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Tanzania Roads Fund Board

Monitoring Road Works
Contracts and Unit Costs
in Sub-Saharan Africa
for Enhanced Governance
Cesar Queiroz
Consultant, former World Bank
Highways Adviser
Dar es Salaam, Tanzania
July 2, 2012

Construction and Maintenance Unit Costs Workshop

OUTLINE
 Building a new dataset of road works contracts of
Bank-financed projects in Sub-Saharan Africa
 Analyzing trends and key indicators
 Examining “red flags”
 Explaining what drives road construction costs:
issues addressed by project implementing
agencies
 Enhancing accountability and attaining a higher
degree of control of corruption in World Bank-
financed projects in the road sector
 Conclusions
02/21/17 2

A SPECIALIZED DATABASE
 109 completed and on-  For 13 countries in Sub-
going road and bridge Saharan Africa:
works contracts  Congo
 76 supervision  Democratic Republic of
consultancy contracts for Congo
relevant road works  Ethiopia
 Signed between 1999 and  Ghana
2007  Kenya
 From 22 projects financed  Malawi
by the World Bank  Mauritania
 Range of works contracts:  Mozambique
From US$595,518 to  Madagascar
US$58,436,429  Nigeria
 Tanzania
 Uganda
02/21/17  Zambia 3

DATABASE: SET OF COST
INDICATORS
 Road Works Costs  Road Works Unit Costs
for 7-m wide, 2-lane road equivalent in 2007 US$
in 2007 US$/km

Rehabilitation/ Inter- Engineer’s Asphalt Concrete ($/m3)
Reconstruction Urban Estimate Portland Cement Concrete ($/m3)
Base: Gravel, Crushed stone,
Upgrade to Bituminous ($/m3)
Paved Urban Contract Subbase: Gravel, Crushed Stone ($/m3)
Price Earthworks: Soft, Hard ($/m3)
Periodic Surface treatment: Single, Double
Maintenance Actual ($/m2)
Rural
Access Cost
Regravel

02/21/17 4

 Number of firms buying qualification bidding documents  Number of pre-qualified firms  Number of bidders  Number of firms buying  Number of bidders accepted bidding documents for detailed examination  Number of bidders  Number of bidders accepted for detailed examination Bid Amounts  Name and Nationalities of All Bidders 02/21/17 5 . DATABASE: SET OF BIDDING INDICATORS  Contracts with Pre.  Contracts without Pre- qualification qualification  Number of applicants for pre.

DATABASE: SET OF OTHER INDICATORS DATES  Bid Opening Date  Contract Signing Date  Contract Completion Date  Delays in Completion of Work SUPERVISION CONSULTANCY  Names and Nationalities of Supervision Consultants  Supervision Contract Amount  Actual Supervision Contract Amount 02/21/17 6 .

in particular Chinese 02/21/17 7 . KEY STATISTICAL TRENDS  The road sector contracting Percentage of Contracts by Geographical Group of Bank-financed operations is characterized by a limited number of firms dominating large-scale works  The market is split between African firms and mainly Chinese and European Share of Contract Totals by Geographical Group contractors  The largest contracts are generally awarded to international contractors.

KEY TRENDS: BIDDING PATTERN CONTRACTS WITH PRE-QUALIFICATION  About half of the pre-qualified firms do not bid  The overall number of pre-qualified firms to bid for large works seems competitive (more than 6 firms on average). and Bidders Accepted for Detailed Examination 02/21/17 8 . the actual participation in tenders is quite low Average Number of Pre-qualified Firms. Bidders. However.

and Malawi Average Number of Firms Buying Bidding Documents. and Bidders Accepted for Detailed Examination. Madagascar. Zambia. KEY TRENDS: BIDDING PATTERN CONTRACTS WITHOUT PRE-QUALIFICATION  Half or more firms buying bidding documents do not bid in the reviewed contracts in Mozambique. by Country 02/21/17 9 . Bidders. DRC.

