Construction engineering management culture shift: Is the lowest tender offer dead?

Abstract

The procurement of public construction projects must walk a fine line between the corruption of state officials and collusion of contractors. The method of awarding projects to the lowest responsible tenderer was originally implemented to guard against corruption of state officials. However, an investigation of the construction industry in the Canadian province of Quebec showed that lowest-tender-offer procurement gave rise to collusion of companies tendering for the contracts. Alternatively, best-value procurement has been used for decades, but here problems arise owing to the necessity of subjective judging of measures other than price to compare bids, giving rise to time- and money-consuming protests. The paper proposes a compelling argument that the construction engineering management (CEM) culture should refocus its efforts on enhancing project cost certainty rather than merely searching for means to design a project in a manner that produces the lowest initial cost, and awards the construction to the lowest tender offer that focuses on cost savings during the project development and delivery process. The difference in the two approaches is subtle but extremely important. To make the transition, the engineering management tools must be advanced to the next level. This means that all project control tools for managing cost, schedule, and technical scope must be transformed from working in the deterministic mode to the stochastic mode, thus making the probability of completing the project within or below its official budget the primary decision criterion. To do so, CEMs must accept that there is a benefit in paying more for an alternative that increases cost certainty for the entire project. The authors of this paper hope that it will provide the grist for a more general dialog across all industry sectors where engineering management is practiced.

Keywords

cost certainty / lowest responsible bid / best value / public procurement / construction engineering management culture

References

[1] ArditiD, AkanG T, GurdamarS (1985). Cost overruns in public projects.International Journal of Project Management, 3(4): 218–224

[2] AlaviS, TavaresM P (2009). Highway Project Cost Estimating and Management. Technical Report FHWA/MT-08-007/8189

[3] BambergerC, StarkM (2008). Best practices for use of best value selections AGC of America & NASFA. https://www.agc.org/sites/default/files/Project_Delivery-_Best_Value_Selection.pdf, 2017-1-11

[4] BeardL J, LoulakisC M, WundramC E (2001). Design-Build: Planning through Development. New York: McGraw-Hill Professional

[5] BeemerJ (2005). The cost of perfection in public works projects: A design professional’s perspective. American Council of Engineering Companies, Government Advocacy, http://www.acec.org/advocacy/pdf/ tcop_2006-04-20.pdf, 2017-1-11

[6] BlanchardB (2007).Design-build lessons learned Florida DOT. In: Proceedings of Louisiana Transportation Engineering Conference. Baton Rouge, 6–14

[7] BothaP S, ScheepbouwerE (2015). Christchurch rebuild, New Zealand: Alliancing with a difference. Proceedings of the Institution of Civil Engineers-Management, Procurement and Law, 168(3): 121–129

[8] BubshaitA A, Al-SaidF A, AbolnourM M (1998). Design fee versus design deficiency.Journal of Architectural Engineering, 4(2): 44–46

[9] BuratiJ L Jr, FarringtonJ J, LedbetterW B (1992). Causes of quality deviations in design and construction.Journal of Construction Engineering and Management, 118(1): 34–49

[10] CarrP G, BeyorP S (2005). Design fees, the state of the profession, and a time for corrective action.Journal of Management Engineering, 21(3): 110–117

[11] CBC News (2015). Charbonneau commission report: A deeper look at the recommendations. http://www.cbc.ca/news/canada/montreal/charbonneau-commission-report-recommendations-1.3335460, 2017-1-11

[12] CharbonneauF, LachanceR (2015). Final Report of the Commission of Inquiry on the Awarding and management of contracts public in the construction industry. https://www.ceic.gouv.qc.ca/fileadmin/Fichiers_client/fichiers/Rapport_final/Rapport_final_CEIC_Integral_c.pdf (in French)

[13] CraigieE K, GransbergD D, JeongH D (2016). Cost and scope breakdown structure for functional level estimating of consultant fees.Transportation Research Record: Journal of the Transportation Research Board, 2573: 157–163

[14] CrossetJ, HinesL (2007). Comparing State DOTs’ Construction Project Cost and Schedule Performance: 28 BestPractices from Nine States. AASHTO, Washington

[15] CrowleyL G, HancherD E (1995). Evaluation of competitive bids.Journal of Construction Engineering and Management, 121(2): 238–245

[16] CurryB (2016). Competition Bureau warns of bid-rigging as Ottawa set to spend on infrastructure. http://www.theglobeandmail.com/, 2016-05-29

[17] EllisR D, HerbsmanZ, KumarA (1991). Evaluation of the FDOT design/build program. Final Report, Submitted to Florida Deptment of Transportation, State Project No. 99700-7543-010, Department of Civil Engineering, University of Florida, Gainesville

[18] Federal Highway Administration (FHWA) (2006). Design-build effectiveness study. http://www.fhwa.dot.gov/reports/designbuild/designbuild0.htm, 2016-05-29

[19] GirardD (2016). Charbonneau Commission Follow-up: Ethics Lessons for Quebec and Elsewhere. Webinar Presentation, http://epac-apec.ca/wp-content/uploads/2014/11/charbonneau-webinar-april-2016-final.pdf

[20] GransbergD D, BartonR F (2007). Analysis of federal design-build request for proposals evaluation criteria.Journal of Management Engineering, 23(2): 105–111

[21] GransbergD D, BussA, KaracaI,LoulakisM C (2017). Alternate design/Alternate bid process for pavement type selection. NCHRP Synthesis Report 20-05/Topic47-02

