DYNAMICS OF GOVERNMENT CONTRACTING: PROPOSALS FOR EFFICIENCY AND SATISFACTION OF PUBLIC NEEDS

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DYNAMICS OF GOVERNMENT CONTRACTING: PROPOSALS FOR
EFFICIENCY AND SATISFACTION OF PUBLIC NEEDS
1
Felipe Di Stefano Pereira, 2
Tito Livio Medeiros Cardoso, 3
Erica Braga, 4
Debora Francisco Lalo
1,2,3
BRG Berkeley Research Group, São Paulo, Brazil
4
Department of Mechanical Engineering, University Center of FEI, São Bernardo do Campo, São Paulo
Email: 1
fpereira@thinkbrg.com, 2
tcardoso@thinkbrg.com, 3
ebraga@thinkbrg.com 4
dflalo@fei.edu.br
Abstract: The present article aims to present a proposal for efficiency and satisfaction of public needs related to
government contracting, given the notorious cases of low efficiency in investments of public interest around the
world. To understand the various factors involved, a comparative study was first carried out between public
procurement processes and their requirements in different countries. A generic and hypothetical case was then
modeled in the form of a simple dynamic system related to government contracting. This way, the authors suggest
that, even in a selection system based on the lowest price, it is possible to obtain design and construction quality
since some conditions, which will be presented throughout the article, are implemented.
Index terms: Government Contracting, Public Investment, Public Projects, Infrastructure.
I. INTRODUCTION
Infrastructure projects are of broad
interest to society for achieving the objectives, such as
meeting the growing demand for services by the
population, implementing public policies, increasing
efficiency in the use of resources (financial and
natural), improving regional competitiveness and
national attraction of foreign capital, development of
sectors such as tourism and lodging, generation of
jobs, among others.
In spite of this relevance, the cases of low
efficiency in the investments of public interest are
notorious, as shown in Figure 1.
Figure 1: Significant cost overruns and delays in various public
interest projects [1]
Low efficiency in public investments are
observed in locations as diverse as the US, where road
projects in 2009 were executed 40% above bid
amounts (equivalent to USD 1.2 billion overflow), as
in Canada, where a sample of 50 road projects had a
cost overrun of 82% in 2006 [8], Nigeria, where 92.3%
of building projects in a sample of 2017 showed
average growth of 20% in relation to contracted budget
[2] and Palestine, where , in a sample of 169 road
projects, 76% presented construction cost increases in
relation to the budget [3]. In other countries, the
problems extend to the operational phase. As an
example, in 2016, 78.4% of 105,814 km of Brazilian
federal highways presented conditions that
compromise transportation performance and driver
safety, with 42% of the extension having pavement
problems and 55% signaling problems [4].
A set of statistical analyses and research
indicate that project changes during execution are a
factor which influences project cost deviations [5, 8]
and the relative deviations may be even greater in
projects of smaller extent than in larger ones [6].
Locational factors are also identified [5, 6]. These
factors, in turn, refer to the planning deficiency in the
pre-construction phase and insufficient feasibility
studies, including estimation errors and scope
definition gaps [8].
A comparison between studies conducted in
developing and Asian countries shows agreement on
factors related to inadequate initial planning, financial
constraints, cash flow problems of management and
poor contract management [5]. Due to these problems
the contracting systems of public projects in the
various countries have frequently been the subject of
comparisons and analyses [9,10,11,12].
Table 1 presents a summary of the processes
for contracting consultancies and public works in
several countries. The systems used by the countries
present important differences.
Public works contracting systems differ
widely between countries and, in particular, we note
the differences between the criteria for qualification of
tenderers and evaluation of tenders. In spite of
differences in details and nomenclatures, two central
lines of reasoning stand out: one objective is the
"lowest price" (USA, Japan, India, Brazil) and the
other "highest value" (US, UK, France, Germany,
Sweden).

Dynamics of Government Contracting: Proposals for Efficiency and Satisfaction of Public Needs
523rd International Conference on Science, Technology, Engineering and Management (ICSTEM), 12th-13th Jan. Paris. ISBN: XX
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Table 1- Comparative summary of public procurement processes and their requirements in different countries. Based on [9] and [10]

