“Three Phase” Procurement Model Presented by Carl Hutchison, C.P.M.

1. “Three Phase” Procurement Model Presented by Carl Hutchison, C.P.M. Associate Director of Purchasing University of Nebraska–Lincoln NAEP Annual Meeting April 22, 2009

2. Reason for Development • 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

3. 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

4. “Three Phase Process” “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 data c. Developed questions for Vendors’ responses relating to their financial resources, operational experience, product selection, sponsorship, scholarships, program and financial offerings 2. Developed draft agreement

5. “Phase One” 3. Conducted Preliminary Conference a. Handed out draft agreement b. Explained “Three Phase” procurement process c. Responded to attendees questions d. Site visit conducted 4.Received and Evaluated Bidders’ “Phase One” Proposals a. Services offered by Vendors b. Non-monetary programs offered c. Initial product pricing d. Benefits/Consideration requested by Vendors

6. “Phase One” e. Front-end and annual payments f. Commission offering g. Impact of initiatives • Health & wellness • Modified sponsorship package • Sustainability issues • Vending of premium coffee

7. “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)

8. “Phase One” Example of summary provided to vendors: 1.5.A Mutually agreed upon snack products and services Coke ResponsePepsi Response Coke 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 any responsibility for the snacks or snack services to be provided by VVS if its bid is accepted by UNL. Coke anticipates that a separate and totally independent Snack Availability Agreement will be executed between VVS and UNL.

9. “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.

10. “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

11. “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).

12. “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”.

13. “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.

14. Administrative Notification 1. Recommendation approved by Administration 2. Final agreement drafted and approved by both UNL and recommended Vendor 3. Agenda item prepared for presentation to Board of Regents for formal approval 4. Board of Regents approval and agreement finalized

15. Results Contract Guarantee Pouring Rights and Related Initiatives $12,900,000 Beverage Commissions $ 2,600,000 Snack Commissions $ 200,000 Sub-total $15,700,000 Commissions Beyond Guarantee Beverage Commissions $ 2,133,597 Snack Commissions $ 224,782 Total $18,058,379 Commissions based on UNL’s 2007 actual vending sales with a .5% annual growth factor through the ten year term.

16. 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 year Ice machines purchase & maintenance $ 25,000 Development of retail operation $125,000 Total $350,000

17. 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

18. 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)

19. Evaluation of Process Feedback from Vendors: • Some responses rejected without further comment • Response time between phases not an issue • Leave more time for committee evaluation and update of responses to Vendors. • Overall timeframe to make decision – very long • Process fair

20. 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

21. 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 process Weaknesses: • 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

22. University of Nebraska–Lincoln