New imperatives to conclude North-South Expressway

The government has decided to appoint contractors for construction of the North-South Expressway. What is the key reasoning for these appointments?

Dr. Vu Dinh Anh, an economist at the Ministry of Finance’s Price Market Research Institute

The contractor appointment mechanism was approved by the government because it is very difficult to complete all 12 components without breakthrough mechanisms. Therefore, appointing contractors with transparent criteria is a necessary solution to finish everything by 2025. The major problem in this was to determine how to effectively assign contractors.

With any project investment, time is a crucial criterion to evaluate efficiency. With the contractor appointment mechanism, based on the capacity profile of an enterprise, the registered contractor and the competent authority can shorten some procedures, and enable a suitable contractor.

Thus, with the complex requirements of such large endeavours, the decision will save time for everyone involved.

However so far, there is only one condition that says that the contractor will have to offer a unit price 5 per cent lower than the estimated price. One vital step that a management agency must do before appointing a contractor for a medium-term public investment project is to consider the appropriateness of the estimated price through a review.

If the estimated price is too high, the 5 per cent reduction does not make sense. If the estimated price is too low, it has to be reduced by another 5 per cent, which may lead to an overestimate of the estimated price – a common phenomenon in public investment.

Further, such a mechanism for appointing contractors must provide certain conditions. For example, on how the main contractor is selected – based on the number of works done in the past or the results of these projects.

What factors should the appointment mechanism ensure?

While appointing contractors for public investment projects, the rights and responsibilities of the principal are very large, so there must be a clear mechanism to define these responsibilities when selecting the main contractor of both sides, as well as any involved subcontractor.

The mechanism also needs to provide conditions on capacity, experience, financial situation, and reputation for contractors. These conditions must be open and transparent to eliminate collusion to accept bids, as well as incompetent contractors. Publicity and transparency are important factors to confirm that the appointed contractor is worthy, as society relies on it for supervision.

Back when Danang-Quang Ngai Highway was built, the principal had chosen an irresponsible contractor. After winning the bid, the contractor sold the contract to businesses with weak performance and supervision consultants and investors who were negligent and let loose, causing many negative consequences.

The appointment of contractors not only relates to Party A and Party B, but also to subcontractors. In investment projects, especially large-scale ones such as the North-South Expressway, the role of subcontractors is equally important in shortening the time to complete the venture.

Therefore, the conditions for the contract of the main contractors must be accompanied by conditions on the performance of any subcontractors. The inclusion of these conditions helps to prevent subcontractors from failing to meet the contract conditions, which could otherwise lead to project delays.

How will the monitoring scale be suitable for contractor-designated projects?

It is very important to set up a system to closely monitor contractors in the implementation of designated projects. The government generally appoints a contractor and will carry out supervision. However, as the North-South Expressway is a large, national-scale project, it also needs additional supervision from the National Assembly. However, in the end, the economic significance and the role of the project would be greatly reduced if the contractor does not follow the schedule.