METHODOLOGY

METHODOLOGY

FOR OFFSET PROPOSALS EVALUATION UNDER THE PROCEDURE FOR SPECIALPURPOSE PUBLIC PROCUREMENT AWARDS WITH OFFSET AGREEMENT



I. General Terms of Offset Application The modernization and rearmament of the Bulgarian Army, the supply of arms and other special means of impact for the MI as well as the supply of items and services subject to classified information for the aforementioned and other institutions by concluding international contracts require huge public funds which however, do not provide the necessary returns. This enforces the need to introduce a compensatory mechanism – offset arrangements that can return part of the funds spent back to the national economy, a practice used both in Europe and worldwide. The goal of the Ministry of Economy and Energy is by optimizing offset mechanisms management to set conditions for economic growth and economic development, for improvement of country’s export and payment balance, and for increasing employment and constant decrease in unemployment. II. Objectives of the Offset Agreements The objectives of the offset agreements are, through the offset mechanism, to set conditions for: 1. Implementation of programs and projects that develop new activities for the country, and competitive products, so as to reduce the share of their import and/or increase export; Providing investments to create innovative products by negotiating transfer of technologies and know-how, and by implementing new productions in Bulgaria so as to achieve product and technological revival; Improve export opportunities for Bulgarian goods/services.



2.



3.



III. Conditions to Apply Offset Agreements Special-purpose public procurement award (SPPPA) with an offset agreement is to be applied compulsory for simultaneous fulfillment of the following conditions: the possible contractor and/or main sub-contractor are a foreign entity and SPP value is higher than 10 mil BGN (no VAT included). The procedure can be applied also for procurement amounting to more than 5 mil BGN after the Ministry of Economy and Energy analyses the possibilities to conclude an offset agreement. An Offset Agreement is a contract through which a contractor of a special public procurement – foreign entity accepts to perform activities (offset obligations) set out in Art. 20 of the Ordinance for Special-Purpose Public Procurement Award (OSPPPA). Offset obligations fulfillment term cannot be longer than 10 years from the time they enter into force.



Offset agreements are signed by the Minister of Economy and Energy and the nominated contractor for the special-purpose public procurement. IV. Types of Offset Arrangements Offset arrangements can be direct and indirect. Direct offset obligations comprise activities related to the subject of the contract for awarding a special-purpose public procurement. Indirect offset obligations are all types of activities, services, acquisition of tangible and intangible assets, technologies, know-how, rights on industrial property, etc., that create new products or rejuvenate existing ones; create new jobs; create value added, improve competitiveness of Bulgarian goods and services and increase export opportunities. The ratio between direct and indirect offset obligations is 30/70 of 100. V. Offset Project Types For Direct Offset Arrangements: 1. Conclude a contract with a commercial company within the Bulgarian industry as a sub-contractor to perform activities, related to production of articles, repair and servicing of the item, subject to SPPP throughout its life cycle; Provide equipment and/or services to the SPPP contracting authority (such as production and/or testing equipment, electronic devices, general purpose materials and services); Other deals and activities, not mentioned above, can be included in the offset program of SPPP contractor after reaching an agreement with the SPPP contracting authority.



2.



3.



For indirect Offset Arrangements: 1. 2. 3. 4. Invest into priority sectors and projects, endorsed by the Minister of Economy and Energy. Supplies, services or works, preformed by local entities. Provide local entities with technological equipment and/or technologies. Provide local entities with licenses for industrial property rights or transfer of intellectual property rights.



VI. Value of the Offset Agreement and Offset Multiplier The value of an offset agreement is the nominal value of the offset agreement expressed in a figure that cannot be less than 110% from the value of the public procurement defined by the Contract for special-purpose public procurement The offset multiplier is a coefficient expressed in a figure that indicates the increase in the nominal value of the offset obligation with economic (offset) benefits upon fulfillment. The multipliers can be between 1 and 3, in line with Art. 22 (1) of OSPPPA and the Table of Multipliers for Priority Sectors Economic Activities, approved by the Minister of Economy and Energy. They are applied when evaluating a specific offset program and forming the score of criterion 2 “Offset Benefit”.