KEY TRENDS: BIDDING PATTERN CONTRACT VALUE AND ENGINEER’S ESTIMATE  Several road works contract values exceed the engineer’s estimate by more than 30 percent Difference between Contract Values and Engineer’s Estimates. Averages and Ranges 02/21/17 10 .

Congo. and Madagascar have the contracts awarded within the original period of validity of bids (90 or 120 days in the sample) 02/21/17 11 .KEY TRENDS: BIDDING PATTERN BID OPENING AND CONTRACT SIGNING DATES  Extensions of the original bid validity period seem to be a norm  Only the DRC.

Averages and Ranges by Country 02/21/17 12 . KEY TRENDS: IMPLEMENTATION COST OVERRUNS  Contract cost increase during implementation is substantially high in some of the countries in the sample Cost Overruns.

KEY TRENDS: IMPLEMENTATION COST OVERRUNS (cont’d)  Cost overruns vary across the countries. The highest number of contracts with cost overruns is in Nigeria where almost 43 percent of all the reviewed contracts increased their value by more than 15 percent. Mozambique and Ghana had cost overruns in 30 percent of the contracts in the sample Percentage of Contracts with Cost Overruns of more than 15% by Country 02/21/17 13 .

KEY TRENDS: IMPLEMENTATION TIME OVERRUNS  The delays in completion of work reaches up to a year and half Average Delay in Completion of Work in Months. by Country 02/21/17 14 .

2-LANE ROAD 02/21/17 15 . KEY TRENDS: ROAD WORKS COST PER KM OF A 7-M WIDE.

2-LANE INTER-URBAN ROAD  A wider range of the average costs per km is observed for the re-gravel and periodic maintenance works. the range is relatively narrower for the upgrade to paved and rehabilitation/reconstruction works Cost per km of a 2-Lane Road by Type of Work for Inter-Urban Roads (2007 US$/km) 02/21/17 16 . KEY TRENDS: ROAD WORKS COST PER KM OF A 7-M WIDE.

KEY TRENDS: UNIT COSTS ASPHALT CONCRETE AND PORTLAND CEMENT CONCRETE (2007 US$/M3)  Large variations are observed in the unit costs of road works across the countries in the sample 02/21/17 17 .

1 Malawi 9.5 20.2 Madagascar 9.8 Tanzania 12.1 Zambia 12.0 28.5 Ghana 6.1 51.0 32.5 02/21/17 18 .0 Malawi 7.3 Nigeria 8.4 Mozambique 7.5 Ethiopia 13. KEY TRENDS: UNIT COSTS BASE AND SUBBASE (2007 US$/M3) Gravel Base Crushed Stone Base (US$/m3) (US$/m3) Congo 67.3 25.2 Kenya 9.7 Uganda 10.9 Zambia 11.5 Congo (DRC) 54.3 39.1 62.0 Madagascar 12.7 Mozambique 7.2 31.6 Ethiopia 9.2 Gravel Subbase Crushed Stone (US$/m3) Subbase (US$/m3) Congo (DRC) 23.9 Uganda 8.4 Tanzania 36.1 Ghana 6.

5 Uganda 5.5 02/21/17 19 .8 21.9 3.3 Zambia 5.8 Mozambique 3.9 1. KEY TRENDS: UNIT COSTS EARTHWORKS AND SURFACE TREATMENT (2007 US$) Soft Earthworks Hard Earthworks (US$/m3) (US$/m3) Congo 4.3 Tanzania 3.3 48.7 3.3 Nigeria 5.4 Ethiopia 3.2 2.0 Kenya 7.1 1.8 Madagascar 5.7 Mauritania 3.7 Madagascar 4.6 Congo (DRC) 5.8 Malawi 3.4 Tanzania 3.5 Mozambique 5.0 Malawi 9.9 12.3 Double Surface Single Surface Treatment Treatment (US$/m2) (US$/m2) Congo (DRC) 5.3 Uganda 5.7 Ghana 3.5 Ethiopia 3.1 26.7 15.

KEY STATISTICAL TRENDS BY GEOGRAPHICAL GROUP OF CONTRACTORS  The African firms outperform the Chinese and European contractors in several indicators related to the procurement process but underperform in the implementation Statistical Averages by Geographical Groups 02/21/17 20 .

