Examining Tendering Processes for Professional Services in South Africa's Road Sector

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

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. Impact and Effect on Industry • 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)

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

8. Average cost to submit tender

9. Average man-hours to complete tender

10. Cost and time to prepare tenders Cost to 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 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

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 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. 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: • Fee system: Being overpaid? or • Tender system: Grossly discounted? ??? ??? Combination??

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 31% Reduction of about 34%

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? • Consultants 19% • Contractors 66% • SANRAL PM’s 19% • Total 23%

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.