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Annex A: Details of the Appointment process

The number against each activity refers to the Annex A text paragraph

Annex A - Details of the Appointment Process

A.1. Initial Stages

A.1.1 The flowchart illustrates the various processes and routes during the appointment of consultants and contractors. Where the EC procurement directives apply, consultancy contracts are covered by the Public Contracts (Scotland) Regulations 2006, as is the appointment of contractors for works contracts.

A.1.2 For further advice on the Regulations, and on the thresholds that apply, contact SPD Policy and Best Practice Division. Information is published in the Office of Government Commerce's "Introduction to the EC procurement rules" and "Guide to the Appointment of Consultants and Contractors".

A.1.3 Specific health and safety criteria which should be taken into consideration by clients during the appointment process are set out in Section 5.

Contract Requirements

A.1.4 The contract requirements set out what the consultant or contractor is required to do under the contract. The brief or specification forms a key part of the requirements and should be output based. Where practicable, the requirements should include targets and milestones that are achievable and measurable.

A.1.5 The use of standard forms of contract helps to reduce both tendering and contract administration costs. Bespoke or amended standard forms require clients and tenderers to seek additional and frequently costly legal advice and this increases the risk of disputes arising from unfamiliar terms. Therefore, to avoid unnecessary additional costs, such forms should only be used where they are considered essential rather than simply desirable and demonstrably provide greater VFM. Any amendments should only be made after receiving technical and legal advice.

A.1.6 Ideally, suites of contracts and standard unamended contract forms from recognised bodies should be used where they are available. Where standard forms fail to meet the needs of client bodies, they should collectively seek to have the standard forms revised, in a manner which facilitates collaborative working with consultants and contractors.

Contract value

A.1.7 The estimated value of the appointment contract will dictate whether it will fall within the Regulations (remember to apply, where relevant, the aggregation rules which require the value of individual contracts to be aggregated in particular circumstances specified in the Regulations).

A.1.8 Where an estimate falls below the relevant threshold, although the appointment process will not be covered by the Regulations, it must still comply with EU Treaty obligations (for example, it must be non-discriminatory and bidders must be treated equally). In addition, there is an obligation to advertise the contracting opportunity at an appropriate level according to its value. However, where the client body has chosen not to apply the Regulations and the actual cost exceeds the threshold, unless it is clear that the original estimate was sufficiently robust to withstand challenge, the process may have to be restarted and the Regulations applied. In the light of this, where the estimated contract value is close to the threshold, it is generally advisable to take a cautious approach and comply with the Regulations.

Appointment procedure

A.1.9 The types of procedure available under the EC rules for the appointment of consultants and contractors are:

Open procedure: all interested organisations can submit tenders in response to the Official Journal of the European Union (OJEU) notice. Using the open procedure can lead to an excessive number of tenders, all of which have to be assessed, and is therefore not recommended for the appointment of consultants or contractors for works projects.

Restricted procedure: allows the number of organisations that may submit tenders to be restricted by using a selection process in advance of tender invitation. This procedure or, where it may be used, the competitive dialogue procedure (see below) are the recommended routes in all but exceptional circumstances.

Competitive Dialogue: this is used for the award of a "particularly complex contract", where there is a need for the public body to discuss all aspects of the proposed contract with bidders. Such dialogue would not be possible under either Open or Restricted procedures. A "particularly complex contract" means a contract where the public body is not objectively able to define (1) the technical means capable of satisfying its needs or objectives or (2) either the legal or financial make-up of a project, or (3) both.

Negotiated procedure: this procedure can only be used when the specific circumstances set out in the Regulations exist (it is not, therefore, a procedure of choice). The Negotiated procedure takes two forms:

• With the publication of an advert - available in the limited circumstances provided for in the Regulations - enables the client to negotiate the terms of the contract with selected bidders and may include a formal tender stage prior to negotiation
• without the publication of an advert - available only in the most exceptional circumstances provided for in the Regulations

A.2 THE SELECTION STAGE

General

A.2.1 The selection stage (under restricted, competitive dialogue and negotiated procedures) produces a short list of the most suitable organisations from all those that expressed an interest in carrying out the contract. The selection stage of the process must be objective, fair, accountable and transparent. The criteria for selection must be established before inviting expressions of interest or placing advertisements, including those in OJEU. The criteria and any related weightings (e.g. scoring system) should be specified in the advertisement, and should be related to, and proportionate to, the subject matter of the contract.

A.2.2 The selection process in this guidance will meet these requirements. It consists of the following steps:

• establish:

• minimum, and where appropriate, maximum number of candidates to be selected
• selection criteria
• weightings for selection criteria
• thresholds for selection criteria, where appropriate
• a selection mechanism

• invite expressions of interest/draw up long list
• draw up short list

Selection criteria

A.2.3 Selection criteria should be based on information concerning the attributes of an organisation that fall under the headings "personal position", "economic and financial standing" and "technical or professional ability" . They should be aimed at selecting the most suitable organisations, capable of carrying out the required work whilst taking account of the need to achieve VFM. They must not discriminate against or in favour of service providers in other Member States. Where the Regulations apply, care must be taken to ensure that the selection criteria are consistent with what is permitted under the Regulations and that the criteria (and their relative importance, e.g. any weightings or scoring system to be applied) appear in the advertisement.

