Open tender saves billions. Cox's Bazar rail project shows how

TBS Illustration

Adopting open tendering over limited tendering in development project implementation can lead to significant cost reductions, a recent report by the Implementation Monitoring and Evaluation Division (IMED) shows.

The report mentions that an often-overlooked factor that plays a major role in escalating project expenses is the tendering process.

While issues such as irregular practices, inadequate project planning, and frequent revisions have contributed significantly to higher costs of development projects in Bangladesh compared to other countries, the tender process plays a very significant role, the report says.

For instance, the IMED, which falls under the auspices of the Ministry of Planning, illustrated how adopting open tendering for the Dohazari to Cox's Bazar via Ramu Rail Line project in Chattogram resulted in substantial cost savings of around Tk1,800 crore.

The project funded by the Asian Development Bank (ADB) secured a contract at a cost 41% lower than the initial procurement allocation, a testament to the enhanced competition fostered by open tendering.

Stakeholders say under the open tender system, contractors from any country are eligible to participate in the bidding. This method is typically followed in projects financed by multilateral partners such as the World Bank, the ADB, and the Asian Infrastructure Investment Bank (AIIB).

In contrast, for projects funded by bilateral development partners such as India, China, Russia, and Korea, limited tendering mandates the selection of contractors from their respective countries.

In the limited tender system, contractors' bids often far surpass the initial project estimates. This approach has seriously affected the execution of numerous development projects.

Repeated tender invitations have often failed to attract bidders willing to work within the estimated cost range. Additionally, instances of direct contract awards to foreign contractors without any tender process have raised concerns about the escalating costs of construction projects, say stakeholders.

Dr Md Shamsul Hoque, professor of civil engineering at Bangladesh University of Engineering and Technology (Buet), underscores the importance of breaking free from loan agreements that impose the requirement of appointing contractors from the financing country.

He recommends the adoption of open tendering for the execution of infrastructure projects.

"Bilateral or government-to-government (G2G) financing projects rarely allow competition. For instance, loans from India and China require the hiring of consultants and contractors from their respective countries. These contractors often work as syndicates, with one offering a higher price and the other a dummy price," he told TBS.

Cost reduction thru open tendering

The IMED report reveals that the procurement allocation for the new dual-gauge railway line from Dohazari to Cox's Bazar via Ramu was Tk4,569 crore. However, through open tendering, a contractor was appointed for Tk2,688 crore.

Railway officials attribute the lower-cost procurement of other works for the project to the same factor. They also highlight that limited tendering has been detrimental to many development projects, while open tendering has helped avoid complications in the procurement of the Cox's Bazar rail line project.

Even small-scale procurement under limited tendering is not immune to complications, they say.

Open tendering also saved costs on the Khulna-Mongla railway line project. In 2020, Indian companies bid 33.82% more than the proposed allocation of Tk22 crore for the signalling and telecommunication infrastructure part of the project. When tenders were called again in July 2021, Indian contractors bid 57% more.

Later, when open tenders were called for the package, the project was contracted at Tk3.5 crore less than the estimate.

Project Director Md Arifuzzaman told TBS that open tendering drives down construction costs, but projects funded by India, China, and Korea often require the hiring of contractors from those countries. This reduces competition and leads to higher bids.

Following the same rationale, the Power Grid Company of Bangladesh (PGCB) opted for open tender instead of limited tender for the construction of the river crossing transmission line for the Rooppur Nuclear Power Plant under Indian financing. As a result of this decision, India has also cancelled the country's loan.

High costs in China and Japan funded projects

Officials say that only contractors nominated by the Chinese government work directly on Chinese loan projects under the G2G method. In all projects, including the Padma Rail Link and Karnaphuli Tunnel, the contractor nominated by the Chinese authority has been awarded the contract.

The cost of Chinese loan projects is high because direct contractors are awarded the work, they say.

However, in response to a proposal from Bangladesh, China has recently agreed to allow limited tenders among Chinese contractors for Chinese-financed projects.

According to officials, the cost of China's loan projects is high due to the requirement to hire direct contractors. This has led to the reduction in the cost of some projects at the instruction of Prime Minister Sheikh Hasina.

In 2021, the Planning Commission reviewed the cost of three projects at the prime minister's instruction. She later ordered a reduction in the cost of the projects. As a result, China lost interest in all three projects. Two of the approved projects have since been halted.

The projects in question are – the construction of a dual gauge double line from Joydevpur in Gazipur to Ishwardi in Pabna; the conversion of the metre gauge line from Akhaura to Sylhet to dual gauge; and the construction of a dual gauge double line from Joydebpur to Jamalpur via Mymensingh.

Meanwhile, although Japanese financing projects mention open bidding, only Japanese contractors are awarded contracts for large infrastructure projects. This is because the advanced technology and materials required for these projects cannot be supplied by contractors from other countries. As a result, Japanese contractors bid higher costs.

Planning Commission officials said the recently approved Chattogram-Cox's Bazar Highway Improvement Project had an unusual budget proposal. The Japan International Cooperation Agency (Jica) conducted the survey for the project. The Planning Commission later reduced the project cost from Tk12,136.5 crore to Tk8,556 crore and received approval from the Executive Committee of the National Economic Council (Ecnec).

Dr Md Shamsul Hoque said, "Our lack of expertise in understanding the terms and conditions of many development partner loans is a professional problem. These conditions imposed by these agencies in Bangladesh cannot be imposed on other countries. This drives up the cost of infrastructure construction here."

For example, Jica has financed the construction of metro rail in Bangladesh and Indonesia. However, the cost per kilometre in Indonesia is significantly lower than in Bangladesh. This is because Indonesia did not agree to the conditions that JICA imposed on its loan, while Bangladesh did. These conditions inflate the cost of the project significantly, he said.

Loans with a grace period of 10 years and a repayment period of 40 years may seem flexible at first glance. However, the cost of these loans is much higher due to the conditions attached. JICA sets the qualifications for construction contractors in such a way that only a few contractors from its country can participate, Dr Shamsul Hoque added.