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D4COST Software

  A General Contractor’s View on the Low Bidder
Arthur O'Leary, FAIA, MRIAI

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The following letter to the Editor was in response to my article in the September/October Issue of Design Cost Data, entitled, “Construction Industry Folklore.”

To the Editor,
   I read Mr. Arthur F. O’Leary’s article regarding “low bidder folklore” in the construction industry and have heard the same over my 35 years as a contractor. I have often wondered why owners never apply those same approaches “here” in the good old US of A. His points on the surface seem valid, but as a general contractor, I challenge some of his statements.
   In his opinion the lowest “responsible bidder” is always the best choice. Under Mr. O’Leary’s scenario the owner should not have to worry that the low bidder will in fact sign a contract, perform as expected and pay all his subcontractors since unqualified bidders have already been eliminated prior to bidding. If this were the case then why would our industry have the need for Bid Bond Requirements as well as Performance and Payment Bonds? In reality the competitive bidding arena is riddled with unscrupulous business practices such as bid shopping, bid peddling and the unfortunate practice of using unqualified low bids from subcontractors received at the last minute. This is done not only by general contractors, but also by owners, who for the most part, forfeit good quality delivery of a project while in search of the lowest price.
   There was a comment made in the article that contractors would be confused if the intent were to award the project to the second lowest bidder. I can’t tell you how many times I have submitted a bid only to come in second, knowing that the project could not be done for the low bid. Eventually I found out that anticipated delays and change orders paled my bid.
   I see three problems in our industry. First, it is too easy for anyone to become a contractor. Second, the average owner views contractors as a commodity with no differentiation made between them other than price. Third, every time the construction industry comes up with an equitable method of delivering a project, owners find a way to circumvent the contractor from making his well-earned profit. On bid day, I would much rather consider the least amount of profit I can put on a project in order to be second rather than cutting subcontractor numbers and putting on blinders to drawing discrepancies to become the low bidder. The reason awarding projects to the second lowest bidder won’t work? …… most owners can not resist that low bid.
          Michael P. Rizzo
          Founder and CEO of Caldwell & Walsh Building
          Construction, Inc.
          Member of the American Society of
          Professional Estimators since 1988.
          Sandy Hook, CT and New York, N.Y.

Mr. Rizzo’s letter illustrates many of the valid concerns that highly qualified and serious minded general contractors experience when faced with many of today’s bidding opportunities. It costs considerable money to prepare a credible bid as well as causing major disruption of the firm’s office operation while at the same time staying on top of the projects actively under construction. If the contractor does not end up as low bidder, then all the time and effort expended in preparing the proposal is down the tube. Nothing is salvageable. All that is gained is bidding experience - and who needs it?

Contractors rightly expect to be taken seriously. They are entitled to expect that ethical owners and their architect advisors will not ask them to participate in useless, informal, or corrupt bidding situations. They want to be treated fairly and with due respect.

The linchpin of fair competitive bidding protocols is the basic principle of awarding the contract to the lowest responsible bidder. This presupposes that the bid list is made up of prequalified contractors. Any legitimate reasons that would justify eliminating the ultimate low bidder should have been uncovered in the process of compiling the list of competent bidders.

Contractors must be able to place faith in the competitive bidding system. They know that they will be wasting valuable resources if they submit a proposal in an unfair, disorganized, or unprincipled competition. Thus, architects and engineers who condone, conduct, or supervise an unethical bidding procedure for a client are at grave risk of losing their reputations in the local construction industry. Design professionals must set up fair procedures and should counsel their clients to comply with the ethical expectations. Architectural firms that are known in the community for their conduct of fair bidding and contract awarding procedures will never run out of excellent, high caliber contractors to bid their work. This is a valuable asset to the firm’s clients.

Pre-Qualifying the Bidders
The process of pre-qualifying the bidders has to be more than merely collecting names of contractors that would like to submit a bid. All prospective bidders should be required to submit sufficient information for a valid assessment of their financial capacity, experience and competence in the building type, and references from former clients. A handy questionnaire for this purpose is Contractor’s Qualification Statement, AIA Document A 305-1986. It is approved and recommended by The American Institute of Architects and The Associated General Contractors. Information submitted by the prospective bidders should be carefully reviewed and checked out by the architect or owner.

Standards for Ethical Bidding Procedures
The American Institute of Architects and The Associated General Contractors of America have jointly produced a document called, “Recommended Guide for Competitive Bidding Procedures and Contract Awards for Building Construction.” AIA Document A501 / AGC Document 325. It is for use when competitive lump sum bids are requested in connection with building and related construction. It was first formulated in 1948 and has been updated four times since. The present version was released in 1995. The procedures are fair and considerate to the interests of owners and contractors.

The American Society of Professional Estimators in 1991 produced an excellent booklet entitled, “Recommended Bidding Procedures for Competitively Bid Construction Projects.” It contains practical recommendations for fair and ethical bidding procedures with 31 categories of bidding topics, with explanations of various malpractices and suggestions for proper procedures. The recommendations conform to the Basic Canons of the ASPE Code of Ethics, to which ASPE members are expected to comply.

Instructions to Bidders
In the interest of fairness, all of the bidders should be treated equally, particularly in the time periods for starting and ending the bidding. The bidding documents should be available to all bidders at the same time and the bids should be submitted within the same deadline. Any clarifying bulletins issued during the bidding period should be released to all bidders, in writing, and at the same time. AIA’s Instructions to Bidders, A 701-1997, provides for an objective procedure, not providing an unfair competitive advantage or disadvantage to any bidder.

If care is given to provision of an evenhanded, impartial contractor selection and bidding process, no owner need be reticent to award the contract to the low bidder.

My article for the next issue of Design Cost Data will continue on the topic of bidding practices in the construction industry. We will discuss considerations in the general contractor’s decision to bid or not to bid.


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