Selection of Contractors

[JAE]

Article in ENR concerning Pennsylvania bidding of projects.

Seems like a good concept - to not only use the bid amount, but also the qualifications and historical performance of the contractors to select them for various projects.

ENR Article

 

[BillPSU]

If the criteria determining the best contractor rules are clear and unambiguous and applied consistently and properly then this system may work. This system could also lead to the good old boy network of suppliers. What are the rules? Do local contractors have advantages? Is financial stability a criteria? Does some contractor have a figurehead minority at the top assuring some company gets the bid? There are numerous other issues I an point out. Both processes are imperfect so which is better? Wait till another governor arrives and he puts his own spin on this system. I think the lowest bid may be the best system.
The criteria to pick the best contractor is key to this discussion and I haven't heard any of proposed criteria.

 

[JAE]

One alternative would be to pre-select contractors and have a limited bid. Only contractors with a good track record and acceptable performance in the past would be able to bid.

The "secretive" part they complain about is how do you objectively grade contractors on previous quality, previous performance, etc.

For cities and such who constantly bid out work, I would think that they could develop some type of on-going scoring system to grade the contractors on their performance that could approach objectivity.

 

[SlideRuleEra]

For electric utility power plant construction contracts we would perform two separate bid evaluations. The first is a technical evaluation to consider a bidder's compliance with project documents, his stated intentions for detailed performance of the work, and proposed project organization. This evaluation is performed without knowledge of pricing (bidder's submit "unpriced" copies of their proposal). Bidder's are rated either "technically acceptable" or "technically unacceptable".

"Priced" proposals from "technically acceptable" bidders are reviewed for base bid, cost of contract options (frequently requested), change order unit pricing, contract payment terms (often negotiable), etc.

After sometimes lengthy bid clarification meetings with several bidders (one at a time), the "technically acceptable, evaluated low bidder" typically gets the contract.

http://www.SlideRuleEra.net

 

[moltenmetal]

The devil as usual is in the details. If it's qualifications-based selection, the key devils are ensuring that the staff whose CVs are used in the proposal actually do the work, and that the largest firms don't just win all the work because they have the largest number of CVs to throw out there. If it's two-package (price and technical) evaluation, then the devil's in ensuring that the best guy's workscope isn't used to inform the idiot with the lowest bill-out rates how the job should be done.

The key here is to prequalify bidders and to PAY for technical proposals. If it involves more than a standard off-the-shelf product, why should people expect free engineering in the form of proposals? We all do it, but that doesn't make it right! Free "estimates" are another matter entirely.

 

[flamby]

In Indian context, SlideRuleEra's method is widely used. But the contractors have found loopholes in it. The one who is not confident of qualifying on its own merit will find someone and make a joint bid. The problem with this system is that sometimes, the "qualifying" partner is just there for namesake and has taken money to lend its name. It sure defeats the whole purpose but stands valid.

Ciao.

 

[arunmrao]

I agree with flamby about the Indian model. but there is the problem of cartel formation which is the order of the day here.

 

[RDK]

One problem with qualification based contracting is that it discourages new firms from starting up and bidding on your work. If the firm track record is an issue and a new firm has no track record then where will theses new forms get a track record?

It’s the same problem in qualification based selection of engineering consultants as well.

The system is wide open to exploitation. Companies and especially government agencies can satisfy the rules of having some sort of competition for contractors and still get to pick the one that they want in the first place; it only allows them to pad the bill a lot.

In my mind the best method is to only invite bids from companies that can do the work. In the case of new companies take into account the resumes of the key players and not only the company track record and then have a price based competition from no more than 5 qualified companies.

Remember that bidding costs companies’ money, A bid competition with more than 5 companies becomes a turkey shoot where the guy who misses the most gets the job. Fewer that 3 bidders can result in collusion between bidders or inadequate price based competition. More than 5 bidders and the odds of any one bidder getting the job goes down and so does the level of attention that they place on the bid so you may not end up with a fair price.

Do it in two stages and not in a two envelop system. Unlike engineering proposals where the pricing is easy after the method and manpower is outlined in construction costing the bulk of the work is in getting the prices form suppliers and compiling them into a bid. The company history and qualifications is an easy part of the bid, most large firms have the package on the shelf. In smaller markets any good construction manager will know the names of the companies he/she wants and most likely have the principal’s names and numbers handy.

Sometimes a low bid price can cost you money because nothing is more expensive than having to change contractors mid stream due to a bankruptcy. The lost opportunity costs of the delay can be more than the construction costs alone.

Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion

http://www.kitsonengineering.com

 

[arunmrao]

A new comer has an advantage that there are no skeltons in the cupboard,but has no track record for past performance. Recently I was associated to supply 1200 bearings for a railway bridge project. My customer a first time entrant in this field with technical knowhow from Germany and was a part of large French multinationalconstruction group.

