Construction bidding system riddled with flaws: CAB

Most contractors have to bid low in the currrent award bid system which compromises quality and standard of work.

The contractors bid low to service bank loan, pay salary to their often job-hopping employees and stay afloat in the market. “It is proven that low bid invites high competition, minimum quality and low performance in any given project, said the General Secretary of Construction Association of Bhutan (CAB),” Wangdi Gyeltshen.

According to the anuual report 2017-18 of Construction Development Board (CDB) there are around 4,125 contractors in the country including around 216 large class, 397 medium and 3,488 small class contractors However, after deregistration, the number of contractors hover around 2,499. CDB has started to deregister the contractors from July 2018.

An official from CDB said that the board has cancelled the licence of contractors for those who failed to renew their licenses for more than 13 months.

He said that if they want to register again, the contractors have to wait for two years as a cooling period.

Wangdi Gyeltshen said that the low bid award system where financial weighting is considered the dominant factor in decision-making during the award of work (financial score represents 90 %)has induced negative impart to the construction industry in terms of professional development and employment growth.

“Further it has affected quality infrastructure delivery in the country,” he said.

He said the aim of low-bid award system which was to bring down the initial cost implications at early stages of construction cycle in design-bid-build contract system does not achieve the purpose simply because all projects have post-construction settlement disputes due to time overrun and cost overrun.“We require a system that would bring down the cost of the project not in bidding stage but in the long term and would lower the Life-Cycle-Cost (LCC) to an extent.”

The current system of bid evaluation does not help quality growth in the construction industry instead it aggravates poor quality infrastructure delivery system.

The price bid offer by bidder in each item rate comprises material, labor, risk and profit component and the government departments often consider the Bhutan Schedule Rate (BSR) estimate as the benchmark for detecting where the bid price is over or underquoted.

The CAB General Secretary said that in fact market price of materials are often high since they are procured from neighbouring countries and labor cost built in the BSR which is Nu 250 per day is very low from the market rate of Nu 500 to Nu 650 per day paid to foreign workers. In fact, the cost of local unskilled worker is more due to low skill and productivity. 

“Major construction loss occurs due to labor cost difference but the government does not entertain labor cost escalation which is genuine,” said the General Secretary.

The Vice President of CAB, also the proprietor of Kabab construction, Ugyen Penjor said that contractors have to bid at lower cost because they have to sustain and pay loans and salary to employees. “BSR is not realistic as it does not take into account ground realities,” he said, citing an example that cement is cheaper in Wangdue than Thimphu but according to BSR it is estimated lower in Thimphu and higher in Wangdue.

He also mentioned that 80% of contractors are not aware of the technical terms related to the construction sector and they depend on government estimation.

An official from the Department of Engineering Services of Ministry of Work and Human Settlements said that BSR is a document which only guides the estimation cost and is not applicable for payment. “BSR is a market rate which we change annually. It includes the major components rates like cement, timber and steel.”

The official also said that they estimate the minimum wage rate on the labor rate. However, there is no realistic labor rate in the market though the labor component matches with the international rates. Most of the contractors do not visit the site before the bid is awarded to get the actual cost. “And most of the contractors do not use credit line facilities. Some contactors even bid 25% to 30% lowerthan the BSR,” the official said.

Meanwhile, in 2018, 36 construction cases were registered with the Alternative Dispute Resolution Center. The arbitral tribunal rendered four arbitral awards and one adjudicated dispute which came as an appeal to the center was rejected as per the High Court judgment.

The officiating legal chief of Alternative Dispute Resolution Center, Migmar Lham, said that the dispute amount involved between the government and the contractors was Nu 24.7mn. The arbitral tribunal rendered four awards this year and government was directed to pay Nu 24.7mn to the contractor. “We felt that now it is high time that the arbitral tribunal should come up with the award for an individual official/contractor involved and held accountable for their lapses since a lot of public money has been lost because of this,” said Migmar Lhamo.

The official from CDB mentioned that currently there is no proper legal framework put in place to monitor the quality of construction work. “CDB is a procuring agent that monitors the quality of the work and we monitor the quality as a third party if required.”

According to the CDB annual report, in the financial year 2017-18, 17 construction disputed cases were facilitated for Nu 281.5mn for deviation, additional works, deduction, interest payment, termination, price adjustment and time extension.

In the financial year 2017-18, a total of 83 contractors were awarded to large contractors, 254 awarded to medium and 928 were awarded to small contractors.

The Ministry of Finance responsible for the construction bidding system refused to comment on the issue.

Dechen Dolkar from Thimphu