Procurement Issues and Lessons from

Implementation of Large and Complex

Projects in MDB financed Contracts

DEVESH C. MISHRA/ ASCI, HYDERABAD / FEBRUARY 18, 2015

Nature of Large and Complex Projects
 Key driver of growth in an economy- examples: road, port, power, Information and
Communication Technology (ICT), water supply and sanitation
 Politically sensitive
 Prone to delays in preparation and implementation
 Integrity and transparency issues
 Readiness on the part of government to spend
 Low disbursement impacts MDB’s ability to raise funds
 Environmental and social impact
 How these issues are linked to procurement in MDB-financed projects ?
 Ten Major Issues

 Lack of project readiness- low disbursement

 Building Capacity of Implementing Agencies upfront

 Unrealistic cost estimates and unrealistic implementation

schedule

 Qualification of local contractors and their bid capacity

 Abnormally Low Bid Prices- inability to reject bids

 Ten Major Issues

 Interference by senior levels in government in procurement

process
 Jurisdiction of multiple control agencies and lack of decision
making by project authorities
 Delay in Effectiveness of Contracts and misuse of advance
payment
 Absence of Contract Progress Monitoring Tool just after
award
 “Ghost” contractors being supervised by “ghost” consultants
 Why such issues emerge repeatedly ?

“ Development professionals are themselves subject to biases and mistakes that can
arise from thinking automatically, thinking socially, and using mental models. They
need to be aware of these biases, and organizations should implement procedures
to mitigate them”
Extracts from the chapter on overview- Human Decision Making and Development Policy – WORLD DEVELOPMENT
REPORT ( WDR 2015) on Mind, Society, and Behavior.

Points to explore: (i) Process of preparation of Project Appraisal Document, contract

size and Procurement Plan; (ii) Process of preparation of technical specification; (iii)
Process of preparation and review of bidding document: (iv) Process of review of
evaluation report and complaint; and (v) Process of contract implementation.
Fundamental Concepts for Procurement Decision Making

 Lump-Sum/ Design-build vs Bill of Quantities (BOQ) Contract

 Performance- based Specification vs Detailed Specification
 Concept of substantially responsive bid
 Life-Cycle Costing Principles in Plant Design Supply Installation
 Conflict of Interest
 Misprocurement
 Debarment
 Substitution of key staff
 Cancellation of contract and rebidding
 7
DESIGN SUPPLY AND INSTALLATION CONTRACTS—KEY CONCEPTS

Plant “SINGLE RESPONSIBILITY CONTRACT” Important Paragraphs from

“Red” Guidelines (January 2011) Revised July 2014
Para. 2.4 -“In certain cases, in particular for large industrial and power
plants and facilities, the Bank may accept or require a single responsibility
contract in which discrete items of equipment and works are grouped into
a contract package. A single responsibility contract may be a turnkey
contract in which one entity assumes total responsibility to provide an
industrial plant or facility fully-equipped and ready for operation (at the
"turn of the key) “
 DESIGN SUPPLY AND INSTALLATION CONTRACTS— 8
KEY CONCEPTS

 EMPLOYER ESSENTIALLY REMAINS RESPONSIBLE FOR HIS DESIGN AND

ENGINEERING PROVIDED FOR THE CONTRACT

 EMPLOYER PROVIDES TECHNICAL SPECIFICATIONS AND DRAWINGS AS

HE THINKS ARE ESSENTIAL FOR TECHNICAL AND PERFORMANCE
CHARACTERISTICS AND REQUIREMENTS

 CONTRACTOR TAKES RESPONSIBILITY FOR DESIGN, ENGINEERING,

MANUFACTURE, INSTALLATION, CONSTRUCTION AND EACH ACTIVITY AS
OFFERED BY HIM AND ACCEPTED IN THE CONTRACT THAT ARE REQUIRED
TO COMPLETE THE FACILITY FOR THE PURPOSE INTENDED
 9
PDSI- “SINGLE RESPONSIBILITY CONTRACT”
 SINGLE RESPONSIBILITY CONTRACTS INCLUDE VARIOUS PLANTS,
EQUIPMENT, MACHINERY, MATERIALS OR PARTS THEREOF, AND
INCLUDE ALL PROCUREMENT ACTIVITIES, THE SUPPLY AND
ASSEMBLY AND/OR INSTALLATION OF EQUIPMENT, THE
CONSTRUCTION OF A COMPLETE FACILITY OR SPECIALIZED
WORKS TO BE INCORPORATED IN THE FACILITY

