All through 2008, the Construction industry worldwide has struggled to keep costs under control as steel prices increased by almost 50 percent over the year. Steelmakers steadily raised prices, partly to benefit from a strong market after years of decline in the industry, and also to pass on spiraling costs of iron ore and scrap metal, two major raw materials for steel. (2008 saw Brazilian ore producers raise iron ore price rise by  65 percent while Australian iron ore rose by  85 percent. Auto-factory scrap price increased some 70 percent higher from May to March.)

With steel prices set to remain high, it was critical that UEM Group find a method to mitigate cost. Having achieved significant savings using MyAuctionNet™ in 2007, UEM group decided to structure tenders  for Construction Projects so that Reverse Auction for tenders could be applied.

About UEM Group Berhad

UEM Group Berhad is Malaysia's leading conglomerate in the building of infrastructure. As the preferred nation-building partner, the Group is a wholly owned subsidiary of Khazanah Nasional Berhad, one of the Government’s investment arms.

Core businesses include expressways, engineering & construction, healthcare, environmental services, property, manufacturing, information, communication & technology and logistics.

UEM Group Berhad has more than 40 major operating companies, including 10 public listed companies with the Group's shareholders' funds standing in excess of RM7.5 billion. The Group’s net tangible assets as at 31 December 2007 stand at approximately RM7.5 billion, while total asset as at 31 December 2007 stands at RM28.4 billion.

►  Challenge

With Construction and Infrastructure projects throughout Malaysia, the increase in steel prices warranted a change of approach in awarding tenders  (provided it resulted in Savings) without drop in quality. Prior Project budgets, projected ROI and costs were rendered meaningless by the rapid rise of steel and fuel costs in mid 2008.
The burning question was “ How to achieve Purchase Savings when cost of Raw materials kept going up?”

►  Solution

The UEM Group Procurement Transformation Office wanted to translate the savings it experienced using Reverse Auctions in other subsidiaries to large Construction projects. However , choosing Construction projects suitable to an eBid environment was a challenge: it requires careful qualification of suppliers, absolute clarity of the build specifications and expertise to determine where savings could be achieved.
Using features and functions available in MyAuctionNet™, UEM GPTO organized an eBid event for the Infrastructure Works for a Mall, and worked with the engineers and to break the work down in order to award the project by electronic Reverse Auction. By clearly defining the work required to major blocks (Preliminaries, Road and street parking works, Drainage works, Sewerage reticulation, Water reticulation, Perimeter and Electrical and telephone installation), the new methodology of award was given the green light.

►  Results

With 7 qualified bidders in a secure electronic Bid Room environment, competition was fierce, resulting in 63 separate bids. After a grueling session lasting close to 3½ hours, the winning bid was 26.43% below  budget, and 11.40% lower than Target price (the lowest  expected price to do the job, based on previous jobs of a similar nature).
UEM Group has continued the practice of using MyAuctionNet™ for the award of selected Construction Projects and have realized savings of approximately RM80million up to November 2008.