Procurement (read more)
In EIC's view, the traditional method of project procurement (design-bid-build) whereby the party undertaking the design and the party constructing the works in accordance with that design are two completely different parties, may be a reliable form of procurement but it is most certainly not the only viable form of procurement. However, there are various potential disadvantages associated with the design-bid-build method of contracting:
- One significant issue is the many interfaces in a traditional design-bid-build project which forces all parties to adopt complex management procedures and these procedures serve to increase costs with little added value.
- Furthermore, the knowledge and skills of contractors play no role at all in the design stage although early involvement of such expertise can significantly contribute to the efficiency of the entire process.
- The traditional method does not provide a mechanism to draw on the private sector’s capabilities to maintain and operate infrastructure facilities.
- Last but not least, the conventional procurement method has an unfortunate bias towards solely the lowest tender. It would be nice to think that the Contracting Authority will duly appreciate the merits of a reasoned tender, but experience shows that, even if it is sufficiently sophisticated and diligent, it will have its own responsibilities towards superior officials, financiers and auditors, who may not appreciate the difference between a reasoned tender versus a low price tag.
In the private sector, design-build and turnkey contracts have become much more commonplace over the past years, with the contractor being responsible not only for the design and the management of the project, but in some cases for the performance of the facility. This type of contract demands its own special procedures and processes. The traditional procurement process, however, from contractor selection through to contract award, is inadequate for turnkey work and has not evolved in line with contract forms. Private sector practice shows that alternative approaches can be implemented without any trade-off on efficiency, competition and transparency – quite the opposite.
- The first option for the Contracting Authority is to reserve more room forQuality-based Selection of tenders within the traditional procurement process. Apart from upgrading the procedures in accordance with Chapter 3 on pre-qualification, tender documentation, conditions of contract and securities, Contracting Authorities could foster the submission of reasoned tenders by various criteria, such as basing the award on the Economically Most Advantageous Tender (EMAT) rather then the lowest price, inviting Alternative Proposals in appropriate cases and carefully applying a Two-envelope system.
- The second option for the Contracting Authority is to make better use of the tenderers’ skills in the design phase by procuring a “turnkey” or “design-build” project. Under such a procurement scheme the Contracting Authority notifies the tenderers of the basic project parameters in its Employer’s Requirements and divides the selection proceedings into a Two-stage tendering where it provides for a certain degree of flexibility for discussions with tenderers in order to integrate their ideas and concerns.
- The third option for the Contracting Authority is to use a procurement model under which it specifies and pays for the expected performance in terms of outputs rather than focusing on and paying for inputs. Whilst in its moderate form, the arrangement resembles a “design-build” or “turnkey” project, in its most extreme form, the Contracting Authority fully delegates the delivery of a service to a private third-party provider under long-term contracts that comprise planning, construction, rehabilitation, maintenance and operation. As a general rule, any defect – whether in the design or the construction or operation phase – falling within the scope of the works under so-called Performance-Based Procurement - will be the responsibility of the contractor. In this way, most of the traditional construction risks are transferred from the employer to the contractor.
- The fourth option for the Contracting Authority is to use the Public-Private Partnership (PPP) model and to outsource t the delivery of a public service to the private sector and to utilise, at least partly, private investment for the realisation of the project. It has to be borne in mind, though, that there is not yet an overarching definition for PPP and that the term describes more generally a wider range of arrangements where the public sector and the private sector enter into a formal contractual agreement in order to draw on private resources – either financial, commercial or technical – in providing and/or delivering public services. PPP models are most common in the infrastructure sector, both social and economic, but can be applied equally to building works used for public purposes. The common feature is that all these projects comprise a substantial initial capital expenditure for construction and/or rehabilitation and they incur maintenance and operation costs after completion of the construction phase, for which no government up-front borrowing is needed but which are refinanced over the project’s life-cycle either through “user” or “unitary” payments by the state. PPPs involving a donor-funded grant element, such as the EU Structural or Cohesion funds or even MDB-funded schemes such as Output-Based Aid, would also be a facet of PPP with the payments, at least partly, disbursed from Official Development Assistance rather then the state budget or the users, but similarly paid out over the duration of the private sector service delivery. Conversely, short term management contracts with little or no capital expenditure are not addressed in this document.