KEY TRENDS BY GEOGRAPHICAL GROUP OF CONTRACTORS: COST PER KM  The African firms have a cost advantage over the Chinese and European firms in the sample. when implementing rehabilitation or reconstruction works or upgrading a road to pavement standards Cost per km of a 2-Lane Road Equivalent by Geographical Group and Type of Work (2007 US$) 02/21/17 21 .

LEADING ROAD WORKS CONTRACTORS  A Chinese contractor carried out about 19% of Bank-financed road works in the sample (in financial terms)  The total value of road works contracts in the sample is about US$ 1.485 11.60% 7 SBI Holdings International Netherlands 179.292. 02/21/17 22 . China 279.563.20% 6 Corp.543.958.60% 8 China Henan International China 93.00% 6 Sinohydro Corporation China 174.361 18.706 12.637 6.5 billion  Leading Contractors by Awarded Contract Totals Total Amount of Share of Contract Number of Contracts Signed Values to Sample road works Name of Contractor Nationality (2007 US$) Total contracts China Road & Bridge Corp.

SUPERVISION CONSULTANCY CONTRACTS: RATIOS  The supervision contract amounts vary between 3% and13% of the respective road works contract amounts in the countries reviewed R a ti o o f S u p e rv i s i o n C o n tra c t to R o a d W o rk s Ratio of Supervision Contract Amounts to Road Works Contract Amounts 14% 12% C o n tra c t (% ) 10% 8% 6% 4% 2% 0% 02/21/17 23 .

024 Uganda Upgrade to Paved Inter-urban 22.063 Rehabilitation and Reconstruction Inter-urban 15. SUPERVISION CONSULTANCY CONTRACTS: COST PER KM  There is a wide range between the average costs of supervision per kilometer of similar road works across the countries Type of Work Type of Road Cost per Average Cost of Supervision per km of a 2-Lane Road by Country (2007 US$) km(US$/km) Congo Re-gravel Inter-urban 7.458 Nigeria Rehabilitation and Reconstruction Urban 38.076 02/21/17 24 .006 Inter-urban 16.701 Mozambique Periodic Maintenance Inter-urban 7.153 Malawi Upgrade to Paved Rural Access 2.422 Kenya Rehabilitation and Reconstruction Inter-urban 28.255 Rehabilitation and Reconstruction Inter-urban 9.741 Ethiopia Upgrade to Paved Inter-urban 18.456 Ghana Rehabilitation and Reconstruction Inter-urban 15.076 Tanzania Upgrade to Paved Inter-urban 14.820 Congo (DRC) Re-gravel Inter-urban 1.

SELECTION OF ‘RED FLAGS”  The following is a set of “red flags” that was selected under the study:  Period between bid opening and contract signing is more than 7 months  Cost increases by more than 20% during implementation  Time overrun is more than 30% of the originally contracted period  Contract value is more than 20% above the Engineer’s Estimate  Half or more firms buying bidding documents do not bid  20% or more of pre-qualified firms do not bid  Difference between winning bid and next lowest bid is within 2%  Difference between contract price and read-out bid price is more than 10%  Winning bid is not the lowest bid accepted for detailed examination  Only one or two bidders  Cost per km for similar works and unit road works costs are higher than the 75% percentile 02/21/17 25 .

EXAMINATION OF ‘RED FLAGS”  An inventory of risks was performed for each road works contract using a checklist of “red flags”  The presence of “red flags” does not prove that corrupt or fraudulent practices have taken place in the procurement and implementation of a contract  A red flag is rather a warning signal of a potential procurement and implementation problem that may justify further investigation  Conversely. the absence of “red flags” does not imply that fraud or corruption did not occur 02/21/17 26 .

