8 ms·

Misleading title (in the current political environment) because the gouging is done by contractors who've figured out how to exploit an antiquated (lowest-bidde

Misleading title (in the current political environment) because the gouging is done by contractors who've figured out how to exploit an antiquated (lowest-bidder wins) system. The article is not suggesting that we have "too much" mass transit, but that we pay too much for what we get, and this is undeniably true. The gouging doesn't stop once the infrastructure is built. U.S. transit is also expensive when delivered (it costs over $100 per person round-trip to go from New York to Harrisburg, PA; for two people, it's cheaper to drive). Finally, we pay again through exorbitant real estate prices because our transport infrastructure, in this country, is so poor.

Anechoic 14y ago
the gouging is done by contractors who've figured out how to exploit an antiquated (lowest-bidder wins) system. As someone who works on transportation projects, I find this to be incredibly unfair. Yes, there are a few shady contractors out there, but there are a lot of things that can happen during design and construction that can increase costs through no fault of our own. For example: change orders. A project gets designed and approved, the contractor gets his contract and starts digging. Two weeks into excavation, the project engineer tells the contractor "oh, that tunnel needs to be built 20 feet deeper and moved 15 feet to the south." Why? It could be for any number of reasons, maybe construction uncovered a gas line that couldn't be moved, maybe some politician wanted the line moved further (or closer) to a friend's business, etc. There are also the inevitable lawsuits, environmental issues and so on. One of my big beefs, and one of the factors that IME increases costs for architectural/engineering consultants like me are the hoops we have to jump through to demonstrate that we're not ripping off taxpayers. There are all sorts of audit requirements (including the dreaded DCAA audit), insurance requirements and so on that increase our costs and so we have pass on those costs to the taxpayers. Recently we had an issue when negotiating a contract for transit design project - my firm's is relatively new, and we don't have a revenue history with which to develop audited rates, so we intentionally set out rates low in an attempt to convince accountants that our lack of audited rates wouldn't be a problem. We spent a munch arguing with the prime's accountants who wanted our audited rates to we could demonstrate that our profit on the job wouldn't exceed 10% (they were obsessed with the 10% profit number), depsite the fact that our rates were 40-50% lower than other similar contractors. We had to get someone from the Federal government to step in and tell the prime that our rates were fine as-is. Insurance requirements are the other big issue. General liability isn't so bad, but E&O can be costly for big engineering projects, even if you're exposure is low. However many projects have a "one size fits all" with respect to insurance requirements and require everyone to carry $10+ million in general liability and $5+ million in E&O. If you're the general contractor responsible for digging up streets which can have all sorts or negative effects, that's probably reasonable. If you're the graphic designer responsible for creating the signs for the project, that's probably a little excessive.
- jbooth 14y ago
  Yeah, but the issue is that due to the lowest-bid system, the govt is guaranteed to get a contract that doesn't properly plan for contingencies and most likely leads to disaster. It's not that all or most contractors are bad, it's that the least honest tends to win the bid.
- rz2k 14y ago
  I think you would enjoy reading the article that specifically addresses the issue of lowest-bidder leading to rights of contractors, leading to ever more explicit rules and difficult hoops to jump through. Considering what is behind this article, and its audience, you might even feel heartened about prospects for some progress on the conditions.
- deveac 14y ago
  You cite change orders in your defense: >For example: change orders. A project gets designed and approved, the contractor gets his contract and starts digging. Two weeks into excavation, the project engineer tells the contractor "oh, that tunnel needs to be built 20 feet deeper and moved 15 feet to the south." But I think it's worth pointing out that change orders are probably THE primary mechanism of gouging used by contractors in 'lowest-bid-wins' scenarios, as you should know. What often happens is that contractors lowball, knowing that they will make up the margin on the change orders which are not competitively bid. A well designed RFP can mitigate this somewhat by requiring menu pricing on add/deducts for the most common in-field changes, but it can't account for everything, and bidding contractors look for open ended RFPs and exploit them. There may only be a few 'shady contractors' out there as you say, but a)low-bid systems bring them to the top of the short list, and b)I'd wager almost every 'reputable' contractor's change order margins are higher than for the exact same work that was competed in a public RFP. Just my thoughts on that. Raised an eyebrow since change orders are the primary mechanism for inflating post-award margins. Edit: Also want to point out that my use of the word 'gouging' is kind of a loaded term: >But I think it's worth pointing out that change orders are probably THE primary mechanism of gouging used by contractors in 'lowest-bid-wins' scenarios Are these contractors gouging? They are not doing anything illegal, but it can fall into questionably ethical territory. But from many contractor's point of view, they are stuck bidding on a system that is designed somewhat unethically. From a systems standpoint, when the only factor in winning a bid is lowest cost on the delivery of a product that will unquestionably have change orders, you get a scenario where the following is actually happening. 1)Firms provide goods and service for margin 'a+b' which is averaged over the life of the project 2)Only margin 'a' is competed 3)Margin 'b' is projected but undefined and can be adjusted by the Firm after the award based on margin 'a' Is it ethical to even ask a Firm to submit a bid based on margin 'a' set equal to margin 'b' knowing that the system is designed to produce competing bids distributing the total product margin unevenly between the two variables, weighting 'b' much more heavily and minimizing 'a' in order to win the bid and work at all? I don't think so, and what happens is you get a system that is almost explicitly designed to inject increased total project costs and increased variability. I think that under this system, it's an incredibly gray area on the how ethical increased post-award margins on change orders are. Just the fact that an increase occurs does not strike me as unethical, but there is absolutely zero doubt that some of the margin increases are absolutely unethical and drive the total product margin up well past what it would have been if bid under a possibly more efficient system (throw out high and low bids for example). If gouging is going to happen, it's going to happen on a change order, but it's not so black and white.
jbooth 14y ago
Yup. 2 anecdotes from a 3-year stint in town government: 1) Built a new town hall because they were double-desking at the old one. Lowest bid wins, realistic and competent bids lose. They lay the sidewalk outside while it's below freezing out. Official in town who's managing the project shows up, "What the hell are you doing! You can't lay concrete while it's freezing." "This is the only way we can do it on the budget, sue us if you don't like it." Cracked, shitty sidewalk, would be cheaper to rebuild it than sue. Shitty sidewalk persists. Built a school, too. Lowest bid. HVAC system is so noisy that several classrooms are unusable, and the floors are all fucked up through half the school. $1.5 million in legal fees later, we settle for $500k in damages, not enough money to fix the defects.
- larrys 14y ago
  "Lowest bid wins, realistic and competent bids lose." But what would the best practice be to determine that the realistic and competent bids are objectively evaluated? How do you solve that problem in the real world (and not even talking about any other conflicts or issues)? Employ consultants or? My anecdote would relate to government bidding for some mfg. projects. It was very clear that the people evaluating the bids (at least in the small area I was involved with) took into account the reputation of the bidder in awarding the contracts.
  - jbooth 14y ago
    It's hard. Usually it's well-intentioned taxpayer protection legislation, passed after some disaster contract like the big dig, which actually reduces the ability to objectively evaluate the realistic and competent bids. Minor example: Town AV girl needed a new video camera. She knows what she's doing, researched, found the best model as far as pricepoint/features and a good place to buy it. We had to convene 2 subcommittee meetings and make her go way out of her way to find that model offered 2 other places so we had 3 bids, and document them, before just doing what she wanted to do anyways. Probably wasted an additional 10 hours of salary on the taxpayer dime. This is all by statute, it wasn't us being a bunch of bureaucratic morons.
  - erichocean 14y ago

