Auctions and the EU Directive: A Buyers Guide
Version 1.0
April 2010
Table of Contents
1. Process Flow for Procurements Subject to the EU Procurement Directives 3
Annex A. Information to be Included in an Invitation to Tender Document 4
Annex B. Information to be Included in an Invitation to Auction Document 5
Annex C. How to Construct an Auction Using Transformational Bidding 7
1. Process Flow for Procurements Subject to the EU Procurement Directives
Stage / Summary of Process / “Tweaks” to process to take account of e-auctionsPlanning (including devising the procurement strategy) / · Decide upon the appropriate procedure to follow (open, restricted ,negotiated or competitive dialogue). / · Decide whether an auction could form part of the procurement strategy. The Directive states that auctions may [only] be used “when the contract specification can be established with precision” (Reg. 21, Para. 4) 1
Advertising / · Advert is prepared and sent to OJEU.
/ · Include wording stating that it is intended to use an electronic auction as part of the procurement process. (Reg. 21, Para. 6) 1
ITT Documents (including Specification) / · The advert must include the award criteria and their weightings. / · The Invitation To Tender must include wording along the lines of that given at Annex A (Reg. 21, Para 7) 1
· Note that it is not necessary to seek, at tender stage, prices that will be the subject of the later auction.
Tender Evaluation / · Tenders are evaluated in accordance with the pre-determined weighted criteria. / · Tenderers submitting “admissible” tenders are taken forward to the auction stage.
Invitation To Auction / · The Invitation To Auction must include wording along the lines of that given at Annex B (Reg. 21, Para. 9 – 12, & 16). 1
Auction Design / · Two broad categories of auction are permissible: price-only or “MEAT”. “MEAT” auctions must employ transformational bidding. (See Annex C).
Auction Event / · The auction should be operated as described in Reg. 21, Para. 13 – 15. 1 (These mostly affect auction design.)
Contract Award / · Award contract as normal (remembering to allow a standstill period of ten working days). / · The winning bid should be readily identifiable in either a price-only or MEAT auction. (Reg 21, Para 17) 1
1 The Public Contracts (Scotland) Regulations 2006: http://www.opsi.gov.uk/legislation/scotland/ssi2006/20060001.htm
Annex A. Information to be Included in an Invitation to Tender Document
This specimen wording below broadly meets the requirements of Regulation 21, paragraphs 9-11. Changes will be required to suit the particular circumstances.
Electronic Auction
It is intended to use an electronic auction as part of this procurement exercise. Proposals will be evaluated according to the technical evaluation criteria detailed [below/elsewhere in this document.] Following that technical evaluation, those suppliers who are evaluated as having submitted an admissible tender will be invited to take part in an electronic reverse auction. The contract price of your tender will not be sought at tender stage but will form the subject-matter of the auction.
About the Auction
The auction will take the form of a [“price-only”/”MEAT”] auction with the following characteristics.
If single-line-item “price-only”:
Starting Price = £X
Lower limit of Price (if relevant) = £X
Minimum bid decrement = £X
If multiple-line-item “price-only”:
Starting Prices = £X
Lower limit of Prices (if relevant) = £X
Minimum bid decrements = £X
Weighting Formula
If MEAT auction:
Weighting distribution between technical criteria & price
Starting Price = £X
Lower limit of Price (if relevant) = £X
Minimum bid decrement = £X
Bids submitted during the auction will be automatically subjected to a formula which will produce a score (out of 100) based on both the bid price and the outcome of the technical evaluation of the bidder’s tender.
Description of the Auction Process
Bidding in the auction will take the form of entering prices in a format to be specified. All bids will be visible to all parties, but bidders’ identities will not be visible to other bidders. [More]
A dummy auction event will be set up prior to the live event to allow bidders to gain familiarity with the system’s functionality.
Further information on the auction, including the precise format, the date and time it will be held, its scheduled duration and whether an auto-extend will apply, will be provided nearer the time (and at least two working days prior to the auction taking place).
About the System
The auction will be conducted using the eSourcing Scotland system provided by the eProcurement Scotland programme. The same system is being used by a number of different buying organisations both within the programme and worldwide. .
More information on the system including technical requirements, terms of use and details regarding general guidance documents, can be found at www.eprocurementscotland.com and then by navigating to the eSourcing section.
Annex B. Information to be Included in an Invitation to Auction Document
This specimen wording below broadly meets the requirements of Regulation 21, paragraph 10. Changes will be required to suit the particular circumstances.
Electronic Auction for [Subject] – Date & Time
Further to earlier correspondence [include references if necessary], we now write to confirm the details of the auction event scheduled to take place on [Date and Time].
A system-generated e-mail invitation to participate in the live auction will be issued to you shortly/on [date]. You should click on the hyperlink contained in the e-mail and follow the instructions in order to connect to the auction system.
This auction takes place in the context of the ongoing procurement process and our requirement, including terms and conditions, are as described in previous correspondence.
Auction Parameters
· The auction will comprise X items, as shown in the table below. (For full descriptions, see related correspondence.)
· Price means unit price. Prices are in pounds sterling, ex VAT.
· Auction Bidding. Bidding will take the form of entering unit prices into a spreadsheet (called the “worksheet” by the system). The system calculates a “control total” (or “Worksheet Value” in the system’s terminology) from the bid prices and weightings contained in the worksheet. This Worksheet Value will be used to determine the winning bid at the conclusion of the auction.
