Selecting contractors with the right capacity and experience for large value works contracts is critical for implementation and timely completion of the works.
How do you achieve that?
The China’s Fujian Meizhou Bay Navigation Improvement Project offers some lessons of how the Bank team successfully worked with the client in selecting the right contractors through appropriate procurement strategy and due diligence.
The total project cost is US$138 million and the Bank loan is US$50 million. The project seeks to improve the capacity of the main navigation channel in Meizhou Bay and enhance the management capacity of the Meizhou Bay Harbour Administration Bureau.
The project includes improvement of the main navigation channel in Meizhou Bay to a 300,000 DWT (Dead Weight Tonnage) standard, which would allow for unidirectional tide-independent navigation of Q-MAX LNG (Liquefied Natural Gas) ships. It would also allow unidirectional tide-dependent navigation of bulk cargo ships up to 400,000 DWT, and capacity building to enhance management capacity.
The challenges include:
- Large volume of sub-marine work, including sub-marine dredging (17,000,000 m3) and sub-marine blasting and disposal (610,000 m3).
- Normal daily navigation channel operation must be maintained while the dredging and blasting work is conducted.
- The significant aquatic and fishery production activity must not be disrupted by the work.
These challenges made it even more critical to the client how to ensure that contractors with the right experience and construction capacity were selected.
Market analysis, strategy and due diligence
Though implementation of the Bank’s new Procurement Framework won’t launch until July 1, 2016, the Bank team proactively applied several features of the new Framework to select the right contractor. These included focusing on large value contracts, upstream market analysis, developing a procurement strategy and due diligence.
First, the market analysis was conducted to understand the construction capacity of contractors in the market.
Initially, the client proposed to procure all the work in one single contract. Once the survey was done, it became clear that if all the works were to be procured in one single contract, the qualification criteria (the size of similar contracts performed by the bidder in the past, and the volume of sub-marine dredging and blasting) for the bidders would be too harsh. Therefore, there would be few potential bidders to participate. As a result, the works were procured in two contracts in slice-package basis.
The next key step was to apply pre-qualification and conduct due diligence. During pre-qualification, eight firms submitted applications for both contracts, three firms submitted applications for the first contract only, and one firm submitted application for the second contract only.
The Bank team worked jointly with the client and handled the following due diligence issues, such as ineligible military state-owned enterprise, conflict of interest of several subsidiaries of the same parent company, and verification of specific construction experience through site physical inspection.
Following pre-qualification, six firms pre-qualified to submit bids for both contracts and one for the second contract. Among them, two were large European contractors, even though normally no foreign contractors participate in the bidding in civil works contracts in China.
The contracts were awarded in June 2014 with total contract value of US$116 million and site works started two months later. Because the contractors with right capacity and experience were selected, the construction progresses very well. By January 2016, the sub-marine dredging had been completed in the first contract and 80 percent had been completed for the second one.
Sub-marine blasting in both contracts is going on with no disruption to the navigation channel operations or the aquatic and fishery production.
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Lessons from China: selecting the right contractors for large projects.
The Bank’s new Procurement Framework was used for selecting the right contractors.
Choice of right contractors is critical when considering project challenges.
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