Can quality service cost be cheap?

Why are engineering companies reluctant to be involved in projects funded by the state budget?

These and other question became a subject of hot discussion in the professional milieu.

The reason for discussion was an announcement of a consulting engineer and construction supervision tender (procurement ID UA-2025-09-24-015075-а), where the expected cost of the procurement subject determined by the client was nearly three times lower than it should be for such services. As a result, the auction was not held. And there are a lot of similar examples.

At the same time, it happens that engineering companies, mostly sole traders, do assume complex projects with a deflated price after winning the contracts through an unjustified reduction of price proposal (underbidding).

In this publication, we offer our readers some reflections about it.

Guided by Laws of Ukraine “On public associations,” “On open use of public funds,” and “On public procurement,” ICEG constantly monitors the information in Prozorro electronic procurement system. Analyzing the biddings helps identify risks and challenges that deteriorate the quality of engineering consulting services. Among others, it is deflation of the procurement subject’s expected cost and unjustified underbidding.

Pursuant to the engineering consulting service agreement, the contractor provides a comprehensive service diversified by separate stages (pre-design, design, procurement, and construction). The contractor regularly has a powerful team of specialists (key and non-key experts) of different qualification and specialized subcontractors needed to provide the services with quality and in time depending on the complexity and specifics of the project.

Subject to Article 17 of the Law of Ukraine “On investment activities” and Article 7 of the Law “On prices and pricing,” the construction cost for facilities built with budgetary funds, funds of state-run and communal companies, institutions, and organizations, and sovereign credits is determined on the basis of cost-estimate norms of Ukraine.

Paragraph 7 of the “Procedure of using the cost-estimate and pricing norms while determining the cost of construction,” approved by Order No. 162 of 25.06.2021 of the Ministry of Regional Development, stipulates that the estimate cost of facilities determined at the design stage is used, in particular, to determine the expected cost of a procurement subject.

Paragraph 4.32 of the “Guideline to determine the cost of construction” stipulates that Chapter 10 of the Summary Cost Estimation shall include the funds for a consulting engineer’s services under a consulting engineering service agreement depending on the stage it is engaged at, amounting to 3% of the total of Chapters 1-9 of the Summary Cost Estimation (excluding the cost of process equipment, including medical one, and also furniture and inventory). The amount of such funds is determined in compliance with Appendix 42 to this Guideline. In addition, the cost index is clearly defined for each stage (e.g., at the construction stage it is 2.0%, design stage – 0.6%, etc., not exceeding 3% in total).

The above requirements are mandatory to apply when determining the cost of construction of facilities built with budgetary funds. As a reminder, in this case, the estimate cost determined at the design stage is used to determine the expected cost of a procurement subject.

Clients make a decision to engage a consulting engineer out of their own needs and capacities, which is specified in the design brief, and after that, the cost-estimate documentation determines the funds envisaged by the Cost-Estimate Norms of Ukraine for each stage. At the pre-design stage, such calculations are made on the basis of similar projects or a measurement unit of similar facilities (1 m² of total area, 1 m³ of the volume, one visit, etc.).

The clients’ ignoring of legislative requirements for determining the cost of construction and deflation of the expected cost of a procurement subject, as well as unjustified underbidding, make it impossible to provide quality consulting engineer’s services and limit the tendering for fair bidders. As a result,

• one of the fundamental principles of public procurement under Article 5 of the Law of Ukraine “On public procurement,” i.e. the principle of fair competition among bidders, is breached;
• risk of poor-quality work delivery because of inadequate provision of consulting engineering services occurs;
• reputation of the consulting engineer as a new institution for the domestic market is stained.

Thus, a substantiated cost of engineering consulting services is a necessary condition for quality service provision and successful project delivery. In the meantime, it is worth noting that according to international reports (EFCA, 2019, Manitoba, 2016) and open economic sources, the average cost of consulting engineering services in European countries is significantly higher.

We’ll take this opportunity to recap that ICEG jointly with the “Scientific school of risk management during construction and operation of real estate” consistently studies and promotes international approaches to procurement of intellectual services aiming to harmonize the Ukrainian legislation with the EU law, namely, Directive 2014/24/ EU of the European Parliament and of the Council. We also presented the first edition of FIDIC PROCUREMENT PROCEDURES GUIDE in the Ukrainian language.