New IRF White Paper: Road Project Procurement

Public procurement can be a leveraged to deliver long term value for money, promote innovation and sustainability, according to a new White Paper published today by the International Road Federation.

Executive Summary:

After many years spent on the geographic periphery and overlooked by policy-makers and planners, the Western Balkans are now firmly connected to the rest of Europe’s transport system.

However, the present state of road project preparation across the region reflects chronic administrative weaknesses, and underscores insufficient efforts to learn from successful procurement practices. Where procurement guidelines are not enforced with a high degree of professionalism, there is a much higher risk of sub-optimal delivery.

Many of the region’s countries are ill-equipped to deal with the tendering complexities and delivery oversight mechanisms required for large-scale, multimodal transport infrastructure corridors. Technical capacity and resources available to the region’s Project Implementation Units vary to a considerable degree, suggesting these public entities need to focus attention and assistance from International Financing Institutions in the years to come through mandatory certification programs as well as individual pathways to skills development.

The scale of the management and technical challenges required to implement large road corridor projects in the region furthermore suggest there is growing need to associate delivery partners to the planning and design phases of the project, as is common practice in many developed economies. Engineering, Procurement and Construction (EPC) or Design-Build (D/B) contracts offer a means to achieve this by giving the contractor a greater degree of responsibility for the entire value chain of the project from the early design stage to the formal handover of the final product to the end-user or owner.

A particular area of concern is the inconsistent identification and management of Abnormally Low Tenders by tendering authorities. Over the lifetime of the contract, there is a much higher risk that an ALT will lead to cover overruns, claims, and quality issues. In the case of high-value contracts, e.g. a toll road, the cost of such project delays may significantly outweigh any cost savings at the time of the contract award. Mechanisms exist that would mitigate this risk in the West Balkans, including requiring tendering authorities benefiting from IFI funds to trigger an ALT self-assessment if the lowest bidder is priced 20% lower than the next runner-up, requiring companies participating in public tenders to demonstrate they do not benefit from illegal state aid (per applicable EU legislation) that would affect the price of their bid, and tasking the future Transport Community Treaty Secretariat with publishing ex-ante / ex-post data on public tenders comparing client’s cost estimate, tender price, contract price and final execution costs upon handover.

The current public procurement framework and associated implementation guidelines provide considerable guidance to accompany the region’s tendering authorities towards green procurement choices in the road sector, at a time when pressure on resources is increasing at an unsustainable pace. Public procurement can be a huge driver for innovation and resource efficiency, provided these are explicitly factored into the technical specifications and award criteria as allowed under European legislation. Mechanisms such as life-cycle costing and Environmental Product Declarations need to be used more systematically throughout the West Balkans.

Lastly, chronic under-investment in the maintenance of existing road assets across the region may reflect an insufficient understanding of value-based approaches to transport infrastructure assets. Deferred maintenance negatively impacts road asset performance but also depreciates its accounting value – an aspect rarely integrated in the public balance sheet of the region’s economies. Life-cycle cost should be preferred for long-term value creation. The value proposition of alternatives to new build must also be assessed more systematically.

To download the White Paper, please visit https://www.irf.global/white-papers/