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I also like this analysis of general high infrastructure costs in America: https://pedestrianobservations.com/2019/03/03/why-american-costs-are-so-high-work-in-

I also like this analysis of general high infrastructure costs in America: https://pedestrianobservations.com/2019/03/03/why-american-costs-are-so-high-work-in-progress/ https://pedestrianobservations.com/2019/03/03/why-american-c... This tidbit is particularly infuriating: > In California, the problem is, in two words, Tutor-Perini. This contractor underbids and then does shoddy work requiring change orders, litigated to the maximum. Ron Tutor’s dishonesty is well-known and goes back decades: in 1992 Los Angeles’s then-mayor Tom Bradley called him the change order king. And yet, he keeps getting contracts, all of which have large cost overruns, going over the amount the state or city would have paid had it awarded the contract to the second lowest bidder. In San Francisco, cost overrun battles involving Tutor-Perini led to a 40% cost overrun. This process repeated for high-speed rail: Tutor submitted lowest but technically worst bid, got the contract as price was weighted too high, and then demanded expensive changes. It speaks to California’s poor oversight of contractors that Tutor remains a contractor in good standing and has not been prosecuted for fraud. Edit: oh, wait, just realized this is from the same blog, so the same body of work.

i_am_proteus 7y ago
Could anyone comment on whether or not awarding contacts to the second-lowest bidder (whose bid meets technical merit) has ever been practiced by governments? Or other alternative auction strategies.
- markus92 7y ago
  I got no source for this, but I've heard about this happening before on European construction projects (lowest 2 bidders being excluded for being too low).
  - Someone 7y ago
    Blindly dismissing the lowest bid would get you in court and lose in no time. Dismissing a very low bid must be dismissed, giving good arguments that the bid is not realistic is something completely else.
    - ComradeTaco 7y ago
      Generally bid that is not "technically complete" .i.e. does not demonstrate a real ability to undertake and complete the project can be rejected. There is some engineering discretion to this.
    - markus92 7y ago
      The argument given was that it was an unrealistic bid as it was too cheap to be able to be completed. It all depends on how you set up the tender.
- jcranmer 7y ago
  Most competent contracting doesn't go for lowest-cost bidder. Rather, bids are generally scored for some metric, and a good contracting agency should additionally be evaluating the contractors to figure out if they actually are capable of performing their bid without cost overruns. One of the contentions of Alon Levy [author of the blog in question] is that the primary reason for inexcusably high costs in the US is the hollowing out of agencies to the point that they can't do this sort of evaluation anymore.
  - Gibbon1 7y ago
    I've heard repeatedly that California in particular does not have enough engineering staff to manage contractors for state projects. That's a result of the US's obsession with neoliberal economics which sees those people are a waste of money and an impediment to getting things done. My dad worked for the government doing management and oversight. It takes a lot of work to evaluate and reject bad low ball bids. Even more work to create bids that you can hold contractors to and to weed out shysters.
    - magduf 7y ago
      If you have to put this much effort into managing contractors and avoiding shysters, at what point does it make more sense to just not use contractors at all, and do it yourself? This reminds me of when I used to own homes. It was generally easier to just do some home-repair job myself than deal with the hassles of finding a good contractor, and then having to deal with more hassles if the contractor didn't do it right.
      - kelnos 7y ago
        If sufficient regulatory oversight is politically infeasible, I would think that the government directly employing construction staff would be politically impossible.
      - ComradeTaco 7y ago