A.2.4 Examples of selection criteria are given below (however, considerable care and effort will be required to set appropriate and proportionate selection criteria for individual projects, making sure that they genuinely reflect the candidates ability to perform the contract):

Personal position

• any contractor, or any director or person who has power of representation, decision or control of the contractor, who has been convicted of an offence set out in regulation 23(1) of the Regulations should not be permitted to bid for contracts
• In addition, a contractor may be deemed as unsuitable for selection on grounds of, for example:

• bankruptcy
• failure to pay taxes
• serious misrepresentation
• grave misconduct in the course of business
• convicted of a criminal offence in the conduct of business (not to be confused with offences under regulation 23(1))

Economic and financial standing (care must be exercised to ensure that no discrimination occurs by selecting contractors on the basis of turnover if all contractors meet any minimum standards set out in the advertisement)

• financial status
• insurance provisions

Technical or professional ability

• resources
• average number of staff and managers over previous 3 years

• proportion of the contract to be subcontracted.

• skills
• educational qualifications

• evidence of membership of industry-recognised skills registration or accreditation schemes for own and sub-contractor's operatives, and commitment to workforce development initiatives such as Investors in People, Respect for People, Considerate Constructors Scheme, etc., where this is relevant to ability to perform the contract in question

• efficiency
• risk management
• value management
• capital, life cycle or whole life cost management

• supply chain management and collaboration including partnering arrangements in force with sub-contractors and suppliers

• experience and past performance

• list of works carried out over the past 5 years
• references from other clients

• reliability

• health and safety management
• rejected claims history

• quality management
• environmental management
• technical suitability for contract

A.2.5 The selection criteria must be capable of being scored and audited. Client bodies will need to consider how each criterion can be scored and whether such scores are fair and accountable. Section 5 also sets out a number of health and safety matters which should be considered at the selection stage as part of the candidate's appropriate skills, experience and resources.

Weightings for selection criteria

A.2.6 The relative importance of each criterion listed under the "technical or professional ability" heading can be established by giving it a percentage weighting such that the sum of all the weightings equals 100%. An example is at Table 1. It is provided for illustration only and is likely to require modification for specific contracts.

Quality threshold

A.2.7 For each criterion, client bodies will need to determine their minimum requirements for acceptability. Failure to meet such standards should preclude an organisation being considered further. Minimum standards for participation should not be set any higher than is necessary, so as not to unfairly disadvantage small and medium sized enterprises (SMEs). There may also need to be an overall quality threshold (Table 1) for the criteria under the "technical or professional ability" heading.

A.2.8 Care needs to be taken when setting quality thresholds to ensure that they are set at levels representative of the minimum acceptable standards. If they are set unnecessarily high, there is a risk of excluding capable organisations that could offer better VFM, of unfairly disadvantaging SMEs and of breaching obligations relating to decisions being proportionate with reference to the subject matter of the contract.

Selection mechanism

A.2.9 Table 1 shows an example of a selection mechanism and demonstrates how the selection criteria and the weightings applied to them are used to evaluate each organisation and judge its suitability for carrying out the contract. The selection mechanism must be established before drawing up the long list or inviting expressions of interest, placing advertisements etc.

A.2.10 The example in Table 1 is intended to illustrate the principles involved and is likely to require modification for specific contracts/commissions. Items shown in italics will vary according to the project and client. It is prudent to draw up a mechanism for each contract and test it with dummy data to ensure it works as anticipated.

Invite expressions of interest

A.2.11 Where the contract value (making allowance for the aggregation rules) lies above the appropriate EC threshold (and for a consultancy commission also falls within Part A), it will normally be necessary to invite expressions of interest by placing a notice in OJEU.

A.2.12 Invitations for expressions of interest or advertisements, including those in OJEU, should include the following information:

• details of the information required from bidders to enable their evaluation (i.e. the selection criteria (when available) and the information required to demonstrate how each is met)
• whether variant bids will be accepted
• other information:

• intention to enter into teamworking or partnering arrangements
• details of incentives to be included in the contract

A.2.13 For contracts that are not subject to the Regulations, invitations for expressions of interest should normally be advertised, particularly on the Public Contracts Scotland national advertising portal, to meet the obligation of regulation 8(21) of the Public Contracts (Scotland) Regulations 2006. Care must still be taken not to discriminate against organisations on the grounds of nationality or the Member State in which they are based (for example, requiring that a bidder is based in, or within a certain distance of, a particular locality would be open to legal challenge as being in breach of EU law).

