Having reached down to the project level, this Part will conclude the Infrastructure Insight series and will do so by examining how a contractor conceptually prices a project.
Let us consider the real case of “Budday,”* who, following an invitation to bid for construction of a hinterland bridge by a regional administration, decided to submit a bid on behalf of his business, Budday’s Construction Enterprise, which has been successful at completing a number of projects. In pricing the tender document, Budday included a sizeable premium in his final price, due to the fact that his business is new to the hinterland location and he wanted to cover for uncertainties. At the bid opening Budday’s price was the lowest and he was awarded the contract for the works.
Judging from the prices of other tenderers, Budday’s price was too low to complete the bridge. However he could not withdraw from the process, and instead hoped that his added premium was enough to carry the project through, and perhaps leave a degree of profit. Budday’s dilemma was that he still did not know if, and how, to proceed as he could make a substantial profit or a heavy loss, and he had no way of assessing his true position. Budday’s bid pricing method was largely determined by the nature and content of the tender document at hand. It is useful to examine the likely methods of pricing.
Bottom-up pricing
Perhaps the most important feature of the classification of contractor pricing is the starting point of the pricing. The traditional ‘bottom up’ approach begins with evaluating the cost factors for each item in a bill of quantities, a contractual document widely used in Commonwealth countries as part and parcel of the received common law of England. To allow certainty in pricing, the work in the bill of quantities is measured off of design drawings and itemised into elementary work packages. Each item specifies both the quality and quantity of the respective work package and must itself conform to an independent, standardised method of measurement. A common misconception is that the bills of quantities are merely passive lists of materials.
The price of a complex structure can then be attained by pricing each elementary work package and building an overall price when all prices are summed up. An amount for desired contractor profit is included, and the total so evaluated is then adjusted for the risk the bidder associates with the project. The usual market risks of which a bidder should be aware are cost inflation and availability of both materials and labour, and the likely bid-prices of others. The importance to the bidder of winning the bid is also important. There are also project risks, which include the competence of design/supervision personnel and the quality of the tender documents. This final adjustment is commonly based on the ‘informed intuition’ of the bidder. However, it may be likened to actuarial calculations made by insurers when pricing risks: for this is the view of John Murdoch et al in their work ‘Con-struction Contracts’ (Taylor & Francis, 2009). Hence bottom up pricing is always subject to a final adjustment upon review, however, diligently each item has been priced, and this is its main drawback.
Top-down pricing
In contrast, ‘top down’ pricing starts with the total bid price the bidder wishes to submit, including for profit and risks as before. This total is then proportioned against anticipated construction activity duration, rather than work packages, set out in the tender document. An apparent drawback is that the price of each activity is simply an allocated element of the total price, without measureable particulars. Nevertheless top down pricing is applicable where bills of quantities are not provided, either because the works are minor and such value does not warrant the time and expense of bills of quantities preparation, (for example, a modest dwelling house) or a mega-project is at hand where bills of quantities cannot be prepared within a feasible time due to the extensive structure.
Pricing the tender document before work starts may be contrasted with ‘cost-reimbursement pricing,’ where the price is only ascertainable after the project ends, and only if successfully so. At the same time, the strength of top down pricing is realisable when the top down approach (without measureable details) is combined with the cost-reimbursement pricing and used to establish a “target price”.
Target pricing
David Trench, in his work ‘On Target’ (Thomas Telford, 1991), pointed out that an independent UK survey showed that project time overruns was the largest single cause of cost increase for both construction owners and contractors; with large projects being highly susceptible to uncontrollable costs. He introduced target pricing as a new type of procurement and accounting to mitigate this. First: a proposed project is bid on a ‘top down’ price basis with the successful price being used as a target price. Next: arrangements are made to pay the contractor under a parallel cost-reimbursement account. Finally: where the reimbursed cost is less than the target price, the saving is shared between owner and contractor; where such cost exceeds the target price, the excess cost is also shared. The object is to establish a joint interest in time- and cost-control between the owner and contractor. Trench saw his system pioneered in the construction of the landmark London Millennium Dome, which was successful technically, but dubbed a financial failure (based on the visitor ticket sales) until sold off to a private owner. Over time, target pricing has been extended in use, even to when bills of quantities are provided.
