In today's construction industry, prime contractors subcontract almost all work to specialty contractors - often up to 100 percent of a project. It is the subcontractors who perform most of the construction work on a jobsite. Thus, it is the bid price of the subcontractors that ultimately determines the cost of construction.
A subcontractor's "best" price is directly based on its estimated cost of labor and materials plus a reasonable markup for overhead and profit. Why do subcontractors rarely quote their "best" price on date? Why do they frequently bid with an "inflated" price? Many prime contractors who have had a bid accepted at a fixed sum "shop" around for lower subcontract costs in an effort to increase their profit margins. Subcontractors that have bid an "inflated" price and want to have an opportunity to win the bid from the prime contractor are able to offer their services at a lower cost and still retain their profit margins
The price differential that the prime contractor is able to widen between the accepted fixed price award offered by the owner and the bids altered by the subcontractors to get business goes directly to the prime contractor's profit margin. When a subcontractor's work costs the prime contractor less, the prime contractor pockets the difference! Even if the prime contractor, in anticipation of bid shopping, bases its bid to the construction owner on estimated lower subcontractor bids, it submits an inaccurate and false bid since its pricing is completely arbitrary.
This method of pricing inflates costs for taxpayers who pay for the contract and may pay later for higher maintenance because of poor quality work. In addition, it can create bad feelings among all contractual parties because of time delays and dishonesty. Most importantly, it destroys the competitive bid process.
Many believe the most simple method of avoiding these problems is called bid listing. Bid listing only requires the prime contractor to list the subcontractors that will be used if its bid is accepted. ASA-National believes that bid listing is a practical solution to bid shopping because it solicits the actual minimum price of the subcontractor and ensures that this real price will be passed on to the awarding authority at the time of the prime contractor's bid.
According the ASA-National, bid listing achieves the following objectives:
· It increases the incentive for highly qualified and reputable specialty contractors to bid on projects.
· It protects the public's and the taxpayers' interests by assuring the government that it will receive the quality and scope of work for which it is paying.
However, prime contractors frequently are concerned with their ability to obtain subcontractor bids in a timely manner. There are several alternative solutions to this problem. One is to require prime contractors to submit their sealed bid lists to the owner several hours before a bid time. This method requires subcontractors to submit their bids sufficiently early for a prime contractor to assemble its bids in an organized manner. Bids and bid listings should be opened simultaneously. Another alternative is bid filing as required by statute in Massachusetts.
Public works construction relies on the competitive bid system in which the lowest responsible bidder prevails on the bid date. When a prime contractor bids on a project, wins the award at an established price and then lowers the cost of its operation by bid shopping, the government, the taxpayers and the subcontractors who have lowered the profit margin to retain the job, all lose out!
ASA-OK September 30th Legislative Summit
ASA-OK wants to know its members' opinion on Bid Listing. And that is why Issue #4 at the September 30th ASA-OK Legislative Policymaking Summit & Grassroots Symposium presented by Fennell & Associates will address the issue of requiring bid listing on public projects.
The September 30th Summit provides an opportunity for every ASA-OK member to have their voice heard on this important matter. Click here to register for the event! Please note that a small registration fee is being charged and that every dollar of that registration fee will be used by ASA-OK solely for the purpose of funding legislative and advocacy effort on behalf of the subcontractors in the state of Oklahoma.
Schedule of Events
Morning Session sponsored by Rich & Cartmill
8:00 am Breakfast sponsored by Cantera Concrete
Speaker: Senator Dan Newberry (R-OK, District 37), Majority Whip and Chairman of the Business and Commerce Committee
9:00 am Grassroots Symposium led by Jim Dunlap, President Dunlap Consultants & former
Oklahoma Senate Minority Leader
10:00 am Issue #1: Little Miller Act protection for public/private partnerships
In attendance for discussion as resource: ASA-National Director of Government Relations Franklin Davis & ASA-OK Member Attorney Eric Daffern
10:30 am Issue #2: Competitive bid selection process vs. best value
In attendance for discussion as resource: John W. Morrison AIA, State Construction Administrator, Oklahoma Department of Central Services
12:00 noon Lunch sponsored by Sen. Harry Coates, Coates Roofing and Concrete Services Corp
Speaker Introduction: Senator Harry Coates (R-OK, District 28)
Speaker: Governor Mary Fallin (invited)
Afternoon Session sponsored by the Oklahoma Masonry Contractors & Brown Machinery Co.
1:00 pm Issue #3: Transparency on wrap-up insurance for both public and private projects
1:45 pm Issue #4: Requiring bid listing on public projects
2:30 pm Issue #5: Enforcing laws & regulations on out-of-state subcontractors
In attendance for discussion as resource: Oklahoma Labor Commissioner Mark Costello and Oklahoma Insurance Commissioner John Doak
4:00 pm Open Forum
5:00 pm Reception sponsored by Central Glass & Mirror and C. L. Frates & Company
Speaker: Attorney General Scott Pruitt (invited)
SubStance