SUBJECT: THE HISTORY OF LOW BID
“The Bidder Who Makes the Most Mistakes…
Gets the Job”
If this weren’t true, it wouldn’t be funny. Irony is humor because the underlying truth shouldn’t be so, but it is. Our industry has been enjoying this old joke ever since the low-bidder became the contractor who was ultimately awarded the contract. When you think of the obvious pitfalls in this procurement procedure, you very quickly realize that somewhere back in history we took leave of our senses and began hiring, what might be considered, the least qualified contractors to build America. How and why did this foolishness become standard operating procedure?
A Brief History
About 150 years ago, our forefathers bestowed the competitive bidding concept on us in order to curb corruption, inefficiency, and mismanagement by government officials.
Ah-ha…so it was corrupt government officials who got us into this mess.
According to the legislation quoted below, the early objectives of competitive bidding were, “to protect the public against collusive contracts, to secure fair competition on equal terms to all bidders, to remove not only collusion but temptation for collusion and opportunity for gain at public expense, to close all avenues of favoritism and fraud, to secure the best values for the public at the lowest possible expense, and to provide opportunity for exact comparison of bids in order to give equal advantage to all desiring to do business with government.”
In New York, for example, the competitive bidding requirements of Canal Law, Sec. 30, dates back to legislation enacted in 1847. The principal statute that the New York State Department of Transportation now uses to bid and award highway and bridge contracts, Highway Law, Section 38, is derived from this legislation. The policies that the law establishes were intended to prevent favoritism in spending public funds while stimulating competition in the construction industry. The central object of the low-bid process for awarding contracts is the full and fair return for expenditure of public funds. The intention was that the public interest would be best served by opening bids on an equal basis to all persons able and willing to perform.
The Road to Hell is paved with Good Intentions – A Case History
Let’s look at an actual project by an owner that should have known better. A small growing town with a few paid firemen and mostly volunteers, went out for bid for a much-needed new and larger firehouse. With pressure from the municipality they opened the project to any and all bidders and the low bid was a contractor with a “difficult to do business with” reputation that the firehouse committee suspected was also not qualified.
The scheduled 12-month project began with difficulties with building department inspections where some work had to be torn out, some questionable areas left in place, and lots of arguments.
Complaints of deficiencies and construction not according to specifications were ignored by the contractor and grievances built up while new work was put in place on top of work not accepted. When the building was completed the municipality refused to issue an occupancy certificate.
The project was delivered six months late, and an independent consultant’s estimated that the cost to correct the deficiencies in order to get an occupancy permit would exceed $1.5 million– compared to the original low bid of $2.5 million.
Unfortunately, the nightmare does not end. The events described happened in 2014. In 2015 the project was supposedly ready for occupancy. As I write this in 2018, no one has occupied or used the facility for any purpose. Ongoing carrying costs such as insurance, security and the like continue, but no one can use the building.
A Good Impulse Becomes A Bad Habit
Back in the late 19th and early 20th centuries, many government officials were blatantly corrupt and felt they had the right to fleece every public works project. Something had to be done to protect the public trust and the “low-bid” procurement model became the standard for all government projects. Over the ensuing period, this design/bid/build method evolved like a bad habit and every public and most private construction project were routinely awarded to the “low-bidder”. It took lengthy delays, bankruptcies law suits, and massive cost overruns to teach the industry that, to the contrary, the “low-bidder” was often the worst provider.
(On a Personal note: I wouldn’t let a low bid service provider near my house.)
Best Value Procurement
The Federal Acquisitions Reform Act of 1995 permits a two-phase process whereby a limited group of proposers is selected based on qualifications and their general approach to a project. Then detailed proposals from these shortlisted proposers are considered according to best value, not just lowest price. Best value calls for ranking proposals based on a weighted average of scores on all criteria stated in the solicitation. The agency may award the contract after this evaluation, or it may discuss proposals with those considered in the competitive range and then permit all shortlisted proposers to submit best and final offers.
This procurement procedure is now being used across both the public and private sector. You will find extensive information on Best Value Procurement here on our site.
For more information about Best Value Procurement, check out the following articles: A Critique of Best Value Contracting in Minnesota, Quality Management Programs in Construction Industry, and Best Value vs Low Bid Survey.