Tendering for Professional Services

Both sides of the coin

Jaco Liebenberg

Stewart Wilson

Introduction, Scope and Background

• Tendering – much debated topic• Why this paper?

– Widely discussed – not studied– Problems to be raised improvement– Implement over short period

• Scope of paper– Only roads and pavement projects– Only SANRAL process studied– Based on surveys – not (extensive) objective studies

• Background– 1998 to 2005: Panel system– 2003: Note 3 of 2003 from Treasury– 2005: Various other best practice guidelines (CIDB)– Late 2005 onwards: SANRAL professional services by tender, 2

envelope system– Since 2006, > 200 professional service projects awarded

Why SANRAL?• Maintain good records – past & present• Tendering process implemented over short

period of time• SANRAL providing significant market share

Background

• Number of procurement systems worldwide– Technical + price component– Require tenderers to demonstrate technical ability– Hurdle requirements

REMEMBER• Provision/maintenance of infrastructure projects

– Require special type of individual, highly skilled professionals– Not readily available service

WHY TENDER??• Panel system not conducive for new entrants• Constitutional imperative• International trend

Introduction into South Africa

• Section 217 constitution– Fair, equitable, transparent, competitive and cost effective

• Acts and regulations– PFMA act 29 of 1999 (Treasury)– PPPFA act 5 of 2000 (Treasury)– CIDB act 38 of 2000 (Dept. of Works)– BBBEE act 53 of 2003 (Dept. of Trade and Industry)

• CIDB publications in 2005– Uniformity of Construction Procurement– Best practice guideline for procurement of professional services

• Panel system (1998 – 2005)– Fees on Government gazette rates– Scope – not defined; defined during project: Worked well– JV’s with smaller companies– Attention to companies previously excluded– Applied over 7 year period – successful but with problems

Introduction into South Africa

• Panel system: Problems– JV up to 4 companies– Additional administrative burden on consultants– Blurred responsibility– Unhappy forced marriages– Perception of exclusivity among consultants

• CIBD direction in 2005: Welcomed by SANRAL• Tender system (2006 onwards)

– Considered number of systems– Develop own system– Forms to be completed – define tenderer’s ability to undertake

project– Technical & managerial ability of candidates– Ability to provide technical support– SANRAL: evenly applied and fair (but not perfect)– Consultants: ??? Different view

• Methodology– Simplified– Projects divided into three categories– Data from 131 projects (2005 to June 2010) analysed– Surveys among industry (68)

• Not included in study– GFIP projects– Concession projects– Construction contracts– Other services (e.g. electronic engineering services, etc)– Routine maintenance

• Only projects in roads and pavement sector• All costs in 2010 ZAR

• Periodic Maintenance: • Low to medium engineering input.• Reseal, Repair & reseal, Asphalt overlays• Little to no additional structural capacity &

improvements• Rehabilitation:

• Medium to high engineering input.• Significant pavement rehabilitation and/or additional

structural capacity & possible geometric improvements• Improvement:

• High engineering input.• Preliminary design, multi disciplinary projects• Intimate client liaison – scope being developed during

design

SANRAL data• 60 Periodic maintenance projects• 44 Rehabilitation projects• 25 Improvement projects

Industry Surveys• Consulting Engineering firms (19)• Consulting Engineering professionals (25)• SANRAL project managers (17)• Contractors (7)

Impact and Effect on Industry

Number of tenders submitted per consultant

2000-2005 2006-2007 2008-20100

10

20

30

40

50

60

70

Non-SANRAL

SANRAL

Ave

rag

e n

um

ber

per

yea

r

≈ 20

≈ 25

≈ 19

≈ 36

≈ 18

Average cost to submit tender

Periodic Main-tenance

Rehabilitation ImprovementR 0

R 10,000

R 20,000

R 30,000

R 40,000

R 50,000

R 60,000

Non-SANRAL

SANRAL

Average man-hours to complete tender

Periodic Maintenance Rehabilitation Improvement0

10

20

30

40

50

60

70

80

90

100

Non-SANRAL

SANRAL

Cost to industry

Cost and time to prepare tenders

Average number of tenderers submitted

EasternRegion

NorthernRegion

Southernregion

Westernregion

Periodic Maintenance

15 17 11 17

Rehabilitation 16 18 14 12

Improvement 12 16 - 13

Average total man-hours per tender

Average total cost per tender

Periodic Maintenance

1 050 R 560 000

Rehabilitation 1 200 R 660 000

Improvement 1 100 R 660 000

To submit tenders• R 20 million per year for industry• 17 man-years per year for industry

Success rate

• Best reported: 1:3• > 40% firms, worse than 1:25• Average success rate 1:15• Average amount spent for each successful tender

– Periodic Maintenance: R 700 000– Rehabilitation: R 850 000– Improvement project: R 1 million

