The 10 PITFALLS of Competitive Bid (Part 1)

If you have been in construction contracting awhile, you are no doubt familiar with competitive bid (CB), which is everywhere in the building industry. In fact, the majority of us who earn our living in easily accessible, highly competitive local markets have come to realize that CB is the primary — if not only —award vehicle available to us as we go about trying to fill our construction schedules. So I do not think it is exaggerating to state that the competitive bid is vital in maintaining our very business existence, which makes the subject so important.

However, there’s a problem — a big problem. You see, this popular and universally-wielded award system is also chock-full of contradictory and opposing objectives that can prove frustrating for those who rely on it so heavily. I am even guessing you have experienced some of these yourself. Does this sound familiar?

“I give up. No matter how much I champion the benefit of ‘quality over cost’ to my building clients, my words just seem to fall on deaf ears. In the end, all the client ever wants is the lowest cost and there just isn’t anything I can do to convince them otherwise. It is  hopeless.”

A Call to Arms

Well, don’t give up yet. If history has taught us anything, it is that because an ideology is accepted doesn’t necessarily make it right. There are alternatives to competitive bid (which we will discuss later), and there are communities in other locales around the world who are using alternate construction award methods with notable success. I do believe if more people truly understood the benefits offered by these alternate methods, then slowly we could build a large enough voice to foster a real catalyst for change.

However, I am getting ahead of myself. Since the first rule of war is to know your antagonist, perhaps we should take a moment to see what we are up against. Let’s explore some key elements of competitive bid and, hopefully, by better understanding the motive behind these components that make up the process, come away better equipped to address, and remedy, the problem as a whole. I have been in this industry for over 40 years now, working primarily as a commercial construction estimator and project manager. In this time, I have come to realize what I call the “Holy Trinity of Construction”— the three key players involved in virtually every commercial arrangement. They include:

1. Client – the person or organization in need of construction services.
2. Architectural/engineering (A/E) – the architects, engineers and specification writers who create the building/bid packages which consist of working drawings, specification manuals, and relevant project correspondence, such as addenda.
3. Contractor – most often a general contractor (GC) but could be any discipline of contractor, construction manager (CM), or sub-contractor (SC) depending on the project.

Now I need to get one caveat out of the way. Admittedly, I will be generalizing quite a bit as we move forward. It is unfortunate, but unavoidable, given the limited amount of information one can fit onto a handful of magazine pages. Still, I believe we can include enough material to convey a coherent message in the end. Also, please bear in mind that this is the subject as I see it. It is my unique perspective and opinion based on my experiences. I have no doubt that someone in, say, the design profession would form a different take on the subject; and that is perfectly fine. The important thing is not so much about who is right as it is about opening a dialog to address the problem.

So with this confession and constraint in mind, let’s examine what I consider to be The 10 Greatest Pitfalls of Competitive Bid:

Pitfall 1.  The system is not one system

You do not have to be a hunter to know it is a lot easier to hit a target using a shotgun than with a rifle. It also helps when the quarry is standing still. Well, as we set out to combat competitive bids, we are holding our dad’s old 1953 Sears bolt-action, single-shot 22 with a bent barrel, and competitive bid is a crazed, caffeine-addicted rabbit darting in and out of thickets like a neutrino. It is a tough, tough shot. One of the reasons it is so hard is because CB is not just one project award system, easily defined and consistently applied. Rather, it exists in ever-changing and unpredictable versions. Take just one aspect of the CB process, method of award. With few exceptions, the CB proposals I have created over the years have been decided via the following methods:

• Open bid lettings (no restrictions) – bids are read aloud for all to hear. Pretty much anybody with a pickup truck can submit a proposal and, the vast majority of the time, the lowest bid is awarded the work. The client and builder may or may not have previous experience working together.

• Open bid lettings (some restrictions) – bids are read aloud for all to hear but this time, the field of bidders was previously short-listed to include only (as deemed by the screeners) reputable and reliable participants. More on this later. This time, it is more likely the client and builder have had some previous experience together.

• Closed bid lettings – bids are opened in private. Secrecy abounds, and the results may or may not be disclosed to the participants at a later time. The low bid, and for that matter, the best contractor, may or may not be awarded the work. No one really knows.