        Most large infrastructure projects have a large number of trades for a short amount of time Contractors have people,experience and equipment that would be cost prohibitive to maintain full time but can be relatively inexpensive when hired for just their needed duration. The kinds of work that you describe fall more under maintenance and basic repair, which most public agencies have full time employees that perform that roles. For instance the NYC subway has signaling workers for a constant stream of signal work, track workers to maintain track and sign workers for endless lifecycle replacement of signs. New construction work, like tunnels and stations is done by contractors.
mc32 7y ago
Do what they used to do in the old days. You pay 50% now and the rest in X decades, so long as it meets some minimums set in advance. This would eliminate under bidding. It might put financially weak vendors sag a disadvantage but them’s the breaks.
- jlmorton 7y ago
  Another way to avoid this is with a Design-Build-Operate contract. The transit agency is on the hook for the agreed construction cost, and for ridership estimates and minimums. If ridership does not develop, then the contracting agency is responsible for making the operator whole. The contractor is on the hook for the design, build and operation of the system for N years. The worst possible way to design a large, complex system is the way most US transit agencies do it: the agency operates as the prime contractor, and it issues an initial design subcontractor, which submits an alignment and maybe a 20% design. Then the agency issues bids for each segment, and the new contractor completes the design.
  - magduf 7y ago
    >The transit agency is on the hook for the agreed construction cost, and for ridership estimates and minimums. If ridership does not develop, then the contracting agency is responsible for making the operator whole. > The contractor is on the hook for the design, build and operation of the system for N years. This won't work: the contractor will just declare bankruptcy when things don't work out that great. But the owners will have bags full of money by then.
    - adrianN 7y ago
      Make suitable insurance for the case of bankruptcy a prerequisite then.
      - rstuart4133 7y ago
        From https://www.abc.net.au/radionational/programs/backgroundbriefing/8400368 https://www.abc.net.au/radionational/programs/backgroundbrie... > In the early 2000s after the collapse of insurance giant HIH, NSW and Victoria abolished some classes of builders' warranty insurance. The governments said it was to try and stabilise the industry and ensure its viability. > > So if you're in a new apartment building of more than three storeys, instead of making a claim with an insurer, it's now you versus the builder. You've still got a warranty, but you may need a lawyer. The rational was builders of that size and above would avoid being put out of business by insurance claims. It had been true up until that point. But from https://www.abc.net.au/news/8403744 https://www.abc.net.au/news/8403744 : > Then, in February this year, almost three years after the owners commenced legal action, the developer, Payce Properties, announced that it was being placed into administration. > > The parent company, Payce Consolidated, is still trading, and has plans to roll out more than 7,000 more apartments in the next five years. Surprise, surprise, there has been a rash of shoddily built large buildings with arguments about was footing the bill every since.
epanchin 7y ago
Tender price submissions should be weighted by previous estimates vs reality.
- BeeOnRope 7y ago
  Seems like that would also be subject to gaming.
  - 0xffff2 7y ago
    Every system is subject to gaming. The current system obviously is. The relevant question is "is the proposed system better than the old system?", not "can the proposed system be gamed?".
    - kelnos 7y ago
      Thank you for this. I feel like a lot of people like to shoot down new ideas by coming up with a list of flaws, without considering whether the new idea -- even with the flaws -- is still better than the status quo.
- munk-a 7y ago
  This may work for obvious bad actors but would probably penalize genuine new market entrants.
consp 7y ago
