Terms of Reference – Why and how they are prepared!

The project formulation and implementation process for an infrastructure project requires a project manager to develop a project concept, secure financing and make all the necessary arrangements to recruit suitable service providers i.e. consultants and contractors to bring the project to reality.

El Salvador, an acquaintance of mine, has spent close to 20 years managing the operations for a utility business in South America. He is currently a project manager charged with the responsibility of formulating and implementing large infrastructure projects. Early this year, I asked him to share his project management experience with The Builders’ Garage.

In this article, we profile El Salvador’s experience preparing Terms of Reference (ToR) for a large infrastructure project, the challenges he experienced and the lessons learnt.

Me: El Salvador, I can see you are keeping well. Your current work must be a delight.

El Salvador: Yes, it is. I am currently onto something new; project formulation for infrastructure projects.

Me: What do you have on your plate now and how have you managed your transition.

El Salavador: Cyrus, I find my current job very different from my previous one. The transition from managing the key operations for a utility to project management has been one of the highlights of my career. I would like to share with you my experience preparing Terms of Reference (ToR) for a large infrastructure project.

After approximately two years into my current job, I received an invitation from my Chief Executive Officer for a brainstorming session that eventually led me to develop a project concept, secure financing and build water infrastructure in the utilities area of jurisdiction.

A few months later, a meeting was held with my employer and a team of technical experts from a potential financier who had expressed interest in financing such a project. Around this time, my employer was in the initial stages of the implementation of an ongoing project, which was experiencing a financial shortfall. The financier expressed interest in bridging the financial shortfall for the ongoing project.

Me: How did the financiers get to know that your employer was in need of financing?

Financing agencies have “scouts” whose main role is to look for targeted infrastructure projects to finance through grants or loans.

After the technical meeting with the “scouts”, I was asked to prepare ground for a co-financing agreement between the new financiers and the financiers on the existing project. Unfortunately, the financiers on the existing project expressed displeasure in working with the new financier because of differences in their financing regulations. We (my employer and I) were forced to abandon the co-financing agreement and formulate a completely new project hinged on the discussion I had had with my CEO.

I had been working on a preliminary concept for the development of a new water treatment and supply system in our jurisdiction, which I shared with the financier. In response to my submission, the financier sent a technical expert to visit the project area. They agreed with our project concept but insisted that a feasibility study be carried out prior to them committing project funds.

My employer and the financier collectively agreed that the feasibility study would help the parties make a more informed decision on the right infrastructure to build in this jurisdiction, to achieve better value for money.

Me: Once the financiers expressed willingness to proceed with financing, it appears you were required to refine your project concept note into a more robust document.

El Salvador: Yes.

Even though I had a very good understanding of how the infrastructure we intended to build functions, I did not have much experience and competence with project formulation and implementation. I found this exercise quite nerve-racking, challenging and exciting as well.

When I commenced my assignment, I was tipped that I had to prepare detailed Terms of Reference (ToR) that would serve as a technical guide to the service providers tasked with carrying out the feasibility study.

I started searching in our archives for an old format of a ToR to guide me on how to prepare a suitable document, which would eventually be sent out to potential consultants in the form of a standard Request for Proposal (RFP). Fortunately, my employer had similar samples of ToR, which had been prepared for other similar projects. To complete the task, I worked with two colleagues assigned to the ongoing project that was having a financial shortfall. They provided very good input to the final document.

Me: How did you go about preparing the Terms of Reference?

The ToR comprised seven key sections.

1. Introduction

In section 1, I provided a detailed description of the employer’s key reasons for developing the infrastructure and the institutional framework within which my employer operated. I also gave a brief introduction and description of the project area.

2. Project background and description

In section 2, I provided a map showing the project area. I supported this map with a descriptive overview of the entire water supply system run by the employer, the targeted population and the current population being served.

To assist potential consultants further appreciate the project area, I provided a comprehensive summary of the scope, aims and objectives of previous projects that had been implemented by my employer in the project area, the ongoing projects and the planned future projects.

In addition, I summarised the existing operational challenges for all the existing schemes; making a case for the new project, being fronted for a feasibility study. The aims and objectives for the new project were summarised in a few bullet points.

3.The detailed project description

Next, I proceeded to detail the overall project objectives which centered around the consultant conducting a feasibility study to confirm: (i) the possibility of developing a new bulk water supply system; (ii) improving the handling of faecal waste and; (iii) developing a sustainable water supply system for the nearby informal settlements.

Incidentally, the project formed part of a wider integrated water supply system adjacent to an existing service area. This proximity meant that delineating an exact service area for the new project was not possible at the time I was writing the ToR. The successful consultant would be required to integrate the new project with an existing overall master plan and then fine-tune the scope, sizing and appropriate timing of the project once the feasibility study was completed.

4. Description of the consultancy services

Besides the obvious task of carrying out a feasibility study, I included a requirement for the consultant to prepare all the necessary tender documents and package them into a single design and build contract for the envisaged construction works. The final feasibility study report was required to satisfy the standards set by the financing agency. A sample of these standards was attached to the final ToR.