Long list

A.2.14 For contracts that are subject to the Regulations, those organisations that respond to the OJEU notice should be included in the long list. There is, however, nothing in the Regulations to prevent client bodies advertising elsewhere, for example on the Public Contracts Scotland national advertising portal, or prompting organisations to respond to the OJEU notice. These advertisements must not be published in advance of despatching the OJEU notice and must not contain any information additional to, or different from, that contained in the OJEU notice. Similarly, whatever form of notice generates the expression of interest, the rules for doing so must be the same (for example, a local advertisement would have to set the same deadline, and the same requirements on form and content, as are contained in the OJEU notice).

A.2.15 For contracts not subject to the Regulations, the long list may be drawn up in a number of ways, in addition to the requirement to advertise, including:

• use of appropriate registers of organisations in order to minimise bureaucracy and avoid duplication (e.g. "Constructionline"), providing

• registered companies meet the minimum standards relevant to the contract
• that the minimum standards required for membership of the register are consistent with those deemed necessary for the contract

• directly approaching organisations
• placing advertisements in appropriate publications or websites, for example on the Public Contracts Scotland national advertising portal
• approaching appropriate professional bodies and trade associations
• should be used in conjunction with another option because some suitable organisations may not be members of such bodies or associations and to ensure that particular organisations are not favoured unjustifiably

A.2.16 A lack of response to the invitation for expressions of interest might indicate shortcomings in the selection process. In these circumstances a review of the process would be prudent.

Reduce long list to short list

A.2.17 Over-long tender lists can result in unnecessary abortive costs for clients and tendering organisations and tenderers may put less effort into their tender submission if they are one of many. A short tender list ensures that tenders are only received from the most suitable organisations.

The number of organisations invited to tender must in all cases be sufficient to ensure genuine competition. Where there is a sufficient number of organisations suitable to be invited to tender, the number to be invited to tender can be limited provided that the contract notice specifies the objective and non-discriminatory criteria to be applied to limit numbers, and the minimum number is not less than 5 in a Restricted Procedure. In the case of a Competitive Dialogue or Negotiated Procedure, the minimum number is 3.

The Regulations also deal with the situation where the number of requests to be invited to tender falls below the minimum number. The award procedure can continue with selected organisations, provided that any organisation not selected or which did not request to participate is not included (for example, if only 4 bidders under a Restricted Procedure meet the minimum requirements for participation then only those 4 need to be invited to bid). In such a circumstance it may be prudent to review the minimum standards to ensure that they have not been set at an unreasonably high level.

A.2.19 The selection process will identify those organisations in the long list who meet the minimum selection standards. Selection will normally be based on information provided in response to a Pre-Qualification Questionnaire (for example, SPD's standard form and associated Guidance Note) and if necessary a Pre-Qualification Interview, using pre-determined selection criteria and weightings. The short list will be limited in number to the best of these organisations from whom it is anticipated that tenders will be invited.

A.2.20 Parties wishing to express interest in a procurement opportunity can be asked to provide relevant information by way of stating membership of a pre-qualification/registration scheme or system in the first instance, provided the type of information held by such systems is accessible to the client and relevant to the nature of the procurement. Where the client considers that pre-qualification/registration systems do not hold information deemed necessary at pre-qualification stage either at all, or in a satisfactory manner, they should ask interested parties to provide it in full. Clients should make every effort to ensure that they do not ask interested parties to provide information in a bespoke manner where such information is satisfactorily recorded and accessible to them on an industry-recognised pre-qualification system.

In this way, clients can demonstrate that they are adopting a pragmatic approach to the selection stage while meeting their legal obligations, by recognising the benefit that pre-qualification/registration systems have in reducing the need for interested parties to provide generic information more than once.

A.2.21 Bidders unsuccessful at selection stage should be given a debriefing on request.

A.3 THE AWARD STAGE

A.3.1 The award stage is distinct and separate from the selection stage. The tenders must be evaluated on the basis of VFM (defined in the Regulations as "most economically advantageous to the contracting authority") and not lowest cost alone. The award stage of the process must involve a fair, transparent and accountable method of evaluating tender submissions. It should also involve an appropriate (to the contract in question) balance of quality with price (take account of whole life costs). A typical award process is described below:

• confirm candidates
• establish:

• award criteria
• weightings for award criteria
• quality/price ratio
• award mechanism
• quality and price scoring

• prepare instructions to tenderers and invite tenders
• publish award criteria and weightings
• evaluate "quality" element of tenders then evaluate "price" element
• balance quality and price
• notify award decision and debrief unsuccessful candidates
• adhere to 'standstill period' before awarding contract

Confirm list of candidates

A.3.2 Each organisation on the short list is advised in writing of the details of the contract and asked to confirm that they are willing to attend an interview and submit a tender. If any are unwilling or unable to tender, the next suitable organisation can be added to the short list. Interviews can not be held until after the date set for the submission of tenders. The requirement for interviews should be made known in advance. The interview process, including questions, should also be structured in advance, as should the extent to which it will form part of the evaluation process.

