Every desalination megaproject is a joint effort of a design company and a contractor, either through a joint venture or a prime contractor/subcontractor relationship. Its success depends not only on the risk-mitigating strategy adopted by the design company but on how efficiently it implements procurement of subcontracted works.

Procurement of Work (POW) focuses on the project schedule outsourced activities. Examples of POW are the engineering of subsystems, project controls, and site mechanical and electrical works.

This article discusses the POW common problems crippling any project progress, affecting contractor-subcontractor relationships, and eventually blocking the digitization of procurement.

POW differs from Procurement of Goods (POG) discussed previously in a number of points.

  1. The POW core is a Bill of Quantities (BOQ), while POG is centered on technical requirements for the design, engineering, performance, and maintenance of the equipment piece. POW does not require engineering expertise.
  2. POW scope is less accurate (30%) due to the unavailability of the project metrics (BOMs, BOQs), with scope creep being a norm. It leads to a high contingency of the order's estimated price and fewer bidders.
  3. Quality Assurance (QA) load associated with POW execution is higher by a factor of 10. QA outsourcing is commonplace.
  4. Prequalification of POW bidders – mainly local subcontractors – substantially differs from those of POGs. New points are the bidder's financial health and ability to execute POW in the scope and schedule requested.
  5. The risks of underperformance and running out of budget and schedule for POWs targeting local subcontractors are 10 times higher. Therefore, risk management procedures shall be part of POW.
The scope inaccuracy of POW propagates to all its parts – the scope estimated cost, delivery schedule, and conditional payments.

Digitization of POW is more difficult than that of POG as a selection of winning quote should be based not on price only, but some criteria combining the price and risks of underperformance.

The first step in this direction is replacing biased Go/No-Go prequalification of bidders with their rating. It has a much bigger validity time and is a direct indication of the bidder's business health.
The Go/No-Go mentality is not the only problem of POWs.

Similar works problem

In practice, the bidders' prequalification stumbles upon the "similar works" definition. It should allow for comparing the work's complexity, and the size and quantity of orders executed in the past with the tender in question.

Often size and quantity go together because it is simpler to assume that works order pricing does not follow the negative economy of scales. It means that one big order is equivalent to 3 orders each of 33% of the first one. This popular assumption is dangerous as it does not take into account resources availability and time needed to upscale the business – the risk factors in any mega-project.

The mentioned problem's impact may be substantially enhanced by the subcontractor's orders pipeline. As is observed in the industry, big order affects small businesses' clientele in a negative way.

An example of the size-quantity criterion definition for the bidder prequalification is given below.

"Three similar works, each costing minimum forty percent (40%) of the estimated cost put to the tender or two similar works, each costing minimum sixty percent (60%) of the estimated cost put to the tender."

This weak definition is usually enhanced with a lower limit of annual financial turnover over several years. It contributes nothing in the case of the EPC contractors engaged in a variety of activities ranging from engineering to operation and maintenance.

To create a formal base for the work similarity assessment, tenders include the following typical request.

"The bidder must enclose a copy of the work order with BOQs, technical specifications, and assembly and construction drawings."

As the response may include hundreds of pages for high-paid expert attention, the work similarity assessment always fails as well as the works quality assessment. Many tenders just gloss over it and move straight to financial status comparison.

Unfortunately, the expert's assessment of audited balance sheets and profit and loss accounts without the KPI system set (which is the case) adds nothing to the bidders' rating.

Scope & price creep problem

Mechanical, electrical and instrumentation, and control design works are notorious for scope creep. The main reason is that being the final components of the project schedule, they absorb all the time & scope fluctuations of the previous activities in addition to their own ones. Concurrent engineering sourcing incomplete BOQs and lead times absorbing lengthy prequalification make the problem worse. Market price fluctuation and inflation not curbed by the indexation of prices is an extra source of price creep.

POW digitization

The crenger.com strategy for POW digitization is centered on the work scope definition and includes the following points.

  1. Bidder's prequalification is online and is separated from tendering
  2. Tender documents are auto-compiled
  3. Bid submission is paperless: it is conducted online
  4. Bids comparison is automated

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