In the Middle East’s engineering, procurement and construction market, history has shown that the lowest bidder wins the contract in the vast majority of tenders.
Although bidding contractors will vary greatly in experience, expertise and technology, selection more often than not comes down to cutting costs on the side of the project owner.
Sometimes this comes back to haunt the client when a lower-cost contractor with less experience overruns on a project in terms of time or costs.
When Abu Dhabi hired China Petroleum Engineering & Construction (CPECC) to build a $3bn-plus, 400-kilometre oil pipeline from Habshan to Fujairah, the project was delayed by almost two years and costs spiralled.
Despite this, it still comes as a shock when the lowest bidder is not chosen. This has happened twice on contracts worth more than $1bn in Abu Dhabi’s oil sector in the past few months.
South Korea’s Hyundai Heavy Industries and its US’ bidding partner KBR submitted the lowest bid on the biggest package for early production facilities on the offshore Upper Zakum oil field.
But the bid was rejected in December and all companies resubmitted prices. The UK’s Petrofac and South Korea-based Daewoo Shipbuilding & Marine Engineering won the contract in April for $3.7bn.
In the latest example, Italy’s Saipem was disqualified from a major package on the Umm al-Lulu oil field development after a bid of $1.5bn.
While contractors have speculated on the reasons for disregarding the low bidder – be it political or technical – it could be the case that Abu Dhabi National Oil Company (Adnoc) is becoming more cautious when assessing proposals at the commercial level.