Opinion: MP Jeff Sousa On Airport Development

December 1, 2014

Jeff Sousa[Opinion column written by OBA MP Jeff Sousa]

The Opposition has attacked Government plans to rebuild the airport in part by saying that because it has not involved a competitive tender, it is “a slap in the face to good governance,” as Shadow Finance Minister David Burt put it.

As is often the case, the Opposition is making that claim without doing its homework. Had they looked around a little, they would have learned that many western governments are being advised consider alternatives to competitive tendering, especially for projects as large as this one.

Flaws that perhaps don’t make a great deal of difference in small contracts have the potential to produce waste on a grand scale in larger projects.

It was exactly that kind of waste that Finance Minister Bob Richards had in mind when he told the House of Assembly that the traditional RFP process had gone awry in Bermuda in large projects such as Heritage Wharf, the Port Royal Golf Course and the new Police and Courts building, costing the Government millions more than it had anticipated when the building process began.

There are a number of disadvantages to the traditional tendering method of awarding contracts, including these:

  • Competitive bidding seldom allows the customer to get the product he knows is best for the job, because it is underbid by suppliers of products of lesser quality.
  • The best company for the job may not bid because it finds the advertised conditions onerous, or because the cost-cutting process of tendering threatens its reputation for high quality work.
  • To play the game of “cost plus” a supplier offers a bid so low that he is almost sure to get the business. But after the bid is accepted, the customer discovers that a change in plan is vital. The supplier obliges, but the change adds tremendously to the cost of the work, restoring the supplier to profitability.
  • One way a supplier can reduce his costs in the fierce competition to get a contract is by using cheap labour or materials, or by cutting corners and creating safety risks, meaning the customer may end up with an inferior product that costs more in the long run.
  • It can take years to choose a successful bidder. The customer may wait for unacceptably long periods for a product or service that was needed quickly.
  • The process of overseeing the work involved often requires the hiring of expensive consultative expertise not available in-house.

Alternatives to competitive tendering will vary depending on the type of work needed, its complexity and its cost. The following key principles however, can be applied to the majority of procurement decisions:

  • Thorough research of the purchasing requirement and/or alternatives.
  • Open communication with current or potential suppliers.
  • Purchasing decisions based on a strong relationship of trust.
  • Developing a long-term and healthy relationship with a reputable supplier or suppliers.
  • Paying the supplier a fair profit margin.

It is because of these key principles that the Government has turned to the Canadian Commercial Corporation. This is an agency that does no work and supplies no product itself. It is an agency that simply matches customers with suppliers.

CCC provides governments with the benefits of government-to-government contracting, including the time and cost savings of a simplified procurement.

Working as Prime Contractor, the Corporation stands behind every sub contract with the full assurance of the Government of Canada. Its robust risk-mitigation process means that CCC supports only those suppliers that it considers are financially and technically capable and are committed to ethical business practices and corporate social responsibility, thus ensuring a high success rate for projects.

The agency oversees all contracts from start to finish. CCC also provides Procurement Agent services, sourcing and delivering goods and services from trusted companies.

It is an agency that can be depended upon to remove all the disadvantages of competitive tendering, and is capable of saving the Bermuda Government millions of dollars in the cost overruns which have come to be expected on this kind of project.

Far from a slap in the face to good governance, it is a creative method of making sure Bermuda gets the best value for money.

-Jeff Sousa

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Comments (32)

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  1. aceboy says:

    The PLP are not concerned about value for money, other than the value of the money that ends up in certain member’s pockets.

    • Black Soil says:

      The PLP were chaffing at the bit to “one-day” build the airport and pull off another Port Royal. That “one-day” would never come since the PLP bankruped the country to the point it could never afford one. The PLP completely lack the talent pool to do anything different from tax-and-spend. Under the PLP, the airport would have just decayed.

  2. Just a few of points to ponder…

    (1) Competitive bidding seldom allows the customer to get the product he knows is best for the job, because it is underbid by suppliers of products of lesser quality.
    (2) One way a supplier can reduce his costs in the fierce competition to get a contract is by using cheap labour or materials, or by cutting corners and creating safety risks, meaning the customer may end up with an inferior product that costs more in the long run.

    (Following is the assurance we,(Bermuda) require and will receive by dealing with Canadian Commercial Corporation.)

