The suitability of the low bid criteria in procurement contracts has come under the microscope after it has emerged that government is spending excess taxpayer and donor funds mostly on various public infrastructure projects.
Construction Sector Transparency Initiative (CoST) Assurance Report for 2019, scheduled for release this week, also highlights how delays in completing several projects is leading to escalation of costs.
The CoST report indicates that its sampled 13 public infrastructure projects had their project cost increased by an average of 14 percent from the initial cost. Contributing factors included poor designs which had to be changed while the project was in progress, subsequently increasing the workload.
Further, the report says 33 percent of inspected projects had contract costs revised upwards due to escalation of prices, 17 percent due to delayed payments, 33 percent due to extra works identified mid-way through projects and 17 percent due to inaccurate designs.
Reads the report in part: “Time overrun and cost increase are some of the problems identified by this study. The predominant themes centre on inadequate project preparation and need to improve supervision capacity.
“Further, lack of capacity also has a bearing on consultants approving incomplete designs for construction which also result in cost and time overrun.”
Public infrastructure projects cited in the report and affected by the cost overrun include the upgrading of Njakwa-Livingstonia Road in Rumphi, maintenance of Chingeni-Zalewa section of the M1 Road and upgrading of Nkhotakota-Dwangwa Road.
Construction of the head office complex for Malawi Energy Regulatory Authority (Mera) in Lilongwe, construction of the Kamuzu Barrage at Liwonde in Machinga, Malawi Bureau of Standards (MBS) laboratory and office complex project in Blantyre, Phalombe District Hospital project, M’Mbelwa District Community Stadium and M’Mbelwa District Council office complex were the other projects sampled.
The inspection team also assessed implementation of Malawi Rural Electrification Project and new structures at University of Malawi constituent colleges of Chancellor College and The Polytechnic.
Players in the construction sector confided in The Nation that the findings expose how the low bidder selection criteria is being breached by shrewd contractors who beat the system to collect more money through delays.
In its inspection report on the Kamuzu Barrage Rehabilitation Project at Liwonde in Machinga, the World Bank also pointed out the challenges of project delays and how they impact on the cost of various project components.
The $50 million World Bank project had its deadline extended seven times and saw its initial projected total cost of $36.5 million pushed up. For instance, the civil works component was initially pegged at $18 982 440.79 but ended up consuming $23 900 000 due to delays.
Ministry of Agriculture, Irrigation and Water Development spokesperson Priscilla Mateyu said supply and Installation of gates and weed boom at the site cost $10 305 416.32 while the weed collector cost $1 404 000 and the supervising consultant $12 000 000.
She attributed the project’s delay to other factors such as supply and installation of a weed collector by another company, CMC di Ravenna of Italy.
Said Mateyu: “Every contract has provisions that deal with different emerging issues, including the delays in form of limited contingencies.”
On his part, Ministry of Finance, Economic Planning and Development spokesperson Davis Sado indicated in an interview that government plans to tackle the challenge of project delays leading to cost overruns through improved guidelines on Proper Contract Management by Ministries, Departments and Agencies.
“This is one of the key areas where the Ministry of Finance is focusing on with an intention that government gets value for money on all its projects, but at the same time ensuring that contracts are watertight.
“A clear message on effective and efficient contract management was communicated to all stakeholders during the budget formulation guidelines that all contracts will have to be clearly analysed and vetted by designated government institutions, including the Ministry of Finance,” he said.
In his analysis on low bid award system in public sector construction procurement, Bredford Thomas of the University of Toronto said there are “definite benefits and drawbacks to the low bid award system”.
In terms of benefits compelling contractors to lower their costs, he said some contractors seek to ensure that they win bids and maintain their profit margins.
But Thomas argued that allowing projects to be awarded based solely on one criterion poses inherent flaws, including time and quality which are negated. Besides, he said, unqualified bidders also tend to get through.
He said: “There are definite risks associated with the low bid award system. A number of studies have shown that the lowest bid does not guarantee the lowest cost.”
In a separate interview, independent procurement consultant Anorld Chirwa, who has worked previously worked for the Office of Director of Public Procurement (ODPP) now Public Procurement and Disposal of Assets Authority, said the country’s procurement procedures stipulate stringent procedures which, if followed, could stop abuses.
He said: “People under-quote or provide bottom prices just to win contracts. The competition is too high and market is too low. But the principle of lowest bidder when handled properly is the best. If we change it, we will bring in new problems.”
However, Chirwa bemoaned that most procurement agencies only focus on the low bid aspect ignoring other procedures.
“There are three levels. The first is preliminary examination of administrative matters, those who pass proceed. The second phase is the detailed evaluation, that’s where you look at volumes of works done, experience, lines of credit and others.
“Those technically qualified are then ranked from lowest to highest. It’s at this stage that you pick the lowest bid, then you can disqualify people if they don’t meet any other requirements. Post qualification then is when you select the lowest bid. It shouldn’t just be about the lowest bidder but technically compliant,” he said.
In an interview, CoST Malawi programme manager Lyford Gideon acknowledged the challenges as highlighted in CoST’s recent reports.
He said: “One of the issues is indeed that of time overruns which have a direct impact on cost as costs tend to increase due to several factors. For instance, if a project overruns its time, the contractor needs to be paid to keep staff and equipment on site. Prices for materials may also increase with the passage of time.”
Gideon said contributing factors to delays vary from poorly conceived projects (no budgets or poor designs) and poor contracting strategy to delayed payments and contractual disagreements.
Our research indicates that the European Union, which defines those bids as Abnormally Low Tenders, introduced legislation to allow public sector clients the option of awarding a construction project using either the traditional low bid or the Economically Most Advantageous Tender (Emat).
This followed challenges observed with fixation on low bid criteria.
The Emat legislation allows public sector clients to reduce their exposure to some of the adverse effects of abnormally low tenders.