Abandon 'reverse auctions', say GAIL contractors

Vol 15, PW 1 (14 Jul 11) Midstream & Downstream

GAIL is staunchly defending its decision to award contracts using the ‘reverse auction’ process universally detested by vendors and contractors.

In dispute is a GAIL tender issued on June 28 to lay a 948-km gas transmission pipeline to evacuate R-LNG from the upcoming Kochi LNG terminal in Kerala to Mangalore and Bangalore. GAIL and project management consultant MECON can expect vociferous protests at the pre-bid scheduled for July 15 from companies who believe a ‘reverse auction’ will result in low profit margins during Phase-II of the project.

“It is very difficult for us to make money in a reverse auction,” complains a contractor who deals regularly with GAIL. In a ‘reverse auction’ companies compete to win a tender by reducing their original bid price.

Bidders cannot see prices quoted by competitors and each company is only told its current ranking which keeps changing, as other bidders lower their prices. GAIL can run a ‘reverse auction’ for more than a day, making companies squirm and worry about losing the contract to a rival, more aggressive bidder.

“GAIL benefits from ‘reverse auctions’ as it gets the best price,” responds a GAIL source, unapologetically. “A ‘reverse auction’ encourages healthy competition and this is necessary because the number of vendors we deal with has increased.

” For the Kochi Phase-II pipeline tender, adds an industry source, GAIL has sold tender documents to approximately 15 pipeline laying contractors and can expect at least 10 serious bids. Among contractors expected to submit bids by the August 11 submission deadline are KazStroy, Fernas, Punj Lloyd, Kalpa-Taru, Essar, Jai Hind Projects, Corrtech and Welspun.

But another source believes the prospect of a ‘reverse auction’ could discourage several major contractors. “Companies like Punj Lloyd, KazStroy and Essar have many overheads,” we learn.

“They can’t afford to cut corners or work with low profit margins.”

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