Award criteria

A.3.3 The award stage focuses on the tenderers' proposals for the specific contract whereas the selection stage looks back at tenderers' status and previous performance. The award criteria must be appropriate, specific to the particular project and relevant to assessing whether tenders represent VFM. They must be established at the latest before tenders are invited as they must either be notified in the initial advertisement or subsequently in the instructions to tenderers (tender documents), together with any weighting attached to each criterion. Where appropriate in view of the subject matter of the contract, the weightings may be specified as a range (specifying the maximum and minimum). Where, on objective grounds, it is not possible to provide weightings, the criteria should be listed in descending order of importance. Where the Regulations apply, each criterion must be relevant to "economic advantage" to the contracting authority.

The list below provides some examples (it should be noted that where the award criteria refer to ability or experience, this means of the staff assigned to the project rather than to that of the tenderer as a whole):

• teamworking arrangements:

• partnering with client
• partnering with sub-contractors and suppliers

• aesthetic and functional characteristics:

• design
• operating costs
• ease of use
• adaptability for changes in use
• demonstration of innovation in proposals
• maintainability

• proposals for managing the contract:

• procedures for planning, programming and management
• programme for completing contract, including milestones for achieving objectives
• risks identified and proposals for their management
• communication arrangements
• quality plan

• project team organisation:

• qualifications and experience of team members, relevant to the project
• appropriately experienced senior managers/partners
• responsible senior managers
• qualifications
• length of service
• directly relevant experience
• quality of other senior personnel:

• suitably qualified
• position within the organisation
• amount of time devoted to the project
• resources

• technical merit:

• appropriate to the client's needs and constraints
• degree of flexibility in carrying out the contract
• method of carrying out contract
• approach to Construction Design and Management Regulations
• how health and safety issues will be identified, assessed and managed during the design and construction stages (see also Section 5)

• quality of documentation
• method of presenting information
• standards of materials, checks and independent inspections
• services provided from external sources:

• joint-venture arrangements proposed
• if so, are responsibilities of the joint venture parties clear
• arrangements made for sub-contracting:

• proposals for managing the delivery of any sub-contracted services successfully

Weightings for award criteria

A.3.4 Candidates are assessed on how well they satisfy the award criteria (including any mandatory components). The relative importance of each award criterion should be established by giving it a weighting. The example in Table 2 is intended to illustrate the principles involved and is likely to require modification for specific contracts/commissions. Items shown in italics will vary according to the project and client. It is prudent to draw up a mechanism for each contract and test it with dummy data to ensure it works as anticipated. Examples of other mechanisms can be found in the documents referred to in Section 9.

Quality/price ratio

A.3.5 The quality/price ratio appropriate to the type and stage of the project should be established. Individual client bodies are responsible for ensuring the optimum combination of whole life cost and quality. Indicative ranges of quality/price ratios for various types of project are given below:

Award Mechanism

A.3.6 The award mechanism provides a structured approach to evaluating bids. The example at Table 2 uses the award criteria, the weightings applied to them, the quality/price ratio and the price scoring mechanism to allow the quality and price elements of each bid to be evaluated. The award mechanism should be established before drawing up the long list, inviting expressions of interest or placing advertisements or issuing the ITT documents, as the mechanism needs to be published in either the advert or the ITT documents.

Quality Scoring

A.3.7 The quality scoring system aims to indicate how well each organisation's quality bid meets each of the award criteria. The example at Table 2 is based on the following scoring system:

Price Scoring

A.3.8 The price scoring and quality scoring systems should be compatible with each other. There are a number of options. The example of a price scoring system used in the illustrative example of award mechanism in Table 2 is:

• the mean price of the acceptable tenders received is given 50 points
• 1 point is deducted from the score of each tenderer for each percentage point above the mean; and 1 point is added to the score of each tenderer for each percentage point below the mean

Invitation to tender

A.3.9 The invitation to tender and tender documentation (including a Pre-Interview Questionnaire, where appropriate) should be sent simultaneously in writing to each tenderer. They should be accompanied by "Instructions to Tenderers". These should give clear instructions on how the tender is to be completed and submitted. Care should be taken to ensure that they only contain instructions and do not include any contractual information that should be included in the contract documents. The following information should be included:

• date and time of submission
• the award criteria
• the essential requirements of a compliant tender (including the information necessary to evaluate the tender in line with the award criteria)
• details for the submission of variant bids, if applicable (including the essential minimum requirements)
• instructions to visit site, where appropriate
• tender return labels
• method of completing and submitting the tender
• explanation of the two-envelope system (if appropriate)

A.3.10 The golden rules of tender documentation are transparency, clarity, consistency and completeness. Tenderers will have limited time to carry out a lot of work and therefore the client should make the contract documents clear and easy to use. All documents should be typed with no manuscript amendments or inserts, all pages should be numbered and there should be a comprehensive index. Tenderers may want to split the documents into elements for response by different people.

A.3.11 All tenderers should be given identical information. Any clarification given to a tenderer during the tender period should be sent to the others.

