Re: [PLUG] Fwd: Wireless Philadelphia ... RFP available

["William H. Magill" <magill@mcgillsociety.org>]

On 11 Apr, 2005, at 14:25, George Gallen wrote:
> Well, one thing I was thinking about was that one clause that anyone
>  who wants to bid, will need to put down $100,000 security bond. Now,
>  that should help weed out those that will go bankrupt trying to do 
> what
>  is impossible, but just wanted the contract, and wasting money.
>
> But what is a security bond? Is is basically cash? I didn't see any
>  interest rate for holding it either. So if it's cash, and the city 
> gets
>  bids from 10 contractors, that's 1,000,000 security, held for say 6 
> months
>  while they decide who paid enough to get the bid, then refund all but 
> the
>  winning bidders security. How much interest will that accrue for the 
> city?
>  or rather the non-profit company attempting this? (or is that not for 
> profit).

The simple answer is -- there is no money involved.

A "performance bond" or "security bond" is not a cash payment, but 
rather a third-party Insurance Policy which "guarantees" some dollar 
amount is available in the event that the entity fails to perform 
whatever it is that they have been contracted to provide.

It is really identical to a "bail bond."

The bidding company purchases this "bond" and the bonding company 
supplies a certificate to the entity requesting the bid (the Wireless 
NGO, in this case).

The cost of the bond is usually about 10-100% of the face amount. This 
cost is a direct reflection of the opinion the bonding company has of 
the business purchasing the bond and their ability to perform. The 
price goes down as the confidence of the bonding company goes up.

While "anybody" could claim to be a Bonding Company, in reality they 
are all "well known" to the court system.

While a company could put up $100,000 in cash with their bid, that in 
itself would (or should) be a big red-flag ... implying that the 
company is NOT Bondable! That is to say, there is no independent 
third-party who will vouch for the competency of the company.

Note that this kind of Bond is quite normal in the Financial Community 
-- any employee involved in the handling of money (real cash or on 
paper) must be "Bondable" as a condition of employment. This implies 
background checks, D&B reports and all sorts of similar things.

It is also quite normal and expected with any "sizable" contract, or 
contract where the failure of satisfactory completion is libel to rend 
the hiring entity a significant financial loss.

It will be quite interesting to find out how many responses the city 
actually gets to the RFP.

Note that this is an RFP - Request for Proposal.
An RFP is quite different from an RFQ - Request for Quotation.

With an RFQ, the response requires specific price commitments for the 
accomplishment of the specific items in the RFQ. And the details of 
what is required are quite specific, not general.

With an RFP, there is a laundry list of things DESIRED, but no 
requirement on HOW they be accomplished, or IF they all be accomplished 
at all! An RFP is, quite literally, nothing more than a "wish list." 
The prospective vendors are expected to offer up proposals which will 
implement as much of the laundry list as possible at the lowest 
possible price. Frequently however, many of the things in the laundry 
list are simply never addressed in many of the various proposals.  This 
is why evaluating an RFP is much more difficult than an RFQ. Not only 
must you evaluate based on the bottom line, but on what the vendor is 
actually proposing! Similarly, components of the laundry list need to 
be ranked in order of importance -- those which must exist and those 
which would be "nice to have." That ranking is often shared with the 
bidders, and they are allowed to price each of the various features 
accordingly.

Another feature of an RFP is that it is frequently a "first step" in an 
iterative process -- as with construction, the architect's estimates 
are frequently based upon "book prices," not current reality which 
includes markups because of product shortages or labor costs.

What you get back from an RFP is something like -- "we can provide what 
you ask but it will cost you 10 times what you estimate. If that is 
fine with you, sign here. Otherwise, we can provide the following 
features for the amount of money you want to spend. At this point, you 
discover that your Marble bathroom has been replaced with linoleum tile 
and your walnut paneling with drywall!

[For example, I would guess that the battery backup issue is a "nice to 
have," or will become such as the bids come in, as that feature could 
seriously impact the system cost. You might get a proposal for 2 hours 
of backup power at $X and for 8 hours at $10X.]

Before the RFP was issued various consultants claimed that the $10 
million number "was in the ball park." "In the ball park" means -- we 
won't say you can't do it for this money, but we expect that it will 
cost at least twice as much. Now that the RFP is available, it will be 
interesting to see if any of those consultants or others revise their 
"ball park" estimates.



T.T.F.N.
William H. Magill
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magill@mcgillsociety.org
magill@acm.org
magill@mac.com
whmagill@gmail.com

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