07/09/2005 1

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FIDIC Annual ConferenceQuality Procurement Workshop

Beijing, ChinaSeptember 7, 2005

BEST PRACTICE PROCUREMENTOF ENGINEERING SERVICES

Gregs G. Thomopulos, P.E., FACECExecutive Committee Member

FIDIC

FIDIC

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To promote the business interests of members providing technology-based intellectual services for the built and natural environment, and while so doing, accept and uphold our responsibilities to society.

FIDIC’s Mission:

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Selection Guide – Best Practice Principles

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FIDIC emphasizes that quality is paramount in the selection of consultants, and that Quality Based Selection is the recommended method.

FIDIC emphasises the need for integrity, clarity and quality in the Inviting and Evaluation of Proposals for Consultant Selection.

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Guide to Quality ManagementGuide to ISO 9001:2000

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FIDIC has published:

Guide to Quality Management in the Consulting Engineering Industry

Guide to the Interpretation and Application of the ISO9001:2000 Standard for the Consulting Engineering Industry

Training Kit: Quality Management in the Consulting Engineering Industry

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FIDICF

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BEST PRACTICE PROCUREMENT

MAXIMISING BENEFITS TO CLIENTS

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The IssueF

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General observation that the quality of the constructed project has been deteriorating.

This observation is confirmed by the Banks’ Project Managers, Executing Agencies and International Consultants.

It is also perceived that good International Consultants are losing interest in Bank-funded projects.

The current trend in diminished Quality Outcome of the constructed project needs to be reversed.

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Causes of Deterioration in QualityF

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A major cause is the diminished quality of design.

Lower quality design results in lower quality construction and increased variation orders, resulting in increased cost of the project.

Other factors contribute as well, including:

Corruption;

Incompetent Contractors;

Poor Project Management;

Lack of Resources to Manage Contractors.

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Selection Guide – Best Practice Principles

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“Consultant selection is highly critical to the success of the entire project; to save a small percentage, perhaps 1% or less of project cost, is not worthwhile, considering the potential risks.”

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Selection Guide – Best Practice Principles

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Quality in the process of selection of engineering consultants refers to those factors which will enable the consultant to produce the best value solution to the Client’s Terms of Reference: and includes the Firm’s relevant professional competence and experience, managerial ability, financial capability, availability of resources, capability of designated staff, quality and integrity management systems, and demonstrated understanding of the Project and the Client’s Brief.

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The Parties to Procurement

The Purchaser (Client or Employer)

The Professional Service Provider

The Financier

The Contractor

The Public – End Users

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Informed PurchaserF

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An Informed Purchaser is an Owner who either has the in-house technical expertise or engages outside experts necessary to:

clearly convey project vision;evaluate and select consultants;understand the risks and procedures

inherent in project execution; and follow through with proper O&M

procedures and monitoring of outcomes.

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Informed PurchaserF

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The Informed Purchaser will be better equipped to incorporate other Quality-Based Principles at the project development phase, including:

• Capacity Building; • Sustainability; and• Monitoring of Outcomes.

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Quality – Who Needs It?F

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“It is unwise to pay too much, but it’s worse to pay too

little. When you pay too little, you sometimes lose

everything because the thing you bought was incapable of

doing the thing you bought it to do.”

“The common law of business balance prohibits paying a

little and getting a lot – it can’t be done.”John Ruskin (1819 – 1900)

British Poet, Scientist and Philosopher

“Price has no meaning except in terms of the quality of the

product.”Dr W. Edward Deming (1900-1993)

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Quality – Who Needs It?F

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Client: Public Sector

Spend public money wisely

Obtain best value, (which is not least cost);

Have regard to operating and life cycle costs;

Have regard to environment and sustainability

Encourage innovation

Encourage development of viable industry: capacity building

Avoid disputes, delays, non-productive costs

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Quality – Who Needs It?F

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Client: Private Sector

Spend shareholders money wisely

Obtain best value, (which is not least cost);

Have regard to operating and life cycle costs;

Have regard to environment and sustainability

Encourage innovation

Develop partnerships

Avoid disputes, delays, non-productive costs

Protect investment by the purchase of quality product

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Quality – Who Needs It?F

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Client: Design Build Contractor

Need to win the project;

Encourage innovation

Need to satisfy Clients Brief (needs expert advice)

Need to be able to construct for the price tendered

Avoid disputes, delays, non-productive costs

Develop partnerships

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QualityF

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Low cost and lack of integrity inevitably lead to poor design and poor quality in the completed project.

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Quality in Selection of Consulting Engineers

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The procurement of consulting engineer services has the greatest impact on the Life-Cycle Cost of the project, yet is the least costly component. The Owner’s challenge is to get a good “return on investment” in design services.

