questions

Chapter 3 How We Get the Work

In This Chapter

◆◆ How the contractor tracks down projects to bid on

◆◆ How the bidding process works ◆◆ How the constructor prepares for the

competition ◆◆ The different criteria used to

Before you can start managing any project, you must have a project to determine the winners

manage. To get a project to manage, the contractor must first find projects to bid and then win the opportunity to build them. Finding and getting work is a crucial factor in the success of a construction firm. Obtaining information about upcoming projects is a big part of the overall market- ing effort of the construction company.

Some companies can boast of a certain number of negotiated projects that are just handed to them because of reputation or prior dealings with a happy client. However, in the majority of cases, contractors must com- pete for their work and their livelihood. In the old days, this competitive process was pretty straightforward. But today it has become quite com- plex, and the strategies employed to win the project require abilities that were not needed before, such as negotiation, presentation, team-building, and communication skills.

The construction industry has always been a very competitive business, and today the competition has become even more aggressive. The stakes are higher, the margins are lower, and the skills that must be employed are at a different level. Today all aspects of your game must be operating at full capacity in order to win projects. Owners are much more sophisti- cated and make much greater demands. But the game is indeed a challeng- ing one, and the rewards can be significant.

◆◆ The various factors considered before competing

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Finding the Work

Like most industries, construction firms must battle for their share of the mar- ket. The bulk of a company’s workload will be secured through a rigorous price- bidding competition. But even before contractors decide to compete, they must first do some reconnaissance work and determine where the projects are, what they entail, and when they will be put out for bid.

The first step in the process is to determine who is preparing to build new projects and when they will be ready to start. It is imperative that the contrac- tor find and maintain a relatively constant stream of potential jobs in order to stay in business. For a construction company to be successful, it must engage in an intelligence-gathering effort—scoping out new work and keeping an ear to the ground, so to speak, regarding project design starts and capital improvement campaigns among investors and the corporate world. An uninformed contractor who does not find out about a project until it has already broken ground with equipment and materials being delivered has missed an opportunity to win that project. The bottom line is that there are more contractors competing for the work than there is work to compete for, and any missed opportunity is a mistake.

I do not mean to imply that contractors should go after every single job out there, but they must know about what is coming up in order to decide which ones are worth pursuing. Later in the chapter, I will discuss several factors that are considered when deciding whether to compete for a project.

Although almost every member of the construction management team shares in this task at some level, it is typically the senior estimators, senior managers, and business development personnel who are charged with this most important assignment.

Marketing Efforts

The recognition of construction management as a vital and valuable service rela- tive to the construction process has opened the door for genuine marketing efforts among the most successful construction firms. Today most construction com- panies have a marketing arm in-house whose sole function is to be on the watch for upcoming projects. The marketing efforts are no longer limited to persuading owners to put them on the bid list so they can compete for the contract. Today, as construction management services become more and more sophisticated, the real effort is focused on convincing owners that they should bring the construc- tion management team on board early to ensure the greatest chances for project success. As you learned in Chapter 2, “What Is Construction Management?,” the earlier the construction manager is engaged in the design and construction process, the greater the benefit to the owner and the overall construction pro- cess. Opportunities for value engineering and constructability reviews as well as budgeting and scheduling during design are just a few of the benefits of early CM involvement. Conveying these benefits to the owner is a high priority of the mar- keting personnel within the construction firm.

Although contractors are familiar with and accustomed to competing for the work they get, the game has changed in the past few years. They now understand that what they have to offer is extremely valuable in the overall scheme of things, and an opportunity to negotiate rather than compete is a major goal of today’s construction firms.

The Rules of the Game

Although the competitive environment is changing in the construction industry, there are still some rules associated with the game that remain the same. Public contract laws have required the selection of building contractors solely on the basis of the lowest responsible bid. For years, many private owners adopted similar procedures for buying construction services, and it was rare for a private owner

to consider any other option for buying construction other than the same method that was mandated for public work. Interestingly, today legislative reforms have resulted in both public and private owners having a few more options available to them. Much of this chapter will address those options. However, before getting into those options, let’s first take a look at the aspects of the contracting laws that remain the same.

The Public or Private Domain

In Chapter 1, “The Construction Industry,” you learned that construction projects are classified as either public or private by virtue of how they are funded. Public schools, highways, and government buildings are examples of projects funded with taxpayer dollars. On the other hand, building types such as retail outlets, private offices, private schools, and apartment complexes are usually financed by private sources.

Public Projects

When public funds are being used to sponsor a project, there are certain regula- tions that must be followed when it comes to bidding for the job and awarding the contract. The open bid process must be used. In open bidding, the project must be publicly advertised in newspapers and trade journals, and any contractor is allowed to submit a bid.

Although the logic behind the open bid system is understandable, there are some worrisome problems that go along with it. For example, with open bidding, the owner cannot restrict the number of contractors who will participate in the compe- tition, and they must allow all comers, even if the contractor’s technical or financial capabilities are questionable.

A few preventive measures are associated with public work to safeguard the public from problems regarding contractor competency or financial capabil- ity. The law requires contractors who compete for public projects to post three bonds: a bid bond, a performance bond, and a labor and material payment bond

open bid

A competitive bidding requirement for all public projects. An open bid is one that is advertised publicly and allows any qualified contractor to submit a bid on the project.