This is basically the problem with IT Contracts in the Netherlands at the moment (though it is getting better due to proper oversight). Lowest bid winners with no technical knowledge on the proposal side to include the technical challenges in the process. Resulting in expensive shoddy work projects which always overrun in cost due to several factors (design change, minimal/poor work, non extensible etc). The problem is that the overruns are by design as they know there are little to no penalties involved which keeps the companies in the loop for far more than the original sum.
fzeroracer 7y ago
Generally speaking this remains true in government contracting as well. Back when I used to work in that sphere the government always went for the lowest bidder. This is usually billed as a way for the government to be fiscally responsible but usually the result is that they get back poor software with the contractor embedding themselves deep into the design and a huge pricetag on actually fixing the damn thing. That among many other issues is where I realized that the way competition works in this scenario simply doesn't work when the incentive is to keep yourself and your company on the government's payroll rather than write quality software.
kazinator 7y ago
Ah, but in what way is the under-bidding contractor the problem? Who gave the contract to the contractor? The problem is the process of going for the lowest bidder, or one of the lowest. Moreover, in this case, incredibly, going for the same low bidder with the knowledge of all the history of the bids from that contractor being unrealistic lowballs and requiring costly change requests. Don't blame the contractor. They get the job and make their money. From their angle, they are successful. They know that the city is aiming for the bottom and so they adjust their bidding accordingly. If they didn't submit a low bid, the job would go to someone else. True story: some decades ago. My father was bidding on a contract with the GVRD (Greater Vancouver Regional District). Something in the tens of thousands of dollars, probably. He was out-bid by $5. That was all they cared about. So he pulled out a $5 bill and plonked it on the table. If you ever drive in Vancouver, Canada and wonder how the roads can be so shitty, remember that story.
- jobu 7y ago
  > The problem is the process of going for the lowest bidder, or one of the lowest. As a homeowner I usually try to get three bids on a project and then take the middle. In my experience the lowest bidder usually doesn't understand what you want or has no idea what they're doing.
- tshaddox 7y ago
  > The problem is the process of going for the lowest bidder, or one of the lowest. The phrase "lowest bidder" gets a lot of mileage in jokes and social commentary, but I'm pretty sure that the original idea is "the lowest bidder who fulfills the requirements of the contract." In that context it's a pretty obvious process, not something to be feared or mocked. The contract should be "build X to exactly these specifications," and of course the contract should be given to the lowest bidder who can reasonably be expected to fulfill the contract. In this case, the contractor is clearly unable (or unwilling, or unincentivized) to fulfill the contract, and thus the contractor's bid should be irrelevant. The contractor should not even be considered. After all, if it's fine to not fulfill the terms of the contract, then I'm confident I could submit an even lower bid.
- kelnos 7y ago
usr1106 7y ago
The hot thing in Finland at the moment is the alliance project model. I'm not an experienced expert in the field so I cannot explain it to detail. The newspaper explanation is that the buyer (city council or similar) form a common organisation and share risks and costs. I must admit I was sceptical when it first came up and assumed that either they end up in quarrel or they will find common excuses for the 3-fold costs in the end. But so far I have been wrong. A road tunnel was completed about in time and only exceeding the budget by a relative small percentage (which they explained with added requirements during project lifetime). A tramway project is not complete yet, but so far there have heen only good news about the progress and budget, which is not typical for such a project. This is the marketing explanation by the contractor: https://www.yitgroup.com/en/media/why-is-the-alliance-contracting-model-considered-the-best-approach-to-delivering-the-tampere-tramline-project https://www.yitgroup.com/en/media/why-is-the-alliance-contra...