Tendering system

A.3.12 There are a number of tendering systems available. The two-envelope system allows the quality element of a bid to be evaluated without influence by the price. In a system of this type, tenderers are instructed to submit their tender in two envelopes. The first envelope contains the quality element of the tender, the second the price. The quality evaluation takes place prior to opening the price envelope. Care must be taken to ensure that all tenders from short-listed firms are evaluated on both price and quality. Irrespective of the result of the quality assessment, the price envelope must be considered alongside quality against the pre-determined criteria

A.3.13 Whether the two envelope procedure is used should be determined on a case by case basis. There may be less need for two envelopes where there is little room for variation in the quality element of bids (e.g. where the contract is based on priced Bills of Quantities and a detailed specification). But, in cases where there is scope for variation (e.g. in Design and Build, partial Design and Build, or contracts based on performance specifications) a significant element of the bidders' proposals will be subject to detailed evaluation, and where a two-envelope system is not used, it may be difficult to show that a quality evaluation has not been influenced by consideration of price.

Tender evaluation - quality

A.3.14 Each short-listed firm's bid will normally be evaluated according to a quality scoring system It may include the completion of a questionnaire by each firm, and in many cases, a post-tender interview (caution should be exercised when conducting such interviews - see paragraph A.3.18 below). The questionnaire and any subsequent interview must be structured in advance to permit evaluation against the pre-determined award criteria. The 'quality' scores should be established before price bids are considered (or opened, in the case of a two envelope system).

Tender evaluation - price

A.3.15 Each bid should be evaluated using a price scoring system. Lower than expected price tenders should be reviewed to ensure that they are deliverable and sustainable and do not reflect a failure to understand the contract requirements. Where the Public Contracts (Scotland) Regulations 2006 apply, abnormally low tenders should be dealt with as prescribed by Regulation 30(6) - 30(9) and tenders should only be rejected as abnormally low where the tenderer has been given an opportunity to explain why its bid was low.

Tender evaluation - whole life cost

A.3.16 To achieve VFM over the complete life of the project, the whole life costs need to be taken into account. Where contractors submit compliant tenders on the basis of a detailed specification and drawings (i.e. for identical facilities), the actual tender prices can be used in the tender evaluation because the other elements that make up the whole life costs should be the same for all tenders, and will in any case have been fully considered previously by the Design Team when assessing alternative design options. However, where tenders are for the provision of different facilities or tenderers have submitted an alternative tender in addition to a compliant bid, the whole life cost of each proposal will need to be determined and used in the tender evaluation.

Balancing quality, price and whole life cost

A.3.17 The tender evaluation form (Table 2) provides a method for balancing quality and price to assist in selecting the successful tenderer. There may still need to be further analysis to:

• take account of whole life costs
• take account of risk pricing (where the instructions to tenderers has required tenderers to provide prices for accepting specific risks)
• provide further confirmation that the organisation which appears from the mechanism to offer best VFM, is likely to do so (i.e. an overview by an experienced person independent of the project team)

Discussion With Tenderers

3.18 Contracting authorities must exercise great care when entering into discussions with candidates or tenderers in procurements subject to the open or restricted procedures. In particular, any such discussions must not amount to negotiation which might distort competition. Discussion with tenderers should generally be limited to requests for clarification (by the tenderer or by the authority). Even where discussion does not in fact constitute negotiation, it can be perceived as such. Care should therefore be exercised as to the nature and extent of discussion with tenderers. For example, conferences where candidates' or tenderers' questions are answered in open forum and confirmed by way of the same letter to each will usually be acceptable. However, bilateral meetings which discuss proposals/requirements in any detail should be avoided wherever the discussions might have the potential to distort competition. In any cases of doubt, appropriate specialist or legal advice should be sought. Also, any discussions with candidates or tenderers must always be handled by suitably skilled and experienced staff and should be appropriately documented on file. In particular, any discussions with candidates or tenderers must not result in fundamental changes to the authority's requirements and must not result in variations to proposed contracts (particularly on prices) which could distort competition.

Notification of award, debriefing and mandatory standstill period

A.3.19 The tenderer offering the best overall VFM, taking account of the optimum combination of whole life costs and quality, is judged as the competition winner. The successful tenderer should be informed and the start date agreed with them. At the same time, unsuccessful tenderers should be notified in writing. A contract award notice, where appropriate, should be sent to OJEU within the time limit given in the Regulations.

A.3.20 As a general rule, all tenderers and the bidders unsuccessful at award stage should be given the option of a debriefing, but it is important to note that there are specific requirements for debriefing where contracts are covered by the EC Procurement Directives.

A.3.21 For public sector and utilities contracts covered by the full regime of the EC Procurement Directives, a mandatory standstill period must elapse between the written communication of the award decision to all tenderers and all companies that submitted a PQQ but were not issued with an Invitation to Tender and contract commencement. Although the minimum mandatory standstill period is 10 calendar days, in many cases it will be necessary for the period to exceed this minimum duration to take account of requirements for contract award notification and debriefing, and to ensure that the period ends on a working day.

A.3.22 Further guidance on the mandatory standstill period, contract award notification and debriefing during the mandatory standstill period can be found in Scottish Procurement Policy Note SPPN(06)2005, which also contains suggested wording for inclusion in letters to successful, and unsuccessful, tenderers.

