Low Bid Loophole

Another Low-Bid Loophole

Another Low-Bid Loophole
by Jake Smithwick, Assistant Professor, University of North Carolina at Charlotte

Within the construction industry, the heavy/civil sector consists of site development and infrastructure projects, such as those related to earthwork, bridges, railways, highways, and aviation. In heavy/civil infrastructure projects, the owners and managers are typically public entities such as states, counties, cities, and other municipalities. Traditionally, these entities have applied the most common project procurement method: the price-based method known as low bid.

Low-Bid/Document Deficiencies

Although the main goal of low-bid procurement is to maximize project value, the approach can actually increase project cost and duration if construction document deficiencies are not resolved early on. Our recent study examined when (before or after contract execution) contractors discover document deficiencies, and when owners learn of and resolve document deficiencies.

Data from 159 contractors and project owners indicate that 38% of all construction document deficiencies are discovered by the low-bid contractor before the owner has executed the contract. Conversely, owners reported learning of document deficiencies after contract execution 81% of the time.

The Information Gap

Our findings indicate that 85% of the contractors report document deficiencies during the construction phase, but only 52% report deficiencies during the bidding phase. Half (46%) of the contractors stated that the most financially profitable time to report document deficiencies to the owner is after the low-bid contract has been executed. This is the reason contractors withhold some document deficiencies from owners until after construction has commenced. In contrast, (96%) of the owners prefer to learn about document deficiencies during the bidding phase because they believe that learning of and addressing deficiencies during the bidding phase brings the greatest project value.

Design Deficiency Defined

A design deficiency is a poorly designed, inaccurate, or incomplete plan. A study from Engineers Daily estimated that design errors accounted for 38% of construction disputes. At the same time, incomplete or incorrect plans almost always result in substandard work from the contractors completing the work, which can result in legal battles down the line.

The most common construction document deficiencies are (a) design drawings containing plan errors, inaccuracies, and omissions; (b) constructability concerns arising because the plans conflict with the actual field conditions; (c) project specification provisions that are inaccurately stated or not relevant to the project; and (d) quantity discrepancies.

Addressing the Conflict

These findings suggest that owners need to implement new strategies and tools to address document deficiencies during the bidding phase. If our industry is to close this information gap, owners and contractors must improve both planning and communication in the following ways:

  1. Pre-project planning – Owners and contractors agree on specific Scope of Work and Performance Duties in the contract phase.
  2. Cost-estimate validation – This documentation should include clear references to all project specifications on design documents, warranties of the exact work to be completed by contractors, a risk allocation chart or definition, and a process for unforeseen issues.
  3. Innovative procurement strategies – Traditional Design-Bid-Build gives way to Contractor Pre-Qualification and Expertise-Driven Project Delivery (XPD) where contracts are awarded to the provider with the best combination of performance qualifications and price.
  4. New tools – To assist contractors in identifying and reporting document deficiencies early on in the construction process. For example, project management is better served with software that can incorporate real time changes into project planning and budgets. If the project experiences unexpected change in its scope or one of its processes, it is much easier to plug those design changes into a dynamic digital model of the project landscape than to redraw models on paper.

Conclusion

In our study, both contractors and owners recognized that document deficiencies regularly affect project cost and duration. Despite this awareness, nearly 90% of the respondents reported that their most recent heavy/civil project included at least one document deficiency, indicating that current processes for managing this risk are not effective. Part of the reason for this high percentage is that contractors’ and owners’ interests are sometimes in opposition. Only by working together to eliminate this divergence of interests  can we begin to resolve this costly communication gap.

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