Project Management in the Oil and Gas Industry

C. Financial Capability and Experience
Table 6.4 Score for financial capability and experience.
No. of points Item
75
75
1. Tender’s financial capability and audited financial data 
for the last three years
2. Tender to demonstrate its knowledge of the project inter-
national co-financing institutions procurement processes
150
Sub total
D. Industrial Safety
Table 6.5 HSE score.
No. of points Item
20
40
40
1. Tender understands generally recognized industrial safety 
standards.
2. Tender’s industrial safety and health performance has 
progressively improved over the last 3 (three) years.
3. Tender has submitted an acceptable industrial safety plan.
100
Sub total
1000
Total technical score

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Tendering, Bidding, and Contract Traps 207
6.9.6 Commercial 
Evaluation
After the tender technical evaluation is finished the decision should now 
be made to award the project to the successful bidder.
The commercial evaluation varies from one country to another due to 
special laws in government projects, but for private projects you have the 
right to make any system of evaluation match with your requirement. In 
some countries, for government projects you can choose the system of 
evaluation, but it should be stated on the tender package. The target is the 
same by any method that the owner requires to reach the best price.
Per our previous discussion, cost is an important factor, but so are other 
factors such as time and quality. If you choose the bidder who provides 
the lowest price, be careful that the lower price is not due to a mistake in 
the cost calculation or the scope not being clear. The impact on the project 
will be to the time or quality. I know that the experience and capability of 
the contractor will be covered by the technical evaluation, but you should 
remember that in technical evaluations we accept up to 70 percent, as pre-
viously mentioned. Unfortunately, most of the countries mention that they 
accept the lowest price.
6.9.6.1 Commercial Evaluation Methods
This phase is followed by the technical evaluation stage and is the most 
important stage in the evaluation process because it is the last stage, which 
will assign the project to the contractor directly.
Commercial evaluation methodology varies from one country to 
another and may also vary from project to project. Every law wants to 
reach the best price whatever the value of the tender, so in most laws in 
different countries determine the winner as who provides the lowest price.
On the other hand, there may be significant differences between the 
bidders that are not logical and this can cause problems during execution 
when assigned to the lowest price. This can be controlled directly through 
the accurate evaluation of the technical envelope when selecting the bid-
ders company. This will be the lowest price method, which is good in the 
case of limited tender, but in case of open tender, the risk will increase as 
the contractor may be wrong in his price analysis or his estimation will 
have a very big impact on the project performance.
Some countries, such as Japan, have another method of commercial eval-
uation. They take the average of the numbers of the bids submitted after the 
deletion of the very highest bid and very lowest bid and the first bid value 
nearest to the medium will be the winner. For example, assume the techni-
cally accepted bids are 100 million, 500 million, 600 million, 700 million, 

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208 
Project Management in the Oil and Gas Industry
and 1000 million, by taking the average of 500, 600, and 700 million only 
(omitting 100 and 1000 million) , the average is equal to 600 million. Based 
on that, the winner company provides an offer of 500 million.
For some military projects in some countries in the Arabian Gulf area, 
in the tender conditions it is stated that the winner will be just after the 
lowest price bid. For example, in the case of bids will be 1000, 700, 600, 500, 
and 100 million, the winner will be $500 million because it is the first value 
after the lowest offer. This method has an important advantage because 
every contractor knows that he will not succeed if the tender price was very 
low or high, so he will be very careful in pricing the items to match with the 
right number and won’t reduce quality to be the lowest price.
Some countries and professional companies provide a relation between 
the technical evaluation point and the commercial value and this can be 
achieved by applying the following equation.
Tender will be ranked using the following criteria:
Total estimated price/Tender’s technical evaluation score × 1000 LE
So, the lowest value will be the winner. For example, two companies 
have the same price of $1000 and the first one scores 1000 and the second 
one scores 700. The rank for the first one is 1.0 and the other is 1.4, so the 
winner will be the first one whether it is logical or not because the price is 
the same, but the technical evaluation is higher for the first one.
As another example, the first contractor price equals $800 thousand and 
the technical evaluation equals 700 points; the second contractor price is 
$900 thousand and the technical evaluation equals 1000 points.
For the lowest price technique, I will take the first contractor, which 
earns less technically. For this method the first contractor criteria = 800/700 
= 1.14 and the second contractor = 900/1000 = 0.9, so the second contrac-
tor will be the winner. In this case, you pay less for a higher technical value.