Tag:procurement

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RECENT CHANGES TO TENDER LAW REGULATIONS IN QATAR
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COVID-19: EPC AND EPCM IN LARGE CONSTRUCTION PROJECTS POST COVID-19
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COVID-19: UK Public Sector Construction – Cabinet Office publishes FAQs regarding PPN02/20
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Procurement Strategies for Major Rail Projects: International Railway Summit 2015

RECENT CHANGES TO TENDER LAW REGULATIONS IN QATAR

By: Pawel Piotrowski, Elias Matni, and Wafaa Dauleh

A series of provisions under the Executive Bylaws of the Law on the Organization of Tenders and Auctions No.16 (2019) have been amended by the Council of Ministers Resolution No.11 of 2022 (the 2022 Resolution). According to the Ministry of Finance officials, the changes made aim to strengthen and support the economic activities that fall outside the scope of the oil industry as there is a growing trend towards enhancing the role of the private sector in implementing a variety of development projects. The key points under these amendments pertain to the enhancement of procurement processes; the incorporation of in-country value (ICV); and support dedicated to micro and small-medium enterprises (SMEs). This short article shall address these main changes in turn, with specific reference to the relevant articles under the 2022 Resolution.

ENHANCEMENT OF PROCUREMENT PROCESSES

The amendments enhance the procurement process through the development and acceleration of procurement in government organizations, namely by providing specific time periods to organize transactions. For example, Article 29 of the 2022 Resolution stipulates that a bidder has 15 working days to submit a bid from the date of announcement, however, after the bid has been received, the Committee of Tenders and Auctions (the Committee) shall have 60 working days to decide on the tender and inform both the bidder and the competent department. Additionally, Article 22 specifies a period of 20 days from the date of submitting the final performance guarantee where the contract shall be signed, and under Article 70, the contract needs to be put into motion 90 working days from the date of signing. The aim of adopting these time restrictions is to aid in speeding up the process as well as increase the efficiency of tenders. The benefit from this is the minimized risk of a company incurring losses due to unspecified timings of the procedure. 

IN-COUNTRY VALUE

Another key inclusion under the 2022 Resolution is the added definition of ICV under Article 2 which is defined as:

The “total amount spent by the contractor, supplier or service provider within the State for the development of works, services or national human resources to stimulate productivity in the local economy. This shall be determined through a certificate of the previously executed contracts, or the plan provided by the bidder within its tender indicating the target amount of the local value of the contracting value.”

The rationale behind this amendment is to implement ICV procedures in the procurement process to aid in the country’s sustainable economic growth. Additionally, contained under Article 3 are provisions which encourage corporations to support the local economy by getting government clients to consider the ICV ratios of the bidders and then awarding the government contracts to successful bidders.

SMALL-MEDIUM ENTERPRISES

Under Article 4 of the 2022 Resolution provisions regarding the support of SMEs have been included which state that SMEs shall be exempted from paying for tender documents valued at less than QR1 million and from providing temporary and final performance guarantee. Additionally, the government authority may limit the participation of micro and small enterprises with regards to tenders valued at less than QR5 million and the SMEs shall only be required to pay half the value of the required classification fee. The goal behind these provisions is to provide opportunities that allow national micro and SME firms to grow, as well as increase the amount of tenders available to them and facilitate their cooperation within the public sector. 

COVID-19: EPC AND EPCM IN LARGE CONSTRUCTION PROJECTS POST COVID-19

Authors: Pawel Piotrowski and Nicola J. Ellis

COVID-19 has highlighted some of the existing problems in the construction market such as fragmentation, low profitability and often low satisfaction for both owners and contractors (due to time and budget overruns and lengthy claims procedures and disputes). In this article, we consider the choice of the procurement method for large construction projects and issues and risks raised by COVID-19.

EPC

Owners often procure major construction projects on a fixed price, lump sum turnkey contract whereby the contractor is responsible for all engineering, procurement and construction (EPC) aspects of the development by a specified date (subject to a limited number of circumstances which will provide the contractor with relief). Under this arrangement, the EPC contractor directly engages the supply chain and takes responsibility for building and delivering the project so that the owner simply has to ‘turn the key’. Any changes or variations that the owner may require to the original scope provided to the EPC contractor will be at the owner’s risk and therefore it is important to have a high degree of certainty and detail as to the scope of works, and often a detailed design provided by the owner to assist the EPC contractor in providing an accurate price.  

