Pricing a fee-based EU service tender

How price is scored in an EU service tender

Under PRAG, the European Commission’s procurement rules for EU external action, a service contract is either global price, paid against defined deliverables, or fee-based, paid for the working days your experts actually work. Fee-based contracts are used where the output is unpredictable or the workload impossible to quantify in advance, as in technical assistance and project supervision. This guide covers fee-based pricing, using PRAG 2021.1 and its standard tender documents; check the edition named in your tender dossier.

The financial offers are opened only after the technical evaluation, and only for tenders with an average technical score of 75 or more. Then:

1. Tenders above the maximum budget in the contract notice are eliminated.
2. The committee compares only the total fees and any lump sums, without VAT or other indirect taxes. The provisions for incidental expenditure and expenditure verification are left out, because the terms of reference fix them for everyone.
3. The lowest fees and lump sums get 100 points; every other tender gets lowest / its own × 100.
4. The final score weights quality against price 80/20: 0.8 × weighted technical score + 0.2 × financial score, where the best technical tender is rescaled to 100.

Prices are firm and cannot be revised, and variants are not allowed. As the price check in our bid/no-bid guide shows, a low price rarely rescues a weak technical offer. Pricing well is about something else: not leaving money on the table, and never being eliminated on a technicality.

What goes into the budget breakdown

The financial offer uses the fee-based budget breakdown in Annex V, usually in euros. It has two worksheets:

• Budget breakdown: a line for each category of key and non-key expert, with estimated working days and a daily fee rate; then any lump sums, the provision for incidental expenditure and the provision for expenditure verification. Together they make the maximum contract value.
• Working days: the estimated days for each expert category, month by month.

The working-days schedule also goes into the organisation and methodology in your technical offer, but without the rates: no financial information may appear in the technical offer. Our guide to the organisation and methodology covers that side. Inputs are in full working days, and you are paid only for days actually worked, at the rate in your budget. A day of annual leave is not a working day.

What a daily fee rate must cover

The daily fee rate is the only place most of your costs can go, so it must carry far more than the expert’s pay:

Travel to and from the partner country is in the fee rate, not in incidental expenditure, unless it is a mission the terms of reference require. So the number of trips each expert makes changes the rate you need. The budget template also caps the annual leave entitlement of experts at 60 calendar days a year.

Incidental expenditure, lump sums and verification

Three items sit next to the fees:

• Provision for incidental expenditure: a fixed amount stated in the terms of reference, copied unchanged. It covers the costs the terms of reference require, such as mission travel and per diems, reimbursed at actual cost (per diems count as actual cost). It is an upper limit, not a budget to spend.
• Lump sums: only where the terms of reference ask for activities paid as lump sums, such as developing training material. Unlike the provisions, lump sums are part of the price comparison.
• Provision for expenditure verification: a fixed amount for the auditor who verifies your invoices, copied unchanged. It cannot be decreased during the contract.

Per diems for missions follow a fixed rule: a full per diem for each 24 hours on mission, half for a remaining period of at least 12 hours, and nothing for less than 12, with travel time counted as part of the mission. They may not exceed the Commission’s published per diem rates in force when the contract is signed, air travel is economy class, and supporting documents must be kept for seven years after the final payment.

Worked example: build the budget, then test the price

Take a 24-month technical assistance contract with a maximum budget of €1,400,000. The terms of reference fix incidental expenditure at €120,000 and expenditure verification at €15,000.

The budget is inside the maximum, and the €964,500 of fees is what the committee compares. Now say two rivals also pass the technical threshold:

You win, although Firm B is €84,500 cheaper. Being about 10% more expensive costs you 0.2 × (100 − 91.24) = 1.75 points; a six-point technical lead is worth 0.8 × (100 − 93.02) = 5.58.

How far could you go? While Firm B stays the cheapest, the rivals’ scores don’t move, so you rank first as long as your final score reaches 94.42:

highest fees = 20 × lowest rival fees / (best rival final − 0.8 × your weighted technical)

Here that is 20 × €880,000 / (94.42 − 80) = €1,220,527. With the provisions, the maximum contract value would be €1,355,527, still inside the budget. That is not a case for padding the price: you never know the rivals’ scores and prices in advance, and the headroom disappears with your technical lead. It shows where the money is: a stronger technical offer buys far more room than a cheaper one.

Ways to lose on price

• Going over the maximum budget. The committee compares the whole maximum contract value, provisions included, with the maximum budget, and a tender above it is eliminated whatever its technical score.
• An abnormally low price. Rejection is not automatic: the committee must first ask you in writing to explain the elements of your price, notably compliance with employment protection and working conditions where the services are performed. Its decision and the reasons go in the evaluation report.
• Arithmetic errors. Obvious errors are corrected without penalty, but if a rate times its days does not match the total, the fee rate prevails unless the committee sees an obvious error in the rate itself.
• Taxes. Only the price without VAT or indirect taxes is compared. The instructions to tenderers set out the tax and customs arrangements, including any exemption agreed with the partner country.
• Validity. Your tender binds you for 90 days after the deadline, which the contracting authority can ask you to extend by up to 40 days, and the selected tenderer holds its tender for a further 60 days. With firm prices, rates must still work when the contract starts.

Cash flow: pre-financing and payments

Fee-based contracts pay mostly in arrears, so plan how you will finance the team:

• Pre-financing of up to 20% of the maximum contract value, if you request it, within 30 days of your invoice, the signed contract and a financial guarantee if one is requested. Unless the special conditions say otherwise, the guarantee covers the full pre-financing amount.
• Interim payments every six months, within 60 days of an invoice with a progress report and an expenditure verification report, for the costs actually incurred.
• Recovery and the final payment. Once 80% of the maximum contract value has been paid, the pre-financing is deducted from further payments. Payments stop at 90% of the maximum contract value, leaving at least 10% for the final payment, which follows the approved final report within 90 days.

Between pre-financing and the first interim payment, you pay experts for months before the money arrives. Price that financing cost into the margin rather than discovering it after award.

Sources

• European Commission, Contract procedures for European Union external action: a practical guide (PRAG). The current edition and its annexes.
• European Commission, PRAG 2021.1 (PDF), the edition checked for this guide. Sections 3.2 (global price and fee-based contracts), 3.4.3 (firm prices), 3.4.4 (abnormally low tenders) and 3.4.10.4 to 3.4.10.5 (financial evaluation and final score).
• European Commission, PRAG 2021.1 annexes (ZIP). Instructions to tenderers (B8b), terms of reference for fee-based contracts (B8e), organisation and methodology (B8g), the fee-based budget breakdown (B8i2), and the general conditions (B8d, articles 29 and 30).