Audit Trail

A.3.23 Records should be kept of the selection and award process, for audit purposes or in the event of a challenge to any decision made. These records should be retained for at least five years or the duration of the contract if longer.

Annex B: Aspects of Appointing Consultants

B.1 The overall procurement and contracting strategies for the project will influence the extent of the professional services required (i.e. traditional client design, design and build, privately financed projects using the non profit distributing model, prime contracting, management contracting and their variants).

Appointment strategy

B.2 The following options will need to be evaluated before appointing the various consultants:

value management; risk management; partnering facilitator; facilities management:

• appointment of an individual or an organisation for each of these services
• appointment of an individual or an organisation responsible for all of these services

project management:

• appointment of an individual or an organisation to provide a dedicated project management service and not provide any other consultancy services
• appointment of an individual or an organisation responsible for project management and cost management
• appointment of a single organisation to be responsible for project management as well as all other consultancy services

design services:

• appointment of individual design consultants
• appointment of one organisation responsible for all design services

duration of appointment:

• appointment of organisations for the complete duration of the project
• appointment of organisations for one stage of the project at a time (e.g. feasibility study)
• appointment under a call-off arrangement

B.3 The project sponsor must decide whether to appoint a single organisation responsible for all of the design (who may appoint others as sub-contractors). This may simplify the administration duties of the client and clarify areas of responsibility. Alternatively, different organisations can be appointed for each of the key disciplines. In this case the project sponsor must ensure that the project manager is capable of (and the contract provides for) managing and controlling them. If individual consultants are to be appointed for specific elements of the design, one organisation should be appointed as the lead consultant to co-ordinate the design and this responsibility should be clearly defined in the contract.

B.4 Particularly on larger projects, consultants can be commissioned to undertake the feasibility design and planning work only, the following stages being subject to new competition. The consultant best able to do the preliminary planning work may not have the necessary resources for the later stages. However, for smaller projects, it may be possible to place a contract for all stages, though the facility to terminate the commission at key points, should be built into the contract conditions.

B.5 The appointment strategy offering best VFM will depend on many factors and will need to be evaluated on a project by project basis. Key factors include the project's characteristics, the extent and availability of in-house resources and the administration costs associated with each appointment. It is essential to take expert advice from the client adviser or project manager where such advice is not available in-house.

Project brief

B.6 The project brief is a comprehensive statement of the client organisation's requirements for the project. Tender documents for professional services should include either a complete project brief or a draft version requiring the successful tenderer's input to its completion. This should enable the construction professionals to understand the scope and extent of the project and the Client's quality requirements. Further information on project briefs is given in Annex C Section 1 and in the Construction Industry Board publication Briefing the Team.

Consultant's brief

B.7 The consultant's brief describes the services that the consultant is required to carry out precisely. These are dictated by the strategy adopted and whether the services are to be provided individually or in combination. The services provided by the project manager, various designers and the cost consultant are all different but they must be compatible, without overlaps or gaps.

B.8 Construction professionals cannot tender their services unless they are given an adequate description of the scope of the services they are to provide. If the description of the scope of services is inadequate or unclear, problems will inevitably arise. Poorly described requirements will be open to interpretation, providing opportunities for misunderstanding and claims for additional work.

Reporting requirements

B.9 Client organisations must specify the form and frequency of reports on cost, progress or other activities and details of the data to be captured and retained.

Delegated authority

B.10 The project sponsor must ensure that any authority delegated to consultants is clearly set out in their respective contracts (terms of reference), particularly when appointing a project manager. Decisions reserved solely for the project sponsor must also be clearly defined.

B.11 The project sponsor will need to consider carefully the precise level of authority the project manager should have to:

• order variations and make changes
• certify interim payments
• grant extensions of time
• settle claims
• agree final accounts

without the prior approval of the project sponsor. It is recommended that, as a minimum, the authority delegated is limited by:

• the value and type of variations and changes that may be made without prior approval (can be specified as a maximum total value for any one change and/or the aggregate value of changes over a specified time)
• prior approval of payment certificates
• prior approval of settlement of claims for extra payment or extensions of time

Bid basis

B.12 There are three principal ways of paying for professional services (sometimes used in combination). They are:

• time charge
• lump sum
• ad valorem (according, in proportion, to value)

B.13 The fee structure to be adopted for the contract will depend on the degree of certainty in the scope and content of the services required. When the scope and content of the services are uncertain, for example during the appraisal of options, then reimbursement on a time charge basis is appropriate. However, time charges provide no surety of the eventual fee cost. They tend to be an expensive way of paying for longer-term services and are more appropriate for shorter-term commissions or for additional services not allowed for in the original appointment.

B.14 Lump sum charges should only be used where the scope of all the services is defined precisely and there is little risk of significant variations in the scope of the works. A combination of lump sum charges for the more certain elements of the work and time charges for those less certain, may offer best VFM.

B.15 Ad valorem fee structures reimburse consultants in proportion (generally as a percentage) to the cost of the project. They appear to provide an incentive for consultants to design expensive projects rather than those offering best VFM. Further guidance on restricting fees is set out below at B.18.

