Vol. 9 No. 4		April 1990

It is as entrenched in the American system as the flag on the Fourth of July. It is the notion that competitive bidding for public works is fundamental to the common good. The time-tested rationale? Competitive bidding promotes economy in the expenditure of public funds, and it precludes patronage in the distribution of the public's largesse.

These are lofty goals, and for many years competitive bidding served them reasonably well. But things change. Over time, even the most reliable of instruments suffer the effects of use and abuse. They require fine tuning. So it may be with competitive bidding as an instrument of public policy.

Given our Puritan heritage, there is something that seems inherently right in the principle of selecting the "lowest responsible bidder." It rewards innovation and industriousness; it punishes slothfulness and waste. But, when principle gives way to accommodation, what should be inherently right can easily become inherently wrong.

In today's increasingly complex and litigious construction environment, the "lowest responsible bidder" need only produce evidence of bonding to qualify as "responsible." Bidding a job is expensive, and none but the foolhardy would undertake the challenge without fully intending to come up with the lowest bid. But there are limits to innovation in the means and methods of construction, and industriousness can only be pushed so far. There are far fewer limitations when it comes to manipulating an adversarial environment.

Perhaps this explains why today's work force is seldom assembled, as it once was, by a general contractor with employees skilled in core trades. It is more likely to be assembled by a broker/builder, whose staff is skilled in the finer points of construction law. As projects have grown in size and complexity, and as pressures of time and cost have increased, so, too, have the inevitable errors, omissions, and ambiguities in the plans and specifications. These are the grist which feed the mill of construction claims. And, altogether too often, they are all that stand between the lowest bidder and financial ruin. When they do, the system fails.

Under intense political and judicial pressure to expand its overcrowded detention facilities, an urban California county contracted for the design and fast-track construction of a new county jail, the cost of which was originally estimated at $67 million. The project was designed under severe constraints of time during a period in which the county operated with a public works department whose staff had been decimated by budget cuts. The contract was awarded to the lowest bidder.

The contractor's eventual claim for changes, extras, delays, and the cumulative impact of all of them totaled $24 million. The county cross-complained against the architect and the construction manager, each of whom subsequently cross-complained against the other. Three years later, after a combined expenditure of more than $3.3 million in defense costs, the contractor's claim was settled for $3.5 million.

Was this a typical public works project, or was it simply an aberration? In California, at least, it is appallingly common. A civic center, a light rail transit system, and a major convention facility, all in the same county, appear to be heading toward similar, disastrous outcomes. Something seems to be fundamentally wrong in this bellwether state.

Perhaps what is wrong is a system which requires the award of $67 million contracts to the lowest bondable bidder--with no consideration allowed for technical expertise, management skills, reputation, or even experience on similar projects under similar circumstances. Perhaps it is a system which is virtually guaranteed to produce conflict in an uncertain and unpredictable environment best served by cooperation.

If conflict is the only way to make the system work, contractors can be expected to gear up for conflict. In fact, they have done so. There is no penalty for pursuing it, and there is little reward for mitigating it. The next job is not going to go to the contractor whose previous project was flawless. It will go, once again, to the lowest bidder--any propensity to bid low and sue later notwithstanding.

For their part, architects and engineers have been forced into a defensive posture. They are spending enormous sums in the review and negotiation of contracts drafted by owners intent on transferring risks which neither architects, nor their consultants have any hope of controlling. Some have taken the position that their fee for any large project to be let for bid must include provision for the expenditure of their (not insubstantial) deductible. They consider the expenditure inevitable.

Who would set out to design a system as counterproductive as this one has become? The public interest is not well served, and all parties suffer enormous and unnecessary costs. Insurance may be a short term solution, but it is not likely to remain so over time. Insurance functions reasonably well where the risk of catastrophic loss is fortuitous. It does not work well where the risk is entirely predictable.

Fundamental problems require systemic changes. In a pluralistic society, such changes can be extraordinarily difficult to bring about. A critical mass of crisis is usually required. Do we have such a crisis? It appears we may. Perhaps it is time to seek to redefine the legal meaning of the word "responsible."

We might, for example, be able to come up with legislative initiatives which would empower public entities to balance qualitative factors against cost in the selection of contractors seeking public work. A model exists in Florida, where the Department of Transportation has been experimenting with an approach which requires short-listing based strictly on qualifications, followed by selection from the short list based on price. There are undoubtedly other alternatives. Some might be developed and implemented on an experimental basis if only the legislative authority for doing so were in place.

Who would oppose such initiatives? General contractors have done so in the past. They have expended enormous energies and resources to accommodate the present system, and changing the rules would require unsettling adjustments.

Are the changes worth the effort? Doing nothing is the least viable option in a crisis environment. Architects and engineers can continue to respond with defensive mechanisms, but defensive solutions tend to exacerbate conflict. They are also easily challenged. It may be far better in the long run to strengthen the building process by pursuing changes aimed squarely at fundamental problems. It is at least worth a try.