January 19, 2020

Re-evaluation function to provide more value to the organization

Re-evaluation Pakistani Procurement Rules in light
with Modern Practices and Standards

By
Hassan Israr (CEM-04), Usman Jilani (CEM-05), Khalid Raza (CEM-04)
Construction
Engineering & Management
Military College of Engineering, National University of Sciences
&Technology, Pakistan

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Introduction:

          In
present times, a new trend of bringing new innovations in contract
administration has risen. This phenomenon is caused by a long list of failures
in past projects and learning from the prior experiences. The major
disappointments in project performance have been: extensive delays in the
planned schedule, cost overruns, very serious problems in quality, and an
increased number of claims and litigation. A common opinion is that the public
is not getting the best return of their money.

                   Pakistan’s
present procurement policies, Public Procurement Regulatory Authority Act (PPRA)
were implemented in the year 2004. Since then, a number of Statutory Regulatory
Orders aimed at refining the laws have been issued, but overall the codes are
not in line with the current modern and pragmatic practices. It has been lately
observed are the Pakistani laws are lacking details in several aspects and have
been generic to some degree.

          A
growing component of an organization’s responsibility is its contribution to
sustainability. The procurement function has the responsibility to manage risks
and opportunities related to sustainability in its supply chain. The
procurement function is therefore expanding its capabilities to include
sustainable procurement. It is an opportunity for the procurement function to
provide more value to the organization through an increase contribution to its
sustainability strategy, better management of risks and regulations, improved
assessment of value and performance, better communication between purchasers,
suppliers and all stakeholders, and the promotion of breakthrough innovation.

          It
is high time that we reevaluate the Pakistani Procurement Codes in light with
modern practices of Global Standards, International Standard Organizations,
World Bank Procurement Policies, Asian Development Bank’s Procurement Policies.
We need to bring changes in the bidding system, incorporate technology, bring
in meticulous laws, define proper evaluation criterions and move on from
generic laws to specific laws. It is high time that we learn from our mistakes
and create a new sustainable procurement process.

Research
Method

Various researches in
procurement process were studied. The idea was to get hold of the best practices
and incorporate them into the Pakistani system of procurement. In doing so, the
studies of International Standards Organization, FIDIC Procurement Rules,
Studies of Zober et all and Studies of Khalil et all were focused.

Results &
Findings

The
results, findings and mitigations focus on the following issues:

A.   Multi-Parameter
Competitive Bidding

B.   Sustainable
Procurement

C.   Procurement
Obudsman

D.   Developing
Project Strategy

E.   Quantified
Evaluation Criterion

 

A. Multi-Parameter Competitive Bidding

The
competitive bidding concept is rooted very deeply in the American tradition.
Harp (1988) shows that competitive bidding has been in practice in New York
state since 1847. The principal statutes for highway and bridge contracting in
New York state date back to 1898 legislation, which required competitive
bidding.

The
basic idea behind  this concept was that
the lower bidder  system protected  the public from extravagance,  corruption, 
and other improper practice by public officials. The original function
of the competitive bidding requirement was to ensure that the public received
the full benefit of Amer ica’s free enterprise system by providing public
construction at .the lowest price offered by competitive bidding (Cohen 1961;
Netherton  1959).

Over
the years, a few modifications to the initial concept occurred. The terms
“responsible bidder” and “public interest” have been added
to the statutes that control the authority to let and award public works
contracts. Other modifications created the concept of prequalified bidder
lists, and so on. However, the original concept from the 19th century remains
intact. It is very important to understand that not every country around the
globe is using this concept in the public works sector. Many nations use
non-lower bidder systems.

Non-Lower
Bidder Systems

A
few countries, such as Italy, Portugal, and Peru, are using a system in which
the successful bidder is not the lowest one. The philosophy behind this concept
is that the best bid is the most reasonable one, not the highest, not the
lowest, but the one closest to some average. There are many variations of this
concept. The Peruvian government bidding system provides an example of one such
variation (Henriod and Lanteran  1988).
The pro­ cedures are as follows:

 

1.       When three or more bids have been
received:

a.           
The average of all bids and the base budget will
be calculated.

b.           
All bids that lie 10% above and below this average
will be eliminated.

c.           
The average of the remaining bids and the base
budget will then be calculated.

d.           
The contract will be awarded to the bid
immediately below the second average or, should none of the bids lie below the
second average, to the bid that more closely approximates the average.

2.       If fewer than three bids are received,
the bidding agency may cancel the process and award the contract to the lowest
bidder, or to the only bidder if this were the case.

Another
similar practice is that of “bracketing,” i.e., considering only
those bids that lie within a certain range above and below the engineer’s
estimate. In this system, the lowest responsive bid within the range gets the
award.

Countries
such as France and Portugal (Henriod and Lanteran 1988) try to disqualify what
they call abnormally low bids. They define abnormal as “any bid whose
price appears abnormally low and consequently may cause implementation  problems.”

