Salih. K. KalyoncuCountry Team Leader

Solutions and Innovations in Procurement

June 18, 2019

“WORKS” PROCUREMENT AND CONTRACT PROVISIONS

WORLD BANK’S PROCUREMENT FRAMEWORK

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Procurement Vision & Core Principles

VISION“Procurement in Investment Project Financing supports Borrowers to achieve value for money with integrity in delivering sustainable development”

Procurement Regulations for Borrowers

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August 2018

Procurement Regulations for Borrowers

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CONTENTS:

o Sections I & II: Introduction and General Considerations

o Section III: Governance

o Section IV: PPSD & Procurement Plan

o Section V: Procurement Provisions

o Section VI: Approved selection methods (Goods, works, non-consulting services)

o Section VII Approved selection methods (Consulting services)

o Annexes (15 no.)

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New Procurement Framework

Limited options, very prescriptive

Fraud and Corruption seen as primary challenge

Mixed capacity - clients, suppliers and Bank

Arms-length approach to markets

Primary focus on selection phase

Key focus on results

BEFORE AFTER

Fit for purpose approach as enabler of value for money

Flexible, risk-based decision-making

Early, proactive market engagement

Capacity building

Dynamic risk management, enhanced integrity, fairness and transparency

Increased focus on contract management

One size fits all

Benefits of new Procurement Framework

Modernizes how the Bank engages in procurement and project activities with its partners

Modern01

Introduces choice in the design of procurement processes to ensure fit-for-purpose

Flexible02Ensures that procurement approaches and methods are efficient through being proportional

Efficient03

Allows the market to propose innovative solutions, where appropriateInnovation04

Promotes integrity and enhances good governance Integrity05

Delivers better development results on the groundResults06

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Link to more information

https://www.worldbank.org/procure

Projects after July 1, 2016

World Bank website

TYPICAL TIMELINE FOR WORKS CONTRACT

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Typical project timeline

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Typical project timeline (continued)

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Typical basic mistakes

► Late selection of Consultant / Engineer

► Wrong choice of contract form

► Unclear design responsibilities

► Employer’s excessive interference

► Ineffective management / late decisions

► Onerous interpretation of Contract Conditions

► Lack of co-operative attitude

PROCUREMENT & WORKS CONTRACT

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Essential procurement considerations

Selection method

Market approach

Contract type

Employer

Supervision consultant

Scope of works

Timeline

Budget

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Compilation of the contract documentsBad practice:

Lawyer Designerprepares preparescontract technicaldocuments documents

Employerputs

togetherDocuments

without checking the consistencyof the Documents as a whole

Result: discrepancies remain in the Documents, which later causes additional costs, delay in performance,

variations, Contractor’s claims, debates and a lot of headaches

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Compilation of the contract documentsBest practice:

Contract expert Designerprepares preparescontract technical

documents documentsin cooperation with in cooperation

lawyers and designers with Contract expert

Contract expert compileContract Documents with checkingthe consistency of the Documents as a whole with the supervisionof the Employer

Result: Documents will be consistent, no discrepancies, less headache, Works can be completed within the

Time for Completion without major debates

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Priority of the contract documents (sample WB contract)

(a) the Contract Agreement (if any),(b) the Letter of Acceptance,(c) the Letter of Tender,(d) the Particular Conditions – Part A (Contract Data),(e) the Particular Conditions – Part B (Specific Provisions), (f) the General Conditions ,(g) the Specification,(h) the Drawings, and(i) the Schedules and any other documents forming

part of the Contract.

In case of any discrepancy the higher priority document prevails.In case there is a contradiction within one of the above documents it is the Engineer’s role to issue clarification or instruction

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Essential contract conditions

Performance security

Defaults

Force Majeure

Liquidated damages

Value engineering

Contract change management

Payments

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Essential contract conditions (continued)

Taxes, duties and levies

Price adjustments

Insurance

Copyright and patent indemnity

Applicable law

Settlement of disputes

Fraud and Corruption

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Specific contract conditions for works

Commencement, delays and suspension

Sub-contractors

Retention money

Provisional sum

Daywork

Tests on completion

Employer’s taking over

Defects liability

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Specific contract conditions for works (continued)

Measurement and evaluation

Safety

Staff and labour

“Notice” to correct

HIGHLIGHTS

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Highlights –Contractor’s program

► Contractor shall submit to the Engineer a detailed time programme within 28 days after receiving the notice to commence.The Programme:- detail and comprehensiveness will be the first

demonstration of the Contractor’s ability;- is the basis for monitoring the Contractor’s progress

and planning Employer/Engineer activities and obligations;

- becomes a base reference for the Engineer’sdetermination of Contractor’s claims for extension of Time for Completion arising from alleged disruption or delay.

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Highlights –Contractor’s program (continued)

► The programme shall indicate:- order of execution of the Works, Contractor's

Documents, procurement, off-site manufacture and fabrication, delivery, construction, erection, and testing;

- sequencing of the Works, taking into account the lead time of procedures for obtaining any approvals;

- detail of works performed by Nominated Subcontractors;

- general description of the methods to be adopted; - estimates of Contractor’s Personnel and Equipment;- that the Works will be completed within the Time for

Completion.

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Highlights –Contractor’s program (continued)► Typical Gantt Chart

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Highlights –Breakdowns of lump-sums

► It is advised that the Engineer requires the Contractorto submit a breakdown of lump sums within 28 days after the Commencement Date.

► Unit rates and prices for new or varied works should, wherever possible, be derived from Contract unit rates and prices for similar works.

