Pitfalls of Construction Project Bidding

Bidding work / Be Careful! / The SETUP

This situation has just occurred, on a project that I was bidding today, and I am convinced that the entire scenario was a perfect SETUP. A summary of this SETUP must be conveyed to contractors involved in bidding new work. The particulars of this common occurrence, is an interesting education, on how our wonderful construction business is controlled and manipulated.

It is important that the environment around the SETUP is carefully identified, to allow a full understanding of the situation. It is also important that this type of scenario is explained, to enlighten some of the more naïve and inexperienced in this wonderful industry, called construction.

The bidding party is a small, new and ambitious company, which is providing and installing various products for flood mitigation. Flood mitigation, in this case, is the installation of flood barriers, both permanent and temporary, as well as the extraneous items that accompany a flood mitigation project. Such items may include sump pumps and the pits that they are installed in, waterproofing of basement walls, installation of specialty watertight doors, installation of emergency generators to power the sump pumps if the primary power is interrupted, as well as a host of other water and moisture protection items.

This small company was invited, to provide a proposal for a large project, within a very influential part of a very large City. Obviously, excited about the opportunity, this small company, let’s refer to them as Company Flood, hit the ground running, and took the time and effort to properly and accurately prepare a formal proposal for the project. The primary reason, that Company Flood was so excited about this opportunity, was that their specific product was identified as the “one source “allowed on the project. Company Flood was led to believe that they were the preferred contractor due to this identification of this “one source “specification.

I have to be very honest, when I was asked to assist with this estimate, I was extremely surprised to witness a “one source “specification, on a government assisted project. I have been involved with several Federal and State projects with tax payer’s money, paying the bill. I have never seen such a project with a “one source “specification for a product. This is commonly seen in private work, where a developer or contractor wants a specific manufacturer and product, such as Anderson Windows. This is totally acceptable, due to the fact that the money was not public and basically, if private money is used, the client can specify whatever product they prefer. However, when public funds are used, this becomes a conflict of interests and is usually not allowed. Public money means that an “as equal “clause, must be included within the specification. There was no “as equal” clause included within this initial submission of the project to Company Flood.

Prior to my input, Company Flood had developed and provided the owner of the project with a comprehensive project proposal. Company Flood was never provided any names of competitors or other bidders involved with the project by the owner. This was peculiar on its own. Normally, if public money is being used to finance the project, there are stipulations, such as public disclosure of when bids are due and public awareness of the project. As far as Company Flood was concerned, they were the one and only contractor, providing a proposal for the work based upon the fact that Company Flood was the only company that supplied the “one source” specified product on the documents.

Again, this is very uncommon when a Federal, State or local municipal project is being bid. Although there might be a preferred supplier, the clause, “as equal” is almost always included within the ITB (Invitation to Bid.)

Once the initial proposal was submitted by Company Flood, a substantial amount of time passed by, without any communication from the owner. Company Flood waited patiently for the owner of the project to award the job, assuming that they would be awarded the work based on this “single source “specification. Nothing occurred for several months.

It is my opinion, that this is the time where the SETUP was being developed.

Company Flood, in an effort to stimulate some action on the project, requested a meeting with the owner. The reason for this meeting was under the guise of needing to review some of the field coordination and site particulars. During this site meeting with the owner, Company Flood was notified that there would be substantial changes in the documents. There were several items that would be deleted from the project, due to re-engineered situations on the project. In addition, some of the local utility companies needed to reevaluate their decisions and their design requirements on the project. Based on these changes, the documents would be revised and reissued.

Once again, months passed and no documents were re-issued. Finally after repeated follow up calls, emails and harassment by Company Flood, the revised documents were issued for repricing.

Assuming that the same “single source” was specified, Company Flood requested that I look at the new documents for repricing and evaluation. The interesting observations, and the basis for this page on the website, are the particulars of what I discovered.

  • The revisions were “bubbled “, which is a common technique regarding revised documents. Engineers and architects bubble the documents to identify the revisions made from the previous set of documents. The problem was that, not all of the changes were bubbled, only certain ones. This lack of consistency makes it necessary to compare each document, item for item with its predecessor.   The bidder that is providing a new and revised proposal must be certain that there are not hidden items added to the scope of work. Basically this requires the project to be fully rebid by the contractor that has already spent time and money, providing the original proposal. Unfortunately in many cases, the lack of proper identification of all the changes results in any new bidders to the project, having an advantage over other contractors that have already presented the initial proposals. There is a much better chance of missing changes by the initial bidder, than the new contractor in the bidding competition.
  • The new documents were identified with a general notification saying, 1 / drawings revised per client’s request. This identification is extremely broad and nonspecific, which further leads me to believe the entire process was a calculated setup.
  • Comparing the documents, page by page, I discovered that the “single source “identification of the primary manufacturer of the flood control products had been changed. This change was not bubbled, nor identified whatsoever on the documents. Remember we are supposed to “bubble” the changes.
  • The “single source” had been totally changed to another supplier, of a similar product. No notes where indicated, no “bubble “was identified and nothing on the documents indicated this major change.
  • Upon realization of this total reversal of the “single source”, I noted this to the Company Flood, executives.
  • Upon notification to the Company Flood executives, they communicated with the owner’s representative for the project. They were told that, the change of manufacturers, was mandated by the Federal government based upon a requirement that there cannot be a single source identified, on the project documents, which will be financially supported by public funding.

