IMPACT OF TENDER PROCEDURE ON THE PERFORMANCE OF DONER FUNDED PROJECTS IN SRI LANKA G. S. S. De Silva Department of Building Economics University of Moratuwa Moratuwa Sri Lanka ^ / £> O o n ' - ' , - Submitted in Partial fulfillment of the Requirements of the Degree of Master of Science in Project Management December 1998 . 7 1 6 8 1 TABLE OF CONTENTS List of Figures v List of Tables vi List of Abbreviations vii Acknowledgements ix Abstract x 1.0 Introduction 1.1 Background 1 1.1.1 General outlook of the construction industry of Sri Lanka 1 1.1.2 Donor participation in the construction industry of Sri Lanka 3 1.1.3 The World Bank participation in the construction industry of Sri Lanka 5 1.1.4 Procurement problems of World Bank funded projects 7 1.2 The Research Design 11 1.2.1 Objectives of the study 11 1.2.2 Method of the study 12 1.2.3 Scope of the study 12 1.3 Structure of the dissertation 12 14 14 16 16 17 17 18 19 19 20 2.6 Tender Procedure and the Project Performance 2.1 Introduction 2.2 Construction Procurement Arrangements 2.3 Construction Tendering 2.3.1 Tender Procedure 2.3.2 Tendering Arrangements 2.3.2.1 Competitive Tendering 2.3.2.2 Non-competitive Tendering 2.3.2.3 Pre-qualification 2.3.2.4 Tender documents 2.3.2.5 Condition of contract 2.3.2.6 Contracts of Particular Application / Special Conditions of Contract 2.3.2.7 Specification 2.3.2.8 Bill of Quantities / Schedule of Work Elements 2.3.2.9 Drawings 2.3.2.10 Form of Tender 2.3.2.11 Securities and Guarantees 2.3.3 Tender Evaluation 2.4 Selecting a Right Contractor 2.5 Project Performance 2.6 Summary 3.0 Comparison of World Bank Tender Procedure and Government of Sri Lanka Tender Procedure 3.1 Introduction 3.2 Procurement of works under World Bank credits 3.2.1 The Project Cycle 3.2.2 The Procurement guide line of the World Bank 3.3 Government of Sri Lanka Tender Procedure for works 3.3.1 The Process of tender 3.3.2 Procedure for Donor funded projects 3.4 Comparison of the World Bank and the Government of Sri Lanka Tender Procedure for works 3.4.1 Bidding method 3.4.2 Pre-qualification of Tenderers 3.4.3 Tender Documents 3.4.4 Securities and Guarantees 3.4.5 Evaluation of tenders 3.5 Procurement and implication problems prevailed in World Bank funded projects 3.8 Summary iii 4.0 Performance Evaluation of the World Bank funded projects in Sri Lanka 4.1 Introduction 4.2 About the Case Studies 4.3 World Bank Project Evaluation, Monitoring and Review procedure 4.4 Evaluation of performance of Case Studies 4.5 The Hypothesis 4.6 Case One 4.7 Case Two 4.8 Case Three 4.9 Case Four . 4.10 Case Five 4.11 Final Analysis 4.12 Summery 5.0 Impact of an Alternative Tender Procedure on Project Performance 5.1 Introduction 5.2 Hypothesis 2 5.3 Bidding Method 5.4 Securities and Guarantees 5.5 Mobilization Advance and Recovery 5.6 Correction of Errors in Tender Sum 5.7 Final Analysis 5.8 Summary 6.0 Conclusions and Recommendations References Appendices Appendix 1 Appendix 2 iv List of Figures Figure Description Page N o 1.1 Total Construction Output-by sectors in 1997 2 1.2 Total Construction output in 1997 2 1.3 Funding Principle of Donors 3 1.4 Cumulative Donor Commitment to Sri Lanka 4 1.5 Expenditure on Development Projects (Constructions) in 1977 4 1.6 Project Objective Criteria 8 4.1 Hypothesis 1 for Case One 4.2 Hypothesis 1 for Case Two 4.3 Hypothesis 1 for Case Three 4.4 Hypothesis 1 for Case Four 4.5 Hypothesis 1 for Case Five 4.6 Hypothesis One in Case Studies 5.1 Comparison between WB & GOSL in terms of Mobilization Advance 5.2 The Hypothesis 2 in Case Studies List of Tables Table Description Page No. 3.1 Tender Authority Limits 31 3.2 Stipulated Time Period for Tender Action 32 3.3 Form of Contract and Financial Range 37 3.4 Comparison of Quantum of Securities and Guarantees 40 , ; 5.1 Comparison of Bidding Methods 67 5.2 Contractor Participation in Tendering in Case Study Projects 68 5.3 Foreign Contractor Participation in Contracts 70 5.4 Bid Capacity of Tenderers 71 5.5 Time and Cost Overrun of Case Study Projects 71 5.6 Quantum of Securities and Guarantees 72 5.7 Amount of Securities and Bonds 73 5.8 Comparison of Working Capital 73 5.9 Comparison of Mobilization Advance Recovery 75 * 5.10 Procedure for Correction of Errors 77 5.11 Comparison of Original Tender Sum and the Corrected Tender Sum 78 List of Abbreviations World Bank Asian Development Bank Overseas Economic Corporation Fund Institute of Construction Training and Development International Development Association International Bank for Reconstruction and Development Institute of Civil Engineers Federation International Des Ingenieures Conceils Standard Bidding Documentation Government of Sri Lanka Tender Board Technical Evaluation Committee International Competitive Bidding Local Competitive Bidding vii Acknowledgements This dissertation has become an end product with the support and encouragement of many wonderful people. First, I wish to express my sincere thanks to my supervisors Mrs. C. Weddikkara, Head, Department of Building Economics and Mr. J. De Mel, Procurement Consultant, the World Bank, for their guidance, assistance and encouragement. My special thanks are also extended to Dr Srinath Perera, Course Co­ ordinator, M. Sc. (Project Management) and Mr. M. L. De Silva, Senior Lecturer, for their comments and critical insight in preparation of the thesis. A special expression of my gratitude is extended to my colleague Dr Rameezdeen for his valuable advice and help throughout the study. I owe my sincere thanks to my friends Nisa, and Indunil for their continuous support and encouragement. My thanks are also extended to all other friends and individuals not mentioned, for helping me to make my study a success. Further, I wish to acknowledge the assistance given by Mr. Chandralal, Chief Engineer, Road Development Authority, and other professionals who practice in the construction industry for providing me valuable information for the study. My deepest gratitude also goes to my family for giving me both spiritual and emotional support throughout to make this endeavor a success. G. S. S. De Silva December 1998 viii A B S T R A C T The World Bank has it's own procurement procedures and documentation to be followed by the borrowers of the bank. The Bank dictate these procurement procedures to safeguard their interests. By this act, the benefit gained from the project often diminishes and the employers' procurement and contractual options that could be used to address the real country specific problems are neglected. Thus, the increasing procurement problems and failures indicate the importance of re-appraisal of such procedures and documentation. This study is aimed at first, investigating the impact of procurement method, more specifically the tendering process, on the performance of the World Bank funded projects in Sri Lanka. Second, to compare evaluate the relevance of the wold bank procurement procedure and the government of Sri Lanka procurement procedure for the success of projects. The study revealed that the procurement process significantly affect the performance of the World Bank funded projects. Specially there is a grave concern on the time and quality targets of world bank projects. Cost targets seemed to be reasonably met by the contractors. The possibility of enhancing the performance by introducing country specific procedure is workable only for few factors. In general, the possibility of enhancement is rather marginal.