On Wednesday, the Government signed a Memoran-dum of Understanding (MOU) with Fedders Lloyd Corporation for the resumption of the design, construction and outfitting of the Specialty Hospital at Turkeyen, East Coast Demerara. The contract was originally awarded in 2012 to Surendra Engineering Construction Ltd. (SECL) in the sum of US$18.1 million. This was despite the fact that the company was a spare parts fabricator for sugar mills across India with no experience in the design and construction of health facilities. On the other hand, for the purpose of bidding for the project, Fedders Lloyd had formed a consortium with NOUS Hospital Consultants which had expertise in building specialized hospitals and which had commissioned about 90 hospitals and other healthcare facilities around the world. It had also submitted a bid that was lower than that of SECL.
Having received a mobilization advance of US$3.6 million, SECL began work on the project. However, because of delays, unsatisfactory performance and allegations that it had issued a fraudulent performance bond, the Government terminated the contract. Unable to recover the mobilization advance as well as an additional amount of US$649,440, the Government sued SECL. The company failed to appear in court to answer the charge, and judgment was granted in favour of the Government in relation to special damages and costs in the amounts of US$4.285 million and US$10,716 respectively. It was subsequently learnt that SECL had left the jurisdiction, and it is unclear what further action is being taken.
The project was funded from a loan of US$18 million from the EXIM Bank of India. The new Administration requested the Bank to cancel the Letter of Credit in order to avoid any further build-up of commitment fees, and suggested that the balance of the earmarked funds be reallocated to a project to modernise three primary healthcare facilities. The Government of India, however, suggested that consideration be given to salvaging the Specialty Hospital project, as it would complement primary healthcare facilities.
In a joint statement, the Government indicated that in the interest of time, it approached Fedders Lloyd to explore the possibility of the company completing the project, hence the MOU. However, the only provision in the Procurement Act that refers to time constraints relates to Section 28 dealing with sole sourcing where “owing to a catastrophic event, there is an urgent need for goods, services or construction, making it impracticable to use other methods of procurement because of the time involved in using other methods”. The Government’s explanation as to the reason for not going back to tender is therefore without merit.
Revisiting the basis of the contract award to SECL
In January 2012, the Government advertised for expressions of interest from contractors in India for the design, construction and equipping of the Specialty Hospital. However, Section 5 (4) of the Procurement Act 2003 prohibits discrimination against contractors and suppliers on the basis of nationality. This is reinforced by Section 7 which permits contractors/suppliers to participate in procurement proceedings without regard to nationality. In addition, Section 4 states that the Act is applicable to all procurements to the extent that they do not conflict with any international agreement. Needless to mention, a loan agreement from the EXIM Bank of India cannot be regarded as an international agreement.
Of the 34 firms that responded to the advertisement, five were shortlisted and were requested to submit bids. The National Procurement Tender Administra-tion Board (NPTAB) opened the bids on 26 June 2012. Following an evaluation by a technical committee, review by the NPTAB and “no objection” from Cabinet, the then Head of the Presidential Secretariat (HPS) announced the award of the contract on 22 August 2012 in the sum of $18.1 million.
Fedders Lloyd’s letter of protest and the Ministry’s response
Fedders Lloyd’s bid price of US$17.69 million was after a discount of 23% on its initial bid of US$22.96 million. In response to the HPS’s announcement and in accordance with Sections 52 of the Act, the company issued a letter of protest dated 30 August 2012 to the Ministry of Health in which it contended that the following irregularities in the bidding and evaluation process took place:
- Extension of time for the submission of bids violated international competitive bidding rules;
- Numerous changes to the tender documents just five days before the bid opening, as opposed to the stipulated 14 days;
- Failure of the selected bidder to submit a bank guarantee from an Indian bank to be confirmed by a local bank; and
- Lack of experience of the selected bidder.
