City gets more bang for buck
CBT examines Columbia’s lowest bids on biggest projects
Although the recession has caused an unprecedented squeeze in city revenues, there is a bright spot: The slowdown in the private sector has created intense competition among construction companies and is driving down costs for the city’s biggest projects.
Firms from as far away as Nebraska are trying to win city contracts, and they’re cutting their profit margins to beat competitors. Steel, copper, gasoline and other commodity prices are down, which adds to the city’s savings. And with a good credit rating, low interest rates and federal loan programs, Columbia is getting some of the best deals ever.
For instance, the cost estimates for the COLT Railroad bridge across U.S. Highway 63 was about $8 million, but the winning bid from Emory Sapp & Sons last July was less than half that — $3.75 million. The local construction company bid against eight companies, including four from the St. Louis area, three from mid-Missouri and only one from Columbia, APAC.
The estimated price for replacing the Hinkson Creek Bridge on Old Route K was about $1.6 million but was awarded for $1.24 million after the bidding closed on Jan. 13. Emory Sapp & Sons lost this time to Don Schneiders Excavating of Jefferson City and finished third-lowest with a bid nearly identical to one made by another local company, Boone Construction Co. One of the 11 bidders, Harry Houf & Sons, is a national construction company based in upstate New York with its closest offices in Oklahoma.
The COLT project was so low that the Missouri Department of Transportation was able to fund an entire other project with the savings, and city departments are holding onto more of their cash, Starke said.
Most of the savings have been concentrated in construction because of lower material prices and a slowdown in private building, Starke said. The typical four to six bids submitted per project has increased to between nine and 11, she said. Since the recession started, Starke estimates project prices have gone down 10 to 20 percent.
“A lot of companies, they’re really bidding low just to keep their people busy,” she said. “They have long-term employees they don’t want to let go, and they bid with very marginal profit to try and win the bids to keep people employed.”
Finance Director Lori Fleming said financing for projects is cheaper than it’s been in years. The $54 million wastewater treatment plant project, the largest project ever bid out by the city, was financed by a municipal bond with a 1.49 percent interest rate thanks to federal stimulus money that allowed the Missouri Department of Natural Resources to lend money cheaply. The winning bid was made by KCI Construction of St. Louis, and APAC was the only local firm in the running.
Starke doesn’t attribute the increase in competition entirely to the recession. The city’s electronic bid system, purchased in 2005, allows any company in the country to log on and compete for projects. But it took awhile for companies to get used to the new system and trust that the city would actually see the bids, she said.
“Firms were so used to turning in paper bids, and to risk a $10 million project by bidding electronically, I think construction companies were more reluctant than a lot of our bidders to bid electronically,” Starke said.
Since the beginning of the recession, Starke said there have been more inspections of contracts awarded to bidders who weren’t the lowest. Although lowest is not always best, the city’s budget squeeze has prompted the increased scrutiny, she said.
“If we don’t go with the low bid, we have a responsibility to the taxpayers to explain why not,” Starke said.
Even with the increase in competition and firms vying for fewer contracts, Starke said there hasn’t been an increase in change orders, or changes to the cost of a project after it’s already started. Typically, the managing department head can approve up to 15 percent of the total project cost in change orders. After that, he or she must get approval from the city manager.
Starke said that there are some companies that “are known to change order you to death,” but she declined to name any.
“There are some that would concern us if they are the low bid, whether or not they would really come out anywhere close to that price,” she said.
How the bidding process works
The bidding process starts in individual city departments. The department directors identify projects they want funded in each year’s budget, and once the budget is approved, the purchasing department has the authority to pay for projects.
There are two bidding thresholds. For work fewer than $1,000, a department can pay the cost on its own. For projects greater than $1,000 and fewer than $15,000, a department must solicit three price quotes. For anything greater than $15,000, the department managing the project and the finance department must competitively bid the work.
The one exception is for architectural and engineering plans, which the managing department can bid out itself without going through finance. A department cannot award greater than $20,000 worth of design work at a time and can’t exceed $100,000 in a year without going through a competitive bidding process.
“Some projects, (city) staff designs,” said Purchasing Agent Marilyn Starke. “A lot of big projects, we have a consulting engineering firm that helps design the project.”
When a project enters competitive bidding, Starke and her staff merge the design specifications with other bid information such as when bids are due and the individual jobs contained within the project. They then advertise the request in the newspaper.
Bids can be submitted on paper, but electronic submissions are now more common. Firms signed up to the city’s electronic system can be notified automatically via e-mail when the bidding process begins.
On the bidding due date, the competing firms’ bids are opened at the same time, recorded and sent to the managing department for review. Sometimes the finance department conducts its own review, and other times bids are sent to the managing department for review.
The city ordinance on the matter states the city will award the contract to the “lowest and best” bidder, so being the low bid doesn’t guarantee the contract. But it’s rare.
“We look at things such as prior experience, prior experience with public entities…” Starke said. “Maybe we want them to have a certain type of personal or so many years of experience.”
If a low bidder does not receive the contract, it may appeal to Starke, who stops the process and conducts an automatic review of the bids. If the low-bidding firm is still not satisfied after the review process, it can appeal again to Finance Director Lori Fleming.
If all the needed paperwork is in order and state and federal laws are met, the finance department approves the purchase after review.