The recent award of the contract for the expansion of the East Coast Demerara Road from Better Hope to Belfield has attracted much criticism from the Opposition political parties. The National Procurement and Tender Administration Board (NPTAB) had recommended to Cabinet that the award be made to the third lowest bidder. The latter, however, withheld its “no objection” on the grounds that the lowest bidder should have been given the nod. The NPTAB, through its evaluation committee, reconsidered the matter and amended its recommendation accordingly, thereby paving the way for the award of the contract to China Railway Group.
Section 54 of the Procurement Act provides Cabinet with the right to review all procurements whose values exceed G$15 million. Cabinet conducts its review based on a streamlined tender evaluation report and may object to the award of a procurement contract only if the procuring entity fails to comply with applicable procurement procedures. If Cabinet objects to an award, the matter is referred to the procuring entity for further review.
The following four bids were submitted after expressions of interest from Chinese companies were solicited and prequalification procedures completed:
Name of Company US$M
China Railway First Group Ltd. 46.9
China National Machinery Import
Export Co. Ltd. 55.5
China Harbour Engineering Co. Ltd. 60.4
China State Construction
Engineering Corporation 71.4
ENGINEER’S ESTIMATE 57.3
China Railway Group is the contractor for the access road to the Amaila Falls Hydro-Electric Project. China Harbour Engineering is involved in the expansion of the Cheddi Jagan International Airport, Timehri.
Should there be a restriction in the bidding process?
The Government indicated that the bidding procedures were restricted to Chinese companies because financing was expected from China Exim Bank. However, Section 5 of the Procurement Act specifically prohibits a procuring entity from imposing any criterion, requirement or procedure with respect to the qualifications of suppliers or contractors that discriminates against or among suppliers or contractors or against categories thereof based on nationality. In addition, Section 7 provides for suppliers or contractors to participate in procurement proceedings without regard to nationality.
Contract award
Media reports indicated that Cabinet gave its no objection to the award to China Railway Group for US$42.7 million although the company’s actual bid was US$46.9 million. The Chief Works Officer attributed the difference to possible errors in calculation. The Government’s release, however, stated that the contract was awarded for US$46.9 million.
Section 39 of the Procurement Act permits the Evaluation Committee to correct purely arithmetical errors discovered during the examination of tenders except that any such correction should in no manner influence the outcome of the evaluation process. In addition, the Committee may regard a tender as responsive even if it contains minor deviations that do not materially alter or depart from the characteristics, terms, conditions and other requirements set forth in the solicitation documents or if it contains errors or oversights that are capable of being corrected without touching on the substance of the tender. A responsive tender is one that conforms to the requirements set forth in the tender documents. It is not clear what impact the error of US$4.2 million would have had on the responsiveness of China Railway Group’s tender.
In addition, of the four bids received, three were reportedly incomplete, including that of China Railway Group. Because of this, the NPTAB had reportedly recommended that there should be a re-tender for the proposed works. It is, however, also not clear whether that recommendation was forwarded to Cabinet or whether of its own, the NPTAB decided to change its recommendation and to proceed with the bids received.
Government’s explanation
The Government disclosed that the Evaluation Committee assessed the bids received and recommended that the tender be awarded to the third lowest bidder, China Harbour Engineering, at the tendered price of US$60.418 million. The NPTAB transmitted the recommendation to Cabinet for its “no objection”. The Committee’s justification was that it had reservations about the lowest bidder’s ability to complete the works at the tendered price.
Cabinet withheld its no objection to the recommendation on the grounds that the lowest bidder had an established and demonstrated track record of road building in Guyana, and had a fleet of resident road building equipment. In addition, the lowest bidder’s price was some US$13.424 million lower than that of the recommended bidder. Cabinet therefore returned the matter to the NPTAB for reconsideration. The Committee reconsidered the matter and revised its recommendation in favour of the lowest bidder. The revised recommendation was re-submitted to Cabinet which offered its no objection.
The release went on to state that Cabinet’s principal concern was the absence of a basis for disregarding lower priced bids received from prequalified bidders. Once bidders are prequalified, they are evaluated to be capable of performing the works, and price competitiveness becomes the principal criterion. In this instance, the bidder with the lowest price has the most demonstrable track record.
Comments on the Government’s response
The Government argued that once the four companies were prequalified, the award should have been made to the lowest bidder. However, there is a difference between the lowest bid and the lowest evaluated bid. Section 36 of the Procurement Act provides for all evaluation criteria outlined in the tender documents for the procurement of goods, works and services, in addition to price, to be quantified in monetary terms. The Evaluation Committee is then required to use only these evaluation criteria to determine which tenderer has submitted the lowest evaluated bid. Needless to mention, it does not necessarily follow that the lowest bid is also the lowest evaluated bid.
In accordance with Section 39 of the Procurement Act, if the procuring entity does not agree with the Evaluation Committee’s determination, the procuring entity must issue an advisory recommendation to the Committee regarding which bidder should be the lowest evaluated bidder. The Evaluation Committee must observe that recommendation. In the case at hand, the Committee might have been guided by this requirement when it changed its recommendation at the request of Cabinet.
The Government’s explanation also appears to ignore the Engineer’s Estimate which is the Government’s best estimate of the cost of the project. If the lowest bid is significantly below this estimate, this would suggest that either the estimate was faultily prepared or the lowest bidder has under-estimated the cost of the works. The NPTAB felt that the latter was the case since the lowest bid was US$10.4 million below the Engineer’s Estimate. This is a reasonable position to take and would justify NPTAB’s reservations about the bidder’s ability to complete the works at the tendered price.
In a recent statement, the Head of the Presidential Secretariat acknowledged that adherence to the practice of awarding contracts to the lowest bidder has resulted in shoddy work being performed. That apart, experience has shown that when this happens, there is a tendency for contractors to recoup the additional costs through variation orders, and sometimes in the end, the project becomes more costly. If such costs are not recouped, there will be a tendency to execute the works below the specifications. This will result in substandard work being performed. The practice can also facilitate bid rigging.
In situations where the NPTAB has reservations about the contractor’s ability to execute the works where the lowest bid is significantly below the Engineer’s Estimate, the next alternative is to go for the second lowest bid or that which is closest to the Estimate. In this case, the second lowest bid also happens to be the bid that was closest to the Engineer’s Estimate. It is therefore not clear why the NPTAB overlooked this bidder in preference to the third highest bidder.
Conclusion
Cabinet acted within its remit when it withheld is no objection to the recommendation that the third lowest bid be awarded the contract. However, there appears to be a misunderstanding about the difference between the lowest bid and the lowest evaluated bid.
The NTPAB’s justification for not recommending the lowest bid has merit since the lowest bid was significantly below the Engineer’s Estimate. This raises doubt about the ability of the contractor to undertake the works at the bid price. It is, however, not clear why the NTPAB did not recommend the second lowest bid that was also closest to the Engineer’s Estimate.
The other issue relates to what appears to be a restriction of the bidding process to enable only Chinese companies to submit expressions of interest. This is not in keeping with the Procurement Act that prohibits discrimination against contractors and suppliers on the basis of nationality.
Now that the award of the contract has been decided, one hopes that: (a) there will be no variation to increase the cost of the works; (b) the works will be executed strictly in conformity with the specifications contained in the contract; and (c) there will be no undue delay in the completion of the works.
