Schleifer’s Weekly Construction Message
High Quality VS Low-Bid
In the last three weeks, we have assaulted the low-bid legacy that has haunted contracting for 100 years. Government agencies began low-bid contracting as a way of keeping politicians honest. It seemed logical that if you asked contractors to compete for work by bidding, the resulting “Dutch” auction would encourage contractors to be more efficient and squeeze temptation out of politicians’ craven hearts. It was initially a practical solution to a problem but, as is so often the case, the solution became the problem. Gradually, low-bid proved to be destructive to both the efficiency of contractors and the budgets and completion schedules of owners.
No More Low-Bid
Selecting contractors based on the lowest bidder is the most inefficient and costly method that owners can employ. Modern research reveals that awarding contracts to the most qualified contractors saves both time and money over the life of the project.
Put simply in an article in Engineering News-Record:“Some people believe that the low-bid approach is necessary to create competition. But that’s not true, because unless you reward what you want, you aren’t likely to get it. If you want peak performance, you must reward it, not the low bidder.”
The legacy of “low-bid” began as a solution to the corruption of public officials back at the turn of the 20th century. Today common-sense dictates that the most efficient way to complete a complex construction project is by hiring the most qualified contractor to do the job.
Who Is The “Most Qualified”?
Our research at the Simplar Institute has identified the elements that distinguish the “most qualified” contractors for each construction project. The first step in the identification process is to focus on expertise.
- The best criteria to differentiate vendor expertise is the project-specific capability of the team that will do the work, including their ability to identify, prioritize, and minimize risk.
- What matters most is the actual key people performing the work and how early that team is involved in the project planning.
- When it comes to project success the capability, skill, and expertise of the key people is far more important than that of the company.
- Most project owner organizations are not structured to work with experts. They are structured to minimize the loss of working with lower bidders.
If you focus on expertise utilizing the processes and tools we have designed you can attract and select high performers and leverage their expertise.
Quality Focused Proposals
Our research suggests the following changes in the RFP to direct proposals away from hundreds of pages of boilerplate toward a laser focus on the unique expertise a contractor might bring to the project.
- Limit the number of proposal pages to eliminate repetitive boilerplate.
- Request anonymous proposals. (to eliminate the potential for bias in the selection process.)
- Use proposal submission requirements that facilitate the high-performing team’s ability to differentiate themselves.
- Don’t spend time and energy evaluating items of limited differential. Just use Pass/Fail to score items like the Safety Plan.
- Require specific evaluations of individual project teams and team members.
- Specify submission elements (use templates) to ensure consistency in responses.
Contractors Will Then Submit Proposals That:
- Demonstrate project-specific capability by focusing on team expertise and team alignment through transparency, measurement, and positive accountability.
- Identify and prioritize key project risks and associated solution strategies that mitigate risk by using vendor expertise to identify the optimal project approach and timeline.
- Show how cost reduction and project innovations will be incorporated through value-added options.
- Assign client resources and responsibilities through project completion.
Does XPD Work?
EXpertise Project Delivery is a best-value approach that has been developed and refined over the past 20 years, with proven results.
- Reduced Schedule Delays by 40% – 60%
- Reduced Cost Changes by 20% – 50%
- Increased Owner satisfaction by 20% – 30%
In other words, migrating away from the old-fashioned, inefficient low-bid approach to awarding contracts benefits owners and contractors alike. It is time for the entire industry to change its thinking and adopt a quality-first approach.
Contractors may want to use this message to introduce their clients to an advanced procurement process that offers owners the best value.
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