Demystifying Public Works Bidding and Contracting

On September 5, 2013, I was in Ephrata, Washington providing an all day training session for the Grant County Public Utility District staff on Demystifying Public Works Bidding and Contracting.

Here's an outline of the training I provided:

Types of Public Works Contracts

• By agency staff
• Advertised Public Works
• Small Works Roster (Limited public works)
• On-Call Public Works
• Alternative Public Works (GC/CM, Design-Build, Job Order Contracting)
  

Bid and Agency Limits on Performing Public Works

What is a Public Work? 

• What is Ordinary Maintenance?
• Is Maintenance a Public Work?

Why Aren't Bidders More Careful?

• Why Do Bidders Make Mistakes?
• Missing Bid Prices
• Conflict Between Numbers and Words
• Bid Calculation Errors
• Claims of Error

Is Your Bidder Playing Games?

• Bid is Too Low
• Unbalanced Bids
• Conditioned or Qualified Bids

Will the Real Low Bidder Please Stand Up?

• Additive and Alternate Bids
• Tie Bids
• Responsive Bids
• Responsible Bidders
• Local Bid Preference
• Bid Protests and Appeals

When You Don't Want a Check

• Purpose of Bid Guarantees
• Types of Bid Guaranties
• The Risks of Checks
• Are Bid Guarantees Required on Small Works Roster Projects?
• Amount of Bid Guarantees
• Restrictions on Bid Bond Amounts
• What is a Power of Attorney?
• How Much Does a Bid Bond Cost?
• When Should You Return Bid Bonds?
• Checklist for Bid Bonds

Payment and Performance Bonds

• Purpose of Payment and Performance Bonds
• Why Should You Get 2 Separate Bonds?
• Bonds vs. Insurance
• Are Bonds Required on All Public Works Projects?
• When Should the Bonds Be Obtained?
• What Happens if You Fail to Get the Bonds?
• Should the Bonds Cover Change Orders?
• Should the Bonds Cover Sales Tax?
• Are Bonds Ever Forged?
• What Happens if the Contractor Defaults?
• Checklist for Bonds

When Bad Things Happen During Construction

• Front Loaded Schedule of Values
• Dealing with a Change Order Artist
• Prevailing Wages Not Paid
• Subcontractors and Suppliers Not Paid
• Work Not Completed on Time
• Punch List Work Not Completed
• Warranty Work Ignored by Contractor

Public Works Contract Close-out

• Who Does Retainage Protect?
• Completion Dates
• Filing, Renewing, and Releasing Claims
• Pre-Claim Notices
• Foreclosure and Payment
• Release of Retainage
• What Happens if There's Not Enough Retainage
• Check Your Bidding and Contract Documents

Questions:  If you'd like to talk about me providing this training for your agency or association, please contact me.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

When Bad Things Happen to Bids

Training:  When Bad Things Happen to Bids: Strategies for Ensuring a Successful Public Works Project

When:  This training will be offered in four locations, each from 10:00 a.m. to 2:30 p.m.

Mike Purdy

• February 7, 2013 (Renton, WA)
• February 12, 2013 (Yakima, WA)
• February 21, 2013 (Camas, WA)
• February 28, 2013 (Everett, WA)

Instructor:  Mike Purdy

Outline of Training:  

• Why Aren't Bidders More Careful?
• Why do Bidders Make Mistakes?
• Missing Bid Prices
• Conflict Between Numbers and Words
• Bid Calculation Errors
• Claims of Error

• Is Your Bidder Playing Games?
• Bid is Too Low
• Unbalanced Bids
• Conditioned or Qualified Bids

• Will the Real Low Bidder Please Stand Up?
• Additive and Alternate Bids
• Tie Bids
• Responsive Bids
• Responsible Bidders
• Local Bid Preferences
• Bid Protests and Appeals

• What Can You Do to Manage Bidding?
• What Should be on the Bid Form?
• On What Days Should You Not Receive Bids?
• When is a Bid Late?
• When Should You Take a Bid Guaranty?

