At What Limit Should Agencies Be Required to Obtain Competitive Bids?

Competitive bidding exists to:

• Ensure a public agency gets the lowest price
• Protect contractors from agency favoritism in the award of contracts

Cost of competitive bidding:  But competitive bidding, especially for smaller public works construction projects, is expensive and time-consuming for public agencies, and the required process may at times outweigh the public benefits.  At what dollar amount does it make more sense to not require competitive bidding?  Public agencies answer this question differently. 

Competitive bidding thresholds:  Some agencies have established dollar thresholds below which competitive bidding is not required.  For example:

• Ohio increases no-bid threshold:  Beginning on September 28, 2012, the competitive bidding threshold for construction contracts in Ohio will double, from $25,000 to $50,000.  Local agencies may require formal bidding for an amount less than $50,000, but anything over $50,000 will require competitive bidding.  Click here for more details of Ohio's new law.

• Bid limits vary in Washington state:  Bid limits below which agencies in Washington are not required to obtain competitive bids varies depending on the type of agency. For example, some cities are not required to competitively bid a public works project if the cost is $40,000 or less and only one trade or craft is involved.  If the project involves more than one trade or craft, the threshold is $65,000.  The Municipal Research and Services Center of Washington (MRSC) has developed a chart outlining the bid limits for different types of public agencies.

• On-Call public works contracts:  Some public agencies competitively bid for on-call  construction contracts, sometimes referred to as IDIQ (Indefinite Delivery/Indefinite Quantity) or Job Order Contracting.  Under this broad type of contracting, a contractor is selected based on unit prices that have been competitively bid.  When a specific project need arises, the agency and contractor negotiate a lump sum amount for the project based on the unit prices bid.  This can be a very efficient and expedient process for completing work. Some public agencies may not be authorized under their state law to use this contracting method, or may be required to competitively bid all public works construction projects, regardless of cost.

Balance is required:  In establishing competitive bidding thresholds, lawmakers and policy makers must balance a number of potentially conflicting objectives:

• Efficiency in contracting
• Having work performed to meet deadlines
• Obtaining the lowest price (or a reasonable price)
• Developing bidding documents with detailed plans and specifications
• Prevailing wage requirements
• Preventing favoritism and spreading contracting opportunities to many contractors

Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com