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The "highest value" evaluation covers several
methods ranging from the most objective, in the
economic quantification of Value for Money (VFM),
to a system of weights and factor scores, which in
many cases includes the price of service, to more
subjective analyses, consolidated in the form of
descriptive narratives.
According to the OECD, Value for Money
(VMF) is the ideal combination of cost and quality
over the life of the asset (or suitability for the purpose)
to meet user needs. It can be evaluated using the
criteria of economy, efficiency and effectiveness [15].
The World Bank guides the use of the factor
and weighting system to achieve Value for Money in
contracting works, [16] but, interestingly, we see
countries that predominantly contract for the lowest
price criterion and in general, good performance of
contracted services is obtained - as the case of Japan –
on the other hand, when the best value evaluation
systems are used, not always the good cost and time
performance of works are obtained - as the case of US.
In the details the differences are shown even
in the more objective or more bureaucratic way, in
which public administrations are issuing notices to the
market. As an example, Figure 2 shows an example of
an edict focusing on the results previously obtained by
the proposer in previous projects - note that there are
no criteria as to where the results were obtained. In
other situations, we observed a notice for the hiring of
the same service that included in the requirements, a
technical file registered in an organization of the
country, that the collection should refer to services
performed in the country, establishing requirements of
the profession of the team that would conduct the work
("only engineers", etc.) - and with all this, without
establishing a single line on the actual results obtained
by the company in past jobs, in the country or in the
world. In their comparison of the qualification criteria
used for contracting public works in the Czech
Republic and Poland, the authors stated:
“Qualification criteria (QC) can be identified as an
important risk of corruption. For instance,
methodology for local governments notes, that
determination of unnecessarily strict QC for suppliers
to the subject of the contract results in the elimination
of effective competition and contracts can be even
tailored to pre-selected contractor.” [12]
These differences indicate that there are
multiple factors and differences influencing the
performance of public projects.
Figure 2: Requirements for qualification of tenderers in public
tender for contracting planning of public sanitation
infrastructure projects. Banning, California (USA) [14]
II. UNDERSTANDING THE
CONTRACTING OF PUBLIC
PROJECTS AS A DYNAMIC SYSTEM
To understand the various factors involved in
contracting a public project, let us model a generic and
hypothetical case in the form of a simple dynamic
system.
The system in Figure 3 describes the
following case:
 A locality with an infrastructure deficit
generates a flow of annual demand for project
bids in the design-bid-build format to meet
the public needs;
 A certain technically qualified constructor
competes for projects by proposing a
construction price that determines their
success rate in these bids - the negative sign
in the relationship between "construction
price" and "bid success rate" identifies that
the lower the price the higher the success
rate);
 The number of annual bids and the success
rate determine the number of projects under
construction, which accumulates at each
annual round of new bids;
 For simplicity, the builder is paid monthly
(fixed installments of the constructions price
in stock, divided by the construction period),
a fraction of this amount being his profit;
 The stock of projects under construction
decreases as a result of the projects flow that
were completed - which depends on the
construction period;
 Completed projects increase the satisfaction
of public needs, decreasing the flow of new
bids for the following year - characterized by

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a negative sign in the relationship between
"satisfying the public needs" and "bidding";
 The inventory of projects under construction
can also be reduced by the cancellation flow
of contracts. In this case, however, public
needs are not met.
Figure 3 - Simple dynamic system representing a hypothetical
case of contracting public projects
Even such a simple model exposes a conflict
from the outset, the relationship between price, success
rate in bidding and profit is the opposite, that is, lower
prices increase the success rate, but reduce the amount
of profit.
In Figure 4 we observe at least two forms,
which are not mutually exclusive, for the constructor
to increase his profit in the same conditions presented
in the case:
i. If there are delays in construction, the builder
will submit claims on schedule extension and
the delay period will add up to the initial
construction period, increasing the billing
period so that the total cost of the work
exceeds the bid price - as if observed in the
United States and, previously, in the United
Kingdom (see table 1). According to the
referenced research and studies, the poor
quality of engineering and planning projects
is a source of delays in the construction of
public works. In Figure 4 this relation is
evidenced by the negative sign between "
project quality" and "delays": the lower the
quality of the project, the greater the delays.
ii. If the construction quality is lower, the
builder's profit is higher, regardless of the
project quality (for example, by using lower
materials or smaller quantities than
engineering project size). Figure 4 shows that
as a side effect, since the relationship is
positive, low quality of construction reduces
the satisfaction of public needs, which in turn
increases the demand for bids, forming a
vicious cycle that repeats itself.
Figure 4 - Dynamic system, now considering the quality of the
engineering design and the quality of the construction (in red)
Figure 5 presents the same dynamic system
where management now responds to the delays and
poor quality of construction through the application of
fines and contracts cancellation. The negative
relationship indicates that more fines reduce the
builder's profit as well, contracts cancellation reduces
the inventory of projects under construction which
directly reduces profit.
Figure 5 - Dynamic system, now considering responses in the
form of fines and cancellation of contracts
However, this set of responses has at least
two drawbacks:
 Cancellation of contracts reduces the
inventory of projects under construction
before they are completed, preventing the
fulfillment of the public needs.
 In practice, in many administrations, there is
a delay between the time of delays and loss
of quality in the construction and the
instant of penalties application - the
questioning occurs after construction,
reducing or canceling its effect as corrective
action.

