22.214.171.124 Preparing the Terms of Reference
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To help Contracting Authorities determine the contract scope, this paragraph provides general instructions and guidelines on the collection of the individual information required for each one of the categories mentioned above.
Once it has been collected, this information (to the extent to which it is related to the contract scope) should be entered in the respective paragraphs of Annex II – "Terms of Reference – Technical Specifications" (or of Volume C – "Technical Specifications", in the case of a public works contract) of the model draft tender documents.
In the remainder of this paragraph, detailed instructions are given on how to develop the Terms of Reference, followed by an example to help understand the contents of the Terms of Reference.
Overall objective, specific objectives and expected results of the contract
This part of the Terms of Reference provides information regarding the aims of the Contracting Authority in connection with the implementation of the contract. In general, the aims to be mentioned here should refer to the overall objective of the contract and to the contract’s specific objectives and expected results.
This information should be presented at an appropriate level of detail and with appropriate clarity, in order to allow:
The overall objective is the top-level aim of the contract: it describes a future situation to whose achievement the contract in question is expected to contribute.
The most frequent mistake made when specifying the overall objective, is to describe it in a manner that is too broad or too general.
The overall objective must usually be specified at a level at which it may be possible to confirm, at the latest upon completion of the implementation of the contract, that changes or improvements are taking place or that developments are being created as a result of the implementation of the contract, and that these bring the desirable situation closer than it was when the contract began. Confirmation of these changes must be possible through the use of certain parameters (indicators), which can be used to indicate the approach to the desirable improvement [see comments on indicators below].
The overall objective is usually specified at the level of regional (local) or sectoral policies and reflects the desirable impact on the Final Beneficiaries1 [ The Final Beneficiaries are persons or groups of people who shall gain long-term benefits from the contract, through the improvement of services, the manufacture of better products etc., to which the implementation of the contract contributes. These will be made available do them by the Direct Beneficiaries.
The specific objectives of the contract describe what the contract aims to achieve at the completion of its implementation. Thus, in order to set the specific objectives of the contract, its duration must have been specified.
It is obvious that these parameters are interdependent, and this is a critical relation which must be taken into account when planning the contract, particularly so when there are specific constraints regarding the timeframes within which the contract must be completed (such as, for example, in the cases of projects co-funded by the EU Structural Funds), combined with particular specific objectives which must also be achieved at the same time (when the latter result from broader obligations, e.g. the obligations at the level of the project to which the contract belongs).
The specific objectives must identify the benefits to be gained by the Direct Beneficiaries from the use of the services or products of the contract.
By acknowledging and accepting that the behaviour of the Direct Beneficiaries of the contract cannot be controlled, we can say that in all other respects the achievement of the specific objectives of the contract depends on (can be controlled by) the Contract Management Team2 [ i.e. by the executives of the Contractor who are responsible for managing the contract, but also indirectly by the officials of the Contracting Authority who supervise the implementation of the contract. ]. It is nevertheless necessary for the Direct Beneficiaries to be mobilised and to use the results of the contract, if one is to be able to say that the specific objectives have been achieved.
The expected results of the contract (some of which are also "Deliverables"3 [ The term Deliverables is usually applied to the measurable products of a contract, which are produced and submitted in a specific format, with specific contents etc. to the Project Management Team for the contract, which accepts them based on explicitly specified relevant procedures. ]) describe the specific services or products which the contract shall produce and deliver to its Direct Beneficiaries.
The Contract Management Team controls directly the production (achievement) of the expected results. It is obvious that in order for these results to be achieved, the Contractor must carry out specific activities in a specific sequence.
The results of the contract are expected to be achieved (produced) gradually, as the implementation of the contract progresses. Thus, based on the expected achievement of the results, it is also possible to specify the milestones of the contract, which support and direct the management of the contract.
To complement what has been mentioned above regarding the definition and content of the overall objective, specific objectives and results of the contract, practical instructions and guidelines for their determination are given below:.
