by Brian Lines, Ph.D., Assistant Professor, University of Kansas
Construction industry research usually begins with an everyday practical problem brought to a university faculty by construction industry professionals. Unfortunately, the resulting published research papers can often sound “academic”, “complex,” and “theoretical” to construction practitioners laboring in the field. The form, however, is not the substance. The substance is research findings reduced to practical “common sense” solutions. The purpose of this blog is to translate research arrived at by the careful application of the scientific process into common sense solutions that can easily be grasped and utilized by construction people in the field. The research study discussed in this article began with a problem facing the construction industry.
An Everyday Practical Problem
Can we improve the traditional Low-Bid procurement process, which has several well-known deficiencies?
- Low “first costs” are often accompanied by hidden subsequent costs as well as compromises in quality, excessive claims, disputes, schedule delays, and damaged relationships.
- Low-Bid is widely regarded as being adversarial.
- Low-Bid treats construction companies (and their teams) as a commodity. Essentially, the Owner is saying that “We believe all contractors are the same, so we might as well take the cheapest one!”
A growing alternative to traditional Low-Bid is Best-Value procurement. In Best-Value, contractors who are competing for a project are evaluated on price and other key factors, such as Technical Proposals, Past Performance, Safety, and Interviews.
Sophisticated buyers of construction services are embracing the Best-Value procurement method across the country and in many places around the world. However, some owners are restricted by mandated Design-Bid-Build requirements. And in Design-Bid-Build (DBB), owners often assume that since their scope is set – in the form of 100% complete plans and specs – they can use Low-Bid and get an equivalent facility no matter who builds it. But this is a faulty assumption when Low-Bid so frequently produces deficient results.
The Scientific Method
After studying a number of projects, we have discovered that Best-Value procurement can be effectively applied within Design-Bid-Build.
- The lowest-bidder was found to be the highest-qualified (top evaluated) contractor in only 1 out of 4 cases. This means that in the traditional low-bid method, the odds are that owners will NOT get the best qualified contractor in 3 out of 4 cases. Not exactly good gambling odds!
- Best-Value achieves strong cost competition. Selected contractors were more than 2% cheaper than the average market price. This means the owner still gets a good deal while also hiring a better qualified contractor.
- The selected contractor had substantially better qualifications than the low-bidder alternative. This can be seen in Owner evaluation scoring. For example, when compared against the lowest bidder, the Best-Value contractor submitted:
- Technical Proposals that were 21% higher quality,
- Schedules that were nearly 7% faster, and
- A 15% more qualified project team.
- There was a wide range in owner evaluation scores for Technical Proposals, Interviews, Schedules, and Safety Plans. These results prove that construction contractors are NOT a commodity; instead, there’s a wide range in their qualifications. And remember, this is even in the context of a 100% complete project design and specs!
- By comparison, the range in contractor cost proposals was significantly In other words – pricing was still tight. This means that cost proposals should NOT be treated as the most important criteria for evaluating a contractor – and certainly not the only evaluation criteria
It’s Just Common Sense
Awarding contracts to the “lowest-bidder” seldom results in lowest over-all project cost. And where Design–Bid–Build is required, Best-Value procurement can be used. The question is what results does Best-Value deliver?
- Do you get better quality work at an efficient over-all cost?
- Are you better off if you apply additional criteria pre-bid?
- Will it improve quality?
- Will it decrease the failure rate?
- Is this new system worth the time and trouble?
- Will it reduce over-all cost?
Based on a diligent application of the scientific method, our research provides a simple common-sense answer to these practical questions – YES.