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The lowest bid is not always best
Several months have passed, but the story of the foreign contractor who had to pay damages of US$6 million due to the low quality and slow progress of its work is still hot.
The company had to pay the Viet Nam National Chemical (Vinachem) Group for its failure to meet agreed standards in construction of the Dinh Vu Di-ammonium Phosphate (DAP) Fertiliser Plant No 1 in the northern city of Hai Phong. After six years of very slow construction, all that Vinachem delivered was a plant that produces poor-quality products and can only run at 30 per cent of its designed capacity.
This is a lesson for domestic companies who are obligated to accept the lowest bidders on contracts. Putting works up for tender is compulsory in Viet Nam, a process that is intended to help select capable contractors at the most competitive rates. In practice, it has not turned out that way.
“The law sets forth criteria to select the lowest bidder,” said the former head of the energy department of the Ministry of Industry and Trade, Ta Van Huong. “It does not exclude incapable bidders.”
Tender processes have become like auctions, with contractors who offer the lowest bid winning the contract despite their weaknesses. Ninety per cent of key national projects in the fields of power, mining, chemicals, fertiliser and cement have been implemented under an engineering-procurement-construction (EPC) contract with the participation of bidders from Asia who can offer very low rate.
Eighty per cent of coal-fired power plants built since 2006 have been carried out in this manner, affirmed Huong.
“EPC contractors are mostly from Asia,” he said. “They have won the bid as their bids are about half those submitted from the US or EU.”
An official from the Ministry of Planning and Investment, who asked to remain anonymous, said, “It’s easy to understand why investors often choose these EPC contractors. In addition to offering the lowest bids, such contractors pledge to arrange financing at low interest rates from their countries’ banks.”
But, due to the weakness of many EPC contractors and their out-of-date technologies, the progress of many projects has been delayed, said the Chairman of the Energy Association, Tran Viet Ngai.
Ngai noted that the contractor of the Hai Phong Thermoelectric Plant No 1 sought to push back the completion date of the project numerous times, from an original target of 2007 to 2009, before the plant finally became operational in February of this year.
To Viet Nam Electrotechnical Industry Association Chairman Nguyen Thai An, the problem doesn’t stop merely with delays. Outdated equipment resulted in plants that produced low-quality products at high costs and with low energy efficiency.
Viet Nam Association of Mechanical Industry Chairman Nguyen Ngoc Thu faulted cheap contractors for failing to use local materials or workers.
“Contractors from the EU and other countries use large quantities of Vietnamese raw materials when carrying out projects in Viet Nam,” Thu said. “Meanwhile, cheap bidders bring everything – including spare parts and equipment – from their home country to avoid incurring costs. Domestic engineering companies have not received any orders from these contractors even when their products could be used in many projects.”
The Deputy Director of southernmost Ca Mau Province’s Department of Labour, Invalids and Social Affairs, Le Thanh Tong, also noted that many skilled technicians with experience working on projects with American, European and Japanese contractors were now left unemployed.
Many contractors also refused to use Vietnamese labour in violation of Vietnamese law that only allowed them to bring in foreign technicians and technical experts, he said.
Experts involved in the construction field agreed it was time to amend the Law on Bidding approved in 2005 so that incompetent contractors with low bid prices could be barred from bidding on high quality construction projects.
Accordingly, besides provisions in terms of prices, the law should mention specific requirements on the duration of projects - and the technology, equipment and machinery to be used. In particular, regulations on the use of foreign labourers, equipment and machines made in Viet Nam, technology transfer and worker training must also be stated on the pending law.
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