*This column was originally penned as a letter to all buyers of construction in Ontario
The Ontario General Contractors Association (OGCA) represents over 200 general contractors throughout Ontario.
We provide the industry with a number of services including the review of tender documents and the entire tendering process.
This is done in the belief that a clear, concise and equitable set of bidding documents, combined with a fair, open and transparent tendering process, will benefit all the parties involved: the design professional, the contractor and most importantly, the owner.
We have been directly advised by numerous OGCA contractors that they are very concerned with two separate and distinct issues concerning how bids are currently managed. The first is the current length of time that buyers of construction are taking to successfully award a construction project. The second is the time it is taking to post bid results.
I will address each item accordingly.
Validity period on the award of tenders
The universally accepted industry standard for validity periods for the successful award of construction tenders has typically been 30 days. This timeframe characteristically grants the owner sufficient time to review and subsequently award the tender to the most qualified recipient.
As of late, that accepted period has slowly increased to an unmanageable timeframe of 90 days and beyond.
The purpose of this communication is to directly address this issue with all owners and to work collaboratively with procurement teams to bring the validity period back to the 30-day period.
The OGCA would like to highlight why it is imperative that the timelines for the awarding of tenders are returned to their original industry accepted length.
Firstly, the global pandemic has greatly affected the supply chain and, as everyone is aware, most construction products and items have been affected. The resultant influence is that all subtrades and suppliers are now only holding their pricing to the general contractors for no more than 30 days. In some instances, the supply chain validity period is as low as 48 hours.
Clearly the longer the timeframe to successfully award a construction tender directly translates into more price volatility and does not allow anyone throughout the entire process any certainty.
By lowering the award period to 30 days, organizations are once again aligning themselves with the validity offerings of the rest of the supply chain and thereby returning some stability to the pricing provided.
This return of pricing stability should be seen as advantageous by owners since it provides you with a greater degree of accuracy and eliminates the potential risk being borne by the general contractor who would typically price that risk component into the bid submission.
Secondly, by artificially increasing the length of time to award a construction project, organizations have inadvertently caused an unintended consequence with respect to a contractor’s bonding capabilities. What owners may not be aware of is that bonds on tenders, once submitted, are held outstanding until there is a successful award. This directly diminishes the overall bonding capacity of said contractor to bid any other projects.
Furthermore, the supply chain issues with which the construction industry is currently contending does not allow contractors the ability to guarantee prices over an extended period of time. Surety providers are becoming more concerned about price volatility and the potential for their bonded clients to incur significant losses from having to absorb a hefty price escalation for a key material component (e.g., steel).
A contractor may find their surety provider is reluctant to support a tender where the validity period goes beyond 30 days, unless they are certain that the bid has been sufficiently qualified with provisions for price escalation.
To clarify, the longer the bid remains open and unawarded directly influences the bonding capacity of general contractors and therein construction’s ability to price all the projects that are being offered by all buyers of construction. This disrupts the flow of construction and may cause a diminishment of qualified bidders on specific tenders and/or unforeseen price fluctuations to compensate for the time requirements.
Pending bid results
The construction industry fully understands that buyers of construction want to ensure they are performing their due diligence in order to properly assess a bid submitted by a contractor on any tender. Historically, the bids were opened publicly and the results posted within 24 hours of the close of said tender, even if the results were unofficial. Unfortunately, the current practice for most organizations has moved away from the traditional norm of 24 hours and the bid results are taking upwards of 14 days to be posted.
The posting of bid results being artificially elongated to this timeframe serves to further compound the issues I have addressed above on the subject of the timelines for the awarding of tenders. Consequently, this is something entirely within the control of owners which can be easily remedied to alleviate uncertainty and allow contractors to move on to other bids easily.
Organizations are not without options on this matter and should incorporate a form of prequalification to satisfy themselves that they are attracting the contractors with the desired experience on the project in question.
Once that action has been incorporated, it is simply a matter of publicly opening the bids and communicating the standings immediately. The three bidders that are most favourable are noted and the industry fully comprehends that their full compliance needs to be validated. The OGCA is not suggesting that organizations deviate from the latter position, but instead actively communicate the unofficial proponent within a 24-hour period.
This simple action will openly communicate standing, and thus general contractors will assess their likelihood of receiving the award immediately. This allows for the contractor to then turn their attention to other projects being tendered and may increase the number of bidders on subsequent tenders since they are no longer uncertain as to how they have performed and how much they can extend themselves. The timely communication on this regard is key to raising the interest of contractors to bid more projects.
In conclusion, the OGCA strongly recommends all buyers of construction take a two-pronged approach to the issues raised here. Firstly, within 24-hours of a tender close, promptly communicate the unofficial preferred proponent to the industry. All contractors can self-assess the results and action accordingly. Secondly, reduce the overly inflated award timelines from their current configuration to the industry accepted 30 days.
This return to accepted practices will be beneficial for all involved in the supply chain, especially the buyers of construction, since the prompt awarding of tenders and reduced timelines will lend themselves to assist in the stabilization of pricing fluctuations currently affecting construction.
The OGCA would like to work collaboratively with all buyers of construction to ensure tender results are being posted within 24 hours and that the thirty 30 day award of construction projects is achieved.
Giovanni Cautillo is president of the OGCA. Send Industry Perspectives column ideas and comments to editor@dailycommercialnews.com.
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