Information and Registration:  Click here for more information and to sign up for this free training.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com

When Bad Things Happen to Bids

I spoke at a workshop last week (August 21, 2012) in Seattle at the Annual Forum of NIGP (National Institute of Governmental Purchasing).

My topic was "When Bad Things Happen to Bids: Strategies for Ensuring a Successful Public Works Project."

Here's an outline of what I spoke on:

Why Aren't Bidders More Careful?

• Why do Bidders Make Mistakes?
• Missing Bid Prices
• Conflict Between Numbers and Words
• Bid Calculation Errors
• Claims of Error

Is Your Bidder Playing Games?

• Bid is Too Low
• Unbalanced Bids
• Conditioned or Qualified Bids 

Will the Real Low Bidder Please Stand Up?

• Additive and Alternate Bids
• Tie Bids
• Responsive Bids
• Responsible Bidders
• Local Bid Preferences
• Bid Protests and Appeals 

What Can You Do to Manage Bidding?

• What Should be on the Bid Form?
• When is a Bid Late?
• When Should You Take a Bid Guaranty? 

Questions:  If you have questions about any of the issues in the presentation, or if you'd like to discuss having me provide the training for your agency, please contact me.

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

Bid Protest on Wisconsin City's Alternate Bid

The second low bidder on a City of Burlington, Wisconsin project to construct a parking garage downtown has filed a bid protest with the City, claiming the City should have awarded the project to them with an alternate bid price that was lower than the base bid price awarded to another firm.

Alternate Bid Lower Than Base Bid:  Metro Parking Structures, LLC submitted a bid for an alternate bid (using pre-existing materials versus new materials in the base bid) for $2.044 million.  The City chose not to exercise the alternate bid using pre-existing materials and thus awarded the project to Riley Construction for a base bid amount of $2.09 million.  Metro's bid for the base bid was $2.31 million.  Riley Construction has already begun work on the project.

City's Action:  The City Council met in closed session on September 21, 2010 but made no decision on the bid protest.  Based on the information I have on this project, it appears the City was well within their rights to award to Riley Construction as the low bidder on the base bid.

For more information, click here to read an article on the bid protest from MyRacineCounty.com.

Practical Tip:  When awarding a contract based on a bid that includes alternate bids, a public agency should decide on the merits of the construction option whether it intends to exercise the alternate or only award the base bid.  The determination of the low bidder should be based on comparing the low base bid prices of all bidders, or the low bid alternate prices of all bidders, depending on which option is selected.  For a more detailed discussion of this issue, visit my blog posting for August 26, 2009.

Evaluating and Awarding Alternate and Additive Bids

Frequently, on public works projects, a public agency will request bids for alternates or additives.

While actual usage of these terms varies between agencies, I would characterize an alternate as an alternate material or method of construction different from what is included in the base bid. An additive, on the other hand, is an additional body of work that the owner may award if there is sufficient funding for it. It's a body of work that isn't critical for the project, but which allows the owner to bring the bid amounts within budget without having to re-advertise the project.

How should a public agency evaluate who is the low bidder? That decision should be based on what bidder is the low bidder on the base bid and the combination of alternates or additives that the owner chooses to exercise. Doing so ensures that the owner receives the lowest price for the work performed and is consistent with most laws that require award to the low bidder.

Depending on which alternates or additives are selected, the order of the bidders could change. This is a cause of concern for some contractors who fear that public agencies may use alternates and additives to manipulate who the low bidder is and to purposely exclude a bidder from receiving the award. A reputable owner should base their decision on award based on what funding is available for the project and what is in the best interest of the project.

Thus, if the owner decides not to award any alternates or additives, the award evaluation would be based on just the base bid and that is all that would be awarded. If, on the other hand, the owner had funding for additive bids 1, 3, and 5, the owner would add up the prices for the base bid and additives 1, 3, and 5 for all of the bidders to determine which bidder was low on this combination.

