Procurement Method Selection Of Internationally-Funded Highway Projects In Thailand

Procurement method selection in construction industry needs experiences, knowledge, current circumstances, etc., and will not always lead to the best results or cannot be properly assessed compared with outcomes of the other unselected decision-makings. Prior to a final determination which procurement method to adopt for a project, enormous numbers of intricately interrelated underlying factors which influence procurement method selection should be scrutinized (e.g. characteristics of a project, owner’s project familiarity, flexibility to the project, market status, life cycle cost, politics and so on). These respective factors are selectively taken account of or not taken and/or weighted differently by level of owner’s priority, that is, it depends upon each project characteristics as well as owners’ organizational nature. Nevertheless, academies, institutions and government authorities have, for decades, attempted to find the systematic approach to procurement method selection for construction projects of all sizes and complexity so as to facilitate decision-makers and to select the most appropriate procurement method for a project expecting satisfying quality within budget and construction time, and the other emerging aspects of project success.

In addition to the systematic approach to procurement method selection, a variety of forms of contract and contract prices have been introduced and discussed for the sake of ultimately non-disputable and more profitable projects at the same time meeting the objectives of each participating party (Win-Win-Win Situation: Owner-Consultant-Contractor). For instance, partnering has recently been widely introduced for a new concept of project delivery which impels amicable contractual relationship as well as amicable social relationship among the parties, and which targets success of all parties’ objectives during the project implementation. In parallel with such trend, many standard forms of construction contract such as FIDIC, JCT, ACA have been published for advantage of reduction of contractual risk analysis time due to lack of precedent data. As a result, owners will have great opportunities not only to increase the numbers of perspectives tenderers, but also to seek more beneficial procurement methods such as EPC, BOT, etc. rather than in-house conventional procurement methods such as DBB.

However, the problem is that, regardless of the procurement method progression, owners are still uncertain about what method to adopt for a given construction project to achieve success (Love, Davis, Baccarini, Wilson and Lopez, 2008). Comprehending all the interrelated procurement methods and choosing the most appropriate procurement method for a certain project has become a more complex and challenging task due to emerging methods such as partnering, two-stage tendering, Public-Private Partnership, and special contract types used in the particular countries /regions.

Figure 1 depicts the relevant parties where procurement selection process is carried out. Some government regulation/law and lender’s requirements may stipulate the restriction of forms of contract, contract prices, tendering methods and evaluation methods or suitable experienced contractors in the local market may be reluctant to take part in the emerging procurement methods, and thus, the owner may have to solicit participation of international construction companies or modify the procurement method. In case that consultancy service is present, he strives to propose the most appropriate procurement method to the owner. But the owner still needs its knowledge to give the go sign. In addition to knowledge on procurement methods, comprehending characteristics and conditions of respective parties and surrounding circumstances will be also important for owners to select the most appropriate procurement method.

Although adoption of an appropriate procurement method will lead to a more project success probability, owners are still uncertain about what procurement method to adopt and what selection process to follow for their construction projects to achieve success. Mr. Takuya Watanabe made a research which focused on procurement method selection in the Department of Highways (DOH) in Thailand, especially for the internationally-funded highway projects. The main objective of his study is to identify the actual practice on procurement method selection in DOH, and finally to propose a new framework for their future projects. To fulfill the main objective, the sub-objectives were as follows:

(i) To figure out procurement methods' experience of project major stakeholders including government authority, engineering firms, and construction companies in Thailand. 

(ii) To analyze criteria and process of procurement method selection in internationally-funded highway projects in Thailand.

(iii) To propose a new framework of their procurement method selection for the purpose of the maturity and budgetary strategy of internationally-funded highway projects in Thailand.

