INFRAGOV PRESENTS A BRAND NEW WORKSHOP

REVISING STANDARD BIDDING DOCUMENTS: Harmonizing the Contractual Interface Between PPP Infrastructure Parties

About the Workshop

Contracts that are used for PPP projects are found wanting in at least one way: an absence of collaboration. Collaboration is more effective than predicting contingencies and it is vital because the best way to address unanticipated problems is to have a problem-solving process ready and agreed to before problems arise. It is well known that most people respond well to kind reciprocity and the reverse, to the opposite. Parties are conflicted because while they are governed by an autonomous and bilaterally dependent incentive structure, they have skin in the game that must be protected. In the absence of protection, they run the risk of losing the cooperation of the counterparty that protects their specialized assets by restraining their guile.

This workshop is about rewriting the standard bidding documents, starting with its model contract by comparing and contrasting the languages of the SBD with TCE for the purpose of enriching the two principal parties’ understanding of the contractual interface between them. The objective is to describe to practitioners a work-in-progress that has possibilities to bring big improvements to the infrastructure industry, to highlight the potential areas of benefits and costs, and to get feedback on how participants think the industry could collaborate in working out the details and a plan for large scale testing and evaluation. Rewriting is done with the lens of transaction cost economics.

Contract modifications will be tentative but consistent with the standard bidding documents (SBD) of the International Federation of Consulting Engineers (Fédération Internationale des Ingénieurs Conseils, or FIDIC) and of the World Bank. 

Who will benefit

  • Infrastructure planners and designers
  • Bid document writers
  • Project negotiators
  • Project managers
  • Project consultants
  • Project monitors

"Harmonizing the contractual interface that joins the parties, thereby to effect adaptability and promote continuity, becomes the source of real economic value."

— Oliver E. Williamson, Nobel 1985:30

Oliver E. Williamson — Nobel Laureate for Economics 2009 — describes Neil Boyle's workshops on Transaction Cost Economics (TCE) and Comparative Contracting as:

"Promising, ambitious, and worthy” and observes that "more extensive knowledge and use of a comparative contractual framework in government is sorely needed. Good luck in your efforts to put this across."

Workshop Topics and Schedule

This one-day workshop combines PowerPoint presentations, small discussion groups, plenary sessions, and Q&A.  Handouts and downloads will be available. Participants will be encouraged to bring their project problems to the workshop for discussion.

Schedule

7:00amRegistration and Light Breakfast (1 hour)
8:00amIntroduction - Workshop outline, INFRAGOV, the next workshop, concepts and terms, leaders in the field, and what you can expect to take-away. Metro Manila water supply and sanitation [WSS] case study. (1 hour)
9:00amContracting for infrastructure: an overview of past and present contracts—FAR, FIDIC, IFIs (IBRD, IDA, IFC, IADB, AfDB, ADB, EBRD); (Handout + 30 minutes)
9:30amBreak (15 minutes)
9:45am Framing a new contract for infrastructure projects-I: Cost-benefit impact analysis (See Table 1) on FIDIC and World Bank standard bidding documents (SBD). (1 hour 45 minutes):
  • Collaboration And Coordination
  • Adoption of Risk Neutrality
  • Contract Law Regimes
11:30amLunch (1 hour)
12:30pm Framing a new contract for infrastructure projects-II: Cost-benefit impact analysis (See Table 1) on FIDIC and World Bank standard bidding documents (SBD). (1 hour 45 minutes)
  • Twin Assumptions of Human Behavior
  • Origin of Opportunism
  • Application of Contract Triple
  • Application of Credible Commitment
2:15pmBreak (15 minutes)
2:30pm Framing a new contract for infrastructure projects-III: Cost-benefit impact analysis (See Table 1) on FIDIC and World Bank standard bidding documents (SBD). (1 hour 45 minutes)
  • Application of Contract Provisioning
  • Application of Concept of Economic Organization
  • Conflict Resolution
4:15pmPlenary summary of most important SBD items (1 hour)
5:15pmEvaluation of Workshop (15 minutes)
5:30pmEnd of Workshop

Upon completing this workshop participants should:


FIDIC Standard Bidding Documents (SBD)