i_am_proteus 7y ago

Could anyone comment on whether or not awarding contacts to the second-lowest bidder (whose bid meets technical merit) has ever been practiced by governments? Or other alternative auction strategies.

markus92 7y ago
I got no source for this, but I've heard about this happening before on European construction projects (lowest 2 bidders being excluded for being too low).
- Someone 7y ago
  Blindly dismissing the lowest bid would get you in court and lose in no time. Dismissing a very low bid must be dismissed, giving good arguments that the bid is not realistic is something completely else.
  - ComradeTaco 7y ago
    Generally bid that is not "technically complete" .i.e. does not demonstrate a real ability to undertake and complete the project can be rejected. There is some engineering discretion to this.
  - markus92 7y ago
    The argument given was that it was an unrealistic bid as it was too cheap to be able to be completed. It all depends on how you set up the tender.
jcranmer 7y ago
Most competent contracting doesn't go for lowest-cost bidder. Rather, bids are generally scored for some metric, and a good contracting agency should additionally be evaluating the contractors to figure out if they actually are capable of performing their bid without cost overruns. One of the contentions of Alon Levy [author of the blog in question] is that the primary reason for inexcusably high costs in the US is the hollowing out of agencies to the point that they can't do this sort of evaluation anymore.
- Gibbon1 7y ago
  I've heard repeatedly that California in particular does not have enough engineering staff to manage contractors for state projects. That's a result of the US's obsession with neoliberal economics which sees those people are a waste of money and an impediment to getting things done. My dad worked for the government doing management and oversight. It takes a lot of work to evaluate and reject bad low ball bids. Even more work to create bids that you can hold contractors to and to weed out shysters.
  - magduf 7y ago
    If you have to put this much effort into managing contractors and avoiding shysters, at what point does it make more sense to just not use contractors at all, and do it yourself? This reminds me of when I used to own homes. It was generally easier to just do some home-repair job myself than deal with the hassles of finding a good contractor, and then having to deal with more hassles if the contractor didn't do it right.
    - kelnos 7y ago
      If sufficient regulatory oversight is politically infeasible, I would think that the government directly employing construction staff would be politically impossible.
    - ComradeTaco 7y ago
      Most large infrastructure projects have a large number of trades for a short amount of time Contractors have people,experience and equipment that would be cost prohibitive to maintain full time but can be relatively inexpensive when hired for just their needed duration. The kinds of work that you describe fall more under maintenance and basic repair, which most public agencies have full time employees that perform that roles. For instance the NYC subway has signaling workers for a constant stream of signal work, track workers to maintain track and sign workers for endless lifecycle replacement of signs. New construction work, like tunnels and stations is done by contractors.

mc32 7y ago

Do what they used to do in the old days. You pay 50% now and the rest in X decades, so long as it meets some minimums set in advance. This would eliminate under bidding. It might put financially weak vendors sag a disadvantage but them’s the breaks.

jlmorton 7y ago
Another way to avoid this is with a Design-Build-Operate contract. The transit agency is on the hook for the agreed construction cost, and for ridership estimates and minimums. If ridership does not develop, then the contracting agency is responsible for making the operator whole. The contractor is on the hook for the design, build and operation of the system for N years. The worst possible way to design a large, complex system is the way most US transit agencies do it: the agency operates as the prime contractor, and it issues an initial design subcontractor, which submits an alignment and maybe a 20% design. Then the agency issues bids for each segment, and the new contractor completes the design.
- magduf 7y ago
  >The transit agency is on the hook for the agreed construction cost, and for ridership estimates and minimums. If ridership does not develop, then the contracting agency is responsible for making the operator whole. > The contractor is on the hook for the design, build and operation of the system for N years. This won't work: the contractor will just declare bankruptcy when things don't work out that great. But the owners will have bags full of money by then.
  - adrianN 7y ago
    Make suitable insurance for the case of bankruptcy a prerequisite then.
    - rstuart4133 7y ago
      From https://www.abc.net.au/radionational/programs/backgroundbriefing/8400368 https://www.abc.net.au/radionational/programs/backgroundbrie... > In the early 2000s after the collapse of insurance giant HIH, NSW and Victoria abolished some classes of builders' warranty insurance. The governments said it was to try and stabilise the industry and ensure its viability. > > So if you're in a new apartment building of more than three storeys, instead of making a claim with an insurer, it's now you versus the builder. You've still got a warranty, but you may need a lawyer. The rational was builders of that size and above would avoid being put out of business by insurance claims. It had been true up until that point. But from https://www.abc.net.au/news/8403744 https://www.abc.net.au/news/8403744 : > Then, in February this year, almost three years after the owners commenced legal action, the developer, Payce Properties, announced that it was being placed into administration. > > The parent company, Payce Consolidated, is still trading, and has plans to roll out more than 7,000 more apartments in the next five years. Surprise, surprise, there has been a rash of shoddily built large buildings with arguments about was footing the bill every since.

epanchin 7y ago

Tender price submissions should be weighted by previous estimates vs reality.