The EPC has many advantages for the owner, including that it places lower management burden on them. It provides a single point of responsibility for the project to the owner and gives the owner and any lenders a high degree of certainty as to the time and cost of the development. Since the owner has recourse against a single contractor rather than having to pursue multiple contractors and suppliers, the dispute resolution process is usually less complicated. The EPC contractor should therefore seek to pass down all main obligations from the EPC contract onto its subcontractors to mitigate its liability position.

In return for taking on a high amount of risk as to time and cost, contractors may reflect this in their pricing and may include a substantial risk premium in the contract price. Owners can mitigate this to some degree by procuring EPC contracts in competitive tenders where the lowest price is often the decisive factor. That, in turn, often results in EPC contracts carrying a risk of change orders / variations which can become very costly to the owners if agreed or potentially catastrophic to those contractors who haven’t included a sufficient risk premium when submitting a low price proposal, leading to a focus on cost control by the contractor.

In these unprecedented times, the risk of force majeure events, effects of a change in law, risk of supply chain disruptions and the risk of integrating the performance of the entire supply chain have posed a particular challenge for contractors.  As a result, contractors may become more reluctant to take on some of these risks and may seek to exclude or set parameters around their liability for such risks or owners may see tenders with higher risk premiums. 

EPCM

Where the owner wishes to retain greater control over the project, the owner may opt for an EPCM contracting structure. 

The EPCM or ‘engineering, procurement and construction management’ contract is a construction management agreement whereby the EPCM contractor is responsible for advising the client on the design and procurement of the project but also for overseeing and managing all construction and supply contracts. An EPCM contract can therefore be seen more as a professional services contract in contrast to EPC contracts which are design and construction contracts. The EPCM contractor does not perform construction work. It is the owner who directly enters into numerous contracts with various contractors and suppliers. 

EPCM has many advantages for owners, including greater flexibility allowing projects to be tailored to current conditions as owners can modify the design or procurement plan mid-project and negotiate directly with the relevant contractors or suppliers. This can mean early engagement of certain packages prior to finalising the scope of work which may result in an earlier completion date. 

The overall price of the project under an EPCM arrangement may be lower as most of the risk priced for in EPC contracts sits with the owner and the owner is able to negotiate with the supply chain itself. 

EPCM also has disadvantages. The administrative burden of the owner directly negotiating and contracting with each of the contractors or suppliers is far greater than under EPC and significant demands are placed on the owner’s skills and resources (although the EPCM contractor may be able to ease this burden). Interface risk and coordination between each contractor or supplier needs to be managed and this often sits with the owner.  Where a dispute arises, this is also more complex for the owner due to difficulties in allocating fault and risk amongst multiple contractors, rather than having a single point of responsibility as under EPC contracts.

However, from our experience, most of these disadvantages can be reduced by way of proper implementation strategy, planning, contracting and management. 

Both EPC and EPCM have advantages and disadvantages but can be beneficial when used in the right circumstances. The objectives, scope of work and risk profile should be clearly understood in choosing which method to use as the cost implications of choosing the incorrect form can be substantial for both parties. 

COVID-19: UK Public Sector Construction – Cabinet Office publishes FAQs regarding PPN02/20

Authors: Matthew E. Smith, Inga K. Hall, Kiran Giblin

Further to our recent blog post “COVID-19: UK Public Sector Construction – cash flow relief for suppliers” on 31 March 2020, in which we set out guidance on the Government’s Procurement Policy Note – Supplier relief due to COVID-19 PPN 02/20 (“PPN02/20”), the Cabinet Office has published a FAQs note providing further clarity and guidance regarding implementation of PPN02/20 in practice.

The 17 initial questions addressed in this FAQ note range across providing definitional clarity on terms used, further detail on how to make use of the Model Interim Payment Terms also published, the extent to which suppliers can also make use of other relief, such as via the Coronavirus Job Retention Scheme, and employers’ rights in terms of repayment, continued discharge of obligations, protection from double payments and the preservation of other contractual rights and remedies.

To read the full alert, please click here.

Procurement Strategies for Major Rail Projects: International Railway Summit 2015

London partner Matthew Smith recently attended the International Railway Summit 2015 in Barcelona. The International Railway Summit provides a meeting ground for senior decision makers from the world’s key rail operators, transport ministries and solution providers. Matthew had the opportunity to discuss the importance of risk assessment, project delivery structure, and risk allocation in rail contracts as a presenter at the conference.

To view a copy of the full presentation titled “Procurement Strategies for Major Rail Projects,” please click here.

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