“RED FLAGS”: FREQUENCY IN THE SAMPLE OF 109 CONTRACTS 30 25 20 15 10 5 0 More than 7 month period from bid opening to contract signing Delay in completion more than 30% of the contract duration period 20% or more of prequalified firms fail to bid Contract value more than 20% higher than estimate Half or more firms buying bidding documents don’t bid Winning bid not the lowest bid accepted for detailed examination Difference between contract price and read-out bid price is >10% Cost/km by type of work is higher than the 75th percentile Variation order>20% Less than 3 bidders Difference between winning bid and next lowest bid is within 2% 02/21/17 27 .

“RED FLAGS”: FREQUENCY BY COUNTRY 02/21/17 28 .

“RED FLAGS” NORMALIZED BY NUMBER OF CONTRACTS IN EACH COUNTRY 02/21/17 29 .

“RED FLAGS” NORMALIZED BY NUMBER OF CONTRACTS IN EACH COUNTRY AND WBI CONTROL OF CORRUPTION INDEX 02/21/17 30 .

paying bribes. “RED FLAGS”: IN THE CONTRACTS WITH COMPLAINTS RECEIVED BY INT  The Department of Institutional Integrity (INT) received complaints on 14 contracts from the sample of 109 road works contracts (13% of total)  The nature of complaints was mainly related to allegations of bidder collusion or bid rigging. and bidding irregularities  The pattern of “red flags” in the contracts with complaints received by INT slightly differs from the overall pattern observed across all the contracts in the sample 02/21/17 31 .

“RED FLAGS”: PATTERN IN THE CONTRACTS WITH COMPLAINTS RECEIVED BY INT 70% 60% 50% 40% 30% 20% 10% 0% 20% or more of prequalified firms fail to bid More than 7 month period from bid opening to contract signing Cost per km by type of work/type of road higher than the 75th percentile Contract Value more than 20% higher than the estimate Winning bid not the lowest bid accepted for detailed examination Delay in completion more than 30% of the contract duration period Less than 3 bidders Variation order more than 20% Half or more of firms buying bidding documents fail to bid 02/21/17 Difference Governance and Anti-Corruption between winning in Transport bid and next lowest bid is within 2% 32 Difference between contract price and read-out bid price is within 10% .

“RED FLAGS”: ROAD WORKS UNIT COSTS Frequency of “Red Flags” for Unit Costs in the Contracts with Complaints Received by INT in Comparison with other Contracts in the Sample 02/21/17 33 .

and equipment on major cost items of contracts  A fixed price contract that is not subject to price adjustment  Supply and demand effect  Potential collusion by bidders  Inadequate prediction of major market forces by the engineer’s estimate  Perception of risks incorporated by bidders in their bid prices (e.g. power. provisions of extended contract procurement cycle time associated with price inflation risks)  Other factors (e...g.SELECTED ISSUES AS ADDRESSED BY PROJECT IMPLEMENTING AGENCIES  Reasons for high bids:  The effect of increase in prices of fuel. a delayed delivery of goods due to congestion and transport problems. materials. political instability and insecurity) 02/21/17 34 . the high cost of input taxes.

OTHER SELECTED ISSUES  Reasons for low response to invitation to bid:  Increased demand for contractors’ services  Insecure areas in a post-conflict country (DRC)  Reasons for cost overruns  Global trend of rising oil prices  Labor cost increase and impact of other regulatory measures (taxation)  Unsatisfactory contractor performance  Time lag between design and contract execution dates  Time extensions 02/21/17 35 .

RECOMMENDED ACTIONS  The following is a set of selected recommendations geared to enhance accountability and attain a higher degree of control of corruption in Bank-financed projects in the road sector in Sub-Saharan Africa:  Consider establishing a tighter timeframe for contract signing.  Allow using a selection procedure of post-qualification in bidding for large works instead of pre-qualification. A delayed bid evaluation process provides opportunities for corrupt practices and back-door negotiations. other firms may choose not to bid due to a potential collusion of well-connected companies. Knowledge of other pre- qualified firms carries a potential risk of collusion. A stricter adherence to the Bank’s procurement guidelines should be observed that provide for an extension of bid validity “if justified by exceptional circumstances” (Procurement Guidelines). Also. 02/21/17 36 .