Life Cycle Cost

Impact on Project Success

Engineering

Construction

Representation of Typical Life Cycle Cost and Impact on Project Success

Operation & Maintenance

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FIDIC – Principles of Best Practice Procurement

FIDIC Guidelines for Selection

Quality

Transparency

Capacity Building

Integrity

Fair Competition

Harmonisation

Liability

Monitoring Outcomes

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The Steps in the Procurement ProcessF

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Announcement and Pre-qualification (long listing)

Short List Request for Proposal

Letter of Invitation Terms of Reference Information to Consultant The Proposed Agreement

Preparation and Submission of Proposal Receipt and Opening of Proposals Evaluation Negotiation and Award De-Briefing

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It is essential that the consultant addresses the

TOR and the evaluation criteria faithfully and

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Proposals

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EvaluationF

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This is a key feature of the Procurement Process which is so often carried out in a questionable way, thus frustrating quality consultants and penalising the end client.

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Recommended Criteria for the Selection of the Evaluating Committee Members

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Professional Experience Familiarity with Selection and Evaluation Objectivity The Client Decides on the

Number of Members Independence

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The Contract AgreementF

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The recommended form of agreement is the FIDIC Client – Consultant Model Services Agreement (White Book) or at least a recognised standard contract, with appendices filled in as appropriate, reflecting the scope of work. The final TOR and the agreed methodology shall be incorporated in the scope of work. The selected firm should not be allowed to change the key staff or any major items included in its proposal, unless both parties agree that undue delay in the selection has made it necessary.

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Result of Good Quality OutcomeF

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Quality in Selection produces quality designs. Quality designs produce quality projects. Quality projects have fewer variation orders

during construction. Fewer variation orders result in lower

construction costs. Quality designs and lower construction costs

result in lower life-cycle costs. Quality in Selection is in the Owner’s best interest.

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Result of Poor Quality OutcomeF

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Hyatt Regency Hotel, Kansas City, Missouri

In July of 1981, two elevated walkways over the lobby of the Kansas City Hyatt Regency Hotel collapsed during a party, killing 111 people and injuring 188 others.

In 1995 a pedestrian bridge collapsed at the Maccabiah Games in Israel causing the deaths by drowning of about 40 athletes.

Engineering services for the structures were awarded on the basis of price.

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FIDICF

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“ …selection of an Architect or Engineer solely on price-competition basis provides the potential for reductions in quality due to initial underestimation of the costs and resources required to adequately perform the work.”

U.S. House of Representative

Subcommittee Report on Structural Failures

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Business Integrity ManagementF

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Corruption undermines the achievement of a Quality Outcome, and the practice of business integrity is crucial to fighting corruption.

FIDIC recommends that consulting engineers adopt the FIDIC Business Integrity Management System (BIMS), and that Owners have regard to this policy during selection.

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Capacity BuildingF

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Improves the Quality Outcome of the constructed project.

Fee competition is detrimental to Capacity Building.

As a result of fee competition, local firms are not adequately compensated.

Banks may want to examine the need for “set-asides” of projects for local consultants.

The procurement for such “set-asides” should be based on quality principles.

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SustainabilityF

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Sustainability integrates the environmental, economic, and social dimensions of development, and is therefore fundamental to a Quality Outcome.

The FIDIC Project Sustainability Management (PSM) process provides a framework for the Owner and Engineer to balance project vision against cost and available alternatives, and select appropriate project goals and indicators for sustainable development. The indicators are linked back to higher level goals such as global warming, biodiversity, access to fresh water, and materials and energy use.

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Quality-Based Project ManagementF

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FIDIC recommends that consulting engineers adopt a Quality Management System, and that Owners have regard to this policy during selection.

A Quality Management System is a formalized project management structure that incorporates: Customer-focused leadership and organization; Employee involvement; A process and factual approach to decision making; Continuous improvement; and Mutually beneficial supplier (sub consultant) relationships.

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Quality-Based ConstructionF

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Quality principles extend to the tendering and construction phase. Means to incorporate quality principles include: Prequalification of contractors; Quality-based construction management procedures; and Documentation of contractor performance. Selection of Contractors to include quality

elements

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Conclusion – A Working PartnershipF

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The consulting engineering industry remains largely responsible for the planning, design, construction, inspection and management of the infrastructure needed to meet the world’s ever-increasing demand for food, water, sanitation, shelter, health services, transportation and energy. It tackles on a daily basis the problems of how to improve peoples’ lives while preserving natural resources in a world with a growing population.

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ConclusionF

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The incorporation of Quality-Based Principles in the

execution of projects is essential to the achievement

of the stated goal: a reversal

of the trend of diminished

Quality Outcomes on projects.

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QualityF

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“I told you to use Quality Principles to build this bridge.”