Table of Contents
 
Section I.
Invitation for Bids (IFB)
Section II.
Instructions to Bidders (ITB)
  • General
  • Bidding Documents
  • Preparation of Bids
  • Submission of Bids
  • Bid Opening and Evaluation
  • Award of Contract
Section III.
Bidding Data (BD)
Section IV.
Part I. General Conditions of Contract (GCC)
Section V.
Part II. Conditions of Particular Application (COPA)
Section VI.
Technical Specifications (TS)
Section VII.
Form of Bid, Appendix to Bid, and Bid Security (FB/AB/BS)
Section VIII.
Bill of Quantities BOQ)
Section IX.
Form of Agreement, Forms of Performance Security, and Bank Guarantee for Advance Payment (FA/FPS/BGFAP)
Section X.
Drawings
Section XI.
Explanatory Notes (ENs)
Section XII.
Postqualification (PQ)
Section XIII.
Disputes Resolution Procedure (DRP)
Section XIV.
Eligibility for Provision of Goods, Works, and Services in Bank-Financed Procurement (EFPOGWSIBFP)

Table 1: Harmonizing Contract Costs & Benefits

Benefits Costs Major TCE concerns
Collaboration and coordination

Ideally, agreements are carefully drafted, negotiated and safeguarded with all possible contingencies and their appropriate adaptations accounted for and agreed to in advance. Since this is impossible due to constant incomplete contracting, the best contracts are those that fill gaps as they arise

Adaptation

Importance of early agreement between principals of profit sharing

Equilibration of asymmetrical information and competency differences by renegotiation

Sharing cost and benefits of resolving problems

Loss of efficiency of spontaneous market exchange

Loss of lower-cost market exchange

Loss of control

Loss of monopoly explanations for unusual transactions

Are there any constraints against collaboration and coordination?

Adoption of risk neutrality

Efficient risk mitigation is impossible under conditions of risk aversion

Risk mitigation under risk neutrality is done through credibly committed agreement and economizing

Loss of precision that comes with the math of risk aversion

Are there any constraints against the adoption of risk neutrality?

Contract law regimes differ systematically across modes of governance of transactions and have profound implications for contracting

For market --- contract as promise

For hybrid --- contract as framework

For hierarchy --- contract as forbearance

Loss of simplification and convenience that comes with “glossing over important phenomena”

Are there any constraints against the plural legal doctrines of contracts as posed by TCE?

Twin assumptions of human behavior

Definitional: constant across time and space; cognition and guile change only by external impact of objective market parameters of uncertainty and small number exchange; removes subjectivity

Avoid acrimony with counterparty

Complex contracts are unavoidably incomplete because of bounded rationality

Contract as promise and individual promises are vitiated by opportunism

Loss of using customary price theory method

Are there any constraints against adopting the twin assumptions of human behavior?

Application of autonomous bilateral trading-origin of opportunism

Combination of incomplete contract, specialized asset, and uncertainty results in bilateral dependency and origin of opportunism

Hybrid contracting

Cost of changing legal doctrine of contract

Any constraint against the contract triple?

Application of credible commitment: inspires confidence, continuity and harmony

A promise with a “sting” = a penalty on top of lost revenues; e.g., penalizing delays, diminished specialization, loss of economic ground

Hostage contracting

Equilibration of asymmetrical capacities between parties

Challenge to general and partial equilibrium theory when supply equals demand

Any constraint against the adoption of credible commitment that inspires confidence, continuity and harmony?

Application of contract provisioning

Support for building superior institutions through economizing; moves crossover point between hybrid and hierarchy governance structure to the right, i.e., it broadens the scope and lowers the marginal governance cost of the hybrid mode of governance

Change in assignment of property rights related to institutional change

Change in sequence if not in substance of the procurement-negotiation-contracting intervals

Cost of redundant exercise

Cost of changing procurement-negotiation-contracting interval order and/or substance

Any constraint against contract provisioning?

Application of concept of economic organization

Analyzable by economists

Organization as a nexus of contracts

Quantified by contract theory

Increased complexity and uncertainty

Any constraint against the concept of economic organization?

Conflict resolution

40 year Utah Power Co. contract

High cost of court ordering; court always as last resort; try solving conflict internally, then try arbitration, then go to court

Increased complexity and uncertainty

Any constraint against the definition of conflict and its resolution?

Where and When

TBD

The Embassy Row Hotel
2015 Massachusetts Avenue Northwest
Washington, DC 20036
embassyrowhotel.com‎

InfraGov Workshop registrations will be online soon.