    The agency oversees all contracts from start to finish. C.C.C. also provides Procurement Agent services, sourcing and delivering goods and services from trusted companies.
    It is an agency that can be depended upon to remove all the disadvantages of competitive tendering, and is capable of saving the Bermuda Government millions of dollars in the cost overruns which have come to be expected on this kind of project.
    Far from a slap in the face to good governance, it is a creative method of making sure Bermuda gets the best value for money.

    • Encyclopedia says:

      How do you know you could not have got the same deal for $170 mil instead of $200 mil? How do you know you could not have got a 25 year concession as against 30 year?

      If no one in BDA government is capable of evaluating competing bids, how do they know they got the best deal from CCC?

      For the Finance Minister to say that he knows CCC from financial services industry and they “ticked all the boxes” and so they were the chosen one is not a rational/logical way of selecting the winner of the largest capital project in recent times.

      It clearly appears that the BDA government were not really looking for any other developer/builder, thereby casting suspicions on the deal itself.

      “No money upfront” does not automatically mean that we, the Bermuda taxpayers, are getting the best deal.

  3. whatindeheck says:

    dissappointed in the OBA. This is a nonsense article – had this been the case this should/would have been debated in the house a year ago and these points made then.

    • Makes sense says:

      Just because you don’t understand something, doesn’t mean it is nonsense.

      • heckindewhat says:

        I understand it. The point I am making is that if this is the case these are all the reasons that should have been raised at the time/debated. I.e. why this should be done without competitive tender

        I think the PLP are quite right at the lack of tranparency and concerns over the process. Whether or not it is the right decision the OBA are acting like the PLP in the past when everyone was up in arms about transparency.

        very depressing – seems neither party can learn its lessons.

  4. Encyclopedia says:

    The old phrase “I was born at night…not last night” comes to mind. How and why was CCC selected, when there was a credible alternative airport builder with significantly more experience as an actual “airport builder” and not an “agency/middleman”

    • Not exactly says:

      CCC is involved as they are the ones that will be guaranteeing the project does not cost the Bermuda Government more than quoted (ie they would eat the difference). It is also because of their involvement that the project is able to be financed against Canada’s AAA rating thus ensuring the much better financing costs than if Bermuda or the actual “airport builder” financed the deal.

      The company actually building the airport will not be CCC, but rather a company with direct experience in such projects.

      • Encyclopedia says:

        (1) How do you know the financing costs of an actual airport developer/builder would be higher than CCC’s?

        How do you know you could not have got a better deal at less cost than with CCC?

        (2) It really means the BDA government has outsourced the “task of selecting the developer” to CCC, as the BDA government does not have the technical expertise for it.

        You have signed a deal not knowing who the actual developer/builder will be.

  5. Sigh says:

    Ok Jeff, lets address your points:

    1) An informed customer, one who does the things you say they should be doing (thorough research, open communications), will ensure that he gets the product he wants. That is why you write a meaningful, directed, and clear RFP. You outline exactly what you want and you evaluate proposals based on their adherence and achievement of the requirements you set.

    2) If the advertised condition are too onerous, that company should not be bidding. That is the whole reason for getting proposals. If you tell a company what you want and they say it is too onerous, then they are not the right company for your job. If I was looking for a company to build an office building, Sousa’s garden center wouldn’t be able to do that job and they shouldn’t be proposing for it. That’s a good thing.

    Additionally, a company focusing on high quality will deliver high quality and they will quote the best price to deliver that quality. That price may very well be higher than other bidders, but that doesn’t mean you can’t choose them. They should sell you their quality and prove that it is worth the extra cost.

    3) You can easily tell when a supplier is employing that kind of strategy. When 4 supplier quote $100 and the 5th quotes $35, you know what happening. The easy solution is, don’t hire that supplier. Again use the research, communications, and the other key principles you talk about to choose the best supplier.

    4) Again, good governance and monitoring of safety requirements will solve this problem. As has been said so often this project will create jobs for Bermudians. Is this the cheap labour you are talking about? This point doesn’t add up here. Additionally, the government sets immigration policies and can control who is granted work permits, just in case foreign workers were needed.

    5) Is it really a bad thing to spend a little time finding the right bidder in the islands biggest ever capital project? I know, personally, I’d rather wait a little while to pick the right person than make a hasty choice that backfires. Maybe the real issue here is that the OBA is worried they won’t be in power in a few years and this will turn into the success of another government or another minister. I hope this isn’t the case, and I don’t think it is, but not a good reason to forgo an RFP anyway.