Some owners prioritize the alternates and additives in order to ensure that it is not possible to pick their favorite bidder. The downside to such prioritization is that it can limit options for what may be best for the project and the funding available.

After making an evaluation and award, it is inappropriate for an owner to later change order an alternative or additive bid into the project, if in so doing it would change the order of who the low bidder was. Such an action would likely result in an audit finding.

Can Contractor "Correct" Their Bid Price?

Here's my quick analysis of the bid dispute over a $100 million public works project at John Wayne Airport in Orange County, California after reviewing some of the documentation published online by the Orange County Board of Supervisors.

The low bidder, Whiting-Turner submitted a bid of $89,996,795. After bid opening, they claimed that they had transposed the number (in both words and numbers) and it should have been a bid for $98,996,795. The next low bidder's bid is just under $101 million. In support of Whiting-Turner's assertion that this was just a transposition and their bid should be awarded at the $98 million price, they noted that when you add up the two alternate prices (2A and 2B), both listed separately, you get the $98 million figure. I couldn't locate a copy of the complete bid form to verify this, but did find part of the bid form that shows that the contractor wrote in words and numbers the $89 million figure for the following: "Total Alternate bid (730 days) including Additive or Deductive Bid Items to Alternate Bid (2A+2B)." The heading to this bid total is important as will become clear below.

Whiting-Turner cites language from the Instructions to Bidders as follows: "At the time of opening bids, the County will evaluate the total amounts stated as the Total base Bid (821 Days) including Additive or Deductive Bid Items (1A +1B) and the Total Alternate Bid (730 Days) including Additive or Deductive bid Items (2A +2B). The County will determine the lowest bidder based on the Total Base Bid (821 Days) including Additive or Deductive Bid Items (1A +1B) and the Total Alternate bid (730 Days) including Additive or Deductive bid Items, whichever is lowest."

Whiting-Turner goes on to state that "This indicates that JWA [John Wayne Airport] would evaluate the bids based on items 1A and 1B, and items 2A and 2B, not on anything else."

From what I read in the Instructions to Bidders, it is the total that the airport will evaluate, not the component parts of the totals as Whiting-Turner appears to incorrectly assert in their letter. Thus, based on the language in the Instructions to Bidders, I think the airport is correct in stating that the contractor's bid is the $89 million figure, that it may not be corrected, and that the $89 million figure is consistent with how the Instructions to Bidders states that the bid will be evaluated. Nothing in the bidding documents that I've read suggests that the airport will evaluate the bids based on the component parts (2A and 2B) in the event of a discrepancy between the component parts and the total bid.

Take a look at the documents and various letters for yourself, and see what you think. The Orange County Board of Supervisors is scheduled to make a final decision on this matter at their meeting of July 14, 2009.

In dealing with bid errors, public agencies will be held to the standard for evaluation and correction of bids noted in the bidding documents. Often there is language in bidding documents granting the public agency the right to correct mathematical errors (multiplication of unit prices times quantities in favor of unit prices instead of the extension, and addition of extensions instead of the total written).

If Whiting-Turner does not want to perform the project at the $89 million figure, they can formally submit a claim of error and request to be relieved of liability for their bid and not have their bid bond taken by the County.

Asking for the Right Price for Alternate Bid Work

If you include an Alternate Bid on the bid form for a public works construction project, it is important to make sure you are clear in your instructions to bidders for what price to include on the bid form.

There are potentially two different kinds of Alternate Bids. In one case you may be simply asking for the price for a body of work above and beyond the work described in the base bid. Technically, this should be called an Additive Bid, but some public agencies call them Alternate Bids. In a situation where the work is above and beyond the base bid work, it's okay to just ask for the price of the Alternate Bid.

If, however, the Alternate Bid is a request for pricing to provide a different material or method in lieu of what is described in the base bid, it is important to specify that what you what bidders to note on the bid form is the differential price between the cost included in the base bid and the cost to provide the Alternate Bid work.

