• You can’t legislate ethical procurement



    I have spent quite some time during my career involved with the carrying out and evaluation of bids through various competitive selection procedures [“CSP”s] for all shapes and sizes of energy and construction related contracts up to values of over $500 million. So, I can give categoric assurance that:

    No method I have seen is foolproof and free of the risk of well justified challenge, and;

    It is exceedingly difficult to avoid subjectivity entering into the process, but in some ways that is necessary.

    To administer a CSP in an entirely objective way is a major challenge; the more so the number of people involved in the process which, contrary to popular belief, frequently introduces more complications.

    There are many ways of “fixing” the outcome to a supposedly competitive bid. The list of bidders can be restricted. The requirements or the scope can easily be designed to only match the capabilities of one of the bidders. Time frames can be set so that only certain of those invited would be able to comply.

    I was invited once to bid in a supposedly open technology bidding, only to find, after having paid for the documentation, that the conditions specifically excluded renewable energy as an acceptable provision because of its intermittent nature!

    Bidders often ask for clarifications of the bid conditions, or time extensions for submission. Any clarifications do of course need to be circulated to all bidders but answers to clarificatory questions can be written to favour one bidder over others. If a requested time extension is not granted then that knocks out a competitor.

    Some of the more professional invitations to bid may include the evaluation criteria but often bid invitations do not and even when they do they can be written such as to reduce real competition. Evaluation itself is subject to all sorts of subjectivity, and to a point needs to be taken as a holistic view in a fair evaluation of the real likelihood of the proposer’s chances of doing whatever is required to be done. We are not necessarily after the lowest price, we want the best overall deal and, believe it or not, the best overall deal is often not necessarily the lowest priced. Conversely acceptance of the lowest price can lead to all sorts of later problems of quality and timeliness. Competitive bidding in developing economies can be an invitation to as well as facilitator of corruption, the very ill that it is aimed to cure.

    An obsession with getting the lowest price (which most bidding in the Philippines seems to single mindedly aim at) will almost always result in capturing the lowest quality. It is interesting these days to note that Chinese produced items—things such as major mechanical and electrical equipment—which earlier captured markets due to their low price but which were basically unbankable, are no longer the cheapest even though the quality and reliability have not significantly improved—the effect of rising wages and other production cost.

    To insist on mandatory competitive bidding in all circumstances without regard to the appropriateness of such a course of action is a recipe for failure and an enormous waste of time and effort. These procedures can take such a long time and if applied inappropriately then take an even longer time to resolve. It’s the same if there is a challenge by one of the bidders over the administration of the process; the issue usually eventually gets stuck in the courts and could be there for years.

    Any competitive selection procedure for a reasonable value piece of procurement will likely take 6 months, if there is a query or a challenge you can add at least another 6 months during which the regulations governing the standards of the work or items may change unraveling the whole thing and taking everything back to square one.

    There is a national paranoia regarding procurement in the Philippines underlined by a constant suspicion that somebody is going to get a deal which either personally disadvantages somebody else or that is going to allow unreasonably fat profits to be made. As usual it has been addressed by introducing a piece of legislation with its implementing rules and regulations, RA9184, and a policy and mindset it reflects. Like so many other aspects of society the introduction of more and more rules and regulations will not by themselves ensure an ethical approach to doing business; they are no surrogates for honest and fair business practice. They are good feedstock for the lawyers trying to work out ways of getting around them in the face of bureaucrats who mindlessly try to enforce them.

    There is nothing intrinsically wrong with negotiating a contract between two parties, particularly if a regulator has the data with which to benchmark the result and the power to query it if necessary. It can be a much faster way to achieve a much better result and to get the overall best deal. Addressing the national paranoia over dishonesty by generating more and more rules and regulations is not the way to quickly progress the Philippines to a more advanced economic status. Better to drop this overriding assumption that everybody is dishonest. Not all are. All pervading suspicion and mistrust do really hamper economic progress.

    Mike can be contacted at mawootton@gmail.com


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    1 Comment

    1. An approach that is currently being done in the water industry in the Philippines by both Manila Water & Maynilad, especially if the funding is from multilateral organizations (eg. WB, ADB, IFC), is to hire an independent consultant who will be involved in the pre-award & procurement phase. In this manner, the potential collusion between the implementing agency, regulator and contractors are drastically reduced because direct communication between these actors (i.e. implementing agency, regulator and contractors) is removed and have to go through the procurement consultant. The procurement consultant have strict adherence to bidding protocols, and selection/evaluation criteria otherwise they are booted out and will never practice any where in the world because of reputational damage. Perhaps the local energy industry can learn from the local water industry if this practice is not yet existent within the local energy industry.