Conclusion

1.  Findings and Recommendation from Procurement Methods’ Experience

 a.) Form of Contract

The most applied form of contract for Thai highway construction companies was Design-Bid-Build (DBB) type. In adopting the different forms of contract for future projects, The Department of Highways (DOH) might have difficulty to have prospective tenderers due to no experience issue of local construction companies, being reluctant to take part in the costly tenders.

b.) Contract Price

Although re-measurement is the most applied contract price to all the local construction companies in Thailand, lump sum contract prices can be considered for the future large-scale projects with expectation of prospective tenderers from the large-sized construction companies. These construction companies have its experience and are capable of evaluating project risks generated by the lump sum contract price. For the other contract prices such as reimbursement and Guaranteed Maximum Price (GMP), even though they have no experience, most of construction companies are probably willing to take part in the projects since their financial risk is very low. On another front, high financial risk will be shouldered by DOH.

c.) Tendering Method

While E-auction tendering method is compulsorily adapted to the domestic infrastructure projects in Thailand, single-stage one-envelope tendering method is adapted to majority of internationally-funded infrastructure projects. The other tendering methods for future projects can be also adopted depending on the project characteristics with assistance of experienced tendering experts. There is a high possibility to adopt E-auction for DOH future projects with international financial aids. However, it may result in high price competitiveness without consideration of quality and reluctance to take part in the tenders for international construction companies though International Competitive Bidding (ICB).

d.) Evaluation Method

Most of the past and on-going projects have adopted Cost Based Selection (CBS) evaluation methods. This brings in easiness of evaluation process to DOH but burdening construction companies due to simple price competition. Proper application of Quality Cost Based Selection (QCBS) evaluation methods may help better quality and higher maturity to their organizations increasing international competence in the construction field. 

By including experienced oversea contractors in their contract packages, knowledge transfer for unfamiliar procurement methods may be easily put into practice, especially knowledge on the payment and document systems, and thereby local contractors can be fostered by following those systems with assistance of DOH/BOIHC.

2.   Findings and Recommendation from Procurement Method Selection Criteria and Process

As a result of the interviews with the staffs in BOIHC and the financial institutions, the procurement method selection criteria and process for internationally-funded highway projects in Thailand under the current procurement system in DOH have been identified. There are six (6) sub-phases in their procurement phase. These are Initiation, Initial Study, Feasibility Study, Approval Process, Bank Negotiation, and Tendering and Award, involving several bureaus within DOH, the Ministry of Natural Resources and Environment and so forth. Each sub-phase has the underlying factors for procurement method selection criteria given from the literature reviews and the interviews. However, no matter what characteristics of projects, the single procurement methods are adopted, which are DBB forms of contract, Re-measurement contract prices, One-envelope tendering methods and Cost based selection (CBS) in conformance with the rules and regulations of DOH, and Prequalification (PQ) and International Competitive Bidding (ICB) requested by the Banks. For use of the new guideline, this rules and regulation should be amended first.

3.   Findings and Recommendation from New Guideline for Future Internationally-funded Highway Projects

The new guideline was proposed considering the nature of the government functions and the absence of the current procurement method selection guideline in DOH. In the guideline, the five (5) sub-phases were remained, some underlying factors were added and the new structure of the project team was proposed by the researcher. In addition, the attached reference documents such as pros and cons of each procurement method, procurement methods’ experience of the stakeholders in Thai highway construction, the project team acquirement, project management structure and stakeholders’ identification aim to assist decision-makers on the final procurement method.

4.   Encouragement to Use this Guideline for DOH

It is understood that technology to be proposed in most of infrastructure projects shall have been substantiated and it is not acceptable to attempt using non-established technology especially to any internationally-funded infrastructure projects. Just because so, does not mean its planning and design in the only technology that is outdated should be carried out. Technology is advancing faster and faster. In particular, there is a remarkable technical progress in electrical, electronics and machinery fields. Even though civil engineering technology is conservative, new tools, techniques, technology have been steadily assimilated. Thus, we shall be greedy to incorporate new technologies constantly. Applying the other emerging procurement methods promotes to improve this concern by construction companies to propose innovation technology, time- and cost-saving construction methods, etc.

Furthermore, most of lending targets under the conventional loan assistance used to be the construction of infrastructure facilities for the purpose of economic and social developments. However, problems for solution and objects for development have been various and complicated nowadays. Therefore, the use of financial aids is recommended not only to construct facilities but also desirably to promote the incorporative programme packaging the issues related to facilities’ system.

For example, the incorporative programme for road construction may be:

1.   main use of local contractors, and competent foreign contractors to join the project for mentoring the local contractors and fostering the human resources,

2.  expansion of existing vocational training center and/or schools for the human resources to be involved in road construction and maintenance,

3.  promotion of implementation of self-active system and toll collection system,

4.  distribution system centering on roads to be improved,

5.  environmental protection along roads, and so forth.

