Lopsided deal to cost Biman over Tk 1,000cr

Biman has violated procurement rules to hire a vendor for its online ticket sales and reservation services, and this will lead to Biman losing over Tk 1,000 crore in 10 years, according to a recent audit report by the Office of the Comptroller and Auditor General of Bangladesh.

Since 2003, Sabre GLBL Inc, a Texas-based firm, has been providing Biman with a global distribution system (GDS), which hosts Biman tickets and bookings for travel agents across the world.

While a firm named SITA was serving Biman with a passenger service system (PSS), which keeps tabs on how many passengers are actually boarding planes after booking tickets, and a departure control system (DCS), a tool for pre-flight operations.

SITA told Biman in October 2019 that it would stop providing the PSS and DCS services.

On June 3, 2020, Biman invited financial proposals from firms interested in providing PSS, DCS, e-commerce services, loyalty programme, business intelligence, customer service agents, and other related services.

Sabre won the contract as it offered the lowest price.

The auditor general's office stated in its report that Sabre aced the competition because many particulars of its financial proposal were not presented before the evaluation committee. Biman officials curtailed competition on purpose and hid the actual estimates that may make the carrier lose at least Tk 1,059 crore during the 10-year contract period with Sabre.

"The cost estimates presented by Sabre GLBL Inc against its offered services were under-represented in the financial evaluation report," says the CAG report.

The audit flagged that the financial proposal, of which The Daily Star has a copy, states that the costs of using the PSS and DCS will increase by 2 percent every year, but this was not taken into consideration during evaluation.

Biman's contract with Sabre has many elements that were not mentioned in the financial proposal, says the audit.

After Sabre's systems went live in February 2022, the company estimated at least $1.17 million (over Tk 12.6 crores) in usage fees for boarding passengers.

Its contract with Biman says the base usage cost of boarding one lakh passengers is $50,000 per month, which amounts to $6,00,000 in a year.

The contract says for every passenger, in addition to the one lakh a month, Biman would pay $0.88.

The auditors estimate that Biman boards 18.3 lakh passengers in a year and this costs the carrier a significant amount of money.

The company also charged Biman $40,000 (Tk 42 lakh) because data migration from SITA's system to Sabre's system overshot the deadline by five days and there was some pending work regarding the e-commerce platform and loyalty programme.

The auditors questioned the clauses of the deal that allowed Sabre to demand such compensation. 

The audit also points out that there were only three bidders while the Public Procurement Rules 2008 stated that there must be at least four.

All costs proposed by Sabre were estimated taking into account the minimum number of passengers. Since the company is charging for services either per passenger or as a percentage of total passengers boarded, these costs ballooned when the system went live.

"Instead of taking the minimum number they should have considered the number of passengers estimated to use the system."

This was also flagged by the tender evaluation committee at three negotiation meetings held in July 2021. The fact that the pricing only takes into account the minimum threshold was a point of discussion. Despite these, the contract was signed with the minimum threshold number.

The contract only states what the booking charge per ticket will be, but it does not mention how many tickets are estimated to be sold throughout the duration of the contract period, and how much the total cost may be.

This leaves financial evaluators in the dark, says the report, adding that over 10 years, the costs could reach an estimated Tk 1,019 crore, a figure that was not presented to the committee.

The audit also flags the fact that Sabre has been providing GDS services and that public procurement rules restrict the firm from bidding for services directly linked to the services it provides.

As auditors explained, the GDS charges Biman every time a booking is made, but it is the PSS that balances out the cost being incurred by keeping a tally of the actual number of passengers being boarded. Therefore, the same entity should not provide the GDS and the PSS services.

Biman Managing Director Shafiul Azim said, "We have not officially received the audit. These are primary observations. These are very simplistic allegations. The figure they say we have misappropriated is not realistic.

"We will analyse and reply to these allegations. Then we will discuss these. And if they are satisfied with our response, the matter will end there. We do not favour anybody… ."

Saiful Haque, the CEO and country general manager of Sabre, said his firm was yet to be notified about the audit report.