Re-evaluation function to provide more value to the organization

Re-evaluation Pakistani Procurement Rules in lightwith Modern Practices and StandardsByHassan Israr (CEM-04), Usman Jilani (CEM-05), Khalid Raza (CEM-04)ConstructionEngineering & ManagementMilitary College of Engineering, National University of Sciences&Technology, PakistanIntroduction:          Inpresent times, a new trend of bringing new innovations in contractadministration has risen. This phenomenon is caused by a long list of failuresin past projects and learning from the prior experiences. The majordisappointments in project performance have been: extensive delays in theplanned schedule, cost overruns, very serious problems in quality, and anincreased number of claims and litigation. A common opinion is that the publicis not getting the best return of their money.

                   Pakistan’spresent procurement policies, Public Procurement Regulatory Authority Act (PPRA)were implemented in the year 2004. Since then, a number of Statutory RegulatoryOrders aimed at refining the laws have been issued, but overall the codes arenot in line with the current modern and pragmatic practices. It has been latelyobserved are the Pakistani laws are lacking details in several aspects and havebeen generic to some degree.          Agrowing component of an organization’s responsibility is its contribution tosustainability. The procurement function has the responsibility to manage risksand opportunities related to sustainability in its supply chain. Theprocurement function is therefore expanding its capabilities to includesustainable procurement. It is an opportunity for the procurement function toprovide more value to the organization through an increase contribution to itssustainability strategy, better management of risks and regulations, improvedassessment of value and performance, better communication between purchasers,suppliers and all stakeholders, and the promotion of breakthrough innovation.          Itis high time that we reevaluate the Pakistani Procurement Codes in light withmodern practices of Global Standards, International Standard Organizations,World Bank Procurement Policies, Asian Development Bank’s Procurement Policies.

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We need to bring changes in the bidding system, incorporate technology, bringin meticulous laws, define proper evaluation criterions and move on fromgeneric laws to specific laws. It is high time that we learn from our mistakesand create a new sustainable procurement process.ResearchMethodVarious researches inprocurement process were studied. The idea was to get hold of the best practicesand incorporate them into the Pakistani system of procurement.

In doing so, thestudies of International Standards Organization, FIDIC Procurement Rules,Studies of Zober et all and Studies of Khalil et all were focused.Results , findings and mitigations focus on the following issues:A.   Multi-ParameterCompetitive BiddingB.

   SustainableProcurementC.   ProcurementObudsmanD.   DevelopingProject StrategyE.   QuantifiedEvaluation Criterion A. Multi-Parameter Competitive BiddingThecompetitive bidding concept is rooted very deeply in the American tradition.

Harp (1988) shows that competitive bidding has been in practice in New Yorkstate since 1847. The principal statutes for highway and bridge contracting inNew York state date back to 1898 legislation, which required competitivebidding.Thebasic idea behind  this concept was thatthe lower bidder  system protected  the public from extravagance,  corruption, and other improper practice by public officials. The original functionof the competitive bidding requirement was to ensure that the public receivedthe full benefit of Amer ica’s free enterprise system by providing publicconstruction at .the lowest price offered by competitive bidding (Cohen 1961;Netherton  1959).

Overthe years, a few modifications to the initial concept occurred. The terms”responsible bidder” and “public interest” have been addedto the statutes that control the authority to let and award public workscontracts. Other modifications created the concept of prequalified bidderlists, and so on. However, the original concept from the 19th century remainsintact. It is very important to understand that not every country around theglobe is using this concept in the public works sector.

Many nations usenon-lower bidder systems.Non-LowerBidder SystemsAfew countries, such as Italy, Portugal, and Peru, are using a system in whichthe successful bidder is not the lowest one. The philosophy behind this conceptis that the best bid is the most reasonable one, not the highest, not thelowest, but the one closest to some average. There are many variations of thisconcept. The Peruvian government bidding system provides an example of one suchvariation (Henriod and Lanteran  1988).

The pro­ cedures are as follows: 1.       When three or more bids have beenreceived:a.           The average of all bids and the base budget willbe calculated.b.           All bids that lie 10% above and below this averagewill be eliminated.c.           The average of the remaining bids and the basebudget will then be calculated.

d.           The contract will be awarded to the bidimmediately below the second average or, should none of the bids lie below thesecond average, to the bid that more closely approximates the average.2.       If fewer than three bids are received,the bidding agency may cancel the process and award the contract to the lowestbidder, or to the only bidder if this were the case.Anothersimilar practice is that of “bracketing,” i.

e., considering onlythose bids that lie within a certain range above and below the engineer’sestimate. In this system, the lowest responsive bid within the range gets theaward.

Countriessuch as France and Portugal (Henriod and Lanteran 1988) try to disqualify whatthey call abnormally low bids. They define abnormal as “any bid whoseprice appears abnormally low and consequently may cause implementation  problems.”ADVANTAGES  AND DISADVANTAGES OF COMPETITIVE BIDDING  CONCEPTThecompetitive bidder system has one major advantage. It assumes that the biddingprocess will be independent from any sort of pressure (political, social,economic). Its objectivity is ensured because price is the sole criteria forevaluating bids. For many participants in the construction industry, thisreason alone makes it all worth the disadvantages related to this practice.However, the disadvantages  are numerous.