[22] GransbergD D, EllicottM A (1997). Best value contracting criteria.Cost Engineering, 39(6): 31–34

[23] GransbergD D, JeongH D, Lopez del PuertoC, Hunter K D (2014). Preconstruction Services Estimating Guidebook. Interim Research Report, NCHRP Project15-51

[24] GransbergD D, Lopez del PuertoC, HumphreyD (2007). Relating cost growth from the initial estimate to design fee for transportation projects.Journal of Construction Engineering and Management, 133(6): 404–408

[25] GransbergD D, MolenaarK R (2008). Does design-build project delivery affect the future of the public engineer? Transportation Research Record:Journal of the Transportation Research Board, 2081: 3–8

[26] HarpD W (1991). Historical background—Low bid concept. Transportation Research Circular, 386: 43–47

[27] HigbeeJ B (2004). Geotechnical issues with large design—Build highway projects.Transportation Research Record: Journal of the Transportation Research Board, 1868: 147–153

[28] HokeT (2012). A question of ethics: The ethical aspects of competition.Civil Engineering Magazine Archive, 82(10): 44–45

[29] HunterK D, GransbergD D (2014). Comparative analysis of two models for estimating highway project design costs. Transportation Research Board Annual Meeting 2014, National Academies, Compendium, Paper 14-3967

[30] JanacekJ (2006). Construction costs going through the roof? 2006 Public Works Officer Institute, Presentation, Los Angeles

[31] KirbyJ G, FurryD A, HicksD K (1988). Improvements in design review management.Journal of Construction Engineering and Management, 114(1): 69–82

[32] KraftE, ParkH, GransbergD D (2014). Performance bond: Cost benefit, and paradox for public highway agencies. Transportation Research Record: Journal of the Transportation Research Board, 2408: 3–9

[33] LenzR (2010). TxDOT’s alternate pavement design and bid policy. Texas Asphalt Paving Association Annual Meeting, Presentation, Austin

[34] Lopez del PuertoC, CraigieE, GransbergD D (2016). Construction cost certainty versus construction savings: Which is the correct approach? In: Proceedings of Transportation Research Board 95th Annual Meeting. Washington,16-2754

[35] Lopez del PuertoC, GransbergD D, ShaneJ S (2008). Comparative analysis of owner goals for design/build projects.Journal of Management Engineering, 24(1): 32–29

[36] MendezV (2010). Every day counts: Innovation initiative. Federal Highway Administration, Washington

[37] MinchinR E, ChiniA P (2016). Alternative Contracting Research. Final Research Report, FDOT Contract Number BDV31-977-40, Florida DOT, Tallahassee

[38] MolenaarK R, GransbergD D (2001). Design-builder selection for small highway projects.Journal of Management Engineering, 17(4): 214–223

[39] MorgenE T (1986). Claims by the federal government against its A/E—Guidelines for improving practice. Office for Professional Liability, Research of Victor O. Schinner, Washington

[40] OdeckJ (2004). Cost overruns in road construction—What are their sizes and determinants?Transport Policy, 11(1): 43–53

[41] Oklahoma Turnpike Authority (OTA) (1999). Standards and Specifications, Oklahoma City

[42] Rueda-BenavidesJ A, GransbergD D (2014). Indefinite delivery/indefinite quantity contracting: A case study analysis.Transportation Research Record, 2408: 17–25

[43] ScheepbouwerE, HumphriesA B (2011). Transition in adopting project delivery method with early contractor involvement.Transportation Research Record, 2228: 44–50

[44] ScottS, MolenaarK R, GransbergD D, SmithN C (2006). Best Value Procurement for Highway Construction Projects. NCHRP Report Project10-61

[45] ShaneJ S, GransbergD D, MolenaarK R, GladkeJ R (2006). Legal challenge to a best-value procurement system.Leadership and Management in Engineering, 6(1): 20–25

[46] SongerA D, IbbsC W, NapierT R (1994). Process model for public sector design-build planning. Journal of Construction Engineering and Management, 120(4): 857–874

[47] SzeligaK R (2005). Conflict and intrigue in government contracts: A guide to identifying and mitigating organizational conflicts of interest.Public Contract Law Journal, 35(4): 639–674

[48] TigheS (2001). Guidelines for probabilistic pavement life cycle cost analysis.Transportation Research Record, 1769: 28–38

[49] TranD, MolenaarK R, GransbergD D (2016). Implementing best-value procurement for design-bid-build highway projects. Transportation Research Record: Journal of the Transportation Research Board, 2573: 26–33

[50] Van de RijtJ, SantemaS (2012). The best value approach in the Netherlands: A reflection on past, present and future.Journal for the Advancement of Performance Information and Value, 4(2): 147–160

[51] WestN, GransbergD D, McMinimeeJ (2012). Effective tools for projects delivered using the construction manager/general contractor method.Transportation Research Record, 2268: 33–39

[52] YuW, WangK (2012). Best value or lowest bid? A quantitative perspective. Journal of Construction Engineering and Management, 138(1): 128–134

[53] YuanJ, ZengA, SkibniewskiM J, LiQ (2009). Selection of performance objectives and key performance indicators in public-private partnership projects to achieve value for money.Construction Management and Economics, 27(3): 253–270

RIGHTS & PERMISSIONS

2017 The Author (s) 2017. Published by Higher Education Press. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0)