ADVANTAGES  AND 
DISADVANTAGES OF COMPETITIVE 
BIDDING  CONCEPT

The
competitive bidder system has one major advantage. It assumes that the bidding
process will be independent from any sort of pressure (political, social,
economic). Its objectivity is ensured because price is the sole criteria for
evaluating bids. For many participants in the construction industry, this
reason alone makes it all worth the disadvantages related to this practice.
However, the disadvantages  are numerous.  The major one is that the se lection process
is based only on one element-cost. Other elements,  such as quality and time, are not
accounted  for. Many other problems have
occurred during the last 150 years: unreasonably low bids, bid rigging,
unqualified contractors, and so on. To compensate for these handicaps, a few
adjustments have been made during the years, such as qualification lists,
deleting “abnormal” low bids, etc., but many construction
participants agree that these are temporary solutions and a major change is
needed.

The
competitive bidding system is very deeply rooted in the American free
enterprise tradition. The writers and others are convinced that a total change
from the lower bidder system would not be feasible in the short range and would
be even more difficult to sustain in the long range. Only a major  modification that would remain in the form of
the  competitive bidding concept would be
accepted.

MULTIPARAMETER
BIDDING SYSTEM

The
proposed system is based on the idea that the selection process of the
contractor will be based on more parameters than just cost. The successful
bidder will be selected according to the lower combined bidding value. Most
logically, this number will be represented by a dollar value, but it can be
represented using points, percentages, etc.

The
major parameters will be: Cost, C; time, T; and quality, Q. Secondary
parameters can also be incorporated into the system, such as: Safety, S ;
durability, D ; security; S ; maintenance, M ; and a few more.

The
number of parameters and their related weights will be chosen by the sponsor.
Let us demonstrate this concept with an example. The public agency decides to
use four parameters. These parameters and their assigned weights are given in
Table 1.

The
successful bidder will be the one that has the lowest combined bidding value of
the four parameters.

The
multi-parameter bidding system remains within the framework of the competitive
bidding concept. A few legal experts have stated that as long as the
parameters, their system of measurements, and their relativity weights are
specified in the bid documents, this concept complies with the existing legal
status of the current competitive bidding system.

QUANTIFICATION  OF PARAMETERS

The
quantification of the parameters is the major problem in developing the multi-parameter
concept. There is no clear-cut answer as to which is the best method, and many
variations can be developed. When additional re­ search has been done, better
and more accurate techniques will be established. The following pages describe
a few of the options for some of the parameters.

S.No

Parameter

Weight

1

Cost

70%

2

Time

15%

3

Quality

12%

4

Safety

3%

 

Cost

Cost
refers to the bid price submitted by the bidder. As in the traditional low bid
system, cost will be measured in dollars.

Time

The
writers have done extensive research related to this parameter (Herbsman 1988)
and concluded that there is a very easy, systematic way that can be used. The
time element can be quantified using a time value. The owner would establish
the value of the time and the contractor would bid a performance time.

Quality

This
parameter is the most complicated and difficult to quantify. There are two
approaches to the subject.

Past
Performance

This
approach takes into consideration past performance  and uses subjective opinions to evaluate the
performance on a scale. The details of the evaluation  process 
vary  at different  organizations,  but 
all use the  same concept.

Minor
Parameters

In
addition to the major three parameters (cost, time, quality), there may be more
parameters that can be incorporated into the system. Most of these parameters
would be specific to particular industries, and these agencies would have the
responsibility of figuring the weights and the quantification methods for these
parameters.

Such
additional parameters could include safety (very important in tunnel and dam
projects), security (in military projects), and aesthetic quality (shopping
centers), among others. It must be emphasized that new param­ eters can be
added all the time, and their relative importance can be mea­ sured by
adjusting the weights

B.
SUSTAINABLE PROCUREMENT

The
International Standards Organiations Code, ISO-20400, focuses on sustainable
procurement. These procedures cover the following aspects.

•        Organisational Governance:

·                    
Decision Making Processes and structures;

·                    
human rights: due diligence, human rights risk
situations, avoidance of complicity, resolving grievances,

·                    
discrimination and vulnerable groups, civil and
political rights, economic, social and cultural rights,

·                    
fundamental principles and rights at work;

•        Labour Practices:

·                    
employment and employment relationships,
conditions of work and social protection,

·                    
social dialogue, health and safety at work, human
development and training in the workplace;

•        Environment:

·                    
prevention of pollution, sustainable resource use,
climate change mitigation and

·                    
adaptation, protection of the environment,
biodiversity and restoration of natural habitats;

•        Fair Operating Practices:

·                    
anti-corruption, responsible political involvement,
fair competition, promoting

·                    
sustainability in the value chain, respect for
property rights;

•        Consumer Issues:

·                    
fair marketing, factual and unbiased information
and fair contractual practices,

·                    
protecting consumers’ health and safety, sustainable
consumption, consumer service and support, and

·                    
complaint and dispute resolution, consumer data
protection and privacy, access to essential services,

·                    
education and awareness;

•        Community involvement and
development:

·                    
community involvement, education and culture,
employment

·                    
creation and skills development, technology
development and access, wealth and income creation,

·                    
health, social investment

 

However,
in Pakistan, we have seen that no heed and importance is paid to these issues.
Infact, these issues form a backbone of the entire society and these issues are
reflected at various points.