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prequalification

The process in which an owner, based upon minimum financial, management, and other qualitative data, determines whether a construction firm is funda- mentally qualified to compete for a certain project or class of projects.

invitation for bids

A notification sent to a selected list of contractors, furnishing information on the submission of bids on a private project.

closed bid

Used with private projects and is not open to the public. Bidding is by invita- tion only, via an invitation for bids, to a selected list of contractors.

public-private partnership

A business venture approach whereby a public sector authority and a private enterprise join forces and combine resources to deliver government proj- ects aimed at serving the public good.

(also called a payment bond). These bonds are issued by a surety company and act somewhat like a form of credit. Although the surety does not actually lend the contractor money, it uses its financial resources to back the obligations of the contractor. For example, the bid bond assures the owner that if the contractor is the low bidder, the contractor will indeed enter into a contract with the owner. However, if the low bidder simply cannot go forward with the contract, then the owner can award it to the second highest bidder with the surety stepping in to cover the difference between the two bids. The owner is protected from hav- ing to pay the higher price. Likewise, if the contractor is unable to perform the work as promised or fails to pay suppliers and subcontractors, the performance and payment bonds kick in, and the surety pays for completion of the work done by another contractor. Obviously, the contractor must have an excellent reputa- tion and show evidence of sound financial standing before any surety will give its backing, so this safeguard is a pretty reliable one. However, given the risky nature of construction, things can go wrong, and in reality no one ever wants to see this safeguard used if it is at all avoidable.

Prequalification is another process available for use in the public domain if an owner chooses to employ it. This helps with weeding out those contractors who are not qualified to bid the project in question. The contractor community has mixed views regarding prequalification. Some applaud it for placing the competi- tion on a more even keel, while others abhor it as being unfair and an invasion of privacy.

Private Projects

Private owners are not restricted by the rules set forth in open bidding. They may solicit bids from whomever they choose. In other words, bidding is “by invitation only.” The owners often send out an invitation for bids in letter form to a select number of contractors. They may choose contractors with whom they already have good working relationships or handpick contractors who have a reputation for quality and performance relative to the project type. Under this closed bid system, the owner has much more flexibility. The owner can narrow the qualifi- cation criteria and limit the number of contractors who are allowed to compete. However, it is not unusual for private owners to instigate the same safeguards mandated by law under public contract laws. Prequalification, bid bonds, perfor- mance bonds, and labor and material payment bonds are common requirements of contracts for private work as well.

Public-Private Partnerships

In recent years, a hybrid approach has emerged that combines the resources of both public and private organizations to deliver needed facilities to cities, coun- ties, states, and even the federal government. A public-private partnership (PPP), also referred to as a P3 or P3, is a contractual agreement between a public agency

and a private sector entity, in which the private party assumes substantial finan- cial, technical, and operational risk in the design, financing, building, and opera- tion of a public project. Through this agreement, the skills and assets of each party are shared to deliver a facility for the use of the general public. In addition to sharing resources, the parties also share in the potential risks and rewards associated with the project.

Although PPPs have been in use in the United States for more than 200 years, this creative approach is becoming more and more popular as a mechanism for get- ting construction projects completed in a timely manner, particularly in instances where there is a significant lag between public funding availability and need. Public- private partnerships have become a common mechanism for delivering water, waste- water, transportation, and urban development projects, just to name a few. The use of PPPs is increasing because they provide an effective tool in meeting public needs, maintaining a high level of public control, and improving the quality of services, and they are more cost effective than the traditional design and construction delivery approaches.

Sources of Information

All construction projects are advertised in one form or another. How they are advertised differs depending on whether the project is public or private. Public projects may be advertised in newspapers or trade journals as required by law. They are also advertised in various online government publications such as Commerce Business Daily (http://cbdnet.gpo.gov) or governmental bid and request-for-proposal listing services such as GovernmentBids.com.

Most contractors subscribe to some type of electronic construction news ser- vice. Electronic news services are one of the easiest ways to keep up with projects that are coming up for bids. For a nominal service fee, these services provide up-to-date information on the status of projects from concept to completion. This allows the construction firm to anticipate work, pick and choose which jobs to go after, and develop an overall bidding strategy. Reed Construction Data and McGraw-Hill Dodge Reports are examples of popular available services. A contractor can target construction project leads by location, project type, or industry sector. The intent of these services is to provide accurate, in-depth project information. Both public and private jobs are advertised in the reports, which convey the status of construction projects from the feasibility stage to the completion of the project. (To view a sample of an online Dodge Report eLead, go to http://dodge.construction.com.)

Another type of public notice, the advertisement for bids, contains all of the pertinent information that a contractor would need to know in order to pursue a job. The types of information typically included in an advertisement are as follows:

◆◆ Project name and description ◆◆ Project location

advertisement for bids

A public notice, usually published in newspapers, trade magazines, and journals, providing information regard- ing bidding procedures for public projects.

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◆◆ Owner name and address ◆◆ Architect or engineer name, address, and contact information ◆◆ Bid due date and time ◆◆ Where to access the plans and specs ◆◆ Project duration with anticipated start and completion dates ◆◆ Bonds required ◆◆ Restrictions on bidders ◆◆ Project budget or anticipated price range

ADVERTISEMENT FOR BIDS

Sealed proposals will be received by ABC School District at the Central Administration Building, 1111 Penny Lane, Paso Robles, CA, until 2:00 p.m., April 1, 200__ for a

New Administration Building

(located at 101 Schoolhouse Circle, Paso Robles, CA) at which time and place, they will be publicly opened and read.

A cashier’s check or Bid Bond payable to the ABC School District in an amount not less than five (5) percent of the amount of the bid, but in no event more than $10,000, must accompany the bidder’s proposal. Performance and Payment Bonds and evidence of insurance required in the bid documents will be required at the signing of the contract.

