Graeme Clark, Senior Procurement Specialist

European Bank for Reconstruction and Development

Outline of Presentation

• What is the European Bank for Reconstruction and Development (EBRD)?

• EBRD’s (and its Clients) Experience of the FIDIC Conditions of Contract for Plant and Design-Build (the Yellow Book)

• EBRD’s Preferred Procurement Strategy for Design-Build Contracts

• Key Conclusions and Recommendations

• Latest MDB Developments

• Question and Answer Session

The European Bank for Reconstruction and

Development

European Bank for Reconstruction and Development

• International financial organisation established in 1991 • Capital base – EUR 30 billion • Credit rating of AAA by Standard & Poor's, Moody's and Fitch Shareholders of the Bank

• Two international organisation and 64 countries Mission

• The Bank promotes transition to market economies in 34 countries from Central Europe to Central Asia, as well as in the SEMED region

• The Bank promotes policy dialogues with regards to investment climate, business

environment and policy matters

EBRD Countries of Operation

3,716 Projects

240 billion EURO, of which EBRD financed

80 billion EURO

62 billion EURO – private sector

18 billion EURO – public sector

EBRD’s Procurement Policies and Rules

Key Principles ECONOMIC use of resources EFFICIENT project implementation NON-DISCRIMINATORY procurement process leading to a TRANSPARENT AND RESPONSIBLE use of public funds

EBRD Experience of the Yellow Book (1)

The FIDIC Yellow Book has been used extensively under projects financed by EBRD, some examples;

• Georgia: Tbilisi Railway Bypass Project (EUR 200 million)

• Bosnia and Herzegovina: Banja Luka to Doboj Motorway Project (EUR 180 million)

• Romania: Constanta Bypass Project (EUR 120 million)

• Serbia: Belgrade to Novi Sad Motorway Project - Beska Bridge (EUR 50 million)

• Serbia: Sava Bridge (EUR 150 million)

• Ukraine: Rehabilitation of the Beskyd Tunnel (EUR 100 million)

• Russian Federation: Saint Petersburg Flood Protection Barrier (EUR 150 million)

• Russian Federation: Vladivostock Combined Heat Power Plant Project (EUR 75 million)

• Republic of Kazakhstan: Shardara Hydropower Plant Project (EUR 75 million)

• Republic of Montenegro: Lastva – Pljevlja Transmission Line (EUR 30 million)

• Russian Federation: Kaliningrad District Heating Project (EUR 5 million)

EBRD Experience of the Yellow Book (2)

In general, EBRD considers the FIDIC Yellow Book to be a well balanced contract which is suitable for use on a wide range of design-build type projects. Nevertheless, it needs to be recognised that the procurement of a design-build contract is often a very complex process with plenty of potential pitfalls for inexperienced or unprepared Employers, for example;

• Lack of appreciation of the complexities involved in procuring a D&B contract – you cannot procure a D&B contract following a ‘tick-box’ approach to procurement

• Inflexible approach to procurement (i.e. use of single-stage tendering) which leads to protracted and, in some cases, aborted procurement exercises

• The imposition of key aspects of the design on the Contractor

• Inappropriate qualification criteria

• Lack of understanding by foreign Contractors of local design and licensing requirements which lead to delays in approval of the detailed design and contentious claims

• Poor drafting of the Employer’s Requirements and failure to address conflicts with national regulations through the Particular Conditions of Contract (PCC) can lead to many problems during the procurement and contract implementation phase

• Claims during the contract implementation phase (often as a result of an issue that could have been identified/addressed earlier in the process) which lead to cost and time overruns

EBRD’s Preferred Procurement Strategy for

Design-Build Contracts (1)

Prequalification

First Stage Tender

Second Stage Tender

Contract Award

Prequalification with Two-Stage/Multi-Stage Tendering

EBRD’s Preferred Procurement Strategy for

Design-Build Contracts (2)

Prequalification – An assessment by the Employer of the experience and capacity of firms expressing interest in undertaking a particular contract, before inviting them to tender.

• Advantages

– To the Employer • Provides an opportunity to assess level of potential competition • Reduces tender evaluation period • Reduce problems associated with low prices by tenderers of doubtful capabilities • Encourage tenderers to form joint ventures • Encourages qualified tenderers to participate

– To the Tenderer/Contractor • Avoid expense of tendering if not qualified • Competes against qualified tenderers only (tendering for a design-build contract

can be very costly)

• Disadvantages

– Potential for conclusion between tenderers.

EBRD’s Preferred Procurement Strategy for

Design-Build Contracts (3)

The Essential Steps of Two-Stage Tendering (following prequalification)

• Publication of an Invitation for Tenders

• Issue of the Tender Document

• Pre-Tender Clarification Meeting/Site Visit

• Submission of unpriced First Stage Proposals (effectively, the technical proposal)

• Evaluation of First Stage Proposals

• Individual ‘Clarification Meetings’ with each Tenderer

• Memorandum (Minutes) detailing acceptable and unacceptable exceptions/deviations/assumptions in First Stage Tenders

• Rejection of substantially non-responsive First Stage Tenders

• Invitation to submit Second Stage Tenders (along with Amendment to Tender Documents, if needed)

• Submission of priced Second Stage Tenders

• Evaluation of Second Stage Tenders

• Contract Award to Lowest Evaluated Tenderer

Key Conclusions and Recommendations

• If the Employer does not have the full range of technical, commercial & legal expertise in house - consider engaging a qualified consulting firm

• Consider the benefits of a prequalification phase, where appropriate

• Use an appropriate and flexible procurement strategy which provides for a dialogue with tenderers prior to the submission of priced tenders

• Let the designer design!

• Ensure that the conditions of contract are consistent with the applicable law and national procedures

• Avoid the temptation to introduce provisions from other contract forms (particularly those pertaining to allocation of risk, i.e. unforeseeable difficulties/costs as contained in the Silver Book)

• Allow Contractors a sufficient tender preparation period

• Don’t underestimate the importance and the role of ‘the Engineer’ in successful implementation

MINIMIZE RISK MAXIMIZE SUCCESS

Latest MDB Developments

Development of an MDB Harmonised Standard Tender Document (STD) for use of

MDB financed Design-Build/Turnkey Contracts

Question and Answers