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Figure 6 presents another response to the
problem in the form of a negative feedback loop where
delays and quality of construction reduce the success
rate of the builder in the new bids. At the same time,
proactive management action in attracting other
builders and new entrants to the local market will
further dilute the contractor's success rate unless it
builds good quality projects without delays breaking
the vicious cycle of feedback.
This approach is a long-term solution with a
focus on the wide competition and is part of the
concept of layered antifragility, exposed by Table [13],
as the ability of a system to acquire resilience and
evolve from the confrontation experienced by the
subunits that comprise it. For example, when local
restaurants compete between themselves it results in
the antifragility of the collective in the local sector. If
the restaurants were individually robust, the overall
business would either be stagnant or weak and offer
nothing more than standard meals. The sector would
also be more exposed to systemic crises.
Figure 6 - Dynamic system, now considering a negative process
feedback cycle (in green).
CONCLUSION
The comparison of consulting and works
contracting systems by the administrations of several
countries demonstrates that the achievement of
efficiency and satisfaction of the public needs present
several underlying factors that prevent the reduction of
the problem to a trivial definition of criteria for the
qualification and selection of bidders, such as "lower
price" versus "higher value".
The present work, through the study of
dynamics in a simple hypothetical case, suggests that
even in a selection system based on the lowest price, it
is possible to obtain design and construction quality
since some conditions are provided:
 Criteria for qualification and selection based
on the performance of the company in
previous projects, objectively characterized.
 Encouraging layered antifragility by
expanding the supplier market and diluting
the relative importance of larger local players
by encouraging new or local suppliers to
enter.
 To enable this, proactive actions by the local
public administration may include:
o the bilingual bidding, considering
more universalized criteria and
nomenclatures;
o International presentation of the
pipeline of public projects;
o Exclusion of bureaucratic
requirements for registration in local
organizations, or previous
experience in the field.
 Real-time control of the building's physical
progress. Transparency and publicity of the
performance of projects under construction.
 Bids based only on engineering executive
projects, including definitive construction
plan.
These conclusions were derived directly from
the dynamic system analyzed, respectively, acting on
the variables "Other constructors and new entrants",
"construction quality " and "design quality" in the
complete model of Figure 5. Extensions of this work
can be done detailing the steps which precede the
bidding, as well as the systematic control of public
administration, among other possibilities.
ACKNOWLEDGMENTS
The authors acknowledge Claudio Graeff
(Construction Director of BRG Brazil) and University
Center of FEI.
REFERENCES
[1] “The century’s most troublesome construction projects”,
accessed in: 11/06/18, http://www.globalconstructionreview.
com/perspectives/centurys-most-troublesome-construction-
pr8oje8ct8s/
[2] KADIRI, Dele S.; ONABANJO, Babajide O. “Cost and Time
Overruns in Building Projects Procured Using Traditional
Contracts in Nigeria.” Journal of Sustainable Development,
v. 10, n. 5, p. 234, 2017.
[3] MAHAMID, Ibrahim. “Analysis of cost deviations in road
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[4] CNT (Confederação Nacional do Transporte) “Transporte
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[5] SWEIS, Ghaleb J. et al. “Cost overruns in public construction
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[6] ODECK, James. “Cost overruns in road construction—what
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1, p. 43-53, 2004.

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[7] RAMABHADRAN, Muralidaran. “An Investigation into
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[10] GAZULA, Sriharsha; VADALI, Anil Kumar. “Comparison
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[11] PETRISOR, Mihai-Bogdan. “Comparison of the Public
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[12] KORYTÁROVÁ, Jana et al. “Exploring the contractors’
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[13] TALEB, Nassim Nicholas. “Antifragile: Things that gain
from disorder”, 2012.
[14] “RFP 2016-009, Request for proposal (RFP) for integrated
master plan for water, wastewater and recycled water
systems”, City of Banning, Public Works Department.
September 16, 2016.
[15] JACKSON, Penny. “Value for money and international
development: Deconstructing myths to promote a more
constructive discussion.” Organization for Economic
Cooperation and Development, 2012.
[16] “Procurement Guidance - Use of evaluation criteria for
procurement of Goods, Works, and Non-Consulting Services
using RFB and RFP”, World Bank, July 2016.
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