However ,I got qualified as a casting supplier for the bearings, but the customer did not get qualified due to lack of experience in India. Perhaps a case of inadequate PR work,I suppose.

"Sometimes a low bid price can cost you money because nothing is more expensive than having to change contractors mid stream due to a bankruptcy. The lost opportunity costs of the delay can be more than the construction costs alone."

Very true. A government engineering company took up construction of 4 major flyovers in Bangalore. All these are stalled and cases are in court. The government company lacked financial and work discipline resulting in price escalation . Bangalore has earned a notorious name for traffic blocks!!

 

[davidbeach]

After dealing with many projects that went to the low bidder, I've thought for a while that a much better system would be to award the contract to the second lowest bid.

That would make it much more difficult for someone to buy a project and would go a long way toward eliminating the situation where a contractor wins(?) the project based on mistakenly omitting costs from the bid. By eliminating at least some of the change costs and other problems, it might actually cost less in the long run than awarding the contract to the low bidder.

 

[RDK]

I’ve heard of a system where the contract went to the bidder closest to the average bid price.

The lowest bidder obviously missed something, the highest just wants a quick buck and the ones closest to the average most likely have not missed too much and have a fair profit built into the price.

Any time a contractor comes to me between tender opening and award and claims that they missed something I give them the option of honouring the price or withdrawing the bid completely. Even if they don’t come to me but are way too low I’ll approach them and ask them to either confirm the price or withdrawal the bid.

Everyone makes mistakes, it is unfair and short sighted to try to unjustly profit from their mistake. However when the contractor comes to me and claims that they missed adding something it is surprising how often they claim that the amount left off was just under the difference between their price and the second lowest bidder.

Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion

http://www.kitsonengineering.com

 

[HgTX]

I've heard of the second lowest bid system, but I can't remember whether I heard that it was actually in use anywhere. I really, really like the idea. The very lowest bid undoubtedly either made a mistake or deliberately underbid and is hoping to make it up with change orders & claims.

Regarding qualification and new contractors breaking in, sometimes there is a clause that requires qualification/certification only for jobs above a certain dollar amount. That lets contractors get their feet wet with the smaller jobs and gain the experience that is required for them to become officially qualified.

Hg

Eng-Tips policies: faq731-376

 

[zdas04]

I've been using "Closest to Average" for many years on $2-3 million projects (hell, I thought I'd invented it, I'm that old). This has worked very well.

The first time I did it, the low bidder (low by 30%) complained to my manager about not getting the bid, but my boss stood by me. The guy bid on two other projects that I wasn't directly involved in at the same time and he got those bids. The projects were seriously delayed when the construction equipment was foreclosed and various people were suing each other for decades.

In pipeline and plant construction projects the tasks are so well understood by the contractors that the only real difference from company to company is profit-margin and overhead. I was sick of my industry sqeezing profit margins to the point that everyone's equipment was worn out and salaries were depressed, so my one-man "remedy" was to encourage a reasonable profit (while putting some checks to keep from getting gouged). Word got out and I had my pick of the best crews and the best equipment, my projects were always done on time, on budget, amd built to specifications--I really think that the "closest to average" method of bidding was a major factor in that performance.

Occasionally a bid would come in that was half (or twice) the average without that bid. In those cases I'd throw out the floater before calculating the average. I never got management approval for that adjustment, but it never seemed quite right for a typo or an idiot to skew the curve.

David

 

[davidbeach]

I hadn't thought of the closest to average method and think that it might be even better than my suggestion of second lowest. Closest to average does give you the contractor that is likely to have a good understanding of the project, is interested in doing the project (high bids are often a way for the contractor to decline the project without directly saying so), and has a decent amount of profit figured into the bid to not have to play nickle and dime games with change orders.

 

[RDK]

Of course lowest bid price also rewards those contractors who are innovative and efficient enough to provide a quality work at a cost effective price.

My preference is to stick to lowest price from a select few contractors who I know or have good intelligence on, that they can do the work, have the necessary financial and human resources to complete the project. Once they pass the qualification hurdle then lowest price. (Or most cost effective/best value for the money depending on the options in the bid package.)

Lets face it there is no perfect way that will work in all circumstances. If the work was especially difficult, required some specialized machinery or had some tight time frames, I would try to simply negotiate a price with the contractor best able to handle the work.

Unfortunately the bean counters have it drilled into their pointy little heads that the only way to get a cost effective final result is to have a wide open bid price and lots of competition.

It works as far as their understanding of life in the construction industry goes, they believe that all you need is a specification and then it’s the contractor’s responsibility to deliver a quality final job on time and within the bid price. Hell you might as well save the consultant fee and just let the contractor build it by himself with no supervision because if the design consultant did his job there would be no change orders. (and yes I have actually had accountants say that to my face.)

Think of the various contract bid award rules as tools available to you to get the work done. Then select the best tool from a wide variety of tools and use the one tool best suited for the task at hand.

Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion

http://www.kitsonengineering.com