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Price-based bidding in the consulting industry

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Price-based bidding in the consulting industry Powered By Docstoc
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                                                                                                                                         ject, which often overwhelmed the

                                                        ed b             In                                                              consultant’s resources;

                                                       s                                                            the early        x a defensive attitude on the part of the

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                                                                                                           1990s, “with con-             consultant in responding to field

                                               Pric
                                                                                                 struction dropping drastically          inquiries and requests for change
                                                                                      in the province, engineering firms were            orders, because the owner made it




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                                                                                     doing whatever they thought they had                more or less clear that extra costs
                                                             The                     to in order to survive,” says Don Ingram,           would be recovered from the consul-
                                                                                     P.Eng., president of Consulting Engineers           tant. In one instance, every change
                                                            Canadian con-            of Ontario (CEO), the business associa-             order was listed in a file entitled
                                                                                     tion for consulting engineering firms. In           “Architect’s Errors and Omissions”;
                                                sulting engineering                  this arena of intense competition, low          x an inexperienced site representative
                                                                                     bidding has driven prices, profits and              who was unable to deal adequately
                                                industry is worth close              often quality into the ground, he says.             with the owner or the contractor.
                                                                                         In purely price-based bidding, clients          Peter Needra, P.Eng., vice president
                                                t o $ 6 b i l l i o n a y e a r,     usually formulate the scope of work them-       and general manager of Canadian oper-
                                                                                     selves, which can result in bids (and even      ations for DPIC, a major liability insur-
                                                but fees range from                  completed projects) that fail to meet the       er of engineers, says engineering firms
                                                                                     client’s objectives, says Ingram, who can       selected on the basis of a low bid may
                                                                                     cite a job where the bids ranged from           also have limited resources to provide
                                                about $80 to $165 an                 under $30,000 to over $200,000. “What           clients with alternative and innovative
                                                                                     that has to mean is that there were mis-        solutions, which can lead to conservative
                                                hour–much lower than                 understandings as to the scope of work or       designs that increase capital costs: “But
                                                                                     the requirements of the client,” he says.       it just makes sense that an engineering
                                                other professions. Inter-            To keep a bid low, a consulting firm must       firm is going to do the job it gets the
                                                                                     interpret work in its narrowest (and            money for,” he says.
                                                national competition, an             hence, cheapest) sense, he adds, which              He says that it’s because of this envi-
                                                                                     often requires that the firm charge clients     ronment that DPIC inserted a clause into
                                                abundance of consulting              for extras during the assignment.               its professional liability insurance poli-
                                                                                         Paul Sandori, an architect with Toron-      cies for consulting engineers working in
                                                                                     to-based consultants Revay and Associates       British Columbia’s building envelope sec-
                                                engineers and the                    Ltd., says he’s seen a range of conse-          tor. To be insured, consultants’ billings
                                                                                     quences when consulting firms are will-         must be in line with the minimum fee
“It only makes sense,                           impact of the last reces-            ing to accept inadequate fees for con-
                                                                                     struction assignments. They include:
                                                                                                                                     schedules published by the Association
                                                                                                                                     of Professional Engineers and
                                                sion have all contributed
you do the job you                                                                   x much of the design work being com-
                                                                                         pleted as construction progresses,
                                                                                                                                     Geoscientists of British Columbia
                                                                                                                                     (APEGBC). The company took this step
                                                to form an intensely                                                                 because of its concern over recently built
get the money for.”                                                                      because bid documents were incom-
                                                                                         plete and/or deficient. This was aggra-     condominiums in the Vancouver area
                                                competitive market                       vated by the fact that the owner had        that are plagued with widespread leak-
    Peter Needra, P.Eng., vice president and                                             not done his or her homework before         age of their exteriors, and its belief that
                           general manager,     where the lowest price                   the consultant’s design phase began;        low bidding played a part.
               DPIC’s Canadian operations                                            x a lack of coordination of subconsultant           According to Ross Rettie, P.Eng.,
                                                                                         work, resulting in ceilings and other       director, professional practice and ethics
                                                is, more often than not,                                                             for APEGBC, the leaky condo crisis was
                                                                                         spaces that could not accommodate
                                                                                         all the services that were supposed to      caused by a variety of factors, including
                                                the law.                                 fit;                                        that engineers inexperienced with build-

