International Construction Law Review
RECONSIDERING PROCUREMENT CRITERIA AND PROCEDURES FOR MAJOR INFRASTRUCTURE PROJECTS
Why the Use of “Price” as the Determining Factor in Construction Procurement Decisions is Wrong
Philip Loots BCom, LLB, PMD (Harvard)
and
Dr Donald Charrett BE, LLB, MConst Law, PhD, FIEAust, FCIArb
The focus of this paper is to highlight the general lack of attention to schedules and operability in the bid preparation, evaluation, and contract award stages of major projects, and to suggest that a change in the way that bids are called for and prepared may lead to better project outcomes. If a project can be priced in detail for bid evaluation, why can it not be resourced and scheduled in detail for bid evaluation? Price is currently the dominant factor in bid evaluation, but lack of adequate scheduling leads to schedule overruns which are crippling, because “time is money”, and the Employer’s traditional legal remedies have little effect on mitigating the cost effects of lateness at that stage. The question may be asked: how realistic are current initial cost and time objectives? If they are indeed unrealistic, more effective criteria for procurement and management of projects are needed.
WHAT IS A “SUCCESSFUL PROJECT”?
Success is largely judged on whether a project has been completed on budget.1 The budget usually referred to is the initial “price”, on which
1 “LNG project cost blowouts:
| Project | Operator | Original Budget, Schedule | Final, or current budget, Schedule |
| Pluto | Woodside | AUS$12bn, late 2010 | AUS$15bn, April 2012 |
| QCLNG, QLD | BG Group | US$15bn, 2014 | US$20.4bn, Jan 2015 |
| Gladstone LNG, QLD | Santos | US$16bn, 2015 | US$18.5bn, Oct 2015 |
| APLNG, QLD | Origin/Conoco Phillips | AUS$23bn, mid-2015 | AUS$24.7bn, Jan 2016 |
| Gorgon, WA | Chevron | US$37bn,2014 | US$54bn, first quarter 2016 |
| Wheatstone | Chevron | US$29bn, 2016 | US$29bn, mid 2017 |
| Ichthys | Inpex | US$34bn, 2016 | US$37.4bn, 2017” |
Source: The Australian Business Review and The Wall Street Journal, Tuesday, 2 February 2016, p 9.
“The enormous Gorgon liquefied natural gas project off Western Australia has taken its first step towards recouping its AUS$55 billion price tag, with its maiden shipment of LNG setting sail yesterday. Gorgon, which ranks as the biggest ever project carried out in Australia, was originally expected to cost US$37 billion and be in production by 2014 when it was first approved”: The Australian, 23 March 2016.
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