PPPs require flexibility in the procurement process because such contracts go beyond mere construction to include design as well as operations, maintenance, and, in some cases, financing. In evaluating proposals and awarding a contract, the government sponsor needs to be able to take into account not just the proposed capital cost, but also the value of the commitments made by the private partner, risks associated with the proposal, and public policy issues.
• Low-bid Procurement
Many state and local governments have used the traditional design-bid-build (DBB) process which requires that the owner first retain a design professional (either in-house personnel or an outside consultant retained on a qualifications/negotiated price basis) to prepare a complete design for the project. The design must be prepared so as to accommodate bids from multiple contractors. Only after the design has been completed can the procurement process for construction services proceed. This sequential process is time consuming, and the passage of time generally increases cost.
Under the DBB process construction contracts for public works must be awarded using sealed bidding procedures, with award going to the "lowest responsible bidder." The term "responsible" has been defined by a California court as follows9:
The concept is not one of relative superiority but has reference to the quality, fitness and capacity of the low bidder to satisfactorily perform the proposed work. Thus, a contract must be awarded to the lowest bidder unless it is found that he/she is not responsible, i.e., not qualified to do the particular work under consideration. [Citations omitted.]
This general definition has wide acceptance at the state and Federal level. The concept of responsibility must be determined on a case-by-case basis, and includes matters such as financial strength (often limited to ability to provide performance and payment bonds), experience, and expertise sufficient for the job at hand. Once the minimum threshold is met, no further distinction can be made among the qualified firms regarding their relative qualifications: the low bidder is awarded the contract if it is deemed responsible, regardless of whether other bidders are more capable than the low bidder.10
In addition to marginalizing the relative qualifications of bidders, the traditional procurement process and its focus solely on price generally precludes any opportunity for private competitors to propose innovative approaches that could increase the cost-effectiveness of the project. All bidders must bid on precisely the same bid package, including a completed design for the project provided by the sponsor. While this approach helps to establish a level playing field of sorts for the competing construction contractors, it leaves no room whatsoever for bidders to propose improvements on the design mandated in the bid package. A hallmark of design-build and its variants, in contrast to DBB, is that the owner engages interested contractors, in concert with their design partners, to exercise their creative abilities to propose solutions that will further the objectives of the project.
The design-build approach, which is utilized in virtually every PPP project, can significantly reduce these delays and costs by combining design and construction services under a single procurement, which permits construction of early elements of a project to proceed while final design is completed on later elements. Moreover, if enabled, design and construction can be packaged with any combination of pre-development services, project finance, operations and maintenance. These invaluable services cannot be procured using the highly constrained, traditional low-bid procurement procedures.
• Best Value Procurement
To accommodate the needs of the PPP program, state and local law must allow the agency to develop evaluation criteria that will result in selection of the best developer for the job that offers the greatest value to the project sponsor. The agency must be able to establish selection criteria based on the agency's project goals and policy determinations. For one recent transit PPP project, the selection criteria included pass/fail criteria to ensure that the proposer met certain responsibility requirements as well as the following criteria:
- Management capabilities,
- Qualifications of key staff,
- Proposed stakeholder/community outreach and business outreach plan,
- Quality and effectiveness of proposed technical solutions,
- Quality of proposed operations and maintenance plan,
- Price for services to be performed during the pre-construction phase, and
- "Added value" features of the proposed approach.
To ensure integrity and predictability in the procurement procedures, it is important for the agency to advise the proposers regarding the selection process that will be used and the evaluation criteria that will be applied. The process must ensure a level playing field for the potential competitors. Legislation enabling a PPP program should provide a framework ensuring the integrity of the process, leaving the details of the process to be determined by the sponsoring transit agency.
For most PPP procurements, the agency will probably want to adopt a two-stage process resulting in selection on the basis of qualifications and best value, using procedures modeled after practices and procedures that have been used successfully at the Federal level. The first stage would be for the transit agency to issue a request asking interested private parties to submit statements of qualifications. Based upon its evaluation of the qualifications submissions, the transit agency would then identify a "short list" of qualified private entities that would then be invited to respond to a request for proposals. Selection of the private partner to deliver the project would then be made based upon the evaluation of proposals received, applying the evaluation criteria identified in the request for proposals.11
• Solicited and Unsolicited Proposals
Several states have adopted PPP legislation that permits consideration of both solicited and unsolicited proposals. The former approach contemplates that the responsible public entity will evaluate its projects in the planning stage to determine which of them may be appropriate for a PPP, taking into account its transportation project priorities, project feasibility, and the agency's relative capabilities to complete the project on its own. The latter approach allows the private sector to participate in the project selection process, which could result in a project being elevated to a higher priority level once it becomes apparent that the private sector would be interested in developing it.
The public entity does not have any obligation to accept an unsolicited proposal, and if the entity is interested in pursuing the project identified in the unsolicited proposal, it will likely be required by the enabling legislation to issue a request for competitive proposals for the project within a specified timeframe which should be adequate to enable interested qualified teams to prepare competing proposals.12
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9 Domar Electric, Inc. v. City of Los Angeles, 9 Cal. 4th 161, 181; 885 P.2d 934, 945; 36 Cal. Rptr. 2d 521, 532 (1994).
10 Id.
11 See, generally, Loulakis, Michael C. (ed.), Design-Build for the Public Sector, §4.13, Aspen Publishers, 2003.
12 See, e.g., Georgia - GA. Code Ann. §32-2-79 (applies only to the Georgia Department of Transportation), Oregon - ORS §367.802 (applies both to state and local agencies), and Virginia - VA. Code Ann. §56-560A (applies both to state and local agencies).