|At a Glance|
The NDDOT improved its equipment procurement process by:
Like perhaps other fleets challenged to procure multiple complex pieces of equipment from a single or multiple vendors but have a hard time with obtaining on-time delivery, the North Dakota Department of Transportation (NDDOT) State Fleet Services was faced with that challenge when procuring turnkey snow plow trucks. The following process the NDDOT went through to improve its purchasing process and ensure on-time delivery may be adapted to a number of large complex procurement situations.
Vendors Considered Vehicles Low Priority
NDDOT has a complex snow plow truck specification that uses state-of-the-art electronic hydraulic controls to control a front plow, underbody scraper, snow wing, sanding, and pre-wetting equipment, and in some cases anti-ice trailers or 22-foot tow plows that contain anti-ice equipment. The NDDOT State Fleet Services division owns and manages all State-owned on-highway vehicles used by all State agencies and universities. The procurement of complex snow plow trucks falls under the division's responsibilities.
There are a limited number of vendors in the region that will bid to assemble the NDDOT snow plow trucks and since the trucks were awarded to the lowest bidder meeting specifications, the vendors all considered it low priority work. It didn't matter if the fleet ordered four or 14; it would take 11-15 months from order to delivery. This was unacceptable, but under North Dakota procurement law, Fleet Services' only recourse was to cancel a contract, disbar the vendor, and rebid. This was also unacceptable with the small vendor pool and the further delay until delivery. In addition, final inspections for specification compliance and quality were made after delivery, so it was often difficult to coordinate correction of the defects by the vendor, which could be more than 400 miles away. Oftentimes, it was just easier if the fleet just absorbed the cost and made the repair.
Working toward a Solution
Fleet Services had unsuccessfully made empty threats to the vendors to get them to speed up delivery. Eventually, I asked myself: "What can we do to create an urgency whereas the vendor(s) will give the NDDOT snow plow truck builds a high priority? Is there some method used by others - a carrot to lead them, so to speak?"
Fleet Services didn't have to look far for a solution - the highway construction division already had a method. To get highway contractors to complete a project early or on time, the division includes a bonus/penalty clause in the project contract. The bonus is based on a dollar amount per day prior to required project completion date; if the project goes beyond the required date, a per-day penalty is applied.
Using that idea as a basis, Fleet Services modified the concept to include these terms in the bid documents:
A 3-percent bonus will be paid to the vendor on the total plow truck contract award if the established completion deadline set forth in the bid specifications is met for the total order. All completed trucks are required to pass an NDDOT inspection for installation quality and specification compliance with all corrections being made to the unit before delivery is allowed. Failure of the successful bidder/contractor to deliver the completed trucks within the time allowed will result in damages, and for each consecutive day in excess, a sum of $50 per truck per day shall be withheld from payment due the contractor. Such amount shall not be construed as a penalty but as a minimum value of liquidated damages that may be deducted from payment due to the contractor if such delay occurs.
In 2002, the first invitation for bid (IFB) was issued containing these terms. The bid was split between three successful vendors; 37 snow plow trucks were completed within 120 days, and every vendor received its 3-percent bonus. This was considered a huge success. However, it did come with some growing pains for both the vendors and Fleet Services.
Giving Vendors Guidance on NDDOT Expectations
One of items that had to be addressed early on was the need to have someone available at a moment's notice to give guidance to the vendor to determine acceptable mounting practices and expectations that would be required in the final product. This was to ensure there would be no delay in production, and the trucks would pass the final inspection. For this, Fleet Services hired a temporary employee during the 120-day build time. The trucks were all being assembled in the Fargo, N.D., area, and fleet is located 200 miles away, in Bismarck. The temporary employee hired was a retired shop foreman from the Fargo district of the NDDOT, so he knew the equipment well and lived nearby. Fleet Services had regular contact with him to get periodic updates and if needed, he could alert fleet to have a staff member pay a visit to help make a determination on the build. This worked out well for the first couple of years until the vendors became familiar with the expectations and the practice could be discontinued.