Drawings and specifications may be examined at the office of A.B. Architects & Associates, 2000 Ponderosa Street, Atascadero, CA and at the Jackson County Builders Exchange.

Bid documents may be obtained from the Architect upon deposit of $75 per set, which will be refunded in full on the first two sets issued to each general contract bidder submitting a bona fide bid, upon return of documents in good condition within ten days of bid date. Other sets for general contractors, and sets for subcontractors and dealers, may be obtained with the same deposit, which will be refunded as above, less the cost of printing, reproduction, handling, and distribution.

Bids must be submitted on proposal forms furnished by the Architect or copies thereof. Incomplete bid proposals will invalidate the bid proposal and the bid will be rejected and returned to the bidder. The right to accept any bid, or to reject any or all bids and to waive all formalities is hereby reserved by the ABC School District.

A pre-bid conference will be held on Friday, March 15, 200__ at 1:00 p.m. on the site of the proposed project. All bidders are required to attend the conference.

In addition to subscribing to construction news services or depending on public advertisements, the private sector looks to established relationships with the design

and business community at large for impending projects and bid opportunities. When I was in business, I made a habit of making monthly phone calls or lunch dates with various business leaders and designers just to scope out opportunities that might be on the horizon. It was not uncommon for an architect with whom I may have had a good working relationship to contact me when starting a new design project, giving me a heads-up regarding potential work for the future.

Construction management personnel contact owners and designers on a regu- lar basis to inquire about upcoming projects or the status of projects already on the drawing boards. They also look for news articles and stories about facility expansions and new enterprises emerging and then follow those leads with letters of interest and company brochures. This is all part of the marketing effort. Even craftspeople have grown accustomed to being in on the intelligence-gathering effort, especially during slow economic times. Without this effort to keep finding new work, a construction company cannot survive.

The Competition

One of the reasons I always liked the construction business is that I love to com- pete. I like the idea that I have the opportunity to pit my team’s skills, talents, know-how, and ingenuity up against another team’s to solve a problem, with one side being declared the victor. When it comes to getting the work in construc- tion, it is very much a high-stakes game. As a matter of fact, the game carries on long after you are announced the winner—all the way through to the end of the project and beyond. That will become evident to you when I get to the “keep- ing score” aspects of construction management. In the end, what will ultimately determine if you are a winner of this game is whether you have met the owner’s expectations for price, schedule, and quality and whether they are satisfied with your team’s performance. Although it is important for you to make a fair profit on the project, keep in mind that building a good working relationship with your client is just as important. The ability to satisfactorily work through challenging project issues using open communication and dialogue is a skill that goes beyond the bricks and mortar of construction. Remember, a happy client often results in repeat business, and that’s a competitive advantage that is hard to beat.

The Competitive Bidding Process

The purchasing of construction services is often referred to as procurement. Procurement signifies the purchasing steps that the owner takes to obtain goods and services. The most prevalent procurement method used to buy construction services is competitive bidding. Anyone who has ever gotten work done on their

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car or had their roof repaired is probably familiar with the competitive bidding process. The old adage is to get three prices on the work and award the job to the lowest bidder.

The competitive bidding process has been used to buy construction for a very long time. It came into play in a big way during World War I and World War II. Government contracts for both commodities and services were numerous during that time, and taxpayers were supplying the revenue to make those purchases. Competitive bidding was implemented to reduce the risk of fraud, favoritism, and undue influence and to reassure taxpayers that their tax dollars were being spent properly.

Although this method has worked fairly well for the construction industry for a long time, satisfaction has begun to wane, and new procurement methods are on the rise. There is a big change taking place in the construction industry, and today there are several ways in which to compete. Let’s take a closer look at the options.

Everyone understands that competition can be a powerful tool for maximizing the value of a dollar. However, construction can no longer be viewed as a simple commodity. Projects are very complex, and the ability to perform, not just low price, should be a compelling criterion for contractor selection. Poor manage- ment of the process will result in a delayed project or a project over budget or both, and no one can afford that.

How We Play the Game

How the game is played is really at the discretion of the owner. As discussed in Chapter 2, the owner decides which project delivery method they will employ for their project. Their choice ultimately sets the stage for the competition. There are really only two competition criteria used to determine the winner of the game: price, qualifications, or a combination of both. Each of the project delivery meth- ods is designed around one or more of the criteria.

Competition Criteria and Project Delivery

In traditional design-bid-build, price is the primary criterion used to determine who will win the project. Basically, the contractor who submits the lowest price will be awarded the contract. With construction management (specifically, agency CM), qualifications become the main factor in determining which CM firm will win the competition. And with at-risk CM and design-build, a com- bination of price and qualifications are considered when selecting the winning team. The following graphic illustrates the connection between project delivery

method and selection criteria. Although there are exceptions to these standard practices, for the purposes of this book, I will stick with the more common situations.

