Research On Bidding Mechanism Of Water Conservancy And Hydropower Engineering

Bidding is a standardized mode of well-organized preferred deal applying technical-economic evaluation method and market competition mechanism. Compared with western countries, China has a short history of introducing the bidding system and research the relevant supporting and regulation systems. Therefore, there exist many chaos in the process of implementation due to multilevel reasons, e.g., inappropriate bidding competition rules, less efficient constrain mechanisms, under-appreciated risk management, and unavailable bidding mechanisms. In addition to the generality of other projects, the bidding of large water and hydropower projects is of individuality owing to the large scales, long construction periods and multiple risk factors. In the light of the main problems in China’s bidding practice and the reasons thereof, and combine with the failure of exogenous bidding mechanism driven by external forces such as laws and regulations, this paper systematically studies the endogenous bidding mechanism by applying the game theory and mechanism design theory and taking account of the author’s20-year experience in bidding, such that an endogenous bidding mechanism is established by taking advantage of the organic constriction, regulation and adjustment of external factors in the process of bidding, to provide scientific basis and technical support for introducing endogenous bidding mechanism to the bidding of water and hydropower engineering in China. The main conclusions are as follows:(1) Analyze the equilibrium conditions of the evaluated lowest tender price method (ELTPM) and the comprehensive evaluation method (CEM) using the game theory, compares the pros and cons, the effects on collusion, and major risks and problems of both methods, and recommend improvements for ELTPM and CEM.(2) Comparative analysis of international bidding and domestic bidding reveals that the main factors affecting the performance of bidding mechanisms are mainly competition rules, constrain mechanisms and risk adjustment mechanisms.(3) The ELTPM is advantageous in its compliance with international practices and market economy rules, simple and high efficiency, and reduction of rent-seeking. The ELTPM eliminates collusion between the bidders, bid evaluation experts, bidding agents and tenderee’s staff, and reduces part of the tenderee’s risks, yet there is possibility of bid-rigging and malicious price.(4) By game analysis, it is found that the occurrence of bid-rigging under ELTPM, the probability of discovery and the punishment upon discovery are all relevant with constraint mechanisms. It is suggested that more efforts be devoted to supervision, to increase the probability of discovery, and punishment of discovered bidding-rigging be strengthened, e.g., to increase the amount of punishment from5-10‰to over2%, so as to avoid bid-rigging, accompanying and other collusions.(5) In terms of the main problems encountered in the CEM widely used in China, it is herein recommended to improve in the field of bidding preparation, bid evaluation criteria, commercial proposal rating proportion, qualitative evaluation rating criteria, and contract document composition. The success of such an improved CEM in the Xixiayuan Reservoir verifies that this recommendation is reasonable and practical.(6) Based on the study of constraint mechanisms, the concept and composition of constraint mechanism are proposed. It is herein recommended to improve the ELTPM by using the participation constraint and price constraint of endogenous institutional constraints, to effectively restrict the occurrence of bid-rigging and other misconducts.(7) The recommended improvements for the ELTPM by taking advantage of the participation constraint and price constraint of endogenous institutional constraints are as follows:1) Participation constraint can be realized by taking some measures in the field of qualification for bidding:①use both tender notice and notice of invitation for bids, to invite potential bidders for prequalification and eliminate the risk of full bid-rigging;②carry out quantitative evaluation and provide key evaluation factors, to evaluate the comprehensive strength of potential bidders and also pay attention to their technology and risk management capabilities;③use the limited quantity controlling by indexes of numbers and fractions of potential bidders;④suggest to send the notification of prequalification results and tender documents by email or other measures to secure the prequalification results and reduce the opportunity of collusion after prequalification.2) Price constraint can be realized by fixing an appropriate tender control price according to the specific conditions of procurement and the possibility of collusion, to reduce the motivation and possibility of fully bid-rigging, and, in the case of fully bid-rigging, limit the tenderee’s risk to an acceptable range.Such an improved ELTPM has been applied to the Longbeiwan Hydropower Project successfully, verifying the reasonability and practicability of the recommendations for improvement.(8) On the basis of an analysis of project risks and remedy measures, this paper addresses the impact of the risk attitude on the tender offer by using the game theory, and analyze the effect of shortfall-guarantee and clarification on the risk adjustment mechanism, In order to avoid the risk of malicious prices and other possible improper competition practices arising out of the ELTPM method, it is recommended to give full play to shortfall-guarantee and clarification in bid evaluation in process of bidding. Shortfall-guarantee is an effective way to avoid malicious prices in the scenario of ELTPM. It is recommended to abolish the10%performance guarantee cap fixed in the "Bidding Law Implementing Regulations" and increase the service charge of shortfall guarantee, with progressive rates applied to improve the shortfall-guarantee effect on adjusting the risk attitude of bidders. Clarification in evaluation adjusts the effect of malicious price risks. The recommended practice of shortfall guarantee and bid clarification has been ever introduced to a certain subway project and a large scaled multipurpose water scheme procured by the ELTPM, effectively avoiding malicious discounts and other unfair competition practices relating to the ELTPM. This verifies the effectiveness and practicability of the recommended shortfall-guarantee and bid clarification in adjusting the risk attitude and risk effect of bidders.(9) According to the participation constraint and incentive compatibility concepts and ideas of the mechanism design theory, this paper proposes the concept of endogenous bidding mechanism by using the institution theory and other research tools, analyzes the elements and functions of endogenous bidding mechanism, and recommends to introduce the endogenous bidding mechanism to water conservancy and hydropower projects in China.(10) This paper analyzes the bidding system reform and path by the latest evolutionary game model available abroad, studies the evolution direction of CEM and ELTPM in the game, and predicts the trend of bid evaluation methods. The ELTPM has many advantages, basically ready for spreading in China. The principle of awarding to the evaluated lowest tender price will be an inevitable trend, the ELTPM will be applied to more and more parts of China, and the bidding market of China will be in line with international practices. Given the Chinese government’s solemn commitment to opening the government procurement market no later than2020, it is herein recommended that the ELTPM be spread to government procurement and water and hydropower projects largely financed by state investments, to prevent the collusion of bidders.