Pitfall 2.  There is no relationship

You can likely sense that we are not off to a good start. In Pitfall 1, we can already see that the rules of competitive bidding are fluid and, thereby, subject to the individual and colloquial whims, predispositions, and prejudices of the myriad assortment of personalities that administer them. Given this unpredictable environment – and also knowing that all humans possess a certain amount of skepticism and neurosis – it is not a huge leap to suppose that the subject of trust is going to play a critical and recurring role as we delve deeper into the subject.

However, here we run into another problem: trust can only be earned, not administrated. If no sincere effort has been made to build a universally trusting atmosphere through genuine dedication and cooperation, then the opportunity to create a real relationship will be forever out of reach. To put it another way: as builders, we understand the importance of a good foundation. With CB there is no foundation (because no one has made the effort to build it) so it should come as no surprise that anything built upon CB it is doomed to crumble in time.

Pitfall 3. Who invited you?

Short-listing is the practice of allowing only selected, pre-qualified contracting firms to submit proposals on a project out for bid. On the surface, this appears sound. One assumes this implies that only reputable, proven, and financially stable companies are invited to the party; and that all ne’er-do-wells are forced to the curb. It seems reasonable, and it would be a good system if this were the case, but this is not the case with CB. Once again, an excellent idea finds itself twisted, warped and distorted according to the biases and agendas of those chosen to administer the process.

Moreover, in our case, this short-listing responsibility (and all the partialities that go with it) most often falls on the A/E firms who act as agents to the building client during the construction process. It can start innocently enough, and likely with good intentions. The firms gather contractor names, make calls, collect reference and prepare and seal a short-list of five contractors. All is well, and everyone is happy—up until the next bid.

It seems there is a little hitch with the latest client. Before signing the design agreement, he needs assurance that his brother-in-law’s construction company will be allowed to bid on his project. So the list grows to six. That same week, the owner of the A/E firm plays poker with an influential, local bank president who just happens to mention between hands that the bank will be building another branch soon and they will need a designer. The next day a new name (coincidentally, one suggested by the banker) makes its way onto the list. This makes seven names. About this time a few of the list’s original members — the builders with actual pedigree and experience — notice the list is growing larger and start wondering if there’s favoritism going on. The next award (to one of the latecomers) all but confirm their suspicions. These good builders, who have plenty of other work because they are good builders, start ignoring bid invites from this A/E. Time goes on and soon the cream of short-list crop has left to pursue more viable ventures. The list plummets to three.

Here’s where the magic happens. To look good for the next client, the A/E now hastily adds two more contractors (without nearly the scrutiny and exclusivity of the original short-listing process), and the list suddenly pops back up to the acceptable five names (albeit of greatly diluted overall quality). More time passes and before long the screening regimen that started out so nobly is nothing more than an unstable list of placeholders that satisfy the numbers but fall woefully short of delivering reliable and quality service to the building client (remember them?).

Pitfall 4.  All bid packages are not created equal.

However, just for the sake of argument, let’s say we come up with five responsible, equally-qualified bidders for our project. The next hurdle we encounter regarding the CB process (and a huge misconception to the man on the street) are the bid documents themselves. A warning here: I am about to get a little hard on the design community, but I assure you, I have an excellent reason for it: they deserve it. There are many excellent design firms, but my personal observation is that a primary obstacle to CB ever becoming a universally viable project award system has to do with an almost epidemic lack of consistent quality in the architectural plans and specifications — the bid package — that form the basis for the process.

I fully admit that my conviction is likely colored in that most of my construction experience has been as an estimator and project manager. I am okay with that. I credit the reader with being intelligent enough to weigh this consideration as they draw their conclusion. However, I can confidently attest that I have suffered through hundreds of bid packages and have come to realize a tremendous disparity between the best and the worst of the architectural/engineering field. The problem is real. I cannot relate how many times I have found myself hip-deep in the competitive bid process only to realize that due to the incoherent and/or incomplete state of the bid documents the only avenue available to me to arrive at a reasonably responsible projected cost for my work was through surmising the intended scope. In short, I was guessing. Yes, it was an educated guess, but still a guess. I think we all know that is not a good thing.

