Tuesday, August 20, 2013

Obtaining Qualified Contractors on Public Construction Projects

Traditionally, public agencies have awarded public construction projects to the low bidder.  In theory, this ensures that the public pays the lowest possible cost for such work.  However, the low bid doesn't always result in the lowest price at the end of the project, nor does it ensure that the low bidder is capable of performing quality work.

Agencies seek more flexibility in award:  In response to concerns about low bidders not performing well and arguing for change orders that will increase the contract cost, public agencies have increasingly been developing alternative methods for awarding public construction projects.  These alternative methods come with their own set of challenges and may actually cost more money, depending on how the selection process is implemented.

Design-Bid-Build:  The following three approaches, based on contractors bidding a fully designed scope of work, are sometimes used by public agencies for ensuring that the contractor selected is qualified to perform the work:

Prequalification:  Under this scenario, contractors must be prequalified and meet certain criteria before being permitted to bid on a project.  Some public agencies are not authorized to prequalify contractors.  For those that are authorized to prequalify contractors, it is important that the criteria used to evaluate qualifications be clear, objective, and not overly restrictive of the bidding pool of contractors.

Bidder Responsibility:   In many cases, bidder responsibility criteria are the same as the prequalification criteria.  The only difference is that all contractors may bid a project rather than just prequalified contractors.  The low bidder must then demonstrate they meet the bidder responsibility criteria.  Prequalification analysis occurs prior to bidding, while bidder responsibility evaluation occurs after bidding, but prior to award.  Like prequalification, bidder responsibility inserts an element of subjectivity into the award process.

Best Value:  A best value selection process moves away from price as the only basis for identifying the successful contractor and instead begins to looks more like a Request for Proposals process, where various evaluation criteria are identified, including price.  Not all public agencies are authorized to conduct a best value selection process, and the process is often criticized for its subjectivity with the result that the public agency may contract with the firm who does not have the lowest bid.

Alternative Project Delivery Methods:  The following two alternative project delivery methods are gaining in popularity with public agencies.  Unlike the models used under a Design-Bid-Build approach, the design is not complete when the contractor is selected under the following two alternative methods:

Construction Manager at Risk:  This process is known by many different names (CM at Risk, CMAR, GC/CM (General Contractor/Construction Manager), and CM/GC (Construction Manager/General Contractor)).  Not all public agencies are authorized to use this process which involves selection of a contractor early in the design process, through a Request for Proposals process, partially based on qualifications and partially based on limited pricing (fee and general conditions work).  The selected contractor then works with the designer in providing various preconstruction services (cost estimating, scheduling, constructability reviews, value engineering, etc.) before the construction cost is negotiated between the parties when the design is sufficiently completed. 

Design-Build:  Under this project delivery method, the public agency uses a Request for Proposals process to select one firm to both design and build the project, eliminating or reducing conflicts between the designer and contractor.  The price is either part of the selection process (which brings with it many of the problems of the traditional low bid award), or the price is negotiated between the partieis when the design is sufficiently complete.  

Indefinite Delivery/Indefinite Quantity:  Also known as IDIQ, this method of public construction is basically an on-call process, in which undefined work is bid ahead of time and one contractor is selected, sometimes based on price alone and sometimes based on price and qualifications.  There are two major forms that IDIQ public construction contracts take:

Job Order Contracting:  Under Job Order Contracting, a contractor is selected partially based on qualifications and partially based on their markup percentage for serving as the general contractor for undefined work that will be assigned as the needs arise.  Establishing the cost of a specific project is typically based on an agreed upon unit price book.  Nevertheless, the contractor and agency must still negotiate the specific cost of work to ensure that units and quantities used in the estimate are appropriate.  Job Order Contracting is sometimes criticized for being more expensive than the traditional low bid process, but it is a more efficient process for ensuring that work is performed in a timely manner.

On-Call Contracting:  On-call construction contracting differs from Job Order Contracting in the selection process in that specific units of work are bid as part of the selection process (rather than relying upon a unit price book).  While the contractor in Job Order Contracting may be required to subcontract out major portions of the work, under on-call contracting, the contractor often performs all or most of the work themselves.  On-Call contracting is an effective tool for minimizing multiple invitations to bid for what are typically smaller dollar amount projects.  

General comments:
  • How much are bidder qualifications worth?  In most of the methods described above, there is some level of subjectivity involved in the selection process as a public agency evaluates and scores bidders based on qualifications and experience.  The result is that the low bidder may not end up being the selected bidder, or the price may be negotiated.  
  • Maintaining fairness and transparency:  In selecting contractors based on factors other than the low price, it is important that the process established be fair and transparent, and that the qualifications and proposals of contractors be rated as objectively as possible.  The low bid process was originally established to avoid public agencies showing favoritism to certain contractors.  Public agencies are now recognizing that the low bidder isn't always the best option for the public.  But in expanding the scope of selection methodologies, there is the risk of shifting back into an environment of favoritism to certain contractors.  These alternative tools must be managed carefully and thoughtfully.
  • Not all agencies authorized to use all methods:  Not all public agencies are authorized to use some of the selection methods outlined here.  State laws differ.  In addition, if there are federal funds involved with a project, public agencies need to work closely with the federal department granting the money to ensure that the selection process complies with federal regulations.
Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 

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