If you don't specify that you want the differential price, you may get bidders submitting bids on an unequal basis. Some will interpret that you want the differential price, while others may include the complete price of the Alternate Bid, thereby double charging for the work (some cost in the base bid and all costs in the Alternate Bid).

Alternate Bid Prices

When developing a bid form for a public works project that includes an alternate bid, it’s important to be very clear on what you want bidders to actually bid on.

Alternate bids are used differently by different agencies. In its purest sense, an alternate bid should be an alternate material for part of the construction project or an alternate method of construction.

Thus, in asking bidders for a bid price, be clear that you’re asking for the price differential between what is included in the base bid and the alternate bid for the alternate material or method. Otherwise, you may have bidders who include the entire price for performing the work of the alternate. Bidders need to all be bidding on an equal basis, and public agencies need to have a clear way to evaluate bids consistently.

If you ask bidders to bid on the total price for the alternate work (not just the price differential), you won’t have any way to determine how much they actually bid for the material or method in the base bid, unless, of course, you have a unit price bid form that includes these.

Determining the Low Bidder with Additives and Alternates

If your bid form includes Additives, Deductives, or Alternates (see previous blog post from August 28th for more information), it is very important to make sure that you award the contract the bidder with the lowest bid of the combination of the base bid and Additives, Deductives, or Alternates that you choose to exercise.

Even if one bidder is the low bidder on the base bid, they may not be the low bidder when you add an Additive, Deductive, or Alternate bid. You should be comparing all bidders against the same combination of bids to determine who the low bidder is. In other words, if you choose to exercise Additive number 1 and 3, you should do a comparison of the price from all bidders on the base bid and Additives 1 and 3 to determine who is the low bidder on that combination.

Your decision of which Additive, Deductive, or Alternate bids to exercise should be based on funding availability and sound business reasons related to the project, and not on who your favorite bidder is. Not managing this part of the process correctly may subject you to both protests and/or audit findings.

In addition, you should not do a change order for any of the Additive, Deductive, or Alternate bids if such a decision, made at the time of bid submittal, would have changed the order of who you awarded the contract to.

Additives vs. Alternates

What's the difference between an Additive bid and an Alternate bid? What's a Deductive bid? Or an Additive Alternate bid? Different public agencies use the terms differently, but in my mind, here's what they mean.

An Additive bid is a body of work that the owner may award with the base bid if there is sufficient funding after the bids are received. By contrast, a Deductive bid is a body of work that the owner may delete from the base bid if there is insufficient funding to award the full base bid. The purpose of both Additive and Deductive bids is to build flexibility into the bidding process so that the owner can award the maximum amount of the project possible dependent on funding available. Additive and Deductive bids are often termed as bid protection tools.

The following is a potential bid form structure for requesting Additive bid prices:

Additive No.:	Description of Additive Bid:	Additive Bid Amount:
1		$
2		$
3		$

By contrast, an Alternate bid is a bid in which the owner asks for prices for an alternate method of constructing something in the base bid or using alternate materials. The alternate price would be the differential between the price included in the base bid and the price for the alternate method or material. In developing your bid form, it's important to make sure that you're clear that the alternate bid amount should be the differential price. An Alternate bid may be either an increased dollar amount or a reduction in dollars, depending on the nature of the alternate. In this sense, some people will refer to an Alternate bid as either an Additive Alternate (if the differential price is an increased amount), or a Deductive Alternate (if the differential price is a decreased amount). Personally, however, I think such terminology confuses the difference between Additives/Deductives and Alternates.

The following is a potential bid form structure for requesting Alternate bids:

Alternate No.:	Description of Alternate Bid:	Additive or Deductive	Alternate Bid Amount:
1			$
2			$
3			$

More later on determining the low bidder when you have Additive and/or Alternate bids, and things to avoid.