“Three Phase” Procurement Model

Presented by Carl Hutchison, C.P.M.

Associate Director of PurchasingUniversity of Nebraska–Lincoln

NAEP Annual MeetingApril 22, 2009

Address concerns by approving authority relating to previous RFP processes.

Problems inherent with standard RFP process: Qualitative evaluation by selection committee Vendors’ proposals took different approaches in

their offers (cash vs. pricing) Only negotiate with most responsive Vendor as

selected by evaluation committee Desire of Board of Regents to enter into

negotiations with multiple Vendors

Reason for Development

Overview

“Phase One” – UNL prepares and distributes RFP, explains the process, provides vendors a summary of Evaluation Committee’s review and critique of “Phase One” proposals, suggests adjustments, provides requirements for “Phase Two” proposals

“Phase Two” – Evaluation Committee evaluates “Phase Two” submittals from Vendors and provides requirements for “Phase Three” responses

“Phase Three” – Vendors can only offer additional unrestricted monetary compensation to their previous proposals, while maintaining previous commitments. UNL evaluates final proposals, award decision made

“Phase One”1. Created RFP document including past history and

information gathered with additional input from committee members

a. Defined process

b. Provided historical and current datac. Developed questions for Vendors’ responses relating to their financial resources, operational experience, product selection, sponsorship, scholarships, program and financial offerings

2. Developed draft agreement

“Three Phase Process”

3. Conducted Preliminary Conferencea. Handed out draft agreementb. Explained “Three Phase” procurement processc. Responded to attendees questionsd. Site visit conducted

4. Received and Evaluated Bidders’ “Phase One” Proposals

a. Services offered by Vendorsb. Non-monetary programs offered

c. Initial product pricingd. Benefits/Consideration requested by Vendors

“Phase One”

e. Front-end and annual paymentsf. Commission offeringg. Impact of initiatives

Health & wellness Modified sponsorship package Sustainability issues Vending of premium coffee

“Phase One”

1. Committee evaluated “Phase One” proposals, determining those elements most beneficial to the University and community

2. UNL identified the highest “Net Present Value” (NPV) offer

3. UNL provided Vendor summaries of all “Phase One” proposals including programmatic elements which best meet UNL’s goals, services, donations, scholarships, product pricing, sustainability, health and wellness (emphasis made on those items determined to be undesirable or unacceptable)

“Phase One”

“Phase One”

Example of summary provided to vendors:

1.5.A Mutually agreed upon snack products and services

Coke Response Pepsi ResponseCoke has invited Valley Vending Services, Pepsi acknowledges the elements Inc. to submit an independent proposal of UNL snack program. for the snack portion of this response…Neither CCNA nor CCE undertakes anyresponsibility for the snacks or snackservices to be provided by VVS if its bid isaccepted by UNL. Coke anticipates that aseparate and totally independent Snack Availability Agreement will be executedbetween VVS and UNL.

“Phase One” Example of summary provided:

UNL’s analysis and comment:UNL has a strong preference to enter a contract with a single entity that provides both beverage and snack products and services. Alternately, UNL would find a contract with the beverage provider that includes reference to subcontracted snack services acceptable. Least desirable is a separate contract for snack vending under the condition that the beverage contractor would remedy any breach of contract committed by the snack vendor, including, but not limited to, timely replacement of the snack vendor in the event that the snack vending contract was terminated pursuant to the terms contained in the contract.

“Phase One” 4. UNL asked Vendors to address the following in their

“Phase Two” responses:a. Acknowledge that all RFP requirements plus those added

as a result of “Phase One” would be part of the final agreement

b. Specifically describe any additional non-monetary programs

c. Assess and modify front-end and annual monetary offers, with the knowledge that only those offers equal to or exceeding “Phase One” NPV offers would move forward to “Phase Three”

d. Assess and modify financial and non-financial offerings

“Phase Two”“Phase Two”1. Committee evaluated Vendors’ “Phase Two” proposals

considering both monetary and non-monetary offers. “Phase Three” non-monetary specifications established as a result of this review and cannot be modified in “Phase Three” proposals.

2. UNL notified Vendors of their eligibility to proceed to “Phase Three”.

3. UNL provided Vendors with a summary of offerings from “Phase Two” with a disclosure of each Vendor’s proposed offering. Those “Phase Two” responses resulting in additional costs to UNL (i.e. beverage price differences, services not offered).

“Phase Two”

4. UNL asked Vendors to provide their “Best and Final” financial compensation package which could include payment upon contract execution, annual payments, establishment of an endowment, and commissions on sales. There was no opportunity for Vendors to modify or offer changes to programs, product pricing, service, or other components unrelated to financial compensation package, during “Phase Three”.

“Phase Three”

1. Committee evaluated “Phase Three” proposals.2. Calculated total unrestricted dollar to be received by

UNL from Vendors’ “Phase Three” proposals (e.g. recycling and cost of product).

3. Eligibility for award based on Vendor’s “ Phase Three” financial offer. Able to eliminate the NPV calculation because Vendors’ payment term were adjusted and became a non-factor. Both Vendors’ proposals exceeded previous phase NPV.

4. Committee provided recommendation for award to Administration.

Administrative Notification

1. Recommendation approved by Administration2. Final agreement drafted and approved by both UNL

and recommended Vendor3. Agenda item prepared for presentation to Board of

Regents for formal approval4. Board of Regents approval and agreement finalized

Results

Contract Guarantee

Pouring Rights and Related Initiatives $12,900,000

Beverage Commissions $ 2,600,000Snack Commissions $ 200,000

Sub-total $15,700,000Commissions Beyond Guarantee

Beverage Commissions $ 2,133,597Snack Commissions $ 224,782

Total $18,058,379Commissions based on UNL’s 2007 actual vending sales with a .5% annual

growth factor through the ten year term.

Results Non–monetary Benefits

Over 10 year term

Free product to student organizations $100,000

Free product for athletic sponsored events $100,000 Sub-Total $200,000

In first yearIce machines purchase & maintenance $ 25,000Development of retail operation $125,000

Total $350,000

Evaluation of Process

Feedback from evaluation committee: Frequent and lengthy meetings difficult to schedule Maximum flexibility in negotiating Process instructions laid out for Vendors to follow Emphasizes importance of Vendors following

instructions

Evaluation of Process Feedback from Vendors: Integrity of the process Responses provided in “Phases One & Two” helpful Generally understood where they were financially,

came close to misunderstanding the parameters, which could have eliminated “Phase Three” eligibility. Need to clearly identify compensation package when establishing NPV

Time between phases too long Issue with legal counsel pre-review of draft

agreement (not a prudent use of money)

Evaluation of Process

Feedback from Vendors:Some responses rejected without further commentResponse time between phases not an issueLeave more time for committee evaluation and update of responses to Vendors.Overall timeframe to make decision – very longProcess fair

Evaluation of Process

Feedback from Vendors: Doesn’t believe outcome would have been

different with just two phases and negotiation Biggest concern rejecting certain requests in

Vendor’s responses. Initial expectations, that were tied to dollars proposed, not realized. No way to lower dollars after initial submittal without being removed from the process.

Make sure Vendors are aware of the programs and initiatives that are important to the University

Application (Strengths & Weaknesses)

Strengths: Vendors know exactly where they stand relative to their

competition after both “Phases One & Two” As long as at least two Vendors are competing, pricing,

services, programs and compensation increased Allows for negotiations during processWeaknesses: Required that UNL place associated costs on those

services and programs not equal from both Vendors Required adjustments for product pricing differences Possibility of Vendors not meeting minimum NPV in “Phase

Two” Proposals

University of Nebraska–Lincoln