Owner Decides to

Design-Bid-Build Agency CM CM-At-Risk Design-Build

Selection Criteria

Selection Methods

Once the owner determines which project delivery method and corresponding competition criteria they will use, the framework for the actual selection process has been set. There are basically three selection methods utilized for purchasing construction and construction management services:

◆◆ Low-bid selection ◆◆ Best-value selection (BVS) ◆◆ Qualifications-based selection (QBS)

Each of these selection methods uses a different solicitation instrument to advertise the project. For example, low-bid selection, which is most commonly associated with traditional design-bid-build project delivery, utilizes the invita- tion for bids (IFB). Best-value selection utilizes a request for proposals (RFP), and qualifications-based selection employs a request for qualifications (RFQ). These solicitation instruments are what the contractor responds to in an effort to win the project. Each of these instruments is designed to measure the appropriate criteria associated with the analogous selection method. The way in which the contractor prepares to compete for the work differs with each of the methods.

request for proposals (RFP)

A solicitation document, written by the owner, requesting pricing and a technical solution for design and/or construction services.

request for qualifications

A document issued by the owner prior to an RFP to solicit contractor or design- builder qualifications. The RFQ may be used by the owner to shortlist potential proposers, or it may be used by itself as the final competitive submittal employed in qualifications-based selection.

How We Get the Work 77

Project Delivery Method

Price Only

Qualifications Only

Qualifications and Price

Qualifications and Price

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Table 3.1 reflects the relationship between the criteria, selection method, and solicitation instrument for all three competitions.

Table 3.1 Selection Methods

Criteria	Selection Method	Solicitation Instrument
Price only	Low-bid selection	Invitation for bids (IFB)
Qualifications only	Qualifications-based selection (QBS)	Request for qualifications (RFQ)
Qualifications and price	Best-value selection (BVS)	Request for proposals (RFP)

In the past several years, owner preferences have shifted from the traditional low-bid selection method to more frequent use of the best-value and qualifications- based selection methods (design-build and at-risk CM). However, traditional design-bid-build is still the selection method of choice for many owners.

Each of the selection methods represents a different kind of competition, and the steps required to move through the process vary. Because the market is wide open now for any one of these methods to be utilized, it is important to be famil- iar with each of them.

Low-Bid Selection

The low-bid selection method is all about price, and it is still the most common way for contractors to get their work. It all starts with a set of contract documents. (Contract documents will be discussed in detail in Chapter 4, “The Construction Contract.”) The main components of the contract documents are the plans and specifications prepared by a design professional. The plans and specs describe the overall scope of the project in great detail. They are like a set of written instruc- tions for how to build the project. Under this selection method, the plans and specs are classified as being 100 percent complete, meaning that the architect has taken them through the final stages of design before putting them out for bids. In other words, all bidding contractors bid on a single design, making for an “apples versus apples” competition. The object of this game is for all competing contractors to evaluate the plans and come up with a price based on their own unique strategies for doing the work.

Each contractor thoroughly reviews the plans and specs and then prepares an estimate for the cost of the project. The estimate includes all of the materials, labor, equipment, subcontracts, overhead, and profit necessary for the job. The estimates are then compiled into a sealed bid form and are due to the owner on a particular

day and at a particular time. The sealed bids are opened, and the contractor with the lowest responsive bid will be awarded the job. An official contract will then be executed between the contractor and the owner. Shortly thereafter, a notice to pro- ceed will be issued by the owner providing the go-ahead for construction. This flow chart identifies each of the steps in the process.

responsive bid (or proposal)

A bid or proposal package that meets all of the requirements of the solicita- tion instrument.

notice to proceed

The owner authorizes the contractor to begin work on a project on a particular day or as soon as possible. This notice is linked to the duration of the project.

Contractor

Owner

Obtain the plans and specs.

Low-bid Selection Method

Construction begins.

How We Get the Work 79

Review the plans and specs.

Give notice to proceed.

Prepare the estimate.

Contract is awarded.

Tabulate the bid.

Low bidder is announced.

Submit the sealed bid.

Owner opens the bids.

The low-bid selection method is characterized by a very standardized proce- dure. All competing contractors pretty much follow the same steps for arriving at their bids. Let’s walk through these steps one at a time to get a better sense of the way the game is played:

Obtaining the plans and specs Once the contractor selects a project to bid on, the contractor must then get copies of the plans and specs. The advertisement for bids or invitation for bids typically stipulates how the contractor can obtain the plans and specs. They are normally available from the architect’s or engineer’s office. There is usually a limit on how many sets of documents may be distributed to each contractor, and a refundable deposit is required to check out the documents. The contractor is often limited to two sets of drawings; the deposit amount varies from as little as $10 to more than $150 per set.

Although the number of sets available for each contractor may seem like a minor detail, it is actually quite significant in terms of managing the bid preparation process. Today, most general contractors subcontract out a majority of the project’s work to specialty contractors. Each of these sub- contractors must also review the plans and specs so they can submit their price quotes to the general contractor. Obviously, two sets of documents are not sufficient to get the job done when dozens of subcontractors will be submitting price quotes to the prime contractors. For this reason, most

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design firms also place drawings at local plan service centers during the bidding period. These centers are usually managed by various trade asso- ciations or builders exchange groups. The subcontractor typically reviews the documents right at the facility and does not check them out, so no deposit is required. Clearly, it is very important for all interested parties to have access to these documents.

Reviewing the plans and specs This is a very important step in the process. Even though the plans and specs have been obtained, no commitment to a bid has fully been made. Not until a complete and thorough review of the docu- ments has been made should a commitment be made. There are many factors to consider when deciding whether to proceed with the bid. At this stage, the primary consideration is the quality of the documents themselves. The main purpose of these documents is to convey the overall scope of the project and what exactly it is that the contractor is responsible for. If the scope definition has been communicated well, it will allow the contractor to do a much better job of coming up with an accurate estimate. If the drawings are poor, then the contractor (and the owner for that matter) is at greater risk and must try to anticipate the gaps while still remaining competitive. Although reputable designers make every effort to produce quality documents, it is virtually impossible to create a perfect set of plans, free from errors or omissions. Generally, the better the set of drawings, the closer the bids will be. Poor sets of documents may result in an erratic set of bids.

