F édération I nternationale d es I ngénieurs- C onseils

1. Fédération Internationale des Ingénieurs-Conseils FIDIC FIDIC Annual Conference Quality Procurement Workshop Beijing, China September 7, 2005 BEST PRACTICE PROCUREMENT OF ENGINEERING SERVICES Gregs G. Thomopulos, P.E., FACEC Executive Committee Member FIDIC

2. Fédération Internationale des Ingénieurs-Conseils FIDIC’s Mission: To promote the business interests of members providing technology-based intellectual services for the built and natural environment, and while so doing, accept and uphold our responsibilities to society.

3. Fédération Internationale des Ingénieurs-Conseils Selection Guide – Best Practice Principles • FIDIC emphasizes that quality is paramount in the selection of consultants, and that Quality Based Selection is the recommended method. • FIDIC emphasises the need for integrity, clarity and quality in the Inviting and Evaluation of Proposals for Consultant Selection.

4. Fédération Internationale des Ingénieurs-Conseils Guide to Quality Management Guide to ISO 9001:2000 FIDIC has published: • Guide to Quality Management in the Consulting Engineering Industry • Guide to the Interpretation and Application of the ISO9001:2000 Standard for the Consulting Engineering Industry • Training Kit: Quality Management in the Consulting Engineering Industry

5. Fédération Internationale des Ingénieurs-Conseils FIDIC BEST PRACTICE PROCUREMENT MAXIMISING BENEFITS TO CLIENTS

6. Fédération Internationale des Ingénieurs-Conseils The Issue • General observation that the quality of the constructed project has been deteriorating. • This observation is confirmed by the Banks’ Project Managers, Executing Agencies and International Consultants. • It is also perceived that good International Consultants are losing interest in Bank-funded projects. • The current trend in diminished Quality Outcome of the constructed project needs to be reversed.

7. Fédération Internationale des Ingénieurs-Conseils Causes of Deterioration in Quality • A major cause is the diminished quality of design. • Lower quality design results in lower quality construction and increased variation orders, resulting in increased cost of the project. • Other factors contribute as well, including: • Corruption; • Incompetent Contractors; • Poor Project Management; • Lack of Resources to Manage Contractors.

8. Fédération Internationale des Ingénieurs-Conseils Selection Guide – Best Practice Principles “Consultant selection is highly critical to the success of the entire project; to save a small percentage, perhaps 1% or less of project cost, is not worthwhile, considering the potential risks.”

9. Fédération Internationale des Ingénieurs-Conseils Selection Guide – Best Practice Principles Quality in the process of selection of engineering consultants refers to those factors which will enable the consultant to produce the best value solution to the Client’s Terms of Reference: and includes the Firm’s relevant professional competence and experience, managerial ability, financial capability, availability of resources, capability of designated staff, quality and integrity management systems, and demonstrated understanding of the Project and the Client’s Brief.

10. Fédération Internationale des Ingénieurs-Conseils The Parties to Procurement • The Purchaser (Client or Employer) • The Professional Service Provider • The Financier • The Contractor • The Public – End Users

11. Fédération Internationale des Ingénieurs-Conseils Informed Purchaser An Informed Purchaser is an Owner who either has the in-house technical expertise or engages outside experts necessary to: • clearly convey project vision; • evaluate and select consultants; • understand the risks and procedures inherent in project execution; and • follow through with proper O&M procedures and monitoring of outcomes.

12. Fédération Internationale des Ingénieurs-Conseils Informed Purchaser The Informed Purchaser will be better equipped to incorporate other Quality-Based Principles at the project development phase, including: • Capacity Building; • Sustainability; and • Monitoring of Outcomes.

13. Fédération Internationale des Ingénieurs-Conseils Quality – Who Needs It? “It is unwise to pay too much, but it’s worse to pay too little. When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing the thing you bought it to do.” “The common law of business balance prohibits paying a little and getting a lot – it can’t be done.” John Ruskin (1819 – 1900) British Poet, Scientist and Philosopher “Price has no meaning except in terms of the quality of the product.” Dr W. Edward Deming (1900-1993)

14. Fédération Internationale des Ingénieurs-Conseils Quality – Who Needs It? Client: Public Sector • Spend public money wisely • Obtain best value, (which is not least cost); • Have regard to operating and life cycle costs; • Have regard to environment and sustainability • Encourage innovation • Encourage development of viable industry: capacity building • Avoid disputes, delays, non-productive costs

15. Fédération Internationale des Ingénieurs-Conseils Quality – Who Needs It? Client: Private Sector • Spend shareholders money wisely • Obtain best value, (which is not least cost); • Have regard to operating and life cycle costs; • Have regard to environment and sustainability • Encourage innovation • Develop partnerships • Avoid disputes, delays, non-productive costs • Protect investment by the purchase of quality product

16. Fédération Internationale des Ingénieurs-Conseils Quality – Who Needs It? Client: Design Build Contractor • Need to win the project; • Encourage innovation • Need to satisfy Clients Brief (needs expert advice) • Need to be able to construct for the price tendered • Avoid disputes, delays, non-productive costs • Develop partnerships

17. Fédération Internationale des Ingénieurs-Conseils Quality Low cost and lack of integrity inevitably lead to poor design and poor quality in the completed project.