· Instructions on Worksheet Bidding. Each worksheet bid requires two stages. Pressing the “Save” button on the Worksheet screen will cause the Worksheet Value (shown toward the top-left) to be recalculated. Pressing the “Submit Bid” button on the Bid Preparation screen will then cause the Worksheet Value (provided it is valid) to be submitted into the auction. The Worksheet Value is then visible on the Auction Monitor screen).
· Weightings. The weightings to be used are shown in the table below.
· Bid Anonymity. All bids (comprising a Worksheet Value) will be visible to all parties, but neither the contents of worksheets nor the bidders’ identities will be made visible to other bidders.
· Auction duration. The auction is scheduled to last 20 minutes (but with an auto-extend applied).
· Auto-extend. An auto-extend of X minutes will apply. (In the event of a bid being received within X minutes of the scheduled auction close, the auction will automatically be extended for a period of X minutes starting from the most recent bid. Further bids will trigger further auto-extensions until X full minutes pass without bidding.)
· "Best Bid”. The system's "best bid" functionality will be applied to the Worksheet Value. A new bid must improve upon the lowest bid so far received to be accepted as valid by the system and entered into the auction. The Worksheet Value will also be subject to a Starting Price (of £100,000) and a minimum bid decrement (of £100).
Item A / 15%
Item B / 35%
Item C / 50%
Dummy Auction Event
A dummy auction event will be opened later today (and will remain open until [time and date]) in order to provide you with access to the system we will be using and to allow you to gain familiarity with its functionality prior to the live event. This dummy auction will be a “one-on-one” event (i.e. with only yourself and myself or a colleague taking part) so as to give you the freedom to test the system as you wish. You will receive a system-generated invitation to this event - which will be called “Dummy Auction [Colour]” - very shortly. [Note. Depending on circumstances, it may be appropriate to also (or instead) organise a “dry-run” auction in which all bidders do take part together.]
Other Information
We ask that you note the following prior to participating in the auction.
Time
The clock referenced by the system is the one displayed at the top right of the "Auction Monitor" screen: the time on this clock may differ from that shown on other clocks.
Terms of Use
The system is provided as a tool for business use in relation to the submission of electronic tenders and participation in auctions initiated by buying organisations under the eProcurement Scotland programme. We ask that you:
* do not attempt to use the system to transmit inappropriate material, unrelated offers ("spam") or malicious payloads;
* do not attempt to alter, reverse engineer, decompile, disassemble, or otherwise misuse the system software.
Please confirm your willingness to participate in the auction event, and confirm the name, telephone number and e-mail address of the person authorised to participate on your behalf.
Technical Assistance to the Auction Event
Technical assistance is available both before and during the auction event. [Provide contact details.]
In the event of encountering any difficulties during the auction itself, you should contact us immediately on the “help-line” number of XXXX .
Annex C. How to Construct an Auction Using Transformational Bidding
Theory
There are two kinds of auctions permitted under the EU Directive. In price-only auctions, all bidders who qualify to take part in the auction (i.e. who have “submitted admissible tenders”) are deemed to be of identical standing in terms of the technical evaluation of their tenders. Bidders thus start the auction on a “level playing field” with price the only factor which will be used to determine the winning bid.
Where an auction is held as part of an EU procurement where “MEAT” (“most economically advantageous tender”) is the strategy, the auction must use “transformational bidding”. With transformational bidding, each bid is subject to a formula which automatically produces an adjusted figure allowing the bidders to see how they stand, in real-time, taking account of both the bid price and the technical evaluation of their tender. It follows from this that the technical evaluation of the tenders must be completed prior to the auction being held. It also follows that, just as with price-only auctions, all participants (the buyer and all the bidders) should be clear about which bid is in the lead at any point.
Worked Example
The system employs a mathematical formula to combine the outcome of the technical evaluation with the prices bid during the auction. At the outset of the procurement, the buyer will have allocated relative weightings to the technical evaluation and price. Prior to the auction, each technical evaluation needs to be expressed as a single score. If, for example, the evaluations produce the following results -
Supplier / Evaluation Score (out of 100)Supplier A / 90
Supplier B / 80
Supplier C / 70
- and the weightings have been allocated 75% to technical and 25% to price, then the “starting points” of the three suppliers are:
Supplier / Total Score (out of 75)Supplier A / 67.5
Supplier B / 60
Supplier C / 52.5
This leaves a further 25 points to be “won” on price. The buyer must set an auction starting price and “target price” with the range between these two extremes representing the 25 available points.
Note, however, that the buyer will want to set the “target price” sufficiently low that it will never be breached – since suppliers cannot score “more than” 25 points through price – so in practice the full range of 25 points may not be available. And further erosion of the 25 points may take place at the other end if the buyer builds in a comfort zone when setting the starting price. This situation is probably unavoidable and the best the buyer can do is be aware of this distorting factor and try to minimise its effects when setting the weightings and scoring structure. (Arguably, a similar situation exists with the 75 points allocated to the technical evaluation. In the above example, for instance, if the scoring structure meant that suppliers admitted to the auction were unlikely to have scored below 60% (or 45 points out of 75) or above 90% (67.5 points) then the “effective range” of the technical evaluation is reduced to only 22.5 points – making the technical-to-price weighting more like 50:50 in practice.)
To return to the example, suppose the buyer sets the starting price at £200,000 and the target price at £100,000. (Thus, a drop of £4,000 gains a bidder 1 point.) Bidding might proceed as follows: