Fair and open bidding, really?

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In this week’s Construction Marketing Ideas newsletter, I described an informal conversation with a construction specifier who worked as an intern at Public Works Canada, the Canadian government’s real property procurement and management agency.

The specifier, who now works with a major multi-national AEC business, said:

“I saw how the people there worked on the competition matrices to make sure that the organization they really wanted to win the work, would get the job,” he said.

In other words, the government officials knew who they wanted to win the “open and fair” competition from the beginning — and they deliberately set the evaluation criteria to favor their favored finalists.

Of course, this means the others who entered the competition through the formal public bidding process were wasting their time and money in even trying to win the race.  Yet they could never prove anything irregular as the guidelines and criteria for the successful job were set out from the start.

In my newsletter, I went on to describe how truly fair and open bidding seems to me the exception rather than the rule, at least if you are not well enough connected with the “system” to win the work, especially as qualification-based bidding rules allow the rules to be gamed so that the procurement agencies and favorite bidders can set the rules to their favor.  Genuine open competition for fixed price bids, where price is the only (or primary) consideration, I asserted, result in opportunities that are generally unprofitable.  (I also gave the example of one Midwestern U.S. contractor who always wins local hospital projects because his prices are truly the lowest — but he has prearranged with the hospital administrators to permit change orders which allow the overall project to be profitable.

These observations lead me to the conclusion (also a key assertion in my Construction Marketing Ideas book) that conventional “open and fair” bidding is a mugs game in the construction marketing space — that, instead of chasing bids when they become public, you should focus on relationship development ahead of the bid-setting process so you can selectively bid on projects where you really have a relationship-focused opportunity to win the work.

Fair enough.

Clive Thurston, President of the Ontario General Contractors Association, provides another perspective in this email, which he sent in response to my newsletter:

Dear Mark

Re: Article on how bids can be manipulated.

I read with interest you recent March 8 article and wanted to provide some comments from our perspective.

As you are aware the OGCA represents over 200 of the Province of Ontario’s major contractors in the ICI sector. Our members are responsible for 70% of all ICI work in Ontario and 100%  of the AFP projects. Many members work across Canada and the U.S. which gives us a great deal of experience working with both government and private buyers of construction. A key role of the OGCA is providing advice on contracts and the clauses they contain, there is very little we have not seen or dealt with. Jointly with our fellow stakeholders and owners we have developed Guides on Prequalification, bidding health projects, Close out Procedures and for our members dealing with Onerous Supplementary Conditions to name a few.

There is a substantial difference between Canada and the U.S. and simply that can be traced to our system of bidding and tendering that started out with the famous Ron Engineering and since then has continued to develop unique concepts such as a Duty to treat all bidders fairly. While the U.S. can negotiate bids as you mention in Canada you have a much more difficult time. I didn’t say it was impossible but it is very difficult based on our laws and procedures around the tendering of projects.

While our laws ensure all bidders will be treated the same the law does not require that treatment to be fair, it is the bidders choice if they wish to agree to onerous and one sided terms according to our courts.

In the ten years I have been at the OGCA we have seen owners try to word prequalification documents to ensure a certain outcome, and the rules set out in bid documents on how a project is to be awarded can be written in such a manner as to allow the owner tremendous latitude in who gets the project. As yet there is no perfect Privilege Clause and the famous Tercon case in some opinions leaves the door open to continue the search for the Holy Grail of Privilege clauses. To my mind a waste of everyone’s time and an owners money why not concentrate on how we can each respect  each other better and develop fair and balanced contracts why the need to have a one sided onerous contract. To my mind even if some heavenly tablet comes down with the right wording I doubt any sane contractor would agree to bid and most likely the owner would face qualified tenders which throws his entire project off the rails. Time we all tried to get along better and stop the wasteful and unproductive obsession with the ultimate Privilege Clause.

Owners who try to implement policies such as you describe become known very quickly in our industry and once they have such a reputation and bidders know the “fix” is in they don’t bother bidding that owner. Owners who try it but don’t quite get it right can and do face legal challenges. In many cases the OGCA is asked to intervene on behalf of the bidders and we have a very solid success rate in convincing owners to reconsider. After all they want to attract bidders not drive them away.

The issue of “low bid” being the deciding factor is playing a far less role in our industry than before while not perfect it was all we had to ensure fairness. What we see now is most lump sum bids still rely on the low bid they can and do consider other factors such as schedule when making an award. Owners are taking a much greater interest in just who is qualified to bid and far more stringent prequalification process are involved to ensure owners get the best bidders. We work to ensure these systems are fair open and transparent and are not designed to selectively favour one bidder over another. Public owners’ are very much under the  public’s view on how they tender. In today’s world public owners are under such intense observation that any attempt to skew a tender will become known very quickly and usually wind up on the front page of a newspaper or worse having question raised by a Councilor or MP/MPP in the House.

What is happening in the Sates and is slowly coming to Canada is the use of Qualification Based selection (QBS) a system designed to ensure you get the right firm for the right project. QBS removes price and focuses on the best design and fit for a project. While QBS is not used currently to decide the contractor its increasing use to select the consultants is resulting in major reductions in problems and change orders for the bidders and owners. Major savings have been documented in many States who now  mandate the use of QBS.

While I do not dispute your sources experience it is not as relevant to Canada as it is to the States. While some owners, based on misguided advice, may try to “fix” the prequalification or  award matrix it usually backfires gets them fewer bidders, higher prices, no bidders, an unfavorable reputation that will have many contractors avoiding them and lastly they will get a call from the OGCA asking them to rectify such a blatant unfair and onerous practice.

Yours

Clive Thurston  President,
Ontario General Contractors Association

Of course, we may be agreeing, but from different frameworks.  “Qualification Based Selection” indeed sets the stage for matrix setting — done with care, this allows for the bid rigging to be done in a manner which is difficult to catch and interpret.  Thurston is correct, however, if legitimate QBS is replaced with bid gaming, ultimately, public authorities will pay far more than they should for their projects and rational bidders should steer clear of these opportunities.

Alas, I fear the corruption may be deeper and wider than many of us would like to admit.

In my original newsletter posting, I didn’t report on some of the specifier’s additonal remarks.  He said he has learned that you can hire consultants in Ottawa who specialize in working with government officials on the bid matrix process.  These are, he indicated, often former officials or others who know the rules of the game and have the necessary personal relationships and connections.  When you pay the consultant, you gain the ears of the officials, and the bid matrix documents somehow emerge the way you wish.

Ugh, you may say.  Less scrupulous readers may try to get in touch with me to find the names of these consultants.  I’m not going there.

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