Reform bidding process to lower building costs
The article (May 21) regarding Mainline Contracting losing the contract for Honda Aircraft site work made me wonder why the bidding process ceases with the opening of sealed bids.
Obviously, Mainline did not initially offer its lowest possible bid. It reduced its bid from $7.3 million to $6.6 million, in response to the forms issue. Wouldn't reverse auctions result in lower bids?
Here is a scenario. After advertising for bids, all companies interested could evidence their qualifications. Then a conference room along with rooms for the bidding companies could be reserved. Bidding could then proceed, but in a manner the reverse of the usual auction -- with bids decreasing instead of increasing. At any time a company could ask for a brief recess, retreat to its room and discuss whether to bid lower. This might take all day, but in this situation, the Airport Authority would have saved $700,000 even if the forms issue had not arisen. Is this not worth an all-day process?
Phillip Reeder
Greensboro
Comments (3)
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It always baffled me that the contract to build a nuclear power plant went to the lowest bidder. Ain't America grand!
Posted on May 31, 2007 10:05 AM
Good letter on a point totally missed by the original article, which was hung up on the "unfairness" of improper i-dotting regarding minority contractors. Of course the scheme described here makes perfect sense. Far too much for it to ever be put in place.
Posted on May 31, 2007 11:44 AM
In a sealed bid situation the competitors don’t know who or how many bidders there will be. If they want the job (often worth millions of dollars and often crucial to their business) they must submit their best offer. To do this they scrub their estimated costs to remove fat and apply whatever profit percentage they can live with. Sometimes, businesses will even bid without profit in hard times to recover operating costs, retain valuable employees, or for other reasons.
Under the scenario described, certain companies will be able to perform at a lower cost than competitors due to differences in facilities, technology, subcontractor/vendor relationships, debt, etc. However, these companies won’t start with their best offer because now they know they only have to drop slightly below the next lowest bidder.
Another danger of this practice would be that now that the company knows who the other bidders are, they might engage in bid-rigging, agreeing to rotate contracts awarded, or agreeing to subcontract to each other splitting the inflated profits (although this also occurs in sealed bidding when only a few bidders are qualified and generally known to all).
Posted on May 31, 2007 5:31 PM