Trying to Buy Smarter
Pennsylvania is moving its big construction contracts away from the low-bid model.
There's long been a reliable way to win government construction contracts in Pennsylvania: lowball it. Procurement rules there have virtually guaranteed that construction jobs go to the lowest bidder.
That is changing this summer. Pennsylvania is switching to a model called "best value," which takes into consideration a contractor's qualifications, performance record and other factors--not just price. That is because procurement officials calculate that one in five state construction projects result in so-called "change orders." Such mid- course corrections, although not always the fault of the contractor, drive up the final cost of a project. Pennsylvania's change-order rate was four times the industry standard. "Our experience with low-bid contracting has been that the bid never represents the final cost of the project," says James Dillon, the state universities' vice chancellor for administration and finance.
A dozen states have begun experimenting with best-value contracting, as has the federal government, which now bids out the majority of its construction work this way. In Pennsylvania, the new system will apply only to projects worth more than $5 million. As bids come in, price will account for 60 percent of the bidders' final score, with the bidders' experience, management team, safety record and other factors worth 30 percent and willingness to work with minority- and women- owned businesses worth 10 percent.
"If you're renovating your kitchen," says James Creedon, deputy secretary of general services, "you want to know not only price but whether a contractor has done the work before, who does the work and what's their track record. Sometimes you might not take the lowest price."
Critics are concerned that Pennsylvania's version of best value is secretive and could invite corruption. A five-member panel--purchasing officials and agency experts--will score bids behind closed doors. Losing bidders won't know why they lost until after the fact, when they can request a private debriefing with the Department of General Services. "They have absolute discretion to award contracts to whomever they choose," says Roy Powell, a lawyer who represents a contractor that has lodged a formal protest of the new rules. "If they're worried about rogue contractors, there are ways to deal with them within the existing system."
Procurement officials note that there are safeguards to prevent back- door favoritism. For example, political appointees won't be allowed on the evaluating committee, and members will have to sign conflict-of- interest statements. "It will be extremely difficult to say make sure so and so gets a bid," Creedon says. John Wanner, of the General Contractors Association of Pennsylvania, agrees. "Price still counts for 60 percent," he says. "So if your intent is to direct projects to your buddy, this is not a particularly good way to do that."