BeeOnRope 7y ago
Seems like that would also be subject to gaming.
- 0xffff2 7y ago
  Every system is subject to gaming. The current system obviously is. The relevant question is "is the proposed system better than the old system?", not "can the proposed system be gamed?".
  - kelnos 7y ago
    Thank you for this. I feel like a lot of people like to shoot down new ideas by coming up with a list of flaws, without considering whether the new idea -- even with the flaws -- is still better than the status quo.
munk-a 7y ago
This may work for obvious bad actors but would probably penalize genuine new market entrants.

consp 7y ago

This is basically the problem with IT Contracts in the Netherlands at the moment (though it is getting better due to proper oversight). Lowest bid winners with no technical knowledge on the proposal side to include the technical challenges in the process. Resulting in expensive shoddy work projects which always overrun in cost due to several factors (design change, minimal/poor work, non extensible etc). The problem is that the overruns are by design as they know there are little to no penalties involved which keeps the companies in the loop for far more than the original sum.

fzeroracer 7y ago

Generally speaking this remains true in government contracting as well. Back when I used to work in that sphere the government always went for the lowest bidder. This is usually billed as a way for the government to be fiscally responsible but usually the result is that they get back poor software with the contractor embedding themselves deep into the design and a huge pricetag on actually fixing the damn thing. That among many other issues is where I realized that the way competition works in this scenario simply doesn't work when the incentive is to keep yourself and your company on the government's payroll rather than write quality software.

kazinator 7y ago

Ah, but in what way is the under-bidding contractor the problem? Who gave the contract to the contractor? The problem is the process of going for the lowest bidder, or one of the lowest. Moreover, in this case, incredibly, going for the same low bidder with the knowledge of all the history of the bids from that contractor being unrealistic lowballs and requiring costly change requests. Don't blame the contractor. They get the job and make their money. From their angle, they are successful. They know that the city is aiming for the bottom and so they adjust their bidding accordingly. If they didn't submit a low bid, the job would go to someone else. True story: some decades ago. My father was bidding on a contract with the GVRD (Greater Vancouver Regional District). Something in the tens of thousands of dollars, probably. He was out-bid by $5. That was all they cared about. So he pulled out a $5 bill and plonked it on the table. If you ever drive in Vancouver, Canada and wonder how the roads can be so shitty, remember that story.

jobu 7y ago
> The problem is the process of going for the lowest bidder, or one of the lowest. As a homeowner I usually try to get three bids on a project and then take the middle. In my experience the lowest bidder usually doesn't understand what you want or has no idea what they're doing.
tshaddox 7y ago
> The problem is the process of going for the lowest bidder, or one of the lowest. The phrase "lowest bidder" gets a lot of mileage in jokes and social commentary, but I'm pretty sure that the original idea is "the lowest bidder who fulfills the requirements of the contract." In that context it's a pretty obvious process, not something to be feared or mocked. The contract should be "build X to exactly these specifications," and of course the contract should be given to the lowest bidder who can reasonably be expected to fulfill the contract. In this case, the contractor is clearly unable (or unwilling, or unincentivized) to fulfill the contract, and thus the contractor's bid should be irrelevant. The contractor should not even be considered. After all, if it's fine to not fulfill the terms of the contract, then I'm confident I could submit an even lower bid.
kelnos 7y ago

usr1106 7y ago

The hot thing in Finland at the moment is the alliance project model. I'm not an experienced expert in the field so I cannot explain it to detail. The newspaper explanation is that the buyer (city council or similar) form a common organisation and share risks and costs. I must admit I was sceptical when it first came up and assumed that either they end up in quarrel or they will find common excuses for the 3-fold costs in the end. But so far I have been wrong. A road tunnel was completed about in time and only exceeding the budget by a relative small percentage (which they explained with added requirements during project lifetime). A tramway project is not complete yet, but so far there have heen only good news about the progress and budget, which is not typical for such a project. This is the marketing explanation by the contractor: https://www.yitgroup.com/en/media/why-is-the-alliance-contracting-model-considered-the-best-approach-to-delivering-the-tampere-tramline-project https://www.yitgroup.com/en/media/why-is-the-alliance-contra...