                                               E N G I N E E R I N G   D I M E N S I O N S – M A R C H / A P R I L         2 0 0 1                                                 27
ing envelopes were selected for the original                                                        first, and negotiating price afterward. The
construction of most of these buildings. And       The QBS advantage                                firm’s technical competence, managerial
if owners intend to flip a property quickly        Potential benefits of the qualifications-        skills, experience on similar projects and
before problems may surface, “they don’t           based selection process include:                 ability to have dedicated personnel on hand
really want to pay a consultant who would          x enabling the client and engineer to            for the project’s duration are considered to
recommend a more expensive wall system,”              work together to define and deliv-            be key factors. Each firm’s track record, loca-
he says. Even if low bidding wasn’t a direct          er a project;                                 tion, knowledge of local matters and gen-
cause, if you follow the money, it’s still a                                                        eral professionalism are also considered.
quality issue, he says.                            x a focus on providing value to the                  Among the potential benefits cited for
    B.C.’s leaky condos surfaced not long            client;                                        QBS are more time at the onset for identi-
after APEGBC considered recommenda-                x the opportunity to optimize the life-          fying a client’s needs, and circumstances that
tions from the Station Square Commission             cycle costs of projects by using               enable an engineering firm to give the job
of Enquiry. Formed as a result of a super-           improved designs;                              higher priority. If these factors lead to
market roof collapse, the commission found                                                          improved designs, clients may enjoy lower
that the bids for the job ranged from 260          x enabling the engineer to better                life cycle costs and systems that are opera-
to 460 hours of consulting time. It con-             determine resource requirements,               tor-friendly and flexible enough to be
cluded that it is “inescapable that all com-         cost estimates and fees with a                 upgraded to meet future requirements.
panies did not intend to provide the ser-            detailed agreement and under-                      Engineering firms find that QBS helps
vices…with the same degree of diligence,”            standing on the required project               avoid ongoing debates on extra charges and
and that “some solution must be found to             scope;                                         helps develop a more professional relation-
make certain that the professional engineers       x reasonable profits that enable the             ship between consultant and client.
can and will devote the necessary man-hours          consulting firm to invest in the lat-              “The consulting engineering sector sup-
to a project….”                                      est technologies, and hire and train           ports QBS because consultants believe that
    Many feel that qualification-based selec-        the best qualified staff.                      it offers value to the client, and a fair re-
tion (QBS) gives the best value to a client                                                         turn to engineers. However, in public works,
purchasing engineering services. Since the                                                          there’s great demand from the political side
Brooks Act came into effect in the United        sionals and found that although low-bid            to emphasize price. In Ontario at least, the
States in 1972, using price-based selection      projects made up only 35 per cent of total         public sector has been very reluctant to move
for engineering services has been prohibit-      construction dollars spent, they represent-        to QBS,” says Ingram.
ed for federal government agencies. The law      ed 42 per cent of the claims filed. In contrast,       But some purchasers of engineering ser-
mandates the use of QBS, and more than           QBS projects accounted for 28 per cent of          vices are, in fact, more concerned with get-
half of U.S. state governments follow the        total construction dollars, yet generated only     ting good value for their consulting dollars.
federal lead.                                    19 per cent of the claims. (Other delivery         At the federal level, the Association of
    Jack Doran, a program director for DPIC      methods made up the difference.)                   Consulting Engineers of Canada was suc-
in Monterey, California, examined 905               The QBS process involves selecting the          cessful in getting Public Works and
insurance claims involving design profes-        consultant on a set of qualitative criteria        Government Services Canada to adopt on
                                                                                                    a trial basis a system similar to a value-based
                                                                                                    selection (VBS) method for the projects it
                                                                                                    puts out to tender.
                                                                                                        While QBS enables engineer and client
                                                                                                    to develop the project’s scope before fee and
                                                                                                    contract negotiations, with VBS, the client
                                                                                                    retains the sole responsibility for defining
                                                                                                    the scope that is provided with the request
                                                                                                    for proposals. VBS therefore includes price
                                                                                                    in the initial proposal, while trying to ensure
                                                                                                    it is not the dominant factor. With QBS,
                                                                                                    price becomes a matter of negotiation
                                                                                                    between buyer and seller after the selection
                                                                                                    is made based on qualifications.
                                                                                                        A Guideline for Selecting Engineering
                                                                                                    Services is available on PEO’s website
                                                                                                    (www.peo.on.ca/EngPractice/select_eng
                                                                                                    services), along with a Schedule of Fees for
                                                                                                    Engineering Ser vices (www.peo.on.
                                                                                                    ca/feeguide/fees.htm).                       x


                                                                                                    With files from Gayle Aitken and Bernard
                                                                                                    Ennis, P. Eng.


28                                              E N G I N E E R I N G           D I M E N S I O N S – M A R C H / A P R I L               2 0 0 1

				
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