Success of the said incorporative programme may generate the synergy of development outcomes.

This guideline is also useful for DOH to promote BOT type forms of contract such as Public-Private Partnership (PPP) and Privately Financed Projects (PFP), and seek possibility of the international financial aids. Demands of BOT type have been increasing due to aid fatigue of developed countries and debt crisis of developing countries. This trend may continue unless fiscal reason of a country drastically improves. Under the circumstances, it should be well considered that infrastructure projects with this type of forms of contract acquire in-depth support from both an owner and participants since some precedents of BOT type projects have resulted in unexpected inflation of the utilities’ fee or monopolization of the business field due to no competitors inside the country.

Lastly, infrastructure management, especially planning of operation and maintenance during procurement phase, has recently become significant. Reference is made in "2009 Report Card for America's Infrastructure" published by American Society of Civil Engineers (ASCE). It is reported that the comprehensive evaluation of U.S. infrastructure has been severely criticized as D (Poor) in G.P.A. The comparison of GPA evaluation in the last 15 years shows no improvement. To make matters worse, the funds required for the improvement of the infrastructure is increasing from 1,300 billion US dollars in 2001 to 2,200 billion US dollars in 2009. This result should be referred to practitioners not only in Thailand but also other developing countries, and the in-depth study on the project life cycle including O&M and abandonment of the facilities should be carried out in the procurement phase.

Benefits of the Research

Use of this guideline enables DOH to understand the comprehensive approach to adopt the other procurement methods and develop the maturity and budgetary strategies for their organization. This systematic procurement method selection improves transparency and accountability to public people in Thailand promoting democracy principle. The proposed structure of the project team can tackle various and complex issues and propose appropriate procurement methods for their projects. Understanding and practical application of this research paper will provide staffs’ proficiency on procurement methods and stimulate local contractors to have better knowledge on the other procurement methods.

His thesis abstract is copied and posted below.

Abstract

On the benefit of development of communication tools/channels and information technology such as e-books, websites, etc., knowledge on various procurement methods in construction has nowadays been available to any of entities like owners, consultant and contractors. These knowledge are being instantly shared from west to east over the seas and vice versa, as letting them become more knowledgeable procurement strategic organizations. Under the circumstances, owners can refer to pros and cons, lesson learned and issues/problems of emerging procurement methods as alternatives to traditional ones such as DBB and DB forms of contract. The problem is, however, that, regardless of the procurement method progression, owners are still uncertain about what method to adopt for a given construction project to achieve success and what process to follow for selection of the method. In this research, the researcher focuses on the highway projects with international financial aids under the Bureau of International Highways Cooperation (BOIHC) within the Department of Highways (DOH), Thailand, and attempts to promote new guideline of procurement method selection for their future projects.

Methodology consists of three steps. The first step is questionnaire survey to find out procurement method’s experience of the stakeholders in Thai highway construction. Respondents’ last 5-year experiences on procurement methods were analyzed to find out its respective frequencies and patterns. The respondents and interviewees were vice presidents, managing directors, civil engineers in charge of tendering from 19 different highway construction companies and 5 different highway engineering firms. The second step is expert interview to identify the applied procurement method selection under the current system of BOIHC. Several meetings were conducted with staffs from BOIHC and international financial institutions as well as a project manager from the engineering firm currently working with BOIHC so as to comprehend their project approval process, organization structure, procurement method selection criteria and so forth. As a result of analyses from the first two steps, a guideline to select the appropriate different procurement methods for their future internationally-funded highway projects was proposed along with new process framework including the criteria to be considered during each sub-phase of procurement phase.

Use of this new guideline can be helpful to not only BOIHC but also other owners who have no in-house process asset for procurement method selection and no experience to adopt procurement methods differently considering different project characteristics. This will guide them in understanding the systematic approach to procurement method selection and developing their own guideline by following the same research methodology and adjusting the framework based upon the owner’s nature.

Keywords: Procurement method, Selection, Contract, Highway, FIDIC, Form of Contract, Contract Price, Tendering Method, Evaluation Method, Department of Highways, Thailand