Price of the procurement challenge July 2014

It is a small world for the global tunnelling industry, and yet worlds apart when considering different practices between countries and, between clients. What might be known and appreciated in one district can be misunderstood or miscalculated in another.

The challenge to the bid evaluation process for the current Purple Line Phase 1 Metro contract in Los Angeles raises various points of wider discussion that highlight differences of understanding and appreciation from one experience to another.

1. Design-build vs design-bid-build

These are concepts that can mean something completely different in different parts of the world, and to different clients and contractors; and the different reasons for choosing one over the other can be endless.

In its narrowest appreciation design-build is adopted to save time and to present the opportunity to attract innovative value engineering design and construction alternatives.

Design-bid-build has lost favour largely in preference to design-build, but it did present more defined understandings of responsibility between the designer/engineer, and between the contractor and the client, with the lowest bid, or lowest responsive bid, to the 100% project design documents being awarded the contract.

For the Metro in Los Angeles, design-build is a new procurement method and a departure from its traditional design-bid-build practices.

2. Best value vs lowest price

These are not the same, although how the best value bid could not be the prequalified bidder with the lowest price is hard to understand.

In Los Angeles, the bidder with the lowest price has been scored in third place of three, while the bidder with the highest price proposal has scored first place and has been recommended for the project. To many this is counterintuitive, and something that is not understandable, particularly in Los Angeles and in the context of its long experience of the traditional design-bid-build, low-bid-wins, basis of procurement.

As one commentator put it, this appears to be a case of misunderstanding or failing to appreciate the 'best value' aspect of the procurement process. It is the 'best value' concept that has made it possible for Metro to award to a contractor with a bid that is not lowest in price.

The differences in prices, however, in Los Angeles for the Purple Line Phase 1 contract, are significant. The third placed bid, of $1.444 billion, is $127 million below the second bidder and nearly $200 million below the proposal in first place. The same joint venture came second on Metro’s Regional Connector project contract with a proposal that was $80 million below the winning bid of $927.2 million.

3. Prequalification vs experience

Prequalification is a process for providing documentation that proves a contractor has the ability and resources to bid successfully for a project and see it through. That is different to a portfolio of experience of similar projects either in construction or completed. The two go hand-in-hand and should not be contradictory. The prequalification of contractors with significant similar project experience, and in particular of completing projects that have had technical problems or geological difficulties, should confirm the ability of the team to manage and succeed on the job for which they are invited to bid. More experience of projects completed successfully and challenges overcome should not possibly downgrade a prequalification score.

4. Best value vs innovative alternatives

The request to present innovative alternatives can be a double-edged sword. Presenting innovative alternatives can work against the contractor in a procurement process that calls for best and final offers.

Clients regularly offer a stipend to bidders, and if that stipend is accepted, any innovations or value engineering ideas presented become the property of the client, which can then present these as amendments to the request for proposals to all bidders and before they submit best and final offers.

The stipend is small recompense for the contractor if his innovative ideas are shared with all and he fails to win the contract. Under these circumstances a contractor would think twice before presenting innovative ideas ahead of requests for best and final offers.

5. Contractor confidence vs clients’ efforts to broaden the competition

Honest, straightforward dealings with transparency and fairness in return is at the root of instilling contractor confidence in bidding work for different clients and ensuring a broad base for attracting competition and controlling bid prices. Failure to establish and maintain the confidence of the contracting community results in bids coming in way over budget or leads to the situation as happened in New York on the East Side Access project where no contractor was willing to bid the project competitively. Instead, a contract had to be negotiated with the one contractor who was willing to negotiate terms and take on the contract.

In New York, the client and the local and Federal tax-payers of the public infrastructure investment are paying for the situation with the East Side Access project now costing some $8 billion, well up on the original budget estimates of $4-6 billion.

6. Do something vs do nothing

At the its meeting in Los Angeles, the Metro Board voted 9 to 3 to award the Purple Line Phase 1 contract to the STS JV subject to outcome of the official protests from the two unsuccessful bidders. As a result, the options are clear:

If review of the protests goes against the unsuccessful bidders, will the aggrieved parties take their official objections to a legal court hearing?

and;

Will the Metro Board, as a public agency, review its intention to award a contract to a higher priced proposal when there is an equally prequalified bid at nearly $200 million less?

Have your say

Join the discussion via TunnelTalk Feedback.