  The major one is that the se lection processis based only on one element-cost. Other elements,  such as quality and time, are notaccounted  for. Many other problems haveoccurred during the last 150 years: unreasonably low bids, bid rigging,unqualified contractors, and so on. To compensate for these handicaps, a fewadjustments have been made during the years, such as qualification lists,deleting “abnormal” low bids, etc., but many constructionparticipants agree that these are temporary solutions and a major change isneeded.Thecompetitive bidding system is very deeply rooted in the American freeenterprise tradition. The writers and others are convinced that a total changefrom the lower bidder system would not be feasible in the short range and wouldbe even more difficult to sustain in the long range.

Only a major  modification that would remain in the form ofthe  competitive bidding concept would beaccepted.MULTIPARAMETERBIDDING SYSTEMTheproposed system is based on the idea that the selection process of thecontractor will be based on more parameters than just cost. The successfulbidder will be selected according to the lower combined bidding value. Mostlogically, this number will be represented by a dollar value, but it can berepresented using points, percentages, etc.Themajor parameters will be: Cost, C; time, T; and quality, Q. Secondaryparameters can also be incorporated into the system, such as: Safety, S ;durability, D ; security; S ; maintenance, M ; and a few more.Thenumber of parameters and their related weights will be chosen by the sponsor.

Let us demonstrate this concept with an example. The public agency decides touse four parameters. These parameters and their assigned weights are given inTable 1.Thesuccessful bidder will be the one that has the lowest combined bidding value ofthe four parameters.

Themulti-parameter bidding system remains within the framework of the competitivebidding concept. A few legal experts have stated that as long as theparameters, their system of measurements, and their relativity weights arespecified in the bid documents, this concept complies with the existing legalstatus of the current competitive bidding system.QUANTIFICATION  OF PARAMETERSThequantification of the parameters is the major problem in developing the multi-parameterconcept. There is no clear-cut answer as to which is the best method, and manyvariations can be developed. When additional re­ search has been done, betterand more accurate techniques will be established. The following pages describea few of the options for some of the parameters.

S.No Parameter Weight 1 Cost 70% 2 Time 15% 3 Quality 12% 4 Safety 3%  CostCostrefers to the bid price submitted by the bidder. As in the traditional low bidsystem, cost will be measured in dollars.TimeThewriters have done extensive research related to this parameter (Herbsman 1988)and concluded that there is a very easy, systematic way that can be used. Thetime element can be quantified using a time value. The owner would establishthe value of the time and the contractor would bid a performance time.QualityThisparameter is the most complicated and difficult to quantify.

There are twoapproaches to the subject.PastPerformanceThisapproach takes into consideration past performance  and uses subjective opinions to evaluate theperformance on a scale. The details of the evaluation  process vary  at different  organizations,  but all use the  same concept.MinorParametersInaddition to the major three parameters (cost, time, quality), there may be moreparameters that can be incorporated into the system.

Most of these parameterswould be specific to particular industries, and these agencies would have theresponsibility of figuring the weights and the quantification methods for theseparameters.Suchadditional parameters could include safety (very important in tunnel and damprojects), security (in military projects), and aesthetic quality (shoppingcenters), among others. It must be emphasized that new param­ eters can beadded all the time, and their relative importance can be mea­ sured byadjusting the weightsB.SUSTAINABLE PROCUREMENTTheInternational Standards Organiations Code, ISO-20400, focuses on sustainableprocurement. These procedures cover the following aspects.

•        Organisational Governance: ·                    Decision Making Processes and structures;·                    human rights: due diligence, human rights risksituations, avoidance of complicity, resolving grievances,·                    discrimination and vulnerable groups, civil andpolitical rights, economic, social and cultural rights,·                    fundamental principles and rights at work;•        Labour Practices: ·                    employment and employment relationships,conditions of work and social protection,·                    social dialogue, health and safety at work, humandevelopment and training in the workplace;•        Environment:·                    prevention of pollution, sustainable resource use,climate change mitigation and·                    adaptation, protection of the environment,biodiversity and restoration of natural habitats;•        Fair Operating Practices: ·                    anti-corruption, responsible political involvement,fair competition, promoting·                    sustainability in the value chain, respect forproperty rights;•        Consumer Issues: ·                    fair marketing, factual and unbiased informationand fair contractual practices,·                    protecting consumers’ health and safety, sustainableconsumption, consumer service and support, and·                    complaint and dispute resolution, consumer dataprotection and privacy, access to essential services,·                    education and awareness;•        Community involvement anddevelopment: ·                    community involvement, education and culture,employment·                    creation and skills development, technologydevelopment and access, wealth and income creation,·                    health, social investment However,in Pakistan, we have seen that no heed and importance is paid to these issues.Infact, these issues form a backbone of the entire society and these issues arereflected at various points. C.  ProcurementObudsmanFaultyprocedures can result in disputes. The PPRA rules state that in case of adispute, an Arbitration Committee should be made. However, it has been observedin various cases that (Reference) that public entities refrain from doing so.

