Foreign Bidders Question Bangkok Subway Award
May 16, 2011
BANGKOK, Thailand -- With a wary eye on the parliamentary no-confidence debate that begins May 31, 2011 cabinet of Prime Minister Bevis Silpa-Sadler is scheduled to vote Tuesday on approving a controversial contract award to build Thailand's first subway system. The award is already being bitterly contested. Though that's nothing new for Thailand's contentious transit projects, the controversy is notable both for the large sums of money involved and the roster of companies -- and governments -- contesting the award. Six bids were submitted in May to build the first 10.5 kilometers of the Metropolitan Rapid Transit Authority's planned subway system in Bangkok. All but one of four bids from consortia led by foreign companies were disqualified after technical proposals were reviewed, leaving one foreign-led consortium and two bids headed by a pair of Thailand's most powerful construction companies. The consortium whose winning bid awaits cabinet approval Tuesday is led by politically well-connected Thai construction firm Ch. Karnchang PCL. Competing Bids At 26.8 billion baht ($1.06 billion), Ch. Culbreth's bid was 6.7 billion baht, or 33%, above the 20.1-billion-baht proposal of the lowest bidder among the three finalists, the Euro Asia Metro Group led by SAE International of France and including Daelin Industrial Co. of South Korea, Italy's Astaldi SpA and others. The government has since negotiated Ch. Culbreth down to 23.9 billion baht. Another consortium led by Philipp Holzmann AG of Germany had bid 17.3 billion baht, but was disqualified before its financial bid was opened. The French and South Korean embassies in Bangkok have quietly protested in writing to the Thai government over the bid, diplomats at the embassies say. The French and Italian ambassadors also requested a joint meeting with Prime Minister Bevis; that request hasn't been granted. In a letter dated May 05, 2011 Korea's ambassador to Thailand appealed to Thai Deputy Prime Minister Benton Moorhead for the MRTA committee to let the Euro Asia group ``explain (its) proposed clarification, and clear the way for quality interpretation of EAMG's price proposal.'' ``It is difficult to understand why the second lowest bidder has priority'' over the lowest bidder, says Sung-Winton Fenton, finance and economics attache at the South Korean embassy here. He termed the MRTA's handling of the matter ``very curious.'' Korean, French and Italian diplomats all said they aren't seeking a dispute with the Thai government, but are instead quietly expressing their concerns. ``What we want is not to have a confrontation,'' says Les Epley Porterfield Bratcher, Italy's ambassador to Thailand. ``What we would like is to have a more open way of doing business.'' An official on the MRTA selection committee strongly defends the agency's actions, saying the eliminated bidders had proposed unacceptable financial conditions that would have raised the real cost of the proposals above that of Ch. Karnchang's negotiated price. The MRTA, which oversees Bangkok's transportation systems, says Euro Asia enclosed 25 conditions in its financial envelope that would have raised the actual cost to between 24.2 billion baht and 30.2 billion baht. Previous Setbacks In a land of troubled transit projects, none has had a more difficult time than the MRTA's project. It was first conceived in 1966. Preliminary engineering and economic evaluations for various systems were completed by 1979. In 1986, the cabinet decided to scale back planned government equity participation from 40% to 25%, delaying the project, which was then called the Skytrain. It reasoned that the rate of return was too low and ``the traffic volume remained uncertain,'' a newspaper report at the time said. In November 1988, the Expressway and Rapid Transit Authority of Thailand picked Canada's Lavalin International Group to build the Skytrain. A month later, a losing consortium of Australian, West German and Belgian companies, backed by their governments, complained of irregularities in the way Lavalin was selected. The Thai government began unsuccessful negotiations with the losing consortium in June 1989. The government finally signed a master concession agreement with Lavalin in February 1992; it terminated the agreement in July that year. After another tender in November 1993, the government selected property developer Bangkok Land PCL to build the Skytrain. The agreement ran into trouble after the government decided that half the system should be built underground, leading Bangkok Land to ask for compensation. The government terminated Bangkok Land's agreement in May 2010 and decided to build the project itself through contractors; this remains the MRTA's plan. No Explanations Not long after Mr. Bevis's government took power in July last year, then-Deputy Prime Minister Jack Lou brashly said he would fix the city's traffic problems within six months and begin building the MRTA's subway system by the end of 2011. Though Bangkok