18. Fédération Internationale des Ingénieurs-Conseils Quality in Selection of Consulting Engineers The procurement of consulting engineer services has the greatest impact on the Life-Cycle Cost of the project, yet is the least costly component. The Owner’s challenge is to get a good “return on investment” in design services. Representation of Typical Life Cycle Cost and Impact on Project Success Life Cycle Cost Impact on Project Success Engineering Construction Operation & Maintenance

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20. Fédération Internationale des Ingénieurs-Conseils FIDIC – Principles of Best Practice Procurement FIDIC Guidelines for Selection • Quality • Transparency • Capacity Building • Integrity • Fair Competition • Harmonisation • Liability • Monitoring Outcomes

21. Fédération Internationale des Ingénieurs-Conseils The Steps in the Procurement Process • Announcement and Pre-qualification (long listing) • Short List • Request for Proposal • Letter of Invitation • Terms of Reference • Information to Consultant • The Proposed Agreement • Preparation and Submission of Proposal • Receipt and Opening of Proposals • Evaluation • Negotiation and Award • De-Briefing

22. Fédération Internationale des Ingénieurs-Conseils Proposals It is essential that the consultant addresses the TOR and the evaluation criteria faithfully and accurately.

23. Fédération Internationale des Ingénieurs-Conseils Evaluation This is a key feature of the Procurement Process which is so often carried out in a questionable way, thus frustrating quality consultants and penalising the end client.

24. Fédération Internationale des Ingénieurs-Conseils Recommended Criteria for the Selection of the Evaluating Committee Members • Professional Experience • Familiarity with Selection and Evaluation • Objectivity • The Client Decides on the Number of Members • Independence

25. Fédération Internationale des Ingénieurs-Conseils The Contract Agreement The recommended form of agreement is the FIDIC Client – Consultant Model Services Agreement (White Book) or at least a recognised standard contract, with appendices filled in as appropriate, reflecting the scope of work. The final TOR and the agreed methodology shall be incorporated in the scope of work. The selected firm should not be allowed to change the key staff or any major items included in its proposal, unless both parties agree that undue delay in the selection has made it necessary.

26. Fédération Internationale des Ingénieurs-Conseils Result of Good Quality Outcome • Quality in Selection produces quality designs. • Quality designs produce quality projects. • Quality projects have fewer variation orders during construction. • Fewer variation orders result in lower construction costs. • Quality designs and lower construction costs result in lower life-cycle costs. • Quality in Selection is in the Owner’s best interest.

27. Fédération Internationale des Ingénieurs-Conseils Result of Poor Quality Outcome Hyatt Regency Hotel, Kansas City, Missouri In July of 1981, two elevated walkways over the lobby of the Kansas City Hyatt Regency Hotel collapsed during a party, killing 111 people and injuring 188 others. In 1995 a pedestrian bridge collapsed at the Maccabiah Games in Israel causing the deaths by drowning of about 40 athletes. Engineering services for the structures were awarded on the basis of price.

28. Fédération Internationale des Ingénieurs-Conseils FIDIC “ …selection of an Architect or Engineer solely on price-competition basis provides the potential for reductions in quality due to initial underestimation of the costs and resources required to adequately perform the work.” U.S. House of Representative Subcommittee Report on Structural Failures

29. Fédération Internationale des Ingénieurs-Conseils Business Integrity Management • Corruption undermines the achievement of a Quality Outcome, and the practice of business integrity is crucial to fighting corruption. • FIDIC recommends that consulting engineers adopt the FIDIC Business Integrity Management System (BIMS), and that Owners have regard to this policy during selection.

30. Fédération Internationale des Ingénieurs-Conseils Capacity Building • Improves the Quality Outcome of the constructed project. • Fee competition is detrimental to Capacity Building. • As a result of fee competition, local firms are not adequately compensated. • Banks may want to examine the need for “set-asides” of projects for local consultants. • The procurement for such “set-asides” should be based on quality principles.

31. Fédération Internationale des Ingénieurs-Conseils Sustainability • Sustainability integrates the environmental, economic, and social dimensions of development, and is therefore fundamental to a Quality Outcome. • The FIDIC Project Sustainability Management (PSM) process provides a framework for the Owner and Engineer to balance project vision against cost and available alternatives, and select appropriate project goals and indicators for sustainable development. The indicators are linked back to higher level goals such as global warming, biodiversity, access to fresh water, and materials and energy use.

32. Fédération Internationale des Ingénieurs-Conseils Quality-Based Project Management FIDIC recommends that consulting engineers adopt a Quality Management System, and that Owners have regard to this policy during selection. A Quality Management System is a formalized project management structure that incorporates: • Customer-focused leadership and organization; • Employee involvement; • A process and factual approach to decision making; • Continuous improvement; and • Mutually beneficial supplier (sub consultant) relationships.

33. Fédération Internationale des Ingénieurs-Conseils Quality-Based Construction Quality principles extend to the tendering and construction phase. Means to incorporate quality principles include: • Prequalification of contractors; • Quality-based construction management procedures; and • Documentation of contractor performance. • Selection of Contractors to include quality elements

34. Fédération Internationale des Ingénieurs-Conseils Conclusion – A Working Partnership The consulting engineering industry remains largely responsible for the planning, design, construction, inspection and management of the infrastructure needed to meet the world’s ever-increasing demand for food, water, sanitation, shelter, health services, transportation and energy. It tackles on a daily basis the problems of how to improve peoples’ lives while preserving natural resources in a world with a growing population.

35. Fédération Internationale des Ingénieurs-Conseils Conclusion The incorporation of Quality-Based Principles in the execution of projects is essential to the achievement of the stated goal: a reversal of the trend of diminished Quality Outcomes on projects.

36. Fédération Internationale des Ingénieurs-Conseils Quality “I told you to use Quality Principles to build this bridge.”