Look Beyond Low-Bid
For the past two years, I have been preaching to contractors the wisdom of looking beyond low-bid. I have been frustrated to receive less than enthusiastic responses from a greater majority of contractors. Their reaction to my suggestion to move away from low-bid toward a more expertise-based procurement process is summed up by the following quote from a construction company CEO:
“I see the wisdom in bidding for jobs based on the expertise that differentiates us from our competitors. But it doesn’t make any difference how I see it. It only makes a difference in how owners and designers see it. In this highly competitive construction marketplace, owners still make the rules. If they consistently choose low bidders, then you better bid low, or you’ll find yourself out of business. Preach to owners. Only they can change how contracts are awarded.”
He is right. As it turns out, I have been preaching to the wrong choir. I should have been preaching to owners (the buyers of construction services) about the benefits that accrue to them by selecting the most qualified contractor, rather than the low bidder, to build their project.
Now I am speaking directly to owners.
“It is time to stop trying to solve an age-old problem by selecting the least qualified contractors to build America.”
A Case Study
I have used this case study in the past, but I was talking to contractors. Permit me to sum it up again for owners and designers.
- A small town in the Midwest opened its fire department project to any and all bidders and selected the low bid contractor at $2.5 million in spite of his “hard to do business with” reputation.
- The scheduled 12-month project began with difficulties with building department inspections where some work had to be torn out, some questionable areas left in place, and lots of arguments.
- Complaints of deficiencies and construction not according to specifications were ignored by the contractor and grievances built up while new work was put in place on top of work not accepted. When the building was completed the city’s building department refused to issue an occupancy certificate.
- The project was delivered six months late, and an independent consultant estimated that the cost to correct the deficiencies in order to get an occupancy permit would exceed another million dollars–compared to the original low bid of $2.5 million.
- No one has occupied or used the facility for any purpose in well over five years. Ongoing carrying costs such as insurance, security, and the like continue, but no one can use the building.
- The contractor got most of his money, but the fire department is still paying to rectify deficiencies in hope of securing an occupancy certificate.
Low-Bid is the Main Cause of High Cost and Project Delay
Recent research across the entire international construction industry finds that the low-bid competitive environment created by owners is the main cause of poor quality, high-cost contractor performance.
- Low bid assumes the delivery of construction is a commodity, while the research confirms that the best criteria to differentiate contractor’s expertise is the project-specific capability of the team
- The capability to perform the work is ignored by the low-bid process.
- Research demonstrates that in the low-bid process identifying issues prior to bid could prevent winning the job.
- Best Value contractors have 37% less cost growth than low-bid contractors.
- The construction team is the only one who can effectively minimize risk.
- Most project owner organizations are not structured to minimize the loss of working with low bidders. They are structured to work with experts.
- Best value procurement provides more qualified contractors who are proven to have the skills to perform successfully.
- What matters most is the team’s ability to identify, prioritize, and minimize risk.
- There is no doubt that best value leads to lower total project costs.
Successful construction projects are always the fruit of professional partnerships between high-performing contractors and high-performing owners.
Please circulate this widely. It will benefit your constituents. This research is continuous and includes new information weekly as it becomes available. Thank you, Tom
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