Our media is so obsessed by political issues that they seldom publish reports on development issues on their front pages. One ‘seldom’ case was on June 5, 2012 when Nagarik daily, the sister publication of Republica, published on its cover page a report on Nepal’s infrastructure development. The report brought to light a shocking trend: The contractors of public works are abandoning contracts resulting in projects delay and costs overrun.
As per the report, the emerging trend of abandoning contracts midway is ascribed to lower rates contractors quote, which are not commercially viable. That means expenditure exceeds income. They do so because of dog-eat-dog situation created by e-bidding. E-bidding is a method of bid submission using internet or email; no need to submit required documents physically to the designated office. It was introduced with the aim to root out the problem of bid rigging either wilfully or under the duress of hired hooligans by bidders. Bid rigging or collusive tendering occurs when businesses that would otherwise be expected to compete, conspire to raise prices or lower the quality of goods or services for purchasers who wish to acquire products or services through a bidding process.
E-bidding was introduced in Nepal as a major component of procurement reform. The Department of Road started e-bidding by allowing bidders to submit their bids digitally in 2007. Now many other ministries and departments have also adopted e-bidding. Budget speech for fiscal year 2011/12 made e-bidding mandatory for the procurement above Rs 20 million with effect from April 17, 2011. Now 10 government entities have adopted the procedure.
At a time e-bidding was not practiced, it was common for potential bidders and hired hooligans to gather on the closing day of bid submission inside the premises of designated government offices. The offices in turn agree (again willingly or under duress) that the contract goes to the highest bidder so the shares of higher profit margins that can be earned in the course of contract implementation. The spoils from such contracts are distributed between other potential bidders and hooligans. Sometimes, such distribution may reach up to 15-20 percent of the estimated costs.
Government organizations have to focus on two things at the same time—achievement of objectives and adherence to due process. Due process should not be undermined to meet objectives. In public procurement, due process has to be followed to ensure effective competition, fair treatment to all interested parties and qualified bidders. Only effective competition yields the best value for money, which is the optimum combination of quality and total cost of ownership. It means cost is accorded equal importance to quality.
There should be acceptable trade-offs between cost and quality. With respect to cost, not just the purchasing price but total cost of ownership should be considered while calculating the composite cost of goods, equipment or public works. Total cost of ownership is comprised not only of purchasing price but also of other costs related to installation, maintenance, disposal, insurance, and machine tax, equipment and goods.
Critics allege the introduction of e-bidding has increased project failure. But that is barking up the wrong tree. E-bidding has nothing to do with project completion; it has not been introduced with a view to make projects successful. It has its own objectives: first, to control malpractices like bid rigging or collusion between bidders and second, to create an environment for effective competition in bidding process. As a result, project cost declines. It is estimated that about Rs 3 billion have been saved over four years after the Ministry of Physical Planning and Public Works adopted e-bidding process.
If unscrupulous practices are discouraged or eliminated due to e-bidding, and if unprofessional and uncompetitive bidders choose to shy away, it does everyone good in the long run.
There are a number of stakeholders who want e-bidding practice to be aborted, so that they can continue rigging bids. This handful of people makes a ton of money from unscrupulous practices while everyone else suffers.
Project success or failure relates more with the employer, less with profit margin. So, as the employer, government offices should ensure contractors do quality work.
We cannot close our eyes to cases of project failures due to abandonment of contracts midway. For this purpose, first, the bid evaluation criteria need to be improved. That means the evaluation of bids should take into consideration the bidders’ past performance, financial strengths along with logical and convincing plan.
Second, the success of a project rests on how it is implemented. If each and every step mentioned in the contract and the timeline submitted by a contractor is effectively monitored, corrective measures can be taken without delay. For instance, if a contractor is really delaying, the contract manager can take appropriate measures on time; terminating a contract in the worst case scenario. Incentive mechanisms should also be incorporated so that both the parties—the contractors and government engineers—are rewarded or fined based on the project’s progress.