In today’s very competitive market and with today’s complex construction projects, the quality of the plans and specs is of the utmost importance. Quite frankly, the quality is slipping, which is another reason why other selection methods are grow- ing in popularity.

Preparing the estimate Although Chapter 6, “Estimating Project Costs,” will deal exclusively with this very important function, I want to give you a sense of how it plays into the bidding process. After the contractor scans the plans and specs to get a good feel for the job and decides that indeed they will go forward with the bid, a much more thorough examination takes place in order to quantify all the parts, pieces, and people necessary to build the project. Think about planning a vacation. You must come up with all the items you are going to need to have a successful trip: money, passports, reservations, transportation, medications, clothes, toys, beach towels, and so on. You try to anticipate everything you might need. This is similar to doing an estimate—except that with an estimate, the stakes are much, much higher if you forget something!

Tabulating the bid Once all the quantities for materials, equipment, sub- contractors, and labor are determined and added up, prices are applied, and a total cost is calculated. The contractor adds the necessary overhead for managing the project and a profit for the firm’s efforts and comes up with a total price for the job. This price is then reviewed by senior manage- ment, and a final bid is agreed upon. This bid is eventually recorded on the bid proposal document supplied by the owner and goes into a sealed envelope with the job name and contractor name written on the outside of the envelope.

Submitting the bid Usually, a member of the contractor team hand-delivers the sealed bid to the location designated in the bid advertisement. It is cru- cial that the bid be turned in prior to the cut-off time. For example, if bids are due in the architect’s office at 2 p.m. on a particular date, it must be there by 2 p.m. If a bid is received at 2:01 p.m. on that day, it is automati- cally disqualified. Exceptions to this hard-and-fast rule are very rare, and when such an instance does occur, it opens up the possibility for protests from other bidders, which often leads to litigation, which is the last thing that anyone needs.

Although one would think that the contractor’s bid tabulation would take place long before the due date and time, the reality is that the final bid number is rarely ever available until literally the last minute. I have spent many hours in the bid room of my office on bid day adjusting numbers right up until five minutes before the bid is due. The normal course of events is that the final bid number is called into the contractor’s on-site person (often referred to as the runner) at the bid delivery location. The runner then frantically writes the number on the bid document, seals the envelope, and hands it to the official receiving the bids, who then notes the exact time of receipt.

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Why Would You Do It This Way?

I know you must be wondering why anyone would put themselves through such a stressful ordeal, but that is exactly how the game is played. Why would someone wait until the last minute to submit their bid? Ah, but remember, this is a low- price competition. Keep in mind that the material suppliers, vendors, and sub- contractors are competing against each other as well, and they too are changing their prices right up until the last minute, trying to gain a strategic advantage by discounting their bids at the very last second. If you expect to win at this low-bid game, then you must be prepared to play it the same way as everyone else.

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Opening the bid and announcing the low bidder The bid opening is when everyone learns who the apparent low bidder or winner is. Sometimes this occurs immediately after the bids are received and is an event that is open to the public. Most public projects require a public bid opening. The bidding contractors typically have a representative present at the opening (often the runner mentioned earlier). The bids are announced and recorded on an offi- cial bid tabulation sheet, similar to the one shown here.

Bid Tally Sheet

Project: Administration Building Complex

ABC School District, Paso Robles, CA Date: April 1, 200__

Addenda Noted #1 #2

3. Quality Plus Contractors

Bidder

1. Acme Construction

4. Build-It-Best Construction

5. Hammer Head Construction

6. Superior Construction, Inc.

Rank

5

4

2

6

Base Bid Amount

$6,789,900

$5,678,100

$6,100,500

$5,250,850

$6,940,000

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Sub List

Yes

Bid Bond

Yes

Noncollusion Affidavit

Yes

Insurance Confirm

Experience Certification

Yes

Yes

2. Basic Builders, Inc.

1

3

$4,900,000

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

At a public bid opening, the selection committee is careful to announce the low bidder as the apparent low bidder. The selection committee needs time to review all submitted documentation to determine whether the contractor with the low- est bid actually complied with all of the requirements of the solicitation. Typical additional requirements include bid bonds, noncollusion affidavits, certificates of insurance, and subcontractor lists. If any of the required documents are missing or are found to be in error, then the bid may be deemed nonresponsive and dis- qualified. In such an event, the job would go to the next lowest responsive bidder.

Awarding the contract Once the smoke clears and the victor is finally determined, the owner and the contractor enter into an official agreement. This usually occurs several days after the bid opening. Several other sub- mittals are often required before signatures actually reach the paper. For example, it is not uncommon for the owner to request a proposed schedule and schedule of values from the contractor before the agreement is signed. These documents become an official part of the contract. (More will be said about these two items in Chapter 7, “Contract Administration.”)

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The Bid-Running Challenge

To give you some sense of just how tense this common procedure actually is, let me describe what the operation was like before the invention of the cell phone. On bid day, I would send someone to the bid location several hours before the bid time and have them commandeer the closest telephone to the bid depository location and guard it with their life. We would synchronize all watches with the official clock on-site. Then we would time just how long it took our point person to run (and I mean run, hence the nick name runner) from that telephone location to the desk of the person receiving the bids. We would deduct the run minutes from the official bid time and calculate up to the absolute last minute when we must finalize our bid number. Today, with cell phones, the runners can be stand- ing next to the depository desk when they receive the final call. But don’t think it is any less stressful (or exhilarating, depending on how you look at it). The final bids are often still determined during the last few minutes of the competition. Anyone who works a bid on bid day has to have nerves of steel because, as stated before, the stakes are very high, as are the opportunities to make a mistake.