Anechoic 14y ago

the gouging is done by contractors who've figured out how to exploit an antiquated (lowest-bidder wins) system. As someone who works on transportation projects, I find this to be incredibly unfair. Yes, there are a few shady contractors out there, but there are a lot of things that can happen during design and construction that can increase costs through no fault of our own. For example: change orders. A project gets designed and approved, the contractor gets his contract and starts digging. Two weeks into excavation, the project engineer tells the contractor "oh, that tunnel needs to be built 20 feet deeper and moved 15 feet to the south." Why? It could be for any number of reasons, maybe construction uncovered a gas line that couldn't be moved, maybe some politician wanted the line moved further (or closer) to a friend's business, etc. There are also the inevitable lawsuits, environmental issues and so on. One of my big beefs, and one of the factors that IME increases costs for architectural/engineering consultants like me are the hoops we have to jump through to demonstrate that we're not ripping off taxpayers. There are all sorts of audit requirements (including the dreaded DCAA audit), insurance requirements and so on that increase our costs and so we have pass on those costs to the taxpayers. Recently we had an issue when negotiating a contract for transit design project - my firm's is relatively new, and we don't have a revenue history with which to develop audited rates, so we intentionally set out rates low in an attempt to convince accountants that our lack of audited rates wouldn't be a problem. We spent a munch arguing with the prime's accountants who wanted our audited rates to we could demonstrate that our profit on the job wouldn't exceed 10% (they were obsessed with the 10% profit number), depsite the fact that our rates were 40-50% lower than other similar contractors. We had to get someone from the Federal government to step in and tell the prime that our rates were fine as-is. Insurance requirements are the other big issue. General liability isn't so bad, but E&O can be costly for big engineering projects, even if you're exposure is low. However many projects have a "one size fits all" with respect to insurance requirements and require everyone to carry $10+ million in general liability and $5+ million in E&O. If you're the general contractor responsible for digging up streets which can have all sorts or negative effects, that's probably reasonable. If you're the graphic designer responsible for creating the signs for the project, that's probably a little excessive.

