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Tendering for Professional Services Both sides of the coin Jaco Liebenberg Stewart Wilson.

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Presentation on theme: "Tendering for Professional Services Both sides of the coin Jaco Liebenberg Stewart Wilson."— Presentation transcript:

1 Tendering for Professional Services Both sides of the coin Jaco Liebenberg Stewart Wilson

2 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 Why SANRAL? Maintain good records – past & present Tendering process implemented over short period of time SANRAL providing significant market share

3 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

4 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

5 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

6 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 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 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) Industry Surveys Consulting Engineering firms (19) Consulting Engineering professionals (25) SANRAL project managers (17) Contractors (7) Impact and Effect on Industry

7 Number of tenders submitted per consultant ≈ 20 ≈ 25 ≈ 19 ≈ 36 ≈ 18

8 Average cost to submit tender

9 Average man-hours to complete tender

10 Cost to industry Cost and time to prepare tenders Average number of tenderers submitted Eastern Region Northern Region Southern region Western region Periodic Maintenance Rehabilitation Improvement Average total man- hours per tender Average total cost per tender Periodic Maintenance 1 050R Rehabilitation1 200R Improvement1 100R To submit tenders R 20 million per year for industry 17 man-years per year for industry To submit tenders R 20 million per year for industry 17 man-years per year for industry

11 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 –Rehabilitation: R –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

12 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)

13 Tendered price For R 200 million construction value Govt. gazetteTendered 52%) Total fee:R 35,5 millionR million Detail design feeR 7 millionR 1,9 million man-hours2 800 man-hours 28 % Supervision disbursementsR 25 millionR million R 1,04 million/monthR /month SupervisionR 3,5 millionR man-hrs/month39 man-hrs/month 27 % Can quality service be provided: 1.Fee system: Being overpaid? or 2.Tender system: Grossly discounted? ???

14 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

15 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 Reduction of about 34% Reduction of about 31%

16 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

17 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? –Consultants19% –Contractors66% –SANRAL PM’s19% –Total23%

18 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

19 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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