Basically, the agreement stipulates the responsibilities of the parties as they embark upon the construction of the project. At this point, the contractor and construction management team are essentially obligated to fulfill the requirements of the contract in accordance with the plans and specs for the agreed-upon price submitted in the bid.

Giving notice to proceed The contract is signed, and all of the legal paper- work is in order. However, the actual start of construction does not take place until one more document is executed. That document is an official notice from the owner to proceed with the work. The notice to proceed is an important document in that it starts the clock running for the construc- tion. As previously indicated, time is often a critical factor with any project, and there must be an official start and end to the job in order to measure performance, especially when penalties are assessed for late completion.

One of the challenges of the construction manager is to actually be ready to start the job when the official notice to proceed arrives. Remember, at this point we have not thoroughly planned the job; we have simply priced the job in order to win the competition. Having been awarded a contract, we now have to very quickly mobilize a project team and all of the apparatus

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Chapter 3

best value

Any selection process in which propos- als contain both price and qualitative components and the award is based upon a combination of price and quali- tative considerations.

that goes along with that. Think of it as trying to deploy troops to a new engagement on a moment’s notice, and imagine all the planning needed to accomplish that. The average building contractor bids on many jobs a year, not knowing exactly which ones they will win. Once the win is announced, the construction manager must revisit the bid, check the availability of resources, and begin to develop an overall strategic plan, setting the stage for the rest of the game and ensuring an ultimate win in the end.

Beginning construction Now it is time for the second part of the game to begin! All of the work that it took to get the job in the first place will now be passed on to the construction management team. The estimates that were calculated during the bidding process will now be used as bench- marks for managing the performance throughout the duration of the job. The skills of the entire construction management team will come into play and carry the job to the finish line.

Although competitive low bidding is still the dominant method used to determine contract award in construction, the best-value approach is gaining popularity as the procurement method of choice, even in the public sector.

Today approximately 70 percent of all public projects are delivered using a best- value method.

Best-Value Selection

This competition is very different from low-bid selection in numerous ways. For one, in this game, the judges consider qualifications as well as price when determining a winner. When applying the best-value selection method to design-build project deliv- ery (which is the most prevalent application of this selection method), the owner may choose to evaluate the design as part of the qualifications criteria. In other words, the design is not 100 percent complete when the competition begins, as it is in design- bid-build. So, part of the team’s challenge is to design, or complete the design, as a requirement of the competition. As you learned in Chapter 2, design-build project delivery makes use of an interdisciplinary team of contractors and designers and fea- tures a single-source responsibility.

So, unlike low-bid selection, where the fundamental premise is to compare price based on a single design (or compare apples with apples), the premise under best value may actually compare different designs and their correlated prices (like comparing apples and bananas). It is an absolutely fascinating game to play, in my opinion, and is gaining ground as the selection method of choice in many sectors.

Contractor

Owner

How We Get the Work 85

Owner releases RFQ.

Best-Value Selection Method

Qualifications package is prepared and submitted.

Owner shortlists most qualified candidates.

Owner releases RFP.

Winner is selected.

Contract is awarded.

Design and construction begins.

Notice is given to proceed.

Proposal is prepared and submitted.

Proposals are evaluated.

Just as with low-bid competitions, there are several steps to take when playing this game. However, the steps are very different in that the best-value method is not solely a bidding game. Qualifications, which may entail any number of factors, are also solicited and may even include a technical proposal component consisting of the project design.

Releasing request for qualifications (RFQ) Similar to the low-bid method, the project is typically advertised through all the usual channels. However, the advertisement is not an invitation for bids. Instead, it all starts with a request for qualifications, followed by a request for proposals. (Sometimes the two solicitations are combined.)

Qualification factors commonly include experience, financial and bonding capabilities, record of design and technical excellence, staff expertise, proj- ect organization and management plans, quality control plans, and budget and schedule performance. The owner can ask for any criteria they want. They can ask for information on safety records, the use of women- and minority-owned business affiliates, individual team member credentials, and so on.

Preparing the qualifications package and shortlisting candidates In response to the RFQ, the contractor or design-build team prepares a package that is submitted to the owner by a certain date and time speci- fied in the advertisement. The qualifications packages are received and reviewed by the owner. The owner often puts together a jury panel made up of several representatives and stakeholders to judge the submittals. The panel selects preferably three, but not more than five, of the best-qualified

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shortlisting

Narrowing the field of offers through the selection of the most qualified pro- posers on the basis of qualifications.

technical proposal

The part of a design-build proposal that contains the conceptual design for the project. It may also include information regarding schedule, team makeup, and overall management plan for the project.

price proposal

The part of a design-build proposal that stipulates the price at which the design-builder will provide the design and construction services necessary to complete the project.

contractors or design-builders in a process called shortlisting. The short- listed competitors are then invited to respond to the request for proposals. No pricing is involved at this stage.

Releasing request for proposals (RFP) The RFP, prepared by the owner, is a very important document in that it will represent the legal require- ments and criteria for the entire project. The RFP includes information regarding the owner’s program, budget, schedule, and other requirements associated with the project. As previously stated, the plans and specs may not be 100 percent complete at the time of the competition under the best- value selection method. Final design schemes and cost proposals are solic- ited from the shortlisted contractors or design-builders.

