In examining the supply side of construction, it is useful to examine some measures of how both contractor knowledge and dominance by owners can be re-balanced.
Comparative market prices
In his work, “Collusion and corruption in the construction sector” (Modern Construction Economics: Theory and Application, Spon Press, 2011), Christian Brockmann provides an extensive analysis of pricing mechanisms in procurement, following which he concludes that a sealed-price reverse auction is the worst position any seller (such as a contractor-bidder) can be in. Such a bidder must submit a bid without having a clue of the competitors’ behaviour, and has a one-shot opportunity to do so, submitting the lowest price possible to (hopefully) complete the bid project. Readers are also no doubt aware of the judgemental term “bid-rigging”, which refers to where bidders communicating directly with each other to determine the bid price in advance.
Well before Brockman, quantity surveyors and estimators, specialists who price construction work and who work for owners or contractors alike, faced the practical hazards of being engaged in bids without gaining knowledge from the process. In certain economies in Europe and North America, Australia and locations in the Middle East, the practice has developed of some specialists re-directing their specialism to the statistically organising and publishing construction work rates and prices to be applied by others who are actually compiling bids. Interested contractors would typically purchase hard copy data or subscribe online, for their own use as ‘comparative market prices’. As a result, historic price information which is publicly available is shared indirectly with competing contractors, which is a means of mitigating ‘imperfect knowledge’ of competitor pricing.
However, data viability depends on a statistical population of some reasonable size, a feature not available in small construction markets like Guyana, where those engaged in pricing must depend on whatever limited price information is circulated, or their own prices where successful at a past bid, or otherwise evaluate the same from their own intuition. In this regard in Guyana ‘comparative prices’ are generally deficient in the body of contractor knowledge. (The website of the Incorporated Masterbuilders Association of Jamaica informs that the Association provides, for a fee, a manual containing a list of labour rates paid in the construction industry, intended to be used as a guide).
Competence, again
Professional competence dealt with on ‘demand side’ is also relevant here, as competent advice to the client is an important element in redressing dominance. For example, drafting of procurement documents, which provide information and quantities enabling bids to be prepared efficiently and accurately, is an aspect of adjusting imbalance against contractors that must not be overlooked. Neither should diligent post-award contract admi-nistration, completion-time enforcement and quick and fair dispute resolution. The related, but separate, issue of competence of the contractors’ management should also not be forgotten.
This measure and the two below address dominance at both the bidding and construction stages.
Next, there is the state licensing of contractors. This has the objective of setting the minimum levels of service delivery by all licencees, but also assures contractors that competitors are of similar calibre or that they do not have to contend with no-vice bidders or erratic pricing. Licensing can, therefore, go towards improving knowledge of how bid rivals may price. Licensing is not favoured by those who support the ‘free market’ and a search shows that the Republic of Tanzania is the only state that definitely follows this practice. This measure is also mentioned here in light of a proposal in Guyana for debarment in procurement regulations for errant contractors. It should be preferable to lift the entire corps of contractors to a desirable standard than to await a precipitation of serious errors, and then de-bar. This way focus is on establishing competence, and license withdrawal can be a sanction of last resort. Also, short of committing a criminal offence, breach of the procurement regulations by government agencies impose no counterpart sanction, which creates an inequitable operating environment for contractors.
Joint working forum
Finally, building and engineering contractors in Guyana can buttress their position against dominance by self-organising into an association capable of working with representatives of the government, preferably on a partnership (and not subservient) basis.
It is arguable that the industry in Guyana has not had the benefits of research institutions, and public enquiry and commissioned reports, as other countries. However, on the threshold of an increase in construction activity, it is here submitted that concerted action is urgent now between industry and government for a forum for airing diverse issues of common interest, like government policy, industry productivity, and worker welfare.
One cannot pre-empt the programme of such a joint working forum but below are some vital matters which should be on its early agenda:
● Documentation and procedures collectively settling general contract conditions with public sector clients, with the objective of re-balancing risk. Also better information on protest rights under the National Procurement and Tender Administration Board and Public Procurement Commission processes, for bidders are the primary guardians of the integrity of such processes. This impacts realignment of relationships between contractors and owners.
● Prompt payment legislation. Some 21 years ago, the UK introduced late payment legislation for the construction industry, with adjudication as an administrative process of enforcement. Since then, Singapore, New Zealand, and Malaysia, among others, have followed suit. However, in some other developing countries, including Guyana, governments have remained happily indifferent to the issue. The Oxford Business Group reported in 2018 that in oil-producing Trinbago, the government debt to contractors and consultants was TT$6bn (G$180bn). A word to the wise is enough. This impacts both contractors and consultants.
● Inadequate skills and workforce. Contractors need to lead the discussion on investment in appropriate skills, with government, vocational trainers, and the University of Guyana. Also, subcontractors need special safeguards against main contractors. In the medium term, a workforce may need to be imported, and this too needs dialogue.
Some modicum needed
Given what has been stated in this series regarding the barriers to public sector knowledge, unilateral action by government, and so on – not to forget the traditional obstacles to cooperation between government and the private sector – the difficulties of contractor-initiated joint working cannot be overestimated. How-ever some modicum of joint working is needed if the industry is to deliver any of its expectations (see box below). The work of the General Contractors Associa-tion of Guyana (GCAG) in advancing the proposal for 20 per cent reservation of state contracts for small businesses is acknowledged. Perhaps the contractor mainstream can see the start by the GCAG as an opening for a campaign worth mounting for increased cooperation between government and contractors.
Joint working between industry and governments exists in various ways, and is not new. It is manifested by national contractors winning international bids, based on loan structures led by government-backed banks, in certain countries from Europe and Asia. In the UK, it is evident in the government-led Emmerson report and collaborative action on construction difficulties back in 1962; the first of many such episodes, to this day. In China, a more centrally-planned economy, as at 1949 specialised institutions allocated work to state-owned construction enterprises, but after 1978 privatisation and bidding procedures were allowed, and government-backed overseas expansion followed.
The next Part will examine construction at the project level.