 SUCH CONTRACTS COULD BE A “SUPPLY AND INSTALLATION

CONTRACT” OR A “DESIGN, SUPPLY AND INSTALLATION
CONTRACT”; OR

 TURN KEY CONTRACT

 PDSI-Key Differences from Procurement of Goods and
Works 10
Goods Works Plant Design Supply and Install

SINGLE STAGE BIDDING SINGLE STAGE BIDDING SINGLE AND TWO-STAGE

BIDDING
CONTRACT FOR SPECIFIC CONTRACT FOR ESTIMATED CONTRACT FOR Completion of
QUANTITY OF EACH ITEM QUANTITY OF EACH ITEM facilities as described in
Employer’s Requirement

CONTRACT DOES NOT PROVIDE CONTRACT PROVIDES FOR CONTRACT PROVIDES FOR
FOR VARIATIONS IN QUANTITY VARIATION IN QUANTITY WHICH CHANGES IN FACILITIES
IS COMMON (VARIATION
ORDER)

BID EVALUATION EXCLUDING BID EVALUATION INCLUSIVE OF BID EVALUATION EXCLUDES

TAXES AND DUTIES ALL TAXES AND DUTIES TAXES AND DUTIES FOR SUPPLY
ITEMS BUT INCLUDES FOR OTHER
SERVICES
 PDSI-Key Differences from Procurement of Goods and Works
11
Goods Works Plant Design Supply and Install

TYPE OF CONTRACT – ADMEASUREMENT TYPE OF MIX OF PROVISIONS OF BOTH

CONTRACT FOR SALE CONTRACT GOODS AND WORKS

PRICE ADJUSTMENT CLAUSE PRICE ADJUSTMENT CLAUSE PRICE ADJUSTMENT CLAUSE

EXCLUDES PAYMENT OF APPLIES FOR TOTAL VALUE OF EXCLUDES ADVANCE PAYMENTS
ADVANCE CONTRACT

COMMISSIONING IS NOT COMMISSIONING IS NOT COMMISSIONING REQUIRED

APPLICABLE APPLICABLE
BORROWERS MAY APPLY ELIGIBLE COUNTRIES MAY DOMESTIC PREFERENCE IS
DOMESTIC PREFERENCE IN APPLY DOMESTIC PREFERENCE ALLOWED ONLY FOR LOCALLY
ICB IN ICB MANUFAC. EQUIPMENT( 15% of
CIP)
When to Use Plant Design Supply and Install ( PDSI)

 WHEN VALUE OF PLANT AND EQUIPMENT REPRESENTS MAJOR

PROPORTION OF CONTRACT AMOUNT; AND

 WHEN FACILITY CANNOT BE TAKEN OVER SAFELY WITHOUT TESTING,

COMMISSIONING AND OTHER ELABORATE PROCEDURES BEFORE
ACCEPTANCE

 EXAMPLES: DESIGN, SUPPLY AND INSTALLATION OF TURBINES,

GENERATORS, BOILERS, SWITCHYARDS, PUMPING STATIONS,
TELECOMMUNICATIONS, PROCESS AND TREATMENT PLANTS UNDER
POWER, WATER, SEWERAGE, TELECOM AND SIMILAR PROJECTS TO BE
PROVIDED UNDER SINGLE RESPONSIBILITY CONTRACT
 Analysis of Issues through Case Examples
 Large Works- Procurement issues at project preparation that impacts
implementation - A case from road sector
 Large Works- Road Project- Disagreement on Bid Evaluation
 Large Works- Issue of Arithmetical Correction in Bid Evaluation
 Design Supply Install (DSI)- Urban Transport Project- Two Stage Bidding
 DSI including O&M- Implementation of a Combined Cycle Power Plant
 The Story of a Bridge- Contract Implementation Issue
 Procurement of Goods/Plant and Equipment- Compliance with contract
terms at the time of bidding- A Paper presented by World Bank at
International Bar Association (Prague, 2005)
Reference Material and Resources
1. Procurement Guidelines of the World Bank ( January 2011, Revised July 2014)
2. Standard Bidding Document for Procurement of Plant Design, Supply, and
Installation, The World Bank ( April 2008, revised August 2010)
3. Standard Bidding Document on Procurement of Works, The World Bank ( March
2012)
4. World Development Report ( WDR 2015): Mind, Society, and Behavior
5. International Bar Association Conference ( Prague, September 2005)- A paper on
Public Procurement contract for supply of Goods by Francoise Bentchikou
6. Six Case Examples
7. World Bank’s External website: www.worldbank.org/procure

Contact: deveshcmishra@gmail.com Many Thanks For Your Attention