VI. Priority Sectors, Sub-Sectors and Sectors of Economic Activities for Offset Arrangements (names and codes are as per the NIC-2003 of NSI) The priority economic sectors presented below encompass economic activities, selected on the basis of:     Strategic priorities set out in the Government’s Program for European Integration, Economic Development and Social Stability. Analysis of direct foreign investment structure in the country. Analysis of leading group of goods and productions import. Analysis of manufacturing technological intensity and services knowledge intensity (as per the classification of Eurostat)



and are listed in the priority order of the Government:



section 72. Activities in the area of Computer Technologies section 73. Research and Development from sector K. Real estate properties, leasing activity and business services sector M. Education sector N. Human health and social work activities sector E. Production and distribution of electrical and heating energy, gaseous fuels and water sector D. Manufacturing sector F. Construction (without hotels, malls, city and business centers and other conventional construction works) sector I. Transportation, storage and communications



section 01. Agriculture and hunting and related services from sector A. Agriculture, forestry and hunting



VIII. Offset Programs Evaluation 1. Purpose The purpose of this document is to describe the methodology used to evaluate offset proposals of foreign SPPP contractors by the sub-committee, pursuant to Art. 26 (4), p. 2 of OSPPPA. 2. Evaluation Criteria for Offset Proposals Offset Programs are evaluated under three main criteria: 1. Volume of offset activity 2. Offset benefit



3. Realization term Offset programs are evaluated under each criterion using 1 to 10 points scale. The maximum total score after applying these criteria for each offset program is 10 points. The weight of the first criterion is 50% in the total score, 30% - for the second and 20% - for the third. 3. Evaluation Method 3.1. Evaluation under criterion 1 “Volume of Offset Activity”



Volume of offset activity is the nominal value of the offset agreement. The score under criterion 1 is equal to the relative share of the volume of offset activity and value of SPPP.



K1 

Where: V is the volume of offset activity C is the value of SPPP



V *100 , in % C



K1 is the score under criterion 1, according to the following scale:           from 110 to 120%, including from 120 to 130%, including from 130 to 140%, including from 140 to 150%, including from 150 to 160%, including from 160 to 170%, including from 170 to 180%, including from 180 to 190%, including from 190 to 200%, including over 200% - 1 point - 2 point - 3 point - 4 point - 5 point - 6 point - 7 point - 8 point - 9 point - 10 points



3.2.



Evaluation under criterion 2 “Offset benefit”



Offset benefit is the sum of offset benefits under the individual offset projects included in the offset program. Offset benefit for each specific project is calculated by multiplying the nominal offset value of for offset activity provided in the project to the offset multiplier (from 1 to 3). The increase reflects the economic (offset) benefits for national economy depending on the importance of the offset activity to the national economy.



OB n  Vn * k n

Where: OBn is the offset benefit of the specific offset project; Vn is the offset activity of the specific offset project; Kn is the offset coefficient for the specific offset project.



The value of the offset benefit for the entire offset program is obtained from the formula:



OB  OB1  OB2  ...  OBn  OBn

Where: OB is the offset benefit for the entire offset program; OBn is the offset benefit of the specific offset project; The score under criterion 2 is equal to the relative share of the value of the offset benefit for the offset program and the nominal value of the offset activities of the offset program.



K2 



OB *100 , in % V



Where: K2 is the score under criterion 2, according to the following scale:           100 from 100 to 120%, including from 120 to 140%, including from 140 to 160%, including from 160 to 180%, including from 180 to 200%, including from 200 to 220%, including from 220 to 240%, including from 240 to 260%, including over 260% - 1 point - 2 point - 3 point - 4 point - 5 point - 6 point - 7 point - 8 point - 9 point - 10 points



3.3.



Evaluation under criterion 3 “Realization Term”



The score under criterion 3 is formed depending on the term of realization of specific projects included in the offset program after the offset agreement has come into force. Score K3 is as follows:      up to 2 years, including from 2 to 4 years, including from 4 to 6 years, including from 6 to 8 years, including from 8 to 10 years, including - 10 points - 8 points - 6 points - 3 points - 1 point



3.4.



Complex score of an offset program



The complex score which serves for comparison between offset programs is obtained after summing up the scored under the individual criteria and accounting for the weight of each one of them according to the following table:



Criterion No



Score under this criterion (1 to 10 points) K1 K2 K3



Weight of criterion in the total score 50% 30% 20%



Score after accounting for the weight (Sn) S1 = K1 * 0.5 S2 = K1 * 0.3 S3 = K1 * 0.2



1. 2. 3.



CS = S1 + S2 + S3 Where: CS (Complex) is the complex score



Offset program proposals of candidate SPPP contractors with offset agreement are determined according to this methodology.