Challenges in public procurement in water and sanitation – part 1

For a long time, the Water Industry's member companies have seen recurring challenges in public procurement for the water and sanitation sector. Two years of pandemic followed by the strained situation with the war in Ukraine, makes it even more important that the challenges in procurement are discussed. All to ensure our most important food - water.

To address the challenges in procurement in the water and sanitation sector, a survey has been conducted by the focus group for procurement issues under the umbrella of the Water Industry. In a series of articles, we follow up on the problems that have been identified and that, without action, risk resulting in more costly processes for both municipalities and bidders. Furthermore, these processes are often interrupted without having achieved results. First in the series of articles is the problem formulation "”"No bids received"”.

No bids received

Correct public procurement (LOU/LUF) is important to achieve stated goals and to be able to present a clear proposal, correct budget and implementation plan that lasts all the way. Another overall risk, when public procurement cannot be implemented to its full potential, is that values such as sustainability and transparency do not have the opportunity to take the space that both parties desire. Unfortunately, it often happens that decisions are made not to submit tenders for announced procurements and the reasons for this can be several.

Examples of reasons why no bids are received:

Excessive demands on functional guarantees
The customer sets too high demands on functional guarantees, which they then adhere to, sometimes with the support of a technical consultant, despite the supplier pointing out that equipment suppliers cannot guarantee the requirements set.
Absolute requirements for non-licensing requirements
Often, the functional requirements are of an absolute or ”make good” nature and thus without a penalty limit, which theoretically could result in an infinite amount of damages. In practice, a settlement is reached, but after a long and costly process. In some cases, absolute requirements are correct, such as in permit-related emission requirements, while, for example, the dry content of a sludge fraction should instead be limited by a penalty. The combination of absolute functional requirements and excessively high functional requirements means that a serious supplier is unlikely to submit a tender, at least not without reservations.
Unreasonably high fines
A penalty ceiling of 5-10%, which has become something of an industry standard, is often an acceptable level for a supplier. It sometimes happens that unreasonably high penalty ceilings of up to 20% are set. The supplier can handle this, but it drives up costs because it requires a high level of extra risk premiums in the tender. Delay penalties should also have a ceiling, which is also most common today.
Reference validity period too short
In more extensive contracts, the validity period for project references is sometimes set too short. The validity period is typically set at 5 years from the approved final inspection, which is difficult to achieve as many contracts run over 3-5 years. Requesting multiple project references of the same scope is almost impossible. When the client does not receive tenders that meet the specified reference requirements, and the procurement has to be cancelled and redone, it is common for the reference requirements to be significantly reduced in the next procurement. This entails a risk of receiving responses from tenderers who do not have the technical competence to carry out the contract, which can have serious consequences as a result.
No indexation
Projects that are more extensive, extend over a longer period of time, and lack indexation mean that the contractor is expected to be able to predict how the price of materials and goods will vary during the project's implementation. This risk is not calculable for the contractor, especially in the current uncertain world situation.
The important dialogue
Where increased feedback and market dialogues take place before procurement, many of the above scenarios can be avoided. Responsiveness between the client and the supplier can also aim to avoid cost increases, delays and ambiguities during the course of the project. A key role is played by the technical consultant in ensuring a balanced request for quotation and a well-thought-out procurement form.

Methods that Negotiated Procedure or Competitive Dialogue makes it easier for both the client and the supplier and the project.

The article is compiled by the focus group for Project Implementation & Procurement within the Water Industry, which works with the long-term goal of creating more effective business processes for the Water Industry.

Procurement