Public Infrastructure Ministry’s tender notice for Demerara bridge is intolerably ambiguous

Dear Editor,

The headline story of SN on September 28, 2017 that ‘Restricted bidding for the new Demerara River bridge raises red flags’ provides the opportunity to revisit the earlier prequalification tender notice by the Ministry of Public Infrastructure (MPI) for the “finance, design, build and [maintenance]” of the bridge.  That tender invitation, based on its text and subsequent events, is intolerably ambiguous. In addition the ‘restricted bidding’ in your article is worthy of comment.

As a side note: this writer wrote Stabroek News about a year ago stating that legislation was needed to regulate the private funding of public projects (‘Legislation is needed for public-private partnerships’, Oct 1, 2016 ).  In my view that legislation is still needed now and urgently so, as the Procurement Act, at least as presently existing, cannot properly encompass the regulation of private funding, or any other type of funding, for public projects where costs are recovered from user-citizens directly.

To return to the tender invitation: this is careful to state that it is envisaged that the bridge will be completed by 2020.  This is an admission, perhaps unintended, that the new bridge will be part of the election campaign by the current government.  Relevant here is the recent article under ‘Ian on Sunday’: ‘Thinking, already, about the next general election’ (SN Sept 3, 2017) in which the writer highlights “people worrying” about the next general election in Guyana, and reasons that this is terrible for the nation.  On the other hand, though clear on completion time, the tender invitation exhibits ambiguity on whether the bridge will be built by government loan, or private capital via investors and bankers.

The invitation requests contractors to offer lump sum bids for design and construction of the bridge. The “complete basic design” will be provided by MPI as a reference.  Conflictingly contractors are also requested, “in order to improve the funding package…” to “…advance proposals for financing the project”, all confirmed by later statements of MPI. No reference is made as to the availability of a prospectus or similar document, needed by a financier in these circumstances. Even if a prospectus is available, these two requests are incompatible with each other.  The first is for the design and construction of the bridge, evidently to be funded by government loan.  The bid can be based, correctly so, on the physical characteristics and environment of the location (“complete basic design”) and a bid can be accepted following a lump sum offer.  However the second request (to “advance proposals for financing”) requires private investors to be attracted to the construction if they perceive the bridge to be viable in giving a surplus on investment.  Diverse interests need to be met: that of the government in gaining a quality bridge; the investor in obtaining an adequate financial return; and the investor’s bank in gaining worthwhile loan interest and charges.  In this case it is highly unlikely that a bid can be accepted after offer of a lump sum, since other essential criteria including ‘value for money’ and ‘affordability’ should need to be established and agreed, usually by negotiation, and the outcome is dependent on just how risks are allocated between the government and the private investor (with the investor’s bank taking all possible steps to avoid risks).

Ambiguity is also rife since if the government has identified loan finance for the bridge, as evidenced by the invitation to design and build, then why solicit private funding when such characteristically demands arduous three-way negotiations? and this in face of a declared political investment in completion by next elections.  This could be risk-taking bordering on lunacy.  As another side-note, negotiations in the case of the private finance for the Georgetown parking meters project are an example of how protracted negotiations can become, though this is an extreme case where the city council (read public body) is opting to unilaterally continue negotiations even after contract signing.  Muddle would be further entrenched in the bridge project if there is some plan that funding will be by both government loan and private capital, since in this circumstance conditions of the public financial institution must also be met.

Legislation on public-private partnerships in Guyana is badly needed, to set criteria which a project must meet in order to qualify to be undertaken; to impose on both the public and private partners duties backed up by sanctions; and for the responsible Minister to table the concession agreement in the National Assembly, amongst other things. Suffice it to say that there has been no successful private funding for a public project under this government or the previous one, (Berbice River Bridge, Marriott Hotel, Georgetown City parking) and this is due in no small part to the unregulated and free-style processes embarked upon.

As regards restricted bidding, in the absence of confusion and in the presence of a clear position on the public loan/private capital divide, I would support the approach of a limited final list of selected bidders as aired by MPI, but for entirely different reasons.  With an increasing number of bidders there is a reduced probability of each bidder being successful.  Based on experience, there is irresistible commercial pressure on each bidder to depress bid price in an effort to win; sometimes a winner depresses price to an inadequate level for successful completion and to the point of jeopardising both the bidder and the project.  Indeed in some procurement systems internationally, in recent times there has emerged the concept and the practice of identifying and setting aside the ‘abnormally low bid’, meaning a bid for which that bidder cannot complete the project as specified, for the particular price and time offered.  The process of identifying the abnormally low bid is based on empirical evidence, is not merely subjective, and is a task in itself.  In the absence of the skill and experience of the process in Guyana it may well be wiser to restrict the number of bidders, as a means of reducing risks to the success of a vital project.  It is then important that this restriction is stated clearly at the inquiry stage and that all bidders are treated equally and fairly at all times.  In such circumstances, bidder restriction to three should be considered a minimum number, with an expansion beyond six generally re-introducing the risk of abnormally low bids.

 

Yours faithfully,

Donald Rodney

Former Chief Quantity Surveyor

Guyana Government Service

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