Signs of economic recovery, slow as it may be, are emerging from construction bidding in the public sector.
A May 2009 Dudek newsletter article on the recessionary impacts to public works bidding cited construction bids that were 20% to 50% below project budgets. At that time, private development had all but stopped, which resulted in more contractors competing on for a dwindling amount of public works projects. As the recession continued, bidding became increasingly competitive and some contractors left were forced to leave the market.
In October 2012, a Dudek newsletter article reported on a tenuous bidding climate and the importance of good estimating practices to improve confidence in project budgeting. At the time, the recession was technically over, but public works bid pricing remained generally below anticipated budgets.
Now, Dudek engineers are seeing public agency projects put out to bid having receiving responses from fewer bidders—sometimes only two or three —with even the low bids exceeding project budgets, in some instances by as much as 50 percent.
Public works projects are competing for contractors with resurgent private sector development and a smaller field of contractors. In September, the Associated General Contractors of America (AGCA) reported that spending on private residential and commercial projects outstripped spending on public sector projects. The association also said 74% of construction firms reported difficulties finding qualified workers and are concerned about a growing labor shortage.
“We are seeing that the increased volume of public projects coming out to bid is now, in a growing number of instances, outpacing the number and capacity of contractors who made it through the recession,” said Bob Ohlund, Dudek’s vice president of engineering.
Tom Falk, Dudek’s senior engineering project manager, said public agencies that may have become accustomed to a favorable competitive bidding climate during the recession should prepare for an upward shift in bid pricing.
“We advise our public agency clients to consider proactive bidding strategies to mitigate against undesirable bid phase results, such as lackluster bidder turnout or higher than expected bid prices,” he said.
Falk said public agencies should consider the following when preparing to bid a project in the coming months:
- Carefully review construction cost estimates to validate project budgets. This is especially important for projects that may have been “on the shelf” for some time prior to bid. Verify unit pricing with current bids and be conservative with estimates of contractor overhead and profit to protect against increasing operating costs and margins. Include contingencies to accommodate unanticipated circumstances.
- Be aware of the local and regional bidding situation. Contractors are becoming more selective in the projects they pursue, and a larger regional project may detract bidder attention from smaller local projects if the bid periods overlap.
- Promote your projects to increase bidder interest. Most agencies know which contractors will be interested in a certain project. Call those contractors, brief them on the project, and maintain communication with them throughout the bid phase. This interaction will facilitate bidder knowledge and provide the owner with early warning signs of waning bidder interest that might cause increased bid prices.
- Structure the bid form to provide flexibility in award. Where applicable, use unit pricing, alternative bid schedules, and project allowances to allow flexibility in awarding and administering the project. If bids do come in higher than anticipated, the option to award a portion of the project within the established project budget may be preferable over re-bidding the project or canceling the project altogether.
For more information, contact Bob Ohlund at bohlund@dudek.com or Tom Falk at tfalk@dudek.com.