Target pricing presently is limited to use on mega-projects, and to particular countries, but it is mentioned here as there is a nascent international dimension to Guyana’s construction market, and this pricing may emerge. Its drawback is that it demands multiple teams of quantity surveyors and other specialists – for contract documentation, settling of owner/contractor shares, and accounting.
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The Caribbean Community Climate Change Centre is inviting Consultants / Service Providers that submitted an interest, or any related query / clarification, between July 15, 2019 and September 27, 2019, in relation to any of the following specified tender opportunities, to forward previous communication (showing the initial submission date) to the email address: procurement@caribbeanclimate.bz. Previous submissions made between July 15, 2019 and September 27, 2019 may not have been transmitted due to technical glitches:
Contract Reference, Assignment Title, Submission Deadline
- #66/2019/GCF/Barbados/CCCCC – Consultancy to Prepare an Integrated Needs Assessment: Water Usage, Accessibility and Storage Needs in Barbados Monday August 26, 2019. Kindly note that this opportunity was re-advertised. The new deadline for submission of Interest in Monday, October 14, 2019. See link for re-advertisement: http://www.caribbeanclimate.bz/invitation-for-bids-for-the-supply-of-one-1-pv-system-cmec-in-san-ignacio/
- #75/2019/Italian/Dominica/CCCCC – Technical Assessment of the Renewable Energy Needs of Two DOWASCO Water Pumping Stations – Monday ,September 30, 2019
- #76/2019/Italy/Belize/CCCCC – Supply and Install either (1) 5 Kw OR (1) 3 kW Grid-Tied Solar Photovoltaic System at the Community Multipurpose Emergency Center at San Ignacio, Cayo District – Tuesday, October 15, 2019
- #70/2019/GCF/Barbados/CCCCC – Supply and Delivery of Six (6) Water Tanker Vehicles to the Barbados Water Authority, BARBADOS – Thursday, October 24, 2019
Service Providers that submitted Registration Forms between the period July 15, 2019 and September 27, 2019 are also invited to re-submit these forms to the email address procurement@caribbeanclimate.bz.
The deadline for forwarding (re-submitting) any communication previously submitted between July 15, 2019 and September 27, 2019 at the email address procurement@caribbeanclimate.bz is Monday, October 7, at 07:59 AM Belize Time (GMT-6).
Please note that the Caribbean Community Climate Change Centre will bear no liability for the technical glitches experienced or for non-receipt of any submissions.
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What to charge for your work is a frequent point of hesitation for many consultants, contractors and service providers. In the Caribbean, the problem tends to be more pronounced, as the typical rates being charged locally in one’s field may not be readily available. Further, if one might be interesting in bidding on projects in other countries in the region, finding such information is even more of a challenge.
To that end, and since it has been over two years since we published the results of our inaugural exercise, we think it is opportune to determine whether or not, or the extent to which professional fee rates have changed across the Caribbean region. We thus invite you to complete our 2019 Survey of Consulting, Contracting and Services Provision Fees Charged in the Caribbean.
The survey consists of 16 questions, and can be completed in less than ten (10) minutes. Please note that we do not ask for any personally identifiable information; hence we ask that you be as honest as possible in your responses. Ultimately, we are trying to get – and eventually share with you – as accurate a picture as possible of the professional fees being charged for local, regional and internationally-funded projects.
Finally, we also ask that you share this survey with your fellow consultants, contractors and service providers to help us get as wide a sample as possible, and thus more authoritative results.
We look forward to your support!
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Transparency Institute Guyana Inc today said that conflict of interest here is a huge problem.
A statement by the group follows:
Conflict of interest – Housing Minister and the Minister of Public Telecommunications
Recently, two cases about conflicts of interest have emerged in the public domain. These cases involve the issuance of contracts to (1) the husband of the junior minister of housing by the Central Housing and Planning Authority and (2) the firm of the Minister of Public Telecommunications by the Department of Energy.
In the latter situation, the minister has indicated that she had relinquished control of the day-to-day operations of the firm prior to the contract being issued and that she was unaware of the award before it was mentioned in the public domain (see Demerara Waves, April 10, 2019). The revised code of conduct for public officers states in Article 4 (3) that “A person in public life shall – (c) refuse or relinquish any outside employment, shareholdings or directorships which creates or is likely to create a conflict of interest.” The view that individuals should give up their private firms to take up ministerial positions is therefore relevant based on the code of conduct; however, it is not the only approach available and we do not recommend it as the only thing that can be done to address such conflicts of interest. Article 4 (1) (b) of the code provides for seeking guidance from the Integrity Commission on what steps to take and this is separate from declaring interest in a firm.