B.16 Call-off arrangements allow a consultant or contractor to be appointed where the precise extent of the work or its duration cannot be determined in advance. Call-off contracts can be based on time charges or on lump sums for specific elements of work. They are particularly useful for the appointment of:

• client adviser
• value management, risk management and partnering facilitator

For example, organisations providing value management services may be able to provide a lump sum for running a value management study.

B.17 The bid basis adopted should be that offering the best VFM for the particular project.

Restricted (capping) fees

B.18 For the reasons stated above, ad valorem fee structures (particularly on a percentage basis) are often the most appropriate means of paying for the professional services of works consultants. However a reimbursement mechanism which pays a consultant proportionately more as the project cost increases may not necessarily appear to be in a client's best interests.

B.19 The reasons for an agreed project budget being exceeded may of course be as much due to the client's change of mind as to any mismanagement on the part of consultants. Nevertheless clients should consider if it is appropriate to introduce some form of abatement or capping mechanism to the fee structure, in order to underline the necessity of striving to contain costs while maintaining quality.

B.20 Restricting any increase in professional fees can be accomplished in a number of ways. For example a reduction mechanism might be built into the commission so as to lower, on an incremental basis, the fee paid on any increased costs. Similarly, where there is a reduction in project costs, the mechanism might give a slightly higher percentage fee, (effectively constituting an incentive mechanism where the client and the consultant share the benefits of savings and the liability of overspends).

B.21 Great care should be taken when considering the introduction of fee capping as a means of achieving VFM. It is not appropriate for all types or values of project, and it should not penalise those who are not responsible for changes or who have carried out abortive work or had to provide additional services as a result of the changes caused by other parties.

B.22 It will tend to be more appropriate in the case of large single projects or longer-term contractual relationships, particularly those which involve a degree of repetition (and an absence of complexity) in the design form. Clients should therefore consider, in the light of the circumstances of the particular project, whether or not it is appropriate to include a capping arrangement in the fee structure. Professional advice on this matter should be sought from the client adviser, the project manager or from Construction Advice and Policy Division.

Uncovenanted Gain

B.23 Amendment to some standard conditions of engagement may be necessary to prevent uncovenanted gain which can occur when fees are charged as a percentage of the construction cost. Some fees have traditionally been calculated on the final construction cost. In a project extending over several years, and especially during periods of high inflation, this results in the fee being calculated on the inflated final construction works cost. The majority of consultants' work, however, is carried out during the earlier stages of a project. The effect is a double payment: payment for the consultant's early work calculated initially on the estimated construction value at the time, and a topping up when, on completion, the total fee is recalculated on the final construction cost. This "supplement" is referred to as an uncovenanted gain.

B.24 Uncovenanted gain can be curtailed by calculating the percentage fees in discrete instalments, each one based on contemporary costs. Prescribed stages are charged at the agreed percentage rate, but calculated on the current, not the final, approved construction cost.

Expenses

B.25 Whatever the form of the fee, some method of dealing with related expenses needs to be specified. Most commissions will involve consultants in some out-of-pocket expenses; printing and production of drawings and documents, disbursements made on the client's behalf, and travel and subsistence expenses. Not all have to be reimbursed. It is open to the client to decide as part of the conditions of engagement that fee bids will be compounded to include some or all of these expenses. This is particularly attractive on short term appointments where the scope of the work, and therefore the related expenses, can be predicted accurately. Fixed price, lump sum consultancy agreements are often made on this basis.

B.26 On larger commissions, extending over several years and involving expenses and outlays which cannot be reasonably estimated, it may be unrealistic and unfair, as well as commercially disadvantageous, to expect a consultant to carry the risk and cost of expenses. In such cases the conditions of engagement should define which expenses will be eligible for reimbursement.

B.27 The Scottish Government's travel and subsistence rates normally provide a sound basis for payment and any subsequent official changes to the rates should be advised to consultants.

Professional indemnity insurance

B.28 Professional indemnity insurance provides cover for professionals against the financial aspects of legal liability to the client for professional negligence and is required for all professional appointments. However, it is costly and may need to be maintained by the consultant for many years after completion of the contract. The specified levels of cover should be appropriate to the particular project, and based on a thorough assessment of the particular risks considered relevant to the project. The full cost of requiring an unusually high level of cover should be evaluated before such a requirement is made.

Annex C: Aspects of Appointing Contractors

Collaborative relationships

C.1 Where the list of long term collaborative relationships between main contractors and their sub-contractors and suppliers is considered appropriate, a number of benefits can be obtained. These benefits include:

• better quality
• greater input of 'buildability' expertise
• less wastage
• savings to each party through innovation
• greater opportunity to improve sustainability via sourcing of resources
• better health and safety co-ordination

C.2 Some of the above benefits should be passed on to clients if they appoint main contractors that have entered into this type of arrangement. To encourage contracting organisations along this route, client organisations should consider including collaborative arrangements between the main contractor and their sub contractors and suppliers as a key criterion in both the selection and award processes, where this is practicable.

