Angelo Vian FEPAC Washington Maio'07

1
Biennial Meeting International Lending Agencies
and Consulting Industry BIMILACIFEPACs paper
for discussion 1
Angelo Vian President of FEPAC Washington, D.C.,
U.S.A. May 10-11, 2007
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Harmful consequences on the Quality of Projects
due to inappropriate remuneration of the
consultancy
During BIMILACI 2005 meeting, FEPAC presented its
guidelines for the selection and hiring of
consultancy services, adopted by consensus of the
countries belonging to the Federation.
FEPAC has adopted convergent criteria with the
guidelines of the World Bank and recommends the
selection of a consultancy by combining the
evaluation of the technical proposals and price
of each company quoting during the process,
giving a higher percentage of importance to the
technical component.
3
FEPAC also proposes to include within the
Guidelines, a formula to evaluate the price
proposal which induces to offer market prices.
Such inclusion may be accomplished modifying ITC
5.7 as shown on next slides.
According to its Guidelines, FEPAC suggests to
adopt 2nd formula in the majority of the cases,
being it representative at best of the market
prices.
4
Proposed modification for ITC 5.7The formula
for determining the financial scores is the
following
Insert either one of the following
formulas 1) Sf 100 x Fm / F
, in which Sf is the financial score, Fm is the
lowest price and F the price of the proposal
under consideration.or
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2) Sf 100 x FM / (FM FM - F) , in which Sf
is the financial score, FM is the average price
of all proposals evaluated, F the price of the
proposal under consideration, and FM - F is
the absolute value of the difference between FM
and F.or insert another inversely proportional
formula acceptable to the Bank
The weights given to the Technical and Financial
Proposals areT Insert weight normally 0.8,
andP Insert weight normally 0.2
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FEPACs request to the Banks was, and continues
being, to guide the client to adopt such
criteria, so as to end up contracting with fair
prices market prices and the consequent and
necessary quality of the job.
On the contrary, during these two years the
situation of the Consultancy in the countries of
the region became unsustainable, due to the more
frequent practice of selecting Consulting
services based on price.
7
There are many cases that prove the bad
consequences of low quality of the Consultancy in
the execution of projects, provoking losses of
great importance to private and public investors
in the region.
FEPAC considers valid and quite necessary the
support of the Banks for a real change of
behavior in the mentioned theme.
8
Therefore, we consider that the Banks have to
clearly state that the concession of a loan is
conditioned, in any case, to the borrower
strictly follow the Banks Guidelines for what
concerns Consultancy Services selection.
Those Guidelines, in fact, prioritize the
Selection Based on the Quality and Cost (QCBS),
being clearly established that the Selection
Based on Lower Least Cost (LCS) is an exception,
to be used only for standard or routine jobs, for
which the amount of the resulting contract is
expected to be quite reduced.
9
By stating the condition afore mentioned as
previous for a loan approval, the Banks will
contribute to really change the existing behavior
of selecting Consultancy services trough the
lowest cost procedure, backing up the thesis of
the bad consequences resulting from the contracts
assigned with minimum price selection criteria.
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We propose that FEPAC jointly with BIRF and BID
carry out a study, in each of the Latin American
countries, on the harmful effects arisen from
hiring consultancy services for low
prices, including an analysis on how and why this
kind of contracting was carried out in the most
evident cases.
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Lower price Bidding?
Bidding by technical and price wrongly applied
or wrongly specified?
Ethic problems in the proposal analysis or in the
selection criterion application?
Other?
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In our opinion, the harmful effects are not only
related to the quality of the consultancy
services and their consequences on cost
and schedule of the projects, but also related to
the weakening of the Consultancy sector and their
effects on the economy of the country. In
FEPAC, we are convinced that the Consultancy
industry is a strategic asset of the countries,
and its activity contributes to countries
development and to raise the standard of living
of the population.
13
FEPAC firm opinion is that hiring Consulting
services at lowest prices, you end up paying a
very high price, since what you obtain is a low
quality service, which finally has an impact in
the quality, cost and schedule of projects.
14
The study that FEPAC is proposing at BIMILACI
2007 will analyze, country by country, which of
the guidelines suggested by the Banks or by FEPAC
are difficult to apply, or not efficient, in
order to contract Consultancy services on the
basis of a price which may support and match the
quality required.
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Additionally, we propose that such study will
include the analysis of a second aspect, related
to the expected cost of each stage of the
consultancy services necessary to support
efficiently the technical development of a
project. It consists in determining, having as
reference real jobs successfully executed, the
reasonable cost of the different phases of the
project studies, in relation, for example, to its
expected capital investment. Different types of
projects will be considered and also different
phases of the Consultancy services involved.
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Other procedures for the valuation of the
consultancy services, without considering the
expected cost of the project, will be
consolidated in a "Consultancy Services Budgets
Preparation Manual", considering the specific
characteristics of each country, taking
advantage of the material already available in
FEPAC.
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We estimate that the study proposed is of vital
importance to our countries in order to avoid
paying the high cost of the low prices in the
engineering services.
We look forward to obtain the BIRF and BID
collaboration and financial support to carry out,
jointly with FEPAC, this very important task.