 

C.  Procurement
Obudsman

Faulty
procedures can result in disputes. The PPRA rules state that in case of a
dispute, an Arbitration Committee should be made. However, it has been observed
in various cases that (Reference) that public entities refrain from doing so.
This leads to court cases & cumbersome litigation. To avoid overburdening
of courts with lengthy litigations, it is proposed as per Emerging Issues of
Procuremtn that a separate office of Procurement Obudsman should be created.

The
procurement ombudsman would be an experienced individual with specialization in
Procurement Policies and Rules. Moreover, the said individual should have a
demonstrated experience in this field. Resultantly, the long cumbersome
procedures would be resolved expedioutsly and without overburdening the kitty.
Moreover, time would be saved.

D. DEVELOPING PROJECT STRATEGY  as per FIDIC Laws of Procurement

FIDIC
rules state that before commencement of a procurement project, the executive
incharge of the process should envison a Project Strategy. This strategy should
cover  the following aspects:

1.           
General

2.           
Financing

3.           
Traditionally financed projects

4.           
Privately financed projects

5.           
Public-Private Partnerships (PPP’s)

6.           
Contractor financed projects

7.           
Contract packaging

8.           
Budget planning

9.           
Contract time programming

10.        
Cost estimates

11.        
Operation and maintenance

12.        
Design responsibility

13.        
Role of the employer during implementation

14.        
Role of the contractor during implementation

15.        
Role of the engineer during implementation

16.        
Risk allocation

17.        
Contract price

18.        
Insurance

19.        
Prequalification of tenderers

20.        
Contract price and payment

21.        
Remeasurement

22.        
Lump sum

23.        
Reimbursement

24.        
Target price

25.        
Decision to proceed

By
doing so, and by creating a Project Strategy, the executive would have a
birds-eye-view of the entire process. He would be able to mitigate any problem
and foresee any thing that is going to stall his project. Moreover, the
proactivity would pay by streamlining the process and avoiding litigation or
audit observations at a later stage.

 

E.
QUANTITATIVE EVALUATION CRITERION

PPRA
rules do not define an evaluation criterion. In this regard, it is proposed
that in addition to existing rules, the evaluation criterion should be a
Quantitative One, as per FIDIC standards.

It
has generally been observed that public entities sometimes favor a certain
contractor or a supplier at expense of others. Strict binary criterion is set
to favour one. To observe the best practices of procurement, it is necessary
that a certain threshold limit should be set, generally 70% and 60% incase
of  extremities. By doing so, a healthy
competition would be ensured.

SUMMARY  AND
CONCLUSIONS

The
existing procurement system, which is the competitive bid (or low bidder)
system, has created many problems in past years. Many modifications have been
added to the original concept but the system remains basically unchanged. The
successful bidder is chosen by the lowest, responsible cost. Other factors such
as time, quality, etc., have not been taken into consideration.  Many practitioners  believe 
that  the current  bidding 
system has caused many failures in the form of delays, low quality, and
numerous other claims. However, an attempt to totally change the current
bidding system could face major resistance from various sectors of the
construction industry.

The
paper introduced a modified bidding system within the legal and conceptional
frame of the current practice.

In
the modified multi-parameter bidding system, the award would be granted to the
total combined cost of a few parameters, such as cost, time, and quality.

The
weight of each parameter would be decided by the owner, so he can give a
relative opinion of the importance of each parameter. Quality can be a 30%
value in one bid and 50% in another. As long as the weights and quantification
method are known in advance by each bidder, the proposed system is legally very
sound.

Moreover,
by incorporating globally accepted practices like focusing on environmental
issues, Human rights and safety issues, labour practices, social issues,
community involvement and development, a positive change can be brought in.

Additionally,
the creation of a Procurement Obudsman would not only decrease the burden on
courts but would also result in quick decision making.

Finally,
the inclusion of quantified evaluation criterion would result in a healthy
competition and would eliminate corrupt practices. A Good lot of bidders would
be participating, resulting in the best price.  

The
writers have analyzed a limited version of the new system, bidding on cost and
time. For the other parameters such as quality, more research must be done on
quantification methods. The proposed system has the potential of improving
construction performance in Pakistan by giving advanced contractors an
incentive to use all of their abilities to give the owner a better product. Its
strength is the flexibility of the system, while it remains within the
framework of the competitive bidding system.

References:

1.   
Cohen, A. (1961). “Public Construction
Contracts and The Law.” F. W. Dodge, New York, N.Y.

2.   
Herbsman, Ellis (1999), Multiparameter Bidding
System—Innovation In Contract Administration, ASCE, New York, N.Y.

3.    ISO
20400:2017  Sustainable Procurement

4.   
Sample Bidding Documents- Procurement Of Work.
(1990). Report, Asian Development Bank.

5.   
FIDIC Procurement Procedures Guide, 1st Ed, (2011).

6.   
Bower, 
D.  M.  (2013). 
“Innovative Contracting Practice.”  Proc., 
ASCE Highway Conf., ASCE New York, N.Y.

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