What is risk? How can you measure risk? What are some of the red flags around risk? I would submit that one such risk might well be a project price, particularly when a bid is so far below other reputable bidders as to seem outlandish. This means that sometimes the lowest bid for a project is not always the best selection to make.
I was reminded of this when I read a recent article in the New York Times about the grand reopening of the Panama Canal. For anyone who read David McCollough’s book The Path Between the Seas, you will certainly note this opening of the new canal is much less auspicious, with nary the worldwide celebration which occurred with the first canal was created an opened.
The project itself was beset with myriad technical, engineering and financial problems, culminating in at “$3.4 billion in disputed costs: more than the budget for the entire project.” As the Times noted, “The expanded canal’s future is cloudy at best, its safety, quality of construction and economic viability in doubt.” This is about the last thing Panama needs right now, with its international ignominy from the Panama Papers leaks and attendant scandal.
How does the low bid enter into all of this? There were three bidding entities and the winning one with the lowest bid a consortium led by the Spanish entity, Sacyr Vallehermoso. American officials described the company as “technically bankrupt” in cables during the bidding process. However, their bid included a company owned by the then administrator of the Panama Canal, Alberto Zubieta. Sacyr’s bid itself was so low that other bidders claimed the concrete could not be poured on the project for the bid price.
The NYT said that “While Sacyr’s low offer meant Panama received a bargain on the price, some viewed it as too good to be true.” Indeed Panama’s President at the time, told the U.S. Ambassador to the country, “You don’t mess around with something as important as the canal. When one of the bidders makes a bid that is a billion dollars below the next competitor, then something is seriously wrong.”
The Panama Canal is one of the key components for trade in the Western Hemisphere and perhaps across the globe. With the new re-opening of the Canal, we can only hope it will work as smoothly and efficiently as its predecessor.