• Joint ventures– < 20% firms reported JV’s add value– > 86% firms prefer to tender alone– Larger firms – little added value with smaller– Positive: Firms can choose own partners

Tendered prices

• Comparative study tendered prices and estimated fees– Based on estimated construction costs– Periodic Maintenance: Fees = 15% of construction costs– Rehabilitation & Improvement: Fees = 18% of construction costs– Based on historical data (1998 – 2006)

• Case study:– R 200 million rehabilitation project – 24 month construction period

Average tendered price as percentage of est. fee

Periodic Maintenance 77 %

Rehabilitation 52 %

Improvement 32 %

Lowest: 8.1% of fee (R 18M at R 1.5M)

Highest: 210 % (R 2.1M at R 4.3M)

Tendered price

• For R 200 million construction valueGovt. gazette Tendered (@ 52%)

Total fee: R 35,5 million R 18.46 million

Detail design fee R 7 million R 1,9 million

11 000 man-hours 2 800 man-hours

28 %

Supervision disbursements R 25 million R 15.61 million

R 1,04 million/month R 651 000/month

Supervision R 3,5 million R 950 000

146 man-hrs/month 39 man-hrs/month

27 %

• Can quality service be provided:1. Fee system: Being overpaid? or

2. Tender system: Grossly discounted?

???

???

Combination??

Delivery: Design and documentation

• Age of Consultant’s Project Managers– No migration towards younger (cheaper) PM’s

• Quality of design reports– 60% of all respondents Poorer– 47% of SANRAL PM’s Poorer

• Quality of Contract documentation & drawings– 60% of all respondents Poorer– 67% of contractors Errors that change interpretation or price

during tender– 67% of contractors Increase in “non-critical” errors

• Are the review processes suffering?• Changes of scope

– 50% not accommodated

2000 – 2005 2006 – 2007 2008 – 201030

35

40

45

50

55

60

65

Periodic Maintenance

Rehabilitation

Improvement

Year

Av

era

ge

ag

e

Delivery: Construction Supervision

• Age of Construction supervision staff– Same professionals remain in system – few new staff– Migration to younger (cheaper) staff not taken place yet

• Time spent by Engineer on site• Time spent by professional support staff on site• Supervision adequate?

– 93% consultants under fee system– 33% consultants under tender system

• 50% less involvement by The Engineer according to contractors

• 67% contractors opinion that more opportunities for disputes or claims under tender system

2000 – 2005 2006 – 2007 2008 – 201030

35

40

45

50

55

60

65

Eng: Periodic MaintenanceEng: RehabilitationEng: ImprovementRE: Periodic MaintenanceRE: RehabilitationRE: ImprovementMT: Periodic MaintenanceMT: RehabilitationMT: Improvement

Year

Av

era

ge

ag

e

Periodic Maintenance Rehabilitation Improvement0

5

10

15

20

25

30

Average hours spent on site by The Engineer

Fee based

Tendered

Ho

urs

/mo

nth

Periodic Main-tenance

Rehabilitation Improvement0

5

10

15

20

25

30

Average hours spent on site by professional support staff

Fee based

Tendered

Ho

urs

/m

on

th Reduction of about 34%Reduction of about 31%

Training and development

• Historically: Projects good opportunity for training– Informal (shadowing)– Formal – secondments to site

• Current mechanisms not practical– Prov. Sums in Contracts (Guidelines on use??)– More flexibility required.

• 67% Consultants reported reduced training• 7 consulting companies staff loss

General

• Turnover and profit– Reduced project profitability and turnover in transport section of

business– 86% consultants reduced company turnover

• Sustainable– 67% consultants system not sustainable in current form

• Abolish?– 63% consultants (no alternative offered)– 0% contractors– 24% SANRAL PM’s– 39% all respondents

• Beneficial for industry?– Consultants 19%– Contractors 66%– SANRAL PM’s 19%– Total 23%

Conclusions & Recommendations

• Not necessarily rosy picture– Industry not yet adopted– Too many players in market?– Negative sentiments towards tendering

• Quality appears to reduce– Checking & reviewing systems suffering? Construction costs??

• Lid on innovation – only provide what was asked and priced.

• Tender process cost effective?– Cost to economy and loss of engineering time– Consider system of prequalification

• Appears to be biased towards larger firms• Inability of new players to enter market (JV’s??)• Schedules of rates

– Scope to be better defined– Guard against shopping basket approach

Conclusions & Recommendations

• Low prices– Inability to provide proper service?– Schedules indicate time utilisation part of adjudication– Benchmarking price?

• Training and succession planning require serious attention– Provided Prov. Sums underutilised– Improve measures in tender to provide the opportunity

• Tendering norm internationally– SANRAL paving the way– Initial system not perfect

• Issues identified – need to be addressed between industry and SANRAL/government within legislative requirements– CESA, SANRAL, ECSA, etc.