Table 3-12: Practical instructions and guidelines on how to determine the overall objective,
specific objectives and results of the contract
Contract activities and resources needed
This part of the Terms of Reference provides information about the following:
The activities through which the contract is implemented and which are required in order for the expected results of the contract to be achieved, are specified either by the Contracting Authority (in which case they are included in the Terms of Reference and must be taken for granted) or by the candidate economic operators. When requested by the Terms of Reference, they form part of the expected results of the contract, whereas if they are not requested at all, then they must be analysed by the Contractor, as he must implement the contract. In this last case, what is requested from the Contractor is simply to ensure the achievement of the results (which are described by way of detailed specifications), while the Contractor is given the freedom to implement these as he best sees fit (without any relevant commitment on the part of the Contractor towards the Contracting Authority). Such cases are e.g. the cases of contracts for the development of technical designs/studies.
There are also cases where the Contracting Authority gives a broad outline of the required activities and requests from candidate economic operators to develop them in more detail and present them in their tender (this is quite common in the case of contracts for general services).
The required activities of a contract are specified through the Work Breakdown Structure (WBS) analysis (see paragraph 126.96.36.199 in Chapter 7), using as a basis the requested results of the contract and the experience of previous projects or of planning the application of specific methodologies and techniques.
An important element in specifying them is the effort to identify all activities (and only those activities) through which the results (and any other requirements) of the contract shall be achieved, within the available time and at the minimum possible total cost.
The activities of the contract are presented grouped into packages, according to their logical and temporal sequence of implementation under the contract. Their presentation also includes their relations (links) upwards (to the expected results, to whose achievement they contribute) and downwards (to the resources needed for their implementation). The description of each activity must also be accompanied by a presentation of the indicator(s) to be used for measuring its implementation and of the means for validating it(them). Typical such indicators may be: the physical unit which characterises the implementation of the activity, its financial scope (value or cost of the activity), its implementation schedule etc.
Special reference to the information which must be mentioned in the presentation of the activities is made below.
In order to estimate the resources needed to implement the activities scheduled and to manage the contract, an analysis of all relevant activities at a considerable level of detail must be prepared. Once this is available, then, based on the experience, the methods contemplated for the implementation of the activities, and the expected (physical) results, the resources needed are estimated. In cases where the activities of the contract are carried out in a standardised manner on the basis of relevant specifications (see paragraph 188.8.131.52 below), then the calculation of the resources needed for them will be performed on the basis of the relevant requirements as mentioned in the specifications.
When specifying the resources needed, it is crucial to ensure that no resource has been forgotten. To this end, when specifying the resources needed a check must be conducted to confirm that the potential needs for various categories of resources have been examined. This task is extremely important, as the accurate specification of the resources needed affects the estimation of the cost of the contract.
After the activities and resources have been specified as described above, the following parameters must be estimated (and presented) for both of them:
The place of delivery/implementation results from the spatial planning for the implementation of the contract.
This parameter is of particular importance in the case of installations or constructions implemented or carried out over a large area. Otherwise, the usual practice is to specify certain –specific– locations (offices, warehouses etc.) where the activities/resources must be delivered/implemented, depending on the current needs and capabilities of the implementing agency of the contract or on the nature of the contract.
The date of delivery/implementation results from the activities schedule established for the contract (see paragraph 184.108.40.206 in Chapter 7].
In establishing this schedule, consideration should be given to the total time available for the implementation of the contract and to the contractual interim deadlines, i.e. the points in time (specified either in an absolute manner, as calendar dates, or in a relative manner, in connection with the starting time of the implementation of the contract) when a specific activity under the contract must be completed or a result/deliverable of the contract must be produced. On the basis of this schedule of activities, the times for the delivery of the resources are also specified, so that the resources may be available in a timely manner in order to be used for performing the work under the project.
The scheduling information which must be stated in the Terms of Reference usually includes the following: the total time available for the contract (duration), and (if required) some interim deadlines for the delivery of specific results (deliverables) of the contract. The development of the rest of the schedule for the contract is usually requested from the Contractor, and quite often forms part of the criteria used to award the contract (when the contract is awarded using the criterion of the most economically advantageous tender). There are also cases of contracts where no scheduling information for the contract is provided (not even the total duration), because this information is requested from the economic operators participating in the tender procedure and forms part of the criteria for the award of these contracts.
