Keeping A Promise
Stabroek Business, April 25, 2008. http://www.stabroeknews.com/?p=2193#more-2193
By Rawle Lucas
Public’s right to know
In keeping with the provisions of the Procurement Act of 2003, Guyana has started reporting information on contracts awarded to suppliers and contractors through the newly amended public procurement process. This is a promise made in the 2003 amended procurement law that requires all the public entities engaging in procurement to publish a variety of data on the contracts valued over G$200,000 that had gone to successful bidders. The National Procurement and Tender Board has started making this information available. Contract awards from April 2006 onwards are now easily available on the Internet for public consumption. The data include the names of attending members of the Evaluation Committee, the name of the procuring entity and a brief description of the goods or services being purchased. In addition, the Tender Administration provides, on a consistent basis, the names of the bidders, the names of their representatives attending the contract review meeting, the cost estimates of bidders, an engineer’s estimate of the project where applicable and the value of tender security provided by bidders.
While the published data is insufficient by itself to evaluate the tender process, its availability helps to bring part of the decision process and the decisions of the Evaluation Committee into public view. This is a good thing since it allows us, the potential beneficiaries of the process, to become informed about procurement decisions and be part of any dialogue on the procurement subject. As limiting as the published data is for comprehensively assessing the government’s buying process, it is possible to identify a major flaw in the employ of the single most important criterion, lowest cost, for achieving economy and efficiency. The issue of concern to me is the consistent selection of the lowest cost bids by the Evaluation Committee even though the chosen bids often diverge widely from the engineering estimates given to the Evaluation Committee to guide its selection.
Benefits of competition
A primary objective of the current procurement law is to help the government to “maximize economy and efficiency” in its spending. For the government, this means obtaining the best and fairest price for goods and services that it buys. A competitive procurement process serves that purpose. Under current practice, the Tender Administration utilizes several techniques for awarding contracts, including competitive bidding, single source selection and emergency selection. Competitive bidding was widely used in the contract selection process of 2007 even though single sources were used in 18 percent of the cases. Under competitive bidding, the bids of competing suppliers or contractors are publicly reviewed by contract review committees which make their selections and refer them to the Tender Board of the procuring entity whether a ministry or an agency of the government.
In Guyana’s case, the contract committees are called Evaluation Committees and contracts are awarded after the Evaluation Committees make their recommendations to the tender board of the entity that is procuring the goods or services.
Under competitive bidding, pricing or the cost of the project is a critical driving force in the selection process. Evaluation Committees are expected to follow the 2003 law in which is stated “the procurement contract shall be awarded to the supplier or contractor that submitted the lowest-priced quotation that complied with the requirements of the invitation”. It is through adherence to this provision of the law by Evaluation Committees that the government could feel reassured that it is getting the best price and deal for its money. Viewed from this perspective, it should be of little or no concern to Guyanese that the Evaluation Committee has a tendency to award contracts to the lowest bidder. That would be so if the decisions of the Evaluation Committee did not appear to contradict rational decision-making.
The rationale behind competitive bidding is to guarantee also that the government has qualified contractors or suppliers with access to technical skills, financial resources, managerial capability, reliability and a good reputation delivering services to the Guyanese people in the most economic fashion. The 2003 procurement law even acknowledges these factors and their importance to decisions about contract selection. Yet, consideration of these factors seem to be absent from the decisions of Evaluation Committees.
Decisions are made as if there was a disconnection between lowest price and good quality of work. For example, the Evaluation Committees are often given engineering estimates to help them gauge which bids have provided reasonable or realistic costs, and more often than not, the committees appeared to have ignored these helpful hints.
The apparently slavish adherence by Evaluation Committees to the need to select the bidder with the lowest cost in spite of the evidence before it causes me to wonder if the government is getting value for its money. In 2007, the government awarded about 244 contracts valued at over G$5 billion to 116 different suppliers, several of whom received multiple contracts. The data also show that 125 of the contracts awarded had engineering estimates and that in 100 percent of the cases the contract was given to the contractor who provided the lowest bid. Such decisions would be logical and fair except for one thing, they ignore evidence that is vital to rational decision-making. The Evaluation Committee appears to turn a blind eye to the engineering estimates that can help with the elimination process.
Quite often the Evaluation Committee ignores the enormous gap between the cost in the lowest evaluated bid and the cost that engineers feel is reasonable for the various projects. For example, in a road maintenance project from the Ministry of Public Works awarded at the October 23, 2007 meeting of the Evaluation Committee, the engineering estimate exceeded the winning bid by 339 percent. The engineering estimate of the project was G$58 million while the winning bid was G$13 million. Of the nine other bids, the engineering estimate exceeded three of them by an average of 22 percent while the engineering estimate was below one of them by a mere 3 percent. Of the three bids, two were for G$51 million each and one bid was for G$43 million.
The bid that exceeded the engineering estimate was for G$60 million. These four bids in my opinion deserved more serious consideration than they apparently got. In another case involving the Ministry of Public Works, the engineering estimate exceeded the winning bid by 292 percent. The engineering estimate was G$76 million while the winning bid was G$19 million. Of the five other bids before the committee, the engineering estimate exceeded three of them by 10, 101 and 125 percent respectively while two bids exceeded the estimate by 122 and 135 percent. Despite the availability of the engineering estimate, the Evaluation Committee went for the bid that seems, on the face of it, to be at greatest risk for incompletion or underperformance. If the government was looking for low cost and good quality work, the bid with the 10 percent difference should have gotten more favorable consideration in my view.
