Raising the Bar in Contracting

Raising the Bar in Contracting

In a world mired in economic and financial woes brought about by dubious business practices, Panama has raised the bar by putting forth an airtight contracting process while awarding its largest-ever construction contract under the Panama Canal expansion program. Given our historic role in the canal since 1903, we Americans should be extremely proud of this achievement.

I believe the international shipping community, both carriers and shippers, will find the process assures the canal will retain and expand its important role in international trade.

In July, following a rigorous process, the Panama Canal Authority awarded its much-sought-after “design and build locks” contract to Grupo Unidos por el Canal, a major step toward completing the expansion of the canal by 2014.

At $3.2 billion, the locks contract is the largest and most critical tender in the $5.25 billion expansion program, and brings with it challenging work, financial benefits and international prestige. With so much at stake, the industry will analyze the process leading to the Panama Canal Authority’s competition. My forecast: The agency’s meticulous competitive process will be a global model for major infrastructure projects for years to come.

In keeping with its commitment to fairness and transparency, the canal agency developed a sound process to stand apart. From the issuance of its request for qualifications in August 2007, to the recent announcement of the contract, the agency implemented extraordinary controls to protect the integrity of the contracting process.

First, after prequalifying four prospective consortia in December 2007, the canal authority received three technical bids with corresponding price proposals on March 3, 2009. A notary public, the Panama Canal Authority contracting officer and the canal’s inspector general signed and sealed the price proposals, which, along with the authority’s owner’s price, were locked in a transparent box and secured in Panama’s national bank until the televised opening ceremony.

The canal authority’s 15-member expert Technical Evaluation Board, in a diligent, four-month process, assessed and scored the technical proposals. Three groups of five from the board evaluated 14 criteria. To protect against bias, the procedure was blind, and all involved executed confidentiality and conflict-of-interest statements. To supplement the already strong knowledge base, 50 local and international specialists were engaged to provide support.

The Panama Canal Authority enlisted the world-renowned firm Deloitte as the external auditor to analyze the technical review process. Deloitte certified the Technical Evaluation Board’s procedures and the subsequent compliance with those procedures.

The canal authority announced final technical tabulation scores and opened price proposals on July 8. Technical points awarded to each consortium were added with the price proposal to determine the total score. The agency based the contract award on the “best value” model, weighting 55 percent for technical quality and 45 percent for the bid price.

The winning consortium, Grupo Unidos por el Canal, will design and build the new set of locks to serve as the foundation for a new lane of canal traffic, doubling the waterway’s capacity to more than 600 million tons and allowing more traffic and transit of longer, wider ships with deeper drafts. GUPC comprises some of Europe’s best construction and engineering firms, including Sacyr Vallehermoso and Impregilo.

The other prequalified consortia that vied for the contract included one made up of Bechtel, Taisei and Mitsubishi, and the C.A.N.A.L consortium made up of several Spanish and European companies such as ACS, Acciona, FCC and Germany’s Hochtief.

Grupo Unidos por el Canal joins other stellar organizations on this project, including CH2MHill from the United States. Five major multilateral and development agencies representing Europe, Asia, Latin America and the U.S. have offered to finance part of the canal’s expansion, demonstrating confidence in the canal authority’s management and financial stability. The $2.3 billion financing package will cover part of the $5.25 billion total project cost. The banks include the Japan Bank for International Cooperation, the European Investment Bank, the Inter-American Development Bank, International Finance Corp. and Corporacion Andina de Fomento.

When it assumed control of the canal in 1999, the canal authority moved toward a market-oriented business model focused on customer service and reliability. Its performance speaks for itself in terms of profitability, efficiency, integrity and transparency.

For some 85 years, the canal was run superbly as a U.S. agency. Over the past nine years, based upon two key benchmarks (canal waters time, or how long ships must wait for passage, and safety), the canal authority has improved on America’s enviable record. The agency’s transparent, honest management of the expansion program, on-time and on-budget thus far, continues a tradition of excellence to the benefit of the entire world.

Joe R. Reeder, a member of the Panama Canal’s International Advisory Board, was Army undersecretary and chairman of the Panama Canal Commission from 1993 until 1997. He can be contacted at reederj@gtlaw.com.