tendering for professional services both sides of the coin jaco liebenberg stewart wilson
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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.
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