring entity checks whether the bidder is able to complete the order A procuring entity may set the following qualification criteria (listed by priority

in case of procurement of services), PPL, Art. 16:

1) availability of staff with relevant qualification, necessary expertise and experience

2) availability of the documented experience in performance of similar contracts

3) availability of equipment and materiel-technical base ????????

4) financial capability (a balance sheet, a statement of financial performance, a cash flow statement, a statement from the servicing bank confirming the absence (existence) of indebtedness under loans) ????????

+ there is no reason to refuse bidder’s participation in the procurement procedure (PPL, Art. 17)

1. Procurement of services: special considerations and documentation thereofTo confirm bidders’ experience which is often a key quality criteria for procurement of services, one may use the following checklist:

Is there any example of provision of the services (whom, when)?Has there been any failure (challenge) while providing the services? What are the reasons? Were the services provided in a timely manner? Any staff training?Is there a list of the previous three procuring entities, including their contact details? Any procuring entity’s feedback with regard to the services provided? Any claim against the services provided? Any in-process control?

2. Procurement of services: special considerations and documentation thereofA clear description of how the winner of the bidding procedure is selected is crucial. The criteria shall be based on the requirements described in the competitive bidding documents. Selection stages (an example):Stage 1 – Qualification level assessment– Positive feedback from three similar contracts for services completed over the last two years – Capacity to transfer know-how as confirmed by feedback from three different procuring entities. – High-quality reporting as confirmed by working reports for other projects – Quality assurance system Stage 2 – Specifications – Terms and conditions of the draft contract detailed in the competitive bidding documents were accepted without any restrictions as confirmed by the participant’s offer. – Any and all requirements/specifications detailed in the competitive bidding documents have been duly metStage 3 – Assessment based on winner selection criteria – Project implementation methods – Value

3. Procurement of services: special considerations and documentation thereof – case study: assessment of ‘intelligent’ services ! Quality of services = service provider’s quality >= price of services

Step Step 11: comprehensive assessment of the quality element (mainly appraisal by scoring: comprehensive assessment of the quality element (mainly appraisal by scoring, , weight up weight up 50%), 50%), e.g. based on such sub-criteriae.g. based on such sub-criteria::

service provider’s experience quality of the implementation method/way offered (‘methodology’)

- innovation- detailed description of the development process/method

key staff qualification - education and professional skills

- experience- positions held before- experience in the area of interest

transfer of knowledge (this criterion may be crucial sometimes since the procurement object may include transfer of knowledge, e.g. procurement of educational services)

Step 2: assessment of the price quotation Step 2: assessment of the price quotation -------------------------- Step Step 33: sum of Steps 1 and 2: sum of Steps 1 and 2

For example, either criterion gives 1 to 100 points which are then weighed. Weights of these criteria may be distributed as follows: service provider’s experience (5-10); methodology (20-50); key staff qualification (30-60); transfer of knowledge (0-10). In total, such weights must equal 100.

4. Procurement of services: special considerations and documentation thereof – case studyWhen the services are procured, such as software development services, the following special

considerations should be taken into account: Avoid assigning software development projects to single programmers since it is fairly unreliable and often will not be compensated by the apparent cheapnessThe interface should allow a user, more specifically a system administrator, to make certain changesThe supplied software package should include the electronic source code which, where appropriate, may be readily used for software compilationWarranty maintenance is requiredPreferably, the software product should, where appropriate, consist of several units and any such unit should be developed in detailPreferably, the software product should have been operated by other usersBe very attentive to feedback (testimonials) of consumers who use your prospective contractor’s servicesDumping is quite common in this area. Make sure you have completed a thorough analysis the price structureTo avoid copyright violations, make sure software distribution and use clauses are included to your contract

5. Procurement of services: special considerations and documentation thereof – contractual terms and conditions Advance payment (CMU Order No. 1404 dd. October 09, 2006) – research

and development, software development, transport services, and health resort services

Non-resident contractor – Laws “On Foreign Economic Activity”, “On Private International Law”

Research and development services – Laws “On Research and Technical Information”, “On Research and Research-and-Technical Activity”

Intellectual property rights laws – industrial property (Laws of Ukraine “On Protection of Rights to Inventions and Utility Models”, “On Protection of Industrial Designs”, “On Protection of Rights to Trademarks and Service Marks”, “On Protection of Rights to Signs of Origin of Goods”, and “On Protection of Rights to Topography of Integrated Circuits”) and the scope of copyright and related rights (Laws of Ukraine “On Copyright and Related Rights” and “On Distribution of Copies of Audio and Video Work, Records, Videograms, Software Applications, Databases”)

Procurement of services: common mistakes

Services are defined as work (e.g. capital repair of motors for specialized machinery)

Artificial discriminating qualification requirements (requirement for the bidder to own its warehouse when freight services are procured)

Faults at the stage of technical specifications development, so bidding proposals cannot be compared (e.g. full information on the scope of the required services is not provided)

The single criterion – “the lowest price” – is applied, so the best solution for the majority of non-standard services can hardly be found

Failure to choose an adequate procurement procedure (so the two-stage bidding procedure is not used to its full extent or the price quotation procedure is chosen for non-standard services and no qualification details are provided)