"You get what you pay for." It’s an oft-used quote, but we've all experienced its truth in one way or another.
On a recent trip, one of my sons commented about the sorry state of the highway we often travel. This bumpy, wavy, dipping stretch of road was only recently completed, but it is already full of patches and deteriorating sections. "This is ridiculous!" he said. "Low bid,” I replied.
And it was exactly that: a low bid job, complete with lawsuits, accusations, blame-casting and near bankruptcies. So now the taxpayers are shouldering the burden of patching a mess that could have been avoided if not for the "lowest responsive bidder" approach. Ouch!
Consider this: most of America's infrastructure was and still is being built by the lowest bidder. No wonder it is crumbling! What if we rewarded our athletes by giving trophies to those who invested the least effort in the contest and performed to minimum standards instead of the one who invested great effort to run faster and jump higher?
Okay, I've made my point, so let's move on to a more productive conversation. I posted earlier this year about why low bids often don’t deliver. Now, the question to ask is: “what can be done about it?
There are other ways to approach pricing a project. Here are some alternatives:
The Danish Method
In many other countries, including most of the EU, the Danish or Average Bid Method has become the norm. In this approach, the bid is awarded to the bidder who comes in closest to the average of all the numbers.
Of course, there is more than one way to determine exactly which bid that is. You can use a straight-up average of bid prices, like they do in Taiwan. Or you can emulate the Italians and choose the next bid down from the numeric average.
The biggest problem with taking the average is that a bid that is wildly high or low can throw off the results. One way to counteract the rogue effect is to double down and use this technique:
- Calculate the mean of all the bids
- Discard those that are not within a certain predetermined number of percentage points (say, 15%) from the mean
- Award the bid to the lowest, average, or most qualified bidder in the middle
Doing it this way gets rid of the wild cards and gives you a pretty good shot at getting the lowest responsible price.
Negotiated Pricing
Another approach is to ditch the bid process altogether. The contracting firm is chosen solely on the basis of its qualifications. An uncontested price request is made, and negotiations ensue. This process does require a trust factor, and isn’t suitable for every situation. However, where a good working relationship had already been established it can save a lot of stress and hassle for all parties involved.
Both the above methods can be used as direct alternatives to low bid pricing. Now, let’s look at some interesting approaches that affect not just a project’s pricing, but its execution.
The Design-Build Procurement Method
In the traditional bid-build approach, an architect or engineer is hired to design the project, and the construction job is then awarded to the lowest bid. Typically what happens is a random pairing of design and construction teams. There is no assurance that they will mesh together well as a team and in fact it’s not uncommon for the relationship to become adversarial. This can result in all sorts of misunderstandings and problems ranging from project delays to poorly executed work.
Design-build procurement is an alternative approach which has been embraced by a number of states and the federal government. In this method, all bids must come from a pool of candidates who meet certain qualifications. From there, it’s most common for the designer and builder to bid on the project as a team, and larger firms may have design professionals on staff.
There are many advantages to this approach. The design professionals and the contractor are all at the table along with the owner from day one. The contractor’s wisdom and on-the-ground project approach paired with the designer’s vision creates a powerful collaboration that can help streamline the project and avoid many of the common catastrophes that plague low-bid jobs. And, since the relationships are already in place the project usually moves forward smoothly and with minimal drama.
The Multiple-Criteria Method
This is a good one to consider if you are required to utilize traditional low-bid pricing. In the multiple criteria approach, project price is just one of several factors taken into account which can affect overall project cost. Other considerations include the qualifications of the team and/or contractor, time to completion, innovative approaches, maintenance – in short anything that can affect the overall value and economic impact of the project.
In addition, the owner can vary the criteria for different projects. For example, when commissioning a bridge project you may have different priorities than you will have for a building or a landscape project, which would warrant giving greater weight to specific criteria.
What Is The Real Cost?
No matter which bid analysis method you ultimately use, keep this in mind: assuming you have a good design, the deciding factor in the success of the project is always the quality and integrity of the contractor. These projects are very long lived. Ultimately it pays to consider not just the upfront cost of the project but the cost to the next three generations. Integrity counts.
Looking for a bid? Give us a call at 478-750-7733 in Macon or 478-272-3878 in East Dublin. Or, reach out to us online and we’ll be in touch soon.