The quantity is specified on the basis of the expected results of the contract (their nature and their quantity), the methods (ways) used to carry out the activities of the contract, the decisions regarding which resources to use (from those available as alternatives), the Technical Specifications to be used, the estimated waste (loss etc.) which usually occurs during the implementation of such contracts etc.
The quality is specified in relation to the requested level of quality of the results (i.e. of the tangible products or services or constructions, depending on the nature/scope of the contract), the available budget, the broader level of quality of similar contracts and especially of other contracts whose results are related to the results of the contract in question.
The quality is specified by the Technical Specifications and may refer to technical design requirements (quality) or to functional quality or to performance quality (safety etc.).
In general, quality must be uniform across all levels of analysis of a contract, and its level should be specified with reference to the level of quality that prevails in its environment. Failure to do so will result in inconsistencies (technical, temporal, functional etc.), waste of money, environmental and other problems.
This chapter of the Terms of Reference describes any special requirements which the Contracting Authority may place on the Contractor regarding the implementation of the contract. These requirements may refer to all levels of analysis of the contract (project), which shall be under the control of the Contractor and which may be included in the tenders submitted, such as the personnel, the equipment and other means to be used for implementing the contract, special safety requirements etc.
It is obvious that these requirements are very important, both for the Contracting Authority (which considers them necessary and is requesting them) and for the Contractor and, consequently, for the economic operators, who must include them in their tenders and supply details regarding not only their implementation but also their cost. For these reasons, they must be specified and stated in an explicit, clear and measurable manner, in order to avoid problems during the evaluation of tenders as well as during the implementation of the contract.
Prerequisites, constraints, assumptions and risks
This part of the Terms of Reference presents information about the following:
The prerequisites of a contract are the conditions (if any) which must be met before (or by) the starting date of the implementation of the contract. As such they are very important, because they affect the start of the contract and (obviously) the time and cost of its implementation.
It is evident that these prerequisites cannot be controlled by the Contract Management Team. For this reason, they must be stated in the Terms of Reference, together with the actions (under way) which have been taken towards their timely fulfilment, so that the interested economic operators may assess the situation.
Prerequisites of this type are usually quite common, especially in cases where the contract is part of a project and its implementation depends on the completion of one or more other contracts. Other examples of prerequisites include the approval of funding for the contract, the issue of certain permits which are required, the positive evaluation of some other similar contracts which have already been implemented, the application of some relevant policy measures etc.
These are the initial assumptions and constraints which have been incorporated in the planning for the contract and for the project to which the contract belongs. They usually refer to factors about which the assumption was made that they will take place (or will not occur) during the implementation of the contract and, on the basis of these assumptions/constraints, the contract (i.e. its scope, schedule, cost etc.) was planned.
It is obvious that these assumptions are outside the control of the Contract Management Team and thus are very important, not only because of this, but also because they may lead to risks to the successful implementation of the contract. It is therefore very important to state them in the Terms of Reference. It is however equally important to be aware of them in connection with the management of the contract, as in order to ensure its success these assumptions must be constantly checked to confirm that no change has taken place and that they remain valid.
The assumptions result as follows: During the phase of analysing the problems and specifying the aims of the contract, it is only reasonable that it will not be possible to include in the contract all the aims identified by the analysis. When finally a strategy is decided which satisfies to the greatest possible degree the target requirements, the decision is taken for some aims to be fulfilled through the contract and for some others not to be fulfilled, either because it is not possible to assign them to the contractor or because it is cheaper to address them in some other way etc. It is reasonable to expect that the aims not to be fulfilled through the contract, together with other external factors, will affect the implementation of the contract and, in the long-term, the viability of its results, if they are not fulfilled within the time foreseen, in the manner foreseen etc. Therefore, to ensure the success of the contract, these must also be satisfied (outside the contract). These requirements, which must be met concurrently outside the contract, are the assumptions, and are included as such in the planning for the contract.