jbooth 14y ago
Yeah, but the issue is that due to the lowest-bid system, the govt is guaranteed to get a contract that doesn't properly plan for contingencies and most likely leads to disaster. It's not that all or most contractors are bad, it's that the least honest tends to win the bid.
rz2k 14y ago
I think you would enjoy reading the article that specifically addresses the issue of lowest-bidder leading to rights of contractors, leading to ever more explicit rules and difficult hoops to jump through. Considering what is behind this article, and its audience, you might even feel heartened about prospects for some progress on the conditions.
deveac 14y ago
You cite change orders in your defense: >For example: change orders. A project gets designed and approved, the contractor gets his contract and starts digging. Two weeks into excavation, the project engineer tells the contractor "oh, that tunnel needs to be built 20 feet deeper and moved 15 feet to the south." But I think it's worth pointing out that change orders are probably THE primary mechanism of gouging used by contractors in 'lowest-bid-wins' scenarios, as you should know. What often happens is that contractors lowball, knowing that they will make up the margin on the change orders which are not competitively bid. A well designed RFP can mitigate this somewhat by requiring menu pricing on add/deducts for the most common in-field changes, but it can't account for everything, and bidding contractors look for open ended RFPs and exploit them. There may only be a few 'shady contractors' out there as you say, but a)low-bid systems bring them to the top of the short list, and b)I'd wager almost every 'reputable' contractor's change order margins are higher than for the exact same work that was competed in a public RFP. Just my thoughts on that. Raised an eyebrow since change orders are the primary mechanism for inflating post-award margins. Edit: Also want to point out that my use of the word 'gouging' is kind of a loaded term: >But I think it's worth pointing out that change orders are probably THE primary mechanism of gouging used by contractors in 'lowest-bid-wins' scenarios Are these contractors gouging? They are not doing anything illegal, but it can fall into questionably ethical territory. But from many contractor's point of view, they are stuck bidding on a system that is designed somewhat unethically. From a systems standpoint, when the only factor in winning a bid is lowest cost on the delivery of a product that will unquestionably have change orders, you get a scenario where the following is actually happening. 1)Firms provide goods and service for margin 'a+b' which is averaged over the life of the project 2)Only margin 'a' is competed 3)Margin 'b' is projected but undefined and can be adjusted by the Firm after the award based on margin 'a' Is it ethical to even ask a Firm to submit a bid based on margin 'a' set equal to margin 'b' knowing that the system is designed to produce competing bids distributing the total product margin unevenly between the two variables, weighting 'b' much more heavily and minimizing 'a' in order to win the bid and work at all? I don't think so, and what happens is you get a system that is almost explicitly designed to inject increased total project costs and increased variability. I think that under this system, it's an incredibly gray area on the how ethical increased post-award margins on change orders are. Just the fact that an increase occurs does not strike me as unethical, but there is absolutely zero doubt that some of the margin increases are absolutely unethical and drive the total product margin up well past what it would have been if bid under a possibly more efficient system (throw out high and low bids for example). If gouging is going to happen, it's going to happen on a change order, but it's not so black and white.

jbooth 14y ago

Yup. 2 anecdotes from a 3-year stint in town government: 1) Built a new town hall because they were double-desking at the old one. Lowest bid wins, realistic and competent bids lose. They lay the sidewalk outside while it's below freezing out. Official in town who's managing the project shows up, "What the hell are you doing! You can't lay concrete while it's freezing." "This is the only way we can do it on the budget, sue us if you don't like it." Cracked, shitty sidewalk, would be cheaper to rebuild it than sue. Shitty sidewalk persists. Built a school, too. Lowest bid. HVAC system is so noisy that several classrooms are unusable, and the floors are all fucked up through half the school. $1.5 million in legal fees later, we settle for $500k in damages, not enough money to fix the defects.

larrys 14y ago
"Lowest bid wins, realistic and competent bids lose." But what would the best practice be to determine that the realistic and competent bids are objectively evaluated? How do you solve that problem in the real world (and not even talking about any other conflicts or issues)? Employ consultants or? My anecdote would relate to government bidding for some mfg. projects. It was very clear that the people evaluating the bids (at least in the small area I was involved with) took into account the reputation of the bidder in awarding the contracts.
- jbooth 14y ago
  It's hard. Usually it's well-intentioned taxpayer protection legislation, passed after some disaster contract like the big dig, which actually reduces the ability to objectively evaluate the realistic and competent bids. Minor example: Town AV girl needed a new video camera. She knows what she's doing, researched, found the best model as far as pricepoint/features and a good place to buy it. We had to convene 2 subcommittee meetings and make her go way out of her way to find that model offered 2 other places so we had 3 bids, and document them, before just doing what she wanted to do anyways. Probably wasted an additional 10 hours of salary on the taxpayer dime. This is all by statute, it wasn't us being a bunch of bureaucratic morons.
- erichocean 14y ago