Question:

As a construction contractor, what do I need to know about the different types of bidding processes, particularly public bidding as it relates to federal and state contracts?

Answer:

Types

In construction, there are generally two types of bidding processes: Public and Private. Private bidding is viewed as driven by quality more than by price, and is often a negotiated process in which the contractor is selected based on factors such as reputation, track record, experience, capacity to meet project requirements, current workload or some other criteria important to the owner.

Public bidding - also known as “hard bidding” - is a competitive process most commonly associated with the design-bid-build delivery method, although it can be used with the design-build delivery method as well. Federal, state, county, municipal or local government projects in the U.S. require competitive bidding by law on most projects, theoretically assuring the lowest construction cost for the project. Because tax revenue or publicly issued bonds are the primary sources of funding, awarding the contract to the lowest bidder is still the predominant practice for competitively bid projects in an effort to demonstrate good stewardship of public funds.

By law, federal and state projects must be advertised at least 30 days before the bid or proposal due date in public sources of record, such as newspapers, magazines, trade journals and government websites. It is important to note that a publicly owned project may have varying contract types (i.e. Invited Bidders Only, Prequalified Bidders), which will cause the bid process to resemble a negotiated contract. However, even in this situation, bid laws will govern a publicly owned project.

Steps in the Process

To arrive at the lowest bid for a given project, the traditional public bidding process itself generally follows these steps:

1. The project bid notice is published.
2. Prequalified contractors obtain the procurement documents. Deposits or non-refundable fees may be required.
3. Interested contractors review the procurement documents and, if applicable, attend a pre-bid conference.
4. Interested contractors inspect the site.
5. Interested contractors solicit and acquire bids from subcontractors, if applicable.
6. Interested contractors estimate costs.
7. Interested contractors prepare and submit sealed bids.
8. Bid amounts and contract award may or may not be announced publicly. If announced publicly, the owner or owner’s representative will open the bids and announce the bid amounts at a specified time and location.
9. Barring irregularities, the contract is awarded based on the lowest responsible bid or total contract price.

Perspectives

From a contractor’s perspective, there are both advantages and disadvantages to this type of public bidding.

Advantages:

• Perception of fairness – the process is open to all qualified bidders
• Transparency
• General familiarity with the bidding process

Disadvantages:

• Becoming prequalified can take time — days, weeks or months
• Preparing a quality bid or proposal may require both extensive time and expense with no guarantee of a return on investment
• Other bidders may low-ball bids
• Short turnaround time to prepare the bid can limit the ability to thoroughly estimate costs
• General contractors have less control over specified products, suppliers and the overall contracting process

From the perspective of an owner, there are also advantages and disadvantages inherent in this method of construction procurement.

Advantages:

• Participant familiarity with the process
• Allows the owner the greatest degree of control in all phases of the project
• Process helps to ensure lowest prices

Disadvantages:

• Insufficient time for thorough estimating can lead to an overabundance of change orders, which increases the length of the construction process and leads to cost overruns
• Winning bids may be unrealistically low, which can result in a sacrifice of quality through corner-cutting measures or through use of cheaper building materials, potentially increasing repair, maintenance and replacement costs of building components over time
• The sequential nature of the traditional design-bid-build delivery method makes it a lengthier process than other project delivery methods

Trends

Due to the disadvantages with this process and the fact that low bid price does not necessarily equal low overall project cost, local and state financing commissions are increasingly approving use of alternate project delivery methods on public projects. This acceptance of alternate project delivery methods has prompted similar changes in procurement practices. Many entities in the public sectors now accept competitive proposals, which are evaluated according to bidder qualifications, best value, or some combination of the two.

Specific public procurement requirements, bidding procedures and accepted project delivery methods vary by locale and are governed in accordance with applicable regulatory statutes. However, most federal, state and local government entities provide helpful, detailed information online to assist the public.

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