► Having the Contractor’s breakdowns of Contract rates and prices provides a valuable tool for establishing rates and prices for new or varied works.

HOWEVER “The Engineer may take account of the breakdown when preparing Payment Certificates, but shall not be bound by it.”

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Highlights- Variations

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Highlights –Contractor’s cashflow

► The Cash Flow is a crucial issue for the Tenderers when calculating the Tender Price.

► A negative Cash Flow may have significant price increaseeffect, as the Contractor shall bear high financial risks.

► A positive Cash Flow may have Tender Price reducing effect, thus, desirable also for the Employer.

IMPORTANT: the major source for financing the Works is theEmployer’s payments!Typical mistake: in lack of administrative resources Employerraises monthly payment period to two or three months, resulting Cash Flow problems to the Contractor

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Highlights- Price Adjustment

SAMPLE PRICE ADJUSTMENT CLAUSE

Pn = a + b Ln/ Lo + c Fn/Fo + d Mn/Mo

Base index

Current index Increase

Fixed (a) 100 100 1.00

Labor (monthly salary) $325.00 $355.00 1.09

Fuel (price per liter) $1.50 $2.25 1.50

Construction materials (index) 128 176 1.38

PRICE ADJUSTMENT FACTOR

Fixed Labor (L) Fuel (F) Materials (M)

Weighting (a)

Index increase

Weighting (b)

Index increase

Weighting (c)

Index increase

Weighting (d)

Index increase

Price $50,000 15% 1.00 35% 1.09 20% 1.50 30% 1.38

Increase 0.15 0.38 0.30 0.41

Total adjustment factor (Pn) 1.24

Adjusted price $62,000

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Highlights – Formal amendment of the contract

► Except as may be specifically provided by PCs, the following Contract documents cannot be amended without formal Contract Addenda and Amendments signed by the Parties to the Contract:

- Contract Agreement and Appendix to Tender

- Conditions of Contract

- Specifications

- Employer’s Requirements (design/build contract)

- Unit rates and lump sum prices.

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Highlights – Extension of time

► If completion of the Works is delayed by certain causes outside the Contractor’s control, the Contractor is entitled to extensions of the Time for Completion [S-C 8.4].

► Engineer must, subject to the Contractor’s compliance with claim procedures, determine the amount of such extensions.

► Care must be exercised when assessing and awarding EoT- once awarded, it cannot be withdrawn.

► Unreasonable delay by the Engineer in responding to a claim for an EoT can release the Contractor from his obligation to complete within the Time for Completion.

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Highlights – Suspension, termination

Contractor’s entitlements:- Reducing the rate of work- Suspension of work- Termination of the Contract

(for contractual reason)

Employer’s entitlements:

- Termination of the Contract(for contractual reason)

- Termination for convenience

Both Party is entitled to terminate the Contract, provided the actual conditions enable this termination

There is no opportunity for termination of the Contract by mutual will of the Parties!

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Highlights – Taking over certificate

► The date indicated in the TOC as the date of completion/ Taking-Over for the whole of the Works is the date from which:– responsibility for care & maintenance transfers to the

Employer;– Effectiveness of insurance ceases;– part of the Retention Money is paid to the Contractor;– time begins to run for the Contractor’s submission of a

Statement at Completion.► The date of completion stated in the Certificate is the date from

which the Employer’s entitlement to Delay Damages ends, and the Defects Notification Period starts to run.

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Highlights – Compliance with local law

► Engineer to ascertain at an early stage, with the Employer’s assistance, if there are local laws, regulations or ordinances governing the administration of the Contract and taking‐over the Works on completion.

► Problems might arise where requirements of the applicable law contradict the Contract provisions. 

► If provisions of the Contract and local law are not in conflict, then provisions of both references should be satisfied in tandem.

QUESTIONS

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Questions – Abnormally low bid

Regulations

An Abnormally Low Bid/Proposal is one in which the Bid/Proposal price, in combination with other elements of the Bid/Proposal, appears so low that it raises material concerns with the Borrower as to the capability of the Bidder/Proposer to perform the contract for the offered price.

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Questions – Abnormally low bid (continued)

Guidance Note

Where fewer than five Substantially Responsive Bids have been received, the “absolute” approach identifies an ALB based on a comparison of the evaluated Bid price, and its constituent parts, with the Borrower’s own cost estimate. If the Bid price is 20% or more below the Borrower’s cost estimate when fewer than five Substantially Responsive Bids are received then the Borrower should clarify the Bid price with the Bidder to determine whether the Bid is Abnormally Low.

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Questions – Abnormally low bid (continued)

Guidance Note

The ‘relative’ approach uses a statistical calculation using at least five Substantially Responsive prices. A potential ALB is identified where the low Bid is more than one standard deviation below the average of the Substantially Responsive Bids received.

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Questions – Project Procurement Strategy

The Project Procurement Strategy for Development (PPSD) is a methodology that is used to determine the optimum procurement approach to deliver the right procurement result. The PPSD asks the Contracting Authority to consider, among other things:

The market situation The Operational context Previous experience The risks present

Then from this, determine the right procurement approach that will yield the right type of response from the market.

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Questions – Project Procurement Strategy (Continued)

What does a PPSD contain?

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Questions – Project Procurement Strategy (Continued)

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Questions – Project Procurement Strategy (Continued)

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Questions – Project Procurement Strategy (Continued)

PPSD generates the below outputs:

Procurement plan (the PPSD provides adequate justification for the selection methods in this output)

Wherever needed, the following outputs may also be generated:

Activity procurement strategyProcurement risk management planContact management plan

THANK YOU