C.3 When evaluating contractor's bids on the aspect of collaborative relationships, evidence should be required to demonstrate the improvements that each relationship has produced to date, and the anticipated improvements which will accrue during the specific project.

C.4 The opportunity to benefit from collaborative relationships between main contractors and their supply chain will be greatest where the client is able to adopt output-based specifications or less traditional procurement strategies such as design and construct, and management contracts.

Workforce and supply chain skills

C.5 Clients should obtain information from potential tenderers regarding the level of skills of their own workforce/operatives and the policy that they adopt on these matters when assembling supply chains. This information should form part of the assessment of a candidate's technical suitability. An indication of the proportion of the workforce that is registered under industry-recognised skills registration schemes would be one means of assessing candidates' suitability.

C.6 It has long been the practice that tender documents have requested main contractors to name all of the domestic sub-contractors that they propose to use on that contract. Invariably, a long period of time could elapse between the tender preparation stage and the eventual appointment of a domestic sub-contractor. Clients and/or their project managers should obtain from the main contractor details of domestic sub contractors at the time of their appointment. This should be a continuous and cumulative process throughout the duration of the contract and be cascaded down the supply chain. A reference to this requirement should be included in the Preliminaries section of the main contract documentation in order to give the main contractor an opportunity to price this task.

Statutory obligations

C.7 Clients' attention is drawn to the contractors' obligations in respect of the Tax, Social Security, National Insurance and Health and Safety legislation. Failure to comply with these statutory obligations may render contractors ineligible to be considered for public contracts.

Contractor liability and insurance

C.8 Decisions on liability are the responsibility of the individual client organisation, in the light of specific circumstances. However, in considering liability, client organisations should take account of the following issues:

• liability issues should be addressed as soon as possible in the procurement process
• decisions on limiting contractor liability should be taken by client organisations on a case-by-case basis, reflecting value for money considerations
• liability should remain unlimited for death and personal injury
• for many contracts, it may be possible and sensible to also insist on unlimited liability for direct loss or damage:
• however, in other cases, value for money considerations will mean that limits will be appropriate
• limits or caps should, preferably, be expressed as a sum of money rather than as a percentage of the contract value, reflecting a combination of the following:

• best estimate by the client of the losses that might be suffered
• the likelihood of those losses occurring
• the value for money considerations in limiting liability

• where appropriate, consideration may be given to excluding indirect and consequential losses altogether:
• however, there may be a case for resisting such exclusions where a general cap on liability has been agreed

C.9 The levels of insurance cover should normally be a matter for the contractor based on its estimate of the risks involved. However, the client organisation may require, in the contract conditions, that the contractor should effect and maintain a policy or policies of insurance. Such policies should provide an adequate level of cover in respect of all risks which may be incurred by the contractor, arising out of the contractor's performance or purported performance of the contract.

C.10 It is a legal obligation on employers to insure against the costs of providing compensation for those employees who are injured or made ill at work through the fault of the employer. The sum insured must be at least £5 million. The client should ask to see a copy of the Employers' Liability insurance policy and/or a copy of the certificate of insurance that the employer is required to display in the workplace under the Employers' Liability (Compulsory Insurance) Regulations (SI 1998 No. 2573).

Annex D: Evaluation of Procurement Routes

D.1 Table 1 provides an illustrative example of a mechanism to evaluate how well each procurement route is likely to deliver value for money in terms of whole life costs. Items in italics are shown solely to demonstrate the system. They will vary according to the project and client. It should be noted that this mechanism would be used after privately financed options using the non profit distributing model had been considered and ruled out as a suitable procurement route.

D.2 The evaluation criteria used in the mechanism must be chosen so that they relate specifically to aspects that will determine value in whole life cost terms. The relative importance of each evaluation criterion is established by giving it a percentage weighting.

D.3 The mechanism provides a means of helping construction procurement experts reach a decision about the procurement route likely to deliver greatest value for money but does not replace the need for an expert to make the decision on the basis of all information available.

D.4 There is clearly scope to distort the outcome by manipulating the evaluation criteria, weightings and even the mechanism itself. Whatever mechanism is developed, it must help to identify the procurement route likely to deliver greatest value for money. If a second construction procurement expert independently was to develop a second mechanism and evaluation criteria, the same conclusions about the procurement route likely to deliver greatest value for money should be drawn from it as the first mechanism. Sensitivity analysis may help to highlight the adequacies of a mechanism.

Annex E: List of Teamworking and Partnering Activities

• Partnering workshop (at start of project)

• Regular project workshops

• Partnering charter

• Identify and agree common goals

• Agree measurable continuous performance improvement targets

• Agree dispute resolution ladder

• Incentive mechanism

• Public acknowledgement of team achievements

• Open book accounting

• Common offices

• Common filing system/database

• Arrangement to encourage partnering all the way down the supply chain

• Use of a facilitator available at all times

• People appraisal - arrangements for ensuring that the right people are in place and that they have the necessary attributes or if they do not, that they are actively acquiring them

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