The opportunities and perils of hard public bidding

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John Poole, in his Constructonomics Blog, posts some insightful observations of the challenges of starting work as a general contractor in this brutal economy.

Competition, he has discovered, is fierce, and provisions to ensure fairness and openness invite/encourage cheating or manipulation to game the rules. When upwards of 14 businesses bid for the job in the open RFP, the winner either is doing something odd, or is losing his shirt.

Poole writes:

Over the past six months, I have had the wonderful privilege (ahem) of bidding about 15 public Requests for Proposals. While I have complained constantly about the process, I probably wouldn’t have any work at all at the moment if they were not available. As a brand new company there are very few private owners that would take a chance on an untested and unproven no-name. However, in the world of public bidding, while a municipality may not want to take a chance on an unproven no-name either, the law simply states – they have to.

Then he adds something that should send shivers up the spine of anyone who thinks public bid work is actually fair.

I take that back, they don’t have to. What they do have to do is give the job to the lowest responsible bidder. Of course responsible is the key word there and they could make a contractor look irresponsible rather quickly if they wanted to (or if a few Benjamins were slipped into their pocket). But the reality is that there are tax dollars at stake and all information regarding bidders is one hundred percent public. So if a town wants to disqualify a low bid, they better have darn good reason to do it, or some villagers may get quite angry. If a low bidder is able to produce a bid bond as well as the necessary insurance requirements, I would think that it is a very difficult sell for a town to disqualify a bid. If they did, I wouldn’t be surprised if some rumblings began around town about councilmen with “greasy pockets”.

I used this system to my advantage by going after these public bids and bidding at rock bottom prices. And when I say rock bottom, I mean rock bottom. I looked high and low for the lowest sub numbers and then marked them up a meager 5% plus a few miscellaneous overhead costs. This is honestly the climate we are in right now. Which conveniently brings us to the ugly side of public bidding.

New contractors, skilled, with lean overhead and a willingness to work for a “salary” that might be virtually nothing, can sometimes “win” this type of work, and survive, but it is hardly a great way to succeed and survive in construction. (However, anyone who can start and survive in this rather brutal economy will likely do very well when conditions improve.)

The challenge is that whenever things are “fair” and “open” in the true, total sense, the successful contractor can often not hope to make any money unless there is some element of corruption or fraud beneath the surface. Poole describes one example in his posting relating to getting around wage certification rules (to protect union jobs). I know of a Midwestern contractor who explained to me he wins all the hard local bids for his local hospital. He genuinely submits his low bid, but has pre-arranged with hospital officials the scope of work and change orders required to make the work profitable in the long-run. The work always comes in within the hospital’s real budget.

This sort of stuff, along with the sheer amount of energy and effort required to submit public RFP opportunities, results in a rule of thumb within the design community (architects, engineers and consultants) that you should NEVER respond to a public RFP unless you have an established, confident, and reliable relationship with individuals in the bidding authority first. This is especially important for the designers because of the Brooks Act provisions for most federal and many state and municipal projects, which mandate that price must be a secondary consideration. Relationships, here, are everything.

While the Brooks Act only applies to the design side of the relationship, and “low price wins the job” may work for GCs and subs, undoubtedly you are much better off knowing the personalities and building relationships with responsible bidding authority decision-makers before the RFP is made public. This may seem to be a frustratingly slow and uncertain task, especially when you need to find some work quickly, and seemingly tantalizing (and “open”) RFP/bidding opportunities are available to you. However, the evidence is that if you take much of your time that you devote to grinding out conventional RFP responses and quotes, and allocate that time to relationship development at the front end, you will be in a much better position to succeed long-term.

Where can you find/develop these relationships? Here are some of the tools I would use:

Leads services (but not for current projects)
You can see who is bidding current works, and get the names and backgrounds of the responsible authorities. Your challenge is to look beyond the current projects, and figure out how you can connect with the bidding authorities to start the relationship-building process. (Note: Bidding on a job that you don’t hope to win only to develop the relationship is usually not the most effective and wisest way to introduce yourself.)

Current projects (for future work)
You are on the “inside” while the project is under-way. Needless to say, you should do great work, both in the actual project, and in developing relationships within the bidding organization. Perhaps you can connect through relationships and referrals across departmental boundaries and get to know others with projects in the pipeline worthy of your proposal.

Associations
For marketing, you have the greatest chance of success with associations of practitioners within your target market; but you can sometimes gain value from your peer-based associations, especially if you work in multiple markets and either need/seek connections in communities where relevant association leaders may live.

Creating your own project
This isn’t for the faint-hearted; and is hard for a start-up, but you may consider an entrepreneurial approach by developing your own project, perhaps using Public/Private Partnership resources. This type of proposal takes much more work and effort, but if you are winning one in 10 conventional RFPs, it may be wiser to spend time on developing one or two PPP initiatives.

Of course, most contractors will disregard this advice. You are trading off the chance to win a sure thing  for something nebulous, distant, and invisible. The trouble is, if you ignore the advice, you fail to see the other side of the picture: When you reach the stage where (because of your marketing, relationships and work quality) you are on the inside and you receive the call or “heads up” well before the project becomes public. It is fun going into a competition knowing you’ve won it even before it has been announced. I know. I’ve had that experience, as have most successful contractors.

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