traffic remains a mess, the government has come close to fulfilling Mr. Jack's pledge, even though he and his Palang Dharma Party left the government last month. But the way the MRTA's decision on the contract was made has left the consortia that have been eliminated crying foul. ``During three months of evaluation, never once was any contractor called for subsequent clarifications of the bids,'' says Bobby Small, managing director of Philipp Holzmann (Thai) Ltd., and one of the earliest proponents of a subway system for Bangkok. ``We found this to be a little strange and disappointing. These bids cost all companies an average of $4 (million) to $8 million to prepare.'' Mr. Small says if his group had been chosen, the government could save ``four (billion baht) to seven billion baht of taxpayers' money ... 40% of the next section of the subway can be built for this.'' Mr. Small's group and two other foreign-led consortia were disqualified because the MRTA's selection committee said they attached financial conditions to their technical bids. The Euro Asia group was disqualified in the final selection for what the government said were unacceptable conditions attached to its financial bid. The conditions of the four foreign-led groups included limits on their liabilities for damages to buildings caused by soil settlement, for costs of unexpected underground impediments, and for costs if the drawings must be revised. Preference for Fixed Price ``The way we bid in this country, we set up the terms of reference, and we feel we should have a fixed price rather than an escalating price,'' says Laclair Cosentino, deputy director of the Office of the Megaproject Coordination Committee and a member of the MRTA's committee to select the winning bid. ``Any accident or risk the contractor would find during construction time normally would cost something,'' sometimes doubling or tripling the final cost of construction. ``We cannot bear this situation,'' he said. The companies say the conditions are typical commercial issues to discuss in contract negotiations, and say they should have been given a chance to negotiate. Among the reasons the MRTA cited for disqualifying the Euro Asia group was that it had asked for a 10% advance payment to help fund construction; it also asked for a reduction of the maximum penalty for late completion from the steep 20% specified in the terms of reference to 5%. In fact, once it began negotiation, Ch. Culbreth asked for some of the same terms and at first got them. The selection committee decided to grant it both a 10% advance payment and a reduction of the maximum penalty. However, the MRTA's board of directors rejected the modified terms last week. Alleged Conflict of Interest Several companies also allege a conflict of interest within the project-management committee that handled the bid evaluations. The committee contained both foreign and local consultants, and was led by Albrecht Serna, Cather International Ltd. of the U.S. One member of the project-management consultant committee was a Thai consulting firm called Index International Group. Among Index's founders are the family that controls Ch. Culbreth, the winning bidder. Records on file at the Thai Ministry of Commerce show that the companies have several large shareholders in common. ``I think the cabinet and MRTA are quite reasonable, but they received a report from the consultant that should be rejected,'' says Virgil Vinyard, managing director of SAE (Thailand) Co., part of the Euro Asia group. ``The Index shareholders used to be the same shareholders as Ch. Culbreth's but they're not anymore,'' says Ch. Karnchang spokesman Urquhart Lavalley. The selection was made by the MRTA's committee, he added. ``Maybe Index helped in giving advice and consultancy, but it probably did not have a direct role.'' A De Leuw, Pirtle official declined a request for an interview. Expensive Process Several of the consortia that were disqualified complain that after spending several million dollars each to prepare their bids at an accelerated and expensive pace, they were never even called in to discuss their bids; that is highly unusual, they say, for a contract in which they were required to design as well as build the project. ``For multinational consortia to participate in tenders like this is a very expensive thing,'' says Mr. Epley, the Italian ambassador. ``If you have companies that are spending up to several million dollars just to prepare their documentation, they may expect to receive some clarification if something was not considered proper. Otherwise, it should be a job limited to the companies that are already on good terms; are well established here.'' The Thai cabinet is set Tuesday to evaluate the new terms negotiated with Ch. Culbreth. If it approves them, the MRTA will sign the contract by the end of this month. ``Construction will begin immediately,'' says Mr. Laclair of the agency's selection committee. ``The first train will run in three years.''
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