Negotiation Procedures in public procurement law

The process of the negotiation procedure is not considered mandatory by the European or by the German Public Procurement Law. Nevertheless, the fundamental guidelines (such as the principles of transparency, equal treatment etc.)  of public procurement have to be respected during the whole procedure. In practice, so-called structured negotiation procedures have proven to be successful, in which the negotiating partners get more involved in the contractual elements from round to round and the number of remaining bidders is reduced from one level to the next. Pursuant to §3a (7) no.2 VOB/A (section 2), however, there must be many offers in the final phase that genuine competition has to be guaranteed.

Process of the negotiated procedure

The negotiated procedure gives the selected companies the opportunity to ask questions about the implementation of the project. The client can answer the questions anonymously in order not to create competitive advantages for individual bidders. The answers will be made available to all bidders. In order to streamline the procedure, it is advisable to set certain deadlines for the eventual queries. In this way, several rounds of questions can be processed systematically and transparently for all the parties.

For the staggered negotiated procedure, there are basically two strategies for the successfully implementation of a PPP project. The first strategy could be the linear strategy, in which the client negotiates only with the “preferred bidder”, the bidder who has made the most economic (indicative) offer.  If the negotiations are not successful, the client will start negotiating with the next best bidder. The second strategy is the parallel one, which requires negotiations with several bidders until an agreement has been reached. This maintains a direct competition between the tenderers until the issuing of the award decision.

In practice, a mixture of the linear and parallel strategy has proven to be the most reliable. The contracting authorities (clients) select a group through the participation contest, which will be constantly reduced due to the negotiated procedure. From the smaller group, the client will then select the bidder who best suits for the conclusion of the contract and clarifies with him all remaining details.

Tenders Evaluation in Negotiation Procedures

The construction tendering and contract regulations include a four-step assessment.

First assessment-step in Procurement Law

Here, a conformity check has to be carried out, to control whether the bids meet the formal requirements.

Second assessment-step in Procurement Law

This concerns a so-called suitability test; if there are any doubts on the suitability of the tenderer following the invitation to tender.

Third assessment-step in Procurement Law

At this stage, the prices are controlled and analysed, especially if they are unusually low: the services offered must be commensurate with the price. It is important to avoid that the contractor does not get into financial difficulties and does not complete the order properly.However, since the pricing is ultimately a risk of the contractor, he should be given the opportunity to explain his offer.

Fourth assessment-step in Procurement Law

Here the actual selection of the most economical offer is based on the predetermined criteria, e.g. in addition to the price, the quality, the technical value, the aesthetics, the appropriateness, the environmental characteristics, the operational and consequential costs, the profitability, the after-sales service, the technical assistance as well as the execution period.After completion of the first tender evaluation, the negotiation will start again with the remaining bidders.

Contractual Elements negotiations

The negotiation procedure has to be transparent and non-discriminatory. This strengthens the bargaining position of the client and promotes competition. At the same time, bidders have the opportunity to improve their offers. In principle, the negotiation of all contractual elements between the contracting parties can be negotiated. However, performances that were advertised in the competition must not be changed afterwards.

The basis for the negotiation has a fundamental importance for the contracting authority. On a first step, the refinancing of the services that are going to be provided must be carried out during the contractual negotiations. For instance, the contracting parties determine which services have to be provided and to what extent and which benchmark will be used in the future for quality assurance and control purposes.

During the discussion of the contract, the distribution of risks between the contracting parties plays a significant role. Only after an agreement on this central point, a remuneration mechanism can be defined. In addition, an agreement on the contractual apportionment of charges in expenditures for investment and expenditure for consumptive purpose is available, in order to be able to make an appropriate estimate in the budget on the municipal side.

In the contractual negotiations, the distribution of risks between the contracting parties plays a significant role. Only after an agreement on this central point, the remuneration mechanism can be discussed and defined. In addition, an agreement on the contractual obligations of the expenses for investment purposes and expenses for consumptive purposes is necessary, in order to be able to make an appropriate estimation of the budget.

The negotiations end with a call for a final offer based on the negotiated details. Bidders should only submit the modifications from their first offer in order to facilitate the assessment.

The evaluation of the final offers also takes place again in the four steps described above.

If the most economical offer is fixed, it must be compared with the costs of the conventional acquisition. If this comparison comes to the result that the conventional implementation is more economical, the tender shall be cancelled. The prerequisite for this is a cancellation provision that shall be already included in the procurement documents with reference to the final economic feasibility study.

If the PPP variant is more economical, the contract can be awarded.

Contract award in the negotiated procedure

After the selection of the most economic tender, tenderers who have not been considered must be given the opportunity to submit an appeal to the Public Procurement Board within 15 days (101a GWB). If no objection is raised before this deadline, the contract can be awarded.

The rejection of the remaining tenders must be justified and ideally helps the submitting tenderers to adapt their strategy to a new PPP tendering procedure.  Claims for disadvantages in the awarding procedure are only available until the effective conclusion of the procedure.

Summary representation of the negotiation procedure

  1. Publication, if necessary with description of the quotation request
  2. Competitive bidding
  3. First assessment phase:
  • Submission of a first indicative quote
  • Notification of the eliminated bidders
  1. Negotiation phase
  2. Final offer phase
  • Submission of a last so-called “qualified” offer
  • Assessment of the last offers
  1. Publication of the awarding decision