The following paragraphs outline a certain number of features of ESA's procurement approach and they should also help potential tenderers and contractors to better understand the system as a whole.

1. The different types of contracts phased approach

The different types of contracts placed by the Agency can be classified according to their economic and technical importance, to their nature, and to their type of price.

The simpler procurements at standard prices and for off-the-shelf items are handled by purchase orders. As the borderline between important purchase orders and small contracts is sometimes difficult to define precisely, the Contracts Services and local Purchase Offices in ESA establishments work closely together to decide which procedure should be applied.

ESA places Study Contracts, Research Contracts and Development Contracts. These types of activities are sometimes combined in one single contract. ESA also places Supply Contracts for hardware and software, Maintenance Contracts and Operations Contracts sometimes combined as Maintenance and Operations (M&O) Contracts, and finally Technical Assistance Contracts.

In order to manage demanding high-technology, long duration major development contracts, the Agency systematically applies a phased procurement and contracting approach which can sometimes vary according to certain programmes but which generally follows the approached described below.

A major procurement is always preceded by a Phase A Feasibility Study, the purpose of which is to assess the programmatic, technical and financial feasibility of a given project before it is submitted to the relevant committee (e.g Programme Board) and becomes an official ESA programme.

During the following Phase known as the Study Phase the originally limited industrial nucleus, in charge of the 'System Study and System Design', is progressively reinforced by the addition of sub-system, assembly and equipment sub-contractors, so that the complete industrial structure is normally fully established for. It is throughout this process that competition is used wherever possible and under the control of the Agency trough EMITS for External Entities in order to ensure fairness among all industrial firms in the competitions organised by potential Prime contractors.

At the end of Phase B, the Prime Contractor, on behalf of the established consortium, has to submit a full committing proposal for the Development and Manufacture Phase C/D based on the result of the work performed during Phase B.

It is also normal practice that industry is requested, at that stage, to provide a preliminary offer and price estimate for the subsequent Operations Phase E.

It should be noted that budgetary constraints have led the Agency to ask Prime Contractors to submit offers covering Phases B,C/D and E either for a "Maximum Ceiling Price" or for a "Firm Fixed Price" . Taking into account the fact that none of the Agency's requirements be it for geographical distribution or for ensuring fairness among all industrial firms in the competitions are waived, this approach requires from the Prime Contractors an in depth assessment of the risks involved (financial, programmatical, etc.) before submitting their proposals.

Annex I to General Clauses and Conditions for ESA Contracts (ESA/C/290 REV 5) describes the different kinds of contracts awarded by the Agency according to their type of price. It makes the distinction between the:

• fixed-price contracts (firm fixed price - fixed price with price variation - fixed unit price)

• ceiling price to be converted into fixed-price contracts

• cost reimbursement contracts (cost - plus fixed fee - cost plus incentive fee- time and material).

Even if most of these price-types and their definitions are standard, potential tenderers are invited to make themselves familiar with the detailed provisions of Annex I, and in particular with clause 4 which describes the features of the cost - plus - incentive - fee system, often used for major procurements, and clause 6 dealing with allowable and non-allowable costs. ESA will only place contracts on rates that it has approved sometimes in liaison with national authorities. Potential bidders are regularly audited by the Cost Analysis Division.

In order to help deal with other peculiarities of ESA procurement programmes, particularly with the multitude of similar procurements placed sometimes with the same company or group of companies, ESA has developed alternative procurement and contracting approaches known as frame contracts, as well as a sophisticated change procedure which permits rapid contract adaptation to the frequent technical and programmatic changes inherent in high-technology development, without delaying the work in progress.

A frame contract is a global agreement with a company, or group of companies, with which the Agency is likely to have an important and continuous amount of business, on the largest possible set of standard contract terms, management and even financial conditions, so that each new individual action can be contracted with a minimum of formality and procedure i.e. via a work order.