As if contractors and estimators didn’t face sufficient obstacles to bid profitable projects and run a business that produces a healthy return on investment, a new wrinkle has been gaining steam. If you haven’t been subjected to this disguised form of bid shopping and bid peddling, it’s likely you soon will.
Reverse auction bidding first came about as means of purchasing materials through which a specific grade and quality can be defined by a catalog number. While we ask our distributors for prices based on a given specification, reverse auction bidding does not quite fit the same mold.
Construction, with all its vagaries, fails to lend itself to a similar pigeonholing, yet this method of bidding has become entrenched.
An Internet search on the term “reverse auction bidding” provides some interesting returns, including many of the problems that have cropped up in this practice. One site touts a specific system for reverse auction bidding. Its CEO states: “One of the biggest problems facing business and government agencies today is that they are paying too much for goods and services; our goal is to eliminate that problem.”
The system’s operation is well described in an article in “Roofing Contractor” by Jim Olsztynksi, who is the editorial director of Plumbing & Mechanical magazine. Normal estimates used for bidding are prepared by contractors. At the advertised bid time, a Web site opens, accessible only to prequalified bidders using passwords. Obviously prequalification can be so varied that otherwise unqualified contractors could meet the requirements, where, under normal circumstances, they may not at all be qualified. A price is established by the owner, or awarding authority, and becomes the starting bid supposedly based on similar projects. Subs then submit their bids, whittling down their prices at a minimum of one percent. The lowest price submitted is displayed but only the owner sees all the prices and who submitted them. There is a provision for the last two minutes of the 30-minute time period where it appears that all hell can break loose. The sole benefit of this form of bidding may be that it could drive out of business those who should never have been in business in the first place.
It is ironic that the basics of reverse auction bidding are the very ones that our industry has fought to have owners understand for years. The system requires a clear scope of the work to be done as well as plans that are fully detailed.
Contractors must be prequalified—a step that normally assures that the various contractors have the assets and company structure to assure their performance. Included in the prequalification process are such “soft” items as work force training and safety experience. These areas certainly can be met by NECA contractors, yet too many awarding authorities have neglected to follow through on using such criteria.
The 11/24 issue of ENR reports the Construction Users Roundtable (CURT) emphasized at a November meeting that the process of reverse auction bidding should be based on “sound engineering and procurement process.” The account went on to state “that reverse auctions should not be used as a shortcut around proven processes.” The CURT membership is composed of major companies who have the resources to use the process in an orderly fashion. Unfortunately, our contractors are often subjected to less scrupulous owners and builders.
The effect on estimators is that their work product detail will become more important in securing profitable work. The reverse auction system leaves little room for negotiations, unless it too is compromised, as was the case with bid registries in years gone by.
In a recent column, I mentioned that being the lowest responsible bid with a governmental agency is no longer any assurance of an award of a project. In any of the nightmare scenarios, there is no substitute for bids that have included all the base costs; this is not a time when a “roll of the dice” will get the job. EC
DAVID is a professor of electrical technology at Long Beach (Calif.) City College, a consultant and an expert witness. He can be reached at 562.597.1877 or at email@example.com.