We are not clear on whether the actions taken by the minister were based on guidance received from the Integrity Commission or whether they were self-determined. We argued in our April 22, 2017 statement on the draft code of conduct (featured more widely on April 24, 2017) that the appropriate steps to take to address a conflict of interest should not be up to the discretion of the person in the conflict of interest situation (Stabroek News, April 22, 2017).
An overarching issue is that based on the code of conduct, the minister would need to have made or participated in making a decision that she ought to have known furthers her private interest or that of a family member or some other entity (Article 4 (2), code of conduct). Indicating ignorance about a contract award is therefore not enough. However, if ignorance of the award means that the minister did not participate in any such decisions or any fora at which the matter was discussed or a relevant decision was made and did not otherwise influence the process, she would not have acted on the conflict of interest.
Nevertheless, even when a minister who owns a firm has not acted directly on an existing conflict of interest, there is the possibility that favoritism can be shown to his/her firm due to the known association with the government. Examination of the procurement procedures would provide important insights on the potential for such an occurrence. In this regard, the Ministry of the Presidency has indicated that there was no impropriety in the award (see Kaieteur News, April 11, 2019). We urge however, that to substantiate this claim, refute the assertions of those who claimed otherwise and concurrently strengthen public confidence, the Ministry should release information on the procurement process.
For us to make progress in relation to transparency and corruption perception, it is important that we address the issues that arise decisively and in ways that close opportunities for recurrence. Establishing a clear policy on specific actions that should be taken by minsters and other public officials who have firms that compete for local business especially with the government would enhance our attempts to address conflict of interest in government. We should also recognize that the code of conduct for public officers is weak. It fails to articulate any specific penalties for breaches and it should be strengthened.
In relation to the situation at the ministry of housing, TIGI agrees with the concerns that have been expressed. In fact, we have indicated that the contract awarded to the husband of the junior minister of housing should be reviewed and it is great that steps have been taken to have this done. Though the concern about whether or not the minister and her husband became officially married by the time the contract was issued is a legitimate one, marriage is not the ultimate test. Marriage is a fairly safe and conservative standard that can be applied in the absence of additional information about the relationship. Additional information could be, for example, whether or not the individuals were already living together or were known to have a relationship or friendship even if they were not married. The relationship is the key issue and focusing on the relationship brings into relevance several kinds including familial, friendship, having attended the same secondary school, having been members of the same organization and many others.
Conflict of interest is a huge problem in Guyana. In one of our outreach programs some years ago, the information received conveyed great concern about a relationship of one party on a tender board and a person outside. The concept of conflict of interest should span the whole spectrum of situations where an influential official of an organization goes out of his/her way to find a friend to fill a lucrative or influential position in violation of the minimum requirements for appointment to that position, to the obvious one where the recruit emerges as one in an officially recognized relationship such as husband and wife.
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In February, Director General of the Ministry of the Presidency, Joseph Harmon, had announced that Oil Consultant, Dr. Michael Warner, was hired for $22M to complete Guyana’s draft Local Content Policy.
But several concerns were subsequently raised since Dr. Warner is also an employee of DAI, the contractor engaged by ExxonMobil to manage the Local Content Centre for Development located on South Road, Georgetown.
There, the official provides training on how local businesses can fit themselves into the supply chain.
Kaieteur News learnt that there are other local content experts who have no current attachment to an oil company and are not on an oil firm’s payroll but were not approached about the tender.
In light of this, questions are being raised on whether Dr. Warner was sole-sourced for the project. If he was not, and there was an open tender, who were the other individuals who sent in applications.
Transparency advocates also want the Government to say when the tender for this project was made available, since the Ministry of the Presidency’s website has no such information about the contract nor does the Procurement Plan for the World Bank funded capacity development programme, which is managed by the Department of Energy.
At the Ministry of the Presidency, yesterday, Director General Joseph Harmon, was asked to provide answers to the aforementioned questions since he is responsible for helping President, David Granger manage the Energy Department.
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