The reality of the situation is as follows:

  • Although the owner’s representative has noted that the reason for the change was to comply with the public funds requirement that there be an “as equal” on the documents this was not the case. The specifications had been changed to provide a more stringent specification for a “single source “vendor, however the identification of that “single source “vendor was changed. The only change was a MORE stringent requirement for another “single source “vendor.
  • The literal interpretation of the revised documents was to basically change the vendor for one to the other. In fact, the new revised documents more stringently supported a “single source” vendor; they had simply changed the vendor. The owner’s indication that the changes were made to account for an initial error regarding a “single source “vendor was totally inaccurate.

Based on this situation, what was accomplished?

  • Company Flood was basically used, to provide the level of pricing for the project. Company Flood was enticed by the idea that they were the “single source “vendor and that their product would be the only one entertained. How does this influence the proposal submitted? It elevates the proposal due to the illusion of, no competition.
  • The owner, engineers and architect have now received a proposal for the project, which has been submitted by Company Flood, which identifies the level of pricing for the project. They are well aware that Company Flood assumed they had a “single source” advantage, and the proposal was inflated, due to that impression.
  • Using the excuse that the documents were being revised to accommodate various re-engineering issues, the owner, engineers and architects were given the opportunity to consult with the actual “single source” provider, which they preferred. I will NOT editorialize on the reasons for this preference; I will leave that to your own interpretation. I will author another webpage on the “behind closed doors “negotiations that occur, involving collusion between vendors and contractors.
  • Knowing the pricing level of the project, as exposed by Company Flood, the owner, engineers and architects, negotiate the project with their, ACTUAL choice for “single source” supplier. The “single source” was never intended to be with Company Flood.
  • Upon issuance of the revised documents, the owner, engineers and architects change the “single source” provider to their selected provider, based upon discussions, negotiations and agreements made, based upon the financial level, already provided by Company Flood. What a perfect SETUP!

The summary of this SETUP!

  • Use of a new, aggressive and naïve Company Flood to establish the allowable level of financial obligation that the owner, engineers and architects can get away with.
  • Invalid establishment of two vendors for the project. The initial issuance of a “single source “supplier will have established the first vendor, the second issuance of the revised documents, which totally changed the “single source “will provide the second vendor. This establishment can be used in the future, if anyone indicates a legal complication regarding this SETUP.
  • Theoretical establishment of, unintentional responsibility, for a misguided presentation of documents, which allowed the exposure of the initial pricing for the Company Flood by the owner, engineers and architect.
  • Ability to contract with the “ preferred, single source” vendor, which was the second “ single source” vendor, by exposing the primary competitor of the product, during the first submission of the project.
  • Ability to negotiate whatever incentives were necessary from the second “ single source” vendor, to entice the owner, engineers and architect to clearly identify them as the “ single source” vendor the second time around.
  • Ability to eliminate Company Flood from the competition.

Lessons to be learned!

  • Although it is extremely difficult, for a young and aggressive company, each bidding opportunity must be evaluated carefully. There are several owners, developers and contractors that will try to entice, seduce, connive and do anything possible to determine what the competing proposals will be, prior to finalizing their selection.
  • Years ago, prior to all of the current email, internet and instantaneous communication, phone calls were made amongst the leading contractors, to determine who should be awarded the latest major projects. I can remember sitting in the president’s office of a major player in Connecticut, while he made phone calls to three other contractors, which were also major players in the construction marketplace. They would discuss the value of the project and whose turn it was to be the low bidder, and what the value of this theoretical low bid should be. This collusion was a very common occurrence especially when the communication between contractors was principally the telephone.
  • With the advent of technology and the exposure of all communication, this type of collusion is more difficult to achieve. Now we have thousands of ITB’s (Invitation to Bid) being issued by computer software, which basically exposes the entire marketplace to the offerings of owners, developers and other contractors. This total exposure of the marketplace, to basically all projects that are in the bidding phases, reduces the ability for internal management of the lowest price.
  • Based upon this exposure, owners, developers and contractors have come up with creative methods of exposing the competitors pricing. This webpage describes one of those creative methods.
  • Using the same technology that has achieved the overall transparency of the bid process, the young and aggressive company that is trying to obtain the project, must repeatedly email, phone and communicate with the owner, developer or contractor. Communication is vital to ensure that there is no time or opportunity for collusion with another favorite party.

Eyes must be wide open when you are bidding a major construction project. All successful athletes will agree that there is no foul, unless it is called!  What this basically means, is that all fouling is ok, until someone calls a foul on you. This is extremely important when bidding work. Fairness and honesty has nothing to do with the process of competitive bidding, in many cases. Some individuals, companies and construction entities will do anything to find out what the competitors price will be, so they can undermine this price.

Keep your eyes open, and don’t trust any owner, developer or other entity that is trying to solicit your company to provide a price. Be cautious and good luck! It is not fair, but construction never was!