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ConstructionPro Week, Volume: Construction Advisor Today - Issue: 72 - 09/10/2010

Alternative Bidding: Wise Budget Management or Manipulation?

Alternative bidding is an effective tool which enables a public project owner to craft a contractual scope of work which fits its budget. Alternative bidding is also a tempting means for owner manipulation of the outcome of the bidding process.

 

Traditional alternative bidding lists bid alternates which add or deduct items of work. The project owner, having seen the bids and bid prices, can select the most advantageous scope of work given the availability of funding. The project owner, having seen the bids, can also craft a scope of work which directs the contract to a particular bidder. Courts scrutinize alternative bidding with an element of skepticism.

 

A public project owner recently took alternative bidding a step further. The owner solicited bids for separate trade work bid packages and then, as alternatives, bundled the trade packages in a variety of combinations. A California court said this was a clear manipulation of the selection process. The owner knew the identity of each bidder and could easily favor or exclude bidders simply by selecting a bid package.

 

What are your thoughts? Is alternative bidding a legitimate practice, driven by the necessities of public funding limitations? Or is alternative bidding primarily a tool of manipulation, used to circumvent the requirements of the competitive bidding statutes. As always, I invite your comments.

 

Featured in Next Week's Construction Claims Advisor . . .

  • Engineer Recovers for Extra Work Despite Lack of Written Authorization
  • Contractor Defaulted after 95 Percent Completion
  •  Unlicensed Subcontractor Bound by Agreement Regardless of Contractor’s Knowledge

 

Bruce Jervis, Editor
Construction Claims Advisor

 

Comments

Quite enlighteninig. But lets consider Alternative bidding BY THE CONTRACTOR. Is it a sound strategy? Or is it better to wait until the contract is secured and THEN bring out the alternativa?

Bidding trade alternates and then packing those, perticularly by the Owner, would be a loaded procedure. Under the best of intentions and conditions it would be a nightmare for the GC to manage, make a buck and leave a reasonable margin to the Subs. Owner, in all likelihood will select by price (budget driven)and GC will be responsible for producing high quality from the lowest common denomenator. It could also deprive the team from using previous good working relationships between Subs. However, the biggest concern is that this system will soon be dragged into managing and manipulating SBE, MBE, political, pay back and preferential issues. It can not be good for Contractors either.

 

Packaging alternates is an unfair practice which favors the owner to the exclusion of the bidders as mentioned by others above. The Commonwealth of Kentucky limits alternates to "additive" types only, permits no more than three per project and requires the alternates to be prioritized in the order in which they must be taken. There is no "repackaging" after bids are open. It does give the owner a chance to include some item of work in the base contract if bids are favorable. Another stipulation is that an alternate which was not selected at bidding may not subsequently be added by change order to the contract. It's not a perfect system but it is fair to all.

 

In Ohio, where public bidding mandates separate prime contracts by trade, public owners are not permitted to package prime contracts, it's the bidders who select the prime combinations they wish to bid. I can see how fixed combinations could manipulate the award. Relative to alternates, we try to package the base bid to be the minimum work scope that would be required to make the project a success - frequently that is 90% of the budget. We can then evaluate the alternates by cost and value to increase the scope yet stay within budget, protecting the institution from delays & expenses of redesign & rebidding. 
Occassionally we have made a specific product or system an alternate (different/separate from the specified manufacturers for the base bid) to avoid contractors who have repeatedly failed to perform. We know they are not certified by the alternate's manufacturer, so should they be the low bidder, we can take the alternate -- no explanations required when it's a deduct.

 

In Maryland a base bid must be stated and any alternatives are after the base bid. The contract is awarded to the low bidder based on the base bid. The owner may then select which alternatives they may want from the prices of the low bidder. However I have found that the deduct prices are quite low and the add prices are high. This does not lead to my using them as a normal way of bidding.

 

The basic competitive bidding process as now exists is flawed, promoting low-balling, increasing adversity during construction. A better competitive bidding process would be to award contract to the bidder with the price closest to, but less than, the average price submitted by all bidders. This forces bidders (and owners) to remain realistic in their cost statements. There is no free lunch; but we seem doomed to labor under our "free enterprise" low-bid system, primarily controlled by bureaucrats. For mathematical proof, see:

 

http://www.cem.umich.edu/Ioannou/Pubs/CEM93_AvgBid/PGI_CEM93_AvgBid.pdf

First, the ability to use bid alternates is REQUIRED for sound budget management. Scope of Work dictates cost, so the better the documentation the better the price. The Kentucky model is sound practice (add alternates only) and any more than 3 alternates is a sure indicator that the scope has not been clearly determined.

 

In the past 20 years of doing mostly public projects, I have never seen an Owner use bid alternates to select one contractor over another. Once or twice, the question of contractor preference/quality was raised, but it was never used to determine the choice of alternates accepted.

 

Agree with the last comment, as far as I know in 25 years' experience, alternates are not selected to favor any particular GC. Having said that, I think alternates should be taken in the order in which they are listed, not in any old combination.
And yes, for any architects or owners out there, add alternates are better than deduct alternates value wise (easier for bidders too generally)and should if possible be limited to single trade or single item alternates. Eg change vinyl windows to alum windows is a good alternate; deduct a portion of the building is not.

 

My experienc is in the Federal Construction Market, heavy on the Military side. In general the Contracting Officers (KO) play straight be the FAR which pretty much precludes stacking the deck. I have seen some strange packages though. Alternates are their only means of assuring being able to award as each contract has a fixed maximum dollar limit and the Gov knows their estimates are generally below the market. When you see many small alternate items their is usually a lot of up-front loading of the base bid and just a number thrown at the alternates as they are a big irritant to the estimators. Deductive items fall in that category also. One good thing is the projects are backed up by programming document that is the funding vehichle. Federal funding rules (seperate from the FAR and the KO) require that the project provide a complete and usable facility which the FAR backs up also. This pretty much precludes the trade shopping mentioned above. The FAR prohibits the KOs from using alternates as a shopping catalog. This is why some contractors stick with Federal work in spite of the paperwork hassels. The rules are pretty cut and dried and predictable from contract to contract. This also reduces the lawering costs.

 

When you're in a not good position and have no money to move out from that point, you would require to receive the home loans. Because it will help you for sure. I get secured loan every time I need and feel myself fine because of that.

 

They need to consider the available options. It's about looking for a better management policy.

 

 

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