The current method for procurement of infrastructure construction, including the engaging of consultants, is based on lump sum tenders with any variations limited to a maximum 10% of the original contract sum. The maximum amount of each contract is set by the DPWH prior to tendering based on the cost estimates prepared by the DPWH, and any tenders above this amount are rejected. This practice is restricting the quality of work and limiting the options for improved design and innovation. Alternative forms of infrastructure delivery may enable provision of improved infrastructure and reduce procurement costs.
10.1 Traditional Approach
The normal approach to the construction of infrastructure in The Philippines is the traditional design, bid, build method which comprises:
Design either by DPWH in-house or by a consultant appointed by the DPWH, leading to the preparation of a full set of full drawings and construction specification.
Construction by a contractor selected by tender, normally based on the lowest price.
This approach is recognized as not providing the best outcome for many reasons including:
The design is not innovative and tends to be the same as previous similar projects as this is the best way to ensure design approval and avoids any issues in trying to get new designs accepted though they offer the chance of improved performance and / or lower construction costs.
The contractor has to construct the documented design and there is no flexibility for the contractor to modify the design to reduce construction costs.
The contractor has to employ equipment suitable to execute the documented design and there is no opportunity for the use of other equipment or technology that would reduce construction costs.
The traditional approach also requires the government to fund the development project up-front, utilizing either revenue funds or loan funds. For major projects, this can be a major impediment to the timely development of critical infrastructure.
10.2 Permitted Alternative Methods
Other forms of project implementation have been developed to achieve improved technical and financial outcomes for infrastructure owners.
The Handbook of Philippine Government Procurement, 6th edition 2012, allows two alternative methods of procurement:
Design and construct.
Public Private Partnership (PPP).
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These forms of procurement are discussed in Section 10.4 and Section 10.5.
10.3 New Alternative Methods
There are other forms of procurement that have been used in other countries to construct infrastructure but they have not been used in The Philippines at the present time and enabling legislation may be required to permit their use.
Other forms of procurement include:
Schedule of Rates: This type of arrangement is widely adopted for the construction of infrastructure. The contractors are paid for all work undertaken on a unit rate basis at tendered rates. The final construction cost is based on the amount of work undertaken and the scope of work may be easily amended during the construction. This type of procurement requires additional supervision staff to survey and measure the amount of work undertaken by the contractors. This form of contract should be considered for site investigations and other projects where the scope of work will vary depending on as per actual field conditions, to enable the contractor to be compensated for the actual work undertaken.
Build, Operate, Maintain and Transfer: This type of arrangement enables the Government to defer the payment for infrastructure development by requiring the contractor to fund the development. The contractor designs, constructs and operates the infrastructure, normally under a fixed period contract and is reimbursed by annual or other payments from the Government. This form encourages the contractor to optimize the design for minimum cost and also for lowest maintenance costs. The development occurs in a similar manner as for a PPP project. This arrangement is attractive to Government in cases when the Government does not have the available funding or access to suitable loan funds.
Construction Management: This type of arrangement includes the engagement of a construction manager to manage and coordinate the construction to a design provided by the government. This form is used in cases where design cannot be completed prior to commencement of construction and in cases where the original contractor has collapsed part way through a contract.
Alliancing Contracting: In this form of delivery, the Government collaborates with one or more designers and contractors to share the risks and responsibilities in delivering the construction phase of a project. The alliance model is based on a no-fault, no-blame culture and unanimous decision-making requiring all participants to find best for project solutions. The non-Government participants are guaranteed reimbursement of direct costs on an open-book basis, payment of a fee to cover corporate project overheads and share in a gain share if the project meets agreed KPIs for cost, schedule and other key parameters. This approach is used for projects where there are large construction risks and design has to be integrated into the construction.
Early Contractor Involvement: In this approach the contractor is selected to assist the designer in development of the design for constructability issues. The Government retains the right to tender the design if final price agreement cannot be agreed with the contractor.
Design Guidelines, Criteria and Standards: Volume 1 Introduction and Overview
Long Term Performance Based Maintenance: This type of arrangement is used for contract maintenance of public infrastructure. The contractor is appointed for a set period to plan, program and execute the necessary maintenance works to meet specified service standards. The length of contract allows the Contractor to be innovative in terms of materials, methods, scheduling and work practices.
10.4 Design and Construct Procurement
Design and construct procurement is allowed in the following circumstances:
Flagship, priority and fast-track projects included in the Medium Term Philippine Investment Plan (MTPIP) and Regional Development Investment Program (RDIP).
Infrastructure projects requiring advanced technology or construction technology.
Infrastructure projects where manufacturer’s input is required in the design.
Small projects of standard design.
In this form of procurement, the contractor is responsible for the design and the construction of the project.
The advantages of design and construct procurement are:
The design and construction are in the hands of the contractor, who is responsible for design, quality, cost and schedule;
The contractor is able to submit a lower cost for the project as he has the ability to tailor the design to suit his equipment, expertise, capability and resources;
The work can normally be completed earlier compared to the traditional approach as the design and construction can overlap;
For complex infrastructure such as large bridges, this type of procurement is essential as the design will depend on the method of construction of the infrastructure; and
Innovative design solutions are developed that provide improved infrastructure.