02/21/17 37 . It is important to generate the data to increase accountability.  Strengthen the monitoring over the procurement and implementation processes to enhance detection of the risks to integrity. Tracking of information on contractors and consultants in the road industry in the region could mitigate risks of misjudging on qualifications of firms as well as ensure due diligence on poor performers. The rankings of major contractors and consultants could identify strong performers who could be encouraged to bid or hired through direct contracting in case of emergencies. RECOMMENDED ACTIONS  Create a system to monitor and assess contractors’ and consultants’ performance.

02/21/17 38 .  Capturing costs and unit price information of road works is important for evaluation of the trends across countries and regions. CONCLUSIONS  It is critical to continue collecting data on the procurement and implementation processes of the road sector contracts to allow comparison of cost trends. Empirical evidence could be built on such indicators as price increases relative to the engineer’s estimates. and performance in the road sector. and contractor’s information to help improve governance. and key roads input costs to investigate the sources of increased costs and possible factors behind the increase in bid prices. bidding data. A standard framework (including a template) has been developed within this study to provide the platform for monitoring and evaluation of prices. cost increases. bidding competition.

Verifying the extent of competition in the bidding environment is an important tool for procurement decisions. Detailed bidding data could facilitate measuring if the procurement process is affected by collusion and bid rigging through detection of patterns and “red flags” in the structure of bids and firms. It is important to link the performance measures to contractors and consultants as well as project implementing agencies for accountability. CONCLUSIONS  Assessing bidding behavior is essential for measuring the level of competition and road works activity financed by the Bank.  Measuring performance more consistently would help to address inefficiencies that arise in the current procurement and implementation practices. This would ensure that irregularities are properly captured in the observed trends in a specific country or area. 02/21/17 39 .

Thank you! 02/21/17 40 .

2008.” World Bank Transport Paper No.hr/cetra/ocs/index. 2011.php/cetra/cetra2012 02/21/17 41 . 7-9 May 2012. http://www.org/9XN7FBUCD0  “Prediction model for the cost of road rehabilitation and reconstruction works. TP-33. http://go. References  “Monitoring Road Works Contracts and Unit Costs for Enhanced Governance in Sub-Saharan Africa.” World Bank Transport Paper No.worldbank.org/INTTRANSPORT/Resources/ 336291-1227561426235/5611053-1229359963828/tp_21. Croatia.pdf  “Monitoring Road Works Contracts and Unit Costs for Enhanced Governance in Europe and Central Asia.” 2nd International Conference on Road and Rail Infrastructure. http://siteresources. Dubrovnik. TP-21.worldbank.grad.

7-9 May 2012 http://www. Dubrovnik.hr/cetra/ocs/index.php/cetra/cetra2012 . Attachment An example of a regression model to predict the cost of road works Source: “Prediction model for the cost of road rehabilitation and reconstruction works. Croatia.” 2nd International Conference on Road and Rail Infrastructure.grad.

a constant . Example of a regression model to predict the cost of road rehabilitation and reconstruction Ye  o   i1 i Xi   p Y . and 0 .the number of independent variables ε .the residual error i .regression coefficients.the dependent variable Xi .independent variables p .

Methodology • Data sample covered 94 completed or on-going road works contracts in Europe and Central Asia • The correlation between independent variables was tested • Four diagnostic methods were used for testing the dataset for outliers: • Analyses of the (square) residuals • Standardized residuals • Cook’s distance • Leverage matrix • A backward analysis was used based on the removal of the variable with the highest p-value .

Resulting regression models *p-value < 0.05. ***p-value < 0. **p-value < 0.1 .01.

Comparison of predicted and actual cost per km .

803 0.506 30. Resulting regression models Statistics Model 1 Model 2 R2 0.807 Standard error of 0.2782 0.258 Sample size 43 .831 0.835 Adjusted R2 0.2753 the estimate F value 29.

Cesar Queiroz Road and Transport Infrastructure Consultant Former World Bank Highways Adviser Tel +1 301 755 7591 queiroz. DC.cesar@gmail.com Washington. USA .