If the lowest bidder is not always the best bid and there are alternative procurement models available, why is it still being used?
Venus Garg, vice-president of major pursuits with AECOM; David Ho, chief procurement officer with Infrastructure Ontario (IO); Sahil Shoor, partner at Gowling WLG; and Bill Woodhead, a partner at Borden Ladner Gervais LLP provided some insight during a recent discussion at the Canadian Institute conference in a session billed Navigating the Risk of the Low Bidder Dilemma: Rethinking Competitive Bidding in Project Procurement.
Giovanni Cautillo, president of the Ontario General Contractors Association, moderated the panel.
Garg said lowest bid is usually tied to lack of understanding of schedule or compromising on other factors such as quality or safety.
“I think the emphasis should be what’s the right bid, how do you optimize the cost, who is the right party,” he said.
Ho said there is not a single construction procurement that is issued at IO that is lowest bid.
“It feels counterintuitive, because in every procurement that we do has technical, design or qualitative criteria,” explained Ho. “We fail to discriminate between various bidders sufficiently in that point evaluation. Because that distribution of points on things that are qualitative or technical is so tight, it ends up being that the price, which is easier to pull apart, ends up winning.”
Schedule and risk must be considerations
Owners understand different contractors of different sophistication may not interpret scope correctly, he added.
“They may make corporate, commercial choices to take on risk that they shouldn’t be and they will bid accordingly,” Ho said. “The question for the owner is how do we sense that? How do we discriminate against bidders who are making those ill-informed decisions outside of just looking at the price? I would say…schedule itself is something that matters greatly and we’re lucky enough to have a team of professionals and budget controls function.
“Scheduling experts that can look at a schedule and prescribe at a certain level of detail and say, ‘actually there are too many critical path items loaded together.’ There is a real probability that what is being said here and what is being assumed, which underlies the price, is probably a false assumption.”
He also suggested using other forms of assessments and analysis to show there is a probability that it is going to cost more than what is being proposed.
“This is a little bit of a preview of where were going at Infrastructure Ontario. We would like to take those assessments and then create…pricing adjustments to say, ‘Yes, you bid us a price and yes, you are the winner. You will proceed to contract for that price but for evaluation purposes we think there is actually more risk loaded into this then the price submission would suggest,’” said Ho. “We would like to say the risk we see in a schedule based on the probable time assumptions, that’s worth money…that you can calculate by days and a burn rate that actually can be inputted to the evaluation.”
These evaluation mechanics are possible without jumping to a progressive collaborative procurement structure, he added.
Be crystal clear on objectives
Cautillo pointed out IO has a vast amount of resources.
“What about other municipalities, other buyers of construction that may not have the same capabilities? How does it work for them?” he asked. “It sounds like a lowest-bid-plus type thing. It’s an interesting concept that you’re tabling but how can it be replicated by everyone?”
Ho did have some advice for those who don’t have an internal schedule management function.
“Before the evaluations arrive to really drill down on that framework, working with your project manager, project director on the owner’s side, please articulate the difference between what is satisfactory, what is good, what is unsatisfactory and cause that to be as objectively crystal clear before bid submissions arrive so that you can cause a framework to really spread apart the scoring of those technical points,” he said.
“How can you really spread apart and tell the difference between contractors of substandard quality and those that are truly excellent in a way that is objective, defensible and with forethought? Because if you can spread that technical distribution, you really do have a chance of the highest quality submission overcoming some other lesser quality submission of a lower price.”
Shoor pointed out not all projects involve public authorities and the same basic principle of the low bid dilemma applies to those projects as well.
“If there are no such internal resources…within that organization, it is incumbent on that organization to ask and retain assistance from the consulting technical team to help them evaluate the submission,” he said, adding there may be challenges and disputes down the line. “Seeking outside assistance for those who don’t have the resources internally is crucial.”
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