    6) Again, is it a bad thing to hire the best people to perform the overseeing job for Bermuda’s largest ever capital project? Additionally, would this not be a problem under either proposal: CCC or another bidder? Or is the government planning to allow CCC to lord over the airport project without any oversight? I’d say this point made by Mr. Sousa is about as well thought out as this CCC contract to begin with.

    Creativity isn’t always the best thing, just ask the guys at Enron.

  6. Billy Mays says:

    The greater question, I think, is “is a new airport needed?” I have not seen convincing evidence that it is.

    • Billy Mays says:

      Seriously, can someone, maybe one of those who disliked my (I thought), pretty innocuous comment, please explain to me the need for a new airport? Not debating the funding or bidding process, just the actual need for a new airport building.
      Like most of us, I use the airport frequently, and while it could use some modernizing (how about escalators to the tarmac level from the US gate waiting area, and maybe even make the existing escalator after security ACTUALLY

      • Billy Mays says:

        … function on a consistent basis?), I think replacing the building is far more than is required. Explain to me what I’m missing.

    • Agreed says:

      I agree with you in thinking that a new airport isn’t actually needed. The real benefit here is in creating construction jobs. Bermuda has way too many people reliant on that industry unfortunately, but it is what it is ..

      • Tolerate says:

        Billy, I think Agreed is correct. I mentioned the reasoning in another blog. However, I have worked and traveled through our lovely airport and let me tell you; it may not appear to be in disarray from the eyes of the common traveler; but the infrastructure truly is. The Airport has already absorbed tons of money in face-lifts and cosmetics. The things the common traveler goes owww and ahhh about. But that’s it; cosmetics.
        The location for one (i.e. not the current parish) is an issue. How much it cost to bring in ALL the boulders and stack them to protect during storms? The new location does not have a history of such damage from water. And believe me, water (salt water at that) is NOT good for any structure.
        I believe with the proposed finance structure, it allows a project that is being delayed with every ongoing year, an opportunity to be addressed. It also; as Agreed mentioned, allow an outlet for creating jobs.
        Not arguing, and I have NO reason to DISLIKE you.

    • Creamy says:

      So you say a new airport is not needed. Certainly debatable. We could spend $100m tarting up the old one, and it would still be a tarted-up old building. We didn’t tart up the old court building, or the old Berkeley. We built new facilities. At some point you have to.

      What about the economic injection, the jobs, the boost to the economy? That’s obviously a big part of the reason for it. Or, if you really don’t want the things we “don’t need”, that would mean you’re ok with implementing all the SAGE recommendations, if you’re point is that we can’t afford the things we don’t need.

  7. watching says:

    Are we really to believe that Jeff Sousa wrote this? Shouldn’t the Minister of Finance be addressing this, or have the OBA realized that he is a PR Train wreck and have tried to put someone else’s name on it.

    I suggest Jeff attend the Public meeting tomorrow night about the Airport and bring the OBA viewpoint.

  8. Sara says:

    How can government build a new airport if their isn’t even enough money to cover day to day operating costs? I am confused.

    • hmm says:

      The whole point of CCC’s involvement, is that the government won’t be putting up any money for the project. The CCC/builders will put up the 200m and then get their money back out of airport fees etc, over a period of time and then the airport will be given back to the Bermuda Gov’t. At least that is how I understand the process.

      The PLP seem to have an issue with gov’t missing out on those revenues, over whatever time period it will be, whether that’s 10, 15 or 20 years.

      Last time I checked Bermuda Gov’t has no money to generate 200m to fund the project ourselves

      • Anything to delay progress:-( Stopping people getting back to work is all the Progressive Labour Party wish to do :-( They need to change their name to “Regressive Labour Party”

      • animallover says:

        Yes, this is how I understand it also, think it’s smart. I had a house which needed renovating, I had no money so I spoke to a contractor who needed to rent places for his working men, he renovated the house for me at an agreed to cost and then took over the house to rent until he was paid back, at an agreed cost. I found this to be an excellent way to do this, I had to put out nothing, of course I lost rent until the amount was paid for, but I didn’t have to go for a loan which would have cost much more. The Government has no money to do the airport and I think it is the smartest way to go. People who say we do not need a new airport, come on. How do you like getting wet each time you come home when the weather is bad? The airport is full of mold because the PLP never maintained it. The airport needs to be raised up above the sea level, sure hope that’s in the plan. Right now, if we ever have a flood or the sea levels rise, which they are already, then the airport will be under water. Also remember there are hundreds looking for work, and hopefully this will give them a little hope to get one.

