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, bestvalue 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.

Critical Comparison of Progressive Design-Build and Construction Manager/General Contractor Project Delivery Methods

“…The traditional DBB procurement culture has resulted in an environment in which the public owner knows the contractors’ bid prices before having to contractually commit to a specific constructor. While awarding to the lowest bid does not guarantee that the owner will receive the final lowest price, it does provide a measure of confidence that the owner is not over-paying for the project ( 3 ), as well as an objective justification for the award to the owner’s stakeholders. A low bid award also eliminates the requirement for a sophisticated understanding of the current market conditions in the same manner as a construction contractor and allows the owner to use historical rather than real-time cost data for its estimates, trusting in the competitive process to furnish a fair and reasonable bottom-line project cost.…”

“…One of the rarely used mechanisms for aligning the scope and budget is making changes to the initial project risk profile. The highway industry has a long history of risk-shedding regardless of project delivery method ( 3 , 4 , 11 , 12 ). This is mainly because in DBB and traditional DB, the project price is fixed at the time of the contract award.…”

“…The use of alternative contracting methods (ACMs) for highway construction is no longer a novel event in the nation with few, if any, state department of transportations (DOTs) not having some form of enabling legislation to use design-build (DB), construction manager/general contractor (CMGC), public private partnerships (P3), alternative technical concepts (ATC), indefinite delivery/indefinite quantity (IDIQ), or one of the many variations that have evolved in the past decade ( 1 , 2 ). Each alternative contracting method (ACM) involves increasing the degree of integration and collaboration between the owner, the engineer/design consultant, and the construction contractor ( 3 ).…”

Digital Building Twins and Blockchain for Performance-Based (Smart) Contracts

“…The different set of stakeholders, decision-makers, and values in each phase creates displaced agency -also called "broken agency" -where involved parties will engage in self-interested behavior and pass costs and risk off to others in the supply chain in subsequent life cycle phases [9]. Furthermore, the prevalent low-bid culture in construction also favors low-cost solutions at tendering stage over solutions that minimize costs over the whole building life cycle [10].…”

Rethinking the tendering frameworks of construction contractors in the context of a soft systems methodology approach

“…Given the need for contractors to tender for work, wherein the lowest price commonly wins (Scheepbouwer et al, 2017), the re-structured TF model offers an alternative insight into contractors' approaches to corporate governance requirements while recognizing the important role of the human aspect (Sherman et al, 1996).…”