Bidding for the projects to construct the Orange, Pink and Yellow electric railway lines in Bangkok set to commence in June 2016

25 May 2016: Deputy Prime Minister Somkid Jatusripitak announces that an auction will be held in June 2016 for three major railway construction projects in Bangkok, Thailand.

Elevated transit system in Bangkok
Existing elevated railway on the Green Line in Bangkok

The three lines, known as the ‘Pink, ‘Yellow’ and ‘Orange’ lines will run within the Greater Bangkok area, connecting areas not currently served by the existing Metro (MRT) line or the two function elevated railway lines, known locally as the ‘Skytrain’ but formally known as the BTS.

Pink Line

  • Estimated project value: 57 billion Thai Baht.
  • Length: 35.5 km
  • Number of Stations: 30
  • Railway Type: Elevated monorail
  • Starts at: Khae Rae
  • Terminates at: Min Buri

Yellow Line

  • Estimated project value: 55 billion Thai Baht.
  • Length: 30.4 km
  • Number of Stations: 23
  • Railway Type: Elevated monorail
  • Starts at: Samrong
  • Terminates at: Lat Phrao

Orange Line

  • Estimated project value: 110 billion Thai Baht.
  • Length: 37.5 km
  • Number of Stations: 29
  • Railway Type: Elevated monorail and underground railway
  • Starts at: Thailand Cultural centre
  • Terminates at: Min Buri

Process for Awarding The Building Contract

For those readers curious as to how you can ‘auction’ a building project, the more accurate description of the bidding process is that the Thai Government intends to run a ‘reverse’ auction. In a normal auction the person who offers the highest price gets to purchase whatever is being sold. In a reverse auction the person offering to provide goods and services involved for the lowest price gets the construction project.

Benefits of Reverse Auctions

The use of reverse auctions for these railway projects is a strong indicator that the current Government intends to rapid progress on these projects. Thailand’s economy, like many others world wide, is starting to weaken with lower growth rates and mounting private (but not public) debt levels. A reverse auction will quickly conclude the tendering process, cutting months off the time it would take to conduct a tendering process using sealed bids against a very detailed specification, as favoured by governments in prosperous Western nations.

Potential Problems with Reverse Auctions

Whilst reverse auctions are a quick way of letting a big project, they also come with considerable risks, and do not necessarily achieve the best prices over the course of a contract.

The risk is that the contractor who wins the project ends up charging a lot more than the amount they bid. At the auction the contractors will be bidding to do the work as specified in the proposed construction plans. However, the reality is that big project rarely go precisely to plan, particularly when they involve digging tunnels, building elevated concrete railway lines and ground level stations in a densely populated city prone to flooding, and with a naturally high water table. The really detailed decisions about how to construct these three lines will be made on site mostly likely by the contractor, who has the expertise.

Each time the specifications change from those which they bid at in the auction, whichever contractor (or contractors) gets the job is going to push for a price change. This is normal. However, in the sealed bid process prospective contractors are typically required to provide an indicator of what additional, or different work, will cost. When sealed bids are assessed then, if whoever is assessing the bids does their job correctly, they will be assessing not simply what has been quoted for the job specified, but also what the contractor intends to charge if the specification changes. The lowest bid does not always win the contract for precisely this reason.

The Price is Likely to Increase On The Job

This type of consideration will be at the forefront of the minds of the contractors who bid for the auction. They will be basing their offer price on their calculation of how much extra money they can squeeze out of the Thai Government on top of the agreed price to fund any ‘change orders’ that get made during the course of these projects. We hope the Thai Government has carried out a preliminary process where this issue is addressed as part of the eligibility requirements to take part in the auction.

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