Oman: Place your e-bids please

25 April 2003
Bidding for big projects in the oil and gas business can be a nerve-racking experience. Getting the right price and technical proposal together in a given time requires sound investment and a steady hand. Even then, there is no guarantee of success. So eyebrows were raised last year when Petroleum Development Oman (PDO) shifted from a conventional procurement strategy to electronic bidding (e-bidding) for its $150 million expansion of the central Oman gas fields.

Canada's SNC Lavalin and the local Al-Hassan Engineering emerged as the victors from the reverse auction - viewed live by the company's senior management from its Virtual Reality Centre. The room, located in the heart of PDO's new office complex at Mina al-Fahal, is the nerve centre of its e-bidding strategy. The contract, valued at about $110 million for the expansion of the Saih Nihayda processing plant, is the biggest single package awarded by PDO via e-bid.

The initiative marked the culmination of months of planning by PDO, which had invested heavily in putting the right software into place and educating a sceptical bunch of contractors. Teams of technicians were sent on a whirlwind tour of prequalified bidders prior to the launch deadline in order to allay any concerns about the new system's security and effectiveness.

Not all the contractors initially interested in the work could be convinced. Of the six that attended the pre-bid meeting, two declined to proceed, citing a lack of confidence in the e-bidding system as one of the reasons for their decision. A number of firms remain sceptical. 'We are still not entirely comfortable about it and PDO has certainly driven some of the internationals away by introducing this system,' says a local contractor.

PDO contracting and procurement manager Mohammed Salim al-Toki is quick to counter any such concerns. 'It is possible that some companies have pulled back from bidding on some of our jobs but I am never quite sure what these companies are uncomfortable with,' he says. 'We have found that many are worried their prices will be exposed to others, but in actual fact our system is extremely secure.

'Before a contractor puts in a sealed bid, they always have a bit of a worry or a gut feeling over whether the evaluation is going to be fair, or whether there will be twists and turns. They hang about for three or four months not knowing what to do with their resources - do they mobilise them or downscale them while waiting for an answer?'

Under the new system, contractors registered with PDO can enter a secure website bidding portal using a password and user name. Once logged on, the company is free to place its quotes based on either the lowest price displayed on the screen, or the contractor that is ranked lowest in the bidding round. The process continues until a lowest price is achieved and a preferred bidder emerges.

Nevertheless, tendering such a strategic and valuable project using a largely unproven system was a risk for PDO. 'E-bidding is part of our movement towards a total supply chain solution. We were always very keen to digitise our procurement process from simply being able to track contracts that expire, to develop contracts already in the system, or even tender projects and distribute documents and specifications electronically. This was just another step in that process,' says Al-Toki.

The company is also eager to stress that contractors stand to gain in the long run from the introduction of e-bidding. Al-Toki says: 'Previously we asked contractors for their commercial bids in a sealed envelope that could not be changed. You now go on to a secure screen to place your quotation and adjust that bid depending on whether you feel you are the lowest or not.

'There is a deadline, but if a new bid comes in, say, five minutes before the end then we can create an extension purely to allow others to come back in. In an online bidding environment, they can actually decide in real time when they wish to lose a piece of work, or at what price they wish to win it.'

Cutting overheads and project costs was a primary factor in PDO's decision to introduce the system. 'The cost of hosting the bids ranges between $5,000 to $10,000 per event, which is a fraction of the previous outlay under a conventional bidding strategy,' says Al-Toki. 'Before, it was costing us more because the evaluation came in after the financial offer. In this case it is very important to get the right evaluation model before the bids come in, because you can't change it after that point. It then becomes a straight price race.'

Contractors will also benefit from the cutting of red tape, claims PDO. 'It does save time and effort. Transporting sealed bids and putting a presence permanently on the ground throughout the bidding strategy can be expensive, especially if you don't win the job. This way, a decision maker can be located anywhere in the world and make a bid there and then. Just open up your laptop, log on and enter your price,' says Al-Toki.

Outside the sultanate, where the government is reviewing proposals to adopt e-bidding for public tenders, the system has been slow to catch on. PDO and its partner, the Royal Dutch/Shell Group, have been instrumental in pushing the concept forward. But so far there have been few takers. Kuwait Oil Company is the only other major regional producer to have adopted a similar e-bidding system for its major projects.

'We are the biggest trader in e-bidding in the Middle East. There are others that are doing it in the oil and gas sector, but I am not sure to what extent,' says Al-Toki. 'In the future, everything awarded by PDO, from the smallest pipe to large field expansions, will be done through online bidding. It is a default process whereby everything, unless justified otherwise, will be procured through e-bidding.'

Andy Critchlow

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