      • Sara says:

        Thank you for this information. Makes sense.

  9. bluebird says:

    We are “DROWNING” in “DEBT” and the economy is not coming back when we have to continue to Borrow $300Million per year to keep the Government Going.
    This is a about “SAVING Bermuda,and how about the 110 Buildings that Government owns and cannot afford to maintain.
    Government spends millions in rent every year for offices for the civil service.And yet the Government owns 110 buildings.

  10. Joe says:

    Some of you misunderstand the role of CCC – it doesn’t do any work itself. It is a Canadian quango, quite a small office, which simply finds the best companies to meet your needs.

    So if you want widgets, they find the best widget supplier for you.

    They’ve been in business for, I think I read, 80 years, so they have lots of experience, lots of knowledge about who makes the best widgets. And by extension who can do the best job at the airport.

    It’s a creative and inexpensive alternative to the consultant who’s going to vet the bids for you…and charge you a whole bundle of money for doing it.

  11. NCM says:

    More from the OBA on this:

    A New Airport Terminal for Bermuda – Just the Facts:

    The OBA and Opposition agree Bermuda needs a new airport as the existing facility is aging and increasingly costly to maintain. A new airport will support Bermuda’s image as an upmarket tourism destination and international business centre.

    The OBA committed to building a new airport to create jobs for Bermudians and support economic growth without adding to Government debt. The Opposition had plans, when in Government, to build a new airport but were unable to finance the project.

    Past projects that used the Request For Proposal (RFP) model have not provided value for money. Projects including the new Berkeley Institute, Heritage Wharf, Port Royal Golf Course and the Dame Louis Browne Evans Building, which all went out for RFP, came in over budget, costing tax payers tens of millions of dollars.

    A Memorandum of Understanding (MOU) has been signed with the Canadian Commercial Corporation (CCC) without issuing an RFP, saving tax payers potentially millions of dollars in consultancy fees. ($10 million was spent on consultancy fees for the new Hospital wing.)

    Under the terms of the MOU, which is the first step in a Public Private Partnership that will govern all aspects of the project, the Government will ensure:

    • The Canadian infrastructure contractor maximizes Bermudian job creation.
    • An independent, internationally recognized construction firm will be hired by Bermuda to conduct an examination of all aspects of the project to determine whether Bermuda is getting value for money, which is the main point of an RFP. This is a standard practice, known as a ‘fairness opinion’, done all the time for infrastructure projects.
    • This is not privatization as the ownership of the airport and all its assets will continue to belong to the people of Bermuda.

    By using CCC, the project will benefit from:

    • Significantly reduced procurement time, meaning a fast start for the project and job creation. Construction could begin by the end of 2015.
    • Guarantee that the project will be delivered on time and on budget.
    • CCC is a QUANGO like entity 100% owned by the Canadian Government.

    Airport revenues will pay for the project over time while also being used to maintain the airport facility and operations.

    The P3 contract may be with a new Bermuda Airport Authority, a QUANGO-like entity the Government is considering forming.

    The Opposition claim that Bermuda will lose out on $1 billion in revenue under this agreement appears to be incorrect. The plan will be based on a yet to be determined estimate of cash flows over 30 years and those earnings will determine what can be built.

    This agreement is good for Bermuda as we will have a new airport that will support our economy at no cost to taxpayers and without increasing our debt, while providing jobs for Bermudians both in construction and operating the facility.

  12. Cookie Monster says:

    Fix the current airport as reasonable as possible we are broke! Bob remember your own advice or has money suddenly started growing on trees!

  13. Coffee says:

    It’s apparent that there seems to be no end to the excuses that the OBA can conjure up to hoodwink the people of Bermuda .. Shame on them !

  14. Rhonda says:

    The deal collapsed in Cayman after the U.K. expressed concerns about a lack of open tendering for the development, according to a statement from Cline Glidden, the tourism minister at the time. The proposal would have involved the Canadian firm financing and building expansions to the airport and runway in exchange for a 30- to 40-year operating concession and the right to collect “aeronautical and non-aeronautical revenues.”

  15. PANGAEA says:

    We now have 3 KEMH buildings on the same property just because some body wanted something new.

    Improving the health of a fat nation is a better option.

    “Prevention is better than the cure”.