I have also spoken with countless fellow contractors and estimators over the years who tell similar tales, so I know I am not alone. I have even had occasion to discuss the subject with design professionals, and many have confessed to this dark side of the industry. They blame economics, competition/market forces, government/regulations and even unrealistic client expectations. A few have even come out to decry a new generation of designer who values self-aggrandizement and personal profit over professional purpose. Who knows? What I do know is that 25 years ago I rarely, if ever, saw an A/E firm:

• Omit mechanical/electrical pages/specs from architectural working drawings and then

• Refer to those omitted responsibilities as ‘design/build,’ thereby imposing the concept, design, and continuity onto the bidding contractors while (coincidence I am sure) saving the A/E the cost of hiring outside mechanical/electrical engineering firms and/or adding in-house design staff.

Nowadays (at least where I am from) this is common practice. However, here’s the scary part: regardless of why the information is lacking, what do you suppose the odds are that the design/build bidders and their estimators are interpreting this missing information the same way? Ever heard of “apples and oranges”? Moreover, yes, I am WELL aware that somewhere in the cacophony of Division 1 in the specification it says that we should “notify the architect of any mistakes, omissions, or discrepancies we find in the bid documents” or something similar. I am sure this passage sounded wonderful to the optimistic soul who created it, but the reality is that no bidding contractor has the budget or staff to address every ambiguity or discrepancy in the documents. There are simply too many. Moreover, even when we do call (and we call a lot) with questions or request clarification, the odds are evenly spread that we will receive any one of the following:

1. The right answer to our question.
2. The wrong answer to our question.
3. The architect’s voice mail (he/she will not call back).
4. The receptionist, who relates that the architect is out today (the bid is due at 2 PM).
5. Moreover, lastly (my personal favorite) the right answer to our question but not before we are made well aware (by the nasal, condescending tone at the other end of the line) that we are no-where-near qualified and have nowhere near the credentials to question the hallowed, sacred architectural tablets.

All right, so I got some shots in, but it is to make a point: I think the general public assumes that bidders in a typical competitive bid situation receive and bid off of complete, pristine, and professionally drafted bid documents when the reality is that nothing could be further from the truth. I’d personally estimate that 15% of the bid packages I price are clear and complete enough to genuinely offer the client fair competition among the bidders. Fifteen percent are absolute folly, and the remaining percentage makes up the middle ground between the best and worst. More often than we care to admit the low bid on a CB project is derived through a means other than a thorough and precise understanding of the construction documents. I am pretty sure this is not what the construction founding fathers had in mind.

Pitfall 5. ‘On your mark, get set, we are enemies!’

However, with all its variations and vagaries, rest assured there is one ever-present, rock-steady commonality in all CB arrangements and that is:

From the moment the ink dries on any contractual agreement resulting from the CB process, the dynamic between you, the architect/engineer and the client has changed forever.

You are now adversaries.

Sugar-coat it, corporate-speak it, and dance around reality all you want, but there’s no other way to describe it. In the nanosecond following a competitive bid deal being struck, an invisible but very real ‘feeding trough’ filled with the designated, finite construction funds springs suddenly into existence and remains evenly-spaced at arm’s length among all the players throughout the construction process. Now it is every man (and woman) for themselves. In short time a natural incumbency falls on all the combatants to snatch and grab and (yes) steal the greatest share of the treasure and limited booty for their given firms.

Is this moral or justifiable? Nope. Is it good business? Not even close, however, it is who we are. It is instinctive, accepted and–frankly–a little embarrassing. Just like the client who blindly clambers after the lowest dollar at bid time (with little to no thought over future ramifications), the construction team members revert to a group of self-righteous mercenaries whose only interest includes improving their immediate situations. We have all read the business books and if sacrificing a future relationship means gaining a little extra profit right now, well we will call it ‘collateral damage.’ We can repair it later, right?

Selective morality is a terrific weapon when it works in your favor. The trick is to not think about it for too long.

Closing

So now that we are half-way through let’s take inventory of the competitive bid process. So far we know:

1. The rules of the game are pretty much made up as we go along.
2. The persons administering these rules can often be less than suited to do so.
3. The contractors can range in quality from Einstein to Earnest Goes to Hollywood.
4. The very documents that CB proposals are based upon are often incomplete and unreliable.
5. The players in a CB arrangement are automatically arch-enemies before the first shovel of dirt is turned over.

Well, what could go wrong? (Spoiler alert: plenty). To find out the rest, pick up the next issue of this magazine for part 2 of The 10 Pitfalls of Competitive Bid.