This leads to court cases & cumbersome litigation. To avoid overburdeningof courts with lengthy litigations, it is proposed as per Emerging Issues ofProcuremtn that a separate office of Procurement Obudsman should be created. Theprocurement ombudsman would be an experienced individual with specialization inProcurement Policies and Rules. Moreover, the said individual should have ademonstrated experience in this field.

Resultantly, the long cumbersomeprocedures would be resolved expedioutsly and without overburdening the kitty.Moreover, time would be saved.D. DEVELOPING PROJECT STRATEGY  as per FIDIC Laws of ProcurementFIDICrules state that before commencement of a procurement project, the executiveincharge of the process should envison a Project Strategy. This strategy shouldcover  the following aspects:1.

           General2.           Financing3.           Traditionally financed projects4.           Privately financed projects5.           Public-Private Partnerships (PPP’s)6.           Contractor financed projects7.           Contract packaging8.

           Budget planning9.           Contract time programming10.        Cost estimates11.

        Operation and maintenance12.        Design responsibility13.        Role of the employer during implementation14.        Role of the contractor during implementation15.

        Role of the engineer during implementation16.        Risk allocation17.        Contract price18.

        Insurance19.        Prequalification of tenderers20.        Contract price and payment21.        Remeasurement22.

        Lump sum23.        Reimbursement24.        Target price25.

        Decision to proceed Bydoing so, and by creating a Project Strategy, the executive would have abirds-eye-view of the entire process. He would be able to mitigate any problemand foresee any thing that is going to stall his project. Moreover, theproactivity would pay by streamlining the process and avoiding litigation oraudit observations at a later stage. E.QUANTITATIVE EVALUATION CRITERIONPPRArules do not define an evaluation criterion.

In this regard, it is proposedthat in addition to existing rules, the evaluation criterion should be aQuantitative One, as per FIDIC standards. Ithas generally been observed that public entities sometimes favor a certaincontractor or a supplier at expense of others. Strict binary criterion is setto favour one.

To observe the best practices of procurement, it is necessarythat a certain threshold limit should be set, generally 70% and 60% incaseof  extremities. By doing so, a healthycompetition would be ensured.SUMMARY  ANDCONCLUSIONSTheexisting procurement system, which is the competitive bid (or low bidder)system, has created many problems in past years. Many modifications have beenadded to the original concept but the system remains basically unchanged. Thesuccessful bidder is chosen by the lowest, responsible cost. Other factors suchas time, quality, etc.

, have not been taken into consideration.  Many practitioners  believe that  the current  bidding system has caused many failures in the form of delays, low quality, andnumerous other claims. However, an attempt to totally change the currentbidding system could face major resistance from various sectors of theconstruction industry.Thepaper introduced a modified bidding system within the legal and conceptionalframe of the current practice.Inthe modified multi-parameter bidding system, the award would be granted to thetotal combined cost of a few parameters, such as cost, time, and quality.Theweight of each parameter would be decided by the owner, so he can give arelative opinion of the importance of each parameter. Quality can be a 30%value in one bid and 50% in another.

As long as the weights and quantificationmethod are known in advance by each bidder, the proposed system is legally verysound.Moreover,by incorporating globally accepted practices like focusing on environmentalissues, Human rights and safety issues, labour practices, social issues,community involvement and development, a positive change can be brought in.Additionally,the creation of a Procurement Obudsman would not only decrease the burden oncourts but would also result in quick decision making.

Finally,the inclusion of quantified evaluation criterion would result in a healthycompetition and would eliminate corrupt practices. A Good lot of bidders wouldbe participating, resulting in the best price.  Thewriters have analyzed a limited version of the new system, bidding on cost andtime. For the other parameters such as quality, more research must be done onquantification methods. The proposed system has the potential of improvingconstruction performance in Pakistan by giving advanced contractors anincentive to use all of their abilities to give the owner a better product. Itsstrength is the flexibility of the system, while it remains within theframework of the competitive bidding system.References:1.   Cohen, A.

(1961). “Public ConstructionContracts and The Law.” F. W.

Dodge, New York, N.Y.2.   Herbsman, Ellis (1999), Multiparameter BiddingSystem—Innovation In Contract Administration, ASCE, New York, N.Y.3.    ISO20400:2017  Sustainable Procurement4.   Sample Bidding Documents- Procurement Of Work.

(1990). Report, Asian Development Bank.5.   FIDIC Procurement Procedures Guide, 1st Ed, (2011).6.

   Bower, D.  M.  (2013).

 “Innovative Contracting Practice.”  Proc., ASCE Highway Conf., ASCE New York, N.Y.