While these are just two examples of imprudence, the rigid and injudicious application of the lowest-cost principle was repeated in nearly 82 percent of the cases that I looked at for 2007. Like many Guyanese, I am hard pressed to understand why the Evaluation Committee repeats this behavior over and over. Even without a rigorous statistical analysis, alarm bells should go off in the heads of the members of the Evaluation Committees once they see substantial numerical differences among bids. Short of hearing from the Evaluation Committee itself, it would be difficult for me to understand their rationale for making these decisions. However, members of the Evaluation Committee should know that it is legitimate to reject low bids if they seem unrealistic and fall outside a reasonable cost range of the benchmark, the engineering estimate in this instance.
The frequent appearance of bids that diverge widely from the engineering estimates ought to urge committee members to ponder several issues. One issue is whether the engineers providing estimates for the evaluation committee and those giving estimates to the bidders are using the same product and price data. A second issue is which engineers have access to more realistic product and price data. It is unimaginable that different engineers could have used the same data and arrived at such wildly divergent conclusions without causing alarm. Moreover, the curiosity of committee members should be aroused given that multiple bids tend to hover around the engineering estimate while the lowest bid often lies out there like a distant star in another galaxy. A third issue is whether the risk assessment of the engineers of the awarding committee is too high or whether the risk assessment of the successful bidders is too low.
Guyana is plagued with many resource constraints, political dangers and security problems. Add to the mix the constant leakage of skilled and experienced persons from the country and the risk component of any project increases in significance. These and other elements add to the cost of doing business and I wonder how much the impact of these factors is being overestimated by the engineers serving the evaluation committee and underestimated by those serving the bidders. Against this background and in the face of the stark contrast in numbers, the members of the Evaluation Committee should want to know if the yardstick that they are given to judge bids is reliable and trustworthy. They need to be asking questions if the procurement system is to be strengthened and serve a good purpose.
Instead, they appear to plough along oblivious to the fact that an extremely low bid that appears unrealistic could be legitimately rejected. The Evaluation Committee should be concerned though because decisions that seem to contradict the evidence leave members open to charges of unfairness and impropriety and places the integrity of the new procurement regime in doubt.
Need for closer look
On the other hand, I am left to wonder if the engineers of the bidding companies know what they are doing, especially if the estimates of the engineers serving the Evaluation Committee are deemed more reliable. This leads me to wonder also if some of the bidders are manipulating the procurement system, a real possibility given the weaknesses about redress pointed out in the report of the Ethnic Relations Commission on the subject of procurement. The contractors can bid low and, after winning the contract, take advantage of the public disclosure of the cost estimate of the project after the tender process is over to increase cost while implementing the project. By that time, they would have the advantage of knowing the engineering estimates of the government and the other bidders. This information can then be used as reliable guides as to how high to increase cost without appearing to exceed the government’s budget for the project or invalidating the decision of the Evaluation Committee.
From the 2007 data, many of the lowest bidders could increase cost from as little as 1 percent to as much as 340 percent without exceeding the budgets for multiple projects. As many as 20 projects could conceivably have their costs increased from 100 to 300 percent without exceeding engineering estimates. A natural consequence of this behaviour is the possible cost over run of the contract award. The procurement law makes provision for penalizing vendors who breach their contracts. Cost over run is one possible form of breach, especially if it does not result from changes in the design of the project. Notwithstanding the law, it is not clear to the public that the lowest bidder would incur legal penalties for cost over runs or under-performance. The findings of the Ethnic Relations Commission seem to indicate that contract violators are easily forgiven. Consequently, low cost bids that may look like a bargain could turn out to be a bust and instead of getting value for its money, the government and the public at large may end up with buyers’ remorse. Some of that remorse has already emerged with well-known examples of under-performance such as with the Charity wharf, the Railway Embankment road and the Georgetown/ Timehri road.
The extent to which cost over runs occur is information that should also be made public by the Tender Administration to give credence to the much touted value of transparency in the public procurement process. Consistent and independent evaluations of vendor performance and project outcomes will help in this regard. Beyond that, the members serving on the Evaluation Committees may want to periodically examine the basis on which they reach contract decisions if only to keep the public’s trust and the sanctity of their reputation.
The burden of sensible contract selection does not fall on the Evaluation Committee alone. The procuring entity also bears some responsibility. The law gives the procuring entity, whether a government ministry or agency, the right to review and reject the recommendation of the Evaluation Committee.
Whenever it rejects the recommendation of the Evaluation Committee, the procuring entity can issue an advisory recommendation to the Evaluation Committee as to which bidder should be adjudged the lowest evaluated bidder.
The number of such incidences should also be reported by the Tender Administra-tion as part of its full disclosure policy. Information of this nature would go a long way towards keeping the promise of a fairer, equitable and transparent procurement process that helps to maximize economy and efficiency.
(Rawle Lucas is a Guyanese-born Certified Public Accountant and Assistant Vice President of the Lending Services Division of Chevvy Chase Bank, MD, USA.Mr. Lucas has agreed to serve as a columnist with the Stabroek Business and will be contributing articles on economic, financial and development matters.)