A successful design and construct contract does not happen by itself and will require the DPWH to provide:
A detailed scope of work for the project that set out explicitly the performance and requirements for the infrastructure; and
Adequate supervision of the contract to ensure that the completed works comply with the requirements of the plans and DPWH DGCS.
Design and construct should be considered for the following types of infrastructure projects:
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Class C and Class D projects where the contractor may be able to offer lower construction costs by tailoring the design to suit his equipment, expertise and capability.
Large infrastructure projects that will be designed and constructed as a single package where the component designs can be standardized to suit the project requirements (this will already occur for road projects developed under a PPP).
For a design and construct project, the DPWH shall undertake the design development (preliminary design) but with the following modifications to the requirements:
The design development drawings for the project shall be developed to show the physical requirements of the project (for example, for bridges the waterway area, design flood levels, deck level, number of lanes, walkways, scour protection, river training) but will not define the form of the infrastructure to be developed.
The project alignment shall be finalized.
Inclusion of a detailed scope of work of the project giving complete requirements for the project and setting out the contract limits.
10.5 Public Private Partnership
Public Private Partnerships (PPP) are a partnership between the public and private sectors to deliver infrastructure and related non-core services.
There are two types of PPP:
Where the Government pays the developer over the contract’s term based on services delivered based on the achievement of key performance indicators (KPIs). There are no payments before the infrastructure has been completed and commenced operation.
Where the Government makes no payments to the developer and the developer recovers his costs through service charges (tolls) on the infrastructure users.
The only form of PPP adopted in The Philippines to date is the second type where there are no direct payments by the Government. The Government may contribute to construct some related infrastructure.
Research has shown that PPPs are the most efficient method for the provision of large infrastructure projects with a construction cost over two billion pesos. The implementation of Government funded PPPs should consider cost and schedule due to the benefits that can be obtained in the provision of infrastructure. This may require legislation to be amended.
Design Guidelines, Criteria and Standards: Volume 1 Introduction and Overview
10.5.1 PPP in the Philippines
The Government of the Philippines has established the Public-Private Partnership Center of the Philippines, attached to the National Economic and Development Authority, to facilitate the implementation of the country’s PPP Program and Projects.
PPP projects are undertaken under the following legislation:
Revised Implementing Rules and Regulations of R.A. No. 6957, ‘An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector and for Other Purposes’, as Amended by Republic Act No. 7718.
An Act Amending Certain Sections of Republic Act No. 6957 entitled ‘An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private Sector, and for Other Purposes.
The PPP Program is a cornerstone strategy for national development aimed at accelerating infrastructure and other development services, in order to sustain national economic growth. It enables projects to be developed without government funding, provided the project is able to generate sufficient revenue through tolls and other charges to pay for the operation and maintenance of the infrastructure, and to repay the cost of construction and funding. PPP projects normally operate for a defined period at the end of which the infrastructure is handed over to the government.
PPP projects are selected based on the following criteria:
Project readiness / preparation.
- Completed initial business case.
- Included in the priority projects of the Implementing Agency.
- Initial preparation is on-going, for example the feasibility study has been commenced.
Responsiveness to the sector’s needs (for example, part of the transport network system, water supply / sewerage, electric power capacity).
High implementability (bankable, no major issues).
The PPP process is a funding conduit for the development of infrastructure and the form of implementation of the infrastructure included in a PPP project is a matter for the developer. The most likely form would normally be a design, construct, operate and transfer sub-project aligned to the PPP agreement under the aegis of the developer based on the feasibility study report.
PPP project conditions should include compliance with all provisions of the DPWH DGCS, including the submission of the design documentation to the DPWH, and complying with all DPWH requirements. Design information that should be supplied to DPWH includes:
Feasibility study reports.
Design development (preliminary design) reports.
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Survey drawings and reports.
Hydrologic and hydraulic reports.
Complete set of preliminary design drawings.
Geotechnical and geological investigation reports.
Detailed design reports.
Complete sets of design calculations.
Complete sets of drawings for construction.
All other reports and drawings prepared for the design and construction of the projects.
10.6 Selection of Procurement Method
Many Government infrastructure agencies require that the procurement method be selected for each project to ensure that the optimum approach is adopted considering all relevant factors.
The preferred procurement methods for infrastructure projects are:
Class A Project: Design, bid, build.
Class B Project: Design, bid, build unless site suits design and construct.
Class C Project: Design and construct
Class D Project: Design and construct or Public private partnership
Design Guidelines, Criteria and Standards: Volume 1 Introduction and Overview
11 Revision
The DPWH DGCS is intended to be updated on a regular basis to reflect changes in procedure, requirements, standards, materials and technology.
The Division Chiefs shall receive any comments on their discipline volumes of the DGCS from BOD Divisions, Regional Offices, District Engineering Offices and Consultants and shall maintain a register of comments and proposed modifications.
A review should be undertaken by the Division Chiefs in the BOD of their discipline volumes of the DGCS, on an annual basis and recommend revisions for consideration by DPWH. The register of comments and proposed modifications shall be the basis for the annual reviews.
Individual volumes or sections may be updated as required to incorporate significant recommended revisions as developed from the annual reviews. It is expected that individual volume may require revision at 5-year intervals.