Preparing the proposal The team of designers, builders, and estimators develops the design for the project along with a corresponding price. The team prepares drawings, written specifications, and sometimes a physical model as their response to the RFP. This package, often referred to as the techni- cal proposal, along with the separate price proposal, constitutes the total response to the RFP. This is a far cry from simply submitting a bid under the low-bid model. As you can imagine, the work involved under this method is much greater and significantly more costly. It is not unusual for contractors and design-build teams to spend $20,000 and even upwards of $200,000 in the preparation of these proposals. Contractors in this game play to win or they don’t play at all. That’s why the shortlisting component of the competi- tion is so critical. Limiting the competition to only three or four opponents increases your odds and makes the investment worthwhile.

Submitting the proposal Although there is a specified date and time for the receipt of the proposals, there is not an immediate opening of the proposals. As you might imagine, it takes time for the jury to review all the materials submitted by the participants. The initial review period can be two weeks or more. It is not unusual for the owner to request the design-build teams to make in-person presentations to the selection committee before making a final contract award. This way, the panel has the opportunity to ask for clari- fication on any items that are not clear concerning the proposals.

Evaluating the proposals and selecting the winner Under the best-value selection method, an evaluation panel or jury is appointed by the owner. This panel usually consists of individuals who will ultimately be associ- ated with the new facility. For example, if the project were an elementary school, you might find a school board member, the principal, a teacher or two, the maintenance supervisor, and the director of facilities on the jury.

There are numerous ways in which to evaluate the responses to the RFP. The proposals are evaluated on the basis of quality, functional efficiency,

aesthetics, price, and other factors. The technical proposal components and the price component are scored separately.

One of the most common methods for scoring the technical proposals is called weighted criteria. Basically, the owner ranks each of the criteria rela- tive to its importance to the project. Then each jury member assesses a score to each team for each criterion. The weighted criteria are multiplied by the score for each factor, and a total score is calculated.

Table 3.2 illustrates how an evaluation matrix with criteria and weights works. When price is part of the competition, a similar scoring occurs relative to price. The price score and the weighted criteria score are added together, and the proposal with the highest score wins the competition.

T a b l e 3 . 2 Weighted Criteria Evaluation Matrix

weighted criteria

An evaluation method used in best- value selection in which maximum point values are assessed for qualita- tive and price components of a pro- posal. Contract award is based upon the highest total points earned.

How We Get the Work 87

Best-Value Proposal	Team A	Team B	Team C
	Score	Points	Score	Points	Score	Points
Design solution (weight 10)	4	40	3	30	5	50
Financial capability (weight 8)	3	24	4	32	5	40
Energy efficiency (weight 6)	5	30	4	24	3	18
Management plan (weight 10)	5	50	4	40	4	40
TOTAL POINTS		144		126	148 WINNER

Scoring: 5 = Excellent; 4 = Good; 3 = Fair; 2 = Poor

Awarding the contract The winner of the best-value competition enters into a contract for two things: the design of the project and the construc- tion of the project. This is quite different from low-bid selection. Whereas in low-bid the plans and specs are part of the contract, with best-value the plans and specs are nonexistent or not complete yet and, therefore, cannot govern the contract at this point. What does govern the work of the con- tract are the requirements of the RFP, the technical proposal, and the price proposal. Just as with the low-bid process, several days usually pass before a contract is actually signed.

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Giving notice to proceed The notice to proceed document under best-value selection is very similar to that issued under low-bid selection. The differ- ence is that with best-value selection, the notice is to start the design process followed by the construction.

Beginning design and construction Some design has to be completed before construction can begin. But as you learned in Chapter 2, a portion of the design and construction may be overlapped in order to speed up the entire process.

Although the steps set out earlier describe the best-value selection method when used with design-build, keep in mind that best-value selection may also be used with design-bid-build project delivery. When used with design-bid-build, design is not a factor in the competition. The design is already complete and presented in the RFP. The participating contractors compete on qualifications and price only; design is not one of the criteria being judged.

Qualifications-Based Selection

There are no limitations to using qualifications-based selection (QBS) for construc- tion in the private market. Basically, any private owner could decide to ask a number of contractors to compete on qualifications only. However, our society is so accus- tomed to low-bid selection for construction that QBS is not a common occurrence in the building industry, even though most architects and engineers have always been selected this way. For public projects, there’s actually a statute that prevents archi- tects and engineers from competing on price. The Brooks Act (1972) requires that qualifications-based selection be used by federal design and construction agencies to purchase architecture and engineering services. Price quotations are not a consider- ation in the selection process. Prices are negotiated after the selection has been made on the basis of demonstrated competence and qualifications.

You Get What You Pay For

The presumption behind the Brooks Act is that we don’t want professionals who are responsible for the public safety to be the low bidder. After all, you wouldn’t select your doctor based on the lowest price, would you? Based on the same logic, you would not select your architect on the basis of being the cheapest practitioner. On the other hand, construction has historically been viewed as a commodity, so competition based on price seemed appropriate. But today, construction requires skills far beyond the trades—it requires professional management to handle all of the regulatory bureaucracy, entitlement, contract administration procedures,

Continues

How We Get the Work 89

procurement, contract negotiations, estimating, scheduling, cost control, quality assurance, safety mandates, and so on. In my opinion, construction management is just as much a profession as architecture and engineering, and qualifications should also be the primary discriminator.