It is reasonable to expect that many assumptions will be made during the contract definition stage (and also before that, during the project definition stage). All these assumptions must be recorded in detail (with indication of their desired status, so that they may be confirmed and evaluated later on), with note taken also of any changes to them during the contract definition phase.
The assumptions must be realistic, in other words the fact that they will be satisfied when and as appropriate must be realistic, otherwise, as is to be expected, there will be many risks to the contract. In the event that, either during the contract definition stage or later on, during the stage of its maturity or implementation, certain assumptions prove to be unrealistic, the contract must be immediately adjusted to mitigate the corresponding risks. This can be done by introducing new elements to the contract or by developing/creating a new, additional contract.
The following are examples of assumptions:
There are many risks associated with the implementation of a contract and posing threats to its success. Some of them are stemming from the assumptions and constraints mentioned above. These risks cannot as a rule be controlled by the Contract Management Team, and for this reason it is important to state them in the Terms of Reference.
Management of the risks to a contract is an important task which must be undertaken by (primarily) the Contractor as well as by the Contracting Authority. It includes the identification of the risks, the assessment of the likelihood of their occurrence, the assessment of their impact on the successful implementation of the contract, and the development of ways to manage them. There are many scientifically developed risk management methods (addressing the prevention and/or minimisation of risks and/or the mitigation of their adverse consequences).
The assessment of risks is usually a task that forms part of the process for identifying the optimum solutions for the implementation of the contract (and of the project). The risk assessment level required for every contract may vary between contracts, and depends on the nature, scale and spatial allocation of the contract. Besides, there are contracts which by default involve greater risk than other contracts. In all cases, however, it is important to assess the risk of the aims (objectives and results) of the contract not being achieved, and to examine ways to mitigate this risk.
Identification and acknowledgment of the risks which are related to the assumptions/ constraints mentioned above, takes place during the planning for the contract, in tandem with the specification of the assumptions. Regarding this task, it should be noted that the likelihood and importance of the assumptions and constraints not being met must be evaluated as part of the assessment of the risks to the contract. Various techniques (algorithms) are available and can be used for this purpose (see paragraph 220.127.116.11 in Chapter 1). Finally, the risk-related information should be updated regularly, so that they may be available for the purposes of managing these risks, in parallel to the management of the assumptions, as mentioned above.
The prerequisites, assumptions & constraints, and risks to the contract are closely related to the contact objectives, results, activities, and resources. Their overall interrelations, stemming from the planning for the contract, are as follows:
Instructions and guidelines on how to develop the Technical Specifications are given in paragraph 18.104.22.168 below.
This part contains information which does not refer directly to the contract but instead refers to the broader environment of the contract, and is extremely useful for the candidate economic operators, as they allow them to understand better the overall framework in which the contract to be implemented is included.
A description is given of the particular characteristics of the country which are related to the contract scope or to the sector within which the contract will be implemented. References may be made to relevant national social and economic factors which may affect the implementation of the contract.
Current state of affairs in the relevant sector
Information and data are provided to help candidate economic operators understand the environment – framework within which the contract shall be implemented. This information may vary greatly between contracts. It depends on those elements of the environment of the contract which are important each time for economic operators, i.e. those that provide them with information allowing them to assess the potential immediate risks and opportunities to which the environment of the contract may give rise, so as to put together a good tender.
Such information/data may for example, refer to the implementing agency of the contract (scope, objectives, programmes of the agency during the current period etc.), the reference funding framework (e.g. special management procedures to be applied on account of the project being funded under the particular framework), the situation in the relevant sector, the legislative and regulatory framework governing the contract, the rules to be observed during implementation of the contract, etc.
Relevant programmes and actions
References are made to other programmes, projects, contracts and actions which are related to the contract in question and (may possibly) affect it. These may be:
In any case, in addition to the references made to these actions, contracts, projects and programmes, other information must also be provided about them, in order to give a clear picture of their existing or likely relation (in terms of scope, schedule, available resources etc.) to the contract in question or of their impact on it.
In developing the Terms of Reference, the following issues should also be clarified:
To help understand the way in which the contents of the Terms of Reference for a contract are specified, a relevant example is provided below:
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