Section 33 of the Act states that at any time prior to the deadline for submission of tenders, the procurement entity may for any reason, whether on its own initiative, or as a result of a request for clarification by a supplier or contractor, modify the tender documents. In addition, by Section 35, where the procuring entity issues a clarification or modification of the tender documents, it shall extend the deadline for the submission of bids to afford suppliers or contractors reasonable time to take the clarification or modification into account in their tenders. Fedders Lloyd claimed that the extension from 15 May 2012 to 26 June 2012 violated international competitive bidding rules. The Ministry disputed this and argued that it is standard practice to facilitate widest possible participation.
There were 20-25 pages of amendments to the tender documents that were made five days before the deadline for the submission of bids. However, no reference could be found in the Procurement Act of a stipulated 14 days. The company also claimed that: (a) the bidding documents specified that the tender security should be from an Indian bank with correspondence relations with a local bank; (b) SECL did not comply with this requirement since its bid security was only from Axis Bank of India; and (c) SECL should have been disqualified on this count alone. However, Section 37 states that a tender security shall not be rejected on the grounds that it was not issued by an issuer in Guyana if the tender security and the issuer otherwise conform to the requirements set forth in the solicitation documents.
The Ministry’s response indicated that the company was disqualified on administrative grounds and “the fact that Fedders Lloyd works in many areas and in several countries and is engaged in an assortment of activities is not a unique nor propriety feature of the Fedders Lloyd Corporation…and while it is information that is useful to know, such information was not factored into the rigorous and detailed criteria used to assess the lowest evaluated bid”. However, the Procurement Act does not prohibit a bidder from forming a consortium with another firm or agency with the appropriate expertise for the purpose of bidding for a contract. In fact, the invitation to bidders did allow for joint venture of two or more firms as partners. The Ministry’s statement therefore contradicted its invitation to bidders. The Ministry further stated that “clearly neither technical nor financial compliance is of material value if tenderer fails administrative compliance”.
Requirements for adjudication by a Bid Protest Committee
If the procuring entity does not review the protest within five business days, the bidder may submit a request for review to the NPTAB. When this happens, an independent three person Bid Protest Committee is appointed to review the matter. The committee is to comprise of one person appointed by the Minister, one by the Association appearing to the Minister to represent contractors and one by the Attorney General. These persons are to be professionals who are particularly competent in the field of procurement.
Within fifteen business days of the conclusion of the review, the committee issues the results of its review, stating the reasons for its decisions and remedies granted, if any. The committee’s decision is final and binding on the procuring entity. Meanwhile, the final contract award is suspended during this period.
It is, however, not clear why Fedders Lloyd, having written to the Ministry of Health as an aggrieved bidder and having received a response, did not take its protest request to the next stage so that a Bid Protest Committee could review and pronounce conclusively on the matter.
Conclusion
The previous Administration had erred badly in selecting SECL as the contractor for the Specialty Hospital, and there is uncertainty as to the recovery of the amount paid to it, notwithstanding judgment in favour of the Government after the termination of the contract. However, in seeking to remedy the situation, it is not unreasonable to consider that, going forward, the new Administration will exercise the greatest degree of caution.
Given the charges made by Fedders Lloyd of unfair treatment in the award of the contract (whether justifiable or not), and the Ministry of Health’s response, it would have been more appropriate for the works to be re-advertised to allay fears of the new Administration taking sides in the dispute between the two parties. In any event, there is no provision in the Procurement Act for a terminated contractor to be replaced by the next contractor in line based on the original tender evaluation. The MOU with Fedders Lloyd should therefore be cancelled and the bidding process re-started. Indeed, the Government has the obligation to uphold the principles of transparency in the award of all public contracts in conformity with the Procurement Act. Any lesser arrangement should be frowned upon.
Finally, to the extent that the Public Procurement Commission established by the constitutional amendment of 2001 is not made operational, problems in public procurement will continue to occur. At the moment, there is no oversight mechanism in place to monitor the work of the NPTAB, while Cabinet continues to be involved in the procurement process. The Chairman of the Public Accounts Committee (PAC), quite justifiably, has criticized the Government for signing the MOU with Fedders Lloyd. In the same breath, he should proceed with haste to have the PAC identify the five nominees to the Commission and have their names submitted to the National Assembly for ratification. Had the Commission been in place, it is unlikely that the present controversy involving the construction of the Specialty Hospital would have existed.
