BIMILACI 2007 Best Practice Procurement of Engineering Services Washington, D.C. May , 2007 Gregs Thomopulos, P.E., FACEC Executive Committee Member, FIDIC

Best Practice Procurement Maximizing Benefits to Clients

The Issues General observation that the quality of the constructed project has been deteriorating This observation is confirmed by the MDB’s project managers, executing agencies and international consultants It is also perceived that good international consultants are losing interest in MDB-funded projects Why has the quality of the constructed project deteriorated?

Causes of Deterioration in Quality A major cause is the diminished quality of design Lower quality design results when engineering services are procured as a commodity The procurement of engineering services in which cost is a factor (QCBS) promotes engineering services as commodity services Fewer “top” firms pursuing MDB-financed projects Other factors contribute as well, including: –Corruption –Incompetent contractors –Poor project management –Lack of resources to manage contractors

Selection Guide – Best Practice Principles Consultant selection is highly critical to the success of the entire project; attempts to save a small percentage of the cost of engineering services, perhaps 1% or less of project cost, are not worthwhile, considering the potential risks. Yet, the cost of engineering services receives greater attention and scrutiny than any other components of the project cost.

The Parties to Procurement The purchaser (client or employer) The professional service provider The financier The contractor The public-end users

Informed Purchaser An informed purchaser is an owner who either has the in-house technical expertise or engages outside experts necessary to: –clearly convey project vision –evaluate and select consultants –understand the risks and procedures inherent in project execution –follow through with proper O&M procedures and monitoring of outcomes

Informed Purchaser The informed purchaser will be better equipped to incorporate other Quality-Based Principles at the project development phase, including: –capacity building –sustainability –monitoring of outcomes

Quality – Who Needs It? Owners: Spend public or shareholders’ money wisely Obtain best value (which is not least cost) Have regard to operating and life-cycle costs Have regard to environment and sustainability Encourage innovation Encourage development of viable industry: capacity building Avoid disputes, delays, non-productive costs

FIDIC – Principles of Best Practice Procurement FIDIC Guidelines for Selection Quality Transparency Capacity building Integrity Fair Competition Harmonization Liability Independent monitoring of outcomes

Recommended Criteria for the Selection of the Evaluating Committee Members Professional experience Familiarity with selection and evaluation Objectivity The client decides on the number of members Independence

Business Integrity Management Corruption undermines the achievement of a quality outcome, and the practice of business integrity is crucial to fighting corruption FIDIC recommends that consulting engineers adopt the FIDIC Business Integrity Management System (BIMS), and that owners have regard to this policy during selection FIDIC recommends that MDBs and FIDIC work together to educate borrowers on Best Practice Procurement

Capacity Building Improves the quality outcome of the constructed project Fee competition is detrimental to capacity building As a result of fee competition, local firms are not adequately compensated MDBs may want to examine the need for “set-asides” of projects for local consultants The procurement of engineering services for such “set-asides” should be based on quality principles

Sustainability Sustainability integrates the environmental, economic, and social dimensions of development, and is therefore fundamental to a quality outcome Any pricing formula in the procurement of engineering services generally results in the elimination of sustainability in project execution

Quality-Based Construction Quality principles extend to the tendering and construction phase. Means to incorporate quality principles include: Prequalification of contractors Quality-based construction management procedures Documentation of contractor performance Selection of contractors to include quality elements

Result of Good Quality Outcome Quality in selection produces quality designs Quality designs produce quality projects Quality projects have fewer variation orders during construction Fewer variation orders result in lower construction costs Quality designs and lower construction costs result in lower life-cycle costs Quality in selection is in the owner’s best interest

Next Steps Quality Based Selection (QBS) is the preferred way to select an engineer as the “trusted advisor” to the Client in many developed countries. It should be no different in the less developed countries on projects financed by the MDBs. Major clients in some developed countries have recently migrated from QCBS to QBS (New York City and JBIC/Japan are two examples). MDBs should be doing the same. FIDIC and the MDBs need time for greater collaboration between all parties on how to promote Best Practices Procurement.

Next Steps A re-examination of the impacts of the current procurement method preferred by the MDBs (QCBS) on the diminished quality of the constructed project. The World Bank study is a good first step, but other studies on the impacts of QCBS on a project’s life-cycle cost and variation orders during construction are needed. MDBs and borrowers need to ensure that engineering services are not procured as if they are commodities.

Conclusion The incorporation of quality-based principles in the execution of projects is essential to the achievement of the stated goal: A reversal of the trend of diminished quality outcomes on projects. This reversal can be accomplished by reverting to Best Procurement Principles – Quality Based Selection.

“I told you to use Quality Principles to build this bridge.” Quality

Thank you