In general, I explained the requirements of the consultant’s assignment in nine key tasks as listed below. These were;

1. Data review & preliminary studies
2. Water quality investigations
3. Understanding the existing situation and carrying out optioneering studies
4. Surveys
5. Feasibility study
6. Environmental and Social Impact Assessment (ESIA)
7. Resettlement Action Plan (RAP)
8. Preparation of tender documents
9. Support to the employer during the procurement of a Design & Build Contractor and the procurement of the Construction Supervision Consultants

I inserted a clause in the ToR, which required the consultant to employ innovative ways of carrying out the assignment. I also stated that the bidder’s approach to innovation would form part of the evaluation criteria for the methodology in the technical proposals.

5. Organisation and set up of the consultancy.

I explained the employer’s planned project management set up for the consultancy in the ToR. Key to this section of the ToR was the requirement to state the minimum number of key experts that would be required to execute the assignment and the minimum time input for each of the key experts.

I determined that the assignment would be ably executed by five key experts i.e. a project manager, process engineer, sanitation expert, water quality specialist and a procurement expert. In addition, I proposed nine non-key experts i.e. electromechanical engineer, structural engineer, hydraulic expert, environmental specialist, economist/financial expert, geotechnical expert, sociologist, topographic surveyor and a valuation surveyor each with a specified level of education, general experience and specific project related experience.

The minimum time inputs for all the experts were determined by studying the complexity of the assignment and the actual time taken by previous consultants implementing similar infrastructure projects.

I determined and fixed the project duration for the assignment as 12 months. To complement their technical proposals, I included another clause, which required the consultants to develop a comprehensive project implementation schedule for the key tasks of the assignment. In support of this project implementation schedule, the consultants were also required to indicate the timing from the commencement date when each key task (deliverable) would be achieved and the types and number of reports required by my employer.

I also inserted the following disclaimer.

The consultant’s tasks for execution of this assignment have been outlined and detailed as thoroughly as possible. However, the consultant shall bear in mind that the list of tasks and activities can by no means be considered as a complete description of the consultant’s duties. It is the consultant’s responsibility to critically verify the scope of services indicated and where necessary propose amendments or changes based on his own professional judgment. It is to be understood that the consultant shall perform all the work that is necessary to meet the objectives of the project. 

6. Services to be provided by the employer

 During the implementation of the project, I envisaged that the employer would in one way or another be required to assist the consultant during the execution of their assignment by;

1. Assisting the consultant obtain work permits for the consultant’s foreign staff if deemed necessary.
2. Facilitating the customs clearance of all equipment, materials and personal effects to be imported for purposes of discharging the duties prescribed in the terms of reference and re-exporting them upon completion of assignment.
3. Providing information on past projects within the same project area.

 For clarity, I inserted these in the Terms of Reference.

 7. Services to be provided by the consultant

On the other hand, I clearly stated that the consultant would be required to cater for all their administrative costs associated with implementing the project.

Me: This seems to have been a very challenging experience for you

El Salvador: Yes.

It took me about four weeks to complete the first draft and approximately two months to complete the final version of the ToR. In between that, the draft document had to be shared with the financiers before it could eventually be inserted in the formal Request for Proposals (RFP) that was eventually sent out to the potential consultants.

It was a worthwhile experience for me. These are some of the key lessons I picked up along the way.

1. Sometimes you will be on your own – Even though I had a technical expert from the financier to look at my final version of the ToR, everybody around me was very busy- right from my superiors to my subordinates. I would have preferred that one person more senior and at least two people less senior than I took a look at the drafts. It is possible that I could have prepared a more robust document if I had subjected it to peer review.

2. Consultant feedback is the acid test of the quality of your ToR – Once the Request for Proposal (RFP) document (containing the ToR) was sent out to potential consultants, we received a number of minor requests for clarification. It turned out that the document had been well prepared.

3. The second acid test – During the preparation of the document, I tried as much as possible to remove all ambiguities. However, the problem with such documents is that it is very difficult to be exact and clear at the same time. My document was approximately 50 pages.

   Too much emphasis on scope clarity can create a lot of ambiguity. Fortunately, when the technical and financial proposals were submitted by the potential consultants, they had all been appropriately worded and competitively priced, signaling that the second acid test had been passed.

4. Risk transfer – The disclaimer which I inserted in section 5 of the ToR protects the employer against scrupulous consultants who under-quote hoping to win a tender with the intention of compromising on the means to achieve the key deliverables of the assignment.

Conclusion

I cannot help but wonder how one can singlehandedly develop Terms of Reference for the design of a road, bridge or hydropower dam, if they do not comprehend how the infrastructure functions. It is my opinion that you are better off preparing ToR for an assignment where you are knowledgeable about its design, construction and operation. It makes the whole process a lot easier.

© The Builders’ Garage 2018. Permission to use this article or quotations from it is granted subject to appropriate credit being given to thebuildersgarage.com as the source.