The qualifications-based selection process is utilized for both agency and at- risk construction management services. It is also becoming a preferred selection method for design-build projects. There are some state jurisdictions that even allow this method to be used for public projects procured under the design-build project delivery model. When it is used, the process basically follows the first steps outlined earlier under the best-value approach, except that price is not a factor. In other words, a request for qualifications is advertised, with proposers responding with qualifications packages. An evaluation matrix similar to that shown for the best-value matrix in Table 3.2 is used to evaluate the competitors, with the high scorer winning.

Qualifications-based selection is sometimes called direct selection. Basically, an owner simply decides that they want to work with you because of your reputation and past performance. This is a position that many contractors strive for: an opportunity to be recognized and selected for the quality and professionalism of their work.

Making the Bid/No Bid Decision

As you can probably tell, the task of finding and getting work in the construction industry is an ongoing challenge and takes a lot of effort. Regardless of which type of competition that contractors engage in, the decision to bid or not to bid is not one to be made lightly. A great deal of time and effort is spent in preparing a detailed estimate or a technical proposal with no guarantee of winning the job.

Finding jobs to bid on or propose is one thing, but deciding to invest the time, money, and effort it takes to win them is another. Numerous factors must be weighed before you go forward with the effort. There are some jobs that you do not want to get. For example, there may be a project that you are interested in but you learn that the client has a reputation for being a “slow payer” (delinquent in paying invoices) or has unrealistic performance expectations. No matter how attractive the project might be, the challenges associated with getting paid in a timely fashion may not warrant the effort or the risk to your cash flow position. The construction manager must dis- cern which jobs are worth going after.

There are many motivations for bidding work. The most obvious has already been stated: to stay in business. But just as in any competition, it is best to pick your battles wisely. Table 3.3 outlines a number of common factors that contrac- tors consider before making the decision to bid or not bid on a particular project.

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Table 3.3 Making the Decision to Bid

Factor	Considerations
Who the owner is	Some owners are known for being easy to get along with, and others are known for being difficult. Those who have a reputation for being controlling, highly litigious, or difficult to please have a harder time getting contractors to bid their work.
Who the architect is	There are architects who are noted for the quality of their plans and specs and architects who are noted for poor-quality documents. Contractors stay away from architects with reputations for producing poor-quality plans and specs.
Location of the project	If the project is located close to the contractor’s office, this usually gives the contractor a strategic advantage. The person is familiar with the local labor market, and job site overhead can be kept to a minimum. If the project is far away, then the expense to run the job goes up, and the labor mar- ket is unknown and, therefore, a higher risk. On the other hand, the contractor may want to establish a presence in a particular area to increase business opportunities associated with that market and, therefore, targets the area intentionally and makes the investment to be there.
Present workload	The contractor’s workload always has an impact on when to bid and when not to bid. When there is plenty of backlog, contractors are pickier regarding which jobs they go after. Conversely, when work is slow, contractors will usually bid on jobs that they would otherwise stay away from just to keep their operations going.
Technical aspects of the job	Contractors have to assess their own technical expertise and ability to manage and supervise the work relative to the technical complexity of the work. Whenever contractors decide to bid on work with materials, equipment, or systems that are new to them, they take on greater risk.

T a b l e 3 . 3 Making the Decision to Bid (continued)

How We Get the Work 91

Factor	Considerations
Is it a high-profile project?	There are reasons to take on a high-profile job and reasons to stay away from them. Obviously, if con- tractors want to increase their own visibility and reputation, taking on a high-profile project is one way to do that. In other circumstances, such vis- ibility may have a downside, especially on a project that is controversial to begin with.
Type of project	Contractors often become specialists in certain types of work and scout for those kinds of jobs spe- cifically, wherever they may be located.
Size of project	Contractors are generally limited as to the size of the project that they can go after because of their bonding capacity. Larger companies are attracted to the larger projects. Smaller companies look for the smaller projects.

The bidding process is getting more competitive, and profit margins are get- ting thinner. For this reason, the marketing effort in construction is ever increas- ing. Companies are positioning themselves as reputable leaders in the industry and pressing for opportunities to negotiate directly with owners, bypassing the very expensive and risky bidding process altogether—and it is working. As own- ers become more interested in high-performance results over low price, many construction firms are increasing the percentage of work performed under nego- tiated contracts versus low-bid contracts.

A Final Note

The primary construction management function associated with getting the work, regardless of which selection method is used, is the estimating function, which will be discussed in great detail in Chapter 6. In my opinion, this is probably the single most important function in the process. Without good estimating skills, a construction company won’t be in business very long. Estimates that are con- sistently too high will result in a lack of work, and estimates that are consistently too low will result in jobs losing money—and either scenario will eventually lead to the company going out of business. It is no wonder that one of the highest ranking positions in construction management is senior estimator. These posi- tions often lead to a director or vice president position in the construction firm.

1. Why is open bidding required on public projects?

2. Name a tool used to reduce the number of bidders on a public project and

increase the quality of the contractor pool.

3. What is the purpose of a labor and materials payment bond?

4. Identify the notice document that informs the public of upcoming con- struction projects funded with taxpayer dollars.

5. Name the three selection methods used to buy construction services, and identify the solicitation instrument used for each one.

6. Which procurement method is the most commonly used today, and what is the selection criteria used to determine the winner?

7. What is the name of the official document that the owner uses to notify the contractor to start construction?

8. Name the two primary selection criteria categories considered when using the best-value method.

9. Describe how the weighted criteria evaluation process works.

10. List at least three factors that are commonly considered before deciding to bid on a construction job.