Working out the Details
It is very important to spell out the terms and conditions when entering into contracts. One of the vendors decided it was going to challenge the process. It had a bid award of two single-axle trucks, which it completed on time. However, the trucks didn't pass inspection and the vendor was told not to deliver the vehicles until all the problems discovered by the inspectors were resolved. The vendor delivered the trucks without making any corrections, but expected the 3-percent bonus because it beat the deadline for contract delivery. In addition, the vendor refused to send anyone out to the delivery locations to correct the problems.
Fleet Services considered the vendor in default of the contract. To correct the situation, NDDOT service technicians brought the trucks into compliance and notified the vendor that the labor and parts expenses would be deducted from the final payment. Fleet staff met face-to-face with the vendor management to point out the terms and conditions of the contract and explain the agency's position. The matter was immediately diffused and dropped.
The fleet division also found that the vendors disliked the splitting of the bid award and indicated that fleet had too many truck types/variations in the bid specifications. They indicated that they could bid more effectively on an all-or-none award with trucks all being built the same or similar. One vendor with an order for only two single-axle trucks said it found it difficult to be efficient. The vendors' reasoning was that the more they built of the same kind, the more efficient they could be with an assembly-line-like process. That certainly made sense, and another benefit for Fleet Services was that there would be only one contract to manage with one vendor. The fleet division took all of that into consideration.
In 2005, Fleet Services eliminated the single-axle plow truck from the bid and decided to build all tandem trucks with only two basic variations. The awarded vendor built 17 snow plow trucks within 120 days from the receipt of the chassis. This was considered to be another successful step in the process.
The fleet division continued this practice for the next few years, requiring all trucks ordered be completed within 120 days of the receipt of the chassis. The vendors were complying and meeting the deadline. However, they began to complain that on larger orders of more than 20 trucks, they weren't making as much profit because they had to pay out too much overtime to get the job done. They said this ate up much of the 3-percent incentive.
In 2009, Fleet Services made another change to the process. Instead of using the IFB process, it switched to the request for proposal (RFP) process. This process required a little more work on the front end, but in the end, it is designed to provide the best product for the State based not only on low price, but also on vendor-proposed performance factors.
This process allowed the bidder to tell the fleet how much time it needed to complete a particular order. This timeframe was then made part of the contract, and the vendor was held to it to be paid the 3-percent incentive. In addition, Fleet Services bid it as a two-year contract, giving vendors even more incentive to want the contract. Fleet Services guaranteed the build of 22 plow trucks in 2009, and 20 in 2010. The contract also was left open to order additional trucks if necessary to meet replacement needs. The award evaluation, based on the proposed two-year truck order cost, proposed time to complete the orders from receipt of chassis, compliance with technical specifications, experience building plow trucks, warranty, and follow-up service with the delivery locations after delivery.
When the RFP evaluation committee met, it had a very tough decision to make between two very qualified vendors. The proposals were both well-defined and in compliance with fleet specifications and expectations. However there was one factor that really stood out: the proposed build time. One vendor wanted 240 days for each order of trucks, and the other needed 120 days. That proved to be the decision-maker because after revealing the $3.2M project cost to the committee, there was only a $63 difference between the two vendors.
Achieving a Successful Procurement Process
Looking back, Fleet Services considers this process change to be a huge success. In seven years, the fleet division streamlined the procurement process of snow plow trucks from receiving approximately one per month to the delivery of 22 snow plow trucks in 120 days from a single vendor. The process also eliminated many vendor complaints since they were following their own proposal.
In 2011, the fleet followed the same process as 2009. The same vendor that asked for 240 days in the previous proposal re-evaluated its conditions, addressed all the terms of the proposal more thoroughly, and proposed a 120-day completion time. The RFP committee took notice and awarded that vendor the current contract.
Check out a video of one of the trucks in action.